Just when I think I can’t find another money subject to obsess over, I come across something really fun. Of course, my fun comes in the form of interest and dividends. You know, passive income or getting money for no effort.
When browsing some financial websites, I came across a blog piece that featured how to live off of dividend income. At the end of the article was a small, but not insignificant, mention of preferred stocks. Well, now, hold on. We’re not talking about 2%, we’re talking about 10 – 12% in passive income. Preferred stocks pay a very high dividend that makes common stock dividends look like pocket change. Wait, this is legal?
With the holidays coming up, I thought I’d address gifting. Unable to contain my practical side, my suggestion for gifting to children should be corporate stocks. Forget the useless toys and crap that ends up in a junk pile. Hopefully you donate those things when your child outgrows them, not add to our garbage landfills.
Give a gift that gives back. This year, buy a dividend-paying corporate stock. Your gift can extend past the holidays by educating them about stock investing. Plan small, ongoing lessons throughout the year to generate enthusiasm for investing. This could be the most valuable gift that you can give a child. You would be laying a foundation for their future wealth.
You might have heard the alarm bells going off with interest rates increasing. Yes, they’ve been historically low since the 2008 economic crash. Most people seem to have forgotten that we have an interest rate at all. Mainly because savings-type accounts earn pennies. Interest rates do not make for the most exciting chat topic. I have a friend that rolls her eyes every time I talk about the economy. Little does she realize that the interest rate has many tentacles.
We’ve been on an interest holiday since the Great Recession. Mesopotamians paid higher rates in 3,000 BC.
Flashing back to 2009: I have images of articles from a February, 2009 BusinessWeek issue. Last week I mentioned that, in early 2009, 10,000 people a day were losing their jobs. What was also reported was the downsizing of industry. A variety of industries were expected to feel the burn of the economic meltdown. Because inventories were high and consumerism slowed to a stop, industries that produced goods were likely to continue reducing their employee headcount. Some of the sectors that were expected to continue dropping employees were apparel production, car, train and plane productions and construction.
The attached article reports on the surge of foreclosures and the big banks’ response in helping homeowners. The loan modifications offered didn’t help and the think tank of bank executives offered hollow promises. Sadly, most borrowers went into foreclosure or were forced to declare bankruptcy.
Based on information that I read last month at the 10-year anniversary, some people reported suffering equity losses that they’ve never recovered from.
This article has so much information about what not to do and is a learning tool for not repeating others’ mistakes. I’ve included it here.
It was reported back in early 2009 that 10,000 a people a day were losing their jobs. Job losses meant that people stopped spending money, furthering the damage to the economy. It almost seemed that there was no way out of the disaster. As you can see from the second image that I presented that consumer spending was down, way down. Consumer spending supports the economy at the rate of about 70%, so you can see how job losses and reduced spending were going to delay economic recovery. In addition, average people not only stopped spending but were struggling with accumulated debt.
Job losses were the news of the day. I remember being at my follow-up job only two months, when I had two cell phone calls in one week from friends that both lost their jobs. Many employers handled it poorly, witnessed by the remaining employees.
Today’s flashback to 2008 follows the buyout of Bear Stearns, how their executives knew the financial reality and how the subsequent fallout of the failure of the large financial institutions was forming. CNBC aired a special, Crisis on Wall Street, on the frenzy of reactions during mid-September 2008 to deal with the quick domino-effect of the bankruptcies of the country’s largest banks. If you didn’t watch it, you can probably catch a rerun.
Investing. The word alone connotes stocks and bonds. Diversification is the sister term associated with investing. Subtract your age from 100 to figure out how much of an allocation in bonds you should own. Why do we need to have bonds? And what makes bonds a necessary portfolio companion? While trying to understand portfolio allocation a little bit better, I came up with the following five points.
Bonds are fairly simple to understand, they’re loans with a specific duration. They pay interest at stated dates. There’s an issue date and a maturity date. The issue date is the beginning of the loan and the maturity date is when the principal is paid back to the investor. Therefore, unlike stocks that you own forever, bonds are a temporary loan to the issuer.