dividends http://www.wisebread.com/taxonomy/term/6280/all en-US Beginner's Guide to Reading a Stock Table http://www.wisebread.com/beginners-guide-to-reading-a-stock-table <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/beginners-guide-to-reading-a-stock-table" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/man_happy_newspaper_66002597.jpg" alt="Man learning how to read a stock table" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>If you've thought about investing, you've undoubtedly considered stocks. And for good reason: During the period of 1928&mdash;2015, the Standard &amp; Poor's 500 index averaged an annual return of 11.25%.</p> <p>But getting started can be confusing, and even making sense of stock tables and the information in all the columns can be daunting.</p> <p>Fear not, however &mdash; here's a basic primer for novice investors on how to read stock tables and better understand the information in each column. (See also: <a href="http://www.wisebread.com/how-to-buy-your-first-stocks-or-funds?ref=seealso">How to Buy Your First Stock(s) or Fund(s)</a>)</p> <h2>Let's Imagine That You Search for Apple Stock</h2> <p>Given that Apple Inc. [Nasdaq: <a href="https://finance.yahoo.com/quote/AAPL">AAPL</a>] is currently the publicly-traded company with the largest market capitalization, at some point you'll probably want to learn more about its stock price.</p> <p>If you were to start researching Apple's stock, you might find something like this on Yahoo! Finance:</p> <p><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5171/Screen%20Shot%202016-09-20%20at%2012.35.53%20PM.png" width="605" height="310" alt="" /></p> <p>First, take note of the market in which the public company trades, since it'll yield important clues about the stock. For example, Apple trades in the NASDAQ, which is an electronic marketplace for buying and selling securities mostly in the U.S. technology sector. On the other hand, more traditional companies like General Electric Company, Wal-Mart Stores, Inc., and Target Corporation trade on the New York Stock Exchange (NYSE). And keep an eye out for stocks traded on foreign exchanges. Some investment accounts may limit you to only stocks traded on U.S.-based exchanges or charge you high fees to invest in foreign stocks.</p> <p>Let's break down the meaning of these numbers.</p> <p><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5171/Screen%20Shot%202016-09-20%20at%2012.36.07%20PM.png" width="605" height="149" alt="" /></p> <h2>Key Measures of Stock Price</h2> <p><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5171/Screen%20Shot%202016-09-20%20at%2012.36.18%20PM.png" width="605" height="371" alt="" /></p> <p>On the left side of the summary table of our example, you'll find a list of key measures of the stock price. Let's review these measures, starting from the top.</p> <h3>Open Price and Previous Close</h3> <p>This the price at which a stock first trades upon the opening of an exchange on a given trading day. Both Nasdaq and the NYSE open at 9:30 a.m. Eastern Standard Time.</p> <p>The previous close is the final price at which a security is traded on a given trading day. If the opening price is dramatically different from the previous closing price, you have a signal that investors reacted to an important piece of news, such as an earnings call, industry regulation, or a downgrade or upgrade from an investment firm.</p> <h3>Bid and Ask</h3> <p>The bid is the price in the market to buy a stock, while the ask is the price a seller in the market is willing to accept. The difference between the bid and ask price is a measure (referred to as &quot;spread&quot;) of the demand and supply for stock. The smaller the spread, the easier and faster is to conduct a sale or purchase of a stock. Given a bid-ask spread of just $0.05, your transaction order for Apple stock would be cleared quickly.</p> <p>The number following the bid or ask price represent the number of pending trades in lots of 100 at the given bid and ask price. In this example, there were 10,000 pending purchase orders at $107.70 per share and 30,000 pending sale orders at $107.75 shares. Any pending orders that aren't processed on the same trading day are carried on to the next one.</p> <h3>Day's Range, 52-Week Range, and One-Year Target Estimate</h3> <p>These figures provide an idea of the volatility of a stock price. While the 52-week range gives you the minimum and maximum price of Apple stock during a trailing 52-week period, the day's range gives you the same values for the most current trading day.</p> <p>In our example, Apple stock is currently trading below its 52-week high. Given that the consensus among analysts is that the one-year target estimate price of Apple stock is $124.11, the price of Apple stock appears to have upside potential (it's price will go up). Keep in mind that this is just a consensus of estimates, meaning that different analysts may have different targets and that all of these numbers are just predictions. In the stock market, anything can happen!</p> <p>Paying attention to the price volatility of any stock's price is important to put those ups and downs in context.</p> <p>Now let's take a look at the right side of this stock table. The next set of measures are a bit more advanced, but they are also useful even to the newbie investor.</p> <p><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5171/Screen%20Shot%202016-09-20%20at%2012.36.32%20PM.png" width="605" height="362" alt="" /></p> <h3>Market Capitalization</h3> <p>Also referred to as &quot;market cap,&quot; this is the total dollar market value of a company's outstanding shares. This value changes constantly and is often used to rank the size of publicly-traded companies. On this date, Apple stock still held onto the number one spot on the list of companies ranked by market capitalization.</p> <h3>P/E Ratio</h3> <p>P/E ratio is short for price-earnings ratio and is calculated by dividing a stock's current share price by its earnings per share (EPS) for the last trailing 12 months (TTM). The P/E ratio provides you a guide as to how much you can expect to invest in a company in order to receive one dollar of that company's earnings. In our example, you can expect to pay $12.56 to get a $1 in return for investing in Apple.</p> <p>By following the investing maxim &quot;buy low and sell high,&quot; you would want to buy stocks when P/E ratios are low and sell when P/E ratios are high. Still, there are stocks with low P/E ratios that have tanked even more and stocks with high P/E ratios that have turned out to be great investments.</p> <h3>Beta</h3> <p>This is a measure of volatility of the stock price compared to that of the market. The market has a beta of 1.0, so stocks with a beta below that benchmark move less than the market and stocks with a beta above that benchmark move more than the market.</p> <p>Given the beta of 1.38, the price of Apple stock fluctuates a bit more than that of the market, meaning that you can't expect wild fluctuations. If the market were to tick up a bit, you would expect this stock to tick up just a bit more, and vice-versa.</p> <p>Generally, investors with very low tolerance to risk avoid stocks with high beta. Otherwise, those investors could end up with too many sleepless nights.</p> <h3>Volume and Average Volume (Three Months)</h3> <p>The volume tracks the total number of transactions for the stock for a trading day. The average volume tracks the average number of transactions per day within a specified period, such as three months in this example. A high trading volume indicates that a stock is very liquid (transactions clear quickly).</p> <h3>Dividend and Yield</h3> <p>The dividend indicates the annual dividend payment per share and its yield indicates the percentage return on the dividend (annual dividends per share divided by price per share). When the stock table provides no dividend and yield numbers, the company doesn't currently pay out dividends.</p> <h3>Earnings Date</h3> <p>This is the date on which you can expect the company to release an official public statement of a company's profitability for a specific time period, typically a quarter (<a href="https://www.sec.gov/answers/form10q.htm">Form 10-Q</a>) or a year (<a href="https://www.sec.gov/answers/form10k.htm">Form 10-K</a>). Expect analysts to release their own estimates of those numbers close to that date and correct those estimates shortly after the official statement from the publicly traded company.</p> <p>Depending on the nature of the announcements made on an earnings date, you can expect a small or big reaction from the stock market and a reflection of that reaction in the price of a stock.