A Guide to Dividends and Reinvestment by John Mussi
An important yet sometimes overlooked aspect of investing in the stock market or other investment markets is the payment of dividends by the investment. Many people who invest only part-time or have investment plans through their workplace may not even be aware that dividends exist; they may even be confused by the sudden payment of dividends that appears periodically.
For those individuals who aren’t sure what dividends are or what you should do with dividend payments, this guide is for you.
Below you’ll find some basic information on what dividends are, as well as ideas of when you should reinvest your dividends and when you shouldn’t.
At its most simple, a dividend is an additional amount that an investor receives when the stocks or bonds that they are invested in perform well enough so as to give a profit to the company that they are issued from.
Many companies pay dividends based upon a portion of their profits, which is that portion divided up among all of those who have invested in it as a way to thank their investors for having faith in them and to share their profits with those who help them to stay in business.
Dividends are paid per share, so the more shares of a particular stock that you have the more you’ll receive when dividends are paid usually quarterly, as that’s when business report their earnings and profits or losses.
Some dividends are also paid on certain bonds or other investments that are done through a money market account; these dividends are a form of interest for the investment. In most cases, dividends are paid into a money market account so that you can choose to reinvest or withdraw them per your prerogative.
Some investments automatically reinvest all dividends paid, however, and many investment firms give you the option of having all of your dividends reinvested automatically into the stock or investment that paid them.
Reinvesting dividends is an easy way to make more money off of a particular stock or investment… after all, the investment is doing well enough to be paying dividends, and the reinvestment means that you have more of the stock or investment than you did before.
If the dividends that you receive are paid to a money market account, you may also choose to reinvest them into other stocks or investments than the one that originally paid them… this can be especially useful if you are receiving dividends from one of your investments that you have a lot of shares in, but you have another investment that you don’t have much of.
You can use the dividend from the larger investment to slowly build up the smaller one, or you can split the dividends among several different investments so as to build them all up over time.
When Not to Reinvest Dividends
Sometimes, however, it’s just as wise to not reinvest your dividends. This is especially true when you’re holding a balance in your money market account to take advantage of a high interest rate that’s being paid to it, or when you’re receiving dividends from short-term investments that you’re going to cash out soon anyway.
Even if you decide not to reinvest your dividends, they are still an advantage of investing in certain companies or certain types of investments.
Remember to check and see whether your investments pay dividends and to investigate the options available to you in regards to reinvesting or gaining interest off of any dividends that are paid from your investments.
You may freely reprint this article provided the following author’s biography (including the live URL link) remains intact:
About The Author
John Mussi is the founder of Direct Online Loans who help homeowners find the best available loans via the www.directonlineloans.co.uk website.
Professional Stock Investment Advice – Most Common Trading Mistakes by David Jenyns
The best Stock Market advice you will ever read is to learn from mistakes when someone else has made them. So, this stock market advice list I made a list of some of the most common trading mistakes that are made. Even I’ve made some of these. If you have already made some of the mistakes, you can rest assured that you aren’t alone in making them. If you haven’t made them, then here’s a way to get around having to learn by making the mistakes yourself, by reading my stock market advice list.
The Stock Market advice tip #1, and worst mistake that people make is that they believe trading is the easy answer, a way to get rich quickly. People will often expect to become wizards in the market overnight, but they fail to realize that trading is like any profession; you must learn how to do it first.
For example, would you attend a weekend doctor’s seminar and expect to conduct heart surgery on Monday? Of course not! I am shocked at what people expect when they go to a weekend trading seminar. They think they will create wealth without having to work, invest or think, and it just doesn’t happen that way.
After treating trading like a get rich quick scheme, my next stock market advice tip #2 and most common mistake, is to approach the market without a plan. Without a trading plan, traders approach the market in an inconsistent manner. One day they trade stocks and the next they trade the foreign exchange. Or, they may use one set of indicators one day, and the next day they will throw these indicators out the window and take on a completely new set. Without a consistent approach, the only thing governing their trading decisions is really emotions, and that will doom them to failure.
If a new trader has managed to skip these last two mistakes, they often fall down when they try to go it alone. This is my Stock Market advice #3, all traders should find themselves a coach, or a mentor. Someone who can help them spot the errors in their system that they might not have noticed. An outside point of view can help you avoid other costly mistakes, and greatly increase your profits.
These are some common and quite basic mistakes. The next errors I’ll mention are ones that are just as prevalent in the trading industry, but they often occur once traders have been around for a while. I have some personal experience with these mistakes. Let’s call this stock market advice list, the three most expensive mistakes I’ve made.
