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","hasArticle":false,"_links":{"self":"https://dummies-api.dummies.com/v2/authors/9023"}}],"_links":{"self":"https://dummies-api.dummies.com/v2/books/"}},"collections":[],"articleAds":{"footerAd":"<div class=\"du-ad-region row\" id=\"article_page_adhesion_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_adhesion_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;investing&quot;,&quot;investment-vehicles&quot;,&quot;bonds&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781394216253&quot;]}]\" id=\"du-slot-655d1a96536c6\"></div></div>","rightAd":"<div class=\"du-ad-region row\" id=\"article_page_right_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_right_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;investing&quot;,&quot;investment-vehicles&quot;,&quot;bonds&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781394216253&quot;]}]\" id=\"du-slot-655d1a9653f2e\"></div></div>"},"articleType":{"articleType":"Cheat Sheet","articleList":[{"articleId":0,"title":"","slug":null,"categoryList":[],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/"}}],"content":[{"title":"How to read bond ratings","thumb":null,"image":null,"content":"<p>Before you buy a bond, get an idea of how much financial muscle the issuer has. Bond ratings are available through any brokerage house. Three of the most popular rating services are Moody’s, Standard &amp; Poor’s, and Fitch. Other rating services exist such as DBRS Morningstar and the smaller A.M. Best, the former having especially strong knowledge of Canadian bond issues. The following table shows the system each of the Big Three agencies uses to rate bonds.</p>\n<h3>Bond Credit Quality Ratings</h3>\n<table aria-rowcount=\"14\">\n<tbody>\n<tr aria-rowindex=\"2\">\n<td><strong>Credit risk ratings</strong></td>\n<td><strong>Moody’s</strong></td>\n<td><strong>Standard &amp; Poor’s</strong></td>\n<td><strong>Fitch</strong></td>\n</tr>\n<tr aria-rowindex=\"3\">\n<td><strong>Investment grade</strong></td>\n<td></td>\n<td></td>\n<td></td>\n</tr>\n<tr aria-rowindex=\"4\">\n<td>Tip-top quality</td>\n<td>Aaa</td>\n<td>AAA</td>\n<td>AAA</td>\n</tr>\n<tr aria-rowindex=\"5\">\n<td>Premium quality</td>\n<td>Aa</td>\n<td>AA</td>\n<td>AA</td>\n</tr>\n<tr aria-rowindex=\"6\">\n<td>Near-premium quality</td>\n<td>A</td>\n<td>A</td>\n<td>A</td>\n</tr>\n<tr aria-rowindex=\"7\">\n<td>Take-home-to-Mom quality</td>\n<td>Baa</td>\n<td>BBB</td>\n<td>BBB</td>\n</tr>\n<tr aria-rowindex=\"8\">\n<td><strong>Not investment grade</strong></td>\n<td></td>\n<td></td>\n<td></td>\n</tr>\n<tr aria-rowindex=\"9\">\n<td>Borderline ugly</td>\n<td>Ba</td>\n<td>BB</td>\n<td>BB</td>\n</tr>\n<tr aria-rowindex=\"10\">\n<td>Ugly</td>\n<td>B</td>\n<td>B</td>\n<td>B</td>\n</tr>\n<tr aria-rowindex=\"11\">\n<td>Definitely don’t-take-home-to-Mom quality</td>\n<td>Caa</td>\n<td>CCC</td>\n<td>CCC</td>\n</tr>\n<tr aria-rowindex=\"12\">\n<td>You’ll be extremely lucky to get your money back</td>\n<td>Ca</td>\n<td>CC</td>\n<td>CC</td>\n</tr>\n<tr aria-rowindex=\"13\">\n<td>Interest payments have halted or bankruptcy is in process</td>\n<td>C</td>\n<td>D</td>\n<td>C</td>\n</tr>\n<tr aria-rowindex=\"14\">\n<td>Already in default</td>\n<td>C</td>\n<td>D</td>\n<td>D</td>\n</tr>\n</tbody>\n</table>\n<p>Bond ratings are available through any brokerage house.</p>\n"},{"title":"Questions to ask a bond broker about a bond","thumb":null,"image":null,"content":"<p>As you enter the world of bond investing, you may choose to work with a broker. But use some caution. Ask the questions in the following list — and get acceptable answers — before parting with your cash.</p>\n<h3>Who is the bond issuer?</h3>\n<p>Is it the Bank of Canada? Ontario Hydro? City of Vancouver? The Russian Federation? Gus’s Hardware Store? A bond is an IOU, and an IOU is only as good as the entity that owes U. In addition, different kinds of bonds have different characteristics, such as taxability, callability, and volatility.</p>\n<h3>How is the bond rated?</h3>\n<p>Especially among Canadian and US corporate bonds (more likely to default than municipal, provincial, or agency bonds), you want to know whether the company issuing the bond is financially stable. Ratings are readily available through any brokerage house.</p>\n<h3>What is the maturity date?</h3>\n<p>Long-term bonds tend to pay higher rates of interest, but your money is tied for longer and the price of the bond, should you wish to sell it before maturity, tends to be more volatile.</p>\n<h3>What is the yield-to-maturity?</h3>\n<p>There are many ways of measuring a bond’s return. Yield-to-maturity is perhaps the most important measure. (Bond funds, which have no maturity, can be more difficult to compare.)</p>\n<h3>Is the bond callable?</h3>\n<p>Can the issuer of the bond hand you back your money at any time? All things being equal, a callable bond is not desirable, and you should get more interest in compensation for the call feature.</p>\n<h3>What’s the worst-case yield?</h3>\n<p>Suppose the bond does get called. What would be your yield on the bond at that point? When comparing callable bonds, this figure is very important.</p>\n"},{"title":"Important websites for bond investors","thumb":null,"image":null,"content":"<p>Successful bond investing isn’t about luck. It’s about researching markets and comparing offers. (And luck.) These six websites serve as your navigation guide through the vast universe of bonds and bond funds.</p>\n<ul>\n<li><a href=\"https://www.finra.org/#/\" target=\"_blank\" rel=\"noopener\">FINRA:</a> Find scores of information on US bond yields, prices, and trends at the Financial Industry Regulatory Authority site.</li>\n<li><a href=\"https://www.ciro.ca/\" target=\"_blank\" rel=\"noopener\">IIROC and CIRO</a>: IIROC is a Canadian organization that tracks all investment dealers and trading activity on Canada’s debt and equity marketplaces. It stands for the Investment Industry Regulatory Organization of Canada. IIROC’s website will continue to migrate and move items off IIROC.ca to the newly-named Canadian Investment Regulatory Organization (CIRO) at CIRO.ca throughout 2023 and well into 2024.</li>\n<li><a href=\"https://www.bloomberg.com/\" target=\"_blank\" rel=\"noopener\">Bloomberg</a>: At the Bloomberg site, go to Markets, Market Data, Rates &amp; Bonds for up-to-date information on multiple bond markets.</li>\n<li><a href=\"https://finance.yahoo.com/\" target=\"_blank\" rel=\"noopener\">Yahoo! Finance</a>: This site offers scads of information on individual bonds and bond funds. Be aware that you’re looking at both news and advertisements, and they get easily jumbled on the screen.</li>\n<li><a href=\"http://www.moneychimp.com/calculator/compound_interest_calculator.htm\" target=\"_blank\" rel=\"noopener\">Moneychimp calculator</a>: Here, you can put in the price of the bond, the coupon rate, and the maturity date, and out comes the all-important yield-to-maturity.</li>\n</ul>\n"}],"videoInfo":{"videoId":null,"name":null,"accountId":null,"playerId":null,"thumbnailUrl":null,"description":null,"uploadDate":null}},"sponsorship":{"sponsorshipPage":false,"backgroundImage":{"src":null,"width":0,"height":0},"brandingLine":"","brandingLink":"","brandingLogo":{"src":null,"width":0,"height":0},"sponsorAd":"","sponsorEbookTitle":"","sponsorEbookLink":"","sponsorEbookImage":{"src":null,"width":0,"height":0}},"primaryLearningPath":"Advance","lifeExpectancy":"Two years","lifeExpectancySetFrom":"2023-11-21T00:00:00+00:00","dummiesForKids":"no","sponsoredContent":"no","adInfo":"","adPairKey":[]},"status":"publish","visibility":"public","articleId":301216},{"headers":{"creationTime":"2022-12-08T22:27:44+00:00","modifiedTime":"2023-11-03T17:40:19+00:00","timestamp":"2023-11-03T18:01:12+00:00"},"data":{"breadcrumbs":[{"name":"Business, Careers, & Money","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34224"},"slug":"business-careers-money","categoryId":34224},{"name":"Personal Finance","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34273"},"slug":"personal-finance","categoryId":34273},{"name":"Investing","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34288"},"slug":"investing","categoryId":34288},{"name":"Real Estate","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34299"},"slug":"real-estate","categoryId":34299}],"title":"Real Estate Investing All-in-One For Dummies Cheat Sheet","strippedTitle":"real estate investing all-in-one for dummies cheat sheet","slug":"real-estate-investing-all-in-one-for-dummies-cheat-sheet","canonicalUrl":"","seo":{"metaDescription":"This Cheat Sheet helps you determine whether real estate investing is right for you, and it summarizes how to get started once you're ready.","noIndex":0,"noFollow":0},"content":"Successful real estate investing requires smart decisions. 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To start investing in real estate quickly and easily, ask a few important questions, discover different ways to invest in residential property, and build an effective real estate team.","blurb":"","authors":[{"authorId":8947,"name":"The Experts at Dummies","slug":"the-experts-at-dummies","description":"The Experts at Dummies are smart, friendly people who make learning easy by taking a not-so-serious approach to serious stuff.","hasArticle":false,"_links":{"self":"https://dummies-api.dummies.com/v2/authors/8947"}}],"primaryCategoryTaxonomy":{"categoryId":34299,"title":"Real Estate","slug":"real-estate","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34299"}},"secondaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"tertiaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"trendingArticles":null,"inThisArticle":[],"relatedArticles":{"fromBook":[],"fromCategory":[{"articleId":300521,"title":"REITs For Dummies Cheat Sheet","slug":"reits-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","investing","real-estate"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/300521"}},{"articleId":291208,"title":"Foreclosure Investing For Dummies Cheat Sheet","slug":"foreclosure-investing-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","investing","real-estate"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/291208"}},{"articleId":274970,"title":"How Home Ownership Can Help You Achieve Financial Goals","slug":"how-home-ownership-can-help-you-achieve-financial-goals","categoryList":["business-careers-money","personal-finance","investing","real-estate"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/274970"}},{"articleId":274965,"title":"Simple, Profitable Real Estate Investments","slug":"simple-profitable-real-estate-investments","categoryList":["business-careers-money","personal-finance","investing","real-estate"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/274965"}},{"articleId":266690,"title":"Public and Private Real Estate Investment Trusts","slug":"public-and-private-real-estate-investment-trusts","categoryList":["business-careers-money","personal-finance","investing","real-estate"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/266690"}}]},"hasRelatedBookFromSearch":false,"relatedBook":{"bookId":296148,"slug":"real-estate-investing-all-in-one-for-dummies","isbn":"9781394152841","categoryList":["business-careers-money","personal-finance","investing","real-estate"],"amazon":{"default":"https://www.amazon.com/gp/product/1394152841/ref=as_li_tl?ie=UTF8&tag=wiley01-20","ca":"https://www.amazon.ca/gp/product/1394152841/ref=as_li_tl?ie=UTF8&tag=wiley01-20","indigo_ca":"http://www.tkqlhce.com/click-9208661-13710633?url=https://www.chapters.indigo.ca/en-ca/books/product/1394152841-item.html&cjsku=978111945484","gb":"https://www.amazon.co.uk/gp/product/1394152841/ref=as_li_tl?ie=UTF8&tag=wiley01-20","de":"https://www.amazon.de/gp/product/1394152841/ref=as_li_tl?ie=UTF8&tag=wiley01-20"},"image":{"src":"https://www.dummies.com/wp-content/uploads/real-estate-investing-all-in-one-for-dummies-cover-9781394152841-203x255.jpg","width":203,"height":255},"title":"Real Estate Investing All-in-One For Dummies","testBankPinActivationLink":"","bookOutOfPrint":true,"authorsInfo":"","authors":[{"authorId":34784,"name":"","slug":"","description":" <p><b>The National Gardening Association </b>is the leading garden-based educational organization in the United States. Visit http//:garden.org.</p> <p><b>Charlie Nardozzi</b> is a nationally recognized garden writer, radio and TV show host, consultant, and speaker. Charlie delights in making gardening information simple, easy, fun, and accessible to everyone.</p> ","hasArticle":false,"_links":{"self":"https://dummies-api.dummies.com/v2/authors/34784"}}],"_links":{"self":"https://dummies-api.dummies.com/v2/books/"}},"collections":[],"articleAds":{"footerAd":"<div class=\"du-ad-region row\" id=\"article_page_adhesion_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_adhesion_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;investing&quot;,&quot;real-estate&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781394152841&quot;]}]\" id=\"du-slot-65453569370ce\"></div></div>","rightAd":"<div class=\"du-ad-region row\" id=\"article_page_right_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_right_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;investing&quot;,&quot;real-estate&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781394152841&quot;]}]\" id=\"du-slot-6545356939176\"></div></div>"},"articleType":{"articleType":"Cheat Sheet","articleList":[{"articleId":0,"title":"","slug":null,"categoryList":[],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/"}}],"content":[{"title":"A few questions to ask before you invest in real estate","thumb":null,"image":null,"content":"<p>Most people can succeed at investing in real estate if they’re willing to do their homework. Following, are several important questions to help you decide whether you have what it takes to succeed and be happy with real estate investments that involve managing property.</p>\n<h3><strong>Do you have sufficient time?</strong></h3>\n<p>Purchasing and owning investment real estate and being a landlord are time consuming. The same way an uninformed owner can sell property for less than it’s worth, if you fail to do your homework before purchasing property, you can end up overpaying or buying real estate with a slew of problems.</p>\n<p>Finding competent and ethical real estate professionals takes time. Investigating communities, neighborhoods, and zoning also soaks up plenty of hours, as does examining tenant issues with potential properties.</p>\n<p>As for managing a property, you can hire a property manager to interview tenants, collect the rent, and solve problems such as leaky faucets and broken appliances, but doing so costs money and still requires some of your time.</p>\n<p>Of course, if you hire a competent and experienced property manager, you will be rewarded with less time required for oversight.</p>\n<h3><strong>Can you deal with problems?</strong></h3>\n<p>Challenges and problems inevitably occur when you try to buy a property. Purchase negotiations can be stressful and frustrating. You can also count on some problems coming up when you own and manage investment real estate.</p>\n<p>Most tenants won’t care for a property the way property owners do. If every little problem causes you distress, at a minimum, you should only own rental property with the assistance of a property manager.</p>\n<h3><strong>Does real estate interest you?</strong></h3>\n<p>Some of the best real estate investors have a curiosity and interest in real estate. If you don’t already possess it, such an interest and curiosity <em>can</em> be cultivated. On the other hand, some people simply aren’t comfortable investing in rental property. For example, if you’ve had experience and success with stock market investing, you may be uncomfortable venturing into real estate investments.</p>\n<h3><strong>Can you handle market downturns?</strong></h3>\n<p>Real estate investing isn’t for the faint of heart. Buying and holding real estate is a whole lot of fun when prices and rents are rising. But market downturns happen, and they test you emotionally as well as financially.</p>\n<p>No one has a crystal ball, so don’t expect to be able to buy at the precise bottom of prices and sell at an exact peak of your local market. Even if you make a smart buy now, you’ll inevitably end up holding some of your investment property during a difficult market (recessions where you have trouble finding and retaining quality tenants, where rents and property values may fall rather than rise).</p>\n<p>Do you have the financial (and emotional) wherewithal to handle such a downturn? How have you handled other investments when their values have fallen?</p>\n"},{"title":"Different ways to invest in residential real estate","thumb":null,"image":null,"content":"<p>The first (and one of the best) real estate investments for many people is a home in which to live. Following, are some investment possibilities inherent in buying a home for your own use, including potential profit to be had from converting your home to a rental or fixing it up and selling it.</p>\n<h3><strong>Buy a place of your own</strong></h3>\n<p>Unless you expect to move within the next few years, buying a place may make good long-term financial sense. (Even if you need to relocate, you may decide to continue owning the property and use it as a rental property.)</p>\n<p>In most real estate markets, owning usually costs less than renting over the long haul and allows you to build <em>equity</em> (the dollar difference between market value and the current balance of the mortgage loans against the property) in an asset.</p>\n<h3><strong>Convert your home to a rental</strong></h3>\n<p>Turning your current home into a rental property when you move is a simple way to buy and own more properties. You can do this multiple times (as you move out of homes you own over the years), and you can do this strategy of acquiring rental properties not only with a house, but also with a duplex or another small multi-unit rental property where you reside in one of the units.</p>\n<p>This approach is an option if you’re already considering investing in real estate (either now or in the future), and you can afford to own two or more properties.</p>\n<p>Holding onto your current home when you’re buying a new one is more advisable if you’re moving within the same area so that you’re close by to manage the property.</p>\n<h3><strong>Invest and live in well-situated fixer-uppers</strong></h3>\n<p><em>Serial home selling</em> is a variation on the tried-and-true real estate investment strategy of investing in well-located fixer-upper homes where you can invest your time, sweat equity, and materials to make improvements that add more value than they cost.</p>\n<p>The only catch is that you must actually move into the fixer-upper for at least 24 months to earn the full homeowner’s capital gains exemption of up to $250,000 for single taxpayers and $500,000 for married couples filing jointly.</p>\n<p>Be sure to buy a home in need of that special TLC in a great neighborhood where you’re willing to live for 24 months or more.</p>\n<h3><strong>Purchase a vacation home</strong></h3>\n<p>Many people of means expand their real estate holdings by purchasing a <em>vacation home</em> — a home in an area where they enjoy taking pleasure trips. For most people, buying a vacation home is more of a consumption decision than it is an investment decision. That’s not to say that you can’t make a profit from owning a second home. However, potential investment returns shouldn’t be the main reason you buy a second home.</p>\n<p>Before you buy a second home, weigh all the pros and cons. If you have a partner with whom you’re buying the property, have a candid discussion. Also consult with your tax advisor for other tax-saving strategies for your second home or vacation home.</p>\n"},{"title":"Your real estate investment team","thumb":null,"image":null,"content":"<p>For most people, real estate investing is hands-on and complicated enough to require the services and knowledge of a team of professionals.</p>\n<p>The following is a list of different real estate professionals and service providers you should consider teaming up with as you search for real estate investment opportunities and proceed with the purchase of property:</p>\n<ul>\n<li><strong>Tax advisor:</strong> A good tax advisor can highlight potential benefits and pitfalls of different real estate investment strategies. Make sure that your tax person has experience with real estate investing and understands your needs and specific goals in regard to your property investments.</li>\n<li><strong>Financial advisor:</strong> If you’ve worked with or can locate a financial advisor who sells their time and nothing else, consider hiring them. A true financial advisor can help you understand how real estate investment property purchases fit with your overall financial situation and goals.</li>\n<li><strong>Lender or mortgage broker:</strong> Postpone making an appointment to look at investment properties until after you examine the loans available. You have two resources to consult:\n<ul>\n<li>A lender is any firm, public or private, that directly loans you the cash you need to purchase your property. This type of lender is often referred to as a <em>direct lender.</em> Most often, your list of possible lenders includes banks, credit unions, and private lenders (including property sellers). Lenders tend to specialize in certain types of loans.</li>\n<li>A mortgage broker is a service provider who presents your request for a loan to a variety of different lenders in order to find the best financing for your particular needs. Just like real estate or insurance brokers, a good mortgage broker can be a real asset to your team.</li>\n</ul>\n</li>\n<li><strong>Broker or agent:</strong> Your investment team should include a sharp and energetic real estate broker or agent. All real estate brokers and agents are licensed by the state in which they perform their services.A real estate <em>broker</em> is the highest level of licensed real estate professional, and a licensed real estate sales <em>agent</em> is qualified to handle real estate listings and transactions under the supervision of a broker. The vast majority of real estate licensees are sales agents.