Investing in the best dividends stocks is a good choice both for your current, and future, financial health. They can provide capital growth, as well as steady income if your portfolio is set up correctly, while also allowing you to get into the world of owning growth assets without having to jump right in and buy a property to rent out. That doesn’t mean, however, that you can go into investing in the best dividends stocks with your eyes closed and expect everything to work out in your favour. There are many factors that can impact on the success of your venture and proper planning is vital to selecting the right strategy. That’s why today we’re going over five things to consider when investing in the best dividends stocks.
Your Risk Tolerance
Before deciding on anything else, you need to determine your risk tolerance. While investing in dividends and fast growing stocks that are more volatile can result in significantly larger capital gains, it can also end with you losing everything. By the same token, dividend paying shares probably won’t appreciate as much in value as those selected under an aggressive gains strategy, however, they will provide regular income which still going up somewhat as long as you’ve made the right choices. Remember, when investing in the best dividends stocks it is vital that you never put more money into the market than you can afford to lose.
The next thing to consider is the diversification of the portfolio you select. Diversifying your portfolio helps ensure that your returns are balanced, even if one share plummets, however, this also means that you may not benefit as much from another aspect of your portfolio sky-rocketing as you have resources tied up in other areas. In order to receive the best protection from diversification, spread your funds across different types of shares (such as ETFs or bonds) and never rely solely on a single industry. By the same token, however, you don’t want to spread yourself too thin so be wary of chasing shiny new things.
Long Term VS Short Term Strategy
Your strategy for investing in the best dividends stocks will also be affected by whether you’re looking to be in the market on a long term basis (a decade or more) or as a short term holding (less than five years). This will depend on your goals but remember that most experts recommend holding shares for at least a year or two.
Capital Gains Tax
Speaking of holding your shares for over a year, when investing in the best dividends stocks, you are not exempt from capital gains and other types of tax. You can, however, receive a reduction on the amount that you owe if an asset is held for longer than 12 months. Depending on the amount of funds that you have placed in the market, this can have quite a significant impact on your returns so it is always worth keeping in mind.
Finally, it is important to factor in dividends when selecting and investing in the best dividends stocks. Even in the event that you wish to pursue a growth focused portfolio, we still recommend holding a percentage of your shares in dividend paying companies. This allows you to gain income from your assets while also helping to protect you from losses that you may suffer from higher risk shares. Dividends are also helpful when tax time rolls around as any franking credits that you have earned throughout the year will offset some of the taxes you will owe on your gains, making them an important aspect of any portfolio or strategy.
Now that you know what to consider, the path to investing in the best dividends stocks should be clearer – good luck.