Between 2007 and 2009, approximately 34% of American stocks that pay dividends quarterly cut their payout at some point during the recession. The part I find worthy of examination? The fact that 56% of stocks that paid monthly dividends ended up cutting their payout during the recession. The same corporations that suggested you should invest in them for their cash flows had a disproportionately higher likelihood of slashing their payouts than the regular American companies that made no special promises about the future of their dividends.
Most of the long-term wealth in the stock market gets made by searching for one of two things. Either the accumulation of assets selling at a discount, or the purchase of securities trading at fair prices that have unusually have earnings per share growth rates. For long periods of time, AT&T stock has tended to fall in the category of undervalued because the investor community thinks it is too big to deliver any subsequent growth. But when the dividend of AT&T goes below 5%, history has shown us that the subsequent returns are usually below expectations and confirm the conclusion that the stock shouldn’t be bought when it is overvalued because it can’t just “grow out of it” like you could by overpaying for an investment in something like Visa or Nike.
It is astounding to me to see how many finance articles online speak of Roth 401ks and IRAs as though they are a type of asset that you buy. Instead, it would be more accurate to say that it is a type of account with tax benefits and a few restrictions that you can use to purchase assets on more favorable terms. It is analogous to a contract with the government that gives the investments you make certain benefits so long as you comply with the Roth IRA rules and contribution limits.
Philosophically, all IRA accounts are about making a deal with the government. You are seeking tax benefits that allow you to compound your funds tax-free as long as your money remains in the account. Meanwhile, the government is seeking a guarantee from you that the funds will actually be used during your traditional retirement age so they impose harsh 10% penalties for early withdrawals that also carry taxes at ordinary income rates for non-qualified withdrawals (in addition to waiting until you’re 59.5 years old, there are a couple of other circumstances that permit you to make withdrawals from your earnings such as a home purchase, but your head is not in the game if you already have your mind on ways to withdraw the money early).
Life insurance companies earn 10% premiums on the policies they sell you. Given their immense sophistication, and the fact that they make the most profit when they don’t have to provide a death benefit to someone, it is strongly in your interest to protect yourself from doing something defective that thwarts your intentions.
Set Up A Separate Bank Account To Automate Your Life Insurance Premium Payments. Guess what, if you miss a payment, your policy will lapse and then terminate. Some state law requires that a notice of lapse be mailed to you before your policy terminates.
I was reading the finances of something called Travelzoo (TZOO) because I usually look to the start-up internet businesses as examples of a stock market gone crazy.
But as I studied to study the actual business model, I was pleasantly surprised by what I found.
Turns out, they have no debt. They have $27 million in cash in the bank. Earnings have grown at a rate of 22% annually since 2005. And best of all, and this is the kicker with internet companies of any kind, Travelzoo has funded its growth organically without having to give up large chunks of the business through equity financing that ends up diluting the pre-existing shareholder base and almost defeating the purpose of the growth.