“Team work makes the dream work.”  What the Justice League can teach you about investing.

I grew up on cartoons, so it will come as no surprise that the Justice League was my favorite cast of characters growing up.  I spent countless days of my youth watching Superman, Batman, and Wonder Woman.  As an adult, I can see the valuable lessons that they taught me about teamwork.  Someone once told me that, “team work makes the dream work.”  I’m not sure where I heard this adage, but it stuck with me.  I am a TEAM player and I believe that the power of WE is preferable to one person going it alone.  Investing is no different.  You need a great TEAM!

Education:

Investing is not an easy exercise and although sites like E*Trade, Sharebuilder and Scottrade have sprung up over the past 20 years, investing is still an activity that is better done with a sound team.  Who’s on first?  Remember the skit from Abbott and Costello where Costello would become frustrated by Abbott’s response that Who was on First?  Well, investing is like a game, and you need to know WHO IS ON FIRST so this lesson is to help you build your investment team.

On any team, it functions best when you have the strongest players at each position.  In the game of investing, your players would be called financial advisors or financial planners.  A financial advisor is a person who provides financial advice or guidance to customers for compensation. Financial advisors can provide many different services, such as investment management, income tax preparation and estate planning. Think of them as the investment coach who teaches you the basics.

1.       Who are you investing for?

2.       What to invest in?

3.       When to invest?

4.       Where to invest?

5.       Why to invest?

Individually, each member of the Justice League was powerful.  However, as a TEAM, no opponent defeated them.  You need a strong team to help you create and accomplish your investment goals.  There is no shortage of financial advisors available to you.  Firms like Merrill Lynch, Morgan Stanley, Ameriprise Financial, Raymond James, Edward Jones and many more will help you be a better investor and reach your investment goals.  Don’t be intimidated by your perception of financial advisors.  Sure, some firms require that you have a large amount of money to invest before they will accept you as a client.  However, there are firms like Edward Jones that accept clients with as little as $100 to open an account.

Other types of financial advisors include Registered Financial Advisor, Chartered Financial Consultant (ChFC), Certified Financial Planners (CFP) and Personal Financial Specialist (PFS).

Don’t go it alone – get a strong TEAM!

Resources: 

Financial Planning Association – Online community of financial planners.

Ameriprise Financial (www.amerirpise.com) –  financial advisory firm that offers financial planning advice and retirement investment advice.

Edward Jones (www.edwardjones.com) – financial advisors that offer a personal approach to investing and retirement planning to help you reach your long-term financial goals.

Important terms from this lesson:

 Action Step:        Find a financial advisor!

Click the link to read the white paper, Selecting a Financial Advisor

There is an old folk tale about the Tortoise and the Hare.  “The story concerns a Hare who ridicules a slow-moving Tortoise and is challenged by the tortoise to a race. The hare soon leaves the tortoise behind and, confident of winning, takes a nap midway through the course. When the Hare awakes however, he finds that his competitor, crawling slowly but steadily, has arrived before him. (Wikipedia)”

You may wonder how the tortoise managed to win, but in winning, the tortoise teaches an extremely valuable lesson that can be applied to investing.   Although slow moving, the tortoise won the race because he relied on persistent, stead, continuous, committed action to reach his goal.  This piece of folklore is a great way to motivate new investors, like YOU, to stay the course.  Investing is not a sprint, it’s a marathon.

Education:

In investing, you will encounter and may even be intimidated by many Hare-type people.  I define these individuals as investment savvy, affluent, well connected, well informed, and so forth.  Sure, they may have more money than you, they may have been taught the principles of investing before you and they may already be wealthy, but that does not mean that you cannot win the race of investing.  Many Hares will burn out, they win gamble big and lose because slow-moving activities are boring to them.  They thrive off of excitement.  This is where YOU, the tortoise, can WIN!

There are two methods of investing that involve slow and stead action – Dollar Cost Averaging and Dividend Reinvestment.

Dollar Cost Averaging (DCA)

The Dollar Cost Averaging method is investing a small amount of money regularly over a period of time.  For example, if you invest $100 every month from your paycheck, eventually that pool will grow into a large pool of resources.  This strategy is the best method for new investors.  Don’t believe that you have to move quickly like the Hare, be the proud tortoise because you can still win using this strategy.  Sure, it will take you longer, but remember that this is not a race.

