Buying individual stocks, or equities can be a tricky decision. Business is always changing and if you don't have inside knowledge of the business, you could lose a lot of money. One way to avoid choosing individual stocks is to buy an ETF or exchange traded fund. An ETF is a collection of many different equities. One way to gain income on these stocks is through dividends. The other aspect of choosing an ETF is the capital gain that is hedged by being diversified into many different sectors or countries.
A Dividend is a distribution of a portion of a company’s earnings, decided by the board of directors, to a class of its shareholders. Preferred share holders are always paid dividends first. The dividend payout or yield is a payout based on the stock price. A good idea is to look at the top ten holdings of a certain ETF to get a sense of the performance and yield that each equity generates. Google has an excellent stock screener that is able to rank stocks by their dividend yeilds.
When investing for the long term, complicated approaches that seem tempting don't always add value. Day trading, marketing and switching to different sectors are just a few ways that you can sabotage your investing scheme. By keeping a simple strategy you can focus on things that really matter, like asset allocation and prudent research. Stay focused on your long-term goal. What happens next month or what happened last year doesn't always matter as much, especially with dividends. Although, it is a good idea to periodically check some recent news of the key companies within the ETF you decide to go with.
Asset mix is critical and be sure that you're saving enough. When investors bet on a single stock or industry sector, they increase their risk without necessarily improving long-term returns. Stay diversified and you’ll have a better chance of keeping most or all of your capital. When examining an ETF to invest in, past performance doesn't always guarantee future results.
A good idea is to pick a fund that you believe will be successful. There are many different sectors to choose from as well as capitalization. Large, mid, and small caps each have pros and cons. Say you like the company Apple, pick an ETF such as Internet Architecture HOLDRs (NYSE:IAH) which contains a high amount of Apple shares.
Vanguard funds have a very low cost for maintaining their accounts as opposed to some of the other brokerage firms. If you don’t know much about investing, picking an ETF within Vanguard is smart because they charge very little. Small caps and silver funds outperformed last year and that is typically not the case. Small caps contain a high degree of risk and you would be best to do some due diligence regarding those funds before investing.
ETFs that pay dividends are my personal favorite investment. They provide security by being spread well across a sector of companies yet they provide dividend checks. There is no feeling like receiving a dividend cheque in the mail or having your stock portfolio grow by using dividend re-investment plans.
As apposed to just investing in one oil company it is much easier to just choose an ETF that is concentrated in the oil sector. Not only will you not have to worry as much about oil prices but you will also grow if one oil company begins to out pace its competition.
Another possible alternative to investing in ETF dividends is the REIT. An REIT is a Real Estate Income Trust and is fast becoming a popular way to safely grow money. An REIT is like a landlord turned into a company. An REIT may own skyscrapers and Alabama swamp lands but their main focus is bringing a dividend to their investors.
Investing in an ETF is the best way to not be left behind, such as investing in one stock may do.
Here are a few ETFs that pay high dividends, you will be pleasantly surprised: