Prime Rate Credit

Dividends, in my humble opinion, are a great thing. After all, I’ve followed a bit of how world famous investory Warren Buffett, the head of famed conglomerate Berkshire Hathaway, invests, and much of the companies he invests in (mind you, long haul), do pay some sort of dividend.

Dividend investing probably isn’t for those who want a fast growing, quick money type of stock, like the next Google or IBM, or Marvel or heck, Berkshire Hathaway, but they are for people who want a solid, respectable and usually fairly reliable source of steady income over the years they invest for their golden retirement, rather than the risk of losing it all. This doesn’t mean that all dividend stocks are safe, or even steady for that matter, but a lot of the bigger companies like GE and PG (Procter and Gamble) are good solid dividend payers that grow steadily over the years and usually render a nice little return after years of investment.

I for one have have burned on investing in what I thought was going to be the next best thing, and without dividends as an incentive to stay in the stock, I quickly bailed when I realized that the majority of my capital, if not all of it, would be compromised if I kept it in that particular stock.

Dividend paying stocks generally steer clear of a lot of this type of volatility and can often be purchased at bargain prices during recessions and other economic downturns, or heck, even when it’s going really well in the stock market, because this tends to be when people go for high tech stocks, banks and the next biggest thing in hopes of getting more bang for their buck.

It’s important to note that dividends are not always “guaranteed” though, and that dividends can disappear with little or no notice, so it may be important for you to gauge this by looking at the company’s dividend paying history to determine whether their history dictates that you are taking a good risk by buying it for the dividend’s sake.

Let’s talk about the current stock market for a minute. First of all, you should know that I’m not a huge skeptic when it comes to the resilience of the American economy and the American stock market as well. I know, times have been extremely tough over the past year, actually about two years now, for our economy with a multitude of factors affecting consumers as well as stocks, because whatever affects the consumer basically affects the stock market as well as you may already know.

Many people who are not so convinced of our economy’s resilience are bailing out big time on US stocks, and delving their money into money market accounts which are a much safer option, but are an incredibly (odds have it) lower rate of return over the long haul on your money. Remember, you should almost always invest in stocks with the long term - at least 3-5 years in mind, if not more, or you could be in for a lot of losses as well as getting taxed out the wazoo for short term gains.

It makes me kind of sad that the paranoia about the state of the US is forcing people to panic and put their money in places that really don’t even keep pace with inflation - which by the way, in broaching a 5% mark this year, especially for food and other goods, rather than putting their money in places that have a much higher rate of return over the long haul. Think about it, the wealthiest people are the ones who still buy when everyone else is running away, just look at Warren Buffett as a prime example of this philosophy.

He has a well known theory that you should be greedy (buy stocks you think are good) when everyone else is scared, and be scared when everyone else is greedy. Hence he is one of the world’s richest men, actually I believe he tops that list now. As long as you are a person who can research good stocks and buy it at a good price (aka, when most others are scared to invest in the stock market), you could definitely make out like a bandit around retirement time!

I just recently became re-interested in investing money, and although most people are running scared from the stock market at times like these, I
realize that it can be a truly great time for bargain hunting for securities and boning up one’s retirement portfolio, priming it for the
next bullish economy and stock market. What this means is that you can buy good stocks at a cheap price (of course, depending on what the stock
is), and can enjoy some profits if you choose to cash them in (sell them) when the market again enjoys a strong run.

But that is not the point of this writing, we wanted to talk about the,importance of diversifying one’s investment portfolio, since this
aspect of creating a safer portfolio is important, even in the best of economic times, because it lessens the likelihood that you will lose large
chunks of your retirement fund at a time, or even worse, lose it all in one shot at some point.

It’s like the old cliche goes, you shouldn’t put all your eggs in one basket. Same thing goes for investments. Your investment portfolio
should never just contain one security, or just one type of security. When I say “type” I mean the technology sector, or the retail sector, or all your
stocks shouldn’t just be in the real estate or banking sector. This way, if one sector is broken for a while, your whole investor portfolio
doesn’t completely break down with it.

Unless you feel like you are an incredibly lucky person, all your “eggs” or money, should definitely not all be in one stock. Yes, you may get
incredibly lucky and have that one stock turn out to be the next Berkshire Hathaway, which has hatched many millionaires who started with them as
a fledgling investment, but let’s face it, this is a case that is few and far between, and if the odds were stacked against your one investment you
could potentially lose your entire nest egg in one fell swoop.

Diversifying your portfolio into different stocks and types of investments is pretty easy these days, since there are so many ways to invest and
so many companies that can be purchased on the NYSE publicly and fairly easily, so it is a practice that even the most savvy investors should
adhere to at all times, even when they think they have the hottest stock tip around.

Even though most financial advisors will tell you that taking a withdrawal, and many times even a loan, from your retirement account, should only be a last resort if you’re in a financial pinch, many people lately have been taking early withdrawals (with penalties and taxed as income), and loans against their 401k retirement accounts to help them through difficult economic times.

