The best place to invest money is different for every investor. However, stocks paying the highest dividends are a big part of a successful portfolio. Other areas of importance include planning for retirement and the overall quality and diversification of your portfolio.
The best place to invest money for dividends
Canadian bank stocks have always been some of the best income-producing securities. Below are 3 tips for looking at dividends to pick the best Canadian bank stocks.
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Dividends are a sign of investment quality. Some good banks reinvest a major part of their profits instead of paying dividends. But failing banks hardly ever pay dividends. So if you only buy stocks that pay dividends, you’ll automatically stay out of almost all the market’s worst banks.
Dividends can grow. Stock prices rise and fall, so capital losses often follow capital gains, at least temporarily. Interest on a bond or GIC holds steady, at best. But banks like to ratchet their dividends upward—hold them steady in a bad year, raise them in a good one. That also gives you a hedge against inflation.For a true measure of stability, focus on banks that have maintained or raised their dividends during economic and stock market downturns. These banks leave themselves enough room to handle periods of earnings volatility. By continually rewarding investors, and retaining enough cash to finance their businesses, they provide an attractive mix of safety, income and growth. Canadian banks stocks are well known for their financial stability in the face of economic downturns.
Look for Canadian bank stocks with consistent dividends. One of the best ways of picking a quality stock is to look for banks that have been paying dividends for at least 5 to 10 years. Dividends are cash outlays that an unsuccessful bank could never produce. A history of dividend payments is one trait that all the best dividend stocks have.
The best place to invest money for your retirement
A Registered Retirement Savings Plans is an option for the best retirement investment. Registered Retirement Savings Plans, or RRSPs, are a form of tax-deferred savings plan. RRSP account contributions are tax deductible, and the investments grow tax-free. When you later begin withdrawing the funds from your RRSP, they are taxed as ordinary income. RRSPs are the best-known and most widely used tax shelters in Canada.
A spousal RRSP is one way to achieve equal retirement income. Suppose you are the higher-income spouse. You can make contributions to a spousal RRSP, and claim the tax deduction. Your contributions to the spousal RRSP will count toward your annual RRSP deduction limits.
Treat prepaid funerals as an investment decision in your retirement planning
Your spouse can still contribute their full deduction to their own separate RRSP. When the money is withdrawn from the spousal RRSP years later, it is taxed in the hands of your spouse. That’s an advantage if he or she is still in a lower tax bracket.
The best place to invest money should take into account our three-part Successful Investor method
First, invest mainly in well-established companies. When the market goes into a lengthy downturn, these stocks generally keep paying their dividends, and they are among the first to recover when conditions improve.
Second, avoid or downplay stocks in the broker/media limelight. That limelight tends to raise investor expectations to excessive levels. When companies fail to live up to expectations, these stocks can plunge. Remember, when expectations are excessive, occasional failure to live up to them is virtually guaranteed, in the long term if not in the short.
Third, spread your money across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; Consumer; Finance; and Utilities). This helps you avoid excess exposure to any one segment of the market that is headed for trouble. This will also dampen your portfolio’s volatility in the long term, without the shrivelling in its potential that you’d get if you invest significantly in bonds yielding little more than 4%.
What is the best place to invest money that you’ve found? Share your thoughts with us in the comments.
Comments
Judith
I have been a subscriber for more years than I care to count and I respect and use your advice. However, I see very little additions to your longterm recommendations. For instance I see Absolute Software, Shopify UnderArmour and Pason Systems recommended elsewhere. If they are so good why are they not adjudicated by you? Just asking.
Judith 01jmdam@bell.net
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I have been a subscriber for more years than I care to count and I respect and use your advice. However, I see very little additions to your longterm recommendations. For instance I see Absolute Software, Shopify UnderArmour and Pason Systems recommended elsewhere. If they are so good why are they not adjudicated by you? Just asking.
Judith 01jmdam@bell.net