</li>\n<li><strong>Appraiser:</strong> An appraiser can be an effective team member if your real estate investment strategy involves buying and selling properties with somewhat-hidden opportunities to add value. Appraisers see many properties over their career and thus often possess insight into real estate opportunities that others miss.</li>\n<li><strong>Attorney:</strong> If you live in an area where attorneys aren’t usually involved in real estate transactions, an attorney may not be necessary. In some states, having an attorney is essential to handle the transaction and closing.In any case, you should consult with an experienced real estate attorney as your investments increase in size and complexity. With more complicated transactions, have the attorney review the documents — even in states where the title or escrow company handles the paperwork and serves as the independent intermediary or closing agent.A good real estate attorney can help you structure proposed transactions. Particularly if you’re looking into a large transaction where you assume loans or you’re attempting to secure special financing, a competent real estate attorney can be invaluable.</li>\n</ul>\n"}],"videoInfo":{"videoId":null,"name":null,"accountId":null,"playerId":null,"thumbnailUrl":null,"description":null,"uploadDate":null}},"sponsorship":{"sponsorshipPage":false,"backgroundImage":{"src":null,"width":0,"height":0},"brandingLine":"","brandingLink":"","brandingLogo":{"src":null,"width":0,"height":0},"sponsorAd":"","sponsorEbookTitle":"","sponsorEbookLink":"","sponsorEbookImage":{"src":null,"width":0,"height":0}},"primaryLearningPath":"Advance","lifeExpectancy":"Five years","lifeExpectancySetFrom":"2022-12-08T00:00:00+00:00","dummiesForKids":"no","sponsoredContent":"no","adInfo":"","adPairKey":[]},"status":"publish","visibility":"public","articleId":296220},{"headers":{"creationTime":"2016-03-26T17:47:31+00:00","modifiedTime":"2023-10-09T16:48:07+00:00","timestamp":"2023-10-09T18:01:03+00:00"},"data":{"breadcrumbs":[{"name":"Business, Careers, & Money","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34224"},"slug":"business-careers-money","categoryId":34224},{"name":"Personal Finance","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34273"},"slug":"personal-finance","categoryId":34273},{"name":"Investing","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34288"},"slug":"investing","categoryId":34288},{"name":"Investment Vehicles","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34290"},"slug":"investment-vehicles","categoryId":34290},{"name":"Commodities","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34292"},"slug":"commodities","categoryId":34292}],"title":"Invest in Commodities through Physical Silver","strippedTitle":"invest in commodities through physical silver","slug":"invest-in-commodities-through-physical-silver","canonicalUrl":"","seo":{"metaDescription":"One way to invest in silver is by purchasing the metal in a bar or coin. But before you do, here is some important advice to follow.","noIndex":0,"noFollow":0},"content":"One of the unique characteristics of silver among other commodities is that you can invest in it by actually buying the stuff, as you can buy gold coins and bars for investment purposes. Most dealers that sell gold generally offer silver coins and bars as well.\r\n<ul class=\"level-one\">\r\n \t<li>\r\n<p class=\"first-para\"><b>100-ounce silver bar:</b> If you’re interested in something substantial, you can buy a 100-ounce silver bar. Before buying it, check the bar to make sure that it’s pure silver (you want 99 percent purity or above).</p>\r\n</li>\r\n \t<li>\r\n<p class=\"first-para\"><b>Silver maple coins:</b> These coins, which are a product of the Royal Canadian Mint, are the standard for silver coins around the world. Each coin represents 1 ounce of silver and has a purity of 99.99 percent, making it the most pure silver coin on the market.</p>\r\n</li>\r\n</ul>\r\n<p class=\"TechnicalStuff\">The term <i>sterling silver</i> refers to a specific silver alloy that contains 92.5 percent silver and 7.5 percent copper (other base metals are occasionally used as well). Pure silver is sometimes alloyed with another metal, such as copper, to make it stronger and more durable.</p>\r\nJust remember that if you’re considering silver jewelry as an investment, sterling silver won’t give you as much value in the long term as pure silver.","description":"One of the unique characteristics of silver among other commodities is that you can invest in it by actually buying the stuff, as you can buy gold coins and bars for investment purposes. Most dealers that sell gold generally offer silver coins and bars as well.\r\n<ul class=\"level-one\">\r\n \t<li>\r\n<p class=\"first-para\"><b>100-ounce silver bar:</b> If you’re interested in something substantial, you can buy a 100-ounce silver bar. Before buying it, check the bar to make sure that it’s pure silver (you want 99 percent purity or above).</p>\r\n</li>\r\n \t<li>\r\n<p class=\"first-para\"><b>Silver maple coins:</b> These coins, which are a product of the Royal Canadian Mint, are the standard for silver coins around the world. Each coin represents 1 ounce of silver and has a purity of 99.99 percent, making it the most pure silver coin on the market.</p>\r\n</li>\r\n</ul>\r\n<p class=\"TechnicalStuff\">The term <i>sterling silver</i> refers to a specific silver alloy that contains 92.5 percent silver and 7.5 percent copper (other base metals are occasionally used as well). Pure silver is sometimes alloyed with another metal, such as copper, to make it stronger and more durable.</p>\r\nJust remember that if you’re considering silver jewelry as an investment, sterling silver won’t give you as much value in the long term as pure silver.","blurb":"","authors":[{"authorId":9022,"name":"Amine Bouchentouf","slug":"amine-bouchentouf","description":" <b>Amine Bouchentouf</b> is a native Arabic, English, and French speaker born and raised in Casablanca, Morocco. He teaches Arabic and lectures about relations between America and the Arab world.","hasArticle":false,"_links":{"self":"https://dummies-api.dummies.com/v2/authors/9022"}}],"primaryCategoryTaxonomy":{"categoryId":34292,"title":"Commodities","slug":"commodities","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34292"}},"secondaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"tertiaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"trendingArticles":null,"inThisArticle":[],"relatedArticles":{"fromBook":[{"articleId":208627,"title":"Commodities For Dummies Cheat Sheet","slug":"commodities-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","commodities"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/208627"}},{"articleId":187975,"title":"Matching Commodities with Commodity Exchanges","slug":"matching-commodities-with-commodity-exchanges","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","commodities"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/187975"}},{"articleId":187959,"title":"Growing Interest in Agricultural Commodities","slug":"growing-interest-in-agricultural-commodities","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","commodities"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/187959"}},{"articleId":187957,"title":"Commodities and Emerging Markets","slug":"commodities-and-emerging-markets","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","commodities"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/187957"}},{"articleId":187956,"title":"Generating Risk-Adjusted Returns","slug":"generating-risk-adjusted-returns","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","commodities"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/187956"}}],"fromCategory":[{"articleId":208627,"title":"Commodities For Dummies Cheat Sheet","slug":"commodities-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","commodities"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/208627"}},{"articleId":207438,"title":"Investing in Commodities For Dummies Cheat Sheet","slug":"investing-in-commodities-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","commodities"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/207438"}},{"articleId":198903,"title":"Understanding the Real Risks behind Commodities","slug":"understanding-the-real-risks-behind-commodities","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","commodities"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/198903"}},{"articleId":198342,"title":"Risks with Investing in Commodities","slug":"risks-with-investing-in-commodities","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","commodities"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/198342"}},{"articleId":198341,"title":"The Role of Commodity Exchanges in Investment Trading","slug":"the-role-of-commodity-exchanges-in-investment-trading","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","commodities"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/198341"}}]},"hasRelatedBookFromSearch":false,"relatedBook":{"bookId":282094,"slug":"commodities-for-dummies-2nd-edition","isbn":"9781394155156","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","commodities"],"amazon":{"default":"https://www.amazon.com/gp/product/1394155158/ref=as_li_tl?ie=UTF8&tag=wiley01-20","ca":"https://www.amazon.ca/gp/product/1394155158/ref=as_li_tl?ie=UTF8&tag=wiley01-20","indigo_ca":"http://www.tkqlhce.com/click-9208661-13710633?url=https://www.chapters.indigo.ca/en-ca/books/product/1394155158-item.html&cjsku=978111945484","gb":"https://www.amazon.co.uk/gp/product/1394155158/ref=as_li_tl?ie=UTF8&tag=wiley01-20","de":"https://www.amazon.de/gp/product/1394155158/ref=as_li_tl?ie=UTF8&tag=wiley01-20"},"image":{"src":"https://www.dummies.com/wp-content/uploads/commodities-for-dummies-3rd-edition-1394155158-203x255.jpg","width":203,"height":255},"title":"Commodities For Dummies","testBankPinActivationLink":"","bookOutOfPrint":true,"authorsInfo":"<p><b><b data-author-id=\"9022\">Amine Bouchentouf</b></b> is a native Arabic, English, and French speaker born and raised in Casablanca, Morocco. He teaches Arabic and lectures about relations between America and the Arab world.</p>","authors":[{"authorId":9022,"name":"Amine Bouchentouf","slug":"amine-bouchentouf","description":" <b>Amine Bouchentouf</b> is a native Arabic, English, and French speaker born and raised in Casablanca, Morocco. He teaches Arabic and lectures about relations between America and the Arab world.","hasArticle":false,"_links":{"self":"https://dummies-api.dummies.com/v2/authors/9022"}}],"_links":{"self":"https://dummies-api.dummies.com/v2/books/"}},"collections":[],"articleAds":{"footerAd":"<div class=\"du-ad-region row\" id=\"article_page_adhesion_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_adhesion_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;investing&quot;,&quot;investment-vehicles&quot;,&quot;commodities&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781394155156&quot;]}]\" id=\"du-slot-65243fdf56e11\"></div></div>","rightAd":"<div class=\"du-ad-region row\" id=\"article_page_right_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_right_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;investing&quot;,&quot;investment-vehicles&quot;,&quot;commodities&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781394155156&quot;]}]\" id=\"du-slot-65243fdf576ae\"></div></div>"},"articleType":{"articleType":"Articles","articleList":null,"content":null,"videoInfo":{"videoId":null,"name":null,"accountId":null,"playerId":null,"thumbnailUrl":null,"description":null,"uploadDate":null}},"sponsorship":{"sponsorshipPage":false,"backgroundImage":{"src":null,"width":0,"height":0},"brandingLine":"","brandingLink":"","brandingLogo":{"src":null,"width":0,"height":0},"sponsorAd":"","sponsorEbookTitle":"","sponsorEbookLink":"","sponsorEbookImage":{"src":null,"width":0,"height":0}},"primaryLearningPath":"Advance","lifeExpectancy":"Five years","lifeExpectancySetFrom":"2023-10-09T00:00:00+00:00","dummiesForKids":"no","sponsoredContent":"no","adInfo":"","adPairKey":[]},"status":"publish","visibility":"public","articleId":176509},{"headers":{"creationTime":"2016-03-26T22:50:01+00:00","modifiedTime":"2023-10-09T16:44:35+00:00","timestamp":"2023-10-09T18:01:02+00:00"},"data":{"breadcrumbs":[{"name":"Business, Careers, & Money","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34224"},"slug":"business-careers-money","categoryId":34224},{"name":"Personal Finance","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34273"},"slug":"personal-finance","categoryId":34273},{"name":"Investing","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34288"},"slug":"investing","categoryId":34288},{"name":"Investment Vehicles","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34290"},"slug":"investment-vehicles","categoryId":34290},{"name":"Precious Metals","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34297"},"slug":"precious-metals","categoryId":34297}],"title":"Different Styles of Precious Metals Investing","strippedTitle":"different styles of precious metals investing","slug":"distinguishing-between-styles-of-precious-metals-investing","canonicalUrl":"","seo":{"metaDescription":"It's important to understand the differences between saving, investing, trading, and speculating before you invest or trade in precious metals.","noIndex":0,"noFollow":0},"content":"Before you start investing or trading in precious metals, you need to understand the concepts of <i>saving</i>, <i>investing</i>, <i>trading</i>, and <i>speculating</i>; otherwise, the financial pitfalls could be very great. The differences aren't just in where your money is but also why and in what manner.\r\n\r\nRight now, millions of people live with no savings and lots of debt, which means that they are speculating with their budgets; retirees are day-trading their portfolios; and financial advisors are telling people to move their money from savings accounts to stocks without looking at the appropriateness of what they're doing.\r\n\r\nMake sure you understand the following terms — knowing the difference is crucial to you in the world of precious metals:\r\n<ul>\r\n \t<li><b>Saving:</b> The classical definition of <i>saving</i> is \"income that has not been spent,\" but the modern-day definition is money set aside in a savings account for a \"rainy day\" or emergency. Ideally, you should have at least three months' worth of gross living expenses sitting blandly in a savings account or money market fund. Although precious metals in the right venue are appropriate for most people, including savers, you need to have cash savings in addition to your precious metals investments. A good example of an appropriate savings venue in precious metals is buying physical gold and/or silver bullion coins as a long-term holding.</li>\r\n \t<li><b>Investing:</b> Investing refers to the act of buying an asset that is meant to be held long-term (in years). The asset will always run into ups and downs, but as long as it's trending upward (a bull market), you'll be okay. Investing in precious metals may not be for everyone, but it is an appropriate consideration for many investment portfolios. The common stock of large or mid-size mining companies is a good example of an appropriate vehicle for investors.</li>\r\n \t<li><b>Trading:</b> Trading is truly short-term in nature and is meant for those with steady nerves and a quick trigger finger. There are many \"trading systems\" out there, and this activity requires extensive knowledge of market behavior along with discipline and a definitive plan. The money employed should be considered risk capital and not money intended for an emergency fund, rent, or retirement. The venue could be mining stocks, but more likely it would be futures and/or options because they are faster-moving markets.</li>\r\n \t<li><b>Speculating:</b> This can be likened to financial gambling. Speculating means making an educated guess about the direction of a particular asset's price move. Speculators look for big price moves to generate a large profit as quickly as possible, but also understand that it can be very risky and volatile. A speculator's appetite for greater potential profit coupled with increased risk is similar to the trader, but the time frame is different. Speculating can be either short-term or long-term. Your venue of choice could be stocks, but more likely, the stocks would typically be of smaller mining companies with greater price potential. Speculating is also done in futures and options.</li>\r\n</ul>","description":"Before you start investing or trading in precious metals, you need to understand the concepts of <i>saving</i>, <i>investing</i>, <i>trading</i>, and <i>speculating</i>; otherwise, the financial pitfalls could be very great. The differences aren't just in where your money is but also why and in what manner.\r\n\r\nRight now, millions of people live with no savings and lots of debt, which means that they are speculating with their budgets; retirees are day-trading their portfolios; and financial advisors are telling people to move their money from savings accounts to stocks without looking at the appropriateness of what they're doing.\r\n\r\nMake sure you understand the following terms — knowing the difference is crucial to you in the world of precious metals:\r\n<ul>\r\n \t<li><b>Saving:</b> The classical definition of <i>saving</i> is \"income that has not been spent,\" but the modern-day definition is money set aside in a savings account for a \"rainy day\" or emergency. Ideally, you should have at least three months' worth of gross living expenses sitting blandly in a savings account or money market fund. Although precious metals in the right venue are appropriate for most people, including savers, you need to have cash savings in addition to your precious metals investments. A good example of an appropriate savings venue in precious metals is buying physical gold and/or silver bullion coins as a long-term holding.</li>\r\n \t<li><b>Investing:</b> Investing refers to the act of buying an asset that is meant to be held long-term (in years). The asset will always run into ups and downs, but as long as it's trending upward (a bull market), you'll be okay. Investing in precious metals may not be for everyone, but it is an appropriate consideration for many investment portfolios. The common stock of large or mid-size mining companies is a good example of an appropriate vehicle for investors.</li>\r\n \t<li><b>Trading:</b> Trading is truly short-term in nature and is meant for those with steady nerves and a quick trigger finger. There are many \"trading systems\" out there, and this activity requires extensive knowledge of market behavior along with discipline and a definitive plan. The money employed should be considered risk capital and not money intended for an emergency fund, rent, or retirement. The venue could be mining stocks, but more likely it would be futures and/or options because they are faster-moving markets.</li>\r\n \t<li><b>Speculating:</b> This can be likened to financial gambling. Speculating means making an educated guess about the direction of a particular asset's price move. Speculators look for big price moves to generate a large profit as quickly as possible, but also understand that it can be very risky and volatile. A speculator's appetite for greater potential profit coupled with increased risk is similar to the trader, but the time frame is different. Speculating can be either short-term or long-term. Your venue of choice could be stocks, but more likely, the stocks would typically be of smaller mining companies with greater price potential. Speculating is also done in futures and options.