Although I must admit that I did take a loan against mine about 6 years ago for a financial hardship, I can honestly say that I will never, if I can help it, take that loan again. Even with me paying myself interest when I paid the loan back, directly out of my paycheck, I still missed out on precious compounding interest on my stocks because my balance was lower and the money I had withdrawn was not earning interest during the time.

Although when you take a loan, versus a withdrawal, there are no tax consequences, you are still taking money out that could be earning interest and is not, until you fully pay off the loan, and this can definitely impact your bottom line when you finally retire.

Many people are citing difficulty in paying their mortgages and credit card and other debt as reasons for taking withdrawals and loans, however, financial planners say that it still should be used as an absolute last resort, because who knows when you’ll get around to paying it back.

Also cited as reasons for the increase in borrowing against 401k’s is the whole credit crisis, as well as credit card companies lowering charge limits, when many people rely on credit cards (not good) to pay monthly expenses in one way or another. Also, it is increasingly harder to get low APR credit cards, so people are more heavily relying on lump sum money and other sources of income.

This is a very interesting concept that I just recently learned from a friend, and to be honest, I’m really unsure of all the ins and outs of doing things this way to invest money for one’s retirement, but I thought it sounded like a sort of innovative idea nonetheless.

This person, who happens to be approaching retirement age, told me that they just got a second mortgage on the house (which by the way, was almost paid off, another point that probably must be taken into consideration), and took the proceeds of the second mortgage and reinvested them into a retirement investment account of various investment instruments.

There are probably several factors to consider if you wanted to try something that is innovative like this in an effort to extend your retirement resources and invest more for the future. For example, it probably depends on what type of interest rate you are receiving on the mortgage. If it’s a high one, it may not even be worth it, unless you can guarantee you will be making more on that investment percentage wise in interest.

Another may be how much equity you have built up in your home. If you don’t have a whole lot, that may be another consideration. You’d be essentially re-debting yourself when you don’t even have much worth built in the house to begin with, and that could definitely deter some people.

Yet another consideration might be how far from retirement you are. In other words, is the compound interest you are going to earn on the money invested going to have enough time to compound to make this somewhat radical move worth it? Compound interest basically means that you are multiplying your money many times over by letting it stay invested for a longer period of time, ie 15-20 years.

There are probably tons more considerations I’m not even thinking of, but that might be a good starting point.

Dividends is a great word, especially for the investor who likes to not only use the possibility that a stock’s value will increase in per-share price, but also uses the fact that certain institutions pay out what’s called dividends on a quarterly basis.

Dividends are really a beautiful thing, because they essentially split certain earnings amongst shareholders and allow them to enjoy a little extra income, sometimes even in addition to an increase in the stock value itself. In the end, many times dividends are a win/win situation for stockholders as well as the institutions themselves, because they essentially raise capital from people who like dividend prospects, and the holders get the quarterly dividend payout benefit.

Well, many banks and financial institutions, two of the biggest dividend payers in the stock markets, are going to have to cut their dividend payouts or yields as of late because of the ongoing mortgage and bad credit crisis that is happening here in the US. Among those cited as making possible cuts are Citi Group, which may have to slash dividends to help make up for faltering profits, and to save money to put back into the business.

WaMu, or Washington Mutual, also recently announced it would be cutting its dividends, much to the chagring of stockholders, who soundly dumped off many shares and sent the stock price diving recently. Some may say it’s a bargain to buy these big institutions at lower prices, but that really is to be seen, especially since we don’t know how capable they will be to pull themselves out of this crisis and going forward we don’t know what the future holds for these companies.

It’s a shame really, but many times it is said that companies that have high dividend yields could in essence be shooting themselves in the foot in the end because the business profitability may not be able to sustain such great payouts, and they may find they need to cut dividends back, which could send stock prices diving.

I just started reading what I’m already going to call a great book about investing by the legendary investor himself Peter Lynch. And why is Peter Lynch “legendary”? Well, he was the fund manager for what is called by some the most successful and lucrative mutual fund of all history of mutual funds, the Fidelity Magellan mutual fund.

It is said that $1,000 invested in the fund for a period of just shy of twenty years would be worth $28,000, and that’s an excellent return on your money, for those of you who don’t know much about mutual funds.

In the book, first of all, Peter makes himself more human and identifiable with a forward about why he chose to quit his very lucrative career as the Magellan fund manager. He describes why financial success of that caliber simply isn’t worth the time it takes away from family, and he has three girls of his own that he feels he missed out on a lot of their lives because the tast of managing such a large mutual fund is so time consuming.

I liked the way he described himself during that period. He said he was financially wealthy, but time-poor, and that made perfect sense. The book “Beating the Street” was on the New York Times best seller list for quite some time, and there is a good reason for it. Peter tells it like it is.

He begins by hammering home to people that stocks are much more profitable in the end than most mutual funds, money markets, T bills and other lower risk but lower yield forms of investment. He then goes on to say that if you have a large time horizon, in other words, if you are young and have lots of time for your money to grow, then stocks are REALLY the way to go.