</p> <h2>The Bottom Line</h2> <p>You can find stock tables both in print and online. This guide is a useful primer to interpret the data. Keep in mind that printed stock tables may not include all of this data. Another advantage of searching stock tables online is that you will access the latest information. Still, stock tables available in yesterday's newspaper are still useful to have a snapshot of how your equities are performing. Warren Buffett said it best: &quot;If you aren't willing to own a stock for 10 years, don't even think about owning it for 10 minutes.&quot; (See also: <a href="http://www.wisebread.com/the-5-best-pieces-of-financial-wisdom-from-warren-buffett?ref=seealso">The 5 Best Pieces of Financial Wisdom From Warren Buffett</a>)</p> <p>To buy or sell a stock, always check against your holding period, tolerance to risk, target investment fee for a period, and overall retirement strategy.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/damian-davila">Damian Davila</a> of <a href="http://www.wisebread.com/beginners-guide-to-reading-a-stock-table">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/9-ways-to-tell-if-a-stock-is-worth-buying">9 Ways to Tell If a Stock is Worth Buying</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-reasons-millennials-should-stop-being-afraid-of-the-stock-market">7 Reasons Millennials Should Stop Being Afraid of the Stock Market</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-buy-your-first-stocks-or-funds">How to Buy Your First Stock(s) or Fund(s)</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-4-greatest-stock-reversals-in-the-last-decade">The 4 Greatest Stock Reversals in the Last Decade</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-things-everyone-should-know-about-the-commodities-markets">8 Things Everyone Should Know About the Commodities Markets</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment dividends earnings how to guide market capitalization NASDAQ new investors nyse stock market stock tables volatility Wed, 21 Sep 2016 10:30:10 +0000 Damian Davila 1796591 at http://www.wisebread.com 9 Ways to Tell If a Stock is Worth Buying http://www.wisebread.com/9-ways-to-tell-if-a-stock-is-worth-buying <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/9-ways-to-tell-if-a-stock-is-worth-buying" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/74801987.jpg" alt="" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>One of the most effective ways a person can build wealth over the long term is by <a href="http://www.wisebread.com/how-to-buy-your-first-stocks-or-funds" target="_blank">investing in stocks</a>.</p> <p>When you own a share of stock, you own a portion of a public company. And when those companies do well, investors make money. In fact, stocks are considered essential for those looking to save for retirement or achieve other long-term financial goals.</p> <p>It's possible to invest in groups of stocks through vehicles such as mutual funds or exchange traded funds. But you may also want to consider investing in shares of individual companies. There are more than 4,000 companies that are publicly traded on America's two largest stock exchanges.</p> <p>But how do you know if a stock is worth investing in? What makes a stock good or bad? Here are nine things to consider.</p> <h2>1. Price</h2> <p>The first and most obvious thing to look at with a stock is the price. How much will it cost to buy a share of this company?</p> <p>Now, it's important to note that prices should only be viewed in context. Many companies will &quot;split&quot; shares once they reach a certain level, thus reducing the price but increasing the number of shares available. Other companies never split, so a single share could go for several hundred dollars or more. But the price &mdash; especially when matched against historical prices &mdash; will determine how many shares you can purchase with the money you have. When you evaluate stocks, knowing the price of shares and their history will help you determine if you're getting a good value when buying.</p> <h2>2. Revenue Growth</h2> <p>Share prices generally only go up if a company is growing. And one of the few ways a company can grow is by increasing its revenue. Revenue is often referred to as the &quot;top line,&quot; and it's a major indicator of whether a company has been successful. It's important to not look at revenue in a vacuum. Instead, look at the increase or decrease in revenue from one quarter to the next and one year to the next. A positive trendline bodes well for the stock price, but if revenue is flat or declining, it's important to find out why before investing.</p> <h2>3. Earnings Per Share</h2> <p>How much money does the company have leftover at the end of each quarter? Take that figure, divide it by the number of shares it has sold, and you get the earnings per share number, or EPS. For example, if a company made $40 million in profits last year and has 24 million shares, the EPS is $1.66.</p> <p>EPS can be a driver of stock prices, as investors generally don't want to overpay for a stock. Generally, the higher the EPS, the better shape the company is in. But there is often debate about the best range for EPS, and companies can manipulate it by buying back shares, thus boosting EPS without actually increasing profits.</p> <h2>4. Dividend and Dividend Yield</h2> <p>Many companies will return a portion of their earnings to shareholders. Investors can get a small payment for every share they own, known as a dividend. Many healthy companies will issue good dividends each quarter and the revenue from this may outpace the interest you would get from a normal bank account. Thus, dividend stocks are popular among investors looking for additional income, as well as share growth.</p> <p>It's easy to search for companies with the highest dividends, and you can also search for dividend yield, which is the dividend divided by the share price. If a company has maintained or raised its dividend, that's a sign that it's on strong footing. A cut to dividends is often a bad sign.</p> <p>Some of the most well-regarded public companies have been designated as &quot;Dividend Aristocrats&quot; for distributing and increasing their dividend for at least 25 consecutive years.</p> <p>It's worth noting that many good companies do not distribute dividends because they prefer to invest the cash back into the business. (Amazon is one high-profile example.) And many companies, such as utilities, offer dividends because they can't offer great growth in share value.</p> <h2>5. Market Capitalization</h2> <p>Bigger is not always best, but if you are looking to invest in a stock that will give you steady growth without a lot of volatility, the largest companies are often your best bet. A company's market cap is essentially the value of all its shares. Companies with large market caps are often large and diversified enough to avoid being affected by a single piece of bad news. Think of behemoths like Procter &amp; Gamble, Coca-Cola, or ExxonMobil &mdash; good, solid companies that have offered decades of solid returns.</p> <h2>6. Historical Prices</h2> <p>All companies go through rough patches. But if you are investing for the long term, you need to do more than look at a single company earnings report or current price performance. Looking at five-year, 10-year, and even 15-year returns will give you a sense of whether a company can withstand tough stretches. Historical returns are not a guarantee of future performance, but can at minimum be illustrative.</p> <h2>7. Analyst Reports</h2> <p>Many brokerages and investment banks have a staff of research analysts that issue reports and recommendations about individual stocks. Often, these reports come with &quot;buy&quot; or &quot;sell&quot; ratings, based on the analysts' judgment of a company's share price and finances. It's important to note that analysts often disagree, so it's best not to rely on a single report before choosing whether to invest.</p> <h2>8. The Industry</h2> <p>It's usually important to examine not just a stock, but the industry that the company operates in. By doing this, you may get an understanding of whether a certain type of business or sector is struggling or doing well. For instance, when evaluating a company such as McDonald's, you'll want to look at the entire fast food and restaurant sector to gain an understanding of how Americans are eating out. Looking at a stock in this context will help you understand if there are positive or negative influences that may not be immediately reflected on a company's share price or balance sheet.