If you’re new to investing, compounding should be at the start of any investing discussion. Compounding refers to earning interest on top of the interest you’ve already accumulated from previous periods, and it’s a way to potentially magnify your savings over time just by staying invested in the market.

If you can understand compounding as a beginner, it allows you to get excited about the possibilities of investing and set expectations about how that money can grow over time.

So, what is compounding?

Simply put, compounding is the percentage of money you earn on top of your original investment (aka your principal investment) plus its earnings from previous periods. It can be calculated by banks or financial institutions on a daily, monthly, or annual basis. 

How does compound interest work?

Compounding interest is the interest on a loan or investment found by the initial principal plus the interest accrued from preceding periods. 

The principal is compounded because it’s periodically increased by a percentage (i.e., adding 10% each month). This differs from linear growth when the principal is increased by a fixed number (i.e., adding 10 each month). Let’s look at an example: 

Imagine that you deposited $100 in a savings account that accrues 10% interest annually. After one year, you’d have $110 in that savings account. After two years, though, your interest would have compounded, and you’d have $121.

That’s because you’re not just earning 10% interest on your initial deposit ($100)—you’re earning interest based on your new total earnings ($110). So after two years, you’ll earn your 10% interest based on your new total of $110. Here’s a breakdown of how those earnings could compound over time: 

Initial deposit: $100

Year 1: $100 + (100 x 10%) = $110

Year 2: $110 + (110 x 10%) = $121

Year 3: $121 + (121 x 10%) = $133

And after 10 years of compounding at a rate of 10%, your $100 deposit would grow to $259.37. That’s the power of compounding in action.

So, what does compounding have to do with you and your money? 

Compounding can either work for you or against you, depending on whether it’s for an asset or a liability. The example above shows how compounding works in your favor if it’s for a savings deposit or investment (assets). 

But it can also apply to liabilities, like money owed on a loan—when compounding interest is accrued based on your unpaid principal plus interest charged over time. In this case, the compounding interest means the amount you owe increases (compounds) over time. Compounding money when it comes to accounts with debt is something you want to avoid. 

The compound interest formula

The formula to calculate compound interest is A=P(1+r/n)nt.

• A = the total amount of money accrued on your principal plus interest, after n years 
• P = principal (the initial investment or deposit) 
• r = interest rate (in decimal form) 
• n = number of compounding periods (how often the interest is compounded per year) 
• t = time in years (how long the principal remains invested/deposited)  

Let’s put this formula into action with some concrete numbers. Say you deposit $500 into a savings account with a 5% interest rate that compounds monthly for 10 years. So: 

• P = $500 
• r = 0.05 
• n = 12
• t = 10

Now let’s plug those numbers into the compound interest formula: 

A = P (1 + [r / n]) ^ nt

• A = $500 (1 + [0.05 / 12]) ^ (12 * 10)
• A = $500 (1.00417) ^ (120)
• A = $500 (1.64767)
• A = $823.84

In 10 years, your new total is $823.84—your principal plus $323.84 in interest. 

Compound interest vs. simple interest

Simple interest is interest that’s paid only on the initial principal of a loan, and not on any interest from previous periods. That means the interest isn’t compounded. 

Going back to our $500 savings deposit example, a deposit of $500 with a 5% interest rate would mean earning $25 a year, every year. Instead of the earned interest being added back into the principal (compound interest), simple interest is calculated based on the original principal alone.  

Here’s how to calculate simple interest: 

A = P (1 + rt) 

• A = the total amount of money accrued after n years, including interest
• P = principal (the initial investment or deposit) 
• r = interest rate (in decimal form) 
• t = time in years (how long the principal remains invested/deposited)  

We can see that this formula is just a simplified version of the compound interest formula. Here’s what it looks like using our $500 example: 

A = P (1 + rt) 

• A = $500 (1 + [0.05 * 10]) 
• A = $500 (1 + 0.5) 
• A = $500 (1.5)
• A = $750

Ten years of earning 5% simple interest on your $500 deposit yields an extra $250 earned. 

Compound returns

The answer to “what is compounding” is incomplete until we also understand the element of compound returns.  The magic of compounding is revealed when it comes to compound returns on your investments in the market. 

