Harnessing Stock Market Volatility

Guest Article By Steve Selengut  

If you were to Google “stock market volatility”, you would find a wide range of observations, conversations, reports, analyses, recipes, critiques, predictions, alarms, and causal confusion. Books have been written; indices and measuring tools have been created; rationales and conclusions have been proffered. Yet, the volatility remains.

Statisticians, economists, regulators, politicians, and Wall Street gurus have addressed the volatility issue in one manner or another. In fact, each day’s gyrations are explained, reported upon, recorded for later expert analysis, and head scratched about.

The only question I continue to have about all this comical hubbub is why don’t y’all just relax and enjoy it? If you own only high quality income generating securities, diversify properly, and adopt a disciplined profit-taking routine, you can make stock market volatility your very best friend (VBF).

Decades ago, a nameless statistics professor brought me out of a semi-comatose state with an observation about statisticians, politicians, and economists. “In the real world”, he said, “there are liars, damn liars, and any member of the groups just mentioned”. An economist or a politician, armed with a battery of statistics, is an ominous force indeed.

Well, now, all economists and statisticians have high powered computers and the ability to analyze volatility with the same degree of certainty (or is it arrogance) that they have developed with regard to individual-stock risk analysis, economic and geographical sector correlation dynamics, and future prediction in general.

  • But the volatility (and the uncertainty it either causes or results from, depending upon the expert you listen to) persists.

Modern computers are so powerful, in fact, that economists and statisticians can now calculate the investment prospects of just about anything. So rich in statistics are these masters of probabilities, alphas, betas, correlation coefficients, and standard deviations, that the financial world itself has become, mundane, boring, and easy to deal with. Yeah, sure it has.

Since they can predict the future with such a high degree of probability, and hedge against any uncertainty with yet another high degree of probability, why then is the financial world in such a chronic state of upheaval? And why-o-why does the volatility, and the uncertainty, continue?

I expect that you are expecting an opinion (yet another opinion) on why the volatility is as pronounced as it seems to be compared with years past. Frankly, Scarlett, I can’t really make myself give a damn. The uncertainty that we are asked to believe is caused by volatility just simply is not. Uncertainty is the regulation playing field of the investment game… and of life, actually.

The more you invest in higher risk securities, the more you speculate on future directional change, the more you ignore growing income, and focus only on market value, the more uncertain your investment environment becomes. So risk, speculation, poor diversification, low income generation, and up only market value expectations combine to exacerbate uncertainty, but nothing can eliminate it… only that is certain.

Volatility, on the other hand is simply a force of nature, one that needs to be embraced and dealt with constructively if one is to succeed as an investor.

But this machine driven, hyper-volatility that we have been experiencing recently, has been magnified by the darkest forces of the “dismal science” and the changes that it has encouraged in the way financial professionals view the makeup of the modern investment portfolio.

On the bright side, enhanced market volatility actually enhances the power of the equity and income security trading disciplines and strategies within the Market Cycle Investment Management ( MCIM ) methodology… an approach to market reality that embraces market turbulence, and harnesses market volatility for results that leave most professionals either speechless or in denial.

  • MCIM focuses on the highest quality equity securities and well diversified income security portfolios, creating a lower than normal risk environment where price fluctuations can be dealt with productively, without panic. Higher prices generate profit taking transactions; lower prices invite additional investment. The underlying quality, diversification, and income generation create a more tolerable “uncertainty quotient” than other methodologies.

But, with no statistical data necessary (or available) to support the following opinion, consider this simplistic rationale for the hyper-volatility of today’s stock market.

Volatility is a function of supply and demand for the common stock of a finite number of dirty, evil, greedy, polluting, congress corrupting, job creating, product and service providing, innovation and wealth developing, foundation supporting, gift giving, tax-collecting corporations.

Those of us who trade common stocks in general, Investment Grade Value Stocks in particular, owe a debt of gratitude to the real volatility creators: the hundreds of thousands of derivative products that bring an entirely speculative kind of indirect supply and demand to the securities markets.

Generally speaking, the fundamental, emotional, political, economic, global, environmental, and psychological forces that impact stock market prices have not changed significantly, if at all.

Short term market movements are just as unpredictable as they have ever been. They continue to cause the uncertainty you need to deal with, by using proven risk minimization techniques like asset allocation, diversification, and profit taking.

