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Our Stock Portfolio and Retirement Investments – 2013 Update

I just realized that I hadn’t posted an update of our stock portfolio holdings for about a year and a half!   Stocks and market stats still seem foreign to me, so Mr. BFS does most of our direct investing.  We sold about half of our holdings late last year when we bought our new home.  So here are the current stocks we are investing in via Scottrade, their current dividend yield, and what Mr. BFS said about them:

Scottrade Holdings

Conoco Phillips (COP) – 3.93% Yield – “They still have a good dividend based on what rate we bought at.  And they haven’t had to spend the money on exploration that other companies have, so they put that money back into share repurchases and dividend growth.”

Intel Corp (INTC) – 3.92% Yield – “Good yield and a solid company.  They’ve gotten a lot better in the last year or two with competing with their major competition, AMD, with their processors.  They are still the #1 installed chip in pre-built computers.  As long as they have that market share, we’re in.”

Johnson & Johnson (JNJ) – 3.04% Yield – “Bought it at a steal and has great payouts.  We managed to buy when they were going through the Tylenol recall stuff and they’ve bounced back.”

People’s United Financial Inc (PBCT) – 4.55% Yield – “They have a fairly good dividend and regional banks are doing very well – better than national banks.  Although this bank hasn’t done as well as I’d have hoped, but their dividend is keeping us in a holding pattern.  We may sell since their financials have not done as well as I thought they would.”

PepsiCo Inc (PEP) – 2.83% Yield – “Great price at the time and we’re getting an excellent return.”

Retirement Accounts

So there you go for straight-up stocks.  :-)  My 401(k) is in the Vanguard 2035 target date mutual fund and was fully vested before I quit in July 2011, so it’s staying put for now and growing at about 11% per year.

One of our Roth IRA’s is in the Fidelity 2040 target date mutual fund that I selected (it’s returning about 12% a year), and Mr. BFS uses our other Roth IRA to invest in more dividend stocks (these dividends are auto-reinvested).  Here are those:

Energy Transfer Partners (ETP) – “They are an energy pipeline company that are big players in the Trans-American pipeline.  They also have an amazing yield.”

General Mills (GIS) – “I purchased this during the big crisis, so I assumed they wouldn’t suffer as much.  It worked.  They also had a good yield and they’re a solid company.”

Johnson & Johnson (JNJ) – “Solid company at a solid price when I bought in here too.  I saw the huge price drop and said YES, PLEASE!”

Coca-Cola (KO) – “This is the most recent one that I’ve bought.  It seems to be getting into the healthy drink options side of soda more than other companies - like Coke Zero is more successful than other diet sodas, and they have Vitamin Water.  We also already had Pepsi in Scottrade…J&J was too hard to pass up twice, but I decided to branch out here.”

Microsoft (MSFT) – “When I bought it, the next generation consoles were going to be released.  Then they flubbed with the Xbox 1.  But they’ve recovered.  Windows 8 was also a really big push into the mobile market (yeah, I know it sucks).  But they are also on about 80-90% of home computers, so they’re worth keeping.”

Nokia (NOK) – “Nokia had taken a lot of flack and their stock plummeted, so I jumped on it at $6 a share.  I bought it as a speculation bet on the idea that is had been oversold.  That didn’t quite work.  It was delayed a year and I am basically hoping to break even at least.  I’ll give it another 3-6 months to see what happens after this new Nokia phone release.”

Walmart (WMT) – “This was another recession play.  Even when people are broke, they shop at Walmart.  And they had a great yield when I bought in.”

What are you investing in lately?

**This post is not to be used as a suggestion for investments. This is simply what we own. Make up your own mind and don’t whine to me if something tanks, thanks!**

The Mortgage Meltdown Didn’t Destroy My Portfolio

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Today I’m writing about “My Scariest Money Mistake and What I Learned From it” for the Yakezie Blog Swap. A group of Yakezie Finance and Lifestyle Network members all write about the same topic on another website. Check out all of the contributors (at the end). And be sure to visit Barbara Friedberg Personal Finance for Crystal’s post!

