Dividend Yield.....

Frequently Asked Questions:

Q1.  I don`t have any experience in buying or selling shares. Is this going to be a problem?

Q2.  How do I know who to believe or trust.

Q3.  I`m already retired/too old/too set in my ways etc. to start thinking about investing in the share market. Why bother. Isn`t it more productive in the bank earning 3.50% as a Term Deposit?

Q4.  How much money do I need to get started?

Q5.  Can I do this myself or should I have a "professional" do it.

Q6. My uncle Albert, Bob (or whomever) has been investing for years and is very wealthy...why don`t I just ask him what to do?

Q7.  I saw this ad that was promising a 15% Dividend Yield…. (TD rate is 0.80%) and it was making a lot of sense. Is it worthwhile having a go?

Q8.  Will I or can I get rich buying dividend producing shares or any shares?

Q9.  So how do I get rich?

Q10.  I don`t have much available money to invest so I am thinking of borrowing some funds to get started. Is this a good idea?

Q11.  I have several friends who have lost a lot of money in the share market...how do I know that wont happen to me?


A1. I don`t have any experience in buying or selling shares. Is this going to be a problem?

  Not necessarily. Common sense, a willingness to learn and ask questions along with a philosophy of "look before you leap" will be all you need to get started. There are some good resources on our “links” page. There are many different ways and methods of investing and it can be quite confusing for beginners so be patient and don’t rush. The Financial Markets Authority (FMA) has some good independent information and also has a list of AFA’s if you need help.

A2. How do I know who to believe or trust.

  Firstly, who NOT to trust...anyone contacting you promising "guaranteed" returns, anyone emailing you from overseas (or locally for that matter) with schemes involving you advancing "good faith" money. There is an old adage which comes to mind...a fool and his/her money are soon parted. No-one wants to be a fool so always consult with trusted family, and especially use your current sources of bankers, accountants and lawyers. Do some research yourself and always, always start out on a small scale and see how things develop before committing larger amounts. Lastly if you feel any pressure or uncertainty...just walk away! (Before you invest!!!!) Who to trust is somewhat problematical since as we all know, betrayal of trust is an unfortunate and recurring aspect of the human condition. Ansel Adams , the famous American photographer, was quoted as saying, “not everyone trusts paintings but everybody trusts photographs”. Perhaps this has been undone somewhat by the internet age and Photoshop, but we can get the underlying principle in that trust has to be earned first and then its not such a bad idea to spot check occasionally.

A3. I`m already retired/too old/too set in my ways etc. to start thinking about investing in the share market. Why bother. Isn`t it more productive in the bank earning 3.50% as a Term Deposit?

  Term Deposits (TD) in 2007 were 8.02%, and now in February, 2021 we have current 0.8% (plus/minus). Some might say it is debateable if a TD is keeping up with inflation...in fact, some years you may actually be losing financial ground on your capital. Looking at the inflation chart below shows that 2008 and 2011 were in the 5% range. Certainly a TD in a mainstream bank is generally regarded as better than putting it under the mattress or in a savings a/c but with a little care and work the share market could give you an edge over a TD. Dividend yields in excess of TD rates are quite possible. As always individual circumstances, and your own individual appetite for risk should be the ultimate criteria before making these decisions.


A4. How much money do I need to get started?

  A good workable amount would be $2,000...however to get started and go slow as you get started you could use as little as $500 seed money plus the standard fee that share brokers charge. This varies so check with a few different providers to establish their costs and conditions.  Practically the lower the amount of the trade the higher the % of costs. However there is nothing stopping anyone from starting out at 500,300 or even $200. Different rates are available from various places and best to do some checking on assorted options first.

A5. Can I do this myself or should I have a "professional" do it.

  Speaking from personal experience...its not too difficult to take care of your personal investing yourself. What is needed is willingness to spend time on learning the ropes, some patience and most importantly don`t make any decisions without thought and consideration. Some people make the mistake of thinking that a professional will do it faster, more efficiently and sometimes they do...and sometimes they wont do any better or perhaps worse than what you could do yourself. Also remember a professional will be charging you to invest your money so any gains may well be eaten up by their fees. If you have absolutely no inclination to be intellectually involved in your investments then some of the options are as follows:

  1. Talk to the bank...most of them will have officers who can run through what options they offer. There is no cost initially for this. Remember that they are also employed to sell the banks financial products so a good idea to also cross check other options from other mainstream banks.

  2. Talk to a registered Financial Adviser. These are people who are trained and supposedly knowledgeable about financial products and can advise what is best for your level of risk tolerance and financial capacity. See link for what they do and how they operate http://www.consumeraffairs.govt.nz/for-consumers/services/financial-advisers Obviously they will charge for their services.

  3. There are many funds/financial services/investment companies out there, who will be more than happy to take care of your investment requirements. Some are good and some are mediocre and the difficulty is in determining where they fit. Being patient and doing some research may make the decision easier and in the interim a TD may be the answer.