When you keep reinvesting the dividends you earn, your returns have the chance to compound significantly over time. And if you’re a young investor who still has a ways to go until retirement, your opportunity to accumulate long-term wealth grows exponentially. 

Timing is everything when it comes to compounding. The sooner you start investing, the more time that money has to grow. Even a small amount a day can add up to sizable returns thanks to the power of compounding. Here’s a brain teaser to prove it: 

If you were offered the choice of $100,000 today, or a penny today with the amount you receive doubled every day for a month (a penny on the first day, 2 cents on the second day, 4 cents on the third day, etc.), which would you choose?

Surprisingly, it’s smarter to start with the penny, because by day 31, you’d have more than $10 million. That’s the magic of compounding. 

Examples of compounding

As we mentioned earlier, compound interest can work for you or against you, depending on whether you’re investing money or owing money. Here are some  examples of compounding in different types of accounts: 

• Savings and checking accounts: Making deposits into an interest-bearing account like a savings account means that interest will be added to your balance, allowing your money to grow over time. 
• Tax-advantaged retirement accounts (401(k)s and Roth IRAs): Investments in accounts like a 401(k) or a Roth IRA also compound over time, and you can grow your balance faster if dividends are reinvested regularly. 
• Student loans, mortgages, and other personal loans: Compound interest works against you when you’re borrowing money. Compounding on loans means any unpaid interest for a given period is added to your loan balance, from which future interest charges are accrued. 

Best practices for approaching compound interest

Any new investor should apply the power of compounding if their goal is to accumulate long-term wealth. Use these tips to reap the full benefits of compound interest and allow your money to work for you: 

• Start early: The sooner you start investing, the longer your money has to grow. Every day you wait is a missed opportunity to benefit from the power of compounding. 
• Pay off debt: Since compounding works against you when you’re borrowing money, prioritize paying down any debts to avoid paying more over time. 
• Focus on the long term: Time is on your side when it comes to compound interest. Instead of going after short-term gains or cashing out when the market is high, learn to ride the waves of the market and give your money time to grow. 

• Look at APY, not APR: Focus on annual percentage yield (APY) rather than APR when comparing accounts. The APY provides a more accurate view of expected interest earnings, whereas APR accounts only for the simple interest rate. 
• Choose accounts that compound interest daily: Compounding frequency is the interval at which your interest is paid out. The more often interest is paid, the greater returns you’ll see from compound interest—look for accounts that compound daily rather than quarterly or annually. 

The concept of compounding reveals why investing can be a smarter path to building wealth than simply saving. Not to mention, one of the keys to maximizing your financial potential is to save or invest money early and often.

If you’re looking for extra support, consider turning to a platform like Stash—users can automate the investing process with the help of Auto-Invest, which can save or invest money for you automatically.

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Compounding FAQs

Have more questions along the lines of “what is compounding?” We have answers.

What is the rule of 72?

The Rule of 72 is a calculation that estimates how long it would take for an investment to double in value as a result of compound interest. Here’s the formula:

Years to double = 72 / rate of return on investment (the interest rate) 

In other words, you can find the number of years it would take to double an investment by dividing 72 by the interest rate. 

How can investors receive compounding returns? 

Investors can receive compound returns through dividend payments. If you’re investing in stocks and the value of a stock grows over time, you can earn compound interest by reinvesting your profits. 

If payouts are made in cash, they will need to be manually reinvested in order to potentially earn additional compounding returns. Mutual funds, on the other hand, often offer automatic dividend reinvestments in order to earn compound returns.  

What type of average is best suited for compounding?

For investments that have compounding, the time-weighted rate of return (TWR)—also known as the geometric average—is best suited for calculating average returns. It’s able to provide a more accurate estimate of returns by isolating returns that were affected by cash flow changes, balancing out the distortion of these growth rates. 

The post What Is Compounding? An Explanation of Compound Interest appeared first on Stash Learn.

The dividend yield is one of the factors you can use to help you understand a company’s operations, revenue, profit, and losses. Many large and well-known public companies pay dividends; if you invest in these companies, the dividends you earn are part of the return on your investment. Understanding how dividend yield works can help you determine what dividend payouts you might expect and how they’ll affect the return on your investment. 