The mid 2000’s were a golden era in the U.S.A. Interest rates were low, there were enough jobs to go around, and investment values were trending upward. Finally, there was hope that all American’s could finally own their own homes.

The American Dream Turned into a Nightmare

Mortgage companies were thrilled with the abundance of capital and low rates and began giving out mortgages like candy. If a buyer didn’t have enough income to qualify for the loan, no problem, the mortgage company tweaked the numbers a bit! Their consciences were clear as they believed that home appreciation would up the principal value of the borrowers home. And, the mortgage companies sold the loans they made so if there were a few loans going out to unqualified buyers, it would soon be someone else’s problem.

All of these mortgage loans were repackaged by investment banks along with Fannie Mae and Freddie Mac, the “reputable” quasi government agencies. These repackaged loans were combined into marketable securities called collateralized debt obligations (CDO), similar to bonds and sold to the public.

Sounds great doesn’t it? Anyone can get a home.  Investors have lots of great new bonds in which to invest.

The Investment Markets Tanked

The belief that home prices only go up was slammed. In 2006 home prices began to decline and by 2008, values were dropping at a level not seen since the Great Depression.

When home values fell, home owners who wanted to sell were facing prices lower than their mortgage amount and the prospect of big losses. Many homeowners defaulted on their loans and lost their homes. Others faced growing mortgage payments as their adjustable rate mortgages increased.

On top of this debacle, those wonderful CDO bonds were mis-rated by the trusty investment rating agencies. Investors thought they were buying top rated debt when in reality, the underlying mortgages in their CDO’s were defaulting. This caused the investor’s bonds to decline in value. Since no one really knew the worth of the underlying investments in the CDO bonds, their values tanked.

The once rosy economic picture became bleak. Homeowners lost their homes and investors lost money on their investments and investment banks went under or faced government bail outs.

In 2009, as the housing market tumbled and the S & P 500 Stock Index fell from a high of 1549 in August, 2007 to a low of 735 in February, 2009, the country sank into a recession. Investors, homeowners, and consumers were scared!

No one with money in the stock market was spared.

Fear Took Over in the Markets – I Stayed the Course

Investors did not believe that the financial institutions knew the true value of the bonds they were issuing or the extent of their own corporate losses.

Investors panicked, sold their investments, ran for the hills and the financial markets crashed.

During this period, I did not panic, nor did I sell. As the overall markets fell, so did my portfolio!

Although the S & P 500 dropped 50 percent; due to a diversified portfolio, I only lost 30 percent of our family’s investment portfolio.

Many investors got really scared and sold-at the bottom! This was not a good idea!  I was freaked out, and scared, but knew my market history.  Luckily, having invested for decades and studied finance and investing, I knew history was on my side. I remember hearing lots of folks talking about pulling out of the markets completely!

I knew that was the wrong approach. After all, when you pull out, how do you know when to get back in. You are much more likely to miss out on potential future gains if you sell.

How I Increased our Portfolio 160% Over the Next 5 Years

I believe in the strength of not only the U.S. Industries, but also the global marketplace. Although I was upset, scared, and worried about the value of our families assets going down. I did not panic. I used my knowledge to hold on.

Then I did something counter intuitive.

During the market lows in 2009, I took some of our cash assets and plowed more money back into a diversified pool of index mutual funds. While many people were scared, I figured the valuations were so low, that even if they fell a bit more, they were likely to rebound eventually.

I followed my own advice and maintained a diversified asset allocation in line with my risk tolerance. When the stock investments fell in value, I rebalanced by investing more in the underperforming asset classes. And then I went in even deeper by investing more cash especially in Real Estate Investment  Trust (REIT) index funds, because those funds in particular got clobbered during the mortgage meltdown.

I was scared and nervous when our assets fell. But I remained rational and acted on years of investing history and financial background. Could I have been wrong? Absolutely, history does not need to repeat itself.

Fortunately, my confidence in world markets was well placed.

