Inspired by a recent article by Nickel, over at Five Cent Nickel, about his current asset allocation, I thought it might be a good time to take a look at our current asset allocation.

Between us, my wife and I have five retirement accounts - two Roth IRAs, my 403(b), a SEP-IRA, and my wife’s pension. The calculations in this article are based on four of those accounts - and exclude my wife’s pension.

Our current asset allocation:

100% stocks, broken into the following -

Our allocation will shift over the coming months, as we continue to make contributions to my wife’s Roth IRA and my 403(b). Current plans are for future contributions to the 403(b) to be invested in an S&P 500 Index Fund and future contributions to my wife’s Roth IRA to be invested in a Total US Stock Market mutual fund.

Like my buddy, FMF, over at Free Money Finance, I prefer investing in Index Funds. I’m still working to refine my investing strategy, and it feels good to have a snap-shot of my current situation. Just like Nickel suggested, I have decided to treat all of my investments as ‘one big pot of money’ - and I’ll make adjustments to our allocation using my SEP-IRA contributions throughout 2008.

Edit:  After reading a comment left by Nickel, I wanted to make a note about the aggressive nature of our investments.  Instead of bonds or a bond fund, we have my wife’s pension, which grows at a guaranteed rate.  If we did not have her pension, we would change our asset allocation.

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I was watching CNBC and noticed a scrawl at the bottom of the television screen -

Altria, Honeywell removed from DJIA, Bank of America and Chevron added

The DJIA is the Dow Jones Industrial Average - a stock market index.

The DJIA tracks 30 of the largest and most widely held public companies in the United States.

Click here to read the Wikipedia entry for the DJIA.

From time to time, the makeup of the DJIA is changed.

According to CNBC and this article over at Trading Markets, Altria and Honeywell will be removed from the average, and Bank of America and Chevron will be added.

This is the first change to the makeup of the DJIA since April of 2004, when 3 stocks were dropped and 3 others were added.

While some might make a big deal about the Dow, I tend to follow the S&P 500 and Wilshire 5000, indices which allow me to track the broader moves of the stock market.

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It’s always amazing what I find as I read through my favorite personal finance blogs.

Recently, I’ve been thinking about dividends - what they are, how they work, how they are calculated, etc. Well, I fired up my newsreader today, and my good friend JLP from All Financial Matters has an excellent article about dividends and the Dow 30.

As I move forward in 2008, one of my goals is learn more about investing. Right now, I invest mainly in index-based ETFs, but I’m always on the look-out for easy-to-understand investment articles.

Sasha over at Consumerism Commentary recently cashed in some Savings Bonds. My kids have couple of bonds that they were given a few years ago, and I’ve been thinking about cashing them in and investing the money in mutual funds.

If you want to cash in a savings bond, all you have to do is go to your local bank and they’ll give you cash for it. If the bond is your child’s, most likely, it’ll have the child’s name and your name on it.

If you want to find the value of your bond, or if you need a replacement for a bond you’ve lost, checkout Treasury Direct, the securities division of the United States Treasury.

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I logged into my TradeKing account, where my wife and I have our Roth IRAs, and I noticed that one of the ETFs (Exchange Traded Funds) that I own paid a dividend last month.  But, instead of being automatically reinvested, the dividend was simply deposited into my money market fund.

In the future, I want the dividend to be automatically reinvested in the ETF.  I used the “live chat” feature and asked a representative to fix the situation.  Within a few minutes, the representative clicked a few buttons and I have been assured that, from now on, all dividends will be automatically reinvested.

If you have investments, you might want to check your statements, just to be sure that dividends are being invested the way you want them to be invested.  MOST brokerages offer FREE dividend reinvestment.

As a side note: I have sent a check for my 2008 contribution to my Roth IRA to TradeKing, and I’m thinking about how to invest it.  I’ll probably stick with VTI, my ‘go to’ ETF.  (I do not, in any way, recommend that you follow my investing strategy.  Do your own research and make your own decisions!  THAT is why it’s called PERSONAL finance!)

