Friday, May 4, 2012

How to Get Rich - Convert Savings to Income (Part Two)

You should now have opened your on line brokerage account and set up your Money Market Fund to deposit your savings into.

It may take some time to accumulate enough (at least $5,000.00) to make your first long term income producing investment. However, now is the  time to learn as much as you can about the investment choices that you will have.

It is not my intention to provide you with specific recommendations. There are plenty of services for that if you should need help in that area. I will show you instead a plan of action on how to organize and manage your chosen investments.

Where To Start

Investments you choose should provide you with a monthly (preferably) or quarterly income. This income should be stable and there should be a long track record of regular payments. The companies should earn this income and not rely on capital payments to meet their monthly or quarterly amounts.

Look for your choices in your on line brokerage stock screen section. Do a screen on dividend paying stocks and focus first on the highest yielding ones. Research each interesting choice and focus on ones that are recommended by analysts that report in your on line brokerage.

How Much to Buy 

I would recommend buying enough shares of a company in order to provide you with a monthly income of $50.00 (or approximately this amount). When buying your shares, always buy in multiples of 100 shares. Never buy what they call odd lots as they are much more difficult to sell when the time comes.

By purchasing in this manner, you will be limiting your exposure to any one company. You will not be putting yourself in a position where you become too dependent on any one holding to provide your monthly income.

Calculating Your Income

Yield is the measurement of your income. The yield, as a percentage, will be listed on all stock charts. This amount changes constantly as share prices change.

To calculate the annual income do the following calculation. Take the share price shown on the chart and calculate the percentage shown as the yield  (Example : A share price is $10.00 with a yield of 10% -the annual income would be $1.00 per share)

To calculate the monthly income simply divide by 12. To calculate the number of shares needed to provide $50.00 per month income simply divide $50.00 by the monthly amount previously calculated. The above example would be as follows : $1.00 per year divided by 12  = .0834 per month. Now $50.00 divided by .0834 is approximately 600 shares. Remember, always buy multiples of 100 shares.

You should now be able to start building your long term income producing portfolio. Simply repeat the above each time you accumulate enough to invest and soon you will be multiplying your monthly income streams. Watch for more in Part Three in a future posting.

As always, I welcome your comments and suggestions for future topics.


Online Savings Account said...

Moreover this helps in tax saving in the next financial year with the proper tax modifications. What an individual or a corporation should be aware of is that the tax of their income they pay makes all the difference, thus no mistake should occur while they are at it.

kawika said...

Great Info..
Like the presentaion and hope to cvreat income from the web.
Using the right tools can be beneficial