The Financial Lessons Learned

  • Do not follow the crowd.
  • Do not panic.
  • Create a sensible investing plan, preferably investing in diversified low cost index funds, and stay the course.
  • Investments go up and down, stay the course.
  • If you are far from retirement (or needing the invested monies) then continue to invest through down markets, because that is when the greatest profits are made.
  • If investing declines are intolerable for you, put a small percent of your investable assets in stock type investments, because their prices go up and down!

This wasn’t really a money mistake, but a scary financial scenario. By remaining calm and sticking with a sensible investing plan the inevitable fluctuations in the stock market didn’t ruin my financial future.

Barbara Friedberg, MBA, MS is a portfolio manager, former university finance instructor, author of How to Get Rich; Wealth Building Guide for the Financially Illiterate, and owner of Barbara Friedberg Personal Finance.com.

Graph

Image credit; Yahoo Finance

 

Participants in the Yakezie Blog Swap

 

Are You Ready For The REALLY Fun Stuff?

The following is a guest post from William Cowie, a previous contributor to BFS.  He blogs about successful investing at Bite the Bullet Investing and you can get his free Investing Basics series here.

Canal fun

Photo: Roger Kidd, Wikimedia Commons

Who doesn’t like to have fun? The only problem, though, is finding both the time and money. Remember the old Willy Nelson tune: If you’ve got the money, honey, I’ve got the time?

I remember thinking in graduate school how cruel life is that we either have time, or money, but rarely both simultaneously. As a student I had lots of time for fun things, but no money. Then, when I got a nice job, we had the money, but no time.

So… is it possible to have both the money and the time to have fun?

Yes.

How?

1. Understand Your Income Possibilities

You have only two possible types of income to live from:

  1. Income from a job or business
  2. Income from your investments

Some people get upset when they hear this. Take Betty for example (not her real name). “Surely there are other ways of getting money!” When I asked her to name one, though, all I got was one of those looks: a scowl on the face and smoke pouring out of her ears.

“Well, what about an inheritance?” she finally blurted out.

What about an inheritance, indeed? Can you make a living off receiving inheritances — how many rich relatives do you have, ready to die very few months to keep your bills paid? Okay, she probably was referring to one inheritance. Let’s take that possibility: would you spend it all? After you spend it, how do you continue making a living off the inheritance?

The answer of course is when you receive the inheritance you would invest it and live off the earnings. Right?

Bingo, you’re back to your #2 on that list. No matter how you slice it, you end up with only those two possible income sources.

What about Social Security? If you’re under 50 years old, your chances of benefiting from Social Security are probably right up there with the tooth fairy. Or, what about that pension? Have you noticed how many employers, even government employers, are cutting pensions of people already retired? It’s even worse for people still working. Do you really want to put your trust in something as iffy as Social Security or a pension?

Worse, do you want to wait till you’re 89 to get anything? Because the age at which those benefits kick in moves every year.

2. Decide On A Goal

Way back in the day there was a word they used: retirement. Over the last decade or so, though, that word has slowly been going the way of the 8-track, because of three things:

(a) Longer Life

Healthier eating, better physical fitness and better health care make all of us live way longer than previous generations.

(b) Better Quality of Life

No only are we living longer, we’re able to do many more things than was previously possible. Gone are the days when you received a golden watch and spent the rest of your life playing golf and bingo, with an annual group bus tour thrown in.

(c) Earlier Start

Gone, too, are the days when you had to wait till the magic age of 60 before you could escape your job. Breaking out at 50 or even 40 is moving from the exception to the mainstream, The internet is allowing people to embark on what they REALLY like doing while they still have The Job (Crystal herself, for example) and build up income to support them doing what they like.

The next step of course is getting to the place where you don’t have to do anything for an income, where the income takes care of itself.

THAT is your goal: where you can do anything you want, without HAVING to put in any hours.

That goal is only attainable if your main source of income is your investments.

3. Make a Plan

Your plan has only three components:

  1. Learn how to invest
  2. Find money to invest
  3. Do it

If you’re like us, you didn’t win the lottery of the womb, so you didn’t start out with a mill or two to invest. That means you have to save up to get it. Enough has been said about that, you know what works for you.