This post does NOT include affiliate links.

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Click here to read all of the 33 Days And 33 Ways To Save Money And Reduce Debt posts.

Day 28: Find Out How Bad (Or Good) Your Situation Really Is

Do you know how much you owe on your house?  Do you know how much money you have in your checking account?  How much would you need to payoff your automobile loan?  Have you checked your credit report lately?  As you begin to get out of debt and save money - you really need to know “where you are today”.

Create a list of your credit accounts - something like this:

Credit Card 1 - $4000

Credit Card 2 - $5214

Mortgage - $124,400

Hospital - $1300

Automobile - $16,000

If you don’t know how much you owe, then you really can’t begin to create a plan to get out of debt.  So, go online (or call) and find out exactly how much you owe on each of your credit cards.  Call your bank and find out the “payoff” amount for your automobiles.  Call your mortgage company and find out the “payoff” or “remaining balance” on your mortgage.  You need to know how tall the mountain is before you decide how to climb it.

Create a list of your savings / investment accounts - something like this:

Online Savings - $400

401K - $11,000

Pension Plan - $12,000 or X years of contributions

Social Security - Regular report from the Social Security Administration

Most retirement plans now offer online account management.  Log-in to your account and find your balance.  While your logged in, you might want to take a good look at the types of funds you are investing in.  If you are a beginner, you might find that all of your retirement funds are going to one fund, one fund type, or they might be just sitting in a money market account, waiting for you to tell them what to do.  If you have a pension plan or social security, keep up with the regular updates you should be receiving in the mail or from your employer (pension plan).  While the numbers besides these accounts might be “estimate” - it’s still good to know “where you stand”.

If you haven’t checked your credit report lately, click here to read my article about how to get 3 (or 6) annual credit reports - for free!

You should also consider a list of insurance policies and any other accounts that could effect your long-term financial situation.

Have you recently “run the numbers” and added up how much you actually owe?  Are you doing better (or worse) than you originally thought?  Leave a comment and let us know.

Click here to read all of the 33 Days And 33 Ways To Save Money And Reduce Debt posts.

Observant readers will note that this series has taken much longer than 33 days. I can assure you, I am blogging as often as life permits.

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I was recently looking through the list of investing blogs over at pfblogs.org and I clicked on The Dividend Guy Blog. I was very interested in what I found, and I contacted “the dividend guy” - and asked him if he would write a guest post for No Credit Needed. While I know a good bit about debt reduction and saving money, I am brand-new to investing. I wanted a post that would describe dividends, what they are, and why they matter. I want to thank The Dividend Guy Blog for the following informative guest post and I encourage you to check out his site. As always, information provided here at No Credit Needed is for entertainment purposes only and you should not consider the following to be financial advice, professional or otherwise. Do your own research and consult a financial professional before making any investment choices.

Dividend Investing 101

This article will provide some of the basics of dividend investing.

What is a Dividend and the Dividend Yield?

In the stock market, money can be made in one of three ways:

1. Share price growth – you buy shares in a company at one price and then sell it at a later date for a higher price (hopefully).
2. Interest on bonds or other fixed income assets – you can collect interest from a bond that is essentially you lending money to a bank or company. Interest payments are typically guaranteed payments you can receive on your invested money for a set period of time. At the end of that fixed time, you get all your principle back.
3. Dividends – the topic of today’s discussion!

The technical definition of a dividend is a distribution or payment in the form of cash on some portion of a company’s earnings to the shareholders.

In more simple terms, a dividend is money a company gives you for each share of stock you own in that company. It is cash the company pays you for being a shareholder.

