Yuu should be investing after you have established your emergency fund. Again, the emergency fund should be fully established first before you move forward. You should be able to
pull one year from that emergency fund before any money goes to investments of any kind.
Now that you have established the emergency fund, it’s time to start adding to your bottom line and your income. YOu do that through investments.
We will be covering the following:
- Finding the right brokerage platform
- How to find good investments
- Why you should invest in securities that pay dividends
Finding the right brokerage platform.
This is the easy part. It’s just a matter of finding a brokerage platform that works for you. The big three are Etrade, Scottrade, and TD Ameritrade. I have used Etrade and TD Ameritrade in the past, and they offer a large amount of trading options and a lot of information for your investing needs.
These days, however, I go with Vanguard. Vanguard offers many really good mutual funds with very few fees. If I invest in Vanguard products in one of the other platforms, it could increase the amount of fees I have to pay. So to forgo the extra fees, I just invest with Vanguard directly.
Really, this part of the process is up to you. Do your research and test drive them all to see which one works for you.
How to find good investments.
The first way to find good investments is through Morningstar. Morningstar offers a wealth of securities information on the market. You get everything from timely charts, stock make-up (for mutual funds), risk analysis, performance analysis and much more. You get all the information that Morningstar has to offer for $29.99 per month. Not bad for the amount of information.
Again, TD Ameritrade and Etrade provide a lot of this information, too.
But, If you choose (like me) not to use one of those sites, or you’re investing in mutual funds, you should have a membership with Morningstar.
Either Morningstar or the analysis section of these other brokerage platforms should be the first stop for your analysis.
Second, you may want to use Yahoo Finnace. This website offers a wealth of information as well. You can verify the information on Morningstar here. You can also find news articles here concerning the company in questions.
Be careful with the articles section, though. Many of the “articles” posted are Public Relations (PR) pieces that are paid for by the company in question.
The third stop (for stock and bond investing) should be the Edgar system with the Securities and Exchange Commission (SEC). You are specifically looking for the K-10, and the Q-10’s for the company you are looking into. These are the Annual and quarterly financial, respectively.
These documents will tell you how sound the company is financially, and the plans they have for the future. These docs are a gold mine of information.
Generally speaking, though… You should be good with Morningstar’s recommendations, but Yahoo Finance and the company financials are just a little extra to see for yourself how things are financially and where things are going for the company.
Why you should invest in investments that pay dividends.
You should always be in investments that pay a dividend. There are a couple reasons for this:
- Stocks with dividends have intrinsic value
- Stocks that pay dividends grow your portfolio faster
- Stocks with dividends can grow your bottom line
1) Stocks with dividends have intrinsic value. Dividends that are paid out from stocks come from the earnings of the company. In order for the company to have earnings, it most be in positive cash flow. In other words, the company has to make a profit.
Some companies that don’t pay a dividend just want to use the profits to pay down debt or to expand the company. Other companies are just not breaking even.
Since companies that make a profit tend to be more valuable, companies that pay a dividend tend to be more valuable because they are making a profit.
2) Stocks that pay a dividend grow your portfolio faster. If you roll your dividend payout back into your portfolio, the reinvested dividends will grow your portfolio over time.
It’s the same concept as letting interest compound in a bank account. The difference is the dividend yield is generally much higher than with a savings account. So you run the chance of getting more money faster.
Also, even though your principle balance may fluctuate, you still retain the same number of shares purchsed, and the amount of dividends that come off those shares.
So if you start this process early on (in your 20’s), you can retire off your dividends by the time you’re in your late fifties to early sixties.
3) Stocks with dividends can grow your bottom line. If you need the dividends in your hand one quarter rather than being re-invested, you can just cash the dividends out.
The dividends will then expand the bottom line by the amount taken out of the brokerage fund.
So dividend -generating stocks have the ability of growing your investment or growing your bottom line (when necessary).
There is one more thought to consider with dividend-generating stocks (I don’t include mutual funds with this). The dividend yield should be more than 2%. 2% is the target inflation rate that the Fed strives for annually.
So if your dividend yield meets or exceeds the inflation rate, your investment is equal to or more valuable than inflation. You don’t want inflation to eat away at your investments, and with the 2%+ criteria, it won’t.
If you’re looking for a way to get inveseting money over the long haul, or you want to “retire” early, check this out. This is not a get rich quick formula, so it will require work and time. If you’re willing to put in the time and effort, this will make you some real investment money, and can even get you to the point of “early retirement” as well.
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I know this is a big subject. If you have any questions or comments, leave them below and I will definitely get back with you.
And as always, good luck out there, no matter where you end up on the internet.