The key change agents, the new kids on the block, are the derivative betting mechanisms (Index ETFs, for example) and their impact on the finite number of shares available for trading. Every day on the stock exchange, thousands of equities are traded, a billion shares change hands. The average share is “held” for mere minutes. No one seems to we seek out analysts who spin tales of “fundamental” brilliance, profitability, or income production.

On top of derivative trading in real things such as sectors, countries, companies, commodities, and industries, we have a myriad of index betting devices, short-long parlor games, option strategies, etc. What’s a simple common share of Exxon to do? I’ve heard financial talk show hosts warn listeners to never, not ever, buy an individual equity!

  • Is today’s movement in any individual equity the result of demand for the company shares themselves, or demand for the multiple funds, indices, and other derivatives that track or include the company in their “model”? How many derivative owners have a clue what’s inside their ETF?

We are in an environment where investors feel smarter dealing in sectors than in companies; where 401k “retirement” plans (they really are not retirement plans, you know) are banned by regulators from offering even reasonably high yielding investment opportunities, and where government fiscal policies have forced millions of actual retirement savings accounts to seek refuge in the shark infested waters around Wall Street.

Market volatility is here to stay, at least until multi-level and multi-directional derivatives are relocated to the Las Vegas casinos where they belong, until regulators realize that 7% after higher expenses is better than 2% after minimal expenses, and until interest rates are allowed to return to somewhat normal levels… and this is what feels to some like an elevated level of uncertainty.

For the discernible future, we’ll need to find a way, a methodology, that makes both of them our VBFs.

My articles always describe aspects of an investment process I have been using since the 1970’s, as described in my book, “The Brainwashing of the American Investor”. All the disciplines, concepts, and processes described therein work together to produce (in my experience) a safer, more income productive, investment experience. No implementation should be undertaken without a complete understanding of all aspects of the process.

Article Source: https://EzineArticles.com/expert/Steve_Selengut/12786

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Income Investing Fantasyland: High Dividend Equity ETFs and Mutual Funds

Guest Article By Steve Selengut 

Several years ago, while fielding questions at an AAII (American Association of Individual Investors) meeting in Northeast NJ, a comparison was made between a professionally directed “Market Cycle Investment Management” (MCIM) portfolio and any of several “High Dividend Select” equity ETFs.

  • My response was: what’s better for retirement readiness, 8% in-your-pocket income or 3%? Today’s’ response would be 7.85% or 1.85%… and, of course, there is not one molecule of similarity between MCIM portfolios and either ETFs or Mutual Funds.

I just took a (closer-than-I-normally-would-bother-to) “Google” at four of the “best” high dividend ETFs and a, similarly described, group of high dividend Mutual Funds. The ETFs are “marked-to” an index such as the “Dividend Achievers Select Index”, and are comprised of mostly large capitalization US companies with a history of regular dividend increases.

The Mutual Fund managers are tasked with maintaining a high dividend investment vehicle, and are expected to trade as market conditions warrant; the ETF owns every security in its underlying index, all of the time, regardless of market conditions.

According to their own published numbers:

  • The four “2018’s best” high dividend ETFs have an average dividend yield (i.e., in your checkbook spending money) of… pause to catch your breath, 1.75%. Check out: DGRW, DGRO, RDVY, and VIG.
  • Equally income unspectacular, the “best” Mutual Funds, even after slightly higher management fees, produce a whopping 2.0%. Take a look at these: LBSAX, FDGFX, VHDYX, and FSDIX.

Now really, how could anyone hope to live on this level of income production with less than a five or so million dollar portfolio. It just can’t be done without selling securities, and unless the ETFs and funds go up in market value every month, dipping into principal just has to happen on a regular basis. What if there is a prolonged market down turn?

The funds described may be best in a “total return” sense, but not from the income they produce, and I’ve yet to determine how either total return, or market value for that matter, can be used to pay your bills… without selling the securities.

Much as I love high quality dividend producing equities ( Investment Grade Value Stocks are all dividend payers), they are just not the answer for retirement income “readiness”. There is a better, income focused, alternative to these equity income production “dogs”; and with significantly less financial risk.

  • Note that “financial” risk (the chance that the issuing company will default on its payments) is much different from “market” risk (the chance that market value may move below the purchase price).