In this article, we’ll cover:

• How to calculate dividend yield
• Factors affecting dividend yield

How to calculate dividend yield

Many financial websites include a company’s dividend yield alongside other key stock information, but you can also calculate it yourself. The dividend yield can be calculated using data from the previous year’s financial report or by adding up the last four quarters of dividends if you want to capture more recent data. Simply divide the annual dividend per share by the stock price. Generally, 4% is considered a favorable dividend yield.

Dividend yield = (Annual dividend per share / Stock price per share) x 100

Remember that not all companies have the same dividend payout schedule. While some companies may pay once a year, others might pay quarterly or even monthly. If the company pays out dividends to shareholders more than once a year, simply multiply the dividend payout by the number of payouts in a year to get to the annual dividend per share. Here are examples for calculating the annual dividend for three different dividend payout schedules: 

• Company A pays $2 per share biannually: $2 x 2 = $4 annual dividend
• Company B pays $1 per share each quarter: $1 x 4 = $4 annual dividend
• Company C pays $0.50 per share each month: $0.50 x 12 = $6 annual dividend

Dividend yield example

Let’s use the imaginary company Acme Co. as an example to see how to calculate dividend yield. 

If Acme pays an annual dividend of $1 and has a current stock price of $30 a share, its dividend yield would be 3.3%. The equation: ($1 / $30) x 100 = 3.3%

If Acme’s annual dividend remains at $1, but its share price goes up to $40, the dividend yield will decrease to 2.5%. The equation: ($1 / $40) x 100 = 2.5%

If Acme’s stock price falls to $20 because of rough financial times, but they continue to pay the same dividend of $1 per share, the dividend yield would increase to 5%. The equation: ($1 / $20) x 100 = 5%

Notice that when the stock price has fallen, the dividend yield has gone up, and vice versa. This is a good example of the value and the shortfalls of looking at dividend yield alone when considering investing in a company. You don’t want to consider this ratio in a vacuum, but instead in conjunction with the P/E ratio and stock price. 

Factors affecting dividend yield

Dividend yields are impacted most powerfully by stock prices. As a company’s share prices rise, dividend yields fall, and vice versa, unless a company adjusts dividend payouts. The dividend yield is also impacted by industry trends, a company’s growth, and a company’s overall financial situation. It’s important to consider the broader company and market to get the full context you need to understand what a company’s dividend yield means for your investment choices. 

Company’s dividend policy

A company’s dividend policy is how it structures its dividend payouts to shareholders. There are three types of dividend policies that help determine a company’s dividend amount, payout frequency, and associated factors. 

• Stable dividend policy: A stable dividend policy is a predictable dividend payout each year, regardless of the company’s earnings.
• Constant dividend policy: With a constant dividend policy, a company pays a percentage of its earnings as dividends to shareholders each year. If earnings are up, investors get higher dividends; if earnings are down, they may not get any dividend income at all. 
• Residual dividend policy: A residual policy only pays out what dividends remain after a company pays for capital expenditures and working capital. This policy avoids debt to pay dividends, but it does not guarantee dividend income to shareholders. 

The proportion of a company’s net income paid out as dividends is known as its dividend payout ratio; companies with a higher dividend payout ratio are likely to have a higher dividend yield. But the payout ratio can change over time; for example, if a company decides to invest a large portion of its earnings in an acquisition one year, it could reduce its payout ratio in order to maintain plenty of cash flow to fund the acquisition. You can look at a company’s dividend policies over time to get a sense of how frequently they tend to change.  

Stock price fluctuations

Because the stock price is the denominator in the dividend yield equation, share price and dividend yield are inversely related. That means as the stock price rises, the dividend yield will drop. 

In the above example, when Acme Co.’s stock price fell from $30 to $20 and the dividend per share stayed consistent at $1, the dividend yield went from 3.3% to 5%. If Acme’s stock price went up to $50 and the dividend was still $1, the dividend yield would drop to 2%. The equation: ($1 / $50) x 100 = 2%

This is why looking at a company’s dividend yield and stock price together provides a more complete picture. What originally looked like a strong or weak dividend yield might be heavily impacted by recent fluctuations in the stock price.