The learning part is probably the most daunting for most people. This is where you hear arguments like:

  • Wall Street is just a casino, loaded to screw us individuals
  • Investing is just too complicated
  • I barely have time now, where am I going to find time for that?

With all due respect, that’s all nonsense. Plenty of people have a rental home (Crystal, again) so there’s no need to make it complicated or involve Wall Street. There are plenty of good investing options.

All it takes is a desire and a commitment.

Good News/Bad News

Bad news first: there is no way around it: your future depends on your investing. Period. Sorry to join the person who broke the news about the tooth fairy, but it is what it is.

But there is plenty of good news:

1. Investing is not rocket science

Granted, it’s not doing dishes, either, but millions do it successfully every day. It’s like shopping: just learn the basics and you’re good to go.

2. Learning Is Free

This is the age of the internet: there are countless free resources to learn from.

3. The Miracle of Compounding Gives You Free Money

Also called “interest on interest” — the earlier you start, the more free money you get.

4. It’s Never Too Late

Even if you start investing at 60, you still have a 15-20 year future. (Bet you never thought of it like that!) How much more if you start at 40, or even 30!

5. You Don’t Need Money To Start

You can start learning before you invest your first dime. In fact, that’s probably the best way to go. As you learn, you’ll find yourself getting comfortable with the notion of investing, as well as the concepts that make for success.

Just Do It

Even if you don’t have money this very minute, start learning now. Learning is free for the most part. And the sooner you get started, the sooner you can answer Willy Nelson back: I’ve got the money, honey, AND I’ve got the time!

Crystal’s Comments:  I really like the last section’s title – Just Do It.  That is the only way any accomplishment is attained, from investing to personal goals.  Please figure out your priorities and jump in!

The Adrenaline Junkie In Me…

The following is a guest post is from my younger sister, Ambi (short for ambitious).  She’s a recent college graduate, started her first post-college career here in Houston, and has been living with us since January.  Please give her a warm welcome! 

Investment Opportunity

Maybe I am an adrenaline junkie, but here’s my latest radical decision.

Currently, I am very actively looking to invest in Groupon stock.  After hearing its disappointing last quarter’s numbers and reading former CEO Andrew Mason’s blunt exit email, I want in. No, I don’t have an emergency fund that is 6 months worth of my earnings.   No, I have no experience with stocks.  No, I have not even held my job for 3 months.

I understand how choosing to invest in a tanking company that just fired its CEO, based on an unproven coupon business model, may seem unwise.  Here are my three justifications:

1)  I see a great opportunity.

Groupon stock held a high of almost $20.00 a share at one point in time, and while I do not even pretend that Groupon stock will ever be worth that much again, I do see it rising above its $5.30 a stock current price.

2)  I feel secure in my current financial state.

I don’t have debt.  Additionally, I have no dependents I am supporting, nor do I have any other fiscal responsibilities other than my personal living costs (rent, groceries, transportation, and savings).  While I do have a sales job, my base salary is not effected by my additional commissions, and I live comfortably off my biweekly checks.  I even save.  And when the time comes I do start earning commissions, I intend to save each part of those checks, building a nest egg.

3)  I will personally enjoy the highs and lows of my stock.

I think people want to avoid making investments effect their emotions, but this is where I gamble.  I do not go to casinos – I do not like losing my money on games that are rigged for the casino to win more often than not.  But as I watch the stocks plummet on Bloomberg, I want to be a part of the Groupon ride. With a new CEO, I have no idea what will happen, but that is why I am investing a very small amount that I do not care if I never see again.  Everyone I know uses Groupon, so if it does tank, honestly…I will more effected by the loss of actual deals than the amount I invested.  And should Goupon do well, I would love for its stock to be my first portfolio stock.

So, I am currently looking at purchasing 60 or so shares.  If I never see that money again, I won’t cry.     And should Groupon turn around, I will be thrilled.

What do you think?   Is this stock just too risky for your financial taste?