For an apples-to-apples comparison, I selected four equity focused Closed End Funds (CEFs) from a much larger universe that I have been watching fairly closely since the 1980s. They (BME, USA, RVT, and CSQ) have an average yield of 7.85%, and a payment history stretching back an average 23 years. There are dozens of others that produce more income than any of the ETFs or Mutual Funds mentioned in the “best of class” Google results.

Although I am a firm believer in investing only in dividend paying equities, high dividend stocks are still “growth purpose” investments and they just can’t be expected to generate the kind of income that can be relied upon from their “income purpose” cousins. But equity based CEFs come very close.

  • When you combine these equity income monsters with similarly managed income purpose CEFs, you have a portfolio that can bring you to “retirement income readiness”… and this is about two thirds the content of a managed MCIM portfolio.

When it comes to income production, bonds, preferred stocks, notes, loans, mortgages, income real estate, etc. are naturally safer and higher yielding than stocks… as intended by the investment gods, if not by the “Wizards of Wall Street”. They’ve been telling you for nearly ten years now that yields around two or three percent are the best they have to offer.

They’re lying through their teeth.

Here’s an example, as reported in a recent Forbes Magazine article by Michael Foster entitled “14 Funds that Crush Vanguard and Yield up to 11.9%”

The article compares both yield and total return, pointing out pretty clearly that total return is meaningless when the competition is generating 5 or 6 times more annual income. Foster compares seven Vanguard mutual funds with 14 Closed End Funds… and the underdogs win in every category: Total Stock Market, Small-Cap, Mid-Cap, Large-Cap, Dividend Appreciation, US Growth, and US Value. His conclusion:

  • “When it comes to yields and one-year returns, none of the Vanguard funds win. Despite their popularity, despite the passive-indexing craze and despite the feel-good story many want to believe is true-Vanguard is a laggard.”

Hello! Time to get your retirement readiness income program into high gear and stop worrying about total returns and market value changes. Time to put your portfolio into a position where you can make this statement, unequivocally, without hesitation, and with full confidence:

“Neither stock market volatility nor rising interest rates are likely to have a negative impact on my retirement income; in fact, I am in a perfect position to take advantage of all market and interest rate movements of any magnitude, at any time… without ever invading principal except for unforeseen emergencies.”

Not there yet? Try this.

*Note: no mention of any security in this article should be considered a recommendation of any kind, for any specific action: buy, sell, or hold.

My articles always describe aspects of an investment process I have been using since the 1970’s, as described in my book, “The Brainwashing of the American Investor”. All the disciplines, concepts, and processes described therein work together to produce (in my experience) a safer, more income productive, investment experience. No implementation should be undertaken without a complete understanding of all aspects of the process.

Article Source: https://EzineArticles.com/expert/Steve_Selengut/12786

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The Right Ideology

A few days back I saw a tweet that stated that stacks that were selling for under $5 didn’t double in price any faster than those stocks selling for over $100. I responded to that tweet with the following comment: “This is very true. But I can buy more shares of stocks under $5 as long as the fundamentals are solid and the dividends are consistent.”

Well, that comment brought out all of the arrogant investors who felt that THEIR way was the only way. I get responses from “Why does more shares matter? Shouldn’t the total amount of dollars invested be what you look at?” to “…it depends on the company equity dilution plus never invest for dividend if u live in a high tax region like india where dividend are taxed @30 %”

The answer to the first response was – No, because I’m a dividend investor and dividends are what is key to me and my strategy. Doing anything else is just pure gambling in that you hope the stock price goes up. And if you want more shares you have to buy more stocks instead of just re-investing your dividends. This is the way you create a sustainable passive income stream.

The latter responder didn’t seem to know what my investment strategy and assumed that I just invested money willy-nilly into anything that paid a dividend. Again, if they had bothered to take the time to read and understand my investment strategy there wouldn’t have a point of them to bother to respond to my comment. Now I didn’t bother delving into their investment strategy because I wasn’t interested in their strategy. It was obvious that they were a value investor and that wasn’t the direction I was interested in going with my investments.

Why do I say they’re arrogant? Because nobody responded with a question asking my rationale for my statement. Everyone assumed that my investment strategy has to be like theirs. Many of those that responded I would presume were value investors (buy stock and wait for the stock price to increase). That’s fine for them. But that’s not my strategy. They could have accessed my blog (there is a link to it in my Twitter profile) and they would have been able to read the blog entry that detailed my investment strategy here and here. A lot of my tweets are about posts/articles on my blog. To fully understand what I am investing in and how I am investing, you’d have to follow my blog.