Economic conditions

Economic conditions that impact a company’s financial situation can significantly impact dividend yield. During difficult financial times, a company may halt its dividend distribution, or its share price may fall. Similarly, when interest rates are high, a company may need to boost dividends in order to maintain a consistent payout ratio. Inflation also impacts a company’s finances, possibly causing disruptions in their stock price or driving them to pause distributions entirely. 

Industry and sector trends

In general, dividends are offered by mature companies that aren’t growing very quickly, and dividend yield can vary a lot by industry or sector. For example, non-cyclical consumer stocks such as consumer staples, energy, and utilities tend to pay higher yields on average. Other industries, like technology, can have some stand-out companies with high dividend yields, but tend to be more volatile, with lower average dividend yields. 

Company performance and earnings

A high dividend yield may make a particular stock seem appealing, but it can actually be a positive or negative sign, depending on the context. The dividend yield is primarily driven by the two factors in the equation, stock price and dividend amount, and both factors are impacted by a company’s financial health. That’s why a high dividend yield may signal either financial health or problems for a company. For example:

• If a company is struggling financially, stock prices can dip, driving dividend yield up
• If a company is performing well financially, stock prices can go up, driving dividend yield down
• If a company’s profits decline, it may pause or discontinue dividend payouts
• If a company is performing exceptionally well, it may increase the dividend payout

Dividends are paid from a company’s profits, so consider its ability to generate those profits over time. You may want to look at things like cash flow, investment in growth, and the consistency or stability of their growth over the previous few years.

Dividend sustainability

In addition to a company’s current dividend yield, the history of its dividend payouts is a factor in how much return you might expect from your investment over time. Investors may perceive the dividend yield as less attractive if a company has an inconsistent or unreliable dividend history. Inconsistency can be due to either volatile stock prices or inconsistent dividend payouts. If you are seeking dividends as a dependable source of passive income, it is crucial to prioritize the sustainability of a company’s dividend payouts when making investment decisions.

Capital allocation decisions

A dividend usually originates from a company’s net profits. Companies that are reinvesting in their growth often don’t offer dividends because they’re putting their profits back into the company instead of into shareholders’ hands. And when a company that offers dividends is also reinvesting some profits into growth initiatives, expansions, or acquisitions, it will likely have less money available for dividend payments. This could result in reducing the dividend payout or pausing dividends entirely. 

Tax considerations 

Dividend income that you earn from stocks that aren’t in tax-advantaged accounts, like an IRA, is subject to taxes. Dividends are classified as either ordinary or qualified. Qualified dividends must meet special IRS requirements, and they’re taxed at a lower rate. Ordinary dividends are subject to regular income tax, which is often a higher rate than qualified dividends. When considering an investment, you’ll want to take into account how much tax you might pay on your earnings to get a realistic picture of the possible return after taxes. 

Putting dividend yield to work for you 

Buying stock in companies that pay dividends is one way an investor might go about generating income from their investments. If you invest in dividend-paying stocks, you’ll want to go beyond the answer to “What is dividend yield?” Generally speaking, between 2% and 6% is considered a good dividend yield, but many factors affect whether a stock is actually a reliable source of passive dividend income. Examining the history of the share price, dividend payouts, and company financial performance can give you a full picture of the income you might make from your investments. 

If you’re ready to start investing in dividend-paying stocks, Stash makes it easy with options for fractional shares and dividend reinvestment programs that help you build wealth for the long term. 

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The post What Is Dividend Yield? appeared first on Stash Learn.

Investing in stocks that pay dividends is one way that investors can see a predictable return on their investment.

In this article we’ll cover:

• The benefits of investing in dividend stocks
• Factors to consider when choosing stocks that pay dividends
• Examples of top stocks that pay dividends
• Risks and challenges of investing in stocks that pay dividends
• Strategies for investing stocks that pay dividends

Benefits of investing in dividend stocks

There are many reasons investors choose to invest in companies that pay dividends. Like all investments, dividend stocks have risks. However, investing in dividend-paying stocks offers two potential sources of profit: through the stock prices rising and through dividend distributions made by the company. While a stock’s value can rise and fall with the market, dividends are generally paid out consistently either quarterly or yearly, depending on the company.  

