Investing 102

[Sieg]

Consumer staple, who makes the toilet paper?

[Sieg]

Greg - Great 1/5/10K investing models.

[LS1-IROC]

Originally Posted by GregWeld

Put this all inside the IRA/401K and you're going to get those dividends and share growth compounding TAX DEFERRED -- so for years you'll have no taxes to pay - which allows your compounding to work at warp speed.

As opposed to what? I love your advice, just curious if you could expand on that statement a little. I don't understand the tax very well and how they come into play.

I am in a position to throw around $10K into investments right now, looking to move on this very soon.

This thread in #1...the first thing I check everyday when I log in.

[GregWeld]

Originally Posted by Sieg

Consumer staple, who makes the toilet paper?

Kimberly Clark (KMB) -- a very good steady eddy consumer staples stock!

Proctor and Gamble (PG) - another good steady eddy consumer staple...

These are in the same group as Johnson and Johnson (JNJ) and bring "stability" to a stock portfolio while paying "decent" dividends. I own JNJ and used to also own KMB... but realized I had too many "steady eddy's".

[Woody]

Greg,

I had a question about T.

It looks like the stock price has decreased about 20% to 25% in the last ten years. I see it has a dividend rate of 6%. So my question is: I thought we were looking for stocks with good charts and a good dividend rate? The chart is not good over the last ten years. Is that offset by the 6% dividend rate? I realize a 6% rate over ten years is approximately 60% (not compounded). So the total return would be somewhere close to 35%to 40% over 10 years, which is about 3.5% to 4.0% per year.

Maybe this is what you would consider a "steady eddy" that is a conservative pick due to its high dividend return?" I am just trying to understand the reasoning on selecting T as compared to some other stocks with better charts.

Thanks

[GregWeld]

Originally Posted by LS1-IROC

As opposed to what? I love your advice, just curious if you could expand on that statement a little. I don't understand the tax very well and how they come into play.

I am in a position to throw around $10K into investments right now, looking to move on this very soon.

This thread in #1...the first thing I check everyday when I log in.

Well -- very good question!

A lot of folks have their "main" savings vehicle as a IRA/401K -- and most just salt money out of every paycheck into these -- and then promptly ignore that actual investments inside them. So I'm urging people to at the very least take a look at these accounts and do some "accounting" of where they're at... so that's why I mention them often.

Now to the question. IRA/401 accounts are retirement accounts that are "untouchable" until age 59ish (I don't want to go into all the rules)... and at retirement age - you're able to start to take "withdrawals" known as distributions - from them. When you take the distributions - it's at that time that it becomes "taxable". The THEORY IS - that you should be at a lower income tax bracket when you're retired - and that - since you were allowed to avoid paying taxes for what can be years and years - your investments should have grown more because you got to work with 100% of your dividends and interest....

If you are QUALIFIED (income wise etc) you can put AFTER TAX money into a ROTH IRA.... and ALL of the growth and income from a ROTH IRA comes out at retirement (distributions) TAX FREE.... That's a hell of a deal. If someone was lucky enough to have bought Apple shares in their ROTH back in 1995 or so -- all that zillions of growth is going to come out absolutely tax free. Dude - that's what makes America great!

Otherwise -- you're "savings" and investable money is just in normal accounts -- and any dividends - short term capital gains - long term capital gains etc has to be accounted for each year on your income tax forms.

For someone with 10K to invest - that's not going to be a big income tax "swinger" -- because if you invested tomorrow and got all dividends -- you're paying that on your 2012 tax - and dividends are taxed at a max rate of 15% - so if you got 1000 in dividends (a 10% rate) you'd owe a whopping $150 (MAYBE -- because theres all manor of the usual tax code rules etc).

So ---- Since I can only use "me" as a real life example -- Let's take my personal situation just for "investing 102":

I already am retired. I have INCOME from apartment and other real estate investments - these are taxed at ordinary income tax rates and I'm in the Max tax bracket on them -- then I have a giant batch of DIVIDENDS and no matter what - they're taxed at the max tax rate of 15% -- Then because I don't want to add tax to my already max tax bracket taxable income -- I have a giant TAX FREE BOND portfolio -- and that gives me considerable income NET NET - no taxes and nothing added to my dividend tax bill or income tax bill.

