The Path to Investing Using ETFs

DISCLAIMER -  I am not a Financial Advisor and do not work for any Brokerage Firm. The opinions given are of my own and are not to be used as professional advice.  These are my findings and can hopefully help you to make informed decisions on investing.  Consult a Broker or Lawyer before making any investment. 
 
Learning how to invest is sometimes a scary thing to many people.   If you are young (or old) and have never invested before, determining where to start is difficult.  I remember opening my first investment account back in 1973 at Merrill Lynch. 

I was the tender age of 22 and thought I was ready to get started.  Immediately I realized that Investment houses and stock brokers talked a whole different language than I did.   I was blessed to have a good broker, and he bought me a copy of “The Intelligent Investor” by Benjamin Graham and suggested I read it.   

It has been years since I read it, so I have not done a book review on it. In the book, Mr. Graham spends a lot of time explaining how to read company financial statements and how a person should try to buy a company’s stock when its price is less than their Net Asset Value.   

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DISCLAIMER -  I am not a Financial Advisor and do not work for any Brokerage Firm. The opinions given are my own and are not to be used as professional advice.  These are my findings and can hopefully help you make informed decisions on investing.  Consult a Broker or Lawyer before making any investment.

What I Love About Passive Income – Part 3

What is greater than Passive Income?  I started asking that over a month ago in our first article on Passive Income.    I think that every investor needs to make it a goal to build a large stream of Passive income.

What Is Passive Income?

In our first installment of What I Love about Passive Income, we discussed the vast number of methods for creating Passive Income.  One of my favorite methods of passive income is to buy an asset.   That could be a rental property, but my choice is to buy stocks and ETFs (Exchange Traded Funds) that make me money via dividends.
Investing with ETFs

Read The Whole Part One Article on What I Love About Passive Income

There are so many good dividend-paying stocks.   I like to use my Schwab IRA to buy ‘stock slices’ in companies I feel are good dividend payers and also are potential growth companies.    This is called DGI / Dividend Growth Investing.   These are companies that will make you steady dividend income, but due to growth may also gain in value as their stock prices go up.

What is Dividend Growth Investing
 
This week US News Investing wrote an article In October 2023 on 7 of the highest-paying dividend stocks available.   I have some of these in my Schwab Portfolio.

Article on Seven High-Paying Dividend Stocks

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Understanding Preferred Stocks

DISCLAIMER -  I am not a Financial Advisor and do not work for any Brokerage Firm. The opinions given are my own and are not to be used as professional advice.  These are my findings and can hopefully help you make informed investing decisions.  Consult a Broker or Lawyer before making any investment. 

One of the better investment vehicles available to investors is the equity class called Preferred Shares or Preferred Stock.  Not much is said about them, so I am going to try and shed some light on the topic and teach a bit about the basics involved in Preferred Stock.
 
Many Preferred Stock shares pay excellent dividends, and some pay above 10%.   Many can be purchased well below their par value which is normally $25 per share.

Preferred Stocks (or Preferred Shares) are simply a class of equity stocks.  They hold a senior position over common shares. One of the big differences (which is of little significance to small investors) is that Preferred Shares do not hold voting rights.

In concept, they are much like a bond, but they are not a debt.  In case of bankruptcy, bonds being debt would be paid first, then Preferred Shares, and if any money was left, the rest would be paid to the common stock shareholders.

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Minimalism and Delayed Gratification
 
Minimalism speaks of living a simpler, more focused life. Do you ever consider the difference in having it right now, or waiting for a bigger thing later on?

The ability to delay an impulse for an immediate reward to receive a more favorable reward at a later time is the standard definition of delayed gratification. Studies have shown that the ability to delay reward is not easy but has great rewards for those who can learn to do it.
The ability to self-regulate and show control will directly impact the outcomes of all your future plans. In a culture surrounded by messages saying that you can lose the discomfort right now, the ability to wait for a long-term reward is less attractive and few are willing to wait.

Delayed gratification is a muscle we can all grow to serve our future selves. Sometimes discomfort is the more beneficial choice.

Today we are living in a time when people want things, and they want them now.   Patience has almost began to be a thing of the past. Christians sometimes forget that we are commanded to wait on the Lord.
 
(Pro 20:21)  An inheritance may be gotten hastily at the beginning; but the end thereof shall not be blessed.
(Pro 20:22)  Say not thou, I will recompense evil; but wait on the LORD, and he shall save thee.
 
(Psa 27:13)  I had fainted, unless I had believed to see the goodness of the LORD in the land of the living.
(Psa 27:14)  Wait on the LORD: be of good courage, and he shall strengthen thine heart: wait, I say, on the LORD.
 
And the bible tells us we can manually acquire patience, but it comes from a tough source.

(Rom 5:3)  And not only so, but we glory in tribulations also: knowing that tribulation worketh patience;
(Rom 5:4)  And patience, experience; and experience, hope:
(Rom 5:5)  And hope maketh not ashamed; because the love of God is shed abroad in our hearts by the Holy Ghost which is given unto us.
 