Lastly, I am NOT a financial planner or advisor. You need to complete your own due diligence and research in which stocks to buy. You need to determine your own strategy. This last part is important even if you have someone who manages your investments for you. Otherwise, you’re using someone else’s strategy for their purposes and not yours.

New Stock Ideas: A Guide to Some of the Best Industries for Beginners to Invest In

Guest Article By George Botwin 

Are you new to investing? 2019, overall, has been pretty good to shareholders. The best stocks to buy are strong companies with a solid foundation, expected to prosper no matter what the future holds. Even though the trade wars are stirring up a lot of concern, there are still some relatively safe stocks, some of which are under the radar. To give you a starting point, here are some new stock ideas to think about.

Cloud / file hosting technology

Dropbox (DBX) in particular has a 112% upside. The company seems to be stabilizing thanks to new product offerings and pricing in order to better serve the needs of its 500 million+ registered users. The virtual storage needs of many people are growing so much that free accounts aren’t sufficient enough anymore, which means that the number of paid subscriptions is growing.

Wind energy

Wind energy projects are becoming more pervasive in a number of countries. This clean, sustainable source of energy is considered a good long-term prospect. There is potential that the operating costs are declining, and the pricing seems to be stabilizing.

Australian Housing

If you’re looking for new stock ideas in real estate, consider the metropolitan areas of Melbourne and Sydney. They are short of rental supply and the population is growing due to immigration. There has been a lot of money put into Australian from foreign countries like China. If you are interested in the Australian real estate market, keep rental properties at the top of your priority list.

Waste management

This isn’t the most glamorous industry to invest in, but with an increase in environmental services, pollution control, and recycling centers, it is reasonable to see the value in investing in this side of the industrial sector. It is a necessary part of everyone’s lives. A couple of organizations to look into include US Ecology (ECOL) and Waste Management (WM).

Aerospace sub-sector

There has been a boost in US military spending this past year, so it might be worthwhile to put money into companies that are part of the supply chain, such as designers and developers. The aerospace industry typically performs well in late economic cycles. As the cycle matures, there is an increase in plane orders, and a good way to play it safe is by investing in the suppliers.

Where to Get More New Stock Ideas

These are just a few recommendations. The best way to learn about new stock ideas and investment opportunities is to become part of Capitalist Exploits. There are currently 30,000+ investors getting unfiltered analysis of the financial events shaping the world. This is definitely THE investment newsletter to subscribe to.

To get closer to financial freedom, visit George’s website: https://www.financiallygenius.com/capitalist-exploits/

Article Source: https://EzineArticles.com/expert/George_Botwin/1425000

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Which Portfolio Mix, Is Best For You?

Guest Article By Richard Brody 

When, it comes to investing, and/ or, personal financial planning, there is no such thing, as, one – size – fits – all! Depending on one’s age, needs, goals, priorities, risk tolerance, purposes, etc, the most appropriate strategy, may be determined, on a case – by – case, basis! Your total assets, liquid assets, income (from a variety of sources), job security, reserves, and personal, comfort zone/ level, are significant factors, to determine, the best path forward, for you, in terms of creating a personal, investment portfolio. With that in mind, this article will attempt to, briefly, consider, examine, review, and discuss, which, mix, might make the most sense, for your specific combination, and set of conditions, and factors.

1. Risk tolerance: One of the first things to consider, is, your personal, risk tolerance. That means, in simple – terms, how might you balance, investing, and being able, to sleep, at night! Many people confuse terms, especially, when it comes to, mixing – up, the difference, between, growth, and income. How often have you heard, someone, declare, the growth – investments, they held, didn’t offer enough income, and/ or, income – focused investments don’t provide growth/ rising prices, etc? One must consider, how much risk, they are ready, willing, and/ or, able, to tolerate, and accept!

2. Goals/ objectives: Identify, clearly, your individual goals, and objectives, when considering your portfolio mix. Some goals, include: saving for a child’s education; creating a source, to purchase a future house; developing a retirement fund; etc. It makes sense, usually, to carefully, choose, the right mix of investments, for each objective. Achieving goals, generally, is easier/ simpler, when done, over a longer – period of time, so one might take advantage of the concept of Dollar Cost Averaging. This approach, often, minimizes overall – market risk, because, when purchases are made, at a specific point, every month, market fluctuation becomes far – less, relevant and significant!

