The irony of stock market and dollar losses

We had a family BBQ over the weekend that gave me a chance to talk to our sons about what they plan on doing with their gift. Invest some and fun with some said all 3. They will do what they want. I don't tell them what to do just point out that looking ahead instead of what is hot now is in their best interest.

I gave them an example.
Back in 2002 I was reading about the amount of waste American's generate, amazing almost mind boggling. I did a little research and found a waste management company selling for around $14.00 a share. Frugal I bought 1000 shares. It went up to a point where I was going to sell and take the capital gain. But the company announced a 3 for 2 split. Since then it split 3 for 2 two more times. The splits plus dividend reinvesting brought the amount held to a little over 5000 shares. The stock is going to split again 3 for 2. I explained to our sons this time I'll sell the quantity gained & keep 5000 shares. The sale will go into the cash part of the self directed IRA. There it will sit tax free until it's drawn on. That stock closed down .63 cents today @$96.29

I advised them to look at companies developing Molten Salt Reactors (MSR). Those are expected to be cheaper, safer, and generate less nuclear waste when compared to traditional nuclear reactors.

Why that?

According to the World Nuclear Association, electricity demand almost doubled from 1990 to 2011, and is projected to grow 81% from 2011 to 2035. Not exciting be steady consistent growth & the potential of a decent dividend in an area where not many say screw it I don't want electricity. Between that and decreasing use of fossil fuels research should pay off for them.

Then I asked them about jobs. They have jobs so I got that look like what the hell do you mean. I asked what is impacting jobs? Manufacturing in China & other countries, technology, and the high corporate taxes here in America. I actually was surprised they thought about that.

OK what if manufacturing comes back to America because taxes are reduced? That still leaves technology replacing people doesn't it? Yeah! So what is used to make robotics and medical devices work without large components? No answer.

I told them to research companies that are using nano technology. Even if manufacturing doesn't come back strong in America companies will still be using advanced technology.

They have the time frame to look to what will be, whether or not they research and invest is their choice I won't be responsible for their decision making.
 

mathjak107 said:
you do know there is nothing unique about dividends . for every dividend paid the exchanges automatically reduce the value of your investment left compounding by an equal amount .

a portfolio of non dividend payers with the same or greater return can provide the identical income stream and leave you with the same balance .

dividends are not like interest which is on top of your existing balance . dividends take the price of the shares you had the night before , break off a piece of the share price and give to you lowering your dollars still invested .

i accidently bought verizon the day before it went ex div . i gave them 20k , i got a dividend of 235.00 and had 19,765.00 left for the market action to compound on . in the end nothing gained nothing lost .

to make matters worse they missed earnings and not only got the price reduction from the dividend but got smashed ay by market action
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MathJak, most of my mutual funds and ETFs are dividend paying investments. True the share prices drop by the amount of the dividends but I've found that the share prices usually goes back up over the course of as little as a few days to a few months. Sometimes an investment may take longer but if someone is investing over the long haul, chances are their investment(s) will regain their share prices plus more.
 
the stock may go back up but unless the dividend is reinvested then all compounding going forward is on less dollars . if you reinvest it will always be on the same dollars you had .

as you saw i had 20k compounding by the markets . they gave me 235 in a dividend and now the remainder is less than my 20k being acted on by the markets going up or down x-percent .

it is the fact we start each year or quarter with x-amount and it is compounded on that grows our money .

20k going up 10% is more than 19,765.00 going up 10% .


it does not matter if at the end of the day a 8% gain is all appreciation or 6% appreciation and a 2% dividend .

dividends are only giving you back a piece of your share price . in fact the company could have lost money and still paid you a dividend . it is only a number voted on by the board .

dividends are convenient because the company sells a piece of your invested dollars off instead of you doing it but either way it is pretty much the same effect .

in fact doing it yourself may be better tax wise . you will only be taxed on the gains of that 2% you take . the dividend is taxed on the full amount .
 

Trade said:
If you can build up enough so that you never have to concern yourself with running out of money.

That's something beyond the means of most working class people.
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I was working class too Trade. And for half of my working life, I was a low wage earner. For the next half, due to changing from municipal to state which had the same pension plan I earned a pretty good salary with raises every year. I started investing around the same time I transferred from city to state payroll but I had always been a saver. I bought a co-op apartment at age 24. Our boards have managed to keep our living costs well below the average for apartments in and around our area. I retired early with a pension, but took a 12% reduction because I was only 50 and full retirement was (then) 55 and great benefits. Unless there is a major catastrophe or I have to go to a nursing home long term , I won't run out of money. The fact is I'm still investing at age 70. My particular set of circumstances has served me well. I have read about other "working class people" who had different circumstances but still managed to save, invest and live well. I remember one elderly lady who had worked as a librarian. She managed to accumulate a million dollars!
 
mathjak107 said:
the stock may go back up but unless the dividend is reinvested then all compounding going forward is on less dollars . if you reinvest it will always be on the same dollars you had .

as you saw i had 20k compounding by the markets . they gave me 235 in a dividend and now the remainder is less than my 20k being acted on by the markets going up or down x-percent .

it is the fact we start each year or quarter with x-amount and it is compounded on that grows our money .