</p> <h2>9. Major Economic Indicators</h2> <p>No matter how hard it tries, a company can't control every single thing that might impact business. The broader economy of the nation and the world can play an outsized role in the health of a company and its share performance. Things like consumer prices, the unemployment rate, or changes to interest rates can impact how a company is doing independent of its own business. While the stock market and economy are two separate things, they are very much linked. For the most part, when the economy is doing well, companies are doing well and share growth comes with that. Likewise, share prices can lag during slow economic times or times of economic uncertainty.</p> <p><em>Anything we've overlooked? What do you look at when you evaluate a stock?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/9-ways-to-tell-if-a-stock-is-worth-buying">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/beginners-guide-to-reading-a-stock-table">Beginner&#039;s Guide to Reading a Stock Table</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/stabilize-your-portfolio-with-these-11-dividend-stocks">Stabilize Your Portfolio With These 11 Dividend Stocks</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-foolproof-ways-to-protect-your-money-from-inflation">4 Foolproof Ways to Protect Your Money From Inflation</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-best-ways-to-invest-50-500-or-5000">The Best Ways to Invest $50, $500, or $5000</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-reasons-to-stay-calm-when-the-market-tanks">8 Reasons to Stay Calm When the Market Tanks</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment balance sheet dividends earnings earnings per share Economy evaluating market capitalization shares stocks Fri, 12 Aug 2016 09:00:15 +0000 Tim Lemke 1770719 at http://www.wisebread.com Stabilize Your Portfolio With These 11 Dividend Stocks http://www.wisebread.com/stabilize-your-portfolio-with-these-11-dividend-stocks <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/stabilize-your-portfolio-with-these-11-dividend-stocks" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/man_stocks_rising_000022607854.jpg" alt="Man stabilizing portfolio with these dividend stocks" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>If you're an income investor looking to stabilize your portfolio, or just want a little extra cash, dividend-paying stocks are a often a great thing to own. With interest rates still historically quite low, you can get yields that are more than three or even four times what a bank might pay.</p> <p>But which dividend stocks are the best? There are many great options, but I like to look for <a href="http://www.wisebread.com/4-quick-ways-to-decide-if-a-company-is-worth-your-investment">companies with a solid track record</a> of paying and even increasing dividends, along with some potential for share price growth.</p> <p>Here are 11 dividend stocks that are worth a look right now.</p> <h2>1. Caterpillar</h2> <p>This is a very solid company that is trading near its 52-week low. But it hasn't backed off its quarterly dividend, paying out 77 cents per share. Buy now, and there's a good chance you'll see growth in both dividends and share value.</p> <h2>2. Mattel</h2> <p>With a current dividend yield of more than 6%, investors could do a lot worse than Mattel. Shares are down 25% over the last year, but have rebounded nicely in October, suggesting that buying now could offer a growth opportunity.</p> <h2>3. AT&amp;T</h2> <p>Full disclosure: I own shares of AT&amp;T stock, and it's a pretty boring stock when it comes to growth. But sometimes boring is good, especially when you can generate a 5.5% dividend yield like right now. The company recently completed its merger with DirecTV, which could give shares a bump.</p> <h2>4. Merck</h2> <p>Shares of this big pharmaceutical company have risen about 6% over the last month, suggesting that they'll end a tough year on a high note. Merck is a consistent payer of its dividends, currently dishing out a solid 45 cents per share each quarter, for a yield of nearly 3.5%.</p> <h2>5. Tanger Factory Outlet Centers</h2> <p>People will be looking for bargains during the holidays, so don't be surprised if this retail REIT has a good November and December. While shares dipped to a 52-week low in August, they've rebounded since and are in positive territory for 2015. Tanger, which operates 43 outlet malls in 23 states, pays out 29 cents per share quarterly, or a yield of about 3%.</p> <h2>6. ExxonMobil</h2> <p>Oil stocks have been hammered in 2015, but this is still a large and healthy company, with shares that can be had for relatively cheap. Exxon always pays a dividend and always increases it each year. A payout of nearly $3 per share annually means a yield of 3.5% right now, and there's the potential for an increase in share value.</p> <h2>7. Johnson &amp; Johnson</h2> <p>After dipping to a 52-week low in August, shares of JNJ have regained almost all their value. And that's good, because this has been one of the most solid dividend producers for decades. Investors can enjoy a solid 75 cents per share each quarter, for a yield of about 3% annually, from this big health care company.</p> <h2>8. Ford</h2> <p>People are back to buying cars, and Ford is expected to have a great 2016, with earnings expected to rise about 14% next year. You can bet that the company will maintain or even increase its current dividend of 15 cents per share. Right now, investors can grab a dividend yield of 3.8% from Ford shares.</p> <h2>9. Procter and Gamble</h2> <p>As a seller of consumer products that people around the world use every day, P&amp;G is one of those companies that you assume will be around forever. It's a stable bet and has a nice quarterly dividend of 66 cents per share, for an annual yield of 3.44%. Buy shares, hold them for decades, and be happy.</p> <h2>10. Yum! Brands</h2> <p>The operator of KFC and Taco Bell restaurants recently upped its quarterly dividend to 46 cents per share, representing a yield of about 2.5%. The company is expected to see big growth overseas, especially in China, and analysts expect earnings to jump by about 13% in 2016.</p> <h2>11. HSBC</h2> <p>This large bank has a dividend yield of 6.26%, one of the highest in its industry. Normally, yields of that size are a red flag that a cut is due, but that may not necessarily be true for HSBC, which is still on track to generate enough surplus capital to meet its obligations to shareholders. Shares hit a 52-week low at the end of September, but have rebounded since.</p> <p><em>Do you hold any dividend stocks in your portfolio? Which?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/stabilize-your-portfolio-with-these-11-dividend-stocks">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/9-ways-to-tell-if-a-stock-is-worth-buying">9 Ways to Tell If a Stock is Worth Buying</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-tell-if-your-401k-is-a-good-or-a-bad-one">How to Tell if Your 401K Is a Good or a Bad One</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/should-you-invest-in-start-ups">Should You Invest in Start-Ups?</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-reasons-july-is-a-great-month-for-stocks">5 Reasons July Is a Great Month for Stocks</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/tesla-six-flags-and-9-other-adventure-stocks-worth-investing-in">Tesla, Six Flags and 9 Other Adventure Stocks Worth Investing In</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment dividends good yields portfolio shares stocks Thu, 12 Nov 2015 13:15:15 +0000 Tim Lemke 1606470 at http://www.wisebread.com 8 Times to Avoid Dividend Stocks http://www.wisebread.com/8-times-to-avoid-dividend-stocks <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/8-times-to-avoid-dividend-stocks" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/man_chalkboard_graph_000021551034.jpg" alt="Man learning when dividend stocks should be avoided" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Dividends, which are quarterly payments made by companies to shareholders, can be a very cool thing. Who doesn't love the idea of getting free money just for owning a stock?</p> <p>Shares of companies with solid dividends can be an important part of any investment portfolio, and some of the nation's most iconic companies have a track record of paying solid dividends to shareholders every quarter. But there are many cases where a dividend <a href="http://www.wisebread.com/10-times-you-shouldnt-invest-in-stocks">stock should be avoided</a>. Here are eight times to stay away from dividend stocks.