Welcome to my newest project. If you got here expecting to see a different blog, well, this one has replaced that one. I created this blog to detail my investment activities, insight into investment, and lessons that I have learned. I will explain the methods I use to decide where to invest and how I made that decision.
My decision to invest is due to the fact that it was something that I should have been doing these past 20 years but hadn’t. So, now I’m in catch-up mode. I need to make up for lost time because I’m not getting any younger and, to be honest, I seriously want to quit working. I’m fed up with getting up early in the morning and trudging out in all kinds of weather instead of staying in the comfort of my home.
But, unfortunately, I have bills to pay, prefer to live indoors, and I am very attached to eating. So, I have to leave my home and generate an income actively but I also do not have a large amount of money to invest. Thus the name of the blog, The Cheap Investor. I’m not big on risk-taking at this stage of my life. If I had started investing 20 years ago I’d be now in a position of having passive income. This blog will detail my activities and insight towards that passive income position.
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You can’t swing a dead cat on the internet or investment groups without getting someone to tell you that you should invest in this stock or that stock. For myself, still being an investment newbie, I tend for discuss generic investments. One of those that I am drawn to is REITs (Real Estate Investment Trust). I can’t afford to go out and buy individual real estate property so the next best thing are REITs. When I was in the real estate industry I was always told that real estate was a finite commodity. New land was not being created/manufactured. True.
So, why do I like REITs? They invest in most major property types with nearly two thirds of investment being in offices, apartments, shopping centers, regional malls, and industrial facilities. REIT shares are bought and sold on a stock exchange. Buying actual property is more involved and usually needs to have additional parties included in the transaction process. Picking a REIT is less stressful than trying to pick a property to buy. Depending on which REIT you decide to invest in, it can be a low-risk & high return investment. Don’t misunderstand me, you can’t just pick any REIT to invest in, You need to do your due diligence and learn whatever you can about the REIT. Does it’s business focus on buying & managing properties? Or are they focused on originating mortgage loans and servicing them? Maybe their business is trading in mortgage backed securities. I tend to lean toward REITs that own and manage properties but won’t shy away from those that originate mortgage loans. I prefer those that deal in commercial and industrial properties. I own 2 REITs –
$ABR – operates as real estate investment trust, which engages in the provision of loan origination and servicing for multifamily, seniors housing, healthcare, and diverse commercial real estate assets. $ACRE – engages in originating and investing in commercial real estate loans and related investments.
Tax issues for REIT investors are fairly straightforward; REITs send 1099-DIV to the shareholders which contain a breakdown of the dividend distributions. Because REITs do not pay taxes at the corporate level, this leave more of the profits for distribution as dividends BUT the investors are taxed at their individual tax rate for the ordinary income portion of the dividend.
There are some drawbacks to REITs. The current COVID-19 pandemic can have adverse impact on the ability to collect rents. Also, changes to local property taxes can impact the REIT’s operating costs. I’ve never heard of property taxes ever going down. Another downside is that taxes are due on dividends, and the tax rates are typically higher than most dividends are currently taxed at. This is because a large chunk of a REIT’s dividends (typically about three quarters, though it varies widely by REIT) is considered ordinary income, which is usually taxed at a higher rate.
That said, I still like REITs but my portfolio isn’t too heavy in them. Pertaining to real estate I also own a real estate ETF ($VNQ). This allows me to own shares in many different real estate properties (i.e. $PSA) and REITs (i.e. $AMT) at a price I can afford.
One of the important things I did when I started investing was to determine the tools & services that would be most useful to me. In my research I came across many of them but only a few I felt were useful to me. I have many more tools available to me with my TD Ameritrade account. Many more than I currently use. But if you don’t have a TD Ameritrade account then here are a few that you can use with your investment strategy to attain your financial goal.
One of the better research tools I found was Seeking Alpha. You can register for free and use this service to research company stocks that you’re interested in. Looking to see what a company’s dividend activity looks like then enter the ticker symbol in the search box and get that company’s summary information on your screen. You also have different tabs that you can click on to access that information. Click on the DIVIDENDS tab and see the dividend metrics for that company. You can find almost any information pertaining to your investment selection criteria.