20k going up 10% is more than 19,765.00 going up 10% .


it does not matter if at the end of the day a 8% gain is all appreciation or 6% appreciation and a 2% dividend .

dividends are only giving you back a piece of your share price . in fact the company could have lost money and still paid you a dividend . it is only a number voted on by the board .

dividends are convenient because the company sells a piece of your invested dollars off instead of you doing it but either way it is pretty much the same effect .

in fact doing it yourself may be better tax wise . you will only be taxed on the gains of that 2% you take . the dividend is taxed on the full amount .
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Yes, all of my dividends are reinvested Mathjak. Also, a majority of my investments are in a Roth, so of course they don't get taxed. It has been my understanding that capital gains are what investors get when the company "sells a piece of ...investment" and dividends represent our share of a company's profits. I had to know about this because as a Muslim, I am not supposed have interest paying accounts (unless very, very minimal interest is generated) but can receive dividends and cap gains. I found out that some financial institution customer service reps did not know the difference and were labeling income as dividends when it was in fact interest. Anyway....this is from Investopedia:
"Is there a differencebetweencapitalgains and dividend income? There is a differencebetweencapitalgains and dividend income. Dividends are assets paid out of the profits of a corporation to the stockholders, whereas capitalgains occur when an investment is sold for a higher price than the original purchase price."
 
companies have losses and pay dividends so you can't say they come from company profits . a company like general motors paid dividends right to the grave and there were no profits . a dividend is just a vote of the board to return money that is already yours .

it could be from profits , borrowed money or your own money . i had a reit that borrowed money to pay the dividend when the business fell off and they did not cut the dividend for fear of the price plunging .

in any case if your stock appreciated or even fell you still get a dividend . it comes right off the value of the dollars you had invested the night before as exchange computers are required to reset the price back by what you got .

in the end without appreciation your share price is reduced to zero . dividends are not interest but most companies do invest in all sorts of cash instruments and receive interest which becomes part of their bottom line .
 
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mathjak107 said:
companies have losses and pay dividends so you can't say they come from company profits . a company like general motors paid dividends right to the grave and there were no profits . a dividend is just a vote of the board to return money that is already yours .

it could be from profits , borrowed money or your own money . i had a reit that borrowed money to pay the dividend when the business fell off and they did not cut the dividend for fear of the price plunging .

in any case if your stock appreciated or even fell you still get a dividend . it comes right off the value of the dollars you had invested the night before as exchange computers are required to reset the price back by what you got .

in the end without appreciation your share price is reduced to zero . dividends are not interest but most companies do invest in all sorts of cash instruments and receive interest which becomes part of their bottom line .
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You make a good point Mathjak. But since most of my investments are mutual funds or ETFs you now have me wondering...do those funds glean most of their dividends from the companies that are doing well while others aren't doing so well? BTW...I didn't say it...Investopedia did I know....that "you" wasn't personal. :rolleyes: Just curious, is your REIT in a tax advantaged account?
 
the reit was in a retirement account but it is gone now . the 6% dividend was attractive until you learned they were using money they were supposed to buy properties with as well as borrowed money and partially your own money made it up .

dividends at the end of the day is just the company handing you back money that is already yours whether you want it back or not . you have less invested in the stock or fund , plus money in pocket after the dividend .

if you reinvest you have the same amount .

receiving a 4% dividend as an example is no different than selling off equivalent dollars from a non dividend paying portfolio with the same or greater total return .

for anyone to think other wise is a case of the emperors new clothes .
 
one thing i want to point out is dividends can be very tax inefficient tax if held in a brokerage account .

dividends are taxed on 100% of the dividend amount so if you get a 4% dividend you will owe taxes on it if you are not in the zero percent tax bracket .

if the income is generated off a portfolio you only pay tax on just the gains not the entire draw .

the rules for what qualifies as a qualified dividend so you get special tax rates varies depending whether it is a stock or a fund . they both have different rules as to what makes them a qualified dividend .

also , even if you do get the special rate ,receiving as little as a 1% distribution over the long term wipes out the tax advantage .
 
I'm watching for any signs that Harbor Freight....presently privately owned....might go public with a stock offering. With the continuing collapse of Sears, there is an ever present population of homeowners and "do-it-yourselfers" who are always buying tools, etc., and Harbor Freight is filling the void being left by the demise of Craftsman Tools, nicely. They are opening stores all over the country at an increasing pace...mostly in small to medium sized cities, and gaining business nicely. In our area, they have opened 2 new stores in the past 6 months...in Sedalia and Jefferson City, MO., and every time I go past those stores, the parking lot is quite full. We will be in Sedalia Friday, and I have a list of items to get at HF. If they ever decide to go public, I will buy some shares.
 
all my serious investing is in funds but i do a lot of speculating not so much in individual stocks but in sectors or asset class etf's .
,
i have traded in and out of gold 29x since january scoring 27k in profits . in and out of TLT the long treasury bond etf, same with uso for oil . there is always something that propels them up and very quickly reels them back down .
 
Don M. said:
I'm watching for any signs that Harbor Freight....presently privately owned....might go public with a stock offering. With the continuing collapse of Sears, there is an ever present population of homeowners and "do-it-yourselfers" who are always buying tools, etc., and Harbor Freight is filling the void being left by the demise of Craftsman Tools, nicely. They are opening stores all over the country at an increasing pace...mostly in small to medium sized cities, and gaining business nicely. In our area, they have opened 2 new stores in the past 6 months...in Sedalia and Jefferson City, MO., and every time I go past those stores, the parking lot is quite full. We will be in Sedalia Friday, and I have a list of items to get at HF. If they ever decide to go public, I will buy some shares.
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I am way past having the time to invest in a company like this if it does offer stock. I sincerely believe your logic is right, because you are looking forward.

Where I live there are 6 stores and like you the one closest to me is always busy. The ability to buy right now instead of ordering online and waiting I think is a huge plus.
 

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