Keep Your Focus on the Objective

“Sometimes investors lose sight of what their objectives are”

Sometimes investors lose sight of what their objectives are. Yes, it is hard to believe I know, but even hardcore Dividend income Investors find it hard to remain focused one hundred percent of the time. This can be especially true when you see the value of your portfolio dropping like a rock.

This past couple of weeks have been especially trying for me as I am heavily weighted in REITs and other stocks that for what ever reason have been in steady declines. Our first instinct as human beings is the “Flee or Flight” response and perhaps from my own observation this tendency is a self preservation technique for most species. Given an opportunity I believe most of us as well as most animals choose to Flee when confronted  with danger. And this response makes a lot of sense when you stop and think about it. Fighting should be the last choice because of a great number of reasons not the least of which we might lose our life in the process. As Investors though, this is most  likely the wrong choice to make. We should usually decide to stand our ground and “fight”.

If you stop to think things out you can begin to focus on the right decisions even in the majority of the most trying times. Ask yourself just a few simple questions.

  • Why did I invest in this stock?
  • Has anything changed that would have persuaded me not to invest had I known prior to purchasing the stock?
  • Have I lost faith in the company and its fundamentals?
  • Will it still provide me with the income I expected?
  • Is it just this stock declining or the whole sector that is pulling back?

Why would I sell a stock just because some investors have decided that this sector might not do as well over a short period of time? Investors in general tend to panic and over-react to most situations. Other investors have different objectives than you do. If you are a Dividend Income Investor your objective is to generate high income. IF the other investor is a trader they make money by trading in and out of stocks  to maximize their profits and timing is very important for them. If you have a stock that is generating the income you desire and the fundamentals are still sound and the outlook for continuing that income then why would you want to sell?

When Stocks are on Sale – Go Shopping !

If you stop and think about it this is exactly the time you should be making stock purchases – not selling stocks. Why is it that when a stock drops in price the majority of investors run for the exits and sell their share? If you were at a regular store shopping for items you need would you turn and run out of the store because the store announce those products were now on sale for 5, 10 or 25 percent off? Of course not. buying stocks when others are selling gives you advantages over the others. You are purchasing the stock with a lower cost basis and at a higher yield than normal. Both are great for the long term.

As an example let’s look at the returns of a stock that normally yields 5% and because the stock drops in value you can now purchase it for 6.25%:

We invest $10,000 into the 5% yield of XYZ. The shares are valued at $50 and pays a dividend of 2.50 per share.

$10,000 would buy 200 shares and would provide you with $500 per year in income.

Now the same XYZ stock drops down to $40 per share and is now yielding 6.25%

$10,000 would purchase 250 shares and would provide you with $625 per year in income !

So the motto oft his story ? Stay Focused and keep your sight on what your true objectives are. it is easy to get caught up in the hype and the panic of others but if you just stay calm, take a deep breath and make the “Logical” choice as a Dividend Income Investor you will be rewarded for years to come !

 

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Why I stick with Good Old USA Stocks

I’m sure there are many fine and safe stocks to invest in all over the world

I’m sure there are many fine and safe stocks to invest in all over the world. In fact I would be willing to admit that a few might be better investments that any you will find here in the United States.

Now given my admission I will state that ,I as a general rule, will not invest in non U.S. based stocks. Not because there are not good investments elsewhere in  the world but mostly because there are so many great investments to make here in the U.S. I doubt I will ever be able to own all the stocks I would like because there are just so many and my funds will never be enough to do so. Now I am not a Billionaire, in fact a long ways from it, but even if I were, I still could not invest in all the stocks in the U.S. I would like to. Chances are I will always discover more stocks to  invest in than I have money.

So if I cannot invest in all the stocks in the U.S. what would be my reasoning for doing so? One argument I hear is to help spread the risk and another argument is that the other markets might out preform our market. Maybe at one time those were valid arguments but I don’t believe they hold true any longer. Most companies operate internationally now days with many foreign companies selling here in the U.S. and many U.S. companies selling all over the world. In fact the markets also many times move in tandem but even when they do not it does not make a lot of difference to how much your gains will be.

My reasoning is I get all the international exposure I need just by owning most large U.S. stocks because they operate internationally. I also know these companies are scrutinized carefully by U.S Investors and the Federal and State governments and have to answer in American court systems. In addition I do not have to worry about foreign derived taxes. Another thing I like about American stocks are the dependability of the dividends. Many foreign based stocks pay irregular timed dividends , that is they do not pay on a set schedule.

So for me on this 4th of July I am declaring my patriotism by sticking with stocks from the  good ole USA !

Enjoy your holiday folks because I am heading out to back yard to grill some steaks and relaxing for the remainder of the day! Hope you are enjoying your day off as well.

 

Any thoughts are comments are always welcomed !

My Daughter Did Not use her College Funds for College!

“what if you took the Dividend Income Investor philosophy and applied it to paying for college?”