A6. My uncle Albert, Bob (or whomever) has been investing for years and is very wealthy...why don`t I just ask him what to do?

  There are thousands upon thousands of "Uncle Albert`s" out there. How they got where they are and what there financial goals are and whether they got "lucky" or whatever are probably totally different than where you happen to be and what you want...so why would you bother? By all means listen to their story but make your own decisions based on your circumstances. This adage would be best applied to anyone and everyone offering you financial advice, not just family of course.

A7. I saw this ad that was promising a 15% investment return (TD rate is currently 0.80% plus minus) and it was making a lot of sense. Is it worthwhile having a go?

  So here`s where the psychology of investment comes in... the bigger the potential gains...the more we want to believe them. Its human nature to be "greedy" unless one happens to be an archetypal Buddhist monk, so there is an internal mechanism within us all to WANT those claims of large gains be true. If the bank Term Deposit rate is 0.80% for example...the bank may be charging 2.80% or something similar on home mortgage loans. So use that as a base premise and think of investment as being a system which fundamentally relies on everybody making a better margin inwards than they are giving out. So if someone is offering 15% this means they must be getting more than that to make it worthwhile since no-one lends or sells at a loss unless they are forced to. Extrapolating that to finances and risk and one sees that finance companies or organizations can sell their high yielding products if the purchasers suspend belief (greed) as to the "reasonableness" of the situation. The fact that the lender needs to get 17% in order to lend at 15% is "overlooked". The other side is of course who on earth would be forced /want to borrow at 17%? The answer that comes to mind is obviously borrowers who cannot borrow from legitimate sources at regular prices...so very high risk borrowers looking for funds. High risk of course, means high probability of defaults. As they say "you pays your money...you take your chances". This website is geared towards the search for conservative investing...recognition of what type of investing is being offered is crucial. High risk situations and very high yield shares/bonds/whatever are NOT investing they may well be encroaching into the realm of gambling. Think of the mainstream banks TD rates as being a benchmark. Aim to get a few % points better than they are offering and you will be doing very well. Shares and Bonds can provide those returns as long as you recognise where reasonableness and greed take diverging paths. All investments carry risk but it could be from very little to highly risky. Identifying where each investor feels comfortable along that continuum along with where the investment itself sits is paramount.

A8. Will I or can I get rich buying dividend producing shares or any shares?

 In the short term, probably not... (but with some careful selections you can prevent your capital from being eaten up by inflation year after year and potentially outpace the TD rate). As background one of the things that companies may do to encourage a larger market and extra interest in their stock or shares is to give a portion of their earnings back to the investors in the form of a dividend. This tends to be tiny or non existent in companies focussed primarily on growth since the company mostly want to retain profits to re-invest back into the company for funding of expansion and or growth. In reality, these "growth" based companies may or could return just as much, if not more than a "dividend", by growing in Share Price. The investor still gains but in a different fashion. Conversely, companies that pay out good dividends obviously will have less capital to re-invest back in the business. This may be a reflection of "run out of expansion possibilities", just rewarding shareholders or perhaps a "pause in growth" for a period. However the Share price of these high Dividend producers may well grow purely because of investors looking for dividends wanting to own a piece of the company. Its a complex equation and not as black and white as one would hope. Growth, Dividends or even a combination of both. The answer depends on what is best suited for individual circumstances. Are you at a stage in life where you are retired or ready to retire? Perhaps a secure, relatively stable income is what you need. This may well be served by having investments that are not quite so growth oriented and are strong stable dividend producers. These may not grow as quickly or as well as the "growers" but the income is here, now and available (and hopefully) ongoing. OR....Perhaps you are 10/15 years away from retirement, have a good income and have funds to invest that you don`t need to supplement retirement or other expenses. Then growth shares may well be the way to go. Comes back to what the individual requirements and needs are. Since this website is geared towards sorting and providing information for investors looking for dividends and since dividends “usually” range anywhere up to 9% as a maximum, then it is unlikely that dividends will provide a fast track to becoming “rich”. Are there people getting "rich" from shares...absolutely...but most of them are share brokers/analysts/advisers and people who work in the financial services industry. Oh and the occasional lucky 2% who take a gamble on a mining share in Zaire and it goes from 2 cents to $2. The companies that focus on and for growth are usually not providing much in the way of dividends but these, if chosen wisely can certainly do well for those fortunate enough to predict the potential and get in at the beginning of a big growth. To use an old saying…”how many frogs do you have to kiss before you find the prince”.  However, investors can do very well by choosing the right combination of company, market and timing.  One of the most quoted of the successful  would be Warren Buffett, the "sage of Omaha".  Interestingly Mr. Buffett was not a fan of investing in dividend producing companies because he felt that the dividend just  drained the company of capital that would have been better served making the company grow.  Its hard to argue with the sentiments and program of one of the most successful (wealthy) investors ever known, but one of the  keys for Buffet, and of significance to dividend seekers, was the recognition that growth over time along with compounding value year after year was the backbone of his  investing success.  Most financial analysts will always say good things about the benefits of "compound interest", but it really becomes most beneficial when it has the key component...time.  Dividends may be compounded by participating in Dividend re-investment programs and or being re-invested in other shares so time in the market can certainly assist in wealth accumulation.

