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| | Here's the Gist today Happy Thursday Origin Member. We often think of "wealth" as having a bunch of zeros in your account, but more often than not, wealth is actually invested in assets with less concrete values — like alternative investments. Care to guess what the total assets held in alternatives (AUM) have grown to as of late? A. $4T B. $14T C. $18T Here are the topics for today: - Just How Much 'Alternatives' Should Be in Your Portfolio?
- Should You Bother With Dividend Investing?
- Spring Cleaning to Save Money
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| Just How Much 'Alternatives' Should Be in Your Portfolio? |
The majority of investors don't give much thought to the idea of investing in alternatives — the average allocation size is just about 5% for individual retail investors. Amongst high-net-worth investors, it's a different story. Data from 2020 suggests that for "high-net-worth investors", the average portfolio boasted 26% alternatives, while for "ultra-high-net-worth investors", this increased to 50%. Does this mean alternatives make you wealthy? Not necessarily. More often than not, alternatives' bias toward the ultra-rich is a chicken-and-egg problem. Did the wealthy buy alternatives, or did alternatives create the wealth? Usually, alternatives create the wealth. Having investments in alternative assets like real estate, private equity, and others is often what helped create that wealth. What makes them wealthy isn't simply "investing in alternatives", it's the size of their alternatives portfolio combined with the disproportionate returns their volatility sometimes brings. So, what should the average investor do with alternatives? Consider these things. - Alternatives come with an increased level of risk that often includes an increased level of upside potential. Because of this, investing your entire portfolio into them can be extremely risky, but also extremely rewarding — it's not likely though.
- Certain alternatives are more volatile than others. Real estate, for example, is a much safer alternative asset to invest in than something like crypto, or private equity, but the cost of entry is also higher.
- Most advisors recommend investors keep their alternatives allocation below 5% to mitigate risk but get some exposure. Ultimately though, 5% might not do much depending on what dollar amount 5% is to you — but that doesn't mean go all out either.
- For most investors, alternatives are something that makes sense to incorporate with additional income. If you're already investing enough for your retirement goals and have leftover money that you can afford to lose, then there's nothing wrong with adding some alternatives with that money for the upside potential.
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| Should You Bother With Dividend Investing? |
Dividend investing is like that "good job" your parents always wanted you to have. It's stable, safe, has decent benefits, and it pays alright, but at what cost? How long do you have to work there to reap the benefits, and is it worth it if you don't enjoy it? Dividend investing is similar in the sense that, yes, it can provide some nice, passive income, but it also presents itself with some caveats worth considering before you dive in. The basics - Companies pay out dividends to share their profits with shareholders. It's a way for them to thank their shareholders for their ongoing support and to incentivize them to continue to hold the stocks.
- Dividends are paid out to its shareholders at predetermined time intervals. This usually comes at the frequency of four times per year, quarterly, or in some cases semi-annually or annually. This can be in the form of cash, or it could come by way of more shares in the company too.
- Companies pay a set dollar amount per share basis. If you own one share of AT&T, say they will pay you $0.28 per quarter, per share owned. This makes their dividend yield about 6.5%, which is high. Yield is calculated by dividing the annualized dividend payout by the current share price.
- Dividends, especially good ones, usually come from companies that have reached maturity and find themselves in established industries with predictable profits. Think oil & gas, banking, healthcare, utilities, etc. They're beyond the growth phase where they can reinvest heavily and take on expansion debt, and they reward investors for their investment.
- What's a good dividend? In general terms, anything over 2% is considered to be a good dividend payout rate, but that's also the broad average of the S&P 500, and as seen with AT&T, you can find high yields if you're a diehard dividend fan. IBM has a 3.5% yield, Realty Income, a REIT, offers 5.6%, and Walgreens is at 4.4%.
Considerations when dividend investing - It's not a strategy to produce investment income fast, or at all, unless you have a lot of cash, a lot of patience, or both. You would need to own 1,000 shares of that high-yield AT&T stock to produce $1,200 a year in dividend income. That's roughly a $17,000 investment, so it would take you 15 years to make your money back at present value.
- It's not for the faint of heart, the light of accounts, or the impatient. Despite this though, that doesn't mean that over time you couldn't build up a nice supplementary income. If you were able to spread a few hundred thousand dollars of retirement funds across multiple well-paying dividend stocks, this could become a viable passive-income option.
- But the stock price is still relevant. Picking a dividend stock that's presently overvalued or doesn't forecast well for the long-term future can be a risky play. Sure you may be getting a great dividend payout, but if your principal investment value is melting faster than the ice caps because the market is becoming speculative of the business or the industry it's in, then you should re-evaluate your investing strategy.
- It's important to pick well-established businesses with a long-term outlook — and one you also have strong personal conviction in. A dividend stock should not only create income but also preserve the value of or even potentially grow your principal investment amount.
So is it worth it? Whether or not dividend investing is worth it depends on your financial goals, risk tolerance, and more. Do you have a lot of cash on the sidelines and want some truly passive income? This may be for you. Need some money quickly? Steer clear as there are other investment strategies for you. |
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| Spring Cleaning to Save Money |
We've all heard of spring cleaning, right? It's a very old tradition that's actually been around for thousands of years. Historians think it originated around the Persian New Year (Nowruz), which has been celebrated for over 3,000 years. While spring cleaning is a great way to clear out your closet and rid yourself of all those dusty and unused things in your home, it's also the perfect time to tackle your finances. Here's your quick to-review list - Revisit your budget: Budgets need not carry over year after year in perpetuity. You have to refresh them as your life changes, changing the items within it, too. A popular framework is the 50/20/30 budget rule: 50% for needs, 20% for savings, and 30% for wants. During these times of high inflation and uncertainty, recalibrating your budget at least every year seems more important now than ever.
- Audit your expenses: Go through your expenses with a fine-toothed comb and see what you don't need, what you can negotiate down, and what's slipped through the cracks. It's easy to accustom ourselves to your bills, but doing so can often hurt your financial well-being in the long run.
- Facing spending habits: Sometimes when we clean out our home, we find a lot of things that provoke thoughts like "When did I even buy this?" Doing some decluttering can force us to come to grips with some, shall we say, whimsical purchases we've made, and lead us to reevaluate our spending as a result.
- Peace of mind: Although this doesn't have a direct correlation to turning a profit, creating more space and organization in your environment can feel like a weight lifted off your shoulders that you might not have even known was there. This can lead to feeling better, increased productivity, and even inspiring new ideas.
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| By the way 📈 Answer: It's B., almost $14T (MF) 💳 Credit card late fees get an $8 cap (CNBC) 📺 Consumers are binging on streaming services (BofA) 🎯 Target launches a direct Amazon Prime competitor (The Verge) 🥣 Cereal for dinner is the key to combating inflation according to Kellog's CEO (Axios) |
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