Stock Market Information

So, let’s say that you’re in a pretty good financial spot right now. You have 3-6 months living expenses saved up and stashed away in a low risk investment vehicle such as a high yield savings account or money market fund, and you’re looking for the next step. First time investors are initially worried about the time of their first stock purchase. After all, start at the wrong point (look at recent market losses) and you could be looking at big losses initially.

Thankfully as a new investor, time is on your side. Over the long haul (decades, typically) the compounding returns provided by a well-chosen investment begins to add up, and you’ll be looking at gains no matter where you start out.

if you’re risk averse, there are a number of dependable return options for shorter time frames. The short-term U.S. Treasury bills, for example, have given about 3.7% from 1926-2003 annually. Long-term government bonds have averaged 5.4% from 1926-2003, but returns have been more volatile.

Stocks, for their part, have been good to investors historically speaking. Overall, large-cap stocks are looking at a 10.4% annual return from 1926-2003. There’s also more volatility here, ranging from declines in the 1930s to large gains in the 50s, 80s, and 90s.

This leads is to the real question: when do you need your money. If you’re looking to use the money in the next 5 years, you’ll avoid stocks and mutual funds for the most part. Instead, consider bond mutual funds or real estate investment trusts.

If your investment horizon is 10 years or more, stocks are the most attractive option.

If you decide to invest in individual stocks, be sure to keep a close eye on your portfolio. Any investment portfolio requires regular care and attention. You need to check on your investments and make sure you’re beating the market, otherwise you’re better off going with a plain old index fund like the S&P 500.

Many investors are nervous, as seen by the recent volatility in the markets today. At first everyone was jubilant that Uncle Sam was ready to step in and take away some of the bad debts on major financial institutions’ books. This could mean that credit could once again flow more freely, and the financial system as a whole could become unclogged, pouring money into places where it’s needed the most.

After the initial burst of optimism wore off, however, many investors are left to wonder: What happens if this doesn’t work? The Federal Reserve has pretty much pulled out all of it’s available stops. It’s loosened rates dramatically, injected more money into the system, provided additional funding, but so far none of that has worked. After some financial firms when under, the Fed stepped in with a full blown intervention, and has promised some $700 billion to help take bad mortgage securities off the market. If this doesn’t work..what happens?

Some have suggested the government could nationalize the banking system outright, a move that would seem impossible just a few months prior, but now isn’t out of the realm of possibility. If the government can’t prove that it has some control over the overall markets, that’ll be a huge blow to investor confidence in the U.S. markets around the world. Unfortunately, there isn’t really any plan B.

After all, no one is left to pick up the tab. Most financial institutions aren’t lending out money to each other like they do under normal business conditions. Most are shoring up their balance sheet and making sure they have enough capital on hand to keep operating. Time will tell just how effective the bailout proves to be.

If you’ve been reading my posts about getting started as a dividend investor, hopefully I’ve piqued your interest. There’s a lot to learn out there and plenty of reason to get started asap on creating a dividend-healthy portfolio. With that in mind I’ve compiled a short list of blogs that I read on a regular basis and that I feel you should, too:

• Living Off Dividends: Living off dividends provides you with a wealth of information on investing and generating dividends, but it doesn’t stop there. From various investment vehicles to other ways of generating passive income, there’s a lot to take in and plenty to learn. Highly recommended.
• Dividends Matter: Let’s face it, dividends matter in investing, and this blog does a great job of showing you a proper way to analyze a dividend paying stocks. Of course it’s not updated as often as I’d like, but it’s a great starting point if you’re looking into dividend analysis.
• The Dividend Guy: The dividend guy has been writing for some time now, and he hops from topic to topic related to dividend investing, and he does a great job. His weekly round ups also help lead you to other blogs about investing you may find interesting and insightful.