Investing In Dividends And Stock Trading: A Beginner's Guide

Dividends are an important way to ensure long term financial security and growth of your capital. The problem with dividends is, that they can be difficult to understand. They're not something, that you just read about or learn about in a book. You have to do some research and figure out how to calculate them yourself.

How Do Dividends Work?

Dividends are a portion of the company's profit, that is paid out to its shareholders, like you. You might think of your share as a slice of the company's profits. You own part of the company, and the company owns part of you. This is how it has always worked and how it will always work. So this means, that you as a shareholder have a voice in what the company does.

If you don't like how the company is doing, you can influence the company through your vote at annual shareholders meetings or you can just sell your shares and invest in another stock, if you are sure, that the company is doing well. You can also just keep your profit as dividends and not reinvest it, or do whatever you want with it, like buy something you like or pay off some debt.

Who Pays The Dividends?

Dividends are paid out by the company, but how they're paid out is something, that can be influenced by the shareholder. For example, if the company has lots of excess cash, it might decide to put, that toward paying out future dividends. This can be good for shareholders, because they'll get a higher dividend in the future.

Alternatively, the company might decide to spend its excess cash on things like new equipment or a new product for the company. This can be good for the company in the long run, because it will allow the company to become more efficient and increase production, which will in turn increase the company's profit and allow for higher dividends in the future.

What Is Better For Shareholders?

This brings us to the whole debate over whether retaining excess cash is better for the company or expanding and making investments. This is entirely up to you as a shareholder. You can decide, that retaining the excess cash is better for the company in the long run and make, that your argument to the company as the new owners of the company.

This might be the case if you're not interested in spending that money, but just want to hold on to your steady dividend as your share of profits. Or, you might decide, that expansion and making investments is a better use of cash, in which case you should argue to the company board of directors, that this is the way to go.

The other thing to keep in mind is that whichever decision the company makes, you will still make money off of it. It's all relative. Retaining cash in the long term still means you're making money, even if it isn't a large amount. Spending the money means you might not be making as much, but it could mean a bigger prize in the long run.

Investing In Dividends And Stock Trading

• Investing In Dividends

A dividend investor involves primarily buying parts of a company, that pays you a steady monthly dividend for an extended period. You might go for growth if you feel the company is undervalued and has the potential to increase its profits. You can also "borrow" money by doing a margin loan. This involves loaning your own cash to the company in exchange for a greater percentage of the profit. This way if the company does well, you'll get paid first. If the company does poorly, you won't lose your shirt, since you haven't put your own capital into the trade.

• Stock Trading

One of the primary advantages to trading is you can make more money in less time, but this comes with a lot of risk. If you fail to correctly predict the market, you could lose all your capital. Also, the more you trade, the greater the chance that you will tip over into a "loss" and require another "bail out." There are also fees associated with trading such as commission and exchange fees. This is independent of the current price movement of the stock, which could be positive or negative.

There are a few different types of trades, that you can make. The most common are buying low and selling high. If you know how to time the market, you can make more trades successfully by anticipating which way a stock is about to move. The other type of trade is called a "short trade." This is only available when you borrow a company's stock and sell it, which allows you to profit from a falling market.

There are also options and derivatives trading that you can do. These really require more experience, but if you're interested you should learn more about it. These trades can profit you greatly, but they can also lose you everything if you don't know what you're doing.

The time and effort that you put into trading is typically based on how much money you risk. If you're doing a simple buy low sell high trade, then you only need to know which way the market is going. However, if you're doing a short trade or an options or derivatives trade, then you need to know much more than that. Typically, the more complex the trade, the more money you risk.

Sometimes the markets provide you a "bait and switch" strategy. You start off by buying a stock at a low price, learning the basics of how the trade works, and getting a feel for the market. Then, when you're doing well, the market unexpectedly changes and you're in a position to make a lot more money.

Just like with any investment, you can earn extra money by speculating on the market or by trading. But, you can also earn a lot more money by sticking with a single trade and making it bigger.

Some Tips For Trading

So now that you know a bit more about the stock market and the types of trades you can make, here are some tips for successful trading:

• Know The Market

Before you start trading, familiarize yourself with the market you're going into. Do your research on the companies, recent market activity, and competition.

• Keep Track Of Your Trades

It's important to know what you've made and lost in order to avoid a big loss or become extremely rich. You should always track your trades on a regular basis. Doing this allows you to see profitable trades and eliminate losing trades before they get out of hand.

• Know When To Walk Away

While trading is supposed to be fun and exciting, you should have a plan in case it's not. If you're not going to be making any money within a reasonable time, then it might be better to stop before you lose everything.

Summary

The stock market is full of opportunity for those with the knowledge and willingness to take risks. However, make sure you're ready for the rollercoaster ride that's trading can provide.

In order to succeed, you need to keep track of your trades, know when to quit, and know when to start over with a new strategy. You should also make sure, that you know the market rules and regulations before you start trading.

Finally, if you do well and make some profit, be sure to keep it! Storing your profits in a bank is only going to lose you money over time. Take your profits and move on to another market, or if you were satisfied you can reinvest it to the same stock.