+- Dividend Growth Forum (http://DividendGrowthForum.com)
+-- Forum: Dividend Growth Investing (http://DividendGrowthForum.com/forumdisplay.php?fid=15)
+--- Forum: Dividend Growth Investing (http://DividendGrowthForum.com/forumdisplay.php?fid=33)
+--- Thread: Should I delve in DG stocks? (/showthread.php?tid=408)
Should I delve in DG stocks? - Star - 02-20-2014
Hey guys, I am new here (for those who don't see the post count first), I am looking for a little bit of advice.
I regularly read DGI blogs from all over and the blogrolls are very convenient. So, first of all, a very big thank you to those who write/contribute/comment on blogs. It makes the whole idea of investing much, much easier.
I work full time earning a good amount for a grad.
I have saved a nice (in my eyes) lump of cash.
I want to start investing in stocks, I have been researching a lot - this is a task which can eat all time around work if not careful - almost addictive.
How should I start off? I am not too keen on ETFs. I was thinking a few staples such as KO, MCD, JNJ. Then REITs such as O, also liking ARCP (since it's merger with cole - possible lising soon in the S&P 500).
Is it better to buy a few solid stocks and keep adding to those positions when they are relatively undervalued, or should I deploy all capital at once?
I am also looking to purchase my first home, I want to save for that too. Right now I am debating stocks vs larger down payment.
I am 21.
Thanks.
RE: Should I delve in DG stocks? - hendi_alex - 02-20-2014
Hi Star! I'm in favor of gradual deployment unless there are screaming buys available. Cost averaging certainly makes a person feel better and helps offset the effects from bad timing on an initial purchase. In my opinion some of the REITs, including O, represent decent buys right now. While interest rate increases will hurt the share price, I think that it will be a many quarters and perhaps years before the fed is actually able to raise rates to any significant degree. Also, the REITs have already corrected quite a bit, in anticipation of rate changes. If I were a young investor, the cutoff for a DG type of stock, for me, would probably still be around 3% yield. I'm just not patient with very low starting yields for mature companies. So perhaps PG, KO, MCD, CLX, TGT would make the initial cut.
As far as what to accumulate, my feeling is to buy what represents the best value of the day, regardless of what tickers are held. Personally, I always keep a tracking portfolio of tickers of interest. When cash accumulates, I scan both holdings and tracking list to try and determine best current value.
On last thing, a word of caution, it is probably not a good idea to give such specific info related to income and savings. On line predators have way too much info about an individual even without giving fairly detailed into related to income and savings. I'm guilty of giving too much info on occasion, but am much more careful to give only percentages in posts. Your salary, for sure, has no impact on advice that this thread may yield. Perhaps consider editing that info out, and just refer to five figure savings to deploy. Give enough info to describe the situation, but no more than in necessary for such.
RE: Should I delve in DG stocks? - EricL - 02-20-2014
First of all, welcome to the board, great to see someone starting out so young. I was too busy partying and buying toys when I was your age.
My recommendation is to not spread yourself too thin. If a home purchase is high on your list I would take care of that first as it can be a stressful time and being a homeowner can be more expensive than people realize when they first start out.
I don't know where you are located and what the situation is there as far as mortgages go, but I would recommend saving at least 10% to put down and taking no longer than a 15 year mortgage that takes no more than 25% of your monthly income for the payment.
If you have the down payment taken care of and still have money to invest I would agree with Alex that you want to take your time building the portfolio. There are always stocks at reasonable valuations, set aside $500 or $1000 per month, or whatever you can afford, and find a stock at a value and make your purchase.
This serves two purposes, first it lets you learn as you go so you don't make as many mistakes as you would if you bought all at once. Secondly it gives you opportunities to buy certain stocks when they go on sale with market pullbacks.
I would then recommend building a solid core of blue chip stocks with the occasional higher growth names thrown in.
Hope this helps!
I forgot to mention if you have any non-tax advantaged debt pay that off first. Car loans, personal loans, credit cards, etc.
I would also recommend paying off school loans as quick as possible unless you have very low interest rates on them.
Being debt free frees up your cash flow and provides safety should you ever become unemployed.
You can always stop investing if you lose your job, but its much tougher to tell the bank to wait a few months before they take your car if you still owe money on it.
RE: Should I delve in DG stocks? - TomK - 02-20-2014
(02-20-2014, 08:16 AM)Star Wrote: Hey guys, I am new here (for those who don't see the post count first), I am looking for a little bit of advice.
Hi Star! Welcome to the forum.
(02-20-2014, 08:16 AM)Star Wrote: I work full time earning a good amount for a grad.
I have saved a nice (in my eyes) lump of cash.
Congratulations. I think that puts you ahead of just about everyone else your age.
(02-20-2014, 08:16 AM)Star Wrote: How should I start off? I am not too keen on ETFs. I was thinking a few staples such as KO, MCD, JNJ. Then REITs such as O, also liking ARCP (since it's merger with cole - possible lising soon in the S&P 500).
Is it better to buy a few solid stocks and keep adding to those positions when they are relatively undervalued, or should I deploy all capital at once?
I am also looking to purchase my first home, I want to save for that too. Right now I am debating stocks vs larger down payment.
The answer to all of this, of course, is "it depends." If you really plan to buy a house soon, then you need to put aside enough for the 20% down, transaction costs, and some cash for the inevitable (and always bigger than you expect) new home expenses. If the lump of cash you have saved is larger than that total amount, then there is the dilemma of whether to use the excess to increase the down payment or buy stocks.