Investing in Our Roth IRA’s

As I wrote about yesterday, Mr. BFS and I just fully funded our 2012 Roth IRA’s last week with the last $8800 that we needed to contribute.  I’d love for it to be that easy, but we also had to figure out what to invest in with that cash.  Here’s what we came up with…

Crystal’s 2012 Roth IRA Investments

I’m easy.  I like target date mutual funds.  Specifically, my 401k is invested in Fidelity Freedom 2035 (FIHFX) and my Roth IRA is fully invested in Fidelity Freedom 2045 (FFFGX).  Both returned about 12-13% over the last year and only lost about 25-30% of their value during the crash (not too bad when some people lost 50% or more).  My two accounts have completely rebounded and have even grew some since the crash since that was also when I contributed more cash.

So, the $3800 I had left to contribute to my Roth IRA was used to buy more shares of FFFGX.  It’s probably not a sexy choice, but I like target date mutual funds since they are like investing in a great portfolio that is automatically adjusted to be less risky as time goes on.  I really appreciate smart and easy.

Hubby’s 2012 Roth IRA Investments

Mr. BFS is not as easy as I am.  He likes choosing investments.  That is why he runs our Scottrade account for stocks.  He ended up using his $5000 to invest in two main stocks:

  • Walmart (WMT) - He said he chose this one for $3500 since he thinks it will continue to be a sales leader and they are doing a big, patriotic push in advertising that may go over well.  Their price has also dropped a little over the last 6 months, so he think it would be a good time to buy.  And he likes their dividend and how often they are known to raise their dividend.  Finally, he says we don’t have much other stock in this niche, so it’s diversification.
  • Microsoft (MSFT) - He put the other $1500 into Microsoft since he thinks it also has dropped enough to be a nice buy.  They also have a good divend and history of dividend growth.  And we don’t already have a tech company in our portfolio, so he diversified again.  Plus, the crappiness of Windows 8 has already been factored into the stock and the new X-Box console should be released in the next 18-24 months.

Overall, I’m just happy that we have two fully funded Roth IRA’s for 2012.  :-)  Yay!  But my competitive nature now wants to see how well my target date mutual fund does against his specific investments in 2013, lol.

Do you have a Roth IRA?  What do you invest in?

Adventures in Landlording – So Far, So Good

It’s been a while since I talked about our rental income.  I’ve written about how we currently rent out a spare bedroom in our own home to a couple of our friends.  And I mentioned that we spent about $750 on fixing up our first house to get it ready to be moved into for November.  Here are our most recent updates on our adventures in landlording.  :-)

Rental House

The $750 we spent on getting our last house move-in ready seems to have paid off.  Our tenant moved in November 9 and only has had a few issues to fix.  The first one was that the side gate to the backyard wouldn’t open without manhandling it.  I had forgotten about that, but our neighbor over there offered to check in on little stuff like that, so I gave him a call.  He fixed it within a couple of days and wouldn’t accept anything but gratitude.

When it became apparent that there was also a little leak under the kitchen sink, he also popped in for 5 minutes and tightened a loose connection.  I dropped off a 24 bottle pack of his favorite beer as a thank you for both little jobs.  He seemed super happy and I am too, so yay for great neighbors!

The only other thing that popped up was that the garage door opener’s battery started dying and beeping, so I replaced it ($25) last week.  All future batteries and light bulbs will actually be our tenant’s responsibility.  But, in my opinion, it is only fair to at least have them all working when she first moves in…

That said, we received $880 for November 9-30 and she paid her $1200 for December a week early.  So far, so good!

Covering Our Responsibilities

We’ve started an ING side fund to cover any big breaks like the air conditioner that is 8 years old, but overall, that house is very low maintenance.  It doesn’t have a gas line, so everything is electric, located in the garage or at the attic’s opening, and is all pretty easy to get fixed or replaced.  Costly, but easy.  Our biggest responsibilities are to make sure the air conditioner, heater, water heater, and house itself stay in good repair.

She is taking care of all of the interior and exterior maintenance except for having the lawn mowed for a year.  I agreed to cover the lawn guy biweekly from April-October 2013 and she could take it from there.  That will run us about $280 total at $20 a pop, so I didn’t mind the concession to have her move in as early as she did.