</p> <h2>1. When You're Seeking Growth</h2> <p>Dividends are nice when you're seeking income, but often, companies pay high dividend yields because they can't offer investors much share growth. If you are young and have a long way to retirement, it should be growth you're seeking. Real estate investment trusts and utilities are examples of companies that pay good dividends and offer stability, but little in the way of share price upside.</p> <h2>2. When a Yield Is High Because the Price Is Low</h2> <p>If you look at a list of stocks with the best dividend yields, it will often include a number of struggling companies. A low stock price isn't necessarily a bad thing if you're getting a bargain, but beware of investing in companies that are dealing with major operational problems with no clear path to improvement. If a company continues to struggle, it may cut its dividend, anyway.</p> <h2>3. When the Company Would Be Better Off Not Offering Dividends</h2> <p>It's nice to get a dividend, but sometimes you'd rather see the company use that money to invest in the business, expand, or make acquisitions. A young technology firm, for instance, would probably be better off not paying a dividend.</p> <h2>4. When You Are Using a Tax-Deferred Account</h2> <p>If you have your retirement savings in a traditional IRA account, your earnings upon withdrawal are taxed at the ordinary income rate. This includes dividends that you may have accumulated over time. If you have dividend stocks in a taxable brokerage account, you pay the the prevailing dividend tax rate instead, which is usually lower. And any gain &mdash; including dividends &mdash; from stocks in a Roth IRA are not taxed at all upon withdrawal when you retire.</p> <h2>5. When a Company Is Low on Cash</h2> <p>Generally speaking, investors like to see a company pay for its dividends and capital expenditures with cash on hand. Sometimes a company needs to borrow to meet these obligations, and that's a red flag that the company may have to cut its dividend down the road. Read a company's balance sheet to determine its cash flow situation, then figure out if the dividend is sustainable.</p> <h2>6. When the Stock Is Too Pricey for the Dividend</h2> <p>Dividends are nice, but there's very little point to paying $100 per share for a 25 cent per share annual dividend. Under this scenario, you're only getting a dividend yield of .25% &mdash; hardly a king's ransom. But if the stock is trading at $40 and the dividend is $1, you'll have a much nicer yield of 2.5%.</p> <h2>7. When Interest Rates Are High</h2> <p>Dividend stocks can be very popular when interest rates are low, because they can offer a better return than cash saved in the bank. Why keep your cash in the bank getting less than 1% interest annually when you can get 3.35% by investing in Coca-Cola? But the opposite is also true. At various times in history, bank interest has exceeded most dividend yields. High interest rates can also be a killer for Real Estate Investment Trusts, which are impacted by the housing market and have some of the market's highest dividends.</p> <h2>8. When There's No Record of Dividend Growth</h2> <p>It's tempting to be drawn to the current yield of a dividend stock, but it's better to examine whether the company has a history of increasing its dividend on a regular basis. A company's true health will shine through if it can routinely make dividend payments and even boost those payments every year. So-called &quot;dividend aristocrats&quot; are those firms that have increased dividends each year for 25 straight years, and the list includes many of the most prized blue chip stocks including Coca-Cola, AT&amp;T, Wal-Mart, and ExxonMobil.</p> <p><em>Do you have any dividend stocks in your portfolio?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/8-times-to-avoid-dividend-stocks">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/beginners-guide-to-reading-a-stock-table">Beginner&#039;s Guide to Reading a Stock Table</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-money-moves-to-make-before-you-start-investing">8 Money Moves to Make Before You Start Investing</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-money-moves-to-make-as-soon-as-you-conquer-debt">7 Money Moves to Make as Soon as You Conquer Debt</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-too-much-investment-diversity-can-cost-you">How Too Much Investment Diversity Can Cost You</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-reasons-millennials-should-stop-being-afraid-of-the-stock-market">7 Reasons Millennials Should Stop Being Afraid of the Stock Market</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment dividends shareholders stock market yields Thu, 17 Sep 2015 13:00:16 +0000 Tim Lemke 1555417 at http://www.wisebread.com Can Reinvesting Dividends Really Save You on Taxes? http://www.wisebread.com/can-reinvesting-dividends-really-save-you-on-taxes <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/can-reinvesting-dividends-really-save-you-on-taxes" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/couple-finances-Dollarphotoclub_64190436.jpg" alt="couple finances" title="couple finances" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Investing and taxes are understandably confusing to many investors &mdash; many of us have big questions about how our investments impact our taxes. That's why it's important to clarify some of the most common misconceptions, such as the belief that reinvested dividends aren't subject to taxation. In fact, according to the National Association of Enrolled Agents, <a href="http://finance.yahoo.com/news/ten-common-tax-misconceptions.html">it's one of the top 10 misconceptions about taxes</a>. And it's a misconception that could cost you big bucks at tax time. (See also: <a href="http://www.wisebread.com/the-10-worst-tax-moves-you-can-make?ref=seealso">The 10 Worst Tax Moves You Can Make</a>)</p> <p>Read on to take better control of your money by learning some basics about investing and taxes and banishing some common myths.</p> <h2>What Dividends Are</h2> <p>Cash dividends are distributions of a business's profits to its investors. Typically, the board of directors announces a dividend and issues payments on a quarterly or annual basis. Stock investors receive dividends based on the number of shares held. For example, <a href="http://www.nasdaq.com/symbol/ko/dividend-history">Coca-Cola paid quarterly dividends of $.305 in 2014</a> or $1.22 on each share; if you held 100 shares, then you received $122 in dividends.</p> <p>Not all profitable publicly-held companies issue dividends. Typically, dividend-paying corporations are stable ones who have a history of generating enough cash to pay the bills, set aside money for future needs, and share profits with shareholders.</p> <p>Some companies declare <a href="http://beginnersinvest.about.com/od/dividendsdrips1/ss/dividends-and-dividend-investing-101_4.htm#step-heading">stock dividends</a>, which are similar to stock splits. In these situations, investors receive shares (or partial shares) of a company's stock based on the number of shares held. In some cases, shareholders are given the option to receive these dividends in cash.</p> <h2>What Reinvesting Is</h2> <p>Reinvesting dividends involves using money generated by cash dividends to purchase additional shares of stock in the dividend-paying company.</p> <p>Many brokerage firms make reinvesting dividends super easy. When you open an account, you simply check a box to indicate that you want to reinvest dividends. If it's the default selection, you may already be signed up for this service without knowing it.</p> <p>When dividends are distributed, additional shares of the original investment are automatically purchased for your account. You can determine if you are buying shares in this manner by reviewing your statements or viewing detailed transactions on the dashboard of your brokerage account. If you have elected to reinvest dividends, then you will notice that shares (generally small amounts or partial shares) have been purchased automatically on your behalf.</p> <p>Many younger investors opt to reinvest dividends in order to acquire additional shares and continue growing their wealth, without needing extra cash. Alternatively, many retired investors may choose to take dividends in the form of cash as a means to help cover living expenses.</p> <h2>Why Dividends Are (Sometimes) Subject to Tax</h2> <p>Dividends may be subject to taxes because they represent income to you, the investor. Again, the folks at the IRS don't care that your brokerage firm reinvests the cash for you. What's significant is whether you are <a href="http://www.irs.gov/pub/irs-pdf/p550.pdf">eligible to receive cash within a taxable account</a>. What you do with the money is irrelevant to the tax situation.