All of these "strategies" need to be discussed and planned for using your professional advisors - CPA's and or Trust department advisors etc. They're complicated and there's lots of math and lots of "what if's" etc. But for our Investing 102 we're trying to stay with "normal" investing and normal IRA/401 accounts... and it's more about what to look for and what to think about over - Do this - don't do that. This is more about stuff to think about and ask questions about. Things we don't get up in the morning and say "oh yeah - I should look into that".

By the way -- PLEASE make absolutely certain that you don't need the 10K -- It's always better to have some CASH even if it doesn't make any money! So if you have 10K to invest -- start by just investing 4 or 5K -- and then kick back - learn - watch - listen to the market... and then after 3 or 4 months buy another 2K... and so on. Get comfortable. See if when the market goes DOWN that you can stomach those moves without freaking out. You might be amazed at your reaction... I've learned - and that's the right word - to be a buyer during DOWN days... but I didn't used to be! It's taken YEARS to learn that. So walk... get started.... get comfortable. Don't be the Tasmanian Devil (as Charley calls me when I get behind the wheel of the Mustang)... You have to learn to breathe - enter the turns slowly - and exit hard... etc. It takes some time.

[GregWeld]

Originally Posted by Woody

Greg,

I had a question about T.

It looks like the stock price has decreased about 20% to 25% in the last ten years. I see it has a dividend rate of 6%. So my question is: I thought we were looking for stocks with good charts and a good dividend rate? The chart is not good over the last ten years. Is that offset by the 6% dividend rate? I realize a 6% rate over ten years is approximately 60% (not compounded). So the total return would be somewhere close to 35%to 40% over 10 years, which is about 3.5% to 4.0% per year.

Maybe this is what you would consider a "steady eddy" that is a conservative pick due to its high dividend return?" I am just trying to understand the reasoning on selecting T as compared to some other stocks with better charts.

Thanks

Great question --- and you answered it. It's a steady eddy... where I can take a large position and get the outsized dividend WITH some safety. It's not a stock that goes up and down like a yoyo... It's ACTUAL total return for ONE year is 9.4% --- THREE year is 27.9% --- and FIVE year is 16.1%

Steady - payer - growth that is better than any savings or CD rate - and I can sleep well holding it. It brings stability to the portfolio. There are always "balances" that need to be maintained. I own (using my personal information for examples) a huge position in Annaly Capital Management (NLY) I balance this RISKY high dividend payer with stock like JNJ and T and KO.

[GregWeld]

I'm a posting whore this morning ----

So I was checking the facts on the WOODY question and went to Schwab to use their info - and while there - checked the history on my account... and HERE'S WHY I LOVE DIVIDEND PAYERS..... This is real cash - deposit into my account.


Would this make your day or what? Not bragging here -- I'm URGING YOU to get to where this kind of stuff comes YOUR way!


01/10/2012
PM PHILIP MORRIS INTL INC
type: QUALIFIED DIV
$3,465.00

01/10/2012
MO ALTRIA GROUP INC
type: QUALIFIED DIV
$4,100.00

[LS1-IROC]

Thanks for the additional info Greg! I'm pretty comfortable with the $10K investment, but I might stagger in like you suggest.

I think I'll keep my current 401K where it's at now for retirement purposes and use this additional money to invest as I see fit and be more liquid. If I can grow this investment I'd like to eventually split some of it off to help my (unborn) child with education. Is that a sound idea, or should I start a separate fund all together for the child?

[Bucketlist2012]

So I talked to the wife.

I have approx.92% of my Portfolio in Taxable Schwab doing really well , with almost all dividend paying..

I have an additional approx. 8% in a 401K , and it is 52K to play with , as I won't be touching it for 10 years at least..

I am busy with other things, but I am ready to try the Investing 102 Strategy.

My plan is to see what is available in the Piece of Poo 401K plan, and then move 10k in the next 30 days.

Since Schwab is doing so well, my Wife says to leave it alone, but the 401K, is different.

Also, Any Cash I have is for my present projects, and rainy Day sleep well cash.. So that money is off limits.

So Greg, other than the obvious things you have told us, is there something I should be considering ? Mike V.

I have been reading for days, and just started posting back recently. I told my Wife that these guys are smart and i wanted to Listen for a while before putting in my two cents, or asking advise...

This Thread is Great.... It will fund our Toys!!!