Free From Broke

A Personal Finance Blog for Regular Folks

Stocks

What Are Dividends?

Published or updated by

What Are Dividends?

Dividends are a portion of a company’s earnings that is returned to shareholders.  When a public company is profitable, they primarily have seven methods to invest their profits:

1.     Hire new employees

2.     Pay existing employees a higher salary

3.     Purchase equipment and/or services

4.     Merge or acquire another company

5.     Purchase stock shares on the open market (otherwise known stock buyback)

6.     Distribute the profit to shareholders (otherwise known as dividends)

7.     Do nothing and save it for a rainy day.

This article discusses primarily number six.
[Read more…] about What Are Dividends?

What is Asset Allocation?

Published or updated by

What is Asset Allocation?

Different buckets for asset allocation

Asset allocation is an investment strategy that is used to choose among various asset classes such as stocks, bonds, commodities, foreign currencies, real estate, annuities and life insurance, and high value collectibles including precious metals.

Asset allocation as a way of investing is an important part of a person’s financial planning process that primarily concerns the very relationship of an investment portfolio’s risk and return.  Different asset classes offer different risks and returns as long as their performances are not perfectly correlated (if they go up and down in the same market conditions).  Asset allocation reduces the volatility of investment results when not all investments in the portfolio rise and fall at the same time.

How is Asset Allocation Related to Investing?

[Read more…] about What is Asset Allocation?

What Is The Dow?

Published or updated by

What Is The Dow Jones Industrial Average?

We’ve hear a lot about the Dow in the news. It goes up and folks are happy.  It goes down and folks panic.  But what is this mystical Dow that everyone is talking about?

The Dow actually stand for Dow Jones Industrial Average.  It’s made up of the 30 largest and most widely held public companies.  The average is a scaled average which is price weighted to account for stock splits.  Although it only accounts for 30 companies, the Dow has historically been in line with the larger US market.  For this reason it tends to be the most common indicator of the market in general.

The Dow was first published in 1896 and consisted of 12 companies:

  • American Cotton Oil Company
  • American Sugar Company
  • American Tobacco Company
  • Chicago Gas Company
  • Distilling and Cattle Feeding Company
  • General Electric
  • Laclede Gas Light Company
  • National Lead Company
  • North American Company
  • Tennessee Coal, Iron, and Rail company
  • US Leather Company
  • Unites States Rubber Company

Today’s Dow looks very different:

3M
Alcoa
American Express
AT&T
Bank of America
Boeing
Caterpillar
Chevron Corporation
Citigroup
Coca-Cola
DuPont
ExxonMobil
General Electric
General Motors
Hewlett-Packard
Home Depot
Intel
IBM
Johnson & Johnson
JPMorgan Chase
Kraft Foods
McDonald’s
Merck
Microsoft
Pfizer
Procter & Gamble
United Technologies Corporation
Verizon Communications
Walmart
Walt Disney

Update – On June 8, 2009 GM and Citigroup were replaced by The Travelers Companies and Cisco Systems.

When it started the Dow averaged 40.94.  It’s recent high was 14,164.53 on October 9, 2007.

Why is it so important?

Since the Dow represents 30 of the largest US companies, changes in the stock prices of the Dow can be seen to represent the general health of US companies.  Higher averages mean growth and profits while lower averages represent contraction and losses.

Do you follow Dow prices?  Do you think it’s an accurate economic indicator?


photo credit: epicharmus

Exit mobile version