Another one that I found useful was Financial Visualizations, FINVIZ. This is also free to register. The one feature that I used the most was the Screener feature. This is where I put in my investment criteria to search out company stocks that met my criteria. I could then do further research to determine if the stock was one that I would include in my portfolio.
Then there’s Morningstar. It’s a great resource for researching details about a specific stock. Has a few useful tools that I use. One is the PORTFOLIO where I can list all of my investments from different platforms. It keeps track of the current market price and the total value. It gives you analysis and news items for any stock that is publicly traded. Unfortunately, to unlock the more robust analysis and information you’ll need to subscribe to the premium service.
These are the information services that I used when I first started investing. When I first started I started investing on Robinhood. It was a good platform for a newbie like myself and getting a free stock wasn’t a bad move for me. I later sold that stock. As I learned more about investing and fine tuned my investment strategy I signed up for a TD Ameritrade account (without a free stock). Initially, I used Robinhood for individual stocks and TD Ameritrade for ETF purchases. Now, however, I am seriously considering moving almost all my shares over to TD Ameritrade. I still like Robinhood because they allow fractional shares trading while TD Ameritrade doesn’t. But then TD Ameritrade allows option trades and Robinhood doesn’t.
There’s been another disturbing trend that I have been seeing on social media lately. And that is unsolicited financial advice. It’s even bordered on unsolicited lifestyle coaching.
Whenever I see these type of posts and those that “recommend” a specific stock, I start to wonder. What is their agenda? I’ve posted about be cautious about taking unsolicited advice before. I also learned about a new term. Even though I’ve experienced this activity myself, I didn’t know the term for it. It’s call “Pump and Dump”. However, most of the social media posts regarding specific stocks are for well known companies that are beyond the need for such tactics. It may be just a recommendation with no ulterior motive attached to it. Could be someone who is proud of their financial analysis skills and just wants to show case them. Or maybe they just post the stock and the analytical information to solicit discussion about it. Seems like a reasonable tactic.
And there are others who post generic advice in hopes of getting people to request more info so they can sell them their book. Again, to each their own. My only advice is to proceed with caution. You are being asked to hand over your hard earned money to someone whose credentials and experience you have no detailed knowledge and no way to vet. When I’m selected a financial professional I make a point of trying to find out whatever I can about them, their credentials, and their experience. I don’t just hand my money to someone who has a catchy line or tells me how good they are or how rich they are. If I can’t verify it…sorry, no sale.
Then there are those that are arrogant enough to post presumptive statements about their prospective customer’s lifestyle. Statements like “If you spend $$$ tonight at the bar or restaurant and not in your investments, you need to review your priorities.” Another one that I’ve seen states “If you’re not earning $XXX then you’re wasting your time.” Hmm. Who determines that arbitrary $$$ amount? People need to recognize everyone has a different strategy and financial goal. Presuming you know “what is good” for your prospective customer is the height of arrogance.
Which is why I don’t give advice or recommendations. Everyone is different. Everyone has different needs and priorities. They weren’t created to fulfill my dreams. I just started down the path of investing a short time ago but I’m not religious about it. The purpose of my blog and my postings on social media is to impart information and resources for the reader to do what they want with it.
Don’t just throw your money away. Make sure you know what you’re getting and from who. Because someone tells you that they’re a financial genius doesn’t make them one. And never, ever let anyone tell you how you should live your life. You can ask for directions for your financial strategy or steer you in the right direction (i.e. Are investing in funds better than investing in stock? and NOT What stocks should I invest in?) but the final decision as to how you get there is yours. You decide how you get there or how fast you want to go. Ignore the person that tells you that you “need to eat more ramen noodles” or anything else about how you live. Remember, they’re just trying to sell you something. Because they know that most people won’t follow the steps are outlined in any publication they are selling because everyone’s needs and agenda are unique to them. Instead, stick with the ones that tell/show you how to do something, what to look for and why, or explain the process.
I’ve only been investing a short time but as I’ve been trying to learn what I can about dividend investing, I’ve been coming across many posts and tweets regarding what stocks to buy. What I haven’t seen is how to decide which stocks to buy. It would go a long way if those that post stock recommendations would also give an explanation on how and why they come to recommend that specific stock. There’s an old saying:
Those people posting their stock recommendations without any explanation or method of how they got there are giving out a “fish”. Some people will blindly follow but never know why. Their only reason for selecting that particular stock is that “someone recommended it”. Hmm. How does that help you go forward? How can you move forward to deciding which stocks to invest in next? How well do you know the person giving the recommendation? What is the recommender’s agenda? Lots of questions come to mind.
We also have those that recommend lists of stocks to watch. Watch for what? What are we supposed to look for? Why should we be watching these stocks? Again, what is the poster’s agenda? When I get recommendations from my broker/financial advisor, they are based on my financial goals and broad selection criteria. Without an explanation of how they came to recommend these specific stocks you could miss some opportunities because you may not be looking at the same things that they are because their strategy is different than yours.
But if you give people the methodology of how you came to recommend these stocks you now are at the point of “teaching to fish”. Because now they can try to replicate your steps and maybe modify them to their strategy and decide on their own which stocks to buy. Telling me to buy a specific stock because it pays extremely high dividends is not useful by itself. There is more to my strategy than just dividends paid out. I’m not a one dimension investor.
Whenever I see the stock recommendation postings I always wonder “What is the poster’s agenda?” What are they after? I won’t recommend stocks. I will, however, detail a decision that I made about a specific stock or between 2 different stocks. I’ll explain what I looked at and what data was important to me and how my decision falls within my investment strategy.
I’m always on the lookout for ETFs to add to my investment portfolio. I came across 2 that I thought were possible candidates. Because I have a limited amount of money to invest, I tend to limit myself to 1 stock investment during my investment period. Currently, my eye is on these 2. Both are consistent performers in term of dividends.
VDE (Vanguard Energy ETF) – VDE tracks a market-cap-weighted index of US energy companies. The index includes those companies deemed investable by MSCI and covers 98% of the market. The fund invests in stocks of companies operating across energy sectors. It invests in growth and value stocks of companies across diversified market capitalization. This fund will allow me to diversify my portfolio to include energy stocks. As the name implied, this fund was created and managed by Vanguard (which I tend to prefer) back in 2004. Cost ratio is around .10%, which is a bit higher than I prefer. The fund is designated as an average risk (all investment entail a certain amount of risk, nothing is a sure thing). And lastly, the key factor to me is the dividend yield and dividend payout which is 5.69% and $2.74, respectively. The 5 year growth rate is a modest 4.73%. The current share price is $48.46. Which would not allow me to maximize my share ownership with my limited funds. $100 investment would only get me 2.06 shares. At the current dividend payout amount this would give me $5.65 in dividends.
QYLD (Global X NASDAQ 100 Covered Call ETF) – The investment seeks to provide investment results that closely correspond, before fees and expenses, generally to the price and yield performance of the CBOE NASDAQ-100® BuyWrite V2 Index (the “underlying index”).The fund will invest at least 80% of its total assets in the securities of the underlying index. The CBOE NASDAQ-100® BuyWrite Index is a benchmark index that measures the performance of a theoretical portfolio that holds a portfolio of the stocks included in the NASDAQ-100® Index, and “writes” (or sells) a succession of one-month at-the-money NASDAQ-100® Index covered call options. It is non-diversified. The cost ratio is around 0.60% (a bit high for me) but the dividend yield and payout are 11.78% and $2.55, respectively, which is better than most % yields. There is no data for the 5 year growth rate. The investment risk is above average but the return is considered high. This fund was started in 2013. Lastly, the current share price is $21.69. This is a better price in terms of maximizing share ownership. $100 investment will get you 4.61 shares. At the current dividend payout amount this would give me $10.97 in dividends.