Our tenant seems to be great about letting us know about issues without acting like it’s the end of the world.  I’ve been able to handle them all within a few days.  Plus, she has paid her first full month’s rent early and sent me a few text messages on how awesome she thinks her house is.  So if that keeps up, we both should stay super happy.  :-D

Spare Bedroom Rental

A couple of our boardgamer friends have lived with us since May 2012 (well, he board games and she likes the Sims).  They are a very sweet couple – two college kids earning their degrees.  She is in her mid-20′s now and is becoming a teacher for special needs children since she already had nanny experience in that area, and he is in his early 20′s and is becoming an EMT.

In our old house, all 3 bedrooms were upstairs and they rented the spare bedroom and full bath that was at the end of the hall.  In our current house, they had a choice between the bedroom and full bath downstairs or upstairs.  The main difference was that the one downstairs had a long closet good for hanging clothes but they would have to keep the bathroom super clean for guests.  The one upstairs had an average walk-in closet better for shoes/storage and the bathroom would not have been shared with visitors.  They chose the downstairs option since taking the stairs all of the time didn’t sound like fun and they do have a lot of clothes.

Overall, living with another couple is pretty easy.  And they always pay their $600 at the beginning of the month.

But there have been some downsides recently that were not as annoying in our old house:

  • This is a brand new house that I am trying to keep super clean.  That means I do nag more.  Especially about the bathroom and kitchen.  I feel like I am training kids that were never taught properly the first time.  But they listen and learn eventually, so at least the training is working…
  • The young man never had stainless steel appliances before and didn’t know that he couldn’t use the dark green, scrubby side of the sponge on our stove top.  Now my stove top has permanent surface scratches.  I was pissed and had to be talked down the afternoon I noticed.  It isn’t super noticeable, some scratch-be-gone may work, and they’ve offered to pay for the scratch remover or even a new stove top down the road.  But it has been the most memorable bad thing thus far.
  • His old truck leaks fluids.  Not a lot, but it does leak.  So our driveway has some spots in two areas and now there is a container kept under his truck to catch the crap.  When they move out, I will be having the driveway power washed and maybe resurfaced depending on my mood.  I’ve thought about having it painted since that cuts down on weeds in the cracks too.  (Money Beagle, I know this one is going to hurt you the most since you have a thing for nice driveways…I almost didn’t want to write about it because it may bring up bad memories for you, lol).
  • I’ve been parked in a couple of times.  They left, forgot about his truck in the driveway, and I was forced to use hubby’s car or stay in.  I sort of lost my mind the most recent time since I was already running late.  They understand if it happens again, they will be in search of a new place to stay.
  • When they move out, we will probably replace the carpet in their bedroom since it is already very lived on.  We’ll probably also repaint their room.

Still Worth It

But despite some annoyances and a couple of really bad moments (the stovetop and being parked in), the $600 a month is still worth it.  Overall, we live well together.  They stay in their room the majority of the time that they are home unless they are cooking or using the living room while we are out.  Sometimes, we hang out talking at home or walk out to the duck lake/pond with a bottle or two of Arbor Mist.  They are both extremely nice people who really want to make everyone happy and they are always super apologetic when something annoying pops up.  More importantly, they have been fixing the issues so they don’t happen again.

For example, there is a drip pan under his truck right now even though it’s parked in the street.  When he moves the truck in at night, he replaces the drip pan underneath the problem area.  It’s been about a week so far, but it feels long-term.  I’m even happier they will be getting rid of the truck next year.  He’s also learned the hard way that only paper towels, microfiber, and soft sponges are used in the kitchen.  And they have been way better about cleaning up after themselves, especially in the bathroom and kitchen.  I rarely even know when they’ve cooked.

So, in the realm of roommates, I think all four of us are pretty lucky.  Is sharing a house for everybody?  Nope.  But it is working well for us and I sincerely like hanging out with them on the evenings we just want to chat.  Right now, this makes sense for us.  And they plan on finding a place of their own in a year or two anyway.  They are just aiming to graduate and save a bit in the meantime.

So there you have it, so far the adventures is landlording have been more positive than negative.  I’ll update you again if that changes.  ;-)

Have you ever rented out a spare room?  Or do you have (or have had) a rent house?  Any adventures you’d like to share?  :-)

Dividend Investing

This article was written by John at BuyStocksOnline. BuyStocksOnline is a site about building a dividend income portfolio with a goal of earning passive income. If you like what you see here, make sure to stop by and check out John’s tips for building a solid portfolio of dividend stocks.

I have been investing in dividend paying stocks for the past 5 years. Over that time, I have learned a lot of things about how to invest for the long term in companies that pay a dividend. More importantly, I have learned a lot about what not to do as an investor.

Now that I am building my portfolio of stocks the correct way, I thought I would share some tips for new investors.

5 Dividend Investing Tips for New Investors

If you want to start investing in stocks that will provide a steady income stream, check out these 5 tips for new investors. Even if you are an experienced investor, you may find these tips helpful. Looking back, I wish I would have known about these tips earlier on in my investing career. Hopefully you can use some of the things I have learned over the past several years.

1 – Don’t Chase High Yields
One of the biggest mistakes a new investor can make is chasing high yields. Take it from me; don’t be tempted by stocks with double digit yields. I made the mistake early on of investing money in only the highest yielding stocks with yields over 15%. Most companies cannot maintain a yield much over 6% or 7% for an extended period of time, so focus on stocks that yield between 2.5% and 6%.

Unless you are investing money into an income trust, avoid stocks with the highest yields. Instead, look for companies with a strong history of dividend growth. A 3% yield may not seem like very much today, but a company that raises their dividend annually by 10% can provide huge returns in the future.

2 – Take Advantage of Automatic Investment Plans
Automatic investment plans (AIP) are a nice option for the small investor looking to build their portfolio one month at a time. An AIP can be setup to deduct money from your checking or savings account every month and use it to purchase stock shares in a company. Most of these plans allow investors to purchase fractional shares by investing as little as $25 per month.

Interested in setting up an automatic investment plan? Consider setting up an ING ShareBuiler account or investing directly through a company. You can no longer make the excuse of not having enough money to start investing with tools like an AIP. For under $100 per month, you can start accumulating shares in a top dividend stock that will eventually add up.

For more information on investing directly through a company, check out What is a Direct Stock Purchase Plan?.

3 – Sign up for DRIPs
A DRIP (direct reinvestment plan) is a good way to build your position in a company by taking advantage of compounding interest. By signing up for a direct reinvestment plan, all dividends received will automatically be invested into new shares of stock usually at no charge. This is a cheap way to make your money grow faster for the top dividend stocks in your portfolio.

Investors with more sizable positions may opt not to DRIP stocks in their portfolio and instead use their funds to purchase undervalued companies. However, small investors like myself can take advantage of DRIPs to maximize their return. I have DRIPs setup on all 12 dividend stocks that I currently own.

4 – Start Dividend Investing Early
One of the biggest lessons that I learned is to start investing sooner. As I approach 40 years of age, I wish I would have started investing in dividend stocks earlier in my life. Like any other investment that earns compounding interest, the sooner you can invest the better off you will be.

Even if you are just out of college, recently married, or just had your first child and cash is tight – you can still begin investing. Take advantage of automatic investment plans or direct stock purchase plans to get you started. It only takes $25 a month to get started.

5 – Look at Dividend History
Which company would you put your trust in? One that has consistently raised dividends annually for 30 consecutive years? Or one that raises, lowers, or even cuts their dividend from year to year? The logical choice is the company that shows consistency.

Most successful dividend investors look for companies with a strong track record of raising dividends. While a company’s dividend history does not necessarily predict the future, there is a good chance the company will continue its trend of increases.

One place investors can look for companies with over 25 consecutive years of annual dividend growth is the S&P 500 list of Dividend Aristocrats.

What other investment tips can you provide to new investors looking to build an income stream from owning stocks?

Crystal’s Comments:  As I’ve written, Mr. BFS invests a bunch for us in dividend stocks.  So far, so good and I like the idea of us re-investing our dividends so things can grow even faster.