</li>\r\n</ul>","blurb":"","authors":[{"authorId":9001,"name":"Paul Mladjenovic","slug":"paul-mladjenovic","description":" <p><b>PAUL MLADJENOVIC</b> is a Certified Financial Planner and investing consultant with more than 19 years’ experience writing and teaching about common stocks and related investments. He owns PM Financial Services. ","hasArticle":false,"_links":{"self":"https://dummies-api.dummies.com/v2/authors/9001"}}],"primaryCategoryTaxonomy":{"categoryId":34297,"title":"Precious Metals","slug":"precious-metals","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34297"}},"secondaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"tertiaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"trendingArticles":null,"inThisArticle":[],"relatedArticles":{"fromBook":[{"articleId":208993,"title":"Precious Metals Investing For Dummies Cheat Sheet","slug":"precious-metals-investing-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","precious-metals"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/208993"}},{"articleId":200969,"title":"Mining the History of Precious Metals","slug":"mining-the-history-of-precious-metals","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","precious-metals"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/200969"}},{"articleId":199921,"title":"Investment Strategy: Stagger Your Entry to Limit Your Risk","slug":"investment-strategy-stagger-your-entry-to-limit-your-risk","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","precious-metals"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/199921"}},{"articleId":199072,"title":"Understanding the Difference between a Correction and a Bear Market","slug":"understanding-the-difference-between-a-correction-and-a-bear-market","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","precious-metals"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/199072"}},{"articleId":192367,"title":"Questions Before You Begin Precious Metals Investing","slug":"questions-before-you-begin-precious-metals-investing","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","precious-metals"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/192367"}}],"fromCategory":[{"articleId":275885,"title":"How to Sell Collectible Coins","slug":"how-to-sell-collectible-coins","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","precious-metals"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/275885"}},{"articleId":275879,"title":"The Basics of Numismatic (Collectible) Coins","slug":"the-basics-of-numismatic-collectible-coins","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","precious-metals"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/275879"}},{"articleId":275874,"title":"10 Reasons to Have Gold and Silver","slug":"10-reasons-to-have-gold-and-silver","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","precious-metals"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/275874"}},{"articleId":275869,"title":"Investing: Seeking Out Silver Physical Bullion","slug":"investing-seeking-out-silver-physical-bullion","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","precious-metals"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/275869"}},{"articleId":275861,"title":"Investing: Going for Gold Physical Bullion","slug":"investing-going-for-gold-physical-bullion","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","precious-metals"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/275861"}}]},"hasRelatedBookFromSearch":false,"relatedBook":{"bookId":282499,"slug":"precious-metals-investing-for-dummies","isbn":"9780470130872","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","precious-metals"],"amazon":{"default":"https://www.amazon.com/gp/product/0470130873/ref=as_li_tl?ie=UTF8&tag=wiley01-20","ca":"https://www.amazon.ca/gp/product/0470130873/ref=as_li_tl?ie=UTF8&tag=wiley01-20","indigo_ca":"http://www.tkqlhce.com/click-9208661-13710633?url=https://www.chapters.indigo.ca/en-ca/books/product/0470130873-item.html&cjsku=978111945484","gb":"https://www.amazon.co.uk/gp/product/0470130873/ref=as_li_tl?ie=UTF8&tag=wiley01-20","de":"https://www.amazon.de/gp/product/0470130873/ref=as_li_tl?ie=UTF8&tag=wiley01-20"},"image":{"src":"https://www.dummies.com/wp-content/uploads/precious-metals-investing-for-dummies-cover-9780470130872-203x255.jpg","width":203,"height":255},"title":"Precious Metals Investing For Dummies","testBankPinActivationLink":"","bookOutOfPrint":false,"authorsInfo":"<p><b data-author-id=\"9001\">Paul Mladjenovic</b> is the owner of Prosperity Network and www.Super MoneyLinks.com. He is also the author of <i>Stock Investing For Dummies</i>, 2nd Edition. </p>","authors":[{"authorId":9001,"name":"Paul Mladjenovic","slug":"paul-mladjenovic","description":" <p><b>PAUL MLADJENOVIC</b> is a Certified Financial Planner and investing consultant with more than 19 years’ experience writing and teaching about common stocks and related investments. He owns PM Financial Services. ","hasArticle":false,"_links":{"self":"https://dummies-api.dummies.com/v2/authors/9001"}}],"_links":{"self":"https://dummies-api.dummies.com/v2/books/"}},"collections":[],"articleAds":{"footerAd":"<div class=\"du-ad-region row\" id=\"article_page_adhesion_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_adhesion_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;investing&quot;,&quot;investment-vehicles&quot;,&quot;precious-metals&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9780470130872&quot;]}]\" id=\"du-slot-65243fdf0be0b\"></div></div>","rightAd":"<div class=\"du-ad-region row\" id=\"article_page_right_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_right_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;investing&quot;,&quot;investment-vehicles&quot;,&quot;precious-metals&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9780470130872&quot;]}]\" id=\"du-slot-65243fdf0ce8d\"></div></div>"},"articleType":{"articleType":"Articles","articleList":null,"content":null,"videoInfo":{"videoId":null,"name":null,"accountId":null,"playerId":null,"thumbnailUrl":null,"description":null,"uploadDate":null}},"sponsorship":{"sponsorshipPage":false,"backgroundImage":{"src":null,"width":0,"height":0},"brandingLine":"","brandingLink":"","brandingLogo":{"src":null,"width":0,"height":0},"sponsorAd":"","sponsorEbookTitle":"","sponsorEbookLink":"","sponsorEbookImage":{"src":null,"width":0,"height":0}},"primaryLearningPath":"Advance","lifeExpectancy":"Five years","lifeExpectancySetFrom":"2023-04-25T00:00:00+00:00","dummiesForKids":"no","sponsoredContent":"no","adInfo":"","adPairKey":[]},"status":"publish","visibility":"public","articleId":200454},{"headers":{"creationTime":"2016-03-26T07:23:48+00:00","modifiedTime":"2023-10-05T13:44:22+00:00","timestamp":"2023-10-05T15:01:03+00:00"},"data":{"breadcrumbs":[{"name":"Business, Careers, & Money","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34224"},"slug":"business-careers-money","categoryId":34224},{"name":"Personal Finance","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34273"},"slug":"personal-finance","categoryId":34273},{"name":"Investing","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34288"},"slug":"investing","categoryId":34288},{"name":"Investment Vehicles","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34290"},"slug":"investment-vehicles","categoryId":34290},{"name":"Commodities","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34292"},"slug":"commodities","categoryId":34292}],"title":"Modern Portfolio Theory and the Benefits of Diversification","strippedTitle":"modern portfolio theory and the benefits of diversification","slug":"modern-portfolio-theory-and-the-benefits-of-diversification","canonicalUrl":"https://www.dummies.com/article/business-careers-money/personal-finance/investing/investment-vehicles/commodities/investing-in-commodities-for-dummies-cheat-sheet-207438/","seo":{"metaDescription":"The idea that diversification is a good strategy in portfolio allocation is the cornerstone of Modern Portfolio Theory (MPT). MPT is the brainchild of Nobel Pri","noIndex":1,"noFollow":0},"content":"<p>The idea that diversification is a good strategy in portfolio allocation is the cornerstone of Modern Portfolio Theory (MPT). MPT is the brainchild of Nobel Prize–winning economist Harry Markowitz. In a paper he wrote in 1952 for his doctoral thesis, Markowitz argued that investors must look at a portfolio's overall risk/reward ratio. Although this sounds like common sense today, it was a groundbreaking idea at the time.</p>\r\n<p class=\"Remember\">Before Markowitz's paper, most investors constructed their portfolios based on a risk/reward ratio analysis of individual securities. Investors chose a security based on its individual risk profile and ignored how that risk profile fit within a broader portfolio. Markowitz argued (successfully) that investors could construct more profitable portfolios if they looked at the overall risk/reward ratio of their portfolios.</p>\r\n<p class=\"Tip\">Therefore, when considering an individual security, you need to not only assess its individual risk profile, but also take into account how that risk profile fits within your general investment strategy. Markowitz's idea that holding a group of different securities reduces a portfolio's overall volatility is one of the most important ideas in portfolio allocation.</p>","description":"<p>The idea that diversification is a good strategy in portfolio allocation is the cornerstone of Modern Portfolio Theory (MPT). MPT is the brainchild of Nobel Prize–winning economist Harry Markowitz. In a paper he wrote in 1952 for his doctoral thesis, Markowitz argued that investors must look at a portfolio's overall risk/reward ratio. Although this sounds like common sense today, it was a groundbreaking idea at the time.</p>\r\n<p class=\"Remember\">Before Markowitz's paper, most investors constructed their portfolios based on a risk/reward ratio analysis of individual securities. Investors chose a security based on its individual risk profile and ignored how that risk profile fit within a broader portfolio. Markowitz argued (successfully) that investors could construct more profitable portfolios if they looked at the overall risk/reward ratio of their portfolios.</p>\r\n<p class=\"Tip\">Therefore, when considering an individual security, you need to not only assess its individual risk profile, but also take into account how that risk profile fits within your general investment strategy. Markowitz's idea that holding a group of different securities reduces a portfolio's overall volatility is one of the most important ideas in portfolio allocation.</p>","blurb":"","authors":[{"authorId":9022,"name":"Amine Bouchentouf","slug":"amine-bouchentouf","description":"<strong>Amine Bouchentouf</strong> is managing director at Commodities Investors, LLC, and has been trading the commodity markets for over 20 years.","hasArticle":false,"_links":{"self":"https://dummies-api.dummies.com/v2/authors/9022"}}],"primaryCategoryTaxonomy":{"categoryId":34292,"title":"Commodities","slug":"commodities","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34292"}},"secondaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"tertiaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"trendingArticles":null,"inThisArticle":[],"relatedArticles":{"fromBook":[{"articleId":140505,"title":"A Brief History of the Chicago Mercantile Exchange","slug":"introducing-two-major-commodities-exchanges-chicago-board-of-trade-and-chicago-mercantile-exchange","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","commodities"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/140505"}},{"articleId":140502,"title":"Top 6 Things in an Oil Company's Fleet","slug":"top-6-things-in-an-oil-companys-fleet","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","commodities"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/140502"}},{"articleId":140503,"title":"Introducing the New York Board of Trade","slug":"introducing-the-new-york-board-of-trade","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","commodities"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/140503"}},{"articleId":140501,"title":"What's the Deal with Peak Oil?","slug":"whats-the-deal-with-peak-oil","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","commodities"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/140501"}},{"articleId":140499,"title":"Making Money Using an Index","slug":"making-money-using-an-index","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","commodities"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/140499"}}],"fromCategory":[{"articleId":208627,"title":"Commodities For Dummies Cheat Sheet","slug":"commodities-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","commodities"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/208627"}},{"articleId":207438,"title":"Investing in Commodities For Dummies Cheat Sheet","slug":"investing-in-commodities-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","commodities"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/207438"}},{"articleId":198903,"title":"Understanding the Real Risks behind Commodities","slug":"understanding-the-real-risks-behind-commodities","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","commodities"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/198903"}},{"articleId":198342,"title":"Risks with Investing in Commodities","slug":"risks-with-investing-in-commodities","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","commodities"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/198342"}},{"articleId":198341,"title":"The Role of Commodity Exchanges in Investment Trading","slug":"the-role-of-commodity-exchanges-in-investment-trading","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","commodities"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/198341"}}]},"hasRelatedBookFromSearch":false,"relatedBook":{"bookId":282308,"slug":"investing-in-commodities-for-dummies","isbn":"9781394201044","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","commodities"],"amazon":{"default":"https://www.amazon.com/gp/product/1394201044/ref=as_li_tl?ie=UTF8&tag=wiley01-20","ca":"https://www.amazon.ca/gp/product/1394201044/ref=as_li_tl?ie=UTF8&tag=wiley01-20","indigo_ca":"http://www.tkqlhce.com/click-9208661-13710633?url=https://www.chapters.indigo.ca/en-ca/books/product/1394201044-item.html&cjsku=978111945484","gb":"https://www.amazon.co.uk/gp/product/1394201044/ref=as_li_tl?ie=UTF8&tag=wiley01-20","de":"https://www.amazon.de/gp/product/1394201044/ref=as_li_tl?ie=UTF8&tag=wiley01-20"},"image":{"src":"https://www.dummies.com/wp-content/uploads/investing-in-commodities-for-dummies-2nd-edition-cover-9781394201044-165x255.jpg","width":165,"height":255},"title":"Investing in Commodities For Dummies","testBankPinActivationLink":"","bookOutOfPrint":true,"authorsInfo":"<p><strong><b data-author-id=\"9022\">Amine Bouchentouf</b></strong> is managing director at Commodities Investors, LLC, and has been trading the commodity markets for over 20 years.</p>","authors":[{"authorId":9022,"name":"Amine Bouchentouf","slug":"amine-bouchentouf","description":"<strong>Amine Bouchentouf</strong> is managing director at Commodities Investors, LLC, and has been trading the commodity markets for over 20 years.","hasArticle":false,"_links":{"self":"https://dummies-api.dummies.com/v2/authors/9022"}}],"_links":{"self":"https://dummies-api.dummies.com/v2/books/"}},"collections":[],"articleAds":{"footerAd":"<div class=\"du-ad-region row\" id=\"article_page_adhesion_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_adhesion_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;investing&quot;,&quot;investment-vehicles&quot;,&quot;commodities&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781394201044&quot;]}]\" id=\"du-slot-651ecfaf205ea\"></div></div>","rightAd":"<div class=\"du-ad-region row\" id=\"article_page_right_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_right_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;investing&quot;,&quot;investment-vehicles&quot;,&quot;commodities&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781394201044&quot;]}]\" id=\"du-slot-651ecfaf20f66\"></div></div>"},"articleType":{"articleType":"Articles","articleList":null,"content":null,"videoInfo":{"videoId":null,"name":null,"accountId":null,"playerId":null,"thumbnailUrl":null,"description":null,"uploadDate":null}},"sponsorship":{"sponsorshipPage":false,"backgroundImage":{"src":null,"width":0,"height":0},"brandingLine":"","brandingLink":"","brandingLogo":{"src":null,"width":0,"height":0},"sponsorAd":"","sponsorEbookTitle":"","sponsorEbookLink":"","sponsorEbookImage":{"src":null,"width":0,"height":0}},"primaryLearningPath":"Explore","lifeExpectancy":"Six months","lifeExpectancySetFrom":"2023-07-05T00:00:00+00:00","dummiesForKids":"no","sponsoredContent":"no","adInfo":"","adPairKey":[]},"status":"publish","visibility":"public","articleId":140489},{"headers":{"creationTime":"2023-09-07T15:27:45+00:00","modifiedTime":"2023-09-07T15:29:00+00:00","timestamp":"2023-09-07T18:01:02+00:00"},"data":{"breadcrumbs":[{"name":"Business, Careers, & Money","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34224"},"slug":"business-careers-money","categoryId":34224},{"name":"Personal Finance","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34273"},"slug":"personal-finance","categoryId":34273},{"name":"Investing","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34288"},"slug":"investing","categoryId":34288},{"name":"Real Estate","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34299"},"slug":"real-estate","categoryId":34299}],"title":"REITs For Dummies Cheat Sheet","strippedTitle":"reits for dummies cheat sheet","slug":"reits-for-dummies-cheat-sheet","canonicalUrl":"","seo":{"metaDescription":"Learn what real estate investment trusts are, their main benefits and attributes, and what to consider before investing in one.","noIndex":0,"noFollow":0},"content":"A real estate investment trust (REIT) is a company that owns, manages, and/or finances real estate holdings. These holdings can be in the form of apartment buildings, hotels, shopping centers, self-storage facilities, warehouses, and even billboards, data centers, cell towers, woodlands, and many others.\r\n\r\nREITs have stock attributes (liquidity and transparency) and, at the same time, enable you to enjoy the benefits of owning income-producing real estate. With this Cheat Sheet, you get a quick primer on the benefits of REIT investment, how to add REITs to your portfolio, how to choose smart REITs, and how to become a virtual landlord without the aggravation of owning private real estate.","description":"A real estate investment trust (REIT) is a company that owns, manages, and/or finances real estate holdings. These holdings can be in the form of apartment buildings, hotels, shopping centers, self-storage facilities, warehouses, and even billboards, data centers, cell towers, woodlands, and many others.\r\n\r\nREITs have stock attributes (liquidity and transparency) and, at the same time, enable you to enjoy the benefits of owning income-producing real estate. With this Cheat Sheet, you get a quick primer on the benefits of REIT investment, how to add REITs to your portfolio, how to choose smart REITs, and how to become a virtual landlord without the aggravation of owning private real estate.","blurb":"","authors":[{"authorId":35328,"name":"Brad Thomas","slug":"brad-thomas","description":"<strong>Brad Thomas</strong> has over 30 years of real estate investing experience. He’s published over 4,000 articles during the last 13 years, and he is the top writer on Seeking Alpha, the world’s largest investing community. He is also the CEO of Wide Moat Research, senior analyst at iREIT®, and a REIT ETF provider (iREIT® MarketVector™ Quality REIT Index). Brad teaches REITs at New York University and other schools such as Penn State University, Clemson University, the University of North Carolina, Cornell University, and Georgetown University.","hasArticle":false,"_links":{"self":"https://dummies-api.dummies.com/v2/authors/35328"}}],"primaryCategoryTaxonomy":{"categoryId":34299,"title":"Real Estate","slug":"real-estate","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34299"}},"secondaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"tertiaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"trendingArticles":null,"inThisArticle":[],"relatedArticles":{"fromBook":[],"fromCategory":[{"articleId":296220,"title":"Real Estate Investing All-in-One For Dummies Cheat Sheet","slug":"real-estate-investing-all-in-one-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","investing","real-estate"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/296220"}},{"articleId":291208,"title":"Foreclosure Investing For Dummies Cheat Sheet","slug":"foreclosure-investing-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","investing","real-estate"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/291208"}},{"articleId":274970,"title":"How Home Ownership Can Help You Achieve Financial Goals","slug":"how-home-ownership-can-help-you-achieve-financial-goals","categoryList":["business-careers-money","personal-finance","investing","real-estate"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/274970"}},{"articleId":274965,"title":"Simple, Profitable Real Estate Investments","slug":"simple-profitable-real-estate-investments","categoryList":["business-careers-money","personal-finance","investing","real-estate"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/274965"}},{"articleId":266690,"title":"Public and Private Real Estate Investment Trusts","slug":"public-and-private-real-estate-investment-trusts","categoryList":["business-careers-money","personal-finance","investing","real-estate"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/266690"}}]},"hasRelatedBookFromSearch":false,"relatedBook":{"bookId":300456,"slug":"reits-for-dummies","isbn":"9781394185351","categoryList":["business-careers-money","personal-finance","investing","real-estate"],"amazon":{"default":"https://www.amazon.com/gp/product/1394185359/ref=as_li_tl?ie=UTF8&tag=wiley01-20","ca":"https://www.amazon.ca/gp/product/1394185359/ref=as_li_tl?ie=UTF8&tag=wiley01-20","indigo_ca":"http://www.tkqlhce.com/click-9208661-13710633?url=https://www.chapters.indigo.ca/en-ca/books/product/1394185359-item.html&cjsku=978111945484","gb":"https://www.amazon.co.uk/gp/product/1394185359/ref=as_li_tl?ie=UTF8&tag=wiley01-20","de":"https://www.amazon.de/gp/product/1394185359/ref=as_li_tl?ie=UTF8&tag=wiley01-20"},"image":{"src":"https://www.dummies.com/wp-content/uploads/9781394185351-204x255.jpg","width":204,"height":255},"title":"REITs For Dummies","testBankPinActivationLink":"","bookOutOfPrint":true,"authorsInfo":"<p><strong><b data-author-id=\"35328\">Brad Thomas</b></strong> has over 30 years of real estate investing experience. He’s published over 4,000 articles during the last 13 years, and he is the top writer on Seeking Alpha, the world’s largest investing community. He is also the CEO of Wide Moat Research, senior analyst at iREIT®, and a REIT ETF provider (iREIT® MarketVector™ Quality REIT Index). Brad teaches REITs at New York University and other schools such as Penn State University, Clemson University, the University of North Carolina, Cornell University, and Georgetown University.</p>","authors":[{"authorId":35328,"name":"Brad Thomas","slug":"brad-thomas","description":"<strong>Brad Thomas</strong> has over 30 years of real estate investing experience. He’s published over 4,000 articles during the last 13 years, and he is the top writer on Seeking Alpha, the world’s largest investing community. He is also the CEO of Wide Moat Research, senior analyst at iREIT®, and a REIT ETF provider (iREIT® MarketVector™ Quality REIT Index). Brad teaches REITs at New York University and other schools such as Penn State University, Clemson University, the University of North Carolina, Cornell University, and Georgetown University.","hasArticle":false,"_links":{"self":"https://dummies-api.dummies.com/v2/authors/35328"}}],"_links":{"self":"https://dummies-api.dummies.com/v2/books/"}},"collections":[],"articleAds":{"footerAd":"<div class=\"du-ad-region row\" id=\"article_page_adhesion_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_adhesion_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;investing&quot;,&quot;real-estate&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781394185351&quot;]}]\" id=\"du-slot-64fa0fdead33c\"></div></div>","rightAd":"<div class=\"du-ad-region row\" id=\"article_page_right_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_right_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;investing&quot;,&quot;real-estate&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781394185351&quot;]}]\" id=\"du-slot-64fa0fdeadc8d\"></div></div>"},"articleType":{"articleType":"Cheat Sheet","articleList":[{"articleId":0,"title":"","slug":null,"categoryList":[],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/"}}],"content":[{"title":"Benefits of being a virtual landlord","thumb":null,"image":null,"content":"<p>Being an owner in a REIT (real estate stocks) can be an effective way to gain access to a proven income-oriented asset class — property ownership — but without the day-to-day headaches that can come from being a hands-on landlord.