From the start I’m going to tell you that I like Vanguard funds and tend to gravitate toward them. I’m not saying that Vanguard funds are better than Fidelity or others, just that I like them better than the others. Another factor that goes into my decisions is that I try to avoid risks in my investments. All investments have a certain level of risk associated with them and I try to minimize those whenever I can. I tend to stay away from high risk investments and investment activities (i.e. day trading, value investing, etc.) for no other reason that I’m at an age where I may not have the luxury of recouping any losses that I incur. Again, with all investments there is always a possibility of incurring losses but those, again, I try to minimize/avoid. I don’t gamble. I live in an area where I am no more than an hour away from a casino, yet I can’t remember that last time I was in one.
Another factor that affects my decisions is that I love dividends, consistent dividends. If one of my funds cuts their dividend payout two time within the same period, they become a prime candidate for me to sell. I’m in it for the income. My goal is to replace my current wages with income from my investments so that I can stop having to get up and go to work. Additionally, if I should die the income from the investments, if left alone, would be enough to sustain my wife. So I like dividend investments with dividend that pay consistently and grow.
So, based on many factors and data, including my investment goals and preferences, I’ll probably go with VDE.
This is NOT a recommendation to buy or not buy a certain ETF stock. This post is just a collections of information and thoughts that I had when I was going through to determine which ETF stock to invest in. This post is not intended to be any kind of financial analysis for evaluating specific ETF stocks, other than for myself and to show others what kind of evaluation I go through.
Here’s another video tutorial from Learn To Invest that I found interesting and informative. As I watch this video I can see that my investment strategy has to change. I learned something else to help me attain my goal.
No matter what kind of investor you are, either a value investor or dividend investor, there always come a point when you get to a point when you need to sell your stock. But when is that? I myself see DIPs (Drop In Prices) as a buying opportunity as long as the stock meets my investment strategy. But I found this video from Learn To Invest to be helpful and informative.
This question is one that I see all the time on different groups and social media. This comes from people who have experienced a financial windfall and have decided to have that money work for them. Some don’t give any additional details about their current finances so it’s hard to determine if investing that money is the optimal move for them or not.
But let’s presume that the person’s financial situation is stable and they are not in financial distress personally. Then the move to invest is the right move but the question is wrong. Why do I say that it is the wrong question? Because a better question would be “HOW do I decide which stock to buy?”. That would be a much better question. It’s a better question because, unlike the first question, you’re looking to gain insight and knowledge about stocks so that YOU can decide which stock to buy.
The first question is asking for the answer to be handed to you, and thus, you end up following someone else’s agenda and strategy instead of your own. Remember the old saying. “Give a man a fish and they’ll eat for a day, teach a man to fish and they can eat for the rest of their life”. This applies even more with investing. It’s your money and it should work for you and not for someone else. What good does it do you if you get the investment information from someone else but you don’t know why you should buy that particular stock and how it fits into your own strategy? The first question precludes you even having a strategy.
But when you ask “How do I decide which stock to buy?” you’ll be able to hone your own skills and fine-tune your strategy. Because you’ll earn something you didn’t know before. If you already knew, you wouldn’t be asking the question. Before you can learn WHAT to buy, you need to learn HOW to buy. Before you can pick a stock to buy, you need to learn how to pick a stock. Basics.
If you don’t have an investment strategy the question “How do I decide which stock to buy?” will go a long way to help develop one by seeing what others are doing and determining which ones help meet your goals. The first question “What stock do I buy?” doesn’t do anything other than just spend you money without knowing why and is just a 1 shot deal.
If you’re interested to learn how to put together a portfolio for big dividends then you need to start with this video. Like you, I’m in the process if learning everything I can about dividend investing. As I go through them I’ll feature the ones that I feel are the most useful and informative. If you want to see what other videos are available from Learn to Invest, click here. Enjoy the video.