Additionally, stocks that pay dividends are often more likely to be in less volatile sectors, which can help reduce risk compared to investing in stocks in growth stocks. Many investors choose to invest in dividend-paying stock for consistency, compounding through reinvestment, and stability. 

Key benefits of investing in dividend stocks include: 

• Predictable income stream and cash flow for investors
• Potential for long-term growth and capital appreciation
• Potentially lower risk compared to growth stocks
• Hedge against inflation
• Offers some stability during market downturns
• Potential tax advantages with qualified dividends

What to consider when choosing stocks that pay dividends

Not all companies offer dividends, and not all dividend stocks offer the same stability and results. You’ll need to consider the company’s dividend yield, dividend payout ratio, dividend growth, financial performance, and larger industry trends before investing in a dividend-paying stock. 

Dividend yield

The dividend yield is the percentage of a company’s share price that is paid out in dividends each year. Keep in mind that dividend yields are subject to change as the market fluctuates. 

Dividend yield = Annual dividends per share / Price per share

For example, a $20 stock that pays an annual dividend of $1 has a 5% dividend yield. Generally, 4% is considered a favorable dividend yield.

Dividend payout ratio

The dividend payout ratio shows how much of a company’s after-tax earnings are paid out to shareholders. Companies that don’t pay dividends have a 0% ratio,  and companies that pay their entire net income in dividends have a 100% ratio. Experts say that a payout ratio under 60% is a sign of stability in a stock that pays dividends. 

Dividend payout ratio = Dividends paid / Net income

For example, a business that makes $10 million and pays out $5 million in dividends has a 50% payout ratio. 

Company financials and stability

Since dividends are paid from a company’s cash flow, it’s important to understand its ability to generate profit over time. Some indicators you may want to look for in a company are healthy cash flow, consistent growth, and a low debt-to-equity ratio. You might also consider how consistent a company’s performance has been, as fast or unstable growth can be seen as a marker of potential risk.

Dividend growth history and share price performance

Stocks that pay dividends often increase their dividend payouts over a number of years; understanding a company’s dividend growth history can help you assess its stability. It is recommended to look for a minimum five-year track record of strong dividend payout signals and limited stock price volatility. For consistent annual dividend increases, consider companies that have increased their dividend in at least eight out of the 10 prior years. 

Industry trends and outlook

A company’s performance can be heavily impacted by its industry. In addition to the industry’s historical performance, consider current trends and the outlook for the future. Are consumers shifting towards or away from an industry? Is the industry being affected by changes in technology or government regulations? Tracking trends may help you identify potential risks in the sector overall. 

Using dividend-focused stock screeners

A stock screener is used by investors to choose stocks based on their specific criteria. A dividend-focused stock screener helps you identify stocks with dividends based on price, dividend ratio, debt-to-equity ratios, sector, and more. 

There are numerous free and paid stock screener options that will provide you with a list of suggested stocks, which can be faster and easier than exploring each stock one at a time.

Examples of top stocks that pay dividends

There are several categories of dividend stocks that are more likely to provide stable income and potential capital appreciation. Tracking the performance of blue chip stocks, high-yield dividend stocks, and dividend aristocrats can help you form your dividend investment strategy.

Blue chip stocks

A blue chip stock is a well-established, financially sound company with a generally long history of dependable earnings. These companies are often stable market leaders who are solidly profitable, but they are not expected to grow  as fast as newer “growth” stocks. . While not all blue chip stocks pay dividends, those that do are often appealing options for investors who prioritize stability and consistency. 

Here are a few examples:

High-yield dividend stocks

High dividend yields can be seen as either a sign of a strong opportunity or a warning. The higher the dividend yield, the more money you’ll receive for each share you own. But that doesn’t necessarily ensure a strong investment: dividend yields tend to go up when stock prices plunge, making an opportunity seem strong when it might actually be a red flag. Companies that offer a high dividend yield are also returning a significant percentage of profits to investors, instead of growing the company, which can have a long-term impact on stock performance.

When considering high-yield dividend stocks, investors also look at the company’s stock price trends, dividend payout ratio, and dividend yield to get a more complete picture. 

Here are a few examples:

Dividend aristocrats

A dividend aristocrat is a company in the S&P 500 that annually increases the size of its dividend payout. These companies are often considered nearly recession-proof and enjoy steady profits and growing dividends. They have raised their dividends consistently for at least 25 years, providing a stable income for shareholders, but potentially at the expense of their own growth opportunities.

There are usually fewer than 100 dividend aristocrats at any given time, so your dividend aristocrat options are limited. 

Here are a few examples:

Risks and challenges of investing in stocks that pay dividends

Like all investments, stocks that pay dividends come with their own set of risks. Dividend-paying stocks are subject to economic downturns, market corrections, and volatility. While many companies with dividend-paying stocks are more stable than the rest of the market, that doesn’t mean that they will stay that way forever or that broad trends, fluctuations, or changing marketing won’t impact your investment. 

Risks you may wish to consider include:

• Dividend cuts or suspensions: A company may choose to reduce dividend payments or even suspend them altogether. Generally, a dividend cut is considered a sign that a company is experiencing cash-flow issues or other performance problems. When dividends are cut, stock prices are more likely to fall, which can result in significant losses for investors. 
• Interest rate risk: Rising rates can result in higher volatility for stocks and lower values, and can heavily impact debt-heavy, interest-rate-sensitive industries. When interest rates rise, corporate profitability and stock prices can be negatively impacted.
• Market volatility: Market volatility tends to impact the more stable dividend-paying stocks less than non-dividend-paying stocks. That said, market volatility can still affect a company’s stock prices, as well as its profits. Even if you’re receiving income from dividends, the value of your shares can drop.
• Tax implications for dividend income: Dividends are classified as either qualified or regular dividends, and the latter is taxed at your ordinary income tax rate. That rate is often higher than the capital gains rate that’s assessed on most other investment earnings.  

How to invest in dividend stocks and funds

Okay, now that you know what a stock that pays dividends is, it’s time to figure out how to do the actual investing. 

1. Educate yourself: Before you start selecting specific investments, you’ll want to understand the nuances of how dividends work and how often dividends are paid. You should also stay up to date on broader market and investment news and start tracking the performance of companies you’re interested in.
2. Open a brokerage account: A brokerage account is a taxable investment account you use to buy and sell securities. This is where you can deposit money and buy, sell, and store your securities. You’ll need a brokerage account in order to purchase investments, including stocks that pay dividends.
3. Choose your dividend-paying stocks:: Your next step is to research specific stocks. Consider starting small, with a couple of investments, and research their financials, markets, and dividend yield. Take a look at their performance over the past few years and the outlook in their sector.
4. Consider investing in dividend ETFs:  In addition to investing in individual stocks, consider investing in exchange-traded funds (ETF) that contain dividend-paying stocks. Dividend ETFs offer investors a way to diversify their portfolio across different sectors, industries, and geographic regions. This can help to reduce your exposure to any one company or sector and potentially lessen your overall risk.
5. Diversify: Diversifying your investments helps you avoid putting all your eggs in one basket. You may wish to purchase multiple stocks in different sectors. As you start purchasing stocks, keep an eye on your asset allocation, industry diversity, and even the geographic location of your investments. You may also want to diversify the types of securities you own by purchasing bonds and funds in addition to dividend-paying stocks.  
6. Decide how much to invest: How much you choose to invest is a personal decision that can be driven by many factors, including your income, age, risk tolerance, growth goals, and comfort. It may be valuable to start small and build up your portfolio over time, as you become more familiar and comfortable with your investment strategy.
7. Invest in your dividend stock or fund: Now it’s time to place your order. Select your stocks with dividends from within your brokerage account and make your order. If you use an online brokerage or investment app, you can buy your stocks right from your phone.
8. Monitor your investments: You’re not done once you’ve made your first purchase. You’ll want to check in on your stock investments over time to track your portfolio’s growth. You might also consider what you want to do with your dividend income when you receive it, such as using a dividend reinvestment program (DRIP) to buy additional shares with your dividend earnings.

