The Investing for Beginners Podcast - Your Path to Financial Freedom

Creating portfolio income is one of the main reasons we all invest. There are many ways to create that income. One of the best ways is utilizing dividends. These payouts from your investments are one of the leading ways to create portfolio income for your retirement or hopefully, before that. Tonight we have the extreme pleasure to have a conversation with Ben Reynolds of Sure Dividend. Ben is one Andrew’s and I’s favorite writers and his work is a must-read for anyone even remotely interested in dividend investing. The writing is very easy to read and he provides tremendous value with each analysis that he does. Ben focuses on companies that pay dividends and his real passion is helping investors create portfolio income through these dividend payers. * Having a long-term horizon * Discovering the important ratios of dividend investing * the importance of dividend aristocrats * A new take on dividend reinvestment * ETFs or individual stocks  * How to start dividend investing * 8 rules for dividend investing He has two newsletters that he writes that focuses on different aspects of the dividend investing world. Sure Dividend is for his subscribers that have a longer time horizon and the Sure Retirement that is for those who are looking for higher yields. We will discuss these in much more detail in our interview. This was a treat for me as I was able to be the moderator and ask the questions. Then just sit back and listen to Ben and Andrew go back and forth. Here is our interview with Ben. Enjoy.   Dave: How did you get interested in dividend investing? Ben: I have been interested in investing, since basically when I finished college. I have always been interested in finance from a very early age. I got interested in dividend investing in particular when I started researching market anomalies. You probably have heard of some of them. Like the value investing effect or low price to earnings stocks. Or the low-volatility effect where low-volatility stocks have outperformed high-volatility stocks.   There are all these market anomalies and one of them is that dividend-paying stocks have outperformed non-dividend paying stocks over a very long period of time. And that really stood out to me. And I thought it would be interesting to combine dividend investing with some of the other market anomalies that I was just discussing. Dave: How did you come across that information? Ben: One of the courses I took in college was on market anomalies. And it was a really interesting course and that’s what really got me interested in it.   Dave: Tell me a little bit about your background.   Ben: My degree in college was in finance and then after graduation, I worked a couple of different jobs. One of them was in logistics in a third-party warehouse.  I did sales there, it wasn’t quite with my degree but my passion was with investing and I was constantly reading about investing. And from there I started writing a lot about investing and then started Sure Dividend from there. It has really been my outlet for learning about investing and hopefully telling people about it. Andrew: So you escaped the academic route of efficient market hypothesis? So you were able to somehow avoid that trap? Ben: Yes, that is when I really started to get interested in it. When seeing that wasn’t really accurate because to me investing is as interesting if you can’t or only do average. That doesn’t sound exciting. But when you discover that there are lots of inefficiencies and you have seen people that hav...