Math gives a pretty clear answer to that question. If the returns you can get in stocks exceed the interest rate on the mortgage, then stocks are the way to go. If not, then increase the down payment. Of course it is not quite as simple as that. The yield on things like KO, MCD, and JNJ are not going to be higher than the interest rate on your mortgage in year one. But if dividends grow as hoped, there should be a crossover point where they do that is earlier than the end of your mortgage (I am assuming a standard 30 year fixed). I personally would not allocate too much to the REITs, but whatever extent you add them only improves the math.
(Though given your age, if your income is high and stable, and if you can live far below you means, I could see making the case for taking a serious calculated risk and putting a lot cash into REITs like O and ARCP (but NOT things like NLY), and letting the income stream more than cover your mortgage. Not for the faint of heart, and maybe terrible advice, but I could see the case for it and would be tempted to run the numbers.)
And as always it is important to remember that this is not all math. If having a mortgage weighs on you, it might make more sense to put the extra cash towards the house regardless of what the math says.
If you do decide to go with some allocation to stocks, the question of whether to go all in at once or to ramp into it is tricky. Which approach turns out better depends on the unknown. If prices keep going up, you'll be glad you went all in. If there is a correction soon, you'll be glad you held some back. Given that you're new to this, I'd probably recommend that you don't go all in at once. Buy in bits and pieces as opportunities present themselves. You'll gain experience and comfort, and will get to know yourself better as an investor. As you get more experience, you may decide to put the rest in aggressively, or you may decide that there is a higher use for your cash.
In any case, it is a truly great dilemma to have, especially at your age. I wish I had it so together when I was 21. I'd probably be able to retire right now.
RE: Should I delve in DG stocks? - Dividend Watcher - 02-20-2014
Welcome, Star. Nice to see another new face here.
I concur with all that was said above with a few further comments.
Make sure you set some aside as an emergency fund. The traditional planners say 3-6 month's income. I'm not sure you need that much yet unless you already have a family. Maybe start with 1-2 months and slowly add to it. This is for true emergencies such as a furnace blowing up or you lost your job.
As you start investing, make yourself a plan. What are your goals besides having lots of money - travel? philanthropy? owning a Bently? Add what criteria you're going to use to select stocks. Don't just buy because everyone else is buying it, it was touted on a blog (except here -- we're all from Lake Wobegon here) or because you received a "hot" tip. If you need ideas, Bob Wells and David Van Knapp discussed them extensively on Seeking Alpha. Don't worry about it being perfect at first. As you learn and get more experience, it will change. Then refer to it on your investing journey.
You've got a bright future. Good luck.
RE: Should I delve in DG stocks? - Dexter - 02-20-2014
My advice is this.
1) Buy the Intelligent Investor by Benjamin Graham. Read it.
2) After you read it decide on an asset allocation plan.
3) Based on your asset allocation plan, find a good broker. Make a good choice, research all of them. Remember you are not limited to just one.
4) Read the above book again, and again, and again
The most useful things I have learned about investing have come from that book.
RE: Should I delve in DG stocks? - Be Here Now - 02-21-2014
My advice is this.
After reading and digesting all of the above advice, all of which is valuable, create a written investing plan. Do this before you touch even one cent of your cash.
How to write a plan? There are a number of investors who write about investment plans on Seeking Alpha. Following are links to several such articles.
http://seekingalpha.com/article/443721-business-model-for-a-dividend-growth-investor
http://seekingalpha.com/article/1755652-your-portfolio-business-plan-you-really-need-to-do-this
http://seekingalpha.com/article/1436201-the-business-model-of-the-dividend-growth-investor
RE: Should I delve in DG stocks? - Dividend Watcher - 02-21-2014
(02-21-2014, 12:10 PM)Be Here Now Wrote: After reading and digesting all of the above advice, all of which is valuable, create a written investing plan. Do this before you touch even one cent of your cash.
How to write a plan? There are a number of investors who write about investment plans on Seeking Alpha.
BHN, that is essentially what I was trying to say. You went to the trouble of pointing out the specific articles. Guess I'd better go back to English Comp 101
.I can't stress enough how important some kind of written plan helps maintain my own sanity and staying the course.
RE: Should I delve in DG stocks? - rnsmth - 02-23-2014
Yes, you should
RE: Should I delve in DG stocks? - Star - 02-24-2014
Hey guys,
Thanks for the wise words.
I will keep a written plan, this is something that is definitely needed to keep track towards a goal. I've got a copy of intelligent investor, Buffet said chapters 8 & 20 were the bedrock of his investing. Tempted to read those first.
I've got 6 months of emergency funds, probably more, I'm still under the parent's roof.
I have decided on contributing 40% of my monthly wage to a mortgage savings account. A further 40% on DG stocks. The final 20% on everything else a young 20 something does. going out etc.
I have opened/added to my initial positions today, my broker has no fees on international equities for a small period of time so I took advantage of this -
ARCP - 116 @ $14.28
ARCP (bought last month) - 24 @ $14.01
MCD - 23 @ $37.6
KO - 8 @ $97.63
Reason for the weighting towards ARCP is purely because of its newly established market cap. It is now bigger than 'O' Realty Income, and they've been paying dividends for over 25 years etc.
Thoughts?
RE: Should I delve in DG stocks? - EricL - 02-24-2014
I think those are pretty solid initial choices and I am long all three of them.
I think ARCP has a little more risk to it than O does just because of its aggressive growth and many moving parts but I agree that the yield and growth are both attractive.
RE: Should I delve in DG stocks? - Star - 02-25-2014
(02-24-2014, 05:29 PM)EricL Wrote: I think those are pretty solid initial choices and I am long all three of them.
I think ARCP has a little more risk to it than O does just because of its aggressive growth and many moving parts but I agree that the yield and growth are both attractive.
Thanks.
I think ARCP is really undervalued. I originally wanted to go into property, so naturally I have a large affinity for REITs.
I will open a position with O when the price drops below 40, maybe around 38. Wish I bought some last year November time when it was selling for that!