One of many difficulties numerous older investors face while handling their own cash flow pertains to income from dividends. Unfortunately, common stock dividends consist of no guarantees. Companies aren't required to pay them, and those which do can postpone their dividends anytime as their company requirements dictate. Because there are no guarantees for dividends, ought to you depend on them when doing retirement financial planning for income? Possibly, but initially consider the following things.
First, create a diversified portfolio of different dividend-paying stocks as any sound retirement financial planning demands. If the dividends are coming from a single source, you run the risk losing what could be a significant portion of your income should the business decide to discontinue their dividend payments. Having a diverse portfolio, your regular dividend income flow may continue, buffered by the on-going payments of the other stocks in your portfolio. Even though diversification doesn't guarantee from the risk of loss in a regressing market, it can assist to reduce the market unpredictability risk of your entire portfolio. So if you don't have enough to have several dividend paying stocks, own a mutual fund.
Second, consider the premise of sound retirement financial planning being consistency of revenue. So when building your dividend-income portfolio, search for high-quality businesses in areas that have historically paid out a steady stream of dividends to shareholders. Finding these shares can be difficult, but there are a couple of good places to begin. Companies in steady sectors or in highly-regulated markets like electric utilities are typically great candidates to get a dividend-income portfolio. These companies generally face less risks to their business and much less disturbances of their cash flow, which makes it less likely that they would need to discontinue dividend payments.
Another way to invest in a diverse portfolio of high-quality dividend-paying shares is to choose a dividend revenue fund. A dividend revenue fund offers diversification in a mutual fund investment and a hallmark of sensible retirement financial planning is diversity. In addition, a fund offers the expertise of a professional money supervisor, who does the research and chooses the stocks for your benefit. Take note, however, that stocks and mutual funds are investments that involve market risk, and investment return and principal worth will fluctuate so that upon redemption an investor's shares may be worth more or less compared to initial worth.
Cautiously think about the graph above in your retirement financial planning. The older we get, the more inclined we might turn out to be to invest in money market funds or short-term CDs - these items that feel secure. Yet these usually pay low income and also the degree of revenue is static. But think about the income stream on the S&P 500 index. Your revenue would have climbed handsomely over the years.
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