3. Needs: We are individuals, and have our own needs! Avoid, trying to, Keep Up With The Joneses, because, what might make sense, for them, may not, for you, and what you need! Do you need, growth, present income, future income, or some combination, etc?

4. Small, versus, Large – Cap, equity: We often hear the terms, small – cap, versus, large – cap. This refers to the amount of capitalization, of the individual company, investment, or mutual fund. The value, and monetary stability, and strength of any company, may be a factor, in the safety, etc.

5. Bonds and Preferred Stock: Corporate bonds are debt, which companies use, to raise monies/ capital. Some are unsecured ones, but, generally, we consider, secured bonds (debentures), which are backed, by the finances of that company. Therefore, while, many consider, bonds, safe, that depends on, the quality of the specific company. Preferred stocks are generally, favored forms of equity, and pay a regular dividend. Most people, who invest in these two types of investments, seek consistent income. At this point – in – time, because of record – low, interest rates, existing bond prices, are high, because they were issued, when rates were higher, and the price of the bond, is adjusted, because, it determines the total yield.

The more you know, and understand, the better, you will determine the portfolio mix, which might, best serve your individual needs, goals, and priorities. Become a smarter investor!

Richard has owned businesses, been a COO, CEO, Director of Development, consultant, professionally run events, consulted to thousands, conducted personal development seminars, and was involved in financial planning, for 4 decades. Rich has written three books and thousands of articles. His company, PLAN2LEAD, LLC has an informative website http://plan2lead.net and Plan2lead can also be followed on Facebook http://facebook.com/Plan2lead

Article Source: https://EzineArticles.com/expert/Richard_Brody/492539

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Selecting A Brokerage Account

Once a person has decided that they want to start investing in the stock market, have stabilized their finances, created a workable financial budget, and established their investment strategy it’s time to select an investment platform/brokerage through which you want to buy and sell your stocks. This would be the most efficient and economically manner in which to do this.
There are quite a few brokerages to choose from. I’m only going to tough upon a few in this post. Most brokerage companies are now commission-free for normal traditional investing activity. There are exceptions so make sure that you check out their fee schedules to find out what transactions carry a fee with them and how much.

M1 Finance : You get high yield checking, low rate borrowing for margin trading, automation, and optimization. They do support fractional shares and you can tap into a flexible portfolio line of credit at a low base rate, and use those funds for anything: major purchases, emergency funds, or portfolio leverage. Plus, you can pay back on your schedule. There are 2 downsides to this platform: they require a minimum investment of $100 and they charge a yearly fee of $125.

Public : Another commission-free investing platform that also will give you a free stock when you open and account and fund it. Also supports the purchase/ownership of fractional shares. They have Built-in safeguards for risky stocks, they explain terms when you see them, but they don’t allow day-trading or sell you margin loans to invest with, and they don’t sell you exotic, complex investment instruments.

Robinhood : Another of the non-traditional investing brokerages that offered a free stock when you open an account and funded it. This is the one where I got my start in investing. Also allows for purchasing/ownership of fractional shares, unlimited commission-free trades in stocks, ETFs, and options with Robinhood Financial, as well as buy and sell cryptocurrencies with Robinhood Crypto. Does not offers free IRA accounts or short selling.

Webull  : Webull supports full extended hours trading, which includes full pre-market and after hours sessions. One problem with Webull is it doesn’t currently support dividend reinvestment, but they may in the future. I would take this is mean that fractional shares are not supported. Offers free IRA accounts and commission free short selling in margin accounts.

TD Ameritrade : One of the main brokerage companies that has recently been bought up by Charles Schwab. After starting out on Robinhood I moved all of my positions over to here. You can manage your own portfolio or, for a fee, have your investments managed for you. They do have a DRIP (Dividend ReInvestment Program) and allow fractional shares through it but you cannot buy fractional shares outright.

