One investment and income strategy that can be useful when it comes to setting yourself up for retirement is one involving dividends. Dividends are regular payouts to shareholders based on the profits of the company. If you own some stock in a company, it’s possible that you will get regular dividends.
Dividends are traditionally distributed quarterly, and scaled based on how many shares you have. So, for example, if a company paid out $1 per share to their investors as a dividend and you owned 5 shares, you would receive $5 as a dividend.
Dividends can be a good way to create a steady income to hedge against inflation and poor investment performance in a retirement strategy. If the companies you invest in offer dividends and the market starts to turn down, you can still count on dividends to provide income. Dividends may also help to offset losses by providing income even in quarters where a company lost value.
Dividend stocks can also be useful to offset more volatile equity stocks. If you have stocks that represent a risk and may fluctuate in value significantly, dividends can help to mitigate some of that risk by providing consistent payouts.
Not all companies offer dividend payments, so if you are thinking about using dividends to set up income during your retirement you need to make sure that the companies you are investing in for your retirement portfolio will actually be paying out dividends.
It is also possible that a company will decide not to pay dividends, even though it has done so in the past. So, while a company that has historically paid dividends may continue to do so, there is always a risk that they suspend, reduce, or cancel its regular dividend payments.
Additionally, dividend values vary from company to company, and if a company is doing poorly, its dividend values may not offset losses from owning its stocks.
Lastly, dividends are often taxed at a much higher rate than capital gains. Generally, when you sell a share of a company, any money you make from that sale is taxed as a “capital gain.” Dividends are taxed as income as if you made the money from a job, and that rate is much higher than the rate for capital gains.
If you’re not sure if you should add dividends into your financial strategy, contact us today for a complimentary review of your retirement strategies. Contact us at (540) 720-5656 to get started with a financial professional to build or enhance your retirement and legacy strategy.
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Megan Jones joined the ILG Financial team in 2020 as marketing director. Megan and her husband live in Fredericksburg, VA with their German Short Haired Pointer, Gus. Megan is a graduate of Longwood University and holds a degree in communications. Megan is the oldest of Dave Lopez’s three children and not only enjoys working alongside her father, but also with her cousin, Chase, who joined the ILG Financial team in 2020 as an advisor. Megan is also a fully licensed Life, Health, and Annuity agent. When not at work, Megan enjoys sitting on the back porch with family and friends enjoying food and music.
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Chase Lopez joined the ILG Financial team in 2020 as an advisor. Chase is a 2016 James Madison University graduate with a degree in management. Chase has been trained under the tutelage of Dave Lopez, who is not only the founder and managing member of ILG Financial, but also is Chase’s uncle and godfather. He also enjoys working alongside his cousin, Megan, who is Dave’s daughter.