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starting_to_invest [2012/02/23 22:16] tom |
starting_to_invest [2014/03/15 12:23] tom |
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+ | h1. Starting to Invest | ||
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+ | * re-read and revised in places in February 2012 | ||
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+ | 1. You can invest yourself. In fact, you must learn to invest yourself. Here's one mighty powerful reason: if you had bought Bank of Nova Scotia common shares in 1990, you would have earned a total return of 31.6% per year up to the end of 2005. Of this, 14.2% was dividend yield on the original investment and 17.5% in capital appreciation. Thirty two percent a year. As they are required to say in mutual fund ads, the past is not ... However, with dividend stocks it's different: dividend growth drives price growth. More on that topic later. | ||
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+ | You need to 1) open a discount self-directed account at a major bank, 2) transfer your funds into that account ((they' | ||
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+ | The average broker has some 300 clients. How much attention will you get if you deal with a broker? And the broker is in business, realize, to sell the securities his firm wants him or her to sell. These are most likely not good dividend growth stocks. | ||
+ | It's your money. You alone are motivated to manage it best. | ||
+ | At the most, you are only going to buy a dozen common stocks with growing dividend in your lifetime. And you'll hold them for the rest of your life (The Investment Zoo page 104, 94). In a way, it's quite simple. | ||
+ | You are going to save a lot of money. By not being in mutual funds with a 2.5% annual fee, you'll save $625 a year for each $25,000 you have invested. These fees add up. For instance, if your portfolio is $100,000 and earning 10%, and using an annual fee of 3% (wrap accounts fees are in this range), over a period of 25 years you would save over half a million dollars by investing yourself: yes that's $540,730. | ||
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+ | Have faith in your own abilities. Consider this from a column in August 2000 Fortune magazine...just as the bubble was bursting. Among their list of "ten stocks to last a decade" | ||
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+ | How to Start? | ||
+ | Some ideas and assistance for those who don't give a damn about investing, don't know a thing about it and don't even want to learn...but would like to retire early and well off. | ||
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+ | If you have a financial planner, you must consider getting rid of him or her. Most do not know about dividend growth investing. Probably they want to sell you the wrong products...funds. That's how they make their money. If the planner is a friend, ease out of the relationship, | ||
+ | You are going to have to do it on your own, but it will be worth it. I realize you don't know a thing about it. The motivation: you will be ahead at least tens of thousands of extra dollars, probably hundreds of thousands in a decade or two, depending upon what you start with. Believe it. Do it. Sever the tie with your financial advisor or broker. You must! | ||
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+ | Look at it this way; You are going to make a deposit, but not in a bank, rather in a company. And, as the company grows, your money will too. The company will pay you income (called dividend, not interest) four times a year. If the company does not pay a dividend, don't buy it. | ||
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+ | If you don't already have some money, save up a few thousand dollars, or sell one of your mutual funds. Then you have two choices. 1) Set up an account for yourself at a discount broker, or 2) find a friend with a discount brokerage account who will buy your first fifty or 100 shares for you. | ||
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+ | There aren't many more than two dozen good dividend growth stocks in Canada. That makes it fairly easy: you only have to follow a few stocks. In my own little RRSP, I have only four common stocks now valued at about $25,000 each. I started my RRSP in 1996 with a retirement gratuity of $32,000. You should be able to double your capital in a decade too...proving you stick to dividend growth stocks and don't have a broker or financial planner. It's easy...really it is if you have patience, common sense and control over your own behaviour. | ||
+ | Anyway, say you select a common stock which is selling for $45. Fifty shares will cost $2,250. If a stock is selling for $30, then perhaps you can buy 100 shares for $3,000. I usually buy in board lots like that, but you do not have to anymore. It might cost you $25, maybe $10, to buy it through your own or your friend' | ||
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+ | REGISTERED: If you are buying through a friend' | ||
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+ | The average annual return of Canadian common stocks that increased their dividends at least once a year since 1996 was 19.8%...that' | ||
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+ | Does the yield remain the same when you buy a stock? When you lock into a GIC, the yield remains the same for the duration, say five years. With a stock it could be different. If the dividend increases, as BCE's did in 2009, up by 11.8%, your yield, | ||
+ | * "The simple fact is that long-term distributable cash flows from large, publicly owned companies don't vary much from day to day." (The Strategic Dividend Investor, Daniel Peris, p.153) This 2011 book is a terrific book on dividend growth investing. | ||
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+ | Inside this site there is more information for novices. Stock selection 101, for instance, and, under 'The List' a page more on how to select using yield, Graham value and C.A.P.E. (cyclically adjusted price/ | ||
+ | * NOT BETA - “The riskiness of an investment is not measured by beta…but rather by the probability…of that investment causing its owner a loss of purchasing power over his contemplated holding period. Assets can fluctuate greatly in price and not be risky as long as they are reasonably certain to deliver increased purchasing over the holding period. Warren Buffett 2012 | ||
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