</p> <p>However, if the investment is held in a tax-advantaged account, such as an IRA, 401(k) plan, or 529 plan, then generally you don't owe taxes on dividends. So, your tax situation in this case depends on the type of account, not whether you receive cash or automatically reinvest the dividends.</p> <h2>More on Investing and Taxes</h2> <p>Another area of confusion in regard to investing and taxes is the treatment of stock market losses. Specifically, many taxpayers are mistaken when they believe that they don't have to report losses &mdash; or that the losses they do report can offset all of their ordinary income.</p> <p>While you typically don't need to report &quot;<a href="http://www.investopedia.com/terms/p/paperprofitorloss.asp">paper losses</a>&quot; (declines in investment values) or losses that occur within a tax-advantaged account, you should report any losses realized in a taxable account. These <a href="http://www.bankrate.com/finance/money-guides/reporting-your-capital-gains-or-losses-1.aspx">losses can offset capital gains and ordinary income</a>, saving you money at tax time.</p> <p>Generally, you can counteract just $3,000 of your ordinary income with stock losses, not the entire amount of your annual earnings (which is likely to exceed that number anyhow); however you can carry over your losses and deduct them from income in subsequent years.</p> <p>Understanding taxes on investments isn't always intuitive, and regulations change frequently. Protect your pocketbook by staying up to date with any changes and consulting an investment or tax professional when in doubt.</p> <p><em>Are you clear or confused about investing and taxes? How do you stay on top of tax regulations and constant changes?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/julie-rains">Julie Rains</a> of <a href="http://www.wisebread.com/can-reinvesting-dividends-really-save-you-on-taxes">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/slow-drip-into-investing">Slow DRIP into investing</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/beginners-guide-to-reading-a-stock-table">Beginner&#039;s Guide to Reading a Stock Table</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-times-cash-is-not-king">8 Times Cash Is Not King</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-tell-if-your-401k-is-a-good-or-a-bad-one">How to Tell if Your 401K Is a Good or a Bad One</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-investors-with-better-returns-than-warren-buffett">5 Investors With Better Returns Than Warren Buffett</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment dividends investing reinvesting taxes Wed, 10 Dec 2014 14:00:08 +0000 Julie Rains 1265970 at http://www.wisebread.com Book review: Cash-Rich Retirement http://www.wisebread.com/book-review-cash-rich-retirement <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/book-review-cash-rich-retirement" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/cash-rich-retirement-cover.jpg" alt="Cover of Cash-Rich Retirement" title="Cover of Cash-Rich Retirement" class="imagecache imagecache-250w" width="105" height="160" /></a> </div> </div> </div> <p><a href="http://www.amazon.com/gp/product/0312377401?ie=UTF8&amp;tag=wisbre08-20&amp;linkCode=as2&amp;camp=1789&amp;creative=9325&amp;creativeASIN=0312377401">Cash-Rich Retirement: Use the Investing Techniques of the Mega-Wealthy to Secure Your Retirement Future</a>&nbsp;by Jim Schlagheck.</p> <p>Do you need a kick in the pants to get you saving for retirement?&nbsp; Do you need someone to wave their arms and run around screaming that your whole future is at risk, in order to motivate you to put some serious money aside and take the time to learn how your 401(k) works?&nbsp; If so, this is the book for you.</p> <p>It's fascinating to read this book in conjunction with <a href="/book-review-work-less-live-more"><em>Work Less, Live More</em></a>, which I checked out of the library the same day.</p> <p>Where that book goes way beyond the classic notion of retirement at age 65, suggesting that not just retirement, but <em>early</em> retirement, is readily available to almost anyone--if they're willing to live frugally and maybe keep on doing a bit of work on the side--this book is the complete opposite. &nbsp;</p> <p>Schlagheck scarcely talks about early retirement, and it doesn't even seem to imagine that anyone might do any work to earn money after they retire.&nbsp; It's all about straight-up retirement:&nbsp; You work to retirement age, and then you quit.&nbsp; And, it warns, if that's your plan, you may be in for an unpleasant surprise.&nbsp; Not only is your retirement in &quot;grave danger,&quot; the <em>whole system</em> of retirement is on the verge of being a failed experiment.</p> <p>Schlagheck sees two sources of danger.</p> <p>The first is the &quot;coming demographic storm&quot; of baby boomers all getting set to retire at once.&nbsp;&nbsp; Not only are they all going to want to get their social security payments at once, they're also going to be taking their pensions (from old-line businesses and from state and local governments) at once.&nbsp; Plus, they're all going to stop accumulating investments, and switch to selling them instead.&nbsp; With everyone trying to get their money at once, Schlagheck sees a real danger that they won't all succeed.</p> <p>The second is a set of foolish ideas about investing.&nbsp; You cannot, he says, safely rely on capital gains for your investment returns; reliable long-term returns are largely going to come from income:&nbsp; dividends, interest, and rents.&nbsp; In addition, you can't&nbsp; get adequate diversification simply by dividing your investments among American companies of different sizes (a generous helping of S&amp;P 500 seasoned with some mid-cap and small-cap funds).&nbsp; You need to diversify both internationally and among asset classes (stocks, bonds, REITs, etc.).</p> <p>I actually agree with most of what Schlagheck says, especially about his focus on income in your investment portfolio and on the kinds of investments you ought to be focusing on.&nbsp; In addition to the excellent chapters on investing, he's got a good chapter on health insurance, some interesting thoughts on long-term care insurance, and lots of good detail about complicated subjects like annuities (that aren't so well covered other places).</p> <p>Where I have a problem is in the way he's trying to work the reader up into a tizzy.&nbsp; The book could not have been printed before the digital age, because in the days of metal type the printer would have used up his entire supply of exclamation points before getting halfway through the manuscript.&nbsp; Every page is splashed with italics warning you of a threat or urging you to action.&nbsp; The repeated exhortations to &quot;save, save, save&quot; become wearisome, and the drumbeat warning that your retirement is in danger don't become more compelling with repetition.</p> <p>Still, if you or someone you know is just blithely assuming that retirement will take care of itself, a wake-up call like this may be just what you (or they) need.&nbsp; The information is right on, even if I got an unusually vigorous workout for my eye-rolling muscles as I plowed through the cautions, dangers, perils, warnings, and urgent urgings. &nbsp;</p> <p>For the right person, though&nbsp;<a href="http://www.amazon.com/gp/product/0312377401?ie=UTF8&amp;tag=wisbre08-20&amp;linkCode=as2&amp;camp=1789&amp;creative=9325&amp;creativeASIN=0312377401">Cash-Rich Retirement</a> by Jim Schlagheck is a fine book.&nbsp; Excellent content.&nbsp; Just a little strident for my tastes.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/book-review-cash-rich-retirement">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/book-review-retire-on-less-than-you-think">Book review: Retire on Less Than You Think</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/book-review-work-less-live-more">Book review: Work Less, Live More</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/book-review-the-little-book-of-common-sense-investing">Book review: The Little Book of Common Sense Investing</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/book-review-the-only-investment-guide-youll-ever-need">Book review: The Only Investment Guide You&#039;ll Ever Need</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/book-review-supercapitalism">Book review: Supercapitalism</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance Retirement book review books dividends interest investing investments rents retire retirees retirement benefits retirement funding retirement planning review Mon, 28 Apr 2008 13:08:05 +0000 Philip Brewer 2046 at http://www.wisebread.com How much do I need to retire? How much can I spend? http://www.wisebread.com/how-much-do-i-need-to-retire-how-much-can-i-spend <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-much-do-i-need-to-retire-how-much-can-i-spend" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/sailboat-cabo_0.jpg" alt="Colorful sailboat off Cabo San Lucas " title="Sailboat off Cabo San Lucas" class="imagecache imagecache-250w" width="250" height="181" /></a> </div> </div> </div> <p>Especially for people hoping to retire early, but also those just hoping they can retire at all, there&#39;s the question, &quot;How much money do I need?