IFB07: Creating Portfolio Income with Ben Reynolds from Sure Dividend

  When you go to the doctor you always imagine that they have your best interests in mind when you see them. The Same rule applies when you walk into a bank or financial services office. Unfortunately not always the case. With the doctor, typically their motivation is to help you get better. With the financial services industry, the motivation can be to line their own pockets. Not yours.   * Money and commissions are a driving factor in the financial services industry * Finding people with values and ethics is key to establishing a great partnership * Advisors that “eat their own cooking” should be a prerequisite * Fees and residuals are the bread and butter of the financial services industry   Today’s session will be a detour from our normal programming. In today’s session, Andrew and I will riff a little about some of the things we see going on in the financial services industry. Too many people are caught unawares by the shady dealings that can go on in the finance world. We know that this may be a controversial topic, especially considering that we are in that industry now. But our goal is to educate and to set the bar higher, not fleece just for the sake of making a quick buck. Andrew and I will talk about some of these goings on and attempt to bring to light some of these practices to help enlighten our listeners. On to session six. Andrew: I will start off by saying this is probably a bad move. You know, we will probably get a couple of targets on our backs. And it might even make the listeners less likely to listen to us or might make them not likes us. Whatever it is, the way I kind of look at it is if I was in the listener’s shoes. If I was talking to someone in my family, or somebody I cared about. These are the types of things based on my limited experience and what I’ve learned so far. These are the types of things that I would want to know and that I think anybody who is just starting out should at least be aware of. Not to be disappointed or feel the cards are stacked against you. But really just to be aware and understand. And from there can give you a better filter. If you can figure out what drives people to do what they do. Understand where people’s interests are. Where the financial incentives are. If you can really understand that it goes a long way towards getting a better grasp on why things tend to work the way they do. Dave: Yeah, I would agree with that. As far as the target on our back, or upsetting or offending people. Truth always sets you free. And we really need to talk about what goes in the industry. You can see people out there that are in it for themselves as opposed to acting as a fiduciary. Really being responsible for the people they are representing and giving advice to. A more take on the recent rollback of the rules and laws governing fiduciary that affects a lot of people. There are a lot of people in the financial services industry that are out there to make a buck. They don’t a crap about who they hurt or how much they mislead people. Don’t tell them the whole story or don’t give them all the information. And I think it is our job and duty as someone who cares about how somebody invests for their futures, save for their retirement. Saves for their children’s retirement. Help them be more responsible and be better financially for themselves. It is our responsibility and duty to bring those things to light. The only way to get these things to stop is to make more people aware of them. So that people will take action on things that upset them. Andrew: The key to that being aware. And I think it’s important to be aware of where these words are coming from. This is myself and you,

IFB06: 4 Things the Financial Services Industry Will Never Admit

  Finding the right mix of stocks and bonds is a common question among beginners. As a conservative investor, it is a must that I find a good mix to mitigate risk.  Most conservative investors go with a mix of 75% stocks and 25% bonds to help lessen any risk of loss. But as a younger investor, we argue that going 100% stocks is a better way to go. Pros and cons of 401k/IRA accounts for beginners Pros and cons of Robo-Advisors Advantages to Roth IRA Best Allocation strategy for young investors Dollar Cost Averaging for those just starting out Better to do it yourself or have someone manage your money? Or a Robo-advisors? Any advice for where to start for beginners?   Welcome to Session number 5 of the Investing for Beginners Podcast show notes. Today’s session includes our guest, Phillip. He is a beginner that subscribes to Andrew’s eletter and he asked us some really awesome questions today. So let’s get to it! For a beginner where should you start investing? A 401k or an IRA? Andrew: First off, a big difference between the 401k and an IRA is that usually, the 401k is pretty limited in what you can invest in. Just from experience and talking to other people. Of course, not every 401k will be like this but a lot of them will have different mutual funds you can choose from. Sometimes they will have ETFs that you will be able to choose from. But most 401ks you will not be able to buy individual stocks inside of them. As far as an IRA, that is on the opposite side and you can buy mutual funds, etf and you can also buy individual stocks. There is also different tax implications on each of those. Most 401ks are like the Traditional IRA in which you can contribute the money before the government taxes you. And basically, it’s not taxed until you withdraw it. You can also have a Traditional IRA which works the exact same way. They also have a Roth 401k, which is not as common. That one they will withdraw the taxes from your paycheck and then put it into the 401k after the taxes. And you can do the same with the Roth IRA. Which is what I recommend for most young people. You are paying the taxes up front but the money will grow tax-free for the rest of your life. So being an optimist you really that the tax rate you will have in the future will be much higher than it is now because you are hoping that your salary goes up with time. That is why we sacrifice taxes now because you don’t have as big of an income now as you will when you get older. So why not take the hit now and let it grow. And when you withdraw it in the future you don’t have to pay taxes at that time. So that is why I recommend the Roth IRA, and why I personally have one. There are different allocations you can do for a 401k and an IRA. There are limits to what you can contribute to an IRA. For both the Roth and Traditional it is $5500 a year and if you are over 50 it grows to $6500. But with the 401k you can invest up to $18,000 a year and if over 50 you can add an additional $6000. For my individual IRA, I choose a Roth and have a Robo Advisor handling the investing. I like the fact that I have access to these funds before retirement age of 59 if I ever need them. Should I focus on my Roth IRA as opposed to my 401k? Andrew: This is something that I have been giving a lot of thought too lately. So it is really cool that you are asking this now. The idea of having a regular taxable brokerage account and being able to take that money out sooner without paying a hefty fee. I know there are some details in the tax laws that ...

