So you are saving a little bit of money and you want to know what is the best thing to do with it. At this point I should point out that I am not in anyway qualified to be advising people on what to do with their finances. I need to say that so if you lose all you money you can’t blame me. Do research and talk to people smarter than you and I to find out what the best options are for you.I am going to run through the different options of how to invest, at least how I see them. This is the first and it is about investing for dividends.
When you go to work you get a pay cheque every two weeks in exchange for the work you do there. This is how you will get the money you have with the exceptions of gifts and matters of luck. But like I said before, the money you have can get you more money if you do the right things with it. So if there was a way that you could put the $1,000 you had saved over the past year or so and do something with it, and I told you that after one month that you would have $1,003.33. Then the next month you had $1,006.67. That would be a lot better than your buddy who put his money in a savings account with the paltry 1% interest the big banks are offering right now (I got 1.15% on a high interest account). He will have $1,000.83 after that first month. You would be able to laugh at your friend if you invested you money into a dividend stock.
Most of the time when one buys a stock they are hoping for the price of the stock to go up so they can sell the stock for a profit. It’s akin to buying a toy from somebody but letting them keep it for a while and hoping that if you need money in a while that you can sell the toy to somebody else for an even higher price. In order to actually make money from the stock you have to sell it, so then you need to buy another stock and do the same thing.
To me that seems burdensome and tedious. Sure lots of people only look at their stocks once in a while, but to be at the complete control of people’s opinion of the company you bought stock in is too risky for some. If you need money (for a car, vacation, or because you are retiring) but people think that your stock’s company is not worth much then you are getting screwed over and will not have the money you think you do. You can invest $1,000,000 but if people don’t like the company you invest in then you may only be able to get $10 from all those savings. You risk the chances of that happening for the opportunity that the company can do great and when you need the money that you will be able to take out much more money than you put in. In order to get a high return you need a higher risk.
This is true of almost all investments. If you know a way to get a great return with no risk I need to be reading your writing instead of the other way around.One of the ways of increasing return and decreasing risk that I have become interested in is dividend paying stocks.
A company that pays a dividend to holders of its stock is usually more stable and developed than companies that don’t. There are lots of reasons for companies to pay a dividend. But the reason really big established companies do is because they have more money than they know what to do with. The best thing the company thinks they can do is reward the people who have shown support to them.
So you buy this stock and it pays you 4% of the price you paid for it every year. But during the entire time you have this stock and you are collecting the dividends they pay you, the stock price is going up and down, preferably up. You might not pay attention because you are getting money from it regardless. You do not need to sell your stock in order to make money. But let’s say that you want to buy your first house and that is what you were saving the money for. If the stock price went up you sell the stock for a profit, which made you money, and you add that to the money that you received as dividends. If the stock price went down, you sell it for whatever you can, but you also have the dividends, so all is not lost.
I knew that some stocks paid dividends but when I started learning more about dividend investing just a couple months ago it smacked me in the face. It just made sense to me. There are lots of people who plan to have so much money invested in dividend stocks that they will be able to retire and live off that money. That seems cool to me. There are lots of sites, including a few in my blogroll that are all about dividend investing. Check out some of those sites for more information about all the technicals.
While lots of the companies that pay dividends are big companies, some are also companies that are not that well off and start paying a dividend to entice people to but the stock. Still others were once strong businesses but keep paying a dividend after they start to slide and can no longer afford to. There are things to consider other than the fact that the pay a dividend. The yields (or return) of the dividends vary widely, but it is not necessarily best to go after the ones with the highest dividend yield. Do research before buying anything, then do some more research just before you buy, and then before you buy, make sure you research some more. Research is important (I was trying to stress that point).
Because you probably have a long time before you want the money you are investing then you probably want to invest in stocks, which have historically gone up more than other investments. But there are risks, which is why everybody doesn’t do it. But a little portion of those risks are alleviated by getting dividends while you own the stock.