Getting started with investing in stocks, dividends, and mutual funds can be daunting and you may not be sure how to begin. We have put together the following guide to share with you some information on these various forms of investment and the benefits that they can bring. We’ll also cover why investing in stocks may work better for you than other forms of investment. If you want to learn more about how you can get into stock investment, then keep reading.
Why Is Stock Investment So Popular?
Stock investment has increased in popularity hugely over the last 10 years as more people realize the potential for future benefits it can bring. One of the reasons for this could be due to the ability to now invest online, and keep track of your investments on the go. Many people are seeking to earn an extra income on top of their day jobs, but don’t always have the time or energy for another time-consuming form of work. Investing is a fantastic way to grow some of the money you have sitting around in a savings account, and can earn you a passive income that requires very little work on your behalf. There is also increasingly more education around stock investment available to a wider audience with the access to online resources. So more people can teach themselves how to invest than ever before.
What Are The Benefits Of Investing In Dividends?
Investing in dividends is a great way to invest your money in order for it to grow over time. When a company makes an excess profit, they can either choose to invest it back into the company or payout to you as a shareholder in the form of dividends. Dividends are not taxed as heavily as other forms of investment income, so it’s a great option for being tax efficient. There is less volatility involved in dividends than compared to other stocks, so it’s potentially a more secure option for placing your hard-earned money into. You can either invest monthly or quarterly. However, it’s important to note that investing quarterly can have a higher level of risk as it requires higher investments. Investing in dividends requires patience and the willingness to see through long-term investment, but it can be a great way to earn money in the background alongside your career. Before investing in dividends you should take time to do your research about the best dividends stocks in Canada and learn more about the economy, and why they might fluctuate.
Different Types Of Dividends
There are a range of different types of dividends you can choose from when investing. So it’s worth taking time to consider which one would work best for you.
Cash dividends are given out to shareholders upon a company making an excess profit that they choose to distribute in the form of dividends so investors see a return on their investment. If you wish to do so you can choose to reinvest the dividends back into the company again, and receive a potentially higher return in the future. Dividends can be arranged to be paid out regularly on a set date, so it’s easy to keep track of your investments and returns.
Some companies choose to give out dividends in the form of stock rather than cash. The benefits of this option is that you can use any investments that see a return to then make further investment, which will play into making you more money through compound interest. Companies may do this if they would rather invest the excess cash profits they make into another area of the business rather than out in dividends to shareholders. Stock dividends can benefit you in terms of lower tax payments as until the cash in the stocks is released, the tax isn’t relevant.
Property dividends are another form of dividend that can be used as a replacement of a cash dividend. It shares out the value of a property amongst shareholders. This could be done if a company is struggling to pay out dividends in the form of cash, or if they just happen to be selling off property and would rather use excess cash profits elsewhere in the business.
As the name suggests, a liquidation dividend is when a company pays out a sum of cash or other asset to shareholders upon liquidation. In this process, the company may be selling parts of the business or the business as a whole with its assets.
What Are The Benefits Of Investing In Mutual Funds?
As mutual funds are managed by a company, they don’t require much work on your behalf. You will still be investing your money, but the process of monitoring stocks and investments isn’t as hands-on as you don’t have to conduct constant market research and monitoring yourself. Money is pooled together along with the money of other investors in the mutual fund. Mutual funds can include cash, property or other assets in a portfolio– so they are great for diversification of investments. Mutual funds are offered by online brokers, mutual fund companies themselves, and even insurance companies, so they are very easy for you to access. You can begin investing in mutual funds with a relatively low investment, so they aren’t as intimidating as some other forms of investment. You can choose to invest in many different forms of funds or just one.
Different Kinds Of Mutual Funds
There are a wide range of mutual funds you can choose from, and each of them have their own individual subsections too. Below we have listed the most popular forms of mutual funds.
Fixed Income Funds
As the name suggests, fixed income funds provide a regular, fixed rate of return and building interest from investments.
Equity funds involve investing in a wide range of stocks, and in mostly concerned with the size of the companies being invested in.
Balanced funds are a combination of equity investments and fixed income investments. The benefit of this type of fund is that it balances the risk of higher return with the reliability of fixed income funds.
Index funds follow the trends and changes of the financial market in a country, and change accordingly. These funds can come with a lower fee due to them being lower maintenance and requiring little research from your mutual funds manager.
Global funds allow you to invest in stocks around the world rather than just your own country. One important aspect to take into account when thinking of investing in global funds is that they require far more research than investments in your own country. It is much more difficult to be aware and up to date with current affairs and economical occurrences in a country you’re not familiar with. So holding investments in global funds can come with far more risk and potential volatility.
What Are Some Of The Benefits Of Investing In Stocks Over Other Forms Of Investment?
If you’ve got savings that you want to invest, it’s likely that you may have looked into other forms of investment. So what benefits can stock investments bring you that other investments can’t? Well firstly consider the modern way of investing in stocks. You can now track your stock investments and the financial market from your mobile phone, taking literally seconds to keep on track with all the information you need. Because the money you make from investing in stock requires such little work, it’s largely passive- which can’t be said for all types of investments. Think about another form of investing, real estate for example. Not only do you need a large sum of money to begin investing in properties, but you will also likely have to put in a lot more physical work. This is especially true if you choose to flip properties for profit.
The Power Of Compounding Interest
Compound interest whilst the enemy of those in debt, is the best friend for those making long term, good investments. Part of the reason that stock investment is so popular is because of compound interest. As you hold on to an investment for a long period of time and it’s interest grows, the more the compound interest grows. Basically, it’s interest on your interest. Compound interest works for you even if you only invest small amounts of money, as you’ll still be earning interest. The real key to it is holding investments for as long as possible. This type of interest over simple interest gives you the opportunity to earn greater returns on your investments.
Now that you understand the basics of investing in stocks, dividends and mutual funds, and the benefits they can each offer, you can begin your stock investment journey. But remember that education and research are key to being a successful investor, so you should never stop educating yourself and monitoring the financial market.
Henry Lares is still early into his career as tech reporter but has already had his work published in many major publications including Tech Crunch and the Huffington Post. In regards to academics, Henry earned an engineering degree from Apex Technical School. Henry has a passion for emerging technology and covers upcoming products and breakthroughs in science and tech.