</p>\n<p>By investing in REITs, you can effectively bypass all that by being a virtual landlord instead. Following, are several benefits of investing in REITs.</p>\n<h3><strong>REITs invest in a wide range of property types</strong></h3>\n<p>REITs invest in a wide range of property types. No matter where you’re headed locally (in the United States, at least), there’s a good chance you’ll find yourself in close proximity to a REIT–owned property.</p>\n<p>That workplace, apartment building, grocery store, medical facility, hotel, or gym? They might be REIT-owned properties. By leasing out space and collecting rent on its real estate, REITs generate income that is then paid out to shareholders in the form of dividends.</p>\n<h3><strong>REITs can have strong pricing power</strong></h3>\n<p>As a REIT owner, you can take advantage of the pricing power that exists with income-producing real estate. REITs can capitalize on the demand for leasing space that exceeds new supply, which allows rents to grow. This supply-demand imbalance gives most REITs strong rental pricing power.</p>\n<p>Net-lease REITs (REITs that own properties leased to single tenants under agreements in which the tenant pays for rent and some or all of operating expenses) are also attractive because of their long-term leases that generate durable cash flows in every economic climate.</p>\n<h3><strong>As rents grow, dividends grow</strong></h3>\n<p>Because REITs offer exceptional pricing power, they’re able to raise rents based on inflation, and they’re also well-prepared for high interest rates due to their efficient cost controls and balance sheet management practices.</p>\n"},{"title":"REIT investment considerations","thumb":null,"image":null,"content":"<p>Because of the durable dividend income REITs provide, they can be an important investment both for retirement savers and for retirees who require a continuing income stream to meet their living expenses.</p>\n<p>REIT dividends are driven by the steady stream of contractual rents paid by the tenants of their properties.</p>\n<p>Other important attributes of owning REITs to consider include:</p>\n<ul>\n<li><strong>Liquidity:</strong> REIT shares are traded on major stock exchanges.</li>\n<li><strong>Transparency:</strong> REITs have independent directors, analysts, and auditors that provide oversight.</li>\n<li><strong>Diversification:</strong> REITs offer access to the real estate market with low correlation with other stocks and bonds.</li>\n<li><strong>Performance:</strong> REITs have provided long-term total returns like those of other stocks.</li>\n</ul>\n"},{"title":"Choosing the best REITs","thumb":null,"image":null,"content":"<p>With over 890 listed REITs around the globe, where do you begin? The answer depends on your objective, and of course your own risk tolerance level.</p>\n<p>The great thing about REITs is that you can be a landlord for practically every property category, all unique with their own demand drivers.</p>\n<p>As you get started, here are a few guidelines worth considering:</p>\n<ul>\n<li>\n<p class=\"first-para\"><strong>Own more than one REIT or consider a REIT ETF. </strong>Diversification is important to the investing process, so when you start adding REITs to your portfolio, it’s important to spread your capital across multiple property sectors and geographies. In other words, don’t put all of your eggs in one basket.</p>\n<p class=\"child-para\">Also, there are many different exchange-traded funds (ETFs), closed-end fund, and mutual fund alternatives that may be a good way to become a virtual landlord without having to do all the heavy lifting.</p>\n</li>\n<li><strong>Focus on quality. </strong>REITs come in many shapes and sizes, and it’s important to always look under the hood before buying. Spend time researching the underlying fundamentals to ensure that the dividend is safe and growing (on a frequent basis). High-quality REITs can expect to have good access to capital during most market cycles.</li>\n<li><strong>Bet on the jockey. </strong>Most REITs are internally managed, which means you (the investor) are paying for the salaries of the management team. Always think of yourself as an owner and make sure (as the owner) your interests are aligned with management. Always maintain skepticism and in the words of Ronald Reagan, “trust but verify.”</li>\n<li><strong>Don’t chase yield. </strong>By law, REITs pay out high dividends, but always remember that a double-digit dividend yield suggests limited growth prospects for the REIT. There’s nothing wrong with owning these higher-yielding stocks, but often these double-digit yields suggest a potential dividend cut.</li>\n<li><strong>Buy low. </strong>Don’t overpay. Always make sure you’re getting value and buy REITs just like you would any other investment. Sometimes it takes patience, but over the long haul, your returns are magnified when you buy in at a cheaper price.</li>\n</ul>\n"}],"videoInfo":{"videoId":null,"name":null,"accountId":null,"playerId":null,"thumbnailUrl":null,"description":null,"uploadDate":null}},"sponsorship":{"sponsorshipPage":false,"backgroundImage":{"src":null,"width":0,"height":0},"brandingLine":"","brandingLink":"","brandingLogo":{"src":null,"width":0,"height":0},"sponsorAd":"","sponsorEbookTitle":"","sponsorEbookLink":"","sponsorEbookImage":{"src":null,"width":0,"height":0}},"primaryLearningPath":"Advance","lifeExpectancy":"Five years","lifeExpectancySetFrom":"2023-09-07T00:00:00+00:00","dummiesForKids":"no","sponsoredContent":"no","adInfo":"","adPairKey":[]},"status":"publish","visibility":"public","articleId":300521},{"headers":{"creationTime":"2016-03-26T23:10:53+00:00","modifiedTime":"2023-09-01T18:04:36+00:00","timestamp":"2023-09-01T21:01:02+00:00"},"data":{"breadcrumbs":[{"name":"Business, Careers, & Money","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34224"},"slug":"business-careers-money","categoryId":34224},{"name":"Personal Finance","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34273"},"slug":"personal-finance","categoryId":34273},{"name":"Investing","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34288"},"slug":"investing","categoryId":34288},{"name":"Investment Vehicles","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34290"},"slug":"investment-vehicles","categoryId":34290},{"name":"Bonds","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34291"},"slug":"bonds","categoryId":34291}],"title":"Buying U.S. Savings Bonds in an Uncertain Economy","strippedTitle":"buying u.s. savings bonds in an uncertain economy","slug":"buying-u-s-savings-bonds-in-an-uncertain-economy","canonicalUrl":"","seo":{"metaDescription":"In a down economy, U.S. savings bonds are one of the safest investments you can make. Savings bonds are nonmarketable securities — when you purchase them, they’","noIndex":0,"noFollow":0},"content":"<p>In a down economy, U.S. savings bonds are one of the safest investments you can make. Savings bonds are <i>nonmarketable</i> securities — when you purchase them, they’re registered to you and you can’t sell them to another investor.</p>\r\n<p>Uncle Sam offers two types of savings bonds, Series EE and Series I, which are backed by the full faith and credit of the U.S. government and are considered the safest of all investments. Here’s more info on each type:</p>\r\n<ul class=\"level-one\">\r\n <li><p class=\"first-para\"><b>Series EE bonds: </b>These bonds earn a fixed rate of return set by the U.S. Treasury. They’re <i>accrual bonds,</i> which means the interest accumulates and is compounded semiannually (rather than being paid to the owner as it’s earned each month). If you hold one of these bonds, you receive the interest when you redeem the bonds.</p>\r\n </li>\r\n <li><p class=\"first-para\"><b>Series I bonds:</b> The interest you earn from I bonds comes in two parts:</p>\r\n <ul class=\"level-two\">\r\n <li><p class=\"first-para\">A fixed-rate component established when you purchase the bond</p>\r\n </li>\r\n <li><p class=\"first-para\">A second component that’s equal to the rate of inflation, adjusted semiannually (based on the consumer price index for March and September)</p>\r\n </li>\r\n </ul>\r\n<p class=\"child-para\">Although the fixed-rate interest component for Series I bonds is low, these bonds help protect you against inflation. If inflation goes up, so does the interest rate you earn because the variable-rate portion is adjusted every six months; for example, when the fixed-rate component is 2 percent and the inflation adjustment is 5 percent, an investment in a Series I bond is guaranteed to return 7 percent. But remember, the total interest rate can also go down as the inflation adjustment decreases.</p>\r\n </li>\r\n</ul>\r\n<p>For both bonds, the purchase limit is $5,000 per Social Security number for each calendar year. You can easily purchase and redeem the bonds in electronic format through the <a href=\"http://www.treasurydirect.gov\" target=\"_blank\" rel=\"noopener\">Department of the Treasury’s Web site</a>. If you purchase the bonds electronically, you can get any denomination of $25 or more, including penny increments. The purchase price is equal to the face value.</p>\r\n<p>You can also purchase the bonds in paper form through various financial institutions and payroll savings plans. Paper I bonds are offered in denominations of $50, $75, $100, $200, $500, $1000, and $5,000; they’re purchased for their face value. However, you can get paper versions of EE bonds at half their face value; they’ll be worth face value at maturity. Paper EE bonds are offered in denominations of $50, $75, $100, $200, $500, $1000, $5,000, and $10,000.</p>\r\n<p>The interest on both bonds compounds semiannually for 30 years, but you don’t have to hold the bonds for that long. You can redeem the bonds after 12 months, but you pay a three-month interest penalty if you redeem the bonds within five years of the purchase date.</p>\r\n<p>As for tax treatment, U.S. savings bonds are exempt from state and local income tax. Federal income tax on interest earned can be deferred until redemption or final maturity, whichever occurs first. Tax benefits are available when you use the bonds for education purposes.</p>","description":"<p>In a down economy, U.S. savings bonds are one of the safest investments you can make. Savings bonds are <i>nonmarketable</i> securities — when you purchase them, they’re registered to you and you can’t sell them to another investor.</p>\r\n<p>Uncle Sam offers two types of savings bonds, Series EE and Series I, which are backed by the full faith and credit of the U.S. government and are considered the safest of all investments. Here’s more info on each type:</p>\r\n<ul class=\"level-one\">\r\n <li><p class=\"first-para\"><b>Series EE bonds: </b>These bonds earn a fixed rate of return set by the U.S. Treasury. They’re <i>accrual bonds,</i> which means the interest accumulates and is compounded semiannually (rather than being paid to the owner as it’s earned each month). If you hold one of these bonds, you receive the interest when you redeem the bonds.</p>\r\n </li>\r\n <li><p class=\"first-para\"><b>Series I bonds:</b> The interest you earn from I bonds comes in two parts:</p>\r\n <ul class=\"level-two\">\r\n <li><p class=\"first-para\">A fixed-rate component established when you purchase the bond</p>\r\n </li>\r\n <li><p class=\"first-para\">A second component that’s equal to the rate of inflation, adjusted semiannually (based on the consumer price index for March and September)</p>\r\n </li>\r\n </ul>\r\n<p class=\"child-para\">Although the fixed-rate interest component for Series I bonds is low, these bonds help protect you against inflation. If inflation goes up, so does the interest rate you earn because the variable-rate portion is adjusted every six months; for example, when the fixed-rate component is 2 percent and the inflation adjustment is 5 percent, an investment in a Series I bond is guaranteed to return 7 percent. But remember, the total interest rate can also go down as the inflation adjustment decreases.</p>\r\n </li>\r\n</ul>\r\n<p>For both bonds, the purchase limit is $5,000 per Social Security number for each calendar year. You can easily purchase and redeem the bonds in electronic format through the <a href=\"http://www.treasurydirect.gov\" target=\"_blank\" rel=\"noopener\">Department of the Treasury’s Web site</a>. If you purchase the bonds electronically, you can get any denomination of $25 or more, including penny increments. The purchase price is equal to the face value.</p>\r\n<p>You can also purchase the bonds in paper form through various financial institutions and payroll savings plans. Paper I bonds are offered in denominations of $50, $75, $100, $200, $500, $1000, and $5,000; they’re purchased for their face value. However, you can get paper versions of EE bonds at half their face value; they’ll be worth face value at maturity. Paper EE bonds are offered in denominations of $50, $75, $100, $200, $500, $1000, $5,000, and $10,000.</p>\r\n<p>The interest on both bonds compounds semiannually for 30 years, but you don’t have to hold the bonds for that long. You can redeem the bonds after 12 months, but you pay a three-month interest penalty if you redeem the bonds within five years of the purchase date.</p>\r\n<p>As for tax treatment, U.S. savings bonds are exempt from state and local income tax. Federal income tax on interest earned can be deferred until redemption or final maturity, whichever occurs first. Tax benefits are available when you use the bonds for education purposes.</p>","blurb":"","authors":[],"primaryCategoryTaxonomy":{"categoryId":34291,"title":"Bonds","slug":"bonds","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34291"}},"secondaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"tertiaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"trendingArticles":null,"inThisArticle":[],"relatedArticles":{"fromBook":[],"fromCategory":[{"articleId":275083,"title":"How to Invest in Bonds","slug":"how-to-invest-in-bonds","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","bonds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/275083"}},{"articleId":208279,"title":"Bond Investing For Dummies Cheat Sheet","slug":"bond-investing-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","bonds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/208279"}},{"articleId":207444,"title":"Investing in Bonds For Dummies Cheat Sheet","slug":"investing-in-bonds-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","bonds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/207444"}},{"articleId":202861,"title":"Savings Bonds Pros and Cons","slug":"savings-bonds-pros-and-cons","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","bonds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/202861"}},{"articleId":201130,"title":"Investing in Global Bonds","slug":"investing-in-global-bonds","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","bonds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/201130"}}]},"hasRelatedBookFromSearch":false,"relatedBook":{"bookId":0,"slug":null,"isbn":null,"categoryList":null,"amazon":null,"image":null,"title":null,"testBankPinActivationLink":null,"bookOutOfPrint":false,"authorsInfo":null,"authors":null,"_links":null},"collections":[],"articleAds":{"footerAd":"<div class=\"du-ad-region row\" id=\"article_page_adhesion_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_adhesion_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;investing&quot;,&quot;investment-vehicles&quot;,&quot;bonds&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[null]}]\" id=\"du-slot-64f2510eb8af2\"></div></div>","rightAd":"<div class=\"du-ad-region row\" id=\"article_page_right_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_right_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;investing&quot;,&quot;investment-vehicles&quot;,&quot;bonds&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[null]}]\" id=\"du-slot-64f2510eb9530\"></div></div>"},"articleType":{"articleType":"Articles","articleList":null,"content":null,"videoInfo":{"videoId":null,"name":null,"accountId":null,"playerId":null,"thumbnailUrl":null,"description":null,"uploadDate":null}},"sponsorship":{"sponsorshipPage":false,"backgroundImage":{"src":null,"width":0,"height":0},"brandingLine":"","brandingLink":"","brandingLogo":{"src":null,"width":0,"height":0},"sponsorAd":"","sponsorEbookTitle":"","sponsorEbookLink":"","sponsorEbookImage":{"src":null,"width":0,"height":0}},"primaryLearningPath":"Advance","lifeExpectancy":"Five years","lifeExpectancySetFrom":"2023-09-01T00:00:00+00:00","dummiesForKids":"no","sponsoredContent":"no","adInfo":"","adPairKey":[]},"status":"publish","visibility":"public","articleId":202959},{"headers":{"creationTime":"2016-03-26T18:03:03+00:00","modifiedTime":"2023-08-31T20:58:33+00:00","timestamp":"2023-08-31T21:01:03+00:00"},"data":{"breadcrumbs":[{"name":"Business, Careers, & Money","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34224"},"slug":"business-careers-money","categoryId":34224},{"name":"Personal Finance","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34273"},"slug":"personal-finance","categoryId":34273},{"name":"Investing","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34288"},"slug":"investing","categoryId":34288},{"name":"Investment Vehicles","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34290"},"slug":"investment-vehicles","categoryId":34290},{"name":"Funds","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34296"},"slug":"funds","categoryId":34296}],"title":"Commodity ETFs: A Vastly Improved Way to Buy Gold","strippedTitle":"commodity etfs: a vastly improved way to buy gold","slug":"commodity-etfs-a-vastly-improved-way-to-buy-gold","canonicalUrl":"","seo":{"metaDescription":"When, in November 2004, State Street Global Advisors introduced the first gold ETF, it was a truly revolutionary moment. You buy a share just as you would buy a","noIndex":0,"noFollow":0},"content":"<p>When, in November 2004, State Street Global Advisors introduced the first gold ETF, it was a truly revolutionary moment. You buy a share just as you would buy a share of any other security, and each share gives you an ownership interest in one-tenth of an ounce of gold held by the fund.</p>\r\n<p>Yes, the gold is actually held in various bank vaults. You can even see pictures of one such vault filled to near capacity (very cool!) at S<a href=\"http://www.spdrgoldshares.com\" target=\"_blank\" rel=\"noopener\">PDR Gold Shares website</a>.</p>\r\n<p>If you are going to buy gold, this is far and away the easiest and most sensible way to do it.</p>\r\n<p>You currently have several ETF options for buying gold. Two that would work just fine include the original from State Street — the SPDR Gold Shares (GLD) — and a second from iShares introduced months later — the iShares Gold Trust (IAU). Both funds are essentially the same. Flip a coin (gold or other), but then go with the iShares fund, simply because it costs less: 0.25 percent versus 0.40 percent.</p>\r\n<p>Strange as it seems, the Internal Revenue Service considers gold to be a collectible for tax purposes. A share of a gold ETF is considered the same as, say, a gold Turkish coin from 1923 (don’t ask). So what, you ask? As it happens, the long-term capital gains tax rate on collectibles is 28 percent and not the more favorable 15 percent afforded to capital gains on stocks.</p>\r\n<p class=\"Tip\">Holding the ETF should be no problem from a tax standpoint (gold certainly won’t pay dividends), but when you sell, you could get hit hard on any gains. Gold ETFs, therefore, are best kept in tax-advantaged accounts, such as your IRA. (This strategy won’t serve you well if gold prices tumble and you sell. Then, you’d rather have held the ETF in a taxable account so you could write off the capital loss.)</p>","description":"<p>When, in November 2004, State Street Global Advisors introduced the first gold ETF, it was a truly revolutionary moment. You buy a share just as you would buy a share of any other security, and each share gives you an ownership interest in one-tenth of an ounce of gold held by the fund.</p>\r\n<p>Yes, the gold is actually held in various bank vaults. You can even see pictures of one such vault filled to near capacity (very cool!) at S<a href=\"http://www.spdrgoldshares.com\" target=\"_blank\" rel=\"noopener\">PDR Gold Shares website</a>.</p>\r\n<p>If you are going to buy gold, this is far and away the easiest and most sensible way to do it.</p>\r\n<p>You currently have several ETF options for buying gold. Two that would work just fine include the original from State Street — the SPDR Gold Shares (GLD) — and a second from iShares introduced months later — the iShares Gold Trust (IAU). Both funds are essentially the same. Flip a coin (gold or other), but then go with the iShares fund, simply because it costs less: 0.25 percent versus 0.40 percent.</p>\r\n<p>Strange as it seems, the Internal Revenue Service considers gold to be a collectible for tax purposes. A share of a gold ETF is considered the same as, say, a gold Turkish coin from 1923 (don’t ask). So what, you ask? As it happens, the long-term capital gains tax rate on collectibles is 28 percent and not the more favorable 15 percent afforded to capital gains on stocks.</p>\r\n<p class=\"Tip\">Holding the ETF should be no problem from a tax standpoint (gold certainly won’t pay dividends), but when you sell, you could get hit hard on any gains. Gold ETFs, therefore, are best kept in tax-advantaged accounts, such as your IRA. (This strategy won’t serve you well if gold prices tumble and you sell. Then, you’d rather have held the ETF in a taxable account so you could write off the capital loss.)