My stock market advice mistake tip #4, or the first most expensive mistake, I made was to search for the "Holy Grail" of trading. This was an incredible waste of both time and money. During the first three years of my trading career, I spent over $25,677 on a library full of books, videos and seminars as well as spending thousands of hours in search of the perfect trading methods. Honestly, 95% of what I bought was pure junk… I should have listened to my mentor earlier and realized the "Holy Grail" of trading is simply excellent money management!
My stock market advice mistake tip #5 or the second most expensive mistake I made was not having a predefined exit point. Early in my trading career, I remember trading a stock I thought had a high percentage chance of rising. I was too confident. I fully leveraged the position. Unfortunately, when things did not go as planned, I did not know when to exit, and was paralysed. I kept rationalizing why I should hold onto that stock. As the stock continued to fall, I made more and more excuses. At the very end, I remember thinking, "I can’t take it anymore!"
I sold out. That, of course, was the point the stock turned.
I learned two very valuable lessons that day. First, always have your exit points predefined. Second, big losses once started out as small losses, and it is much easier to take a small loss than a big one.
My Stock Market advice mistake tip #6 or the last most expensive mistake, I made is not one that took money out of my pocket; instead it was a mistake that made me leave money on the table. In fact, this reoccurring mistake cost me big.
Early on, I remember selling positions as soon as they showed a profit. I would not let my profits run, as I was too afraid to give the money back to the market. I figured the profit as mine. The result was that I ended up selling the stocks that were making me money.
It wasn’t until my mentor explained to me that when you are trading, and showing a profit, that is the point where you should be adding to the position, not closing it out, that I began to understand what I was doing. Once I started following his advice, my trading profits soared.
Trading is not an easy profession, but it give you great rewards. Avoid these common errors on my Stock Market advice list, create a simple, well-designed trading system, and learn your market. If you take the time to study the market, and learn from other’s mistakes as well as your own, you will become a successful trader.
About The Author
David Jenyns is recognized as the leading expert when it
comes to designing profitable trading systems.
Discover the “secret formula” of trading that anyone can use
to consistently generate BIG profits from the market by
downloading your FREE copy of David’s new Ultimate
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Avoiding Forex-Related Frauds & Scams by Marquez Comelab
A lot of people have been Ã¢â‚¬Ëœburnt’ from scam operations on the Internet. Their sites may look so perfectly legitimate that you doubt whether they would have gone through all that trouble building a trading platform just to steal your money. Beware.
The first thing I look for is the geographical location of the broker. If I find that they are based in a country where the financial industry is, in my opinion, relatively unregulated and under-developed, I quickly forgo signing up. This is terrible news for honest brokers in those countries, but your job as a trader is to protect your capital. If you loose that, then you cannot trade. The onus is on them to convince you that they will do the right thing by you as an investor.
I started out with an Australian broker. Currently I am using an American one. I have not tried UK-based brokers but the British financial industry is one of the best. Companies that are based in countries such as Japan , Germany and France are probably just as good too, if their website speaks your language.
Notice any license numbers that they may have registered with regulatory bodies that act like government watchdogs who oversee the finance and investments industries. These are organisations that impose strict rules to safeguard your investment. Some of these rules may include the requirement that brokers segregate all customer funds from the operational funds of the business. Your money is required to be put in highly-reputable banks and the funds are only withdrawn from these accounts upon specific withdrawal requests.
Take note that there are some fake regulatory bodies being thrown around in cyber-space as well. Take a look at how long they have been operating for. Try and search out any reviews or comments made about them. See if you can find forums where traders have discussions about their brokers.
Below is a list of things to keep in mind to help you avoid being a victim of a scam:
Ã¢â‚¬Â¢ Stay Away From Opportunities That Sound Too Good To Be True
There are people who may have just acquired a large amount of money just and recently are the same and are shopping around for safe investment vehicles. These may include retirees who have access to their retirement funds. It is understandable why retirees would be drawn to Ã¢â‚¬Ëœhigh-return, low-risk investments’. This is also what makes them very vulnerable. If you identify yourself to be one of these people, be careful. A lot of deceitful characters are after your money. Furthermore, only allocate a tiny amount of your money to trading until you can start growing it. Not all people can trade successfully, so it is a venture you should take on haphazardly. It is your life savings at risk.
Ã¢â‚¬Â¢ Avoid Individuals Or Organizations Who Claim To Predict Or Guarantee Large Profits
Any form of trading is hard. Trading currencies is no different. Be wary of statements that make it sound easy. Statements like:
Ã¢â‚¬Â¢ "Whether the market moves up or down, in the currency market you will make a profit";
Ã¢â‚¬Â¢ "Make $1000 per week, every week";
Ã¢â‚¬Â¢ "We are out-performing 90% of domestic investments";
Ã¢â‚¬Â¢ "You’ll make returns of 70% a year";
Ã¢â‚¬Â¢ "Here is a no-risk strategy".