Dividend Reinvestment Plan (DRIP)

The Dividend Reinvestment Plan method enables you to build up the number of shares over an extended period of time.  In Lesson #15, we discussed dividends and picking stocks that pay dividends.   I also told you that dividends were paid in two ways, via cash or stock.  Instead of receiving cash outright, some companies allow you to use your dividends to purchase more shares in their company. That’s dividends on dividends.  For example, if you are in a DRIP, when a corporation pays its dividend to you, instead of them giving you cash, they will use that money to buy additional shares.  Let’s look at an example.

“Let’s say that Mary Johnson owns 1,000 shares of Pepsi. The stock currently trades at $50 per share and the annual dividend is $0.88 per share. The quarterly dividend has just been paid ($0.88 divided by 4 times a year = $0.22 per share quarterly dividend). Before she enrolled in Pepsi’s dividend reinvestment plan, Mary would normally receive a cash deposit of $220 in her brokerage account. This quarter, however, she logs into her brokerage account and finds she now has 1,004.40 shares of Pepsi. The $220 dividend that was normally paid to her was reinvested in whole and fractional shares of the company at $50 per share. (Dividend.com)”

This strategy may not be as sexy as cashing a check, but your stock portfolio can go from nothing to something over time.  This is another method of SLOWvesting!

Be a proud Tortoise!  You can do it…you can WIN!

Resources: 

Dividend.com – Internet source for dividend investing.

The Motley Fool  (www.fool.com) – The Motley Fool is a multimedia financial-services company dedicated to building the world’s greatest investment community.

 Important terms from this lesson:

 Action Step:        Watch and Read!

1. Go to http://bit.ly/1cZZmKw and enter your email address to receive a free report entitled, Secure Your Future With 9 Rock-Solid Dividend Stocks.  Use the report to learn some strategies about how to pick dividend paying stocks.
2. Click to watch the video, What is a Dividend?

Do you want Mo’ Money…Mo’ Money…Mo’ Money?

I may be dating myself a bit, but in the 90s, there was this quirky movie starring Marlon and Damon Wayans called Mo’ Money.  The gist of the movie was that the Wayans brothers were always looking for gimmicks to make money.  Whether it was Three-card Monte or using the laws of misdirection, they were constantly on the move to swindle someone in search of Mo’ Money…Mo’ Money…Mo’ Money.  Well, if I could jump in the time machine and speak to the brothers, I would say drop the hustle and start investing. Let’s explore why investing is one of the greatest hustles on earth.

Education:

The last two lessons were used to set the foundation by establishing some key principles in the world of investing – Risk vs. Reward and Diversification.  Now that we have spent some time flushing out those concepts, let’s get to the money making.  How do you make money investing? Why…I’m glad you asked?  The answer is x + y = z.    Remember that formula from pre-algebra?  Let’s see how we can use this formula to make Mo’ Money.

X + Y = Z

One way to make money is to create MSIs or Multiple Streams of income.  In Lesson #14, I told you that there are two ways to make money (z) through investing – stock appreciation (x) and dividends (y).   To illustrate, let’s look at the following diagram.

 X

The table below illustrates stock appreciation, based on the IPO or Initial Public Offering price per share of some of the most expensive stocks available.

Y

When you buy stock in a corporation, you invest in that corporation.  The stock or common stock or equity as it is known, is a security that represents ownership in a corporation…you are an OWNER! A share of common stock entitles the holder (OWNER) to receive dividends that may or not be paid, depending on the fortunes of the company.  Say you invest $10 and receive 10 shares in ABC, Inc.  That translates into $1/share. The company has a great year and indicates that it wants to share its great fortune with the owners of the corporation (its stockholders…YOU).  ABC Inc. announces that it will give each stockholder a $1 dividend for each share held.  Wow…what did you say?  As my Pastor would say, rewind and press play.

Let’s break this down.

A – You own 10 shares

B – You will receive $1 for each share that you own

C – You still own your 10 shares and now you have a $10 cash dividend.  Kaboom!

The only problem is that not all companies pay dividends, so a great investment strategy is to invest in a company that does….it’s that simple.  Dividends can come in two forms – cash and stock (see definitions below).

Resources: 

Yahoo Finance – Yahoo! Finance is a web site sponsored by Yahoo! that provides financial information and commentary with a focus on US markets.

Important terms from this lesson:

 Action Step:       Calculate Mo’ Money – test the x + y = z

• Find the X – What is the stock appreciation on 100 shares of Google stock purchased at the IPO price?
• Find the Y –Google announced that it would pay a $10 cash dividend to stockholders for each share held.  How much will you receive?
• What is Z – your Mo’ Money?