IFB05: Going 100% Stocks Even as a Conservative Investor

DRIP investing is one of the untapped resources to investors. It can be one of the keys to growing your wealth. Compounding is one of the eight wonders of the world, according to Albert Einstein. Utilizing it with DRIP investing is a great way to double compound your investments. We will discuss this and much more in today’s session. * How the DRIP works and how it can benefit you * Differences between the Roth IRA and Traditional IRA * Tracking your Brokerage Account * Portfolio Diversification and limits on total number of stocks invested in * How do Bonds work? * What is the best Asset Allocation for my portfolio? Welcome to Investing for Beginners show notes for Session 04 with Erin. Today we spoke with Erin who is just starting out and recently became a subscriber to Andrew’s eletter. This letter has helped her find a few companies to start investing in, but Erin has several awesome questions for us today. Let’s dive in to find some answers for her. How does the automatic DRIP work? Andrew: Yeah, so this is a very, very key thing to understand. And really a lot of investors, even professionals don’t really comprehend this idea. Or they don’t care to apply it. But it can be so powerful. It’s one of those things that makes long-term investing so attractive. So one of the ways that I will try to describe it is this way. Imagine you have a room in your house. Within that room you have a long row of coffee makers. And what those coffee makers do is they drip down into a big vat that you might have. And the vat has a tube that feeds back into one of the coffee makers. So you buy your first stock, that’s like activating your first coffee maker. And the stock will drip down. And that drip will feed back into back into a second coffee maker. Then the second coffee maker will also start to drip, but it is not going to be as big as the first coffee maker. But it will have that drip going. If you look at the first coffee maker, that drip is slowly getting bigger and bigger. Now as those drips continue to accumulate, you will see that the second drip is also getting bigger and that contributes to the whole pot. Eventually you will get the second coffee maker to drip just like the first coffee maker. That is when the two will shift to a third coffee maker. And as you can see as that keeps going and the drips get bigger, bigger and bigger. The accumulation of coffee makers that are able to work will get faster and faster. It basically compounds from there. In the story, the coffee maker is the first stock we bought. And then as you reinvest the dividends, which is the DRIP. That is like the tube part of the reinvestment. So basically, any dividends or income that you are receiving from a stock allows you to buy more stock. Those additional shares, even if they are fractional shares will start to accumulate more shares. Companies that pay dividends, one of their biggest goals is to make those dividend payments increase every year. So that is why I said earlier that the DRIP slowly gets bigger and bigger. Which over time can really become a big DRIP because as the dividend payment grows you’re getting more of an income. And then you might be able to buy even more shares from that. So what you are trying to do with DRIPs in your investment account is trying to put it on automatic. Number one when you do tell your broker, we both use TradeKing. All you have to do is give them a phone call. Every stock that I buy they automatically set up a DRIP for me.