If they could make such returns, why would they even bother letting you know about it.
Ã¢â‚¬Â¢ Be Wary Of Companies Who Downplay Investment Risks
Hold your wallet tight and zip up your purse when companies say that written risk disclosure agreements are routine formalities imposed by the government. Watch out for statements like:
Ã¢â‚¬Â¢ "With a $10,000 deposit, the maximum you can lose is $200 to $250 per day";
Ã¢â‚¬Â¢ " We promise to recover any losses you have ".
Ã¢â‚¬Â¢ Be Wary Of Companies That Claim To Trade In The Ã¢â‚¬ËœInterbank Market’
Do not believe it when some people say that they have access to the Ã¢â‚¬ËœInterbank market’ or that they can give you access to trade in that market because that’s where bargain prices can be obtained. This is not true. The Ã¢â‚¬Ëœinterbank market’ is not a place, it is not a physical building. It is simply a loose network of currency transactions that are negotiated between big financial institutions and other large companies.
Ã¢â‚¬Â¢ Ethnic Minorities Are Often Targeted
Ethnic newspapers and television Ã¢â‚¬Ëœinfomercials’ are sometimes used to attract Russian, Chinese and Indian minorities. Sometimes these ads offer so-called Ã¢â‚¬Ëœjob opportunities for account executives to trade foreign currencies’, whereby the recruited Ã¢â‚¬Ëœaccount executive’ is expected to use his own money to trade currencies and would often times be encouraged to recruit members like their friends and family to do the same.
Ã¢â‚¬Â¢ Seek Out The Company’s Background
Check any information you receive to be sure that the company is who they claim to be. If at all possible, try and get the background of the people operating the company. Do not rely solely on oral statements and promises made by the company’s employees.
Ã¢â‚¬Â¢ If You Are In Doubt, It Is Not Worth Risking Your Money
If after trying to solicit information and at the end of it all, you are still in doubt about the credentials of a particular company, my suggestion is to start looking elsewhere.
You may find further information by contacting government Ã¢â‚¬Ëœwatchdogs’ because they keep up to date with trends and reports regarding scams and other fraudulent activities. Please check the resource section of this site for the information of organizations that regulate the securities industry, sorted by country. There is also a list of brokers that you may want to look at.
Marquez Comelab, © 2006.
This is an excerpt, modified from the book: The Part-Time Currency Trader.
About The Author
Marquez Comelab is a private forex trader and is the author of the book: The Part-Time Currency Trader Ã¢â‚¬â€œ A Trading Guide For Working Men And Women, which can be purchased from www.marquezcomelab.com. He is also a major contributor of articles at TheFreedomToChoose.Com, where other articles on trading can be found.
Yesterday’s market was a mixed mess. It started down, then by the end of the day some things were up, and some were down. My 401k ended less than a thousand dollars from the quarter million dollar mark. Maybe today.
We had a guy from Fidelity in our work yesterday to talk about our 401k’s. They are moving from Amvescap to Fidelity at the end of April. The guy pretty much just reiterated what was in the literature. But think many people never bothered to read the stuff. I currently have my 401k invested in four funds. They will automatically move my money from these four funds, into four similar funds that Fidelity manages. I graphed out the funds, and for the most part, the new funds track my old funds. One exception is the move from Dreyfus S&P Midcap Index Fund (PESPX) to Victory Special Value Fund (SSVSX). They track pretty well except for some reason the Victory Special Value Fund took a major dump, dropping over 15% back in October 2004, while the Dreyfus S&P Midcap Index Fund didn’t. In fact the Dreyfus fund seemed to go up. They continue tracking after that, except the Victory Fund is drastically lower. It seems that if the two funds followed similar strategies, they would have similar results. So what happened in October 2004? Did the Victory fund have stakes in a bunch of companies that failed, while the Dreyfus fund did not? I asked the guy from Fidelity, but he couldn’t tell me what happened in October 04.
|INVESCO 500 INDEX TRUST||$55,878.86|
|DREYFUS MID CAP INDEX||$59,625.59|
|ROYCE LOW PRICED STOCK||$67,987.53|
|AIM INTERNATIONAL GROWTH||$65,669.53|
I can’t count many times Jim Cramer has used the word in the five minutes! Sounds like a technical analysis word. Technical Analysis is an oxymoron as it is neither technical or analysis! Boo yaa!