&quot; People who are already retired want to know &quot;How much can I can spend, without running out of money?&quot; Some people refer to the answer to the first question as &quot;The Number.&quot; Really, though, these are both the same question.</p> <p>There are a lot of ways to calculate your number. They all suffer from the same fundamental problem: nobody knows the future. To come up with the correct number you&#39;d need to know (at a minimum) how long you&#39;d live and what interest and inflation rates will be between now and then. Even if you knew those things, though, reality could come back and bite you.</p> <p>Still, even without knowing the future, it&#39;s possible to take a useful stab at calculating your number. Here are a few of the classic methods.</p> <h2>Living on income</h2> <p>If there were no inflation, and you weren&#39;t desperate to retire early, this would be the number one choice: Save and invest until your interest and dividends reach the point that they cover your expenses. Once that happens, you&#39;re done and you can retire.</p> <p>Of course, there <strong>is</strong> inflation. To deal with that, you need to reinvest enough of your income to replenish your starting capital each year.</p> <p>For example, if your number were $1,000,000 and inflation turned out to be 2%, then you&#39;d need to reinvest enough of your income that your capital was boosted to $1,020,000 by the end of the first year. As a practical matter, what you need to do is estimate future inflation and make sure that your income covers not only your expenses, but does so with enough left over to make those reinvestments.</p> <p>If the government&#39;s inflation data could be trusted, this wouldn&#39;t be too hard. In fact, there&#39;d an easy way to do it: invest in <a href="/TIPS-and-i-bonds">TIPS (Treasury Inflation-Protected Securities)</a>. They automatically do exactly what I&#39;ve described--the face value of the bond adjusts so as to keep the inflation-adjusted value of the principle constant.</p> <p>Unfortunately, the government&#39;s reported inflation numbers have been seriously understating the actual rise in the cost of living just lately. I don&#39;t tend to assign malice to this. (I&#39;ve read some of the papers written by the economists at the Bureau of Labor Statistics, and they sound to me like sincere people trying very hard to produce honest numbers.) In the final analysis, though <strong>it doesn&#39;t matter</strong> what the overall inflation rate is. What matters is <a href="/roll-your-own-cost-of-living-index">your own cost of living</a>. You need to adjust your capital by however much your cost of living is going up, or else you&#39;re going to gradually fall behind.</p> <p>Having some of your money invested in stocks can cushion this--there&#39;s a good chance dividends will rise, and there&#39;s a good chance the values of the stocks will rise. There&#39;s no guarantee that it&#39;ll match inflation (or even that it will happen at all), but it has generally happened for decades now.</p> <p>Two other gotchas to beware of:</p> <ul> <li>Be sure that you know what your expenses actually are--any unexpected ones (taxes? a new car, new roof, new furnace? health insurance?) eat into your standard of living (or worse).</li> <li>Be sure your income is secure--it can be very tempting to take a little extra risk, to boost your standard of living, but that can bite you badly.</li> </ul> <p>Now, all the fiddly detail work of adjusting for inflation aside, the real downside of living on income is that it takes too much money. Let&#39;s say you can live on $50,000 a year. The amount of money that you&#39;d need to invest in TIPS to earn that $50,000 (guaranteed by the government and adjusted for inflation) would be something like $2.8 million. Now, if you&#39;ve got $2.8 million (and you can live on $50,000), then you&#39;re pretty much all set. I wouldn&#39;t invest it all in TIPS--diversify into stocks as well--but a very straightforward investment plan will do the trick for you, and I think you can safely retire right now.</p> <p>Most people, though, would like to retire without having to save up quite that much capital relative to how much money they&#39;re going to need to live on. Happily, that&#39;s almost certainly possible, if you make the (rather likely) assumption that you&#39;re not going to live forever.</p> <h2>Spending down capital</h2> <p>If you invest $2.8 million in TIPS and just spend the income, you&#39;ll eventually die with a nest egg worth (an inflation-adjusted) $2.8 million. That&#39;s great for your heirs, but doesn&#39;t otherwise do you a lot of good.</p> <p>If you knew how long you were going to live, you could calculate how much of your capital you could safely spend each year, and die with any particular sum you wanted. </p> <p>If you have a financial calculator, here&#39;s how to do the calculation. (If you don&#39;t, there are plenty of <a href="http://www.arachnoid.com/lutusp/finance.html">financial calculators</a> on the web.)</p> <p>Suppose you knew you were going to live for 34 years in retirement and wanted to die broke. You could plug in a Future Value of zero (dying broke), a payment of $50,000 (or whatever you need to live on), an interest rate of 1.85% (the current rate on 20-year TIPS) and solve for Present Value (the amount you need to invest today to get those 34 payments of $50,000 (adjusted for inflation because you&#39;re buying TIPS). It&#39;ll tell you that you need about $1.25 million--a big improvement over the $2.8 million income-only solution, assuming that you want to retire early.</p> <p>If you knew you were going to die younger--for example, that you&#39;d only live in retirement for 12 years--you wouldn&#39;t need nearly as much. In fact, just a bit over $500,000 would do the trick.</p> <p>That&#39;s still pretty conservative, mainly because we&#39;re using the very low interest rate that TIPS are currently paying (just 1.85% over inflation). If you invest in a diversified portfolio of stocks and bonds, you can probably earn more than that. The average return in the stock market runs in the 10% to 12% range. Deduct 3% or 4% for inflation, and there&#39;s a good chance the stock market portion of your portfolio can return 6% or even 7% after inflation. Use that rate in place of the 1.85% you could get on TIPS, and you&#39;ll find that you can retire on a very modest amount of capital, as long as you&#39;re sure that you&#39;ll die on schedule.</p> <p>People have long looked for a sweet spot somewhere in between assuming that you&#39;ll live forever (income-only spending) and assuming that you&#39;ll die on schedule (spending down capital). They&#39;ve come up with a couple rules of thumb.</p> <h2>The 4% and 5% rules</h2> <p>Among people who invest for large institutions, there&#39;s a rule of thumb that you can spend 5% of your endowment each year, and then expect to have a bit more to spend next year than you spent this year.</p> <p>Of course, they can&#39;t expect that 5% to be more every single year. Some years the investment portfolio does poorly--and after one of those years, the 5% that&#39;s available for spending will be less than the previous year. Maybe much less.</p> <p>That may be okay for institutions, but it doesn&#39;t work so well for households. Most people, especially most retired people, don&#39;t have the flexibility in their budgets to easily accept, let&#39;s say, a 20% budget cut--an amount that&#39;s not only possible but entirely to be expected, if a good bit of your investment portfolio is invested in stocks.</p> <p>For households, therefore, the rule of thumb is 4%. If you have a well-diversified portfolio of stocks and bonds, you can spend 4% the first year, and then increase the amount by the inflation rate each year, and you will very likely die before you run out of money. (In fact, you will very likely die with quite a large portfolio indeed, because you probably could have started out spending 5%.) But if you have enough capital that 4% will support you at an acceptable standard of living, then you&#39;re in a position to ride out a good bit more in the way of bad luck. (Such as, for example, a 20% drop in the market the very first year after you retire.)