Many people take the student loans and use them to live on , pay for college expenses and quite frankly, to party for four years. What they end up with is hopefully a degree that they may or may not be able to use towards finding a job and tons of personal debt.  But what if you took the Dividend Income Investor philosophy and applied it to paying for college? You know the “Golden Rule of Investing” which basically says don’t spend your money. As a Dividend Income Investor we know that the best use of money is to produce income.

I have convinced her the best way to start college is at the community college level. It is much cheaper, she can live at home and is spared the expenses of living somewhere else. So her first two years will be much cheaper than going off to some far away college. The second thing we talked about is going to school to develop a career opportunity not to just go to college without direction. Fortunately she has it narrowed down to two choices, both of which can be completed in two years and pay well. Her choices are Dental Hygienist and Registered Nurse. Both are offered as two year programs at out local community college. This way after two years she has a great income coming in and should she decide to pursue a 4 year degree she has a way to support herself while doing so. I know a lot of people think it is impossible to pay your way through college and I say they don’t know what they are talking about. I had one person tell me I did not understand how expensive college was now days and I could not do so if I were getting a degree in today’s world. First, I will admit , College has become more expensive than it should ever be but saying it cannot be done is just an excuse by someone who is misinformed or maybe just a little lazy. (I’ll let them judge themselves as to which one applies) .

Here’s my daughter’s plan. She has 23,000 saved for college and has another $2,000 in a separate account. In addition her grandfather is giving her $10,000 each year to help fund her college. I have talked to her and we will put the entire amount into a brokerage account with Dividend paying stocks. Her yield will average 9%.

So the first year – $35,000 in stocks are purchased – This will produce $3,150 per year in Dividend Income. Her tuition will be $160 per semester hour and her degree requires 69 semester hours so the total amount for tuition is $11,040. Of course there will be other expenses like books and lab fees. She has to attend 5 semesters so the average amount of tuition is $2,200 per semester or $4,400 per year. Just $1,250 shy per year but she will also get a part time job. If she works 20 hours per week at $10 she can earn about $200 per week or $800 per month, and in just three months she has earned the rest of the required tuition.

When she starts her second year of college she will get another $10,000 from her grandfather – So now she has $45,000 invested and bringing in $4,050 per year in income or $337 per month. Add this to her part time job and she has finished her first two years of college, has a degree in Dental hygiene or Nursing and Can go to work earning much more money. She not only owes nothing to anyone but she still has her $45,000 invested and is earning income from it. Also her grandfather will give her $10,000 for the third and fourth year of college so it will grow to $55,000 and the start of the forth year to $65,000. At this point her Dividend Income is $5,850 per year or $487 per month ! At this point she has – A 2 year degree, A great Career, No debt , a great start on her Investments, and a very good start on Dividend Income.

Okay so you say “but my daughter does not have a grandfather giving her $10,000 per year for college”. I thought you would never ask. The same scenario applies but using various types of student loans both private and federal.  Because of the interest rates on the loans and you have to pay them back you will not have as much left at the end of school but you can still come out ahead by investing the money and only paying for college out of Dividend income. Another way is to work more hours during school breaks and summer vacations. Or try and save more towards college before she starts to have an advantage in that respect.

There are tons of ways to eliminate college debt or reduce it substantially but one thing is certain you have to be an active participant in the finances of your education. To allow your child to make the mistake of accruing massive debt from his or her education is irresponsible parenting in my opinion. There is no need to start ones life off struggling to pay bills.

Thoughts or comments ? I would love to hear from you.

 

 

 

 

DIY Investing

DIY Investing can be accomplished by over 99% of the population – Cut out the middle man and add to your savings

 

Stock Brokers and Financial Advisors – Why they are not your friend

The financial community, especially the “Financial Advisors” and those that make a very good living off of “managing “ other people’s money for them have a vested interest in convincing us there is something “magical” about what they are capable of doing. News

Alert – It’s not!

In fact I am sure you can come out ahead by doing it yourself and eliminating all the hidden fees and commissions they charge you. You can bet they will never recommend individual stocks for you because they cannot make streams of money from you. Some “advisors” even charge a flat percentage of your portfolio for “managing” your portfolios. That is correct, they will make money whether you lose money or make money their cut keeps rolling in.  Over the years this can lead to thousands of dollars that are siphoned off in the form of direct and indirect or even “hidden” fees. So, if they are not my friend then who is? Quick, run to the nearest mirror and tell me what you see. Once again you are correct – it is you. You are the one that is your true friend. You are the one person that you can always count on to have your best interest in mind.

DIY Investing

Why not just take control and invest your own money? I know that not everyone is capable of handling their own affairs but I am willing to bet 99% of you are. Take the time to educate yourself and you will be rewarded many times over. Like any other area in life perhaps the hardest part is learning and familiarizing yourself with the terminology. Once you have that down you will discover every penny you can invest instead of spending can earn you a lifetime of income……………..

So take the time to learn how to invest and save those fees for your own income.