Dividends are often quoted as either the dividend per share (DPS) or dividend yield. The DPS is simply the dollar amount, per share of stock that you hold, that will be paid to you depending on the number of shares you hold. For example, if you own 100 shares of Coca-Cola and the dividend is $1.36 per share, you as an investor can expect to receive dividend payments from the company of $136 per year (note: when you read a stock quote and look at the dividend section, the amount quoted is the yearly amount in dividends the company pays per share, unless otherwise noted).

The more common way dividends are quoted is through the dividend yield of the company. The dividend yield shows how much a company pays out in dividends as a percentage of its share price. The formula to calculate the dividend yield is not complicated. You can do it yourself, however most investor websites where you get your stock quotes will have dividend yield calculated for you:

Dividend Yield = Annual Dividends Per Share (DPS) / Price Per Share

The way I look at dividend yield, is that is is the return on investment an investor will receive from a stock if they buy it at a particular price. Lets look at an example using our Coca-Cola example:

Share Price: $56.40

DPS: $1.36

Dividend Yield: 2.4% ($56.40 / $1.36)

If an investor bought Coca-Cola at this price and this DPS, then every year they hold the stock they will see a return on their investment of 2.4% from the dividends alone.

Compounding: Putting Your Dividends to Work

Now that we have a good understanding of what dividends are and how to calculate the dividend yield, we need to talk about what an investor can do with the dividend payments they receive. There are two choices:

1. Take the dividends out of your brokerage account and spend them on what ever you want
2. Use the dividends to buy more shares of a company

The first choice is not ideal if you are trying to build up your investment portfolio. It may be for you if you are living off your dividend income, but for the purposes of this article we will assume that you are at the asset accumulation phase in your investing career and trying to grow your portfolio.

The second choice is called compounding – income from dividends is reinvested into more assets that provide more income. Each time an investor receives a dividend payment from a company, that income is reinvested into more shares of that company or another company. As this continue to happen year after year, you will find that the dividend income you receive from your portfolio will increase allowing you to reinvest it into more and more assets. It is a wonderful circle of cause and effect. To highlight the power of compounding, I will once again go back to our Coca-Cola example. Let us assume that you as an investor bought $10,000 worth of Coca-Cola stock and you reinvested all the dividends you received back into more shares of Coca-Cola. Here is what your investment would look like in 20 years,

This chart does not even take into account the change in share price that Coca-Cola would see over that time period. The key thing to note is that if Coca-Cola’s share price stayed exactly the same as the day you bought the stock and you reinvested the dividends into more Coca-Cola stock, your $10,000 would grow to $16,069 in 20 years based on the dividends alone. We all know that stocks also see their share prices grow so in 20 years, an investor would expect to see the gain from an increased share price as well.

Looking for Dividend Growth

One last thing I would like to cover before we finish here is an important consideration for dividend investors. It is the first thing that I look for when deciding to buy a stock or not. It is called dividend growth – when a company raises the dividend per share paid to investors on an annual basis. This is an important factor because if actually provides more power to the compounding machine we spoke about above. Going back to the compounding example above, if Coca-Cola increases its dividend per share ever year, then ever year you are receiving more dividends. This provides you with more income to buy more shares. It happens over and over again and will further compound your returns in that investment.

Where to Find Potential Dividend Investments that Increase Their Dividends

There are two potential sources of dividend growth stock ideas that an investor can look at to generate ideas for further research. They are called the Dividend Achievers and the Dividend Aristocrats.

Dividend Achievers: Stocks that have increased their dividends for at least 10 years

Dividend Aristocrats: Stocks that have increased their dividends for at least 25 years
These lists are not meant to be buying recommendations. I use this list to look for companies that I want to invest in, and then do further research on them by looking at such things as earnings, revenue, and cash flow. Only then do I buy shares in that company.

About The Dividend Guy

The Dividend Guy runs an investment blog focused on investing in high dividend stocks and dividend growth stocks. His vision for the site is to share his passion for investing in high dividend stocks that consistently grow their dividends to ensure a steady stream of dividend cash flow building up to his retirement.

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