There are so many terms in the financial world that industry professionals throw around without any regard for the people that they are trying to help. A seasoned investor is probably going to understand what a dividend is and what dividend yield is, plus all of the other monetary mumbo jumbo that gets thrown around by wealth advisors. However, someone that is just starting out might be unfamiliar with the terms strategists and planners use, like what a dividend is and what it means to their fiscal future. At Factum, we believe in helping people to expand their financial wisdom. In effort to do that, we are starting this series of blogs as a resource and a glossary of financial terms that you might not be familiar with, beginning with the dividend.
Just What Is A Dividend?
If you are looking to invest some of the savings you have worked hard for, you need to know what a dividend is. In one sentence, a dividend is a portion of the profit that a company makes in a period of the fiscal year paid to you for being an investor. If you break it down, it starts with your desire to invest, but also to make a bit of a profit back on what you put in. So you are going to look for a stock, or a life insurance policy (more on that later), that pays you a dividend. You’ll want to make some considerations here like the amount that you want to invest compared to what you will receive in a payout throughout the year. This is the most basic way to define Dividend Yield. You should also consider how often you want to receive a payout. Usually companies will offer a payout once a quarter year, twice a year, or once annually. After you have made these considerations, you’re ready to put your money into something! Once you have purchased a share in a company, you have essentially assumed some ownership of that company and as they use this money throughout the year to accomplish their business goals, you are entitled to a piece of the profits. After the period of time that a company has decided they will pay out their dividends (quarterly, semi-annually, or annually), you get your dividend payout. Many people take these payouts and use them to bankroll even more investments.
Cash Dividends Vs. Stock Dividends
As you might assume based upon the differing payout periods, companies all vary in how they offer their dividends to their investors. Some companies prefer to deal with a straight cash payout. Still other companies seek to pay their investors in additional shares at the end of the payout period. Both have their advantages and disadvantages. If you are looking for an immediate payout, or to maybe make cash quick like you might see in movies when people invest on Wall Street, a cash dividend is going to be what you want. However, this cash payout tends to cause the price of the shares to diminish, meaning you might be losing some money depending on the market. Stock dividends are great for long term investment, as they keep the investor from being taxed and a sudden balloon in the market could greatly increase your initial investment. But the volatility of the market can also make these dividends risky in some ways, because if the market crashes, you could lose all of your investment. Cash dividends on the stock market might have a bit more of an investment payout so that if the market crashes, you retain some of the money you put in, but the plummeting price of stock could cause you to lose a lot of money as well.
An Alternative To The Stock Market
While immense gains can be really tempting, and Wall Street is the picture of enormous gains, why would you want to put the money that you have worked so hard for at such a risk? The Great Recession is fresh on the minds of American families. It’s only been a decade since Americans and the global economy suffered under that huge market crash. Experts predict that the next crash may be right around the corner. This amount of time between market crashes is getting shorter and shorter. So what else can you do?
There is an option where you can make a cash dividend from your the money you contribute and solidify your wealth in a manner where you won’t see the loss that investors have on the stock market. When you purchase a mutually owned dividend paying whole life insurance policy, you are investing the money that you wanted to pay you a dividend into a policy that protects your investment and because you are taking ownership in this scenario, you also receive a dividend. You will build cash value, protect your wealth from excessive taxation, grow your assets for retirement, solidify the legacy you want to pass on to future generations, and protect your family from debts and life costs in the event of your passing. It’s like a shelter from the raging tsunami of the stock market, helping your financial well being grow and keeping you safe from the risks out on the open investment sea.
Maybe it’s time to defy the conventions of financial wisdom that tell you to risk it all on the stock market. You can’t afford to lose your savings and retirement to their mistakes. If you want to grow your wealth and protect your legacy in a radical way, it’s time to contact Factum Financial. Our team of wealth strategists are ready to guide you through your financial journey with wisdom so you can build your wealth and solidify your legacy. Contact us today to start your journey.
For more financial knowledge, follow this link to read the most recent blog.