There are other brokerage accounts out there so be sure to do your research before you make your final selection. If you decide to switch later on most brokerages will allow you to transfer you account to another brokerage but there will be a transfer fee associated with it. The fee with depend on the brokerage company you are transferring your account FROM.
Many of the brokerage houses, even the smaller ones, provide tools to help you manage your investments. Depending on how much detail information you want will determine which platform you’ll want to use, from least detailed like Robinhood to most detailed like TD Ameritrade.

Three Things To Do Today To Improve Your Retirement Planning

Guest Article By Morris Raymond

There are a number of things that make a person break into a cold sweat, but perhaps one of the more underrated ways to cause stress is thinking about planning for the future with an emphasis on retirement planning. It seems odd that planning for the amount of money you have for future use would cause so much havoc simply because we tend to be big fans of money. Still, there seems to be a negative cloud that surrounds all that is planning for retirement.

Perhaps it’s because it reminds us of an end to things as we know them. Sure, it’s only the end of our working life, but many of us identify ourselves by the careers we establish. When you’re no longer working, how does that ultimately affect the way you identify yourself? Big questions to be sure, but it also reminds us that we’re getting older & looking at our mortality head-on.

Regardless of the reasons why we put off planning for retirement, it’s important to make a plan early. While it may seem as though there is a big process involved, it’s as simple as choosing to start planning. After this step, here are three more simple ways to get the retirement planning process moving forward:

1. Set Goals – When it comes to retirement, we always hope to relax and have a nice time doing nothing. Even with nothing pressing, though, we want to do something cool like travel or dive into a hobby. One easy way to start a retirement plan is to lay out the type of goals you’d like to accomplish. Whether they seem a little extravagant or not isn’t an issue. A goal is a goal, and so long as it’s important to you & your family, list it.

2. Create A Working Budget – Though this seems to be a step most people in debt take, it is a step that even a careful retirement planner should take to help get their finances in better order. Sit down & establish your monthly expenses. Establish what your take-home pay is per month and see where the numbers fall. If you’re spending more than you’re making, you need to figure out the best way to shed unnecessary spending. If you’re “in the black”, the extra money should be used to begin establishing your retirement account.

3. Be Mindful of Extra Money – If you have money that comes to you in the way of a work bonus or raise, just don’t spend it. Literally, put that extra money into a retirement fund. You were operating before on the money being brought into your home, so it means you can still operate the same way. Any extra money should be seen as money that’s just out of your reach & untouchable.

Obviously, retirement planning is more complicated than what’s outlined here. Still, these are three very simple steps to start the process, and simply starting to plan for retirement is a step in the right direction.

Need help with retirement planning? Contact Sproles Woodard for more information on other steps you can take to get the retirement ball rolling, and take advantage of the numerous financial planning services they have to offer.

Article Source: https://EzineArticles.com/expert/Morris_Raymond/2323165

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Relavence of the Dividend Yield

What’s so important about the dividend yield? Why do I focus on it equally with the stock price? As a dividend investor I like to have my money work for me with little effort or worry. All investments come with risks. I like to mitigate mine. I do this with dividends. With dividends I don’t rely solely on share price to receive a return on my investment. Also, dividends are what I get paid to have my money tied up for the long term.

What does the dividend yield mean to me? How does it relate to my own investment strategy? I look at the dividend yield as a way to determine how good the stock price is in relation to the dividends being paid. The higher the yield the better the stock price is in relation to the dividend. Let me explain using 2 stocks.

                                        Div Yd   Share $   Div $
Home Depot ($HD)   2.15% $272.81 $6.00
Lowes ($LOW)             1.48% $159.82 $2.40

As you can see Home Depot has a high dividend yield not just because of the high dividend it is paying but because the high dividend relative to its share price. If the share price were to increase by 10% the dividend yield would drop to 2%. Additionally, if the share price dropped by 10% the dividend yield would increase to 2.44%.

Again, you can see that Home DEpot and Lowes have dividend yields of 2.15% & 1.48%, respectively. Now, if you took their share prices and switched, you’d end up with a dividend yield of 3.75% for Home Depot (6/159.82) and 0.87% for Lowes. The dividend yield can be affected by a change in either share price or dividend payout.

I view the dividend payout as a gauge to determine how good the share price is in relation to what they payout in dividends. As I stated before, this is just one of the factors I use to decide what stocks to invest in.