So verse 3 says we can acquire patience, but it comes via tribulations.  I think it best to learn a little patience without having to go through the tough times.

I am sure you have friends who got married and expected in their first year of marriage to have a lifestyle better than their parents.   It may have taken the parents a lifetime to acquire their home and possessions.    But the newlywed couple immediately want a large home and two cars.   And with credit so easy to obtain, many buy houses that cost over 30% of their take-home pay, putting a crunch on their finances.     

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DISCLAIMER -  I am not a Financial Advisor and do not work for any Brokerage Firm.   The opinions given are of my own and are not to be used as professional advice.  These are my findings and can hopefully help you to make informed decisions on investing.   Consult a Broker or Lawyer before making any investment.

What Is a Business Development Company (BDC)?

As we plan out how to invest our money to get our maximum returns, we need to make use of a special group of stocks making up the REITs category.  If you do not have some money invested in Real Estate, this is a very effective method to make money.   We did an article explaining REITS a while back.  

Read about Reits here.

Today we are going to talk briefly about Business Development Companies.   Many of these are tied to Reits, but they also provide capital for other business uses besides Real Estate.

A business development company (BDC) is an organization that invests in small and medium-sized companies as well as distressed companies. A BDC helps these firms grow in the initial stages of their development. With distressed businesses, the BDC helps the companies regain sound financial footing.Similar to closed-end investment funds, many BDCs are public companies whose shares trade on major stock exchanges, such as the American Stock Exchange (AMEX), Nasdaq, and others. As investments, they are high-risk but offer higher rewards.

I try to find solid companies that provide financing that is being sold at a discount and also show dividends of 8% or more.

BDCs are much like private equity funds for small businesses.   While private equity funds tend to be restricted to high-net-worth and institutional investors, Block Development Companies are publicly traded on the stock market and available to anyone with a brokerage account.  What is even greater, is they are transparent and easy to research.  Like all stocks, these may or may not go up in price.   However BDCs do normally pay dividends, and those are the ones I try to buy.

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DISCLAIMER -  I am not a Financial Advisor and do not work for any Brokerage Firm. The opinions given are my own and are not to be used as professional advice.  These are my findings and can hopefully help you make informed decisions on investing.  Consult a Broker or Lawyer before making any investment.

Why I Love Passive Income

What is greater than Passive Income?  Perhaps in this 105-degree weather this week, a bowl of ice cream with some fruit might be better.   But as far as money growth, there are few things better than Passive Income.

What Is Passive Income?

Day in and day out, here are a few things greater in life in regards to bringing in steady money than passive income.   If you are like me, you were taught to go to school and get a great education, find a steady high-paying job, and exchange your time for money.  So the only way you receive a paycheck is by trading your time for the pay.    The problem is you only have so many hours a day, and then tomorrow, you must start over to get more money.
You only have so many hours in life, so we need to find a better way to bring in money.   Rich people do not trade time for money, but they buy assets.  

Robert Kiyosaki has written many books on this topic beginning with his best-selling book “Rich Dad, Poor Dad”. In his books, he teaches that we all need to find ways to make Passive Income.  He says we need to create assets that will make us money.   So passive income can come in so many ways.  You could write a book and sell it, and that would be passive income.   Written once, but it sells over and over.

One of my favorite methods of passive income is to buy an asset.   That could be a rental property, but my choice is to buy stocks and ETFs (Exchange Traded Funds) that make me money via dividends.

Investing with ETFs

There are so many good dividend-paying stocks.   I like to use my Schwab IRA to buy ‘stock slices’ in companies I feel are good dividend payers and also are potential growth companies.  This is called DGI / Dividend Growth Investing.   These are companies that will make you steady dividend income, but due to growth may also gain in value as their stock prices go up.

What is Dividend Growth Investing

There are many ways to invest and to find high-paying dividend growth companies.   Two of my favorites are those on the Dividend Aristocrats list and those on the Dividend Kings list.     Dividend Aristocrats are companies that have raised their quarterly dividends for 25 years or longer. Dividend Kings are those who have done that for over 50 years.   Requirements to meet the lists are different, but there are some companies on both lists which certainly are worthy of consideration.  

Read about those two lists at:
Dividend Aristocrats
Dividend Kings

This past year I have come upon 3 other classes of investments that are making me the most in dividends. I will discuss only my favorite of the 3 today. Those high-paying dividend stocks are called Preferred Stocks.  Briefly, the advantage of Preferred Stocks over normal stock is they sell at a fixed par value which is normally either $25 a share or $10 a share.    And because the stock market is liquid, these vary in price a lot. 

So, if you buy a company’s preferred stock that is out of market favor, it will sell at a discount to par. I try to buy all of mine on those with 14 to 70% discount to par. The dividends are still paid on the par value.  So if you buy a stock that pays 8% dividends and you buy it at a 50% discount to Net Asset Value, the real return is 16%.  And if purchased at a discount, normally these move back to closer to par value over time.  

