Thursday, January 31, 2008

A 3 Stock Diversified Portfolio That Pays Every Month!

Sounds impossible? Not really. As anyone who follows my blog knows, I prefer to invest in dividend paying stocks. I also like to get paid dividends every month of the year. So I have included in my portfolio stocks that pay dividends in different quarters. My current stock portfolio contains 23 dividend paying stocks. Each month I receive dividends from 5 to 6 different companies. I purposely constructed my portfolio in this manner, so I would see constant returns month after month. All dividends are paid in to a money market account with my brokerage and earn interest until I decide where and when to re-deploy the cash.

So how can you have a diversified portfolio of stocks that pay you a dividend every month and still only own three stocks? It's quite simple, you do as I have and purchase shares in companies that pay in different quarters. As an example, I've picked 3 stocks from my own portfolio. They are:

1. AT&T-- Telecommunications Industry (Ticker Symbol T) Paid last dividend in November 2007.

2. Anheuser Busch--Brewery (Ticker Symbol BUD) Paid last dividend in December 2007.

3. General Electric--Diversified Manufacturer (Ticker Symbol GE) Paid last dividend in January 2008.

These are all solid companies that have a long history of paying out dividends on a regular basis and should do well for years to come. They are part of my core portfolio. I have no intention of selling these stocks in the forseeable future. I am using these only as an example. They are involved in very different industries, thus providing a diversified portfolio and they pay dividends in different quarters, allowing the investor to receive a dividend each month of the year. Like I said, I am using these only as an example, you may prefer 3 different stocks for your own portfolio, but you get the idea.

As I mentioned earlier, from my personal portfolio I already receive 5 to 6 payments per month, every month of the year. I plan to continue building my positions in my current investments until the monthly payouts equal my income from work and then I will be free to choose whether I wish to continue working or not. From time to time I have to make adjustments in my portfolio, liquidating stocks that are not performing well and replacing them with new ones. However, I've found that I much prefer investing according to what I'm going to be paid in the form of dividend income, instead of trying to decide what stocks are going up in price. One bonus I've discovered by investing this way is that companies who consistantly pay and increase their dividends tend to be very stable price wise. So all things considered, this strategy has worked out very well for me.

Tuesday, January 29, 2008

An Update On My Plan For 2008

We're nearing the end of January and my wealth building plan is moving right along. As of this morning, my stock portfolio has regained a lot of the loss suffered during the past month, thanks to the interest rate cut by the Fed and the Economic Stimulus program. More importantly though, my cash positions have increased dramatically in both my money market account and in my regular savings account. I should have a nice tidy cash reserve built up by the end of March. I have decided to deploy my excess cash in 6 month certificates of deposit. The plan is to purchase a 6 month CD each month for the last 6 months of this year, then I will have one coming due each month thereafter. Should I need the money for any reason, it will be available to me, otherwise I will roll the interest and principal over for another 6 months. As for the stock portion of my investment portfolio, I am investing a set dollar amount each month (dollar cost averaging) to build up my stock holdings, thereby increasing dividend income on a regular basis.

I have automated all of my plan deposits through payroll deductions and recurring electronic transfers through my bank and my brokerage account, so my plan is very low maintenance. Right now I'm pretty much sitting back and watching the cash roll in. I think the adjustments I've made to my investment plan this year have produced some of the best results I've experienced so far. I'll post an update each month and keep the readers posted on how things are going.

Saturday, January 26, 2008

My Picks For The Three Greatest Investment Books Ever!

Over the past 20 years I have read more than 100 books on investing. While I almost always find something useful in each new book I read, there are 3 books that had a profound impact on my philosophy of money management and my investment strategy. If you are just starting out or if you are a seasoned investor, if you haven't read these three books, I highly recommend them!

Book No. 1

Rich Dad, Poor Dad by Robert Kyosaki

This book changed my whole way of thinking about money and investing. It opened my eyes to a world of opportunities that I had missed before.

Book No. 2

The Richest Man In Babylon by George S. Clason

Timeless wisdom about managing your finances and creating wealth!

Book No. 3

The Automatic Millionaire by David Bach

I wish I'd read this book as a teenager! This has to be the simplest and most straightforward plan for guaranteeing a person will end up rich.

If you know any young people who are just starting out and you want to do them a tremendous favor in life, I can't think of anything better you could do for them than to recommend they read these books or, better yet, make a gift of one or all of the three to them and set them on the path to financial prosperity.

