Good Morning Green Panda Friends. It’s time for the next post in our “Investing: The Ins and Outs of Dividends” series. Today we are discussing important dividend information for young investors as well as first time investors. Throughout this series we have discussed why we should consider investing in dividends, why companies pay dividends, and when we should not get into dividend investing. Today we are rounding up all of the bits of information that young investors and first time investors need to know about dividends before you start to invest.
Dividend Investor Help
Dividends can be an easy investment strategy or they can be a very risky investment strategy depending on how we choose to invest in dividends. The best help that I could give to a young dividend investor would be to use dividends as an equity investment to diversify your investment portfolio.
As with any investment strategy we should never put all of our eggs into one basket. We should never have only one type of investment option in our portfolio, and we should never have only one type of asset class (cash, fixed income, or equity) in our investment portfolio. We don’t want to have only fixed income in our investment portfolio because it may be too conservative and we won’t have any exposure to equity investing which gives us growth. However, at the same time we don’t want to have only dividends or other equities in our investment portfolio because there are risks associated with growth investing. If we hold only equities in our investment portfolio then we will have no security (aka fixed income investments) to stabilize our investment portfolio during times of market volatility.
Dividend Investing is a great investment strategy because it offers a regular income stream through dividend payouts. Large companies choose to pay out a portion of their profits to shareholders through dividends. When we choose to add a dividend investing strategy to our investment portfolio we are essentially purchasing stocks of particular companies either through a Dividend Mutual Fund or by purchasing individual stocks directly.
When we purchase Stocks in a company we are buying a little piece of that company. We become a stockholder, otherwise known as a shareholder, which means that we own a little share of that company.
The benefit to dividend investing is that it provides the potential for growth within our investment portfolio without adding a lot of extra risk which usually comes with equity investing. If we are a young investor and we want to add Stocks into our Investment Portfolio we should definitely do so by purchasing a Dividend Mutual Fund.
Dividend Mutual Funds are a portfolio of different stocks and therefore we are already more diversified than if we chose to buy one individual stock. This investment strategy helps young investors become comfortable with market movements as well as the daily changes in the value of our investments without taking too much risk.
A portfolio of stocks (aka a Mutual Fund) is less risky than buying an individual stock because if one stock looses value another one in our Mutual Fund could gain; this offsets the overall losses in our investment portfolio. However, if we only have one stock and the value goes down then so does the value of our entire investment portfolio. As we become a more experienced investor you can research and purchase your own individual stocks through a discount broker account.
Be sure to check out the previous posts in our “Investing: The Ins and Outs of Dividends” series:
Photo by Michael Hodge