</p>","blurb":"","authors":[{"authorId":9023,"name":"Russell Wild","slug":"russell-wild","description":" <p><b>Russell Wild</b> is a NAPFA certified financial advisor and principal of Global Portfolios, an investment advisory firm based in Allentown, PA that works with clients of both substantial and modest means. He has written two dozen books and numerous articles on financial matters. ","hasArticle":false,"_links":{"self":"https://dummies-api.dummies.com/v2/authors/9023"}}],"primaryCategoryTaxonomy":{"categoryId":34296,"title":"Funds","slug":"funds","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34296"}},"secondaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"tertiaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"trendingArticles":null,"inThisArticle":[],"relatedArticles":{"fromBook":[{"articleId":208448,"title":"Exchange-Traded Funds For Dummies Cheat Sheet","slug":"exchange-traded-funds-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","funds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/208448"}},{"articleId":183699,"title":"Choosing the Best ETFs","slug":"choosing-the-best-etfs","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","funds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/183699"}},{"articleId":183698,"title":"How ETFs Differ from Mutual Funds","slug":"how-etfs-differ-from-mutual-funds","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","funds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/183698"}},{"articleId":183697,"title":"Websites for Up-to-Date ETF Information","slug":"websites-for-up-to-date-etf-information","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","funds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/183697"}},{"articleId":183683,"title":"Asking a Financial Professional about Working ETFs into Your Portfolio","slug":"asking-a-financial-professional-about-working-etfs-into-your-portfolio","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","funds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/183683"}}],"fromCategory":[{"articleId":296619,"title":"Hedge Funds For Dummies Cheat Sheet","slug":"hedge-funds-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","funds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/296619"}},{"articleId":209064,"title":"Mutual Funds For Dummies Cheat Sheet","slug":"mutual-funds-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","funds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/209064"}},{"articleId":208448,"title":"Exchange-Traded Funds For Dummies Cheat Sheet","slug":"exchange-traded-funds-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","funds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/208448"}},{"articleId":199934,"title":"Introducing Basic Types of Hedge Funds","slug":"introducing-basic-types-of-hedge-funds","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","funds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/199934"}},{"articleId":198378,"title":"Hedge Fund Fees to Expect with Your Investment","slug":"hedge-fund-fees-to-expect-with-your-investment","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","funds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/198378"}}]},"hasRelatedBookFromSearch":false,"relatedBook":{"bookId":282184,"slug":"exchange-traded-funds-for-dummies","isbn":"9781119828839","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","funds"],"amazon":{"default":"https://www.amazon.com/gp/product/111982883X/ref=as_li_tl?ie=UTF8&tag=wiley01-20","ca":"https://www.amazon.ca/gp/product/111982883X/ref=as_li_tl?ie=UTF8&tag=wiley01-20","indigo_ca":"http://www.tkqlhce.com/click-9208661-13710633?url=https://www.chapters.indigo.ca/en-ca/books/product/111982883X-item.html&cjsku=978111945484","gb":"https://www.amazon.co.uk/gp/product/111982883X/ref=as_li_tl?ie=UTF8&tag=wiley01-20","de":"https://www.amazon.de/gp/product/111982883X/ref=as_li_tl?ie=UTF8&tag=wiley01-20"},"image":{"src":"https://www.dummies.com/wp-content/uploads/exchange-traded-funds-for-dummies-3rd-edition-cover-9781119828839-203x255.jpg","width":203,"height":255},"title":"Exchange-Traded Funds For Dummies","testBankPinActivationLink":"","bookOutOfPrint":true,"authorsInfo":"<p><p><b><b data-author-id=\"9023\">Russell Wild</b></b> is a NAPFA certified financial advisor and principal of Global Portfolios, an investment advisory firm based in Allentown, PA that works with clients of both substantial and modest means. He has written two dozen books and numerous articles on financial matters.</p>","authors":[{"authorId":9023,"name":"Russell Wild","slug":"russell-wild","description":" <p><b>Russell Wild</b> is a NAPFA certified financial advisor and principal of Global Portfolios, an investment advisory firm based in Allentown, PA that works with clients of both substantial and modest means. He has written two dozen books and numerous articles on financial matters. ","hasArticle":false,"_links":{"self":"https://dummies-api.dummies.com/v2/authors/9023"}}],"_links":{"self":"https://dummies-api.dummies.com/v2/books/"}},"collections":[],"articleAds":{"footerAd":"<div class=\"du-ad-region row\" id=\"article_page_adhesion_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_adhesion_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;investing&quot;,&quot;investment-vehicles&quot;,&quot;funds&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781119828839&quot;]}]\" id=\"du-slot-64f0ff8f0c508\"></div></div>","rightAd":"<div class=\"du-ad-region row\" id=\"article_page_right_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_right_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;investing&quot;,&quot;investment-vehicles&quot;,&quot;funds&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781119828839&quot;]}]\" id=\"du-slot-64f0ff8f0cdce\"></div></div>"},"articleType":{"articleType":"Articles","articleList":null,"content":null,"videoInfo":{"videoId":null,"name":null,"accountId":null,"playerId":null,"thumbnailUrl":null,"description":null,"uploadDate":null}},"sponsorship":{"sponsorshipPage":false,"backgroundImage":{"src":null,"width":0,"height":0},"brandingLine":"","brandingLink":"","brandingLogo":{"src":null,"width":0,"height":0},"sponsorAd":"","sponsorEbookTitle":"","sponsorEbookLink":"","sponsorEbookImage":{"src":null,"width":0,"height":0}},"primaryLearningPath":"Explore","lifeExpectancy":"One year","lifeExpectancySetFrom":"2023-08-31T00:00:00+00:00","dummiesForKids":"no","sponsoredContent":"no","adInfo":"","adPairKey":[]},"status":"publish","visibility":"public","articleId":178090},{"headers":{"creationTime":"2016-03-26T18:14:46+00:00","modifiedTime":"2023-08-23T14:19:17+00:00","timestamp":"2023-08-23T15:01:03+00:00"},"data":{"breadcrumbs":[{"name":"Business, Careers, & Money","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34224"},"slug":"business-careers-money","categoryId":34224},{"name":"Personal Finance","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34273"},"slug":"personal-finance","categoryId":34273},{"name":"Investing","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34288"},"slug":"investing","categoryId":34288},{"name":"Investment Vehicles","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34290"},"slug":"investment-vehicles","categoryId":34290},{"name":"Funds","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34296"},"slug":"funds","categoryId":34296}],"title":"Stock ETFs: What Is a Micro Cap Stock?","strippedTitle":"stock etfs: what is a micro cap stock?","slug":"stock-etfs-what-is-a-micro-cap-stock","canonicalUrl":"","seo":{"metaDescription":"If you want to invest your money in companies that are smaller than small, you can invest in ETFs based on micro caps. These companies are larger than the corne","noIndex":0,"noFollow":0},"content":"If you want to invest your money in companies that are smaller than small, you can invest in ETFs based on micro caps. These companies are larger than the corner delicatessen, but sometimes not by much. In general, micro caps are publicly held companies with less than $300 million in outstanding stock.\r\n\r\nMicro caps, as you can imagine, are volatile little suckers, but as a group they offer impressive long-term performance. In terms of diversification, micro caps — in conservative quantity — could be a nice addition to your portfolio, though not a necessity. Take note that micro cap funds, even index ETFs, tend to charge considerably more in management fees than you’ll pay for most funds.\r\n\r\nMicros move at a modestly different pace from other equity asset classes. The theory is that because micro caps are heavy borrowers, their performance is more tied to interest rates than the performance of larger cap stocks. (Lower interest rates would be good for these stocks; higher interest rates would not.)\r\n\r\nMicro caps also tend to be more tied to the vicissitudes of the U.S. economy and less to the world economy than, say, the fortunes of General Electric or McDonald’s.\r\n\r\nGiven the high risk of owning any individual micro cap stock, it makes sense to work micro caps into your portfolio in fund form, despite the management fees, rather than trying to pick individual companies.\r\n\r\nTo date, a handful of micro cap ETFs have been introduced. They differ from one another to a much greater extent than do the larger cap ETFs.","description":"If you want to invest your money in companies that are smaller than small, you can invest in ETFs based on micro caps. These companies are larger than the corner delicatessen, but sometimes not by much. In general, micro caps are publicly held companies with less than $300 million in outstanding stock.\r\n\r\nMicro caps, as you can imagine, are volatile little suckers, but as a group they offer impressive long-term performance. In terms of diversification, micro caps — in conservative quantity — could be a nice addition to your portfolio, though not a necessity. Take note that micro cap funds, even index ETFs, tend to charge considerably more in management fees than you’ll pay for most funds.\r\n\r\nMicros move at a modestly different pace from other equity asset classes. The theory is that because micro caps are heavy borrowers, their performance is more tied to interest rates than the performance of larger cap stocks. (Lower interest rates would be good for these stocks; higher interest rates would not.)\r\n\r\nMicro caps also tend to be more tied to the vicissitudes of the U.S. economy and less to the world economy than, say, the fortunes of General Electric or McDonald’s.\r\n\r\nGiven the high risk of owning any individual micro cap stock, it makes sense to work micro caps into your portfolio in fund form, despite the management fees, rather than trying to pick individual companies.\r\n\r\nTo date, a handful of micro cap ETFs have been introduced. They differ from one another to a much greater extent than do the larger cap ETFs.","blurb":"","authors":[{"authorId":9023,"name":"Russell Wild","slug":"russell-wild","description":" <p><b>Russell Wild</b> is a NAPFA certified financial advisor and principal of Global Portfolios, an investment advisory firm based in Allentown, PA that works with clients of both substantial and modest means. He has written two dozen books and numerous articles on financial matters. ","hasArticle":false,"_links":{"self":"https://dummies-api.dummies.com/v2/authors/9023"}}],"primaryCategoryTaxonomy":{"categoryId":34296,"title":"Funds","slug":"funds","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34296"}},"secondaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"tertiaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"trendingArticles":null,"inThisArticle":[],"relatedArticles":{"fromBook":[{"articleId":208448,"title":"Exchange-Traded Funds For Dummies Cheat Sheet","slug":"exchange-traded-funds-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","funds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/208448"}},{"articleId":183699,"title":"Choosing the Best ETFs","slug":"choosing-the-best-etfs","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","funds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/183699"}},{"articleId":183698,"title":"How ETFs Differ from Mutual Funds","slug":"how-etfs-differ-from-mutual-funds","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","funds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/183698"}},{"articleId":183697,"title":"Websites for Up-to-Date ETF Information","slug":"websites-for-up-to-date-etf-information","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","funds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/183697"}},{"articleId":183683,"title":"Asking a Financial Professional about Working ETFs into Your Portfolio","slug":"asking-a-financial-professional-about-working-etfs-into-your-portfolio","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","funds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/183683"}}],"fromCategory":[{"articleId":296619,"title":"Hedge Funds For Dummies Cheat Sheet","slug":"hedge-funds-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","funds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/296619"}},{"articleId":209064,"title":"Mutual Funds For Dummies Cheat Sheet","slug":"mutual-funds-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","funds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/209064"}},{"articleId":208448,"title":"Exchange-Traded Funds For Dummies Cheat Sheet","slug":"exchange-traded-funds-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","funds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/208448"}},{"articleId":199934,"title":"Introducing Basic Types of Hedge Funds","slug":"introducing-basic-types-of-hedge-funds","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","funds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/199934"}},{"articleId":198378,"title":"Hedge Fund Fees to Expect with Your Investment","slug":"hedge-fund-fees-to-expect-with-your-investment","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","funds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/198378"}}]},"hasRelatedBookFromSearch":false,"relatedBook":{"bookId":282184,"slug":"exchange-traded-funds-for-dummies","isbn":"9781119828839","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","funds"],"amazon":{"default":"https://www.amazon.com/gp/product/111982883X/ref=as_li_tl?ie=UTF8&tag=wiley01-20","ca":"https://www.amazon.ca/gp/product/111982883X/ref=as_li_tl?ie=UTF8&tag=wiley01-20","indigo_ca":"http://www.tkqlhce.com/click-9208661-13710633?url=https://www.chapters.indigo.ca/en-ca/books/product/111982883X-item.html&cjsku=978111945484","gb":"https://www.amazon.co.uk/gp/product/111982883X/ref=as_li_tl?ie=UTF8&tag=wiley01-20","de":"https://www.amazon.de/gp/product/111982883X/ref=as_li_tl?ie=UTF8&tag=wiley01-20"},"image":{"src":"https://www.dummies.com/wp-content/uploads/exchange-traded-funds-for-dummies-3rd-edition-cover-9781119828839-203x255.jpg","width":203,"height":255},"title":"Exchange-Traded Funds For Dummies","testBankPinActivationLink":"","bookOutOfPrint":true,"authorsInfo":"<p><p><b><b data-author-id=\"9023\">Russell Wild</b></b> is a NAPFA certified financial advisor and principal of Global Portfolios, an investment advisory firm based in Allentown, PA that works with clients of both substantial and modest means. He has written two dozen books and numerous articles on financial matters.</p>","authors":[{"authorId":9023,"name":"Russell Wild","slug":"russell-wild","description":" <p><b>Russell Wild</b> is a NAPFA certified financial advisor and principal of Global Portfolios, an investment advisory firm based in Allentown, PA that works with clients of both substantial and modest means. He has written two dozen books and numerous articles on financial matters. ","hasArticle":false,"_links":{"self":"https://dummies-api.dummies.com/v2/authors/9023"}}],"_links":{"self":"https://dummies-api.dummies.com/v2/books/"}},"collections":[],"articleAds":{"footerAd":"<div class=\"du-ad-region row\" id=\"article_page_adhesion_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_adhesion_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;investing&quot;,&quot;investment-vehicles&quot;,&quot;funds&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781119828839&quot;]}]\" id=\"du-slot-64e61f2fab741\"></div></div>","rightAd":"<div class=\"du-ad-region row\" id=\"article_page_right_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_right_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;investing&quot;,&quot;investment-vehicles&quot;,&quot;funds&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781119828839&quot;]}]\" id=\"du-slot-64e61f2fabe3d\"></div></div>"},"articleType":{"articleType":"Articles","articleList":null,"content":null,"videoInfo":{"videoId":null,"name":null,"accountId":null,"playerId":null,"thumbnailUrl":null,"description":null,"uploadDate":null}},"sponsorship":{"sponsorshipPage":false,"backgroundImage":{"src":null,"width":0,"height":0},"brandingLine":"","brandingLink":"","brandingLogo":{"src":null,"width":0,"height":0},"sponsorAd":"","sponsorEbookTitle":"","sponsorEbookLink":"","sponsorEbookImage":{"src":null,"width":0,"height":0}},"primaryLearningPath":"Explore","lifeExpectancy":"One year","lifeExpectancySetFrom":"2023-08-23T00:00:00+00:00","dummiesForKids":"no","sponsoredContent":"no","adInfo":"","adPairKey":[]},"status":"publish","visibility":"public","articleId":178211},{"headers":{"creationTime":"2023-08-16T19:38:18+00:00","modifiedTime":"2023-08-17T13:29:08+00:00","timestamp":"2023-08-17T15:01:02+00:00"},"data":{"breadcrumbs":[{"name":"Business, Careers, & Money","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34224"},"slug":"business-careers-money","categoryId":34224},{"name":"Personal Finance","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34273"},"slug":"personal-finance","categoryId":34273},{"name":"Investing","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34288"},"slug":"investing","categoryId":34288},{"name":"Investment Vehicles","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34290"},"slug":"investment-vehicles","categoryId":34290},{"name":"Stocks","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34298"},"slug":"stocks","categoryId":34298}],"title":"Investing in Stocks for Income & Cash Flow","strippedTitle":"investing in stocks for income & cash flow","slug":"investing-in-stocks-for-income-cash-flow","canonicalUrl":"","seo":{"metaDescription":"Learn the pros and cons of dividend-paying stocks over other types of stocks, and who is best suited to this type of investment.","noIndex":0,"noFollow":0},"content":"Stocks are well known for their ability to appreciate (for capital gains potential), but not enough credit is given regarding stocks’ ability to boost your income and cash flow. Given that income will be a primary concern for many in the coming months and years (especially baby boomers and others concerned with retirement, pension issues, and so on), I consider this to be an important consideration.\r\n\r\n[caption id=\"attachment_300322\" align=\"alignnone\" width=\"630\"]<img class=\"size-full wp-image-300322\" src=\"https://www.dummies.com/wp-content/uploads/woman-working-laptop-home-adobeStock_339534482.jpg\" alt=\"\" width=\"630\" height=\"420\" /> ©MT-R / Adobe Stock[/caption]\r\n\r\nThe first income feature is the obvious — dividends! I love dividends, and they have excellent features that make them very attractive, such as their ability to meet or exceed the rate of inflation and the fact that they’re subject to lower taxes than, say, regular taxable interest or wages.\r\n\r\nDividend-paying stocks, called <em>income stocks</em>, deserve a spot in a variety of portfolios, especially those of investors at or near retirement. Also, I think that younger folks (such as millennials) can gain long-term financial benefits from having dividends reinvested to compound their growth (such as with dividend reinvestment plans).\r\n<h2 id=\"tab1\" >The basics of income stocks</h2>\r\nI certainly think that dividend-paying stocks are a great consideration for those investors seeking greater income in their portfolios. I especially like stocks with higher-than-average dividends that are known as <em>income stocks.</em> Income stocks take on a dual role: Not only can they appreciate, but they can also provide regular income. The following sections take a closer look at dividends and income stocks.\r\n<h3>Getting a grip on dividends and their rates</h3>\r\nWhen people talk about gaining income from stocks, they’re usually talking about dividends. Dividends are pro rata distributions that treat every stockholder the same. A <em>dividend</em> is nothing more than pro rata periodic distributions of cash (or sometimes stock) to the stock owner. You purchase dividend stocks primarily for income — not for spectacular growth potential.\r\n\r\nDividends are sometimes confused with interest. However, dividends are payouts to owners, whereas <em>interest</em> is a payment to a creditor. A stock investor is considered a part owner of the company they invest in and is entitled to dividends when they’re issued. A bank, on the other hand, considers you a creditor when you open an account; the bank borrows your money and pays you interest on it.\r\n\r\nA dividend is quoted as an annual dollar amount (or percentage yield), but it’s usually paid on a quarterly basis. For example, if a stock pays a dividend of $4 per share, you’re probably paid $1 every quarter. If, in this example, you have 200 shares, you’re paid $800 every year (if the dividend doesn’t change during that period), or $200 per quarter. Getting that regular dividend check every three months (for as long as you hold the stock) can be a nice perk. If the company continues to do well, that dividend can grow over time. A good income stock has a higher-than-average dividend (typically, 4 percent or higher).\r\n<p class=\"article-tips remember\">Dividend rates aren’t guaranteed, and they’re subject to the decisions of the stock issuer’s board of directors — they can go up or down, or in some extreme cases, the dividend can be suspended or even discontinued. Fortunately, most companies that issue dividends continue them indefinitely and actually increase dividend payments from time to time. Historically, dividend increases have equaled (or exceeded) the rate of inflation.</p>\r\n\r\n<h2 id=\"tab2\" >Who’s well suited for income stocks?</h2>\r\nWhat type of person is best suited to income stocks? Income stocks can be appropriate for many investors, but they’re an especially good match for the following individuals:\r\n<ul>\r\n \t<li><strong>Conservative and novice investors:</strong> Conservative investors like to see a slow but steady approach to growing their money while getting regular dividend checks. <a href=\"https://www.dummies.com/article/business-careers-money/personal-finance/investing/investment-vehicles/stocks/stock-investing-for-beginners-300279/\">Novice investors</a> who want to start slowly also benefit from income stocks.</li>\r\n \t<li><strong>Retirees:</strong> Growth investing is best suited for long-term needs, whereas income investing is best suited to current needs. Retirees may want some growth in their portfolios, but they’re more concerned with regular income that can keep pace with inflation.