What kind of investment is best for this? Stocks, real estate, home business, what? I have heard some people who are involved in rental real estate making 15-18% returns, but that seems like it could be high risk due to alot of factors (i wouldnt mind the extra work of upkeep & research though). What about high dividend blue chips? with reinvested dividends and maybe a 6% growth rate that is about a 9.5-10% annual return.
God im fun.
The investment vehicle you’re looking for simply doesn’t exist. If it were that reliable & stable, lots of people would get into it and drive down the return.
Are you going to hold it for a long time? Then get a fund indexed to something like the Wilshire 5,000. Then just keep putting money into it and otherwise forget about it.
You really should read A Random Walk Down Wall Street.
I’m following a high-yield strategy myself when it comes to equities, so I think you’re heading in the right direction here. IMHO, a good argument can be made that a diversified group of stocks with higher-than-average dividend yields will outperform most other strategies in the long term if dividends are reinvested.
I’m fortunate to be an American who’s living and investing in Britain, as the U.K. market has some of the best yields going in developed nations - the FTSE 100 yields twice as much as the S&P 500, IIRC. For now my portfolio consists of four stocks, only one of which was yielding less than 5% when I bought it. (One of the companies rebased its dividend after I bought in last year, reducing the yield by about a quarter, but as it came in the context of a major strategic shift that a lot of people thought was a good idea, including me, I can’t really complain.)
I’ve thought about that but i know nothing about international investing, but im sure being open to investing internationally would produce better yields than limiting myself to blue chips in the S&P 500. I assume some country somewhere is entering or soon going to enter the same type of boom the US had in the 80s & 90s in regards to stock.
js_africanus - i dont know if its impossible, there are (i am quite sure, id have to double check) several blue chips with 3% annual dividends. If they grew at 6% a year that is a 9% annual growth rate.
I heard about this fund the other night on the radio. Looks pretty good, well rated…YMMV
Fidelity Four-in-One Index Fund
It really is impossible.
An individual stock is very, very risky—blue chip or not. I can’t do the math off the top of my head, but diversifying will reduce your risk by staggering amounts. Think of it this way: Suppose you owned stock in Michigan Consumer’s Energy, a gas company. What could be more stable? Then they find out that the CEO has been stealing and that the auditing department is rife w/ corruption. Now imagine instead that you own a collection of stocks from ten utility companies—gas, electric, water, sewer, etc.
There are, I am confident, what you might call blue chip index funds. The S&P 500 is a collection of 500 companies; the Dow is only 30 companies, IIRC; the Wilshire 5,000 is five-thousand companies. If one of those companies sky-rockets, you’re not going to see that much from it since it is between 1/30th and 1/5,000th of your portfolio. However, your downside risk is considerably reduced.
But even blue chips can tank. Not too long ago my mom was talking about having lost tens of thousands of dollars because her retirement was through Ford retirement programs. Ford went down; she got screwed.
The stock market is thick and filled with amazingly smart experts. Go to the math section of the bookstore and look for a book dealing with the mathematics or calculus of financial derivatives. These sorts of books aren’t in the investment or business section for a good reason: You have to be close to being a mathematician to read them. This is the sort of shit that people have to do to beat the market, and they still can’t do it. Remember the Nobel-laureat whose company blew up and Greenspan had to call in a boat load of favors to bail the company out because it was so huge? Those guys were capturing a nickle here and a nickle there, and it still tanked on them. The planet’s best experts on reducing financial risk had the whole thing blow up in their faces.
The market is efficient, it is indistinguishable from random, and IMO your best bet is to ride it. I cannot recommend A Random Walk Down Wall Street strongly enough. You might also look at John Paulos’s A Mathematician Plays the Stock Market, or something like that. A Random Walk will provide you with practical advice and give you a good understanding of what you are getting into. Get the latest copy. It will be the best $30 you’ll ever spend.
Or borrow it from the library and save $30.
It’s that sort of common-sense financial thinking that is simply beyond my grasp.
Let me only note that each edition is updated with more current advice, so that while the basic arguments for market efficiency and the discussions of technical & fundamental analysis may stay fairly stable over time, the timely discussion of what to actually go out and do are changing—perhaps quite dramatically. So in the previous edition, REITs were suggested as a good, cutting-edge for the common investor to get into real estate without getting killed, whereas in the latest edition that info may have changed based on things that have happened since the last publishing.
Also, the book includes a long list of funds & stuff w/ addresses and phone numbers so you’re not left hanging.
Jeez…I sound like I own stock in the company… :o