</p> <h2>Social Security, pensions, and other annuities</h2> <p>An annuity is a stream of money that gets paid to you until you die. You can buy one from an insurance company. Annuity payers are in a position to (roughly) follow the 5% rule, because they can play the averages. Some people will buy their annuity just before the market takes a 20% dive, but most people won&#39;t. Some people will live a very long time, but most people will live an ordinary length of time and a few will die young. If you die young, they keep the rest of the money, and that puts them in a position to pay out more than you could safely spend yourself.</p> <p>It&#39;s worth having some sort of an annuity, as a fall-back in case you both face poor investment returns and live a long time. As I said, you can buy one from an insurance company, but you may not need to, if you have a pension.</p> <p>Pensions are a special case of annuity. In the old days, many people earned some sort of pension, if they worked for a largish company for many years. These days, they&#39;re pretty rare, but lots of older folks are still owed a pension from jobs that they worked back when they were more common.</p> <p>If you have a pension, even a pretty small one, you may not need to annuitize any more of your capital. But, if you don&#39;t have any pension at all, an annuity is worth considering.</p> <p>Besides the now-rare pension, almost every worker in the US is promised a Social Security pension (and people in other wealthy countries have similar promises from their governments). I don&#39;t know about the situation in other countries, but in the US a lot of people are dubious about that promise being paid in full--and with good reason. My own take on the situation, though, is that most people will actually get a large fraction of what they&#39;ve been promised. In fact, it would be pretty easy to adjust things to pay people nearly all of what they&#39;d been promised, if they did the adjusting sooner rather than later.</p> <p>At any rate, the way to deal with any sort of annuity, Social Security or otherwise, is to discount it by however much you think is appropriate (against the risk that you won&#39;t get the whole thing), and then deduct what&#39;s left from the amount that you want to spend each year. Your investment portfolio needs to cover the remainder.</p> <h2>The answer</h2> <p>So, that&#39;s your answer for the questions we started with.</p> <p>How much do you need to retire? Take what you want to spend, subtract the amount you confidently expect to receive from Social Security and any other pensions or annuities you&#39;ve got coming to you, and then divide by 0.04.</p> <p>How much can you spend? Multiply your investment portfolio by 0.04 and then add whatever you&#39;re getting from Social Security and other pensions (suitably adjusted, if you&#39;re not confident you&#39;ll keep getting them).</p> <p>There are too many variables for it to be safe to put any of these things entirely on autopilot. When you figure the inflation adjustment for next year&#39;s spending, cross check to see if you&#39;re spending more than 4% of your capital. (If the market hasn&#39;t kept up with inflation, you probably will be.) If that&#39;s true, you&#39;d be well advised to cut your spending a bit--a few bad years, especially early in retirement, can put a portfolio into a hopeless downward spiral if you go on spending without regard to how much money is really there.</p> <p>If you can earn some money in retirement, even a pretty modest amount, that can take a big weight off the investment portfolio. Well worth trying, even if just for a few years early on.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/how-much-do-i-need-to-retire-how-much-can-i-spend">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-8"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/book-review-cash-rich-retirement">Book review: Cash-Rich Retirement</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-retire-during-a-recession">How to Retire During a Recession</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/book-review-retire-on-less-than-you-think">Book review: Retire on Less Than You Think</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/dont-despair-over-small-retirement-savings">Don&#039;t Despair Over Small Retirement Savings</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/stop-making-these-10-bogus-retirement-savings-excuses">Stop Making These 10 Bogus Retirement Savings Excuses</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance Retirement annuities capital dividends early retirement pensions retirement planning social security tips Wed, 09 Jan 2008 15:23:03 +0000 Philip Brewer 1606 at http://www.wisebread.com Join the rentier class http://www.wisebread.com/join-the-rentier-class <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/join-the-rentier-class" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/central-park-penthouses.jpg" alt="Penthouses as viewed from central park" title="Central Park Penthouses" class="imagecache imagecache-250w" width="250" height="193" /></a> </div> </div> </div> <p>You don&#39;t hear much about the rentier class any more. Perhaps that&#39;s because we all expect to be members by retirement age. Perhaps it&#39;s because even the very wealthy now all seem to work at something, if only at being a celebrity for our entertainment. Whatever the reason, I recommend that you take advantage of its modern social acceptability, and join the rentier class sooner, rather than later.</p> <p>The rentier class, if you&#39;re not familiar with the term, are the people who live off capital: stockholders, bondholders, landowners. If you receive any income in the form of interest or dividends, then you&#39;re already on your way.</p> <p>Invest for income! A money fund or an internet savings account is a good place to start, but once you have enough cash set aside in your <a href="/figuring-the-size-of-your-emergency-fund">emergency fund</a> and you&#39;re fully funding your 401(k), start investing in bonds and in dividend-paying stocks. </p> <p>Investing for income hasn&#39;t been popular these last few decades; investing for growth was the way to go. There are a couple of reasons for that. Tax policy long discouraged investing for income--you have to pay taxes on income every year, but you don&#39;t have to pay taxes on growth until you sell (and then at a lower rate). The tax rules were really just an excuse, though. The real reason that investing for income was unpopular was that it&#39;s not a way to get rich quick. That made investing for growth much sexier.</p> <p>Tax policy has changed, at least for the moment. Since 2003 you&#39;ve been able to get low rates for dividends. But, since tax policy was really only an excuse to prefer sexy, sexy growth over dividends, there hasn&#39;t been a huge shift in how people invest. Personally, I&#39;ve always trusted income over growth. Growth seemed somehow imaginary. Income showed up in my checking account.</p> <p>The reason income has alway seemed so dull is that it doesn&#39;t offer the short-cut that growth seems to (and actually does, but only to a tiny fraction of investors). If your goal is enough income that you don&#39;t need to work any more, it takes years and years of living frugally, saving, and investing for income before you reach your goal. But that&#39;s the wrong way to look at it. Long before you have enough income that you don&#39;t need to work, you have enough income to make your life better.</p> <p>I think a lot of people look at investing for income, and quickly decide that the income is simply too small to matter. Buy a $1000 treasury bond at current rates and your interest payments will amount to something like $20 every six months. What&#39;s the point in that? The average stock in the S&amp;P 500 pays a dividend rate that&#39;s even lower--you&#39;d have to invest a couple thousand dollars just to get $10 a quarter.</p> <p>The thing is, though, those $10 and $20 quarterly and semi-annual payments add up quickly. More important, they don&#39;t depend on you actually doing anything to get the money.</p> <p>Just a few years of investing is enough to build up a tidy little portfolio of bonds and dividend-paying stocks. Plenty of stocks pay higher dividends than the average of the S&amp;P 500. Pick a few that seem to be well-managed and profitable; invest in those. Interest rates on treasury paper are down near multi-year lows, but several times in the last two years it has been possible to get 5% on treasury bonds. (For how to buy treasury paper, see <a href="/treasury-bills-for-ordinary-folks">Treasury bills for ordinary folks</a>.)