A9. So how do I get rich?

  You had to ask didn`t you? Firstly (and with tongue in cheek of course)…..one possibility is to arrange to be born (or adopted?) into a wealthy family, win "el Gordo", lotto or some other lottery long on hope and short on possibility. For 99.999% of us there is only one way and that is hard work supplemented with more hard work over a sustained time. Definitely can be assisted by good education and or training in a marketable skill (supplemented by hard work), persistence and hopefully a bit of luck. As someone famously said..."the harder I work the luckier I get". Remember though, at the risk of being corny, its not necessarily how much you have in the bank that really counts its what you have in your heart.

A10.I don`t have much available money to invest so I am thinking of borrowing some funds to get started. Is this a good idea?

  Probably a very bad idea...since you may well have to pay more to borrow than you could probably gain on your investments.

A11. I I have several friends who have lost a lot of money in the share market...how do I know that wont happen to me?

  There is very little guaranteed in this world except as they say...death and taxes. If we are referring specifically to share markets and again specifically at the NZX here are some facts and figures. Most of the crushing big losses were from the 1987 crash so lets start there.

  1. From 1982 to 1987 the NZX gross 50 index went from 600 to 4000 so a HUGE gain in just five years. Anecdotally, every man, woman and dog were investing in the share market and many people had made large gains...euphoria was in the air and some people were even mortgaging their houses to invest in the “sure thing”. Then disaster...a major correction known as Black Monday (and Tuesday in NZ) and the share market crash of October 1987. This was contributed to by many factors (do some research)...starting in Hong Kong stock exchange, travelling to Europe and the USA and of course Australia and NZ. The NZ index lost up to 60% of its value and took years to recover, finally getting back to 4000 in 2007 and now ( May, 2019)   the S&P NZX 50 Portfolio index is 6222 as we write.. The people who got well and truly burnt in that financial meltdown probably have been those that borrowed to fund purchases. So first lesson to be learnt... extremely risky to borrow against hope for future growth. The next level to have suffered would have been those that kept buying (or started buying) those growth stocks ...because they just kept going up, and up and up. Second lesson is be very wary of buying any share at its historic high price...best time is in a dip and you can see that its historic share price shows evidence of entering and emerging from dips. The remaining investors would have fallen into two categories, selling out as and when they could and in all likelihood incurring big losses as that drop occurred and the remaining few who decided to "ride it out" and wait for the correction. Its easy to see how many people had bad experiences and life changing impacts to circumstances would have been suffered. So could it happen again? It would be a brave person who said no, however our base premise of investing in stable dividend yield producing companies should manage a similar risk. Remember its actually immaterial to many companies what the share price does...its not going to affect the dividend unless somehow the earnings the company produces are also dropping. The stock market collapse was not due to the companies sales or profits being affected, it was due to an artificially inflated price due to speculation and "gold rush fever" and supposedly an avalanche of programmed selling orders in the US that spiralled out of control along with a lemming like, panic driven hysteria as investors were driven to cement in their paper gains by selling shares before their gains evaporated.

  2. The other type of loss that can be incurred in the share market is one which like the previous situation, is mostly caused by our old nemesis greed. Greed as in investors looking for the "multi-bagger". A multi-bagger is a term used to describe a very large gain...such as someone buying into a highly speculative mining venture at a perceived to be low entry price and praying that big strikes are made and the share price will increase astronomically. So a share purchased @ 2 cents a share that goes to 10 cents becomes a five bagger. The ASX has many of these speculative stocks, (many in mining/oil etc), and as one would imagine the success rate is miniscule. One success out of 20 would be a good result. Simple mathematics will show that if you invest $1000 each in 20 different companies and lets say you get one five bagger, 5 you only get your money back on, 10 you lose 50% and 4 you gain 50%...the result is 21,000 less 40 brokerage fees...which leaves 20,0000... (if you`re lucky). So unlikely to be a worthwhile venture. This type of loss is not uncommon because reality is greed drives a person to look for unreasonable, unlikely and very rare big gains. There are always people who fancy their chances...hence the profitable outcomes of casinos, racing tracks and the TAB, not to mention the popularity of lotteries world wide.

  3. So working on the assumption that you are a mature minded, conservative and non-speculative investor the chances of having a disaster are small, not impossible, but certainly you would be in the least likely category to be a "burnt" investor. The final protection is of course paying for some financial advice from either a CPA or an AFA. For peace of mind this would be money well spent.

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