Ready to start investing in stocks that pay dividends?

Many investors are drawn to dividend-paying stocks because they can earn income from both dividends and potential returns when the share price increases. And reinvesting earnings with a DRIP can help them increase the power of compounding. If you’re ready to invest in stocks that pay dividends, Stash makes it easy with fractional shares and an ETF dedicated to dividend-paying stocks. And you can get started with any amount. 

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The post Stocks That Pay Dividends: A Guide to Investing in Dividend Stocks appeared first on Stash Learn.

What are dividends?

Dividends are shares of a company’s profits, which are paid to its shareholders in proportion to the number of shares they own. Companies that pay dividends do so as a reward for investing, or as an incentive to attract new investors because selling stock raises cash for the company. In the U.S., companies paid dividends totaling $574.2 billion in 2022.

When a company announces a dividend, it’s expressed as a dollar amount per share. For example, Coca-Cola’s March 2023 quarterly dividend was $0.44 per share. The total dividend an investor receives is proportional to their investment in the company; the more shares they own, the greater the dividend payment. 

Not all companies pay dividends, and companies that pay dividends are free to increase, decrease, or even eliminate dividends. It’s not common for companies to decrease or eliminate dividends, but it does happen. The class of an investors’ stock can also affect dividends.

How do I find companies that pay dividends?

If you want to earn dividends on your investments, keep in mind that not all companies offer them, so you’ll want to do your research; stock charts can give you this information. Here are some common themes among companies that pay dividends you may want to keep in mind when you do your research:

• Established companies are more likely to pay dividends. Long-standing companies with predictable revenue streams often pay dividends. That includes oil and gas producers, automakers, pharmaceuticals, consumer goods businesses, and so on. These businesses, while often solidly profitable, may not be  growing fast, so their stock may not gain value rapidly. They might choose to ice the cake with dividends to attract investors.
  
• New or rapidly growing companies are less likely to pay dividends. Tech startups and fast-growing businesses don’t always have a lot of spare cash to pay dividends; they need to invest their profits into growing the business. And their shareholders hope to make money when the stock price spikes, so dividends may be less important to them. 

Some companies don’t pay dividends until they become dependably profitable. Some of the largest companies in the market, including Facebook, Google, and Amazon, don’t pay dividends. In fact, because dividend availability is closely tied to factors that affect a stock’s volatility, you’ll likely find that a diversified portfolio includes a mix of stocks that pay dividends and those that don’t.

Note that companies that pay dividends are free to increase, decrease, or even eliminate dividends. It’s not common for companies to decrease or eliminate dividends, but it does happen. 

How often are dividends paid?

Many companies have a regular schedule of dividend payment frequency. There’s no requirement for how often dividends are paid, so it’s up to each company. It’s also possible to pay unscheduled dividends, which may be special or additional dividends.

That said, most U.S. companies that pay dividends do so quarterly, though some dividends are paid monthly or semi-annually. Foreign companies, on the other hand, may not follow a regular cadence for dividend payments. And if you own dividend-paying stock via a mutual fund or exchange-traded fund (ETF), you’ll likely receive dividend payments quarterly or annually.

Each company has a dividend calendar, and there are four important dates to keep in mind for each dividend payment period:

• Declaration date: The date the company announces its next dividend payment.
• Ex-dividend date: The first day that new purchases of stock are not eligible for the announced dividend. This is sometimes called “trading ex-dividend.” You can still buy the stock, but you won’t receive the dividend for that period. If you want to receive it, the last day to purchase your stock is the day before the ex-dividend date.
• Record date: The business day after the ex-dividend date. In order to get the announced dividend, you must be “in the records” as a shareholder by this date. 
• Payment date: The date the dividend is paid to shareholders.

Why do investors have to buy stock before the ex-dividend date? Well, there’s a two-business-day settlement period for buying and selling stock. So to be in the records as a stockholder, you must buy the stock at least two business days before the record date, which is the business day before the ex-dividend date.

