After getting out of debt, building an emergency fund and taking advantage of tax-incentive investing (IRA/403b), I started looking at other investment options. Fidelity and Vanguard both make investing easy, with numerous low-fee accounts. After picking some high dividend paying index funds, I also decided to experiment with the stock market. After considerable research, I began investing in individual stocks which meet the following criteria:
· Low debt ratios: After personally observing the positive impact that eliminating debt has had on me being able to start creating real wealth, I will only invest in companies that follow this same principle.
· Good cash flow: This principle isn’t really possible without the previous one, as they go hand in hand, but I won’t invest in broke companies, even if they have no debt…
· Low price to earnings ratio (P/E): I’m looking for companies trading at no more than 15 times their earnings to ensure the opportunity for growth, even though I’m really investing for…
· High dividends: Let’s face it…another recession is coming, and likely sooner than later. However, dividend paying stocks pay out whether the company goes up in value or not, so if I can get 4+% in dividends from a stable company, I will.
· Trading at a discount: I’m only buying companies trading at at least a 20% discount from its 52-week high. If all the other principles are met, this final requirement all but ensures a long-term profit.
A big reason for this test is that I plan on shifting the bulk of my retirement portfolio to dividend paying investments when I leave the workforce in a few years and what a better way to test the waters ahead of time….
I decided on the investment platform Robinhood for this test, as they do not charge any fees and are incredibly easy to work with to date, so….
This month, I invested in 3 different companies that met all of the principles listed above and have increased my portfolio by 11.75%. And to be honest, while the gains are nice to see, these investments are more about the dividends. More to follow in the months ahead as my test continues….