Home » Investing » Turn Aspirations Into Action: Begin Stock Market Investing This New Year!
Make solid investments in reliable dividend stocks like Toronto-Dominion Bank to help you achieve your goals.
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Kay Ng
Kay began investing in dividend stocks around 2008 via the concept of value investing. Since then, she has expanded into growth investing, including in small caps. Her passion for investing has only grown over the years! After graduating from UBC with a BSc in Computer Science, she took university courses in financial markets, finance, and financial accounting. She has contributed her works to Motley Fool, Sure Dividend, and Seeking Alpha.
Latest posts by Kay Ng (see all)
- Turn Aspirations Into Action: Begin Stock Market Investing This New Year! - January 28, 2024
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No matter what your aspirations are — you want to own your first home, own a rental property, retire early, retire wealthy, or go on multiple vacations every year, etc. — you can achieve them by making an investment plan and taking action. Start stock market investing this new year to help you achieve your goals!
Here are some tips and ideas that I hope will assist you in starting your plan.
Put more of your investment earnings in your pocket
You can make investment earnings from assets you own. Investment earnings may come from the price appreciation of your assets or the income that they generate. For example, stocks might earn you dividend income, and you can book profits from them when the stock prices go up. Bonds can produce interest income. For bonds that you buy at a discount, you may be able to hold them to get price appreciation.
You can also get interest income from Guaranteed Investment Certificates (GICs). Some GICs are market-linked, which means you’re guaranteed the principal, and you might also get higher returns if the stock market goes up.
To put more of your investment earnings (price appreciation and income) in your pocket, you should take advantage of tax-advantaged accounts like the Tax-Free Savings Account (TFSA), Registered Retirement Savings Plan (RRSP), and if applicable, the First-Time Home Buyer plan (FHSA), and the Registered Education Savings Plan (RESP).
Because interest income is taxed at our marginal tax rates, some Canadians shelter their interest-bearing investments in TFSAs and RRSPs. Since eligible Canadian dividends are taxed at lower rates, some investors choose to hold Canadian dividend stocks in their non-registered accounts.
Others think it’s a waste to earn interest income in TFSAs. Instead, they aim to maximize price appreciation by holding a basket of solid growth stocks. What you do should depend on your portfolio mix, risk tolerance, investment horizon, and investment knowledge.
Here’s an example of a blue-chip dividend stock that could potentially help you with your aspirations.
TD stock
Every Canadian knows Toronto-Dominion Bank (TSX:TD). Most probably have an account with the big bank. The quality bank increases its earnings and dividends over time. In the past decade, for example, it more than doubled its earnings. More specifically, it increased its adjusted earnings per share by 7.9% per year. In the period, it increased its dividend by 137% (or 9% per year).
At the recent price of $82.52 per share, TD stock trades at a reasonable price-to-earnings ratio of approximately 10.3. It also offers a nice dividend yield of just under 5%. Assuming a reasonable earnings growth rate of 6% per year, going forward, we can approximate long-term total returns of about 11% per year.
Importantly, TD stock is considered to be a low-risk investment in the stock investing world. It won’t make you a home run, but it shouldn’t give you a heart attack either. It should be a solid long-term investment. That said, it is a bank and, therefore, its earnings are more or less sensitive to the economic health of the geographies it operates in — primarily, Canada and the United States. For example, in the last two recessions, the stock corrected north of 20%. However, its earnings were mostly intact and it maintained its dividend. Therefore, in market corrections, it would be the time to back up the truck.
As an expert and enthusiast, I don't have personal experiences or beliefs, but I can provide you with information on the concepts mentioned in this article. Let's break down the key concepts and provide relevant information for each:
Stock Market Investing:
Stock market investing refers to the buying and selling of stocks or shares of publicly traded companies. Investors purchase stocks with the expectation of earning a return on their investment through capital appreciation (increase in stock price) or dividend payments. Investing in the stock market can help individuals achieve various financial goals, such as saving for retirement, buying a home, or generating income.
Dividend Stocks:
Dividend stocks are shares of companies that distribute a portion of their profits to shareholders in the form of dividends. Dividends are typically paid out regularly, often on a quarterly basis. Investing in dividend stocks can provide investors with a steady stream of income, especially if the company has a history of consistently increasing its dividend payments over time. Dividend stocks are often considered more stable and less volatile compared to growth stocks.
Toronto-Dominion Bank (TD):
Toronto-Dominion Bank, commonly known as TD Bank, is one of the largest banks in Canada. It is a multinational financial institution that provides a wide range of banking and financial services to individuals, businesses, and institutions. TD Bank is considered a blue-chip dividend stock, known for its long history of increasing earnings and dividends. It has a reputation for being a low-risk investment in the stock market.
Tax-Advantaged Accounts:
Tax-advantaged accounts are investment accounts that offer certain tax benefits to investors. In Canada, some popular tax-advantaged accounts include the Tax-Free Savings Account (TFSA), Registered Retirement Savings Plan (RRSP), First-Time Home Buyer plan (FHSA), and Registered Education Savings Plan (RESP). These accounts allow individuals to contribute money and invest it in various financial instruments, such as stocks, bonds, and mutual funds, while enjoying tax advantages such as tax-free growth or tax deductions.
Portfolio Mix:
Portfolio mix refers to the allocation of investments across different asset classes, such as stocks, bonds, cash, and real estate. The specific mix depends on an individual's risk tolerance, investment goals, and time horizon. A well-diversified portfolio typically includes a mix of different asset classes to spread risk and potentially enhance returns. The portfolio mix should be aligned with an individual's financial goals and investment strategy.
Risk Tolerance:
Risk tolerance refers to an individual's willingness and ability to take on risk when investing. It is influenced by factors such as financial goals, time horizon, and personal comfort with volatility. Investors with a higher risk tolerance may be more willing to invest in assets with higher potential returns but also higher volatility. Conversely, investors with a lower risk tolerance may prefer more conservative investments with lower potential returns but also lower volatility.
Investment Horizon:
Investment horizon refers to the length of time an investor plans to hold an investment before needing to access the funds. It is an important consideration when determining the appropriate investment strategy. Short-term investments are typically more conservative and focused on preserving capital, while long-term investments can afford to take on more risk in pursuit of higher returns.
Investment Knowledge:
Investment knowledge refers to an individual's understanding of financial markets, investment products, and investment strategies. It is important for investors to have a basic understanding of the risks and potential rewards associated with different investment options. Building investment knowledge can help individuals make informed decisions and navigate the complexities of the financial markets.
Please note that the information provided above is based on general knowledge and should not be considered as financial advice. It is always recommended to consult with a qualified financial advisor or do thorough research before making any investment decisions.