 

Use tax Refunds to Add to Investment Income

“What if you started a new tradition with your annual tax refunds”

According to USA Today the average tax refund is $3,096. That is a good chunk of money. While I don’t have any information on what people use their refunds for my own observations are that people immediately run out and spend the money on things. Some items they maybe in need of and probably most items are things that they want but really don’t have a real need for.

What if you started a new tradition with your annual tax refunds – Investing it into income producing stocks? Done properly you not only save your money but it starts producing a steady income for you that will serve you for the rest of your life.

It only takes a few short actions on your part to do just that. Have a plan ready for which stock(s) to Invest in. If you don’t already have a Brokerage Account make sure to open one. Go to the account and under trade stocks enter the stock symbol and the number of shares you are buying and at this point you will be asked what type of order. I choose Market order 90% of the time and its that simple. Now sit back and wait for your dividends to roll in.

By the way if you are the “average ” person and have $3,096 to invest at 8% you yearly income will be $247.68  or about $20.64 per month. Not bad, you still have your money and now it is producing more money for you. You are now a Dividend Income Investor and can start building an income stream for your future.

Or… you could have blown it on something you probably not even remember by your next refund………….. the choice is yours ! Choose wisely !

Remember the Golden Rule of Investing !

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The Rule of 72

Very simple and straight forward. So now you know what the Rule of 72 is !

Have you ever heard of the Rule of 72? What is the Rule of 72 and why do investors need to know it?

The Rule of 72 is actually a very simple way of determining how long (number of years) it will take to double your investment. There are also variations like the rule of 70 and the rule of 69.3 but since the rule of 72 is the easiest to remember that is what we will concentrate on.

First keep in mind that this method is a shortcut method because to get 100% accuracy requires more complicated mathematics. The accuracy of this method is very close though so it will serve the average investor very well.

To determine the number of years it will take your investment to double you simply divided 72 by the actual number of the interest rate yield ( not as a percentage) and the resulting number is the approximate number of years it will take to double. It is most accurate when using rates between 6 % and 10% but will still come relatively close for other yields.

An example is:

My investment has an average yield of 7% – how long (number of years) will it take to double ?

72 / 7 = 10.28 years

or for 6% = 72/6 = 12 years

or for 8% = 72/8 = 9 Years

or for 10% = 72/10 = 7.2 years

 

Very simple and straight forward. So now you  know what the Rule of 72 is !

Dow 36,000 – Really

I have been hearing the Dow 36,000 drum beat since way back in 1999

I have been hearing the Dow 36,000 drum beat since way back in 1999 when  a Washington Post writer by the name of James K. Glassman and Co-author Kevin A. Hasset published their famous book “Dow 36,000: The New Strategy for Profiting From the Coming Rise in the Stock Market”. Their book predicted DOW 36,000 in a short time period – as early as 2002. Of course we all know how that turned out – A big bunch of Hooey ! Glassman and Hasset argued that the old stock market had been replaced with a new model because of the Technology revolution but of course we all now know it was nothing more than a speculative bubble that all come crashing down.

What makes this prediction elusive is the fact that the 30 stocks that make up the Dow has changed over the years. I am writing from memory here so feel free to correct me if I am wrong but I believe that General Electric is the only company remaining in the DOW since 1929. ( Originally the DOW only consisted of 12 companies in the index) .

According to ZACKS in an article titled “The Average Return on the Dow Jones During Its Lifetime” :

The Dow Jones Industrial Average is a price-weighted index. You add the closing prices of each stock and divide by a divisor, which is adjusted for changes in the index. The base value was 40.94 on May 26, 1896, according to a fact sheet published by S&P; Dow Jones Indexes. On May 25, 2012, the Dow closed at 12,454.83, representing a compounded annual growth rate of 5.05 percent over 116 years. However, the stocks in the index have changed over the years. In fact, of the 12 initial companies, only General Electric is still a Dow stock. The performance data over certain periods are more informative. For example, the historical data suggest that the Dow had a compounded annual growth rate of 7.55 percent from a close of 2,002.85 on Jan. 8, 1987 to a closing value of 12,359.92 on Jan. 6, 2012, just 25 years later. The data also suggest that the compounded annual return was about 4.3 percent over the 91 years before 1987.

 

So based on historical data – when can we realistically expect to hit DOW 36,000? My best guess, based on the current valuation of the market of 20,677 and a conservative assumption  of 7% annual gains. we should hit DOW 36,0000 by 2025 or 2026. So yes, unless the world comes to an end or barring some other economic catastrophic event between now and 2025 we will reach DOW 36,000 just like I suspect we will hit DOW 50,000 and DOW 100,000 some day. The DOW will keep marching forward because of Growth and Inflation both of which are by products of an ever expanding society and the need for profits.

The reality is the DOW number means very little to Dividend Income Investors. In fact the members that make up the DOW index have changed many times over the years. It makes for good press and tends to get people excited about the stock market but doesn’t mean much for our bread and butter which are the Dividends. Tell me that the stocks I own are raising their Dividends and that excites me. In my newspaper that is front page news!

 

What about you ? What gets you excited about the stock market ? Share your thoughts