IFB04: Why DRIP Investing Your Stocks Should be Integral to Your Investing

      When you are looking for advice on how to buy stocks, you will find thousands of articles on the internet. All of them touting the various ways to buy stocks to make money. But what about selling a stock? Crickets. There is not much out there to tell you when to sell. Having an exit strategy when you sell is almost as important as your buy strategy. This is where having a stop loss is so vital to your success. What is a stop loss? It is a set point that you establish as your base point for selling a stock if it starts to fall. The best advice I have seen is setting the stop loss at 25%. Setting the stop loss point here helps eliminate some of the guesswork. And it avoids any impulse sells in a case of sudden movement down. In today’s session, we will discuss the stop loss and much more. * Setting Trailing Stops * Yahoo Finance for Stop-Loss alerts * Portfolio maintenance * Selling stocks to limit your portfolio to 25 stocks or less * Best strategy to buy stocks, dollar amount or share amount * Dividend reinvestment program or DRIPs explained * Lump sum investing or dollar-cost averaging * Investing outside the US How do you set a trailing stop? Do you do it with the brokerage or on your own? Andrew: There are lots of different trades that a broker will offer. A very common one that you might have seen was the stop-limit. What that is basically, you put in whatever you want the price to stop-limit to trade into. And once the stock hits, and in some cases, it doesn’t even need to hit it exactly. The broker will prioritize all their different trade orders. And when it gets close to that price it will execute that trade for you. When I refer to the trailing-stop in my eletter it’s something I actually don’t recommend inputting to the broker. For several reasons because the broker will choose buys and sells. You will see this all the time with your broker. Say for example you put in a buy order for $45. And when you look at the actual trade a day later it won’t match the $45 exactly. It will depend on how many shares you buy, who is on the other side of the trade. There are a lot of things that go into making a trade that we don’t know see because everything is basically on the computer now. But there is always a buyer or a seller that is on the opposite side of your trade. So your broker isn’t always able to make that a one for one exchange. So what they will do with a stop limit. And how that can be problematic if you are putting that into your brokerage account is that they may execute a trade that is not at the price you wanted. Another thing too is things like flash crashes can activate those prematurely. I like to recommend putting a trailing-stop in at end of day prices. Because we have seen in 2010 where there was a computer glitch that had to do with the high-frequency trading algorithms. And they caused the stock market to crash at a very accelerated rate in a very short period of time. So if you have stops into the broker they are going to execute those and that’s not what we are trying to do. The approach I try to preach is a long-term approach. When the media likes to demonize high-frequency trading. And make you feel like the stock market is rigged against you. But, really the people that don’t get affected by those are the people that hold for the long-term. So we are going to try to hold for the long-term. And put a trailing stop on it. And the way that I do it is to put an alert on

IFB03: Doesn’t a Stop Loss Contradict Buy and Hold?

One of the scariest things about investing is buying a stock at the absolute wrong time. Guess what? Timing the market wrong doesn’t matter that much. What is much more important is the time in the market. You read about all the stock market millionaires. Or billionaires. Guess what they all in common? It’s time in the market, not when they purchased the stock. Or at what price. So timing the market wrong really doesn’t matter. Welcome to the show notes for Investing for Beginners. In today’s session, we answered questions from Braden. A beginning investor from Canada. He had some really great questions for us today. And the focus of the show was on several subjects. First being dollar cost averaging. This is a great investment idea that can help smooth out your returns. And help get you started in the circumstance that you don’t have a lot of money to start with. Fun fact. If you invest in a 401k through work. You already do this! Next focus item was valuation metrics. These are the numbers that are used to help determine the value of a company. Numbers can be scary for people. But Andrew does a great job of explaining how they work. His ebook helps lay this out. In a very easy to understand way. * Fees associated with dollar cost averaging and how to minimize them with this strategy * DIY brokerages moving to free ETF trades and will bigger brokerages offer this as a way to keep their customers * Explain in more detail the metrics P/E, P/B, P/S, and D/E and what are good standards for these numbers? * Talk about the importance of putting your money in the market * Recommendations for options using stocks that pay a dividend but it isn’t enough to buy a full share. * How to utilize DRIP compounding I have to say that the quality of questions that we have been receiving is awesome. They have been insightful, thoughtful and probing. Certainly not what you would expect from beginners. They have made us think and delve deep into our answers to help make sure that we cover all aspects of their questions. So let’s take a look at the Q/A.  Fees associated with dollar cost averaging. How to mitigate those fees with this strategy? Andrew: First a few questions for you. What are the commission fees? The fees are lower because I use them through my local bank here in Canada and it is $7 a trade. Braden is looking at an annual rebalance on his retirement account.  As well as maxing out his individual retirement account using the dollar cost averaging strategy. The reason for these questions is so that I can get a sense of how much money we are talking about. The amount of money that we contribute will have a bearing on how much of percentage the strategy takes out of our investments. I will start by talking about my eletter portfolio that I follow and I have my readers follow. It is something that I prescribe to and have a big chunk of my life savings in. This puts in $150 a month and I am trying to show that the average person can do it with a small amount and make it great. I pay $4.95 a trade and with a $150 investment I am losing out on about 2 to 3 percent, which is not ideal because that is a year’s worth of dividend payments. But for something that is such a long-term outlook and a lot of the positions I have recently closed have been gains much higher than 10 to 20 percent so that 3 percent bump doesn’t hurt me that badly. And because I am much younger. I have a longer time horizon so I can see the length of the investment canceling out the ...