My Thoughts on The Economic Stimulus Program

I was reading an article this week criticizing the economic stimulus program the government is in the process of passing. In the article, the author stated that capitalism meant some people get rich and some people lose money and the government should stay out of it. In theory, this is true. However, our government has always been involved in manipulating our economy in one way or another. So as far as I'm concerned, this is just more of the same. Personally I feel that any return of tax money to the citizens of the United States is a good thing. I also think it is a good thing to provide incentives to businesses to create more jobs. By creating more jobs the tax base is increased allowing the government to take in more revenue without additional taxes. In the end, I'm sure we'll end up giving this money all back to the government. With the Democrats in control of Congress and with their having a good chance of taking the presidential election, I wouldn't be surprised if we're not hit with a big tax increase in 2009 (remember the retroactive tax increase in Bill Clinton's first term).

As for the person who wrote the article being so indignant about government interference in a capitalist economy, I happen to know quite a few "self made" capitalists. What I've discovered during my association with these people is that every one of them had some kind of outside help, either from family, friends or inheritances, to get to where they are today. So why begrudge anyone a little boost in the form of a tax rebate. I know the extra money I'll be getting back is less than the amount I paid in federal taxes this past year and I'm sure this is true in most cases.

When all is said and done, I think this will be a good thing for the economy, at least in the short term and I believe it will be good for the stock market. Especially given the Federal Reserves willingness to adjust interest rates to help boost the economy.

Sunday, January 20, 2008

Great U.S. Corporations For Sale Cheap By Owners

With so many people scrambling to dump their stocks and preserve their capital, this could be the headline in newspapers around the world. The dollar is down against foreign currencies and the business news channels have run amok with their doom and gloom stories and their wild speculations as to where our economy is headed. All the while, the foreign sovereignty funds are snatching up equity in some of our great U.S. corporations at fire sale prices. Why? Because they know that when the smoke clears and all the Chicken Little's have had their say, the sky won't have fallen after all. And just like every other time in our nations' history, the stock market will rebound. Then everyone who was in such a great hurry to flee will be standing in line, anxiously waiting to pay inflated prices to get back in on a rising stock market once again. Those who don't learn from history, are doomed to repeat it.

Now is not the time to sell. That time is past. If you missed it, or for whatever reason, decided not to take advantage of it, now is not the time to be giving your stocks away. Have just a little faith in American business. We didn't become the richest nation in the world by accident. It was American business that built this country and I for one believe they will be around for a long time to come.

Don't get me wrong, I've lost money on my portfolio just like everyone else. But I'm not selling, I'm buying! I see this situation, even with the pain it is causing for so many, as a wonderful opportunity to pick up some of the greatest stocks for bargain basement prices. I get more and more excited every day, when I see stocks I've longed to own, but thought were overpriced, drop to levels well below what I was willing to pay for them. I see so many bargains right now it is impossible for me to take advantage of them all.

I watched with interest a news segment yesterday on how some people are beginning to profit from foreclosure auctions in the real estate market. They are picking up properties for a fraction of what they are really worth and re-selling them for a quick profit. While the profits may not be so quick on stocks, I'm convinced by past experience that the same thing will occur. While most people are selling, there will be people like myself who will recognize the situation for what it is, and purchase as many shares as possible, to be ready for the next upswing. When will that be? I have no idea. But I'm absolutely sure it will happen and I have every intention of being in position to benefit from it.

Saturday, January 19, 2008

How I Found An Extra $20,000+ For Retirement

At the beginning of this month, like I do every year, I sat down to go over my spending to see if I could make any cuts and save additional money for investing. This year, however, I wasn't really expecting to find much, since I had myself convinced that I was running a pretty lean operation. I was shocked to find how wrong I was!

When I started reviewing where my money was going, I found 4 items that totaled over $150 per month that could easily be cut from my spending without changing my basic style of living. As I've mentioned in some of my previous writing, I go out to eat every day, at least one meal a day. With these meals, I usually have a soda. In the area where I live, the restaurants typically charge $1.50 per soft drink, multiply this by 30 days and it totals $45.00. I decided that I really didn't need to drink so much soda and have begun ordering ice water with lemon instead, saving an easy $45. Next I reviewed my insurance policies. By cutting out extra coverage, which I really didn't need as a single person with no children, I was able to save myself an additional $75 per month, bringing my total to $120. Then I looked at my regular household expenses. Since I eat out so much and have mostly microwave meals at home, I was able to save an additional $20 per month by having my natural gas service disconnected (only my kitchen stove was gas, everything else is electric). While reviewing my insurance, I also discovered that I had emergency road service included with my auto insurance, which allowed me to cancel my regular roadside service, saving myself approximately $10 per month, for a grand total of $150 per month. If you multiply the $150 per month x 12 months, it gives me $1,800 per year or $18,000 over the next 10 years. Figure in the compounded returns from investing this money over the next 10 years and I will easily have over $20,000 more for my retirement.