</li>\r\n \t<li><strong>Dividend reinvestment plan (DRP) investors:</strong> For those investors who like to compound their money with DRPs, income stocks are perfect.</li>\r\n</ul>\r\nGiven recent economic trends and conditions for the foreseeable future, I think that dividends should be a mandatory part of the stock investor’s wealth-building approach. This is especially true for those in or approaching retirement.\r\n\r\nInvesting in stocks that have a reliable track record of increasing dividends is now easier than ever. In fact, there are exchange-traded funds (ETFs) that are focused on stocks with a long and consistent track record of raising dividends (typically on an annual basis).\r\n<h2 id=\"tab3\" >Assessing the advantages of income stocks</h2>\r\nIncome stocks tend to be among the least volatile of all stocks, and many investors view them as defensive stocks. <em>Defensive stocks</em> are stocks of companies that sell goods and services that are generally needed no matter what shape the economy is in. (Don’t confuse defensive stocks with <em>defense stocks,</em> which specialize in goods and equipment for the military.) Food, beverage, and utility companies are great examples of defensive stocks.\r\n\r\nEven when the economy is experiencing tough times, people still need to eat, drink, and turn on the lights. Companies that offer relatively high dividends also tend to be large firms in established, stable industries.\r\n\r\nSome industries in particular are known for high-dividend stocks. Utilities (such as electric, gas, and water), real estate investment trusts (REITs), and the energy sector (oil and gas royalty trusts) are places where you definitely find income stocks. Yes, you can find high-dividend stocks in other industries, but you find a higher concentration of them in these industries.\r\n<p class=\"article-tips tip\">To learn more about high-dividend stocks, and much more about stock investing, check out my book <a href=\"https://www.dummies.com/book/business-careers-money/personal-finance/investing/investment-vehicles/stocks/investing-in-stocks-for-dummies-299991/\"><em>Investing in Stocks For Dummies</em></a>.</p>\r\n\r\n<h2 id=\"tab4\" >Heeding the disadvantages of income stocks</h2>\r\nBefore you say, “Income stocks are great! I’ll get my checkbook and buy a batch right now,” take a look at the following potential disadvantages (ugh!). Income stocks do come with some fine print.\r\n<h3>What goes up …</h3>\r\nIncome stocks can go down as well as up, just as any stock can. The factors that affect stocks in general — politics, megatrends, different kinds of risk, and so on — affect income stocks, too. Fortunately, income stocks don’t get hit as hard as other stocks when the market is declining because high dividends tend to act as a support to the stock price. Therefore, income stocks’ prices usually fall less dramatically than other stocks’ prices in a declining market.\r\n<h3>Interest-rate sensitivity</h3>\r\nIncome stocks can be sensitive to rising interest rates. When interest rates go up, other investments (such as corporate bonds, U.S. Treasury securities, and bank certificates of deposit [CDs]) are more attractive. When your income stock yields 4 percent and interest rates go up to 5 percent, 6 percent, or higher, you may think, “Hmm, why settle for a 4 percent yield when I can get better elsewhere?” As more and more investors sell their low-yield stocks, the prices for those stocks fall.\r\n\r\nAnother point to note is that rising interest rates may hurt the company’s financial strength. If the company has to pay more interest, that may affect the company’s earnings, which, in turn, may affect the company’s ability to continue paying dividends.\r\n<p class=\"article-tips remember\">Dividend-paying companies that experience consistently falling revenues tend to cut dividends. In this case, <em>consistent</em> means two or more years.</p>\r\n\r\n<h3>The effect of inflation</h3>\r\nAlthough many companies raise their dividends on a regular basis, some don’t. Or if they do raise their dividends, the increases may be small. If income is your primary consideration, you want to be aware of this fact. If you’re getting the same dividend year after year and this income is important to you, rising inflation becomes a problem.\r\n\r\nSay that you have XYZ stock at $10 per share with an indicated annual dividend of 30 cents. The yield is 3 percent (30 cents @@ds $10). If you have a yield of 3 percent two years in a row, how do you feel when inflation rises 6 percent one year and 7 percent the next year? Because inflation means your costs are rising, inflation shrinks the value of the dividend income you receive.\r\n\r\nFortunately, studies show that, in general, dividends do better in inflationary environments than bonds and other fixed-rate investments do. Usually, the dividends of companies that provide consumer staples (food, energy, and so on) meet or exceed the rate of inflation. This is why some investment gurus describe companies that pay growing dividends as having stocks that are “better than bonds.”\r\n<h3>Uncle Sam’s cut</h3>\r\nThe government usually taxes dividends as ordinary income. Find out from your tax person whether potentially higher tax rates on dividends are in effect for the current or subsequent tax year.\r\n<h2 id=\"tab5\" >Stock dividends or company dividends?</h2>\r\nThe term <em>stock dividend</em> is commonly used in financial discussions about the stock market. However, the reality is that dividends are not paid by stocks; they’re paid pro rata distributions of cash by companies. It may sound like I’m splitting hairs, but it’s a fundamental difference.\r\n\r\nStock prices are subject to the whims of market buying and selling — one day the share prices are up nicely; the next day prices go down when that day’s headlines spook the market. Because the dividend isn’t volatile and it’s paid with regularity (quarterly usually), it’s more predictable. I think that investors should be in the business of “collecting cash flows” as opposed to fretting over the ebbs and flows of the market.\r\n\r\nWhat does that mean? If a hundred shares of a given dividend-paying stock provide, say, $100 per year in annual dividends, the income-minded stock investor should keep a running tally of annual dividend amounts. That way, they keep investing until they reach a desired income level (such as $2,000 annual dividend income) and feel confident that this dividend income can be relatively reliable and will keep growing as payouts grow from company operations. Lastly, keep in mind that technically a “stock dividend” is actually a pro rata distribution of stock (and not cash).","description":"Stocks are well known for their ability to appreciate (for capital gains potential), but not enough credit is given regarding stocks’ ability to boost your income and cash flow. Given that income will be a primary concern for many in the coming months and years (especially baby boomers and others concerned with retirement, pension issues, and so on), I consider this to be an important consideration.\r\n\r\n[caption id=\"attachment_300322\" align=\"alignnone\" width=\"630\"]<img class=\"size-full wp-image-300322\" src=\"https://www.dummies.com/wp-content/uploads/woman-working-laptop-home-adobeStock_339534482.jpg\" alt=\"\" width=\"630\" height=\"420\" /> ©MT-R / Adobe Stock[/caption]\r\n\r\nThe first income feature is the obvious — dividends! I love dividends, and they have excellent features that make them very attractive, such as their ability to meet or exceed the rate of inflation and the fact that they’re subject to lower taxes than, say, regular taxable interest or wages.\r\n\r\nDividend-paying stocks, called <em>income stocks</em>, deserve a spot in a variety of portfolios, especially those of investors at or near retirement. Also, I think that younger folks (such as millennials) can gain long-term financial benefits from having dividends reinvested to compound their growth (such as with dividend reinvestment plans).\r\n<h2 id=\"tab1\" >The basics of income stocks</h2>\r\nI certainly think that dividend-paying stocks are a great consideration for those investors seeking greater income in their portfolios. I especially like stocks with higher-than-average dividends that are known as <em>income stocks.</em> Income stocks take on a dual role: Not only can they appreciate, but they can also provide regular income. The following sections take a closer look at dividends and income stocks.\r\n<h3>Getting a grip on dividends and their rates</h3>\r\nWhen people talk about gaining income from stocks, they’re usually talking about dividends. Dividends are pro rata distributions that treat every stockholder the same. A <em>dividend</em> is nothing more than pro rata periodic distributions of cash (or sometimes stock) to the stock owner. You purchase dividend stocks primarily for income — not for spectacular growth potential.\r\n\r\nDividends are sometimes confused with interest. However, dividends are payouts to owners, whereas <em>interest</em> is a payment to a creditor. A stock investor is considered a part owner of the company they invest in and is entitled to dividends when they’re issued. A bank, on the other hand, considers you a creditor when you open an account; the bank borrows your money and pays you interest on it.\r\n\r\nA dividend is quoted as an annual dollar amount (or percentage yield), but it’s usually paid on a quarterly basis. For example, if a stock pays a dividend of $4 per share, you’re probably paid $1 every quarter. If, in this example, you have 200 shares, you’re paid $800 every year (if the dividend doesn’t change during that period), or $200 per quarter. Getting that regular dividend check every three months (for as long as you hold the stock) can be a nice perk. If the company continues to do well, that dividend can grow over time. A good income stock has a higher-than-average dividend (typically, 4 percent or higher).\r\n<p class=\"article-tips remember\">Dividend rates aren’t guaranteed, and they’re subject to the decisions of the stock issuer’s board of directors — they can go up or down, or in some extreme cases, the dividend can be suspended or even discontinued. Fortunately, most companies that issue dividends continue them indefinitely and actually increase dividend payments from time to time. Historically, dividend increases have equaled (or exceeded) the rate of inflation.</p>\r\n\r\n<h2 id=\"tab2\" >Who’s well suited for income stocks?</h2>\r\nWhat type of person is best suited to income stocks? Income stocks can be appropriate for many investors, but they’re an especially good match for the following individuals:\r\n<ul>\r\n \t<li><strong>Conservative and novice investors:</strong> Conservative investors like to see a slow but steady approach to growing their money while getting regular dividend checks. <a href=\"https://www.dummies.com/article/business-careers-money/personal-finance/investing/investment-vehicles/stocks/stock-investing-for-beginners-300279/\">Novice investors</a> who want to start slowly also benefit from income stocks.</li>\r\n \t<li><strong>Retirees:</strong> Growth investing is best suited for long-term needs, whereas income investing is best suited to current needs. Retirees may want some growth in their portfolios, but they’re more concerned with regular income that can keep pace with inflation.</li>\r\n \t<li><strong>Dividend reinvestment plan (DRP) investors:</strong> For those investors who like to compound their money with DRPs, income stocks are perfect.</li>\r\n</ul>\r\nGiven recent economic trends and conditions for the foreseeable future, I think that dividends should be a mandatory part of the stock investor’s wealth-building approach. This is especially true for those in or approaching retirement.\r\n\r\nInvesting in stocks that have a reliable track record of increasing dividends is now easier than ever. In fact, there are exchange-traded funds (ETFs) that are focused on stocks with a long and consistent track record of raising dividends (typically on an annual basis).\r\n<h2 id=\"tab3\" >Assessing the advantages of income stocks</h2>\r\nIncome stocks tend to be among the least volatile of all stocks, and many investors view them as defensive stocks. <em>Defensive stocks</em> are stocks of companies that sell goods and services that are generally needed no matter what shape the economy is in. (Don’t confuse defensive stocks with <em>defense stocks,</em> which specialize in goods and equipment for the military.) Food, beverage, and utility companies are great examples of defensive stocks.\r\n\r\nEven when the economy is experiencing tough times, people still need to eat, drink, and turn on the lights. Companies that offer relatively high dividends also tend to be large firms in established, stable industries.\r\n\r\nSome industries in particular are known for high-dividend stocks. Utilities (such as electric, gas, and water), real estate investment trusts (REITs), and the energy sector (oil and gas royalty trusts) are places where you definitely find income stocks. Yes, you can find high-dividend stocks in other industries, but you find a higher concentration of them in these industries.\r\n<p class=\"article-tips tip\">To learn more about high-dividend stocks, and much more about stock investing, check out my book <a href=\"https://www.dummies.com/book/business-careers-money/personal-finance/investing/investment-vehicles/stocks/investing-in-stocks-for-dummies-299991/\"><em>Investing in Stocks For Dummies</em></a>.</p>\r\n\r\n<h2 id=\"tab4\" >Heeding the disadvantages of income stocks</h2>\r\nBefore you say, “Income stocks are great! I’ll get my checkbook and buy a batch right now,” take a look at the following potential disadvantages (ugh!). Income stocks do come with some fine print.\r\n<h3>What goes up …</h3>\r\nIncome stocks can go down as well as up, just as any stock can. The factors that affect stocks in general — politics, megatrends, different kinds of risk, and so on — affect income stocks, too. Fortunately, income stocks don’t get hit as hard as other stocks when the market is declining because high dividends tend to act as a support to the stock price. Therefore, income stocks’ prices usually fall less dramatically than other stocks’ prices in a declining market.\r\n<h3>Interest-rate sensitivity</h3>\r\nIncome stocks can be sensitive to rising interest rates. When interest rates go up, other investments (such as corporate bonds, U.S. Treasury securities, and bank certificates of deposit [CDs]) are more attractive. When your income stock yields 4 percent and interest rates go up to 5 percent, 6 percent, or higher, you may think, “Hmm, why settle for a 4 percent yield when I can get better elsewhere?” As more and more investors sell their low-yield stocks, the prices for those stocks fall.\r\n\r\nAnother point to note is that rising interest rates may hurt the company’s financial strength. If the company has to pay more interest, that may affect the company’s earnings, which, in turn, may affect the company’s ability to continue paying dividends.\r\n<p class=\"article-tips remember\">Dividend-paying companies that experience consistently falling revenues tend to cut dividends. In this case, <em>consistent</em> means two or more years.</p>\r\n\r\n<h3>The effect of inflation</h3>\r\nAlthough many companies raise their dividends on a regular basis, some don’t. Or if they do raise their dividends, the increases may be small. If income is your primary consideration, you want to be aware of this fact. If you’re getting the same dividend year after year and this income is important to you, rising inflation becomes a problem.\r\n\r\nSay that you have XYZ stock at $10 per share with an indicated annual dividend of 30 cents. The yield is 3 percent (30 cents @@ds $10). If you have a yield of 3 percent two years in a row, how do you feel when inflation rises 6 percent one year and 7 percent the next year? Because inflation means your costs are rising, inflation shrinks the value of the dividend income you receive.\r\n\r\nFortunately, studies show that, in general, dividends do better in inflationary environments than bonds and other fixed-rate investments do. Usually, the dividends of companies that provide consumer staples (food, energy, and so on) meet or exceed the rate of inflation. This is why some investment gurus describe companies that pay growing dividends as having stocks that are “better than bonds.”\r\n<h3>Uncle Sam’s cut</h3>\r\nThe government usually taxes dividends as ordinary income. Find out from your tax person whether potentially higher tax rates on dividends are in effect for the current or subsequent tax year.\r\n<h2 id=\"tab5\" >Stock dividends or company dividends?</h2>\r\nThe term <em>stock dividend</em> is commonly used in financial discussions about the stock market. However, the reality is that dividends are not paid by stocks; they’re paid pro rata distributions of cash by companies. It may sound like I’m splitting hairs, but it’s a fundamental difference.\r\n\r\nStock prices are subject to the whims of market buying and selling — one day the share prices are up nicely; the next day prices go down when that day’s headlines spook the market. Because the dividend isn’t volatile and it’s paid with regularity (quarterly usually), it’s more predictable. I think that investors should be in the business of “collecting cash flows” as opposed to fretting over the ebbs and flows of the market.\r\n\r\nWhat does that mean? If a hundred shares of a given dividend-paying stock provide, say, $100 per year in annual dividends, the income-minded stock investor should keep a running tally of annual dividend amounts. That way, they keep investing until they reach a desired income level (such as $2,000 annual dividend income) and feel confident that this dividend income can be relatively reliable and will keep growing as payouts grow from company operations. Lastly, keep in mind that technically a “stock dividend” is actually a pro rata distribution of stock (and not cash).","blurb":"","authors":[{"authorId":9001,"name":"Paul Mladjenovic","slug":"paul-mladjenovic","description":" <p><b>Paul Mladjenovic, CFP,</b> has written four editions of <i>Stock Investing For Dummies</i> and has taught would&#45;be investors about stock investing since 1983. As a certified financial planner, he personally coaches his clients on stock investing strategies. ","hasArticle":false,"_links":{"self":"https://dummies-api.dummies.com/v2/authors/9001"}}],"primaryCategoryTaxonomy":{"categoryId":34298,"title":"Stocks","slug":"stocks","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34298"}},"secondaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"tertiaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"trendingArticles":null,"inThisArticle":[{"label":"The basics of income stocks","target":"#tab1"},{"label":"Who’s well suited for income stocks?","target":"#tab2"},{"label":"Assessing the advantages of income stocks","target":"#tab3"},{"label":"Heeding the disadvantages of income stocks","target":"#tab4"},{"label":"Stock dividends or company dividends?","target":"#tab5"}],"relatedArticles":{"fromBook":[{"articleId":300279,"title":"Stock Investing for Beginners","slug":"stock-investing-for-beginners","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","stocks"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/300279"}}],"fromCategory":[{"articleId":300279,"title":"Stock Investing for Beginners","slug":"stock-investing-for-beginners","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","stocks"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/300279"}},{"articleId":283116,"title":"10 Reasons Not to Invest in Marijuana Stocks","slug":"10-reasons-not-to-invest-in-marijuana-stocks","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","stocks"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/283116"}},{"articleId":283111,"title":"11 Criteria for Choosing a Cannabis Investment","slug":"11-criteria-for-choosing-a-cannabis-investment","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","stocks"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/283111"}},{"articleId":283105,"title":"Cannabis Investments: Risks Inherent in Momentum Investing","slug":"cannabis-investments-risks-inherent-in-momentum-investing","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","stocks"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/283105"}},{"articleId":283098,"title":"Strategies for Investing in Cannabis Stocks","slug":"investing-in-cannabis-spotting-opportunities-to-buy-or-sell","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","stocks"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/283098"}}]},"hasRelatedBookFromSearch":false,"relatedBook":{"bookId":299991,"slug":"investing-in-stocks-for-dummies","isbn":"9781394201136","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","stocks"],"amazon":{"default":"https://www.amazon.com/gp/product/1394201133/ref=as_li_tl?ie=UTF8&tag=wiley01-20","ca":"https://www.amazon.ca/gp/product/1394201133/ref=as_li_tl?ie=UTF8&tag=wiley01-20","indigo_ca":"http://www.tkqlhce.com/click-9208661-13710633?url=https://www.chapters.indigo.ca/en-ca/books/product/1394201133-item.html&cjsku=978111945484","gb":"https://www.amazon.co.uk/gp/product/1394201133/ref=as_li_tl?ie=UTF8&tag=wiley01-20","de":"https://www.amazon.de/gp/product/1394201133/ref=as_li_tl?ie=UTF8&tag=wiley01-20"},"image":{"src":"https://www.dummies.com/wp-content/uploads/investing-in-stocks-for-dummies-cover-9781394201136-164x255.jpg","width":164,"height":255},"title":"Investing in Stocks For Dummies","testBankPinActivationLink":"","bookOutOfPrint":true,"authorsInfo":"<p><p><b><b data-author-id=\"9001\">Paul Mladjenovic</b>, CFP,</b> has written four editions of <i>Stock Investing For Dummies</i> and has taught would&#45;be investors about stock investing since 1983. As a certified financial planner, he personally coaches his clients on stock investing strategies.</p>","authors":[{"authorId":9001,"name":"Paul Mladjenovic","slug":"paul-mladjenovic","description":" <p><b>Paul Mladjenovic, CFP,</b> has written four editions of <i>Stock Investing For Dummies</i> and has taught would&#45;be investors about stock investing since 1983. As a certified financial planner, he personally coaches his clients on stock investing strategies. 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Bonds Bond Investing For Canadians For Dummies Cheat Sheet

