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Wednesday, October 17, 2007

Save, invest, prosper

Was reading a slightly older article that discusses the importance of starting to save early in life, and if investing in stocks, understanding the importance of dividends and also including them in your portfolio as part of diversification.

The article emphasizes the importance of compounding using the story of two twins - Jack and Jill.

"As they turn 18, Jack takes a job out of high school and begins investing. From age 18 to 30 -- when he gets married and has his first kid -- Jack socks away five grand a year. Then he stops.

Jill, meanwhile, goes to college and then medical school. She starts saving at 30 -- the same $5,000 per year.

Both invest in the stock market, earning a long-term average of 11% a year. But by age 65, the difference in their financial fortunes will shock you:

Jill, who contributed for 35 years straight, will have $1.9 million. But Jack, who invested for only 12 years, actually has $4.9 million ... thanks to his head start!"

The article then goes on to make a case for dividend-paying stocks, and also lists 7 stocks that can be used as starting points for further research in deciding whether or not to invest in them. According to the article,

"..from 1972 to 2006, S&P 500 stocks not paying a dividend returned 4.1% annually, while dividend payers returned 10.1%!"

Another thing about dividend-paying stocks is that the dividends can help during the volatile times. Assuming the company is solid fundamentally and investors didn't overpay for the stock, investors can ride out the volatile times knowing that they are getting dividends while they wait.

For complete article, see:

Make Millions With 7 Stocks

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Labels: frugal; Investing

posted by Ruby @ 6:43 AM

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