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Money Girl
071 MG The Preferred Way to Make Money
Hey, Fidelity. How can I remember to invest every month? With the Fidelity app, you can choose a schedule and set up recurring investments in stocks and ETFs. Oh, that sounds easier than I thought. You got this. Yeah, I do. Now, where did I put my keys? You will find them. Where you left them. Investing involves risk, including risk of loss. Fidelity brokerage services LLC member NYSE SIPC. After investing billions to light up our network, T-Mobile is America's largest 5G network. Plus, right now, you can switch, keep your phone, and we'll pay it off up to $800. See how you can save on every plan versus Verizon and AT&T at tmobile.com/keepandswitch. Up to four lines via virtual prepaid card, a left 15 days qualifying unlocked device credit service, ported 90-plus days with device and eligible carrier and timely redemption required. Card has no cash access and expires in six months. Hello, money friends. This is guest host Andrew Horowitz, again from the Disciplined Investor podcast. And today, I'm MoneyGirl, my preferred way to make money. Listen to her page from San Diego calls in. I am looking for a good alternative to CDs and money markets. My local bank is offering two and a half percent on one of your CDs and one in the savings account. I need the income to help pay my bills, but these low rates are not cutting it. What can I do? Thanks for your help, and I love your show. Page, don't you just hate that? 2% on my hard-earned money just isn't going to cut it for me either. Let's tackle this problem together. Back in episode 26 of MoneyGirl, there was a little shortcut discussed, which is used in finance known as the Rule of 72. It states that dividing 72 into the interest rate you are earning will tell you how many years it will take for money to double. So, if you have money invested in an account earning 2% and reinvest the income, it will take 36 years to double. Yuck! That's not going to get us anywhere fast, especially when inflation is running at 4% and taxes will take a piece out of it as well. If the bank pays you even as much as 4%, you still are swimming upstream. Here is the disciplined investor's preferred way of investing for income. This is a strategy that we use in our client portfolios regularly and offers a great deal of safety that is designed to help you with your investing sleep factor. In fact, this idea helps you earn money while you're sleeping. Now, that is my kind of investing. It offers yields approaching 7% to 8% and part of its even tax-advantaged. You like that, don't you? I see you smiling. But before I provide you today's tip, remember that I said the word safety. Not guaranteed. There is a difference here. Remember, all investments carry some degree of risk, and you need to consult with your financial advisor and do your homework before you make any investment decisions. Well, I'm sure that you've probably heard of preferred stocks before. Do you ever look into what they can actually offer? These days, with all of the uncertainty surrounding the market and the fact that interest rates on most interest bearing investments is low, this is a great way to earn a decent level of income on a low risk investment. Preferred stocks are a class of stocks similar to the common stocks that are issued by public companies, but usually pay dividends at a much higher rate than the common stock. While it is a form of ownership of the company, the difference is that the preferred stockholders often do not have the voting privileges that the common stockholders do. In fact, most preferred stockholders have no voting rights at all. Now, to complicate matters even more, there are several different types of preferred stock, which include callable, convertible, cumulative, participating, and prior. Callable preferred stock is where the issuer, otherwise known as the company, has the right to call in the stock. When a stock is called in, it is redeemed by the issuing company at a predetermined price and retired. Thus, you could lose your stock instantly without warning. Of course, you'll be reimbursed for it, but that could be at a little price than what you paid. Convertible preferred stock is a type where the shareholder has the option to convert the preferred shares into common shares after a certain period of time. Some companies also reserve the right to convert the stock themselves, in which case, you'll end up with the common stock without your input. This could be good when a stock is growing fast, but usually will not provide the same level of income since it is geared for income and growth opportunity. Cumulative preferred stocks act in a similar way to what you see with basic preferred stocks, except for the difference that if a company suspends dividend payments for any period of time, for any reason, then the preferred shareholders must be paid first when the dividend is or if it is reinstated. In fact, they will get repayment for the dividends they missed as well before any other category of stock is paid a dividend. Participating preferred stock is the type that receives the normal preferred stock dividends, plus an additional dividend which is predetermined based on each company's individual parameters. Since 2012, City has been a proud partner of Global Citizen Festival, using the power of music to inspire people to help end extreme poverty. Tune in on YouTube September 28 to get inspired, experienced performances from top artists, and find out how you can join us in taking action. Together, we can make an impact for the love of making a difference, for the love of progress. City, visit globalcitizen.org/city to learn more. September is a great month for planning. We start thinking about the rest of the year, whether it's back to school, big year-end work projects, holiday plans or travel. Planning ahead is crucial in life, especially when it comes to what happens when you're gone. Getting life insurance may sound daunting, but Policy Genius makes the process a breeze. With Policy Genius, you can find insurance policies that start at just $292 a year for a million dollars of coverage. Some options offer same-day approval and avoid unnecessary medical exams. Policy Genius' technology lets you compare quotes from America's top insurers in just a few clicks to find your lowest price. It's the country's leading online insurance marketplace. And if you ever need help or guidance, they have an expert license support team to answer your questions, handle all the paperwork, and advocate for you throughout the process. It's never too late to plan ahead. Go to policygenius.com or click the link in the description to get your free life insurance quotes and see how much you can save. That's policygenius.com. Now at T-Mobile, get four 5G phones on us and four lines for $25 a line per month when you switch with eligible trade-ins, all on America's largest 5G network. Lastly, prior preferred stock is preferred stock, which has a higher claim on the assets and dividends of the company than any shareholders. Okay, you are now experts on the various types of preferred stocks. Now, in order to actually invest in preferred stocks, you have to know the quality rating, the company behind the dividend, the tax status, and the yield. You also need to know where to find this information. I have put together a list of resources and a special list of preferred stocks you may want to take a look at to learn more about what they offer. Go to the show notes of this episode and find more tips of my preferred way to make money at quickanddirtytips.com. Remember, investing in preferred stock like anything else has advantages and disadvantages. Of course, you get more dividends than a common stock and it has increased liquidity over bonds, but your dividends can be suspended, you have limited or no voting rights, and stocks are subordinate to bonds and other debt if the company were to go bankrupt. You simply have to weigh the pros and cons when deciding if you want to buy preferred stocks versus common stocks. Touching? And that's all for now. Courtesy of Andrew Horowitz, guest host of Money Girl's Tips for a richer life. For more great tips on investing, pick up a copy of my book, The Discipline to Investor Online or at Find Bookstores. And one of those copies is going to page for a great question that help with today's show. Thanks for tuning in to Money Girl. If you have a question or comment, email it to money@quickanddirtytips.com or call it into the Money Girl Voice Line 8776 richer. Hey everybody, it's Rob Lowe here. If you haven't heard, I have a podcast that's called literally the Rob Lowe. And basically it's conversations I've had that really make you feel like you're pulling up a chair at an intimate dinner between myself and people that I admire like Erin Sorkin or Tiffany Haddish, Demi Moore, Chris Pratt, Michael J. Fox. There are new episodes out every Thursday, so subscribe please and listen wherever you get your podcasts. With the Wells Fargo Active Cash Credit Card, you can earn unlimited 2% cash rewards on purchases you want and purchases you need. That means you earn on what you want, like trying out that new workout class and 2% cash rewards on what you need, like a foam roller for your sore muscles. That's the beauty of the Active Cash Credit Card. It's ready when you are with unlimited 2% cash rewards. The Wells Fargo Active Cash Credit Card, that's real life ready. Terms apply. Learn more at Wells Fargo dot com slash active cash.