Cheat Sheet / Updated 11-21-2023

If you want to invest in bonds, you need to know how to read the bond ratings that the big three rating companies use in order to help you select bonds in a risk-aware way. Knowing the right questions to ask about a bond can save you money, and you can find answers to many of those questions on the Internet.

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Real Estate Real Estate Investing All-in-One For Dummies Cheat Sheet

Cheat Sheet / Updated 11-03-2023

Successful real estate investing requires smart decisions. To start investing in real estate quickly and easily, ask a few important questions, discover different ways to invest in residential property, and build an effective real estate team.

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Commodities Invest in Commodities through Physical Silver

Article / Updated 10-09-2023

One of the unique characteristics of silver among other commodities is that you can invest in it by actually buying the stuff, as you can buy gold coins and bars for investment purposes. Most dealers that sell gold generally offer silver coins and bars as well. 100-ounce silver bar: If you’re interested in something substantial, you can buy a 100-ounce silver bar. Before buying it, check the bar to make sure that it’s pure silver (you want 99 percent purity or above). Silver maple coins: These coins, which are a product of the Royal Canadian Mint, are the standard for silver coins around the world. Each coin represents 1 ounce of silver and has a purity of 99.99 percent, making it the most pure silver coin on the market. The term sterling silver refers to a specific silver alloy that contains 92.5 percent silver and 7.5 percent copper (other base metals are occasionally used as well). Pure silver is sometimes alloyed with another metal, such as copper, to make it stronger and more durable. Just remember that if you’re considering silver jewelry as an investment, sterling silver won’t give you as much value in the long term as pure silver.