</p> <p>It may take your entire career to save and invest enough money that your investment income can entirely replace the earnings from your career. (In fact, if you don&#39;t save and invest pretty diligently, it may take more than your entire career.) But income that isn&#39;t enough to live on is still worth having. At different times in your life it can provide additional money to invest, a boost to your standard of living, or a supplement to your emergency fund if your regular income is lost.</p> <p>Invest for income. Join the rentier class.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/join-the-rentier-class">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/book-review-cash-rich-retirement">Book review: Cash-Rich Retirement</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/this-is-how-rich-youd-be-if-youd-saved-the-money-you-earned-in-high-school">This Is How Rich You&#039;d Be If You&#039;d Saved the Money You Earned in High School</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-ways-to-pay-off-your-student-debt-faster">5 Ways to Pay Off Your Student Debt Faster</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-best-money-management-tips-from-john-oliver">7 Best Money Management Tips From John Oliver</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/9-ways-siri-can-be-your-personal-finance-assistant">9 Ways Siri Can Be Your Personal Finance Assistant</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance dividends interest investing Sun, 06 Jan 2008 14:40:59 +0000 Philip Brewer 1591 at http://www.wisebread.com Slow DRIP into investing http://www.wisebread.com/slow-drip-into-investing <p><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/wisebread_imce/waterdripping.jpg" alt="water dripping from faucet" title="water dripping from faucet" width="195" height="293" align="top" /></p> <p>My first-ever individual stock holding was a Duke Power (now Duke Energy) share that I acquired through its Dividend Reinvestment Plan or DRIP. I don’t recall every detail but at the time, Duke Power was my utility company, sent me a bill every month, and enclosed a notice about its DRIP, which was available to its customers. </p> <p>Signing up and becoming a shareholder was easy. Presumably, I requested, received, and read a prospectus so that I could understand the risks of owning this particular stock. Then, I filled out a form and sent checks of $25 or $50 every month or so. The company sent me statements, confirming receipt of my checks and showing me the value of my holdings. </p> <p>Just a side note: at the time of my investment in the mid-80s, Duke Power was a public utility in a regulated industry so profits were nearly guaranteed and dividends were steady. Jumps in the stock value or sudden declines were unlikely in such a controlled environment. Duke Power has since morphed into Duke Energy, “a diversified energy company with gas and electric businesses, both regulated and unregulated, and an affiliated real estate company.” <a href="http://www.duke-energy.com/about-us/businesses.asp">http://www.duke-energy.com/about-us/businesses.asp</a>, June 17, 2007. Today, there is more risk associated with owning the stock because its businesses are no longer all regulated.</p> <p>With a DRIP, you can accumulate shares by making periodic purchases and authorizing the reinvestment of dividends. For example, Stock A is selling for $25 and the company declares a dividend of $.05 per share. If you have 100 shares of Stock A, you will receive a dividend of $5, which is then reinvested automatically with the purchase of .20 shares. It doesn’t seem like much but, over time, your account grows in value if you reinvest the dividends rather than spend them on something else. (A note about taxes: if the shares are held in a regular taxable account, you will have to pay taxes on the dividends, whether you reinvest the dividends or not.)</p> <p>The main catch to this program is that you can not control the exact price you pay for the stock. You send in your money (either via regular mail or electronically) and the stock is purchased on your behalf, typically at the market price on a day designated by the company or its agent. For example, if you send money on January 15, the stock may be purchased on January 30 for whatever the market price was on that day. If the stock price was $35 on Jan. 15 and $45 on Jan. 30 then the stock would cost $45. If you sent $50, then you will receive 1.11 shares ($50 payment/$45 per share). </p> <p>I started my DRIP in the pre-Internet, pre-discount brokerage, and pre-ShareBuilder days when these plans were especially very attractive compared to full-service brokerage accounts. The fees for starting a plan, purchasing shares, reinvesting dividends, receiving statements, selling shares, maintaining an account, and closing an account were zero to nominal. The advent of ShareBuilder (to be covered in another post) and online brokerage services (also, more later) make DRIPs less attractive than 20 or so years ago. Still, these plans offer an easy, simple way to get started in investing. </p> <p>To find out if a company has a DRIP, do a search using the company name and investor relations; then starting looking for Shareholder Services, Investor FAQs, DRIPs, Direct Stock Purchase plans, etc. I searched for Duke Energy, Lowe’s Companies, and AT&amp;T as well as Amazon, Target, and Starbucks and quickly found whether these companies pay dividends and/or whether they offer DRIPs or similar plans. Following the links, I also found pages that listed fees associated with transactions and some way of actually starting an account. Here is what I found:</p> <p><strong><a href="http://www.duke-energy.com/investors/shareholder-services/direct-stock-overview.asp" target="_blank" title="http://www.duke-energy.com/investors/shareholder-services/direct-stock-overview.asp">Duke Energy</a></strong></p> <p><a href="http://www.shareholder.com/lowes/dspp.cfm" target="_blank" title="http://www.shareholder.com/lowes/dspp.cfm"><strong>Lowe’s Companies</strong></a></p> <p><strong><a href="http://www.att.com/gen/investor-relations?pid=5660" target="_blank" title="http://www.att.com/gen/investor-relations?pid=5660">AT&amp;T</a></strong></p> <p><a href="http://phx.corporate-ir.net/phoenix.zhtml?c=97664&amp;p=irol-faq#6991" target="_blank" title="http://phx.corporate-ir.net/phoenix.zhtml?c=97664&amp;p=irol-faq#6991"><strong>Amazon.com</strong><br /></a>Amazon.com does not pay dividends or have a Direct Stock Purchase Plan (similar to the DRIP but sans the dividend reinvestment component). </p> <p><strong><a href="http://investor.starbucks.com/phoenix.zhtml?c=99518&amp;p=irol-faq#26958" target="_blank" title="http://investor.starbucks.com/phoenix.zhtml?c=99518&amp;p=irol-faq#26958">Starbucks<br /></a></strong>You can only buy Starbucks through a stockbroker or brokerage firm</p> <p><strong><a href="http://investors.target.com/phoenix.zhtml?c=65828&amp;p=irol-directInvest" target="_blank" title="http://investors.target.com/phoenix.zhtml?c=65828&amp;p=irol-directInvest">Target</a></strong><br />Target offers a Direct Investment Program and you can purchase stock through a transfer agent</p> <p>Please know that I am not endorsing or recommending the purchase of any of these stocks just using them as examples. I mentioned them because they are household names in my part of the world and investing in companies you already know about is often a good way to get started in building wealth. As always, read the prospectus before investing.  </p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/julie-rains">Julie Rains</a> of <a href="http://www.wisebread.com/slow-drip-into-investing">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/can-reinvesting-dividends-really-save-you-on-taxes">Can Reinvesting Dividends Really Save You on Taxes?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-tell-if-your-401k-is-a-good-or-a-bad-one">How to Tell if Your 401K Is a Good or a Bad One</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-investors-with-better-returns-than-warren-buffett">5 Investors With Better Returns Than Warren Buffett</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/9-ways-to-tell-if-a-stock-is-worth-buying">9 Ways to Tell If a Stock is Worth Buying</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-only-8-rules-of-investing-you-need-to-know">The Only 8 Rules of Investing You Need to Know</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment direct stock purchase plans dividend reinvestment plans dividends DRIPs investing stock Tue, 19 Jun 2007 13:45:55 +0000 Julie Rains 753 at http://www.wisebread.com