I haven’t gotten very far in this book yet, as I’m trying to read two other books simultaneously (I know, call me crazy), but so far, it’s a great read if you’re interested in learning more about “beating the street” - Wall Street, that is.

I sure am, and I’m young enough that I still have time on my side, so I’m willing to take more risks like the legendary investors do. Oh so far, he’s really also hammered home the point that you should never invest in a company that you know nothing about, or nothing about the industry it’s in.

Yep, I always forget that China is on a very different time zone than we are, as well as fiscal schedule as a result, and even though we haven’t even hit new years eve here yet on the east coast of the US, the Chinese stock market has closed for the year.

The Chinese stock market has become quite a hot topic this year of 2007, since the US economy has been pretty questionable for a long time now, and many feel that we are headed for a possible recession and are afraid to invest in the US stock market.

Many financial analysts and speculators have turned to investing in foreign markets, and one of the hottest markets is the Chinese market, which is said to grossly outweight the GNP of the US already. China is definitely going to take over the US as the next economic super power, it’s really just a matter of time, according to most people in the know.

Many who are frustrated with the US stock market and the fear that seems to be gripping the US economy and consumer confidence have turned largely to Chinese stocks, and even Indian stocks. In short, the middle east is quite a hotbed for rich American investors right now!

Many Chinese stocks are now available on the New York stock exchange, which makes it that much more convenient for American investors to snatch up stocks they believe are going to be profitable and for companies that they may know a little about, or at least a little about the industry, enough to make an educated guess as to whether to “bet” on the stock or not.

I myself, since I am young (I’m 33 years old, this is very young when it comes to investing and letting money grow over time, and I’ve already been investing via my 401k at work and other outside smaller investments since I was in my early twenties), tend to invest in higher risk, higher yield mutual funds as well as stocks that are geared more toward growth.

This means they may have volatility in the short term, which is why they would not be a good choice for those that are near or at retirement age, but for someone who has lots of years to invest and let their money grow, like me, they are better because over the long term, their gains and losses even out more, and their long term gains tend to be much better than those “safer” stocks and mutual funds that are recommended if you simply want to keep pace with inflation and not beat it, as well as have some pure profit in your pocket afterwards.

So, how do you know whether to invest in higher yield, higher risk portfolio additions, or the less risk, but also likely less payoff mutual funds and other investments such as government bonds and such? Well, it is always best to seek the help of a financial professional. However, a word of caution on this. Get a seasoned professional with a track record for making people’s portfolios profitable.

The difference between someone like say a college student and someone who has been in the workforce for several years have very different needs and may want different viewpoints from different types of financial counselors that have mroe experience with certain segments of the population.

There are some really good financial advisors out there, but there are also the ones that do not necessarily make the right choices for their clients when it comes to risk vs. payoff assessment. You may want to get recommendations from friends who have established a good rapport with their financial professionals, and you also may want to pay attention to whether your financial advisor works on commission for directing you to certain funds and stocks, or whether they are something called “fee based”.

If they are fee based, this means that they just get a flat fee for investing you in a certain fund, and that’s it. They do not really have incentives to get more out of you, because it is a flat fee. I took my dad along when I went with my financial advisor because he has many years of investment experience and is a former stockbroker himself, so he was able to explain to me the difference between the two.

I had initially chosen a “safe” financial counselor before when I had gotten myself in over my head with college student credit cards and needed both a financial advisor and someone to help bail me out of my credit card mess, and that was just something that suited me for that time in my life, and I now have different goals and agendas when it comes to making financial decisions for the long haul.

Yes, I almost wept when I read this too. For some reason, I guess I thought that since the majority of money market funds are invested in FDIC insured banks and financial institutions, that in the event of a major market meltdown, my money market fund would be protected by the federal government for deposits up to $100,000, just like it is with FDIC insured banks and financial institutions, in case they go bankrupt.

However, upon reading a little more after getting the typical jitters in an unstable market, I did find that a lot of investors think the same way I do, or at least their actions would seem to dictate this, since by the end of August 2007, money markets saw a serious surge in their funding, with investors that may have been nervous about investing in mutual funds, which are largely invested in the general markets, moved their money over to money markets. I thought, oh no, does that mean we’re in even bigger trouble if our money markets happen to go bust?

It seems that my worrying may be of no avail though, after further reading that the biggest financial institutions are still on solid ground, and doing just fine. I guess this means my money markets are supposedly safe? I guess there are no guarantees on anything these days in these financially uncertain times and people saying the ugly word “recession” over and over.

The housing market certainly isn’t helping, but I read with relief that most of the foreclosures are foreclosures on prospectors, those that were buying and flipping houses for profit. Guess that’s not such a good business to be in right now, with buyers edgy and home sales still in the dumper, but I didn’t realize that such a large percentage of these foreclosures came from home flippers, or prospecters.

I knew the idea of buying and selling homes for profit had become the next big thing in making people millionaires, and many thought it would be their financial salvation. Could this surge in home buying and selling have inadvertently really screwed up the housing market? What about all the new homes being built by popular builders now? Could that have contributed to this mess as well?