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Precious Metals Different Styles of Precious Metals Investing

Article / Updated 10-09-2023

Before you start investing or trading in precious metals, you need to understand the concepts of saving, investing, trading, and speculating; otherwise, the financial pitfalls could be very great. The differences aren't just in where your money is but also why and in what manner. Right now, millions of people live with no savings and lots of debt, which means that they are speculating with their budgets; retirees are day-trading their portfolios; and financial advisors are telling people to move their money from savings accounts to stocks without looking at the appropriateness of what they're doing. Make sure you understand the following terms — knowing the difference is crucial to you in the world of precious metals: Saving: The classical definition of saving is "income that has not been spent," but the modern-day definition is money set aside in a savings account for a "rainy day" or emergency. Ideally, you should have at least three months' worth of gross living expenses sitting blandly in a savings account or money market fund. Although precious metals in the right venue are appropriate for most people, including savers, you need to have cash savings in addition to your precious metals investments. A good example of an appropriate savings venue in precious metals is buying physical gold and/or silver bullion coins as a long-term holding. Investing: Investing refers to the act of buying an asset that is meant to be held long-term (in years). The asset will always run into ups and downs, but as long as it's trending upward (a bull market), you'll be okay. Investing in precious metals may not be for everyone, but it is an appropriate consideration for many investment portfolios. The common stock of large or mid-size mining companies is a good example of an appropriate vehicle for investors. Trading: Trading is truly short-term in nature and is meant for those with steady nerves and a quick trigger finger. There are many "trading systems" out there, and this activity requires extensive knowledge of market behavior along with discipline and a definitive plan. The money employed should be considered risk capital and not money intended for an emergency fund, rent, or retirement. The venue could be mining stocks, but more likely it would be futures and/or options because they are faster-moving markets. Speculating: This can be likened to financial gambling. Speculating means making an educated guess about the direction of a particular asset's price move. Speculators look for big price moves to generate a large profit as quickly as possible, but also understand that it can be very risky and volatile. A speculator's appetite for greater potential profit coupled with increased risk is similar to the trader, but the time frame is different. Speculating can be either short-term or long-term. Your venue of choice could be stocks, but more likely, the stocks would typically be of smaller mining companies with greater price potential. Speculating is also done in futures and options.

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Commodities Modern Portfolio Theory and the Benefits of Diversification

Article / Updated 10-05-2023

The idea that diversification is a good strategy in portfolio allocation is the cornerstone of Modern Portfolio Theory (MPT). MPT is the brainchild of Nobel Prize–winning economist Harry Markowitz. In a paper he wrote in 1952 for his doctoral thesis, Markowitz argued that investors must look at a portfolio's overall risk/reward ratio. Although this sounds like common sense today, it was a groundbreaking idea at the time. Before Markowitz's paper, most investors constructed their portfolios based on a risk/reward ratio analysis of individual securities. Investors chose a security based on its individual risk profile and ignored how that risk profile fit within a broader portfolio. Markowitz argued (successfully) that investors could construct more profitable portfolios if they looked at the overall risk/reward ratio of their portfolios. Therefore, when considering an individual security, you need to not only assess its individual risk profile, but also take into account how that risk profile fits within your general investment strategy. Markowitz's idea that holding a group of different securities reduces a portfolio's overall volatility is one of the most important ideas in portfolio allocation.

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Real Estate REITs For Dummies Cheat Sheet

Cheat Sheet / Updated 09-07-2023

A real estate investment trust (REIT) is a company that owns, manages, and/or finances real estate holdings. These holdings can be in the form of apartment buildings, hotels, shopping centers, self-storage facilities, warehouses, and even billboards, data centers, cell towers, woodlands, and many others. REITs have stock attributes (liquidity and transparency) and, at the same time, enable you to enjoy the benefits of owning income-producing real estate. With this Cheat Sheet, you get a quick primer on the benefits of REIT investment, how to add REITs to your portfolio, how to choose smart REITs, and how to become a virtual landlord without the aggravation of owning private real estate.

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Bonds Buying U.S. Savings Bonds in an Uncertain Economy

Article / Updated 09-01-2023

In a down economy, U.S. savings bonds are one of the safest investments you can make. Savings bonds are nonmarketable securities — when you purchase them, they’re registered to you and you can’t sell them to another investor. Uncle Sam offers two types of savings bonds, Series EE and Series I, which are backed by the full faith and credit of the U.S. government and are considered the safest of all investments. Here’s more info on each type: Series EE bonds: These bonds earn a fixed rate of return set by the U.S. Treasury. They’re accrual bonds, which means the interest accumulates and is compounded semiannually (rather than being paid to the owner as it’s earned each month). If you hold one of these bonds, you receive the interest when you redeem the bonds. Series I bonds: The interest you earn from I bonds comes in two parts: A fixed-rate component established when you purchase the bond A second component that’s equal to the rate of inflation, adjusted semiannually (based on the consumer price index for March and September) Although the fixed-rate interest component for Series I bonds is low, these bonds help protect you against inflation. If inflation goes up, so does the interest rate you earn because the variable-rate portion is adjusted every six months; for example, when the fixed-rate component is 2 percent and the inflation adjustment is 5 percent, an investment in a Series I bond is guaranteed to return 7 percent. But remember, the total interest rate can also go down as the inflation adjustment decreases. For both bonds, the purchase limit is $5,000 per Social Security number for each calendar year. You can easily purchase and redeem the bonds in electronic format through the Department of the Treasury’s Web site. If you purchase the bonds electronically, you can get any denomination of $25 or more, including penny increments. The purchase price is equal to the face value. You can also purchase the bonds in paper form through various financial institutions and payroll savings plans. Paper I bonds are offered in denominations of $50, $75, $100, $200, $500, $1000, and $5,000; they’re purchased for their face value. However, you can get paper versions of EE bonds at half their face value; they’ll be worth face value at maturity. Paper EE bonds are offered in denominations of $50, $75, $100, $200, $500, $1000, $5,000, and $10,000. The interest on both bonds compounds semiannually for 30 years, but you don’t have to hold the bonds for that long. You can redeem the bonds after 12 months, but you pay a three-month interest penalty if you redeem the bonds within five years of the purchase date. As for tax treatment, U.S. savings bonds are exempt from state and local income tax. Federal income tax on interest earned can be deferred until redemption or final maturity, whichever occurs first. Tax benefits are available when you use the bonds for education purposes.

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Funds Commodity ETFs: A Vastly Improved Way to Buy Gold

Article / Updated 08-31-2023

When, in November 2004, State Street Global Advisors introduced the first gold ETF, it was a truly revolutionary moment. You buy a share just as you would buy a share of any other security, and each share gives you an ownership interest in one-tenth of an ounce of gold held by the fund. Yes, the gold is actually held in various bank vaults. You can even see pictures of one such vault filled to near capacity (very cool!) at SPDR Gold Shares website. If you are going to buy gold, this is far and away the easiest and most sensible way to do it. You currently have several ETF options for buying gold. Two that would work just fine include the original from State Street — the SPDR Gold Shares (GLD) — and a second from iShares introduced months later — the iShares Gold Trust (IAU). Both funds are essentially the same. Flip a coin (gold or other), but then go with the iShares fund, simply because it costs less: 0.25 percent versus 0.40 percent. Strange as it seems, the Internal Revenue Service considers gold to be a collectible for tax purposes. A share of a gold ETF is considered the same as, say, a gold Turkish coin from 1923 (don’t ask). So what, you ask? As it happens, the long-term capital gains tax rate on collectibles is 28 percent and not the more favorable 15 percent afforded to capital gains on stocks. Holding the ETF should be no problem from a tax standpoint (gold certainly won’t pay dividends), but when you sell, you could get hit hard on any gains. Gold ETFs, therefore, are best kept in tax-advantaged accounts, such as your IRA. (This strategy won’t serve you well if gold prices tumble and you sell. Then, you’d rather have held the ETF in a taxable account so you could write off the capital loss.)

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Funds Stock ETFs: What Is a Micro Cap Stock?

Article / Updated 08-23-2023

If you want to invest your money in companies that are smaller than small, you can invest in ETFs based on micro caps. These companies are larger than the corner delicatessen, but sometimes not by much. In general, micro caps are publicly held companies with less than $300 million in outstanding stock. Micro caps, as you can imagine, are volatile little suckers, but as a group they offer impressive long-term performance. In terms of diversification, micro caps — in conservative quantity — could be a nice addition to your portfolio, though not a necessity. Take note that micro cap funds, even index ETFs, tend to charge considerably more in management fees than you’ll pay for most funds. Micros move at a modestly different pace from other equity asset classes. The theory is that because micro caps are heavy borrowers, their performance is more tied to interest rates than the performance of larger cap stocks. (Lower interest rates would be good for these stocks; higher interest rates would not.) Micro caps also tend to be more tied to the vicissitudes of the U.S. economy and less to the world economy than, say, the fortunes of General Electric or McDonald’s. Given the high risk of owning any individual micro cap stock, it makes sense to work micro caps into your portfolio in fund form, despite the management fees, rather than trying to pick individual companies. To date, a handful of micro cap ETFs have been introduced. They differ from one another to a much greater extent than do the larger cap ETFs.

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Stocks Investing in Stocks for Income & Cash Flow

Article / Updated 08-17-2023

Stocks are well known for their ability to appreciate (for capital gains potential), but not enough credit is given regarding stocks’ ability to boost your income and cash flow. Given that income will be a primary concern for many in the coming months and years (especially baby boomers and others concerned with retirement, pension issues, and so on), I consider this to be an important consideration. The first income feature is the obvious — dividends! I love dividends, and they have excellent features that make them very attractive, such as their ability to meet or exceed the rate of inflation and the fact that they’re subject to lower taxes than, say, regular taxable interest or wages. Dividend-paying stocks, called income stocks, deserve a spot in a variety of portfolios, especially those of investors at or near retirement. Also, I think that younger folks (such as millennials) can gain long-term financial benefits from having dividends reinvested to compound their growth (such as with dividend reinvestment plans). The basics of income stocks I certainly think that dividend-paying stocks are a great consideration for those investors seeking greater income in their portfolios. I especially like stocks with higher-than-average dividends that are known as income stocks. Income stocks take on a dual role: Not only can they appreciate, but they can also provide regular income. The following sections take a closer look at dividends and income stocks. Getting a grip on dividends and their rates When people talk about gaining income from stocks, they’re usually talking about dividends. Dividends are pro rata distributions that treat every stockholder the same. A dividend is nothing more than pro rata periodic distributions of cash (or sometimes stock) to the stock owner. You purchase dividend stocks primarily for income — not for spectacular growth potential. Dividends are sometimes confused with interest. However, dividends are payouts to owners, whereas interest is a payment to a creditor. A stock investor is considered a part owner of the company they invest in and is entitled to dividends when they’re issued. A bank, on the other hand, considers you a creditor when you open an account; the bank borrows your money and pays you interest on it. A dividend is quoted as an annual dollar amount (or percentage yield), but it’s usually paid on a quarterly basis. For example, if a stock pays a dividend of $4 per share, you’re probably paid $1 every quarter. If, in this example, you have 200 shares, you’re paid $800 every year (if the dividend doesn’t change during that period), or $200 per quarter. Getting that regular dividend check every three months (for as long as you hold the stock) can be a nice perk. If the company continues to do well, that dividend can grow over time. A good income stock has a higher-than-average dividend (typically, 4 percent or higher). Dividend rates aren’t guaranteed, and they’re subject to the decisions of the stock issuer’s board of directors — they can go up or down, or in some extreme cases, the dividend can be suspended or even discontinued. Fortunately, most companies that issue dividends continue them indefinitely and actually increase dividend payments from time to time. Historically, dividend increases have equaled (or exceeded) the rate of inflation. Who’s well suited for income stocks? What type of person is best suited to income stocks? Income stocks can be appropriate for many investors, but they’re an especially good match for the following individuals: Conservative and novice investors: Conservative investors like to see a slow but steady approach to growing their money while getting regular dividend checks. Novice investors who want to start slowly also benefit from income stocks. Retirees: Growth investing is best suited for long-term needs, whereas income investing is best suited to current needs. Retirees may want some growth in their portfolios, but they’re more concerned with regular income that can keep pace with inflation. Dividend reinvestment plan (DRP) investors: For those investors who like to compound their money with DRPs, income stocks are perfect. Given recent economic trends and conditions for the foreseeable future, I think that dividends should be a mandatory part of the stock investor’s wealth-building approach. This is especially true for those in or approaching retirement. Investing in stocks that have a reliable track record of increasing dividends is now easier than ever. In fact, there are exchange-traded funds (ETFs) that are focused on stocks with a long and consistent track record of raising dividends (typically on an annual basis). Assessing the advantages of income stocks Income stocks tend to be among the least volatile of all stocks, and many investors view them as defensive stocks. Defensive stocks are stocks of companies that sell goods and services that are generally needed no matter what shape the economy is in. (Don’t confuse defensive stocks with defense stocks, which specialize in goods and equipment for the military.) Food, beverage, and utility companies are great examples of defensive stocks. Even when the economy is experiencing tough times, people still need to eat, drink, and turn on the lights. Companies that offer relatively high dividends also tend to be large firms in established, stable industries. Some industries in particular are known for high-dividend stocks. Utilities (such as electric, gas, and water), real estate investment trusts (REITs), and the energy sector (oil and gas royalty trusts) are places where you definitely find income stocks. Yes, you can find high-dividend stocks in other industries, but you find a higher concentration of them in these industries. To learn more about high-dividend stocks, and much more about stock investing, check out my book Investing in Stocks For Dummies. Heeding the disadvantages of income stocks Before you say, “Income stocks are great! I’ll get my checkbook and buy a batch right now,” take a look at the following potential disadvantages (ugh!). Income stocks do come with some fine print. What goes up … Income stocks can go down as well as up, just as any stock can. The factors that affect stocks in general — politics, megatrends, different kinds of risk, and so on — affect income stocks, too. Fortunately, income stocks don’t get hit as hard as other stocks when the market is declining because high dividends tend to act as a support to the stock price. Therefore, income stocks’ prices usually fall less dramatically than other stocks’ prices in a declining market. Interest-rate sensitivity Income stocks can be sensitive to rising interest rates. When interest rates go up, other investments (such as corporate bonds, U.S. Treasury securities, and bank certificates of deposit [CDs]) are more attractive. When your income stock yields 4 percent and interest rates go up to 5 percent, 6 percent, or higher, you may think, “Hmm, why settle for a 4 percent yield when I can get better elsewhere?” As more and more investors sell their low-yield stocks, the prices for those stocks fall. Another point to note is that rising interest rates may hurt the company’s financial strength. If the company has to pay more interest, that may affect the company’s earnings, which, in turn, may affect the company’s ability to continue paying dividends. Dividend-paying companies that experience consistently falling revenues tend to cut dividends. In this case, consistent means two or more years. The effect of inflation Although many companies raise their dividends on a regular basis, some don’t. Or if they do raise their dividends, the increases may be small. If income is your primary consideration, you want to be aware of this fact. If you’re getting the same dividend year after year and this income is important to you, rising inflation becomes a problem. Say that you have XYZ stock at $10 per share with an indicated annual dividend of 30 cents. The yield is 3 percent (30 cents @@ds $10). If you have a yield of 3 percent two years in a row, how do you feel when inflation rises 6 percent one year and 7 percent the next year? Because inflation means your costs are rising, inflation shrinks the value of the dividend income you receive. Fortunately, studies show that, in general, dividends do better in inflationary environments than bonds and other fixed-rate investments do. Usually, the dividends of companies that provide consumer staples (food, energy, and so on) meet or exceed the rate of inflation. This is why some investment gurus describe companies that pay growing dividends as having stocks that are “better than bonds.” Uncle Sam’s cut The government usually taxes dividends as ordinary income. Find out from your tax person whether potentially higher tax rates on dividends are in effect for the current or subsequent tax year. Stock dividends or company dividends? The term stock dividend is commonly used in financial discussions about the stock market. However, the reality is that dividends are not paid by stocks; they’re paid pro rata distributions of cash by companies. It may sound like I’m splitting hairs, but it’s a fundamental difference. Stock prices are subject to the whims of market buying and selling — one day the share prices are up nicely; the next day prices go down when that day’s headlines spook the market. Because the dividend isn’t volatile and it’s paid with regularity (quarterly usually), it’s more predictable. I think that investors should be in the business of “collecting cash flows” as opposed to fretting over the ebbs and flows of the market. What does that mean? If a hundred shares of a given dividend-paying stock provide, say, $100 per year in annual dividends, the income-minded stock investor should keep a running tally of annual dividend amounts. That way, they keep investing until they reach a desired income level (such as $2,000 annual dividend income) and feel confident that this dividend income can be relatively reliable and will keep growing as payouts grow from company operations. Lastly, keep in mind that technically a “stock dividend” is actually a pro rata distribution of stock (and not cash).

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