Since I've been spending this money every month, I don't have to work any harder to keep paying it out. Only now, it will be paid to my investment account and will start earning additional money for me. Finding $20,000, what a great way to start the new year!

Friday, January 18, 2008

Never Say I Can't But Ask Yourself, "How Can I?"

When I was a kid, back in the 60's, I remember whining about something or other and telling my older brother David, "I can't do it." Whatever it was I was crying about, instead of pitying me and doing it for me he said, "Can't, never did anything." I have never forgotten this bit of wisdom. It seems it's always so tempting to say I can't do this, or I can't do that and when you have that type of mentality, you're absolutely right. Because, when you say I can't, your mind stops looking for ways to accomplish the task. But when you say, "How can I?", you put your mind to work figuring out ways to accomplish whatever it is you've set out to do. The people who accomplish the most in their lifetimes are invariably the ones who never give up trying. I've experienced a lot of ups and downs in my lifetime and there have been plenty of times when I've questioned myself and thought how much easier it would be to just give up. When I find myself getting in a rut and facing seemingly insurmountable obstacles, I start asking myself, "How can I make this better." I've found that once I ask myself this question, I will always find a way to improve whatever situation I find myself in.

If you find that your life isn't the way you'd like it to be, figure out what it is that you want, then ask yourself, "How do I get there from here?" The subconscious mind never sleeps. Once you give it a problem to solve, by asking questions of yourself, it will work non-stop to provide you with the solution. So never, ever. say, "I can't", say, "How Can I?"

Sunday, January 13, 2008

Buying A House Might Be More Affordable Than You Think

I've been wanting to buy my own house for a long time but have put off doing so for a couple of reasons. First I wanted to build up a substantial investment portfolio to increase my income and provide enough money to put a good down payment on a home purchase. Secondly, I live in an area with very low rent, so there wasn't really too much incentive for me to purchase a home, until I realized how much I'd actually spent on rent in the past 8 years.

In the past couple of years, several of my family members and co-workers have purchased homes. I've seen many of them struggle to makes ends meet since they took on big house payments, along with maintenance, property taxes and insurance. So this has kind of made me hesitant to move forward in buying my own house and in adding rental property to my investment portfolio. Then I decided to do a little homework.

Most of the houses purchased by friends and family members were priced according to the national average, which meant high house payments relative to local pay standards. Since the prevailing wage in the area where I live is below the national average, this means anyone purchasing a home priced according to the national average will have to struggle to make the payments. What I didn't quiet realize was that there are several properties available in my area that are quite affordable. In one search with a major real estate agency, I was able to locate more than 30 houses with payments equal to or much less than I currently pay in rent. I also discovered that the down payments are much less than I anticipated. I was thinking I would pay a 5% down payment and spread the loan over 30 years for my first property purchase. However, after taking a look at what is going on in the local real estate market, I've realized that it will be quite simple for me to pay 10% down and take out a 15 year mortgage without changing my monthly payout for housing. So instead of throwing my money away on rent, I will be building up equity in my own home and have a very strong possibility of price appreciation, given the current state of the market.

So before you make up your mind that you can't afford to buy property, do a little homework in the area where you live. I would never have thought that any decent homes were available in the town where I live for the prices I've seen. You might be surprised how affordable owning your own home can be. It's worth a look.

Wednesday, January 9, 2008

Don't Be Totally Dependent on Your Job

I had never really given too much thought to how dependent I was on my job until I read an article about 10 years ago on the disparity between the rich and the poor, in this country. Even back then, the article was discussing how the national trend was for the rich to continue getting richer and the poor to get poorer. We've all heard that for years, but it was pointing out in this article that if a person were to survive this trend they would need to become more self sufficient. We can no longer depend on employers' loyalty to their workers in the way of providing for them after their working days are over. Pensions and retirement plans are quickly becoming a thing of the past and jobs continue to disappear through downsizing or being relocated overseas. I got the message from this article back then, but old habits tend to creep back in on you and I had become settled too much in to my current job and my dependence on my income and benefits. Which brings me to my current situation. We had new owners take over the business about 2 years ago. Since that time, everyone in the workplace has had their hours cut and have lost benefits in the form of cuts in insurance coverage, no raises in pay and cancellation of Christmas bonuses. All of this has started to have a detrimental effect on my personal finances. But more importantly, it has reminded me of the need to not be so dependent on a job for my lively hood. So I have taken steps lately to escalate my savings and investments and to build up my own small business to break this reliance on a paycheck. It is not an impossible task and I'm finding that I much prefer working for myself over working for an employer who doesn't have their workers interests at heart. I don't mind hard work, I just don't want to have to have a job anymore and I'm doing all I can to reach my goal of becoming independent of the workforce as rapidly as possible.

