What are Dividends?
Dividends are payments that a company makes to its shareholders. Dividends are usually paid on a quarterly-basis (every three months). If you own their stock you will get some cash on the side from them. This cash gets deposited to the account where you hold the stock. If a stock pays a 5% dividend, then we are being paid 5% of the value of the stock just for owning it. One exciting possibility is that if this stock were to one day double in value while the dividend stays the same, we collect 5% on that increased value – which to us is really 10% of our initial investment, annually.
Dividends can provide a sense of security or a limited “insurance” against losses. If in two years the stock lost around 10% in value and the annual dividend is 5%, we are not that concerned because we haven’t lost much money. Also, stocks that pay dividends tend to be less volatile. A large part of its shareholders are in it for the dividend and hold onto to the stock for longer periods of time.
For a retirement or long-term investment, some of the most successful and respected investors recommend accumulating stocks that pay dividends. People who have invested in the big famous dividend paying stocks such as Exxon, Pepsi, Coca-Cola, McDonalds etc (you know, those huge companies that have been around forever and will probably be around forever) decades ago are likely to be collecting pretty nice dividends today.
RothIRA + $458 a month + Dripping = Retirement
RothIRA – you want one. Allow us to tell you why.
There are tons of stocks and mutual funds and other things to invest in. The type of account we do it from matters. Not only does each transaction carry a possible fee (adding to our costs) but also for the taxes we pay. A regular trading account is taxable. The company that houses the account (Scottrade, eTrade, etc) will report to the IRS the money that you have made in this account. Yup, even here The Man has his hand out. They will also send you a form to include when you file your taxes. In a regular account you will be taxed on any winnings you took for the year.
Few people have heard of a RothIRA and most do not know that it is tax free. This is not a regular account from where we take profits whenever we want. There are rules to follow in order to keep the tax-free status. These rules are not bad at all if the investments we put in there are meant for retirement or for the long term. Basically, whatever your account is worth when you reach retirement age is tax free.
Most people have heard of a 401k – this is a retirement account managed by someone else. When you retire you can withdraw it, pay taxes on it and ride into the sunset with the rest. A RothIRA is similar, except that you manage it yourself and when you reach retirement, your genius investments and all of their profits are all yours – no taxes. This is meant for us regular folks to get a leg up – its an opportunity! Rich people can’t participate and the amount us regular folks can invest is currently limited to $5,500 a year. So if you can save $458 a month, put it in a RothIRA, invest it in dividend-yielding stocks or mutual funds and reinvest those dividends right back (to produce even more dividends, and on and on), you can do very well for yourself.
This is called a “Dripping” which comes from DRIP (Dividend Reinvestment Programs), an investment program that corporations would offer people to buy their stock and conveniently reinvest dividends into more of the same stock without the transaction fees a broker would charge. We can drip by ourselves with whatever dividend-producing stock or mutual fund we choose. Some brokerage accounts allow you to setup a drip automatically free of charge. Think about it, you picked a stock that you will buy more of over time and every once in a while you get more of it for free. Those free stocks will produce more free stock that will produce more free stock! Free! Free! Free!
Dripping in a tax-free RothIRA is a powerful investment strategy. Here is an example: assuming you open a RothIRA account with $5,000 and invest $458 a month in stocks (or mutual funds or whatever you like) that grow 4% annually on average, while yielding a 4% dividend on average along the way for 30 years, you will accumulate over $672,000. Those $458 every month for 30 years is almost $165,000 if all you did was put it in the bank (or stuff it in your mattress). But invested in a RothIRA with a dividend reinvestment strategy can be much more valuable – enough to retire on.
Interestingly enough, there are qualifying life events that can allow you to withdraw before retirement age without paying taxes or penalties. These include, first home purchase and paying your child’s college education. More reasons to open a RothIRA.
Investing in a RothIRA with a dripping strategy is like free money. A Money Rebel likes free money.
Stock Pick: GOOGLE
Money Rebels picks Google as its first stock recommendation. We consider it a long-term play with potential for big profits in the next couple of years.
Google potentially has more personal data on individual people than any other company. In exchange for access to Google’s highly rated, highly functional free apps and services, we volunteer information about us. The personal information is gathered from our use of Google’s apps and services. The purpose of all of this data is to put ads in front of us that we are likely to click on. While we are all used to ads (and largely ignoring them), Google can execute targeted ads relevant to each user and more likely to get a user’s attention. This makes advertising through Google very valuable and also as effective as web advertising could be.Google learns about us through our web searches and browsing preferences when we use their search engine or when we use their browser – both considered the best among their peers. No other company’s name is a verb such a Google, people don’t search for things anymore, they “google it”.
GMail is one of their most popular services and through its use, they are able to “know us better” – they are able to learn more about the topics that interest us including how we shop and travel.In the spirit of free software, Google has provided cell phone hardware manufacturers with a free operating system, Android. To date, the fastest growing mobile operating system. Cell phones are the most used gadgets, by far, for our generation and now anything we do through it adds to their data bank of information on us. These are just the common, most known services they offer in exchange for a peek into our lives. Other services we use from them are reading news through their site, buying media such as books, movies and music from them, using their calendar, social networking site, cloud storage and navigation. They even bought YouTube! How many of use don’t spent time viewing things that interest us on YouTube?
Having one company know so much about us for their personal benefit makes some people paranoid. However, Google launched GoogleNOW which allows all this data to benefit us, too. GoogleNOW enhances the user experience beyond ads we might actually click on and ushers in the next major advancement in personal computing – a concept once referred to as Web 3.0. This phrase was coined by John Markoff of the New York Times in 2006 when he referred to a third generation of Internet-based services that create an ‘intelligent Web’. A sort of artificial intelligence that serve us pro-actively.
This is the future – technology that knows what we need before we need it. Its not a robot butler (yet) but an app on your phone or tablet. It will tell you your local weather, traffic to your common destinations, sports scores to your favorite teams, price updates for stocks that you own, appointments coming up, etc. Here is an example of it’s usefulness – if you have an appointment at 8pm and it is currently 7pm but traffic conditions from your current location to the destination might cause you to be late, it will alert you. Another example – your airline sent you a digital boarding pass and when its time to use it, it’s right there in front of you – no need to dig up the email from weeks before.
Google’s top-notch services compels us to want to use them. They have an ever-expanding user base, better ways to use the data to pitch us relevant ads and all this makes Google the best place for any business to advertise on – allowing them to charge more for their incomparable services. It’s almost a monopoly.
The Internet is not only here to stay, but it is also growing with no end in sight. How people interact with it has become more natural and everyone depends on it in some form. The more Internet use and internet traffic there is, the more valuable advertising becomes. Not only does Google have this game in a headlock but they are able to target select audiences due to all the data they have on over 200 million active Google account holders and over 300 million regular users of their products and services. These numbers will only continue to grow.
Apart from the technologies that affect our daily lives in the present, Google is also involved and many of the technologies that will be affecting our daily lives in the future. For years they have been working on self-driving cars and most recently they have unveiled Google Glasses, a tool for people to interact with the physical world through what’s called “augmented reality”. While self-driving cars might be many years away from a common thing and augmented reality glasses might have not have much interest right now, they are reasons why we should expect Google to not only stick around, but become bigger and more present in our daily lives for decades to come.
We recommend Google at the current purchase stock price. Although, we expect to see a a 30% increase at some point in the next two years, we also like this stock as a long term, dividend-paying, growth stock to accumulate for years to come.
Money Rebels 