You make a lot more in dividends and the percentage of dividends is great.   When you combine that with my plan of stop loss orders at 92% of the value I paid for it, your chances of much loss are greatly minimized.  I find most of my Preferred Shares on the PreferredStockChannel.com.
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If you sign up for their weekly newsletter, they will send you a complete list weekly of the top 10 highest-paying Preferred Stocks.  Be careful of following that list as some companies are in trouble and may wind up in bankruptcy.   Also, some have declared dividends but have not paid them.   So being on the list simply gives you a stock to review.   Due diligence is required to purchase those that are good buys and not in a serious financial state.

Understanding Preferred Stocks

I will discuss my other two high-paying dividend categories in the next few weeks and also discuss REITs (Real Estate Investment Trusts) which are another great method to earn passive income.

Have a great week.  Study and find some methods to start earning passive income.   A year ago I had almost no dividend income, and this month we are now up to $175 per month.   Not a lot of money, but we are increasing it by $25 to $33 each month and should be at over $1,000 in a few years.   What is great is they pay you while you sleep.  No effort is required on your part but to maintain and monitor your investments and stop loss orders.  I update mine at least once per month.
 
 
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Lessons from a Box of Rocks

It is crucial in life to work with a plan.  Some folks think they can just start each day and things will just work out.   Your day will come and go, but without a clear plan of action, you will not accomplish as much as you could with an organized plan.

In college, I had a great professor who encouraged his students to think outside of the box.   He constantly used unconventional methods to teach.   One day he came to class with a few boxes of rocks.  He said today we are going to use this large box and these rocks to teach some lessons.

He poured the boxes of rocks out on his desk and set one large box on top of the desk.  He asked us what we should put in the box first.  The little rocks or the big ones?  Several students said the small ones, but the majority said to go with the big rocks first.  He put those in first and then proceeded to put in the next largest rocks.

The box was almost full.  He asked, “Is the box full yet?”  Some agreed, and some disagreed.  “What should go in next?” he asked.   We had 2 more sizes of rocks, some gravel, and some dirt on the desk.

Since the larger ones had been the right answer before, we went with the larger ones.   He then filled in the smallest rocks and shook it.  Is it full?   We all agreed it was full now.   
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He then proved us wrong by adding the gravel and shaking the box.  Is it full yet?  We said yes, it is full.  He shook the box and then poured in the sand.  All 5 boxes of rocks, gravel, and sand fit in that one big box.  He then asked, “What did we learn from this?”

One forward-thinking student volunteered “No matter how busy your schedule is, you can always squeeze in a few more things.”   He said “No. That is not the lesson.”    He asked the question again “What did we learn from this?”  Many guesses were offered, but no one had the right answer.

He said what this box of rocks teaches you is that you must put the largest things in life first.  In life, the important large things have to take precedence over the smaller stuff, or you will not have the room and time to do all the things you want to accomplish.

Think about that.  If you put in the dirt first, then all the room around the rocks would not have been filled in, and most likely all of the rocks would not have fit.    As you shake a box of rocks, the big ones come to the top and the little ones go to the bottom.  

Another lesson he pointed out is how no matter where you are in life, life is shaking and if you are a big ‘rock’ at the bottom, life will eventually force you to the top if you keep on and don’t quit trying.  And if you are a little rock sitting on the top, the shaking will send you back to your correct position at the bottom.   We need to grow and keep on keeping on to move to the top.  Life has a way of moving us to our level.   This validates the old Peter Principle about how we all fall back down to our level of incompetence. 

The Peter Principle is an observation that the tendency in most organizational hierarchies, such as that of a corporation, is for every employee to rise in the hierarchy through promotion until they reach a level of respective incompetence.

It is amazing how we can learn from something as simple as box of rocks.
 
This past week, I read a book called Rich Habits, Poor Habits by Michael Yardney.   In the book he told about a plan he picked up to deal with issues.  I also read this same plan from a Marine Sergeant in regards to battlefield preparation.  

Both men said to prepare the right battle plan, you need to do 3 simple things.

1. THINK
2. EVALUATE
3. RESPOND

It is crucial to take the time to think.   We need to understand the situation whether dealing with a battle zone or some trial of life.  By thinking we can now evaluate the situation and determine our best course of action.  
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After giving yourself time to think and evaluate, you then respond with action.   Reaction is not the same as responding and rarely the appropriate action.  We need to not get in a hurry but think things out and take adequate time to evaluate.  A response is good most of the time, but reactions can cause us more trouble than they correct.

In life, to be effective, we have to be intentional with our actions.   It is so easy to react to a situation without thinking and evaluating.    Quick reactions are never good.   Think things out and then RESPOND.  

I am sure you remember times when your mouth was engaged before getting the brain in gear.  It is easier to take the quicker method of ready, fire, and then aim.  This is never good and the results are mostly bad.

Before considering opening fire (even about life’s situations), we need to always follow a logical plan of action.   Get ready, aim, and then fire.

To be successful, we need to control our tongues and words.    So when you are faced with any situation, remember the 3 methods Michael Yardney uses:

1. Think
2. Evaluate
3. Respond

 
 
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