Of course, there still are other factors that I look at, such as, P/E Ratio, EPS, & PEG. I also start with companies that have a large MOAT. I don’t prefer to invest in companies which may have an uncertain future, regardless of how much they pay in dividends. But overall, it starts with the Dividend Yield.

Due Diligence

Whenever you come across a company that you’re interested in investing into it is best to make sure that you do your due diligence before you invest. The reason you want to do this is to:

  1. Minimize the risk of losing your investment. All investments have an element of risk associated with them. But a smart investor wants to minimize that risk.
  2. Know something other than the company’s name and stock price. How is the company doing? Is it a good investment? This last point is based on your pwn investment criteria.

In order to do either of the above you need to access the company’s fundamental information. From there you need to be able to calculate certain benchmark data. There are many benchmark calculations that are suggested but in this post I will highlight the ones from the Income Statement. I may not look at all of these but these are the most common ones investors suggest.

  1. Net Revenue (Revenue – COGS)
  2. Gross Profit Margin (Gross Profit – Operating Expenses)
  3. Operating Margin (Operating Income /Revenue)
  4. Post-Tax Income (Pre-Tax Income – Income Tax)
  5. Net Income Margin (Net Income/Revenue)

I may not check each and everyone but I am interested in a company’s Gross Profit and their Net Revenue. This tells me how well the company is doing in its market niche and how well they are managing/controlling their operations. The benchmark for these is up to each individual investor to establish. I usually don’t calculate these for single companies but as a comparison between multiple companies.

I have limited funds available to invest so that if the other criteria benchmarks are relatively close with each other I use these benchmark data to narrow down my selections. The reason that I use benchmarks, even though I am a dividend investor and growth in stock price is secondary, because I want to make sure that the company will be around for the long-term. I’m not looking to invest for the stock price to jump up within a relatively short time. I’m looking to capture a passive income for the long-term. Once I buy a company stock I’m reluctant to sell unless the company cuts their dividend payout 2 times.

Here are some other calculations you can use to narrow down your selections:

Being Financially Stable

Guest Article By Rosemarie Sumalinog Gonzales 

If saving for retirement is a struggle, imagine yourself if you lost a job. More and more people really take care of their own retirement security. To avoid unnecessary financial constraints, create a plan to reduce debt as you approach retirement. Design your savings and spending plans.

Retirement planning is definitely difficult, especially if the implications of your choices tend to get magnified. You’ll need to determine the amount of savings needed for your desired lifestyle. A spending strategy is equally important. However, rather than following a budget, many people spend more than what comes in.

Determine your annual base or mandatory expenses on food, clothing, shelter, utilities, medical, and transportation expenses. Also consider investing in long-term health care insurance which can typically cover the cost of home care, nursing-home care, and assisted living which is not usually covered by traditional health insurance.

Safeguarding your finances while you are still employed will help you become financially stable even after retirement. Many people are anxious when their retirement years are fast approaching. Imagine being at that point in your life and feeling you haven’t achieved your goals yet. It could get especially worrisome if you don’t have enough savings to be able to sustain your lifestyle after you retire. So, you need to enjoy spending within your means.

Securing a retirement fund is definitely needed if you want to live comfortably. The best time to start saving for your future is now. Not next year, not next week, not tomorrow, and not even later. Start planning for retirement at this very moment. It’s better to start sooner than later. The earlier you plan, the more time you have to save money, pay off debt, and invest in the future. You also give yourself some leg room in case you make a bad decision and need to recover from a mistake. If you start investing late, then you lower the possibility of accomplishing your retirement plans.

Consistency is essential in saving money for your retirement. At first, it may be difficult, but you’ll find it easier to save as you get along. One of the solutions for this is to set aside savings every month, even just a small amount. Save more as you go along-but never, never go below the initial savings amount.

Planning may be easy, but it’s the willingness and determination to stick to your plans that could bend at times. It’s important to have a clear vision ahead. No matter how far away your retirement years may seem, it is always a good idea to learn how to manage your personal finances. Those people who know how to manage their money succeed in allotting enough money not just for their savings but also for other financial matters.

It’s important to create a budget. Separate your needs from your wants and try to track your spending on a monthly basis by listing down all your expenses. Seeing where you spend your money can help you sort out your priorities and plan how you can save more from your income and spend less on non-important expenses.

Retiring from work is a major leap in one’s life. Prepare for the inevitable as early as now and assure a financially stable future for yourself and your family.

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