Saturday, January 5, 2008

Teaching Your Children About Money

I've often thought how wonderful it would have been to have had someone around when I was growing up to teach me about saving and investing. I first started working a real job when I was 16 years old. If I had known then what I know now, I would already be retired. That's why I think it is very important to start teaching children early on about handling their money.

You may have the money to buy your children everything they desire, but this really doesn't help to prepare them for life in the real world. It's much better to start teaching them, when they are young, to save a portion of all the money they receive and to put that money to work. It doesn't really matter how much money you teach them to put aside, remember to keep it simple and make it fun. If they receive an allowance or cash gifts for birthdays and holidays, allow them to enjoy spending some of the money, but have a piggy bank that is specifically designated as their own personal savings bank and get them in the habit of placing a small amount of all the money they receive in this bank. Once they've accumulated enough to open a savings account, take them to the bank with you and let them see how to open an account and let them know that their savings will be earning more money for them to spend later on.

As they advance in years, you may want to help them invest a portion of their savings in a few shares of company stocks. Something age appropriate that would appeal to their interests. If, for example, they like going to McDonalds, help them to purchase a few shares and explain to them that as owners of stock they will receive a portion of the company's profits. If they get a part time job in their teens, you may want to help them set up a checking account and teach them to read their monthly statements and balance their checkbooks. These are skills that will serve them well throughout their lifetimes and help guarantee a more prosperous future, no matter what profession they may choose.

Everyone wants their children to have a better life than they had, so it only makes sense to teach them the financial skills that will carry them through life and free them from dependence on wage earning jobs.

Friday, January 4, 2008

The High Price of Oil

It finally happened! I never thought I'd hear any of the news reporters come right out and say it, but I was watching one of my favorite business channels yesterday morning and there it was. I've been saying for a long time now, when you hear about the high price per barrel of oil on the news, that price is what the commodities traders have bid the futures price up to, not necessarily the price dictated by supply and demand. This is what one of the news people pointed out, that perhaps the oil market is being driven more by commodities traders trying to make some big money than by actual consumption. This is exactly the reason that I think oil prices are headed for a fall.

Unfortunately for most of us, gasoline prices are artificially high because of the irrationally high bids on oil futures. It seems that every time the commodities traders bid up the price of oil, gasoline prices spike as well. Even though the price reported on the news is "futures" prices, we have to pay a higher price for the gasoline that we're using now. But let's think about this for a moment. What usually happens in the stock market when a company's stock price is bid up to the stratosphere? It may hover at the lofty price for quite some time, but inevitably some the market comes to it's senses and the price comes crashing down to a fair market value. I watch the news and read the papers and I've heard every argument supporting the high price of oil, but I still think that in the end it will boil down to supply and demand. When consumers are no longer able to afford the lofty prices and begin, en-masse, to cut back on consumption, then we're going to see the bottom drop out of oil and gas prices. I doubt we'll ever see the cheap gas prices we've had in the past, but I wouldn't be surprised by $2.00 per gallon.

If you've been keeping up with the news, change is already taking place here in the United States. People are switching from the big gas guzzling SUV's and Trucks to smaller, more fuel efficient vehicles. Hybrids are more popular than ever and with everybody jumping on the going green band wagon, I expect we'll see only more of the same for the foreseeable future. The American consumer is being squeezed to the breaking point and I just don't see these prices holding up much longer. If you think that the growing demand from China and India will send the prices higher, think about who buys their products. If Americans stop purchasing their products, then expansion in their economies will slow, which will also lessen the demand for oil.

In the mean time, the higher oil prices have helped me to boost my dividend income through my investments in energy trusts. I know you're not supposed to get attached to your investments, but I have to say I am quite partial to Pengrowth Energy Trust. It's been a solid performer for me and I hope they continue to do well for a long time to come. However, after my experience with REITs in the past year, I won't hesitate to drop the energy trust shares like a hot potato if I see any similar signs of weakness in their performance. But for now they seem to be doing quite well.

Wednesday, January 2, 2008

Frugal is The Word For 2008

With the start of the new year, my main resolution is to practice the habit of being frugal. To be frugal means to make the most of your resources, the opposite of being wasteful. To some extent, I have always practiced frugality. However, upon reviewing my lifestyle as a whole at the end of 2007, I was able to identify several areas where I can make improvements. I still have some problems with impulse purchases. Several times I find myself purchasing things in the stores only to bring them home and put them away and never use them. I also have a tendency to buy big name brands in clothing and shoes. While I purchase a lot of these on sale, I've realized that I could dress just as well on less money by purchasing store brands. I'm sure as the year progresses I will find many ways to use my money in a more efficient manner, thereby allowing me to put more of it to work. So frugality is my plan for the new year. I'll keep the readers updated on how well it works out.