Six Figure Investor

The Dow Jones Industrial Average (DJIA) or sometimes the DOW, is the most tracked and oldest stock index in the U.S. As an index, it’s a pretty poor one by modern standards. There are downsides to any kind of index, but the DJIA has a few major flaws. First, it only contains 30 stocks whereas modern indexes contain hundreds (from its original 19th century version which contained only 12 stocks, I guess it’s an improvement). Second, it’s market weighted by stock price, not by market cap or some other weight such as sector weight.

For 2011, this imperfection led to outsized performance…

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For the new year, we will be bombarded with new investment ideas, portfolio returns from everyone, and the constant drumbeat of analysis/FUD/predictions from the major media financial programs. It’s a good time to take a step back and turn all this stuff off. Keep your focus on what your are trying to accomplish with your portfolio.

The biggest threat to your portfolio is giving in to the temptation that you need to do “X” (whatever it is this week) because its the newest “trend”, will get your awesome returns, and the story is “developing”. There are so many things you could invest in, some of them will be great ideas while many won’t be great ideas. Or if it is a good idea, you need to confirm that you (and not someone else) can actually make money with it.

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Even if you are fully invested, inevitably you will need to manage some cash. It’s a good idea to have some of your portfolio in cash in addition to a stash (“emergency fund”) that is very liquid to handle unusual bills or issues (things like car repairs up to more serious issues such as unemployment). My investment portfolio is about 30% invested in cash. I expect to reduce this over time but not to zero so that I have some powder to take advantage of opportunities that come up.

It was just a few years ago that you could earn enough interest on cash that you could call it an ‘investment’. Today, that’s no longer true, cash investments are providing very low returns.

Managing cash means putting the money in instruments that are designed to protect principal. There are many options here plus a bunch that you may think protect principal but don’t. Here are your options plus a few that are not cash.

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A new year brings a new tax return! To get a head start on this I’m going to talk about the filing of K-1 forms. If you don’t invest in MLPs, this will also give you an idea of how these are accounted for on your tax return.

One of the main reasons why many people don’t invest in Master Limited Partnerships (MLP) is due to the complexity of filing taxes. It is more complicated than simple corporate common stock because when you own ‘units’ in an MLP you actually are a partner in the company. As a partner, you need to account for each component of the business in your personal taxes including gains/losses, dividends/interest and company deductions.

While it is more complicated, it is not overly burdensome. In this article I will show you what your getting yourself in when you file your K-1 on your income taxes using documentation from a 2010 tax filing. This is meant as a overview of the process, not necessarily an exact how to guide for every type of filing and investment.

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Another year has passed. It’s a good time to take a checkpoint to see how companies are fairing with their dividend plans. The last few years have been hard on companies, many of them have cut or eliminated dividends. Also, we have gotten a real demonstration about companies that can not only persevere through difficult times but thrive.

Now is a great time to poke the waters for what I call ‘Budding Aristocrats’. These are companies that could be future Dividend Aristocrats, only that they are younger. Real Artistocrats after all started as younger ones. The thinking is that if a company has been a solid dividend payer over the past 10 years (and could survive the last 3 years) as a Budding Artistocrat, it has a good chance of maturing into a Dividend Aristocrat.

A Dividend Aristocrat is a company that is a part of the S&P500 Index that has increased its dividend for 25 years in a row. For this article, I am going to consider the newest inaugurated class of 2012 that has joined the 10 year club. This means that the company has increased its dividend for 10 straight years as of 2012. Also, I’m not going to limit the list to those companies that are a part of the S&P500 Index.

Here’s the list below. There are some recognizable companies and a whole bunch I never heard of. This is not necessarily a buy list, but a starting point for further analysis.

For this list, I have utilized the lists available on Dynamic Dividend.