IFB02: Why Timing the Market Wrong Doesn’t Matter that Much

  One of the most difficult ideas for beginners is the idea of diversification. If you read any investing publications they all talk about it. But they often don’t discuss the optimal diversification for sectors and individual stocks.  There is so much conflicting information regarding diversification. And how to set up your portfolio for maximum benefit. In this episode, we will tackle this question and much more.   * How to monitors your stocks one you have purchase them? * How to use the Value Trap Indicator to find stocks? * What sources do you use to find stock ideas? * What is the optimal portfolio diversification for sectors and individual stocks? * What is the ideal number companies to own? Welcome to our first session of Investing for Beginners where our goal is to help you become a better investor. The idea of this podcast started with Andrew Sather, from einvestidingforbeginners.com who has and had lots of success in the blogging and podcast world, with his awesome website and blog and being a founding member of “The Money Tree Podcast”. When Andrew first became interested in investing he looked around and noticed that there was no real voice to help beginners. There are tons of blogs and podcasts about investing but very little for the beginner. This gave him the idea of starting his own blog to help others that were just starting out. And he did just that, with his blog, podcasts and his wonderful book “The Value Trap Indicator” he has created a place that beginners can go to get premium advice to answers those questions. He recently asked me to help him start a podcast to spread the word about what he and I are most passionate about, and that is helping others succeed in the investing world and create a better life for themselves and their families. Our mission with this podcast is to take the time to answer questions of beginners that are just starting out or maybe someone who has been at it for a while and is frustrated with their lack of success. It is never easy and we don’t claim it ever will be. But we believe that everyone can do it, In our first session, we will be discussing some questions from one of Andrew’s readers. His name is Mason and he just recently graduated from college and has started his new career. He has some great thought provoking questions for us and it was a ton of fun helping answer them for him. So here we go. After you make your first purchase of a stock, what is your method of monitoring that stock? Andrew: This is a great question and one of the questions that everyone asks when you buy a stock. Of course, everyone wants to sell at the top and buy at the bottom but that doesn’t always happen. One of the growth strategies out there is to buy at a high valuation and ride the stock even higher, but that is another discussion for another time. What I do is split my portfolio into two parts. I do a regular portfolio that I allow myself to take a little more risk and put a 25% trailing stop on those positions. For those of you not familiar with a trailing stop, it is a device that you can use to put a limit on the potential loss when a stock or the market suddenly drops. By setting the limit at 25% it allows you some buffer if the price fluctuates on a daily basis but doesn’t drop below that limit. If it does drop to that limit I can sell at that time without losing a large part of my position. By setting the trailing stop it also allows me to continue to ride my stocks as they rise and protect any gains I’ve made and mitigate the losses if they occur. Any brokerage account will allow you to place these for you for an additio...

IFB01: Optimal Portfolio Diversification for Sectors and Individual Stocks