It always helps to have some tips and insights to help you get started with stock market investments geared toward retirement savings. Since it can be argued that the stock market is historically the best place to invest to increase your wealth and save for retirement, it would be good to know which stock market strategies will serve you over the long haul.
Stocks that Generate Extra Income
Many companies pay dividends to their stockholders, which not only gives you the chance to make money if the price of the stock goes up, but you also earn a little extra each year on your dividend payouts. Let’s say, for example, that you own 100 shares of a stock worth $80 per share that pays a 3% dividend this year. You can expect to receive a bonus worth $2.40 per share -That’s $240 extra dollars on your investment, not counting any price appreciation that you might enjoy if the stock rises.
Utility companies often pay solid dividends, as do many blue chip businesses that have been around for generations. Check the stock’s history of payouts to make sure they are steady and consistent over time. Beware of dividend payouts that seem too good to be true when they are offered by companies with shaky balance sheets -the payout could be a way to attract investors because the company is cash poor. The best dividend stocks are from firms that have tons of cash on hand and just want to reward shareholders without jeopardizing cash flow.
Compounding Dividend Power
Investing can be put on cruise autopilot, too, if you enroll in a stock reinvestment program. They work when big companies let shareholders reinvest their dividends. Typically you only have to own a minimum of one single share in order to be eligible and the programs let you reinvest your dividends each time they are paid out, without going through a stock broker or paying brokerage fees. Think of them like a dividend investing piggy bank. They are nicknamed “DRIPs” and if you use them, sure enough, drop by drop they can add up to a sizable pool of wealth.
Credit Cards that Reward Retirement
There are also credit cards you can tie into your retirement account that can quietly and automatically boost your wealth over time. One of them is the Amex Fidelity Retirement Rewards card, which you use in conjunction with a Fidelity brokerage retirement account. Each time you make a purchase with your plastic you can earn 2% back – which is a really generous amount for any rewards card – and it will be swept into your retirement account. That’s a powerful way to incrementally add to your nest egg without even having to think about it, and the savings you’re depositing is cash you’d lose otherwise, so it’s essentially free money. Another choice is the Total Merrill Cash Back Card which works almost the same way, but is geared toward those who have their retirement account at Merrill Lynch. There is no annual fee, either, and no preset spending limit.
Don’t Forget the Tax Implications
Keep in mind that Uncle Sam will want his piece of the pie when you earn a profit from selling stocks. When you have been investing over a long period of time, it can be a real headache to try to go back and reconstruct all those transactions. Maybe 15 years ago you bought 100 shares of Acme when it was selling for $25 a share and then added shares from then on through reinvestment. Then this year you sell all of your Acme holdings. How the heck do you figure out your net profit, since the price paid for the stocks is all over the map and includes fractional shares bought with dividends?
The trick is to keep a copy of each buy and sell ticket and quarterly statement from the broker or company. Consolidate those annually to help you track the sales and purchases. This way you can quickly, and accurately, calculate the cost basis of your stocks. That helps you avoid getting into the kind of trouble with the IRS that could create a gigantic headache and potential financial calamity.
Pay it Forward
By the way, those who have children should also be making another wise investment on their behalf. Ensure that along with reading, writing, and arithmetic, your kids are offered excellent financial education. Financial literacy can make all the difference between success and failure, and there are some great free programs and resources for youngsters to learn about saving, budgeting, and even stock market investment.