It’s a basic human desire to want comfort – but our needs and desires can be wildly different. For me, comfort means having enough income to buy an apartment with a terrace in a nice building, to contribute the maximum to my retirement plan each year, to build an art collection and to be able to upgrade myself to business class when I fly.
For you, it might mean a spacious house with a garden, luxury holidays or a second home in Europe. But to achieve our desired comforts we have to be sure of the investments we take out.
Here’s how to get the most from your shares:
Make sure your investments make – and don’t break – you. Get your basic financial needs sorted out first. Have you really taken care of your basic needs?
Some people are so eager to invest on the stock market they may not take into account how much investable money they really have. So – after your regular living expenses have been deducted from your income – make sure you cover this essential checklist before you look for a broker:
1. Are you contributing regularly to a pension plan?
2. Are your basic insurance needs covered?
3. Do you have accessible cash to cope with “rainy days”, house or car repairs, or other unpredictable emergencies?
If you’ve answered yes to all of these three areas you can look at any remaining money as your “investable funds”.
Let compounding do its magic on your dividends. Dividends are great – especially if you’re looking for a source of regular income from your shares, not just capital growth.
But not all companies offer dividends. If you’re an income seeker, look out for established companies – especially mining companies – that have historically paid out between 4% and 7% in dividends each year. But you don’t have to take your dividend now – if you’re keen to increase your holding or would rather delay receiving income for tax reasons, reinvest your dividend payments.
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Depending on the reinvestment plan, this can mean that – instead of realising the cash – your dividend payment effectively buys you a bigger stake in the company. And that means your dividend potential goes up.
To find out if the company you hold shares in will allow you to do this, contact their shareholder services division and ask about reinvestment and scrip dividends.
Get a valuable insight into the workings of a big company by exercising your right to vote as a shareholder! If you’ve bought (or are buying) so-called “ordinary shares”, be aware of everything that comes with them. Every investment entails a certain risk – but that’s not all I’m talking about. You also have the right to vote on company matters (you own a part of it!) including the appointment of directors and payment of share dividends.
Once you’re a shareholder, make sure you go along to at least one Annual General Meeting (AGM) or Emergency General Meeting (EGM). They can be a real eye-opener – you see the people that are actually running your company on a day-to-day basis and it’s your chance to put questions to them.
Plus, by seeing how company directors respond to questions (particularly difficult ones), you can get a good idea of how flexible and adaptable company thinking is. In the case of small-cap miner Simmers and Jack, for example, management had clearly become entrenched in a mindset that needed to be overturned before the company’s value rose again.
Bottom Line: Investing in the stock market is about the best way of building up personal wealth. But to make sure you don’t fall victim to trading lows, take time formulating your investment strategy and only ever invest money you can afford to lose.
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