What is it that makes me like dividends so much? One of the things I learned during my MBA was that you really want to minimize risk and maximize gain. This seems like a simple concept, but it really is not. The reason it is not easy to do is because personally you have to decide how much risk you can accept for the amount of gain.
I blame my parents for my conservative investing nature. Growing up, they kept their money in savings or CDs. They were very afraid of the stock market and all its volatility. Here we can see that my parents could not accept the risk of losing money at all. Therefore, they settled for a reward that was probably below inflation and thus did not grow their money as they could have done. There is absolutely nothing wrong with this because it helped them sleep better at night. However, if you ask my Father today I think you will her a “what could have been..” story.
As a side story, my parents finally decided to invest in the stock market after they saw the huge returns in the late 1990’s. Wouldn’t you know it, they started investing with a large financial advising company around 2000. Then came the stock market downturn of 2002. You have to understand, they had been so conservative and then they take a chance and WHAM! I felt so bad for them, but they have stayed the course and come out on top. I will write a post about my opinion on financial advisors at a later date.
So, back to the topic at hand. I feel comfortable investing my money in the stock market. I am willing to accept the risk that I will lose all my money in exchange for a good return. However, even in the stock market we have risky investments and conservative investments. To me, companies that have a low price-to-earnings and show a history of dividend growth are my targets. Most of the time I find these are banks, real estate investment trusts, oil companies, etc. In the next post, we will cover what it is that I really like about these low price-to-earnings, dividend growth companies.
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