Why Invest in Companies?

Of all the different kinds of investments you can make, investing in companies can pay solid returns over the long haul. Today we’ll look at the advantages of investing in shares of publicly traded companies. Since the early 1800’s companies have traded shares of their stock on different stock exchanges. This allowed for people to purchase shares of a company and become part owners. If the company did well the price of the shares increased. The investor could then sell them making a profit on the principle amount that they invested.

Investment Products

Investing can be as easy or as challenging as your comfortable with. Depending on your knowledge and risk profile there are many investment products to choose from. If you’re new to investing both mutual funds, index funds and exchange traded funds (ETF’s) can provide avenues of diversification for your portfolio. If your more experienced or have the time and patience to analyze certain companies and industries, purchasing shares in publicly traded companies may work well for you. When selecting an investment product it’s good to know what underling companies and funds are included. It’s also good to know the business industries as well as what countries the companies sell there products to. How risk averse is this fund? Are you buying a fund that contains thirty industrial factories in the Midwest or a fund that contains five hundred of the largest US companies?

Investment Types

Multiple investing types exist including short term investing, long term investing, growth investing, value investing, green investing, investing for retirement and others. This blog will explore primarily long term dividend and value investing as well as a smaller mix of other types. Certain investment products with short term holding periods earn more in different accounts. For example a stock that pays dividends can compound without taxation until retirement age when placed into an account that holds retirement funds such as a 401k or Self Employed 401k.

Dividend Investing

Companies that pay a dividend (a share of the companies earnings) to investors can be good investments over the long term. These types of companies also fit well into an early retirement portfolio, where the dividends can be used as income. Most dividend stocks pay quarterly and some pay monthly. If your interested in buying companies that pay dividends, in addition to doing research on the company, you’ll want to make sure that the dividend payout is sustainable. Not all companies that make dividend payments are on equal footing. When looking for dividend paying stocks you’ll notice that some companies have either cut or stopped their dividend payments in the past. A group of companies known as the dividend aristocrats have increased their dividend payments for more than 25 consecutive years.

Saving for Retirement

Saving for retirement might seem far off and there are many investing options along the way. A new trend in early retirement using dividend income has shown what is possible in a short period of time. People preparing for early retirement saved over fifty percent of their income and greatly reduced their expenses allowing them to retire within five to seven years. Whatever your strategy it’s best to start early. This will give you the opportunity for long term compounding to take place.

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