Saturday, June 09, 2007

Dividends and Investing

I was recently reading through the share holder guide from the Royce Funds and came across a fact that was pretty interesting. If your tax rate is 15% or below, then the tax rate for you on dividends in 5%, and capital gains are 5%. Grant many people in that tax rate range won't have much free money to invest, but some will, and it would really be worth cutting back on the cell phone plan or cable TV to come up with $50 to $100 a month to invest.

Traditionally one of the best ways to invest if you don't have much money is through a Dividend ReInvestment Plan (DRIP).

Thanks to the internet there are many discount broker's that offer low fees stock transactions. Reducing your fees is a big part of the challenge when investing small amounts of money. Browsing around Yahoo Finance will show you multiple ads for various online stock brokerage companies. A recent search using the Yahoo stock screen produced a list of 1003 companies paying a dividend higher than 4%. Search for one you are comfortable will not suffer major problems and the dividend return could be much better than putting the money in a savings account.

Another way to minimize your cost of investing is to choose a mutual fund. Find a fund that produces income from investing in dividend paying stocks, sometimes called an Equity Income fund. (Examples: T. Rowe Price Tax-Efficient Growth & Vanguard Equity-Income)
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