The summer months in eastern El Paso County highlight how our residents work hard, as well as play hard. Drive through our Falcon neighborhoods, and you’ll see countless families working on their landscaping, improving their homes and tending to livestock.The El Paso County Fair July 23-30 showcases the sweat equity of our youth in the form of proud kids and parents and their prized rabbits, chickens and cows. In my position at the Eastern Plains Chamber, I’m proud to work alongside business people who work tirelessly on behalf of our communities. And yet so many of these residents, 4-H parents and business people have some of the laziest slacker money around.What do I mean by lazy money? “Savings” that’s couch-potatoed and not generating interest or dividends that can be reinvested. Money that’s spending all day playing the “Farmville,” which is a money market account. So-called investments with no ambition in life, sitting in the same dead-end stocks or mutual funds, never to be rebalanced elsewhere.We all get annoyed at the relative or friend that lives like that, but we tolerate it from our own dollars. Well, dear friends, no more! It’s time for an intervention! We’re going to get those bucks off their butts and put them to work. And to do that, we’ve got three ways to motivate ’em and train ’em up with some new skills: dividend reinvestment, rebalancing and systematic investing.
- Dividend reinvestment is when you request that instead of paying your dividends in cash, the company or mutual fund reinvests the payout into the purchase of additional shares for you. It’s a way for your money to buy more shares for you. It eliminates the need to periodically figure out what to do with dividend cash. Finally, it takes advantage of compounding since you’re buying more shares, which may pay more dividends. (Alas, remember that dividends in stocks and mutual funds can be increased, decreased or eliminated at any point without notice.) If you’re doing it yourself, check your brokerage site’s help page for how to set each holding to be reinvested. Otherwise, direct your financial professional to set it for you.
- Rebalancing is the process of setting up what percentage of your portfolio you want each holding to be. While diversification does not guarantee a profit or necessarily protect against a loss, a vast majority of advisors and authors strongly recommend it to help even out returns. Then as the market moves over time or dividends and interest are reinvested, your percentages may move away from your original numbers. If your bond fund earns more than your stock fund, it might be worth 30 percent instead of 25 percent of your portfolio. You then “rebalance” the account by taking the 5 percent extra from the bond fund and giving it to the funds that are now under their original percentages. It’s a way to take the emotion out of “buy low/sell high” by systematizing when you take profits or add to underperformers. It also makes sure that no one type of investment overwhelms the rest of your diversification plan. Do-it-yourself’ers will have to monitor this and place the trades on their own from time to time. Advisory programs through financial professionals usually provide this as part of their service.
- Systematic investing is putting the same amount of money into your investment accounts at a constant interval. Having money taken from your paycheck and put directly into your 401(k) each pay period is how most people systematically invest nowadays. However, you can also do so in an IRA, Roth or brokerage account via direct deposit from your paycheck or automatic withdrawal from your checking account. By imposing this discipline on yourself, you ensure that you will be more likely to meet your financial goals than trying to deposit “what’s left” at the end of the month. There’s also a benefit called “dollar cost averaging” in which stock and mutual fund prices change each month. Therefore, your monthly deposit will buy a different number of shares each time. If the price of the stock goes down, you’ll automatically buy more shares. If the price goes up, then you’ll buy fewer but have a lower average cost on your previous purchases than if you made a random lump sum investment. It takes some of the luck and market timing stress out of “when to invest.” All you need to do to set up systematic investing is arrange for your HR department to direct deposit part of your check into your retirement account each paycheck, or ask your brokerage/financial professional to set up automatic transfer from your checking account. Just be very careful to make sure you don’t exceed your IRA/Roth maximums for the year.