Here’s an example, using Coca-Cola’s March 2023 dividend:

• Declaration date: February 16, 2023
  
• Ex-dividend date: March 16, 2023
  
• Record date: March 17, 2023
  
• Payment date: April 3, 2023

If you were researching Coca-Cola stock in late February 2023, you’d learn about the upcoming dividend payment on February 16, and you’d have had until March 15th to purchase stock if you wanted to receive it. Remember, the ex-dividend date is the first date that new stock purchasers are not entitled to the dividend. So if you purchased stock on March 15 (or any day prior), you’d have been “in the records” by March 17, and then you’d have received the dividend on April 3rd. But if you bought your stock on March 16, you’d have had to wait until the next quarter to receive a dividend.

Stock markets, brokerages, and investment management companies publish dividend calendars, and they are typically easy to find online, including the New York Stock Exchange and Nasdaq websites. Upcoming dividend information is also available in stock charts.

What’s a typical dividend amount?

Dividend amounts vary. The board of directors sets both the dividend amounts and how often dividends are paid; those decisions are then approved by shareholder vote. Factors can include the company’s performance, cash needs, and the price of its stock. 
Investors often use a ratio called the dividend yield when evaluating dividends, rather than the dividend amount itself. The dividend yield is the annual dividend per share divided by the share price, and it’s typically easy to find online in a company’s stock chart. For example, the Nasdaq and Stash publish stock charts.

What happens after I receive dividends?

Regardless of how often dividends are paid by a company you invest in, you’ll have a few things to consider when you get that payment. 

• Dividends you earn are taxable. The IRS splits dividends into two categories: ordinary and qualified. Ordinary dividends are taxed at your regular income tax rate, while qualified dividends are taxed at the lower capital gains rate. 
• You can reinvest your dividends. Most dividends are paid out in cash. Many shareholders choose to reinvest their dividends by purchasing more stock, often by using a dividend reinvestment program (DRIP). With the power of compounding, that could add up to significant portfolio growth. Remember that there’s no guarantee that your investments will earn a return, and all investments carry the risk of losing money. 

Investing in companies that pay dividends is one way investors might aim to earn a return on their investment. If it sounds good to you, remember that understanding a company’s dividend calendar is just as important as knowing how often dividends are paid so you can make stock purchases in time to earn them. And once you get those payments, be sure to plan ahead for taxes, as well as what you’ll do with the money. If you invest with Stash, you can enable DRIP to automatically reinvest your dividends so you keep your money working for you.

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The post How Often Are Dividends Paid to Shareholders? appeared first on Stash Learn.

A dividend is a payout, or reward, paid by some companies to their shareholders as a share of the company’s profits. While they’re typically distributed as cash, they are sometimes rewarded in the form of additional shares. And by reinvesting dividends, you can potentially increase the impact compounding has on your portfolio’s total returns.

But not all dividend-paying stocks are created equal. Some are known as high-dividend stocks, because they deliver above average dividend yields relative to their share price. We explain more about high-dividend stocks below.

What companies pay dividends? 

Not every company pays a dividend, though. It’s usually older and more established companies that do. In fact, the majority of the companies on the S&P 500 index pay dividends, and nearly half of these reportedly have a higher dividend yield than the current rate of the 10-year Treasury, which is a benchmark investment in the world of bonds.

How do I know if a stock pays a dividend?

Stash offers stocks that pay dividends, funds of dividend-paying companies on the S&P 500 and investments that offer no dividends Take a look at the table below that allows you to sort all investments on the platform by dividend yield (highest to lowest):

Investment on Stash	Performance The compound rate of growth of one dollar invested in a portfolio during a stated measurement period. YTD Past 1 year Past 5 years Past 10 years	Dividend Yield The dollar amount of the total cash dividends per share of commons stock paid during the most recent full year, divided by the current share price, and multiplied by 100.

This information is only educational The historical performance data quoted represents past performance, does not guarantee future results, is provided “as is” and solely for information purposes, is not advice or for trading purposes, may be subject to delays, should not be used for tax reporting, may not reflect actual future performance, and is gross of Stash fees. Prices may vary due to network availability, market volatility, and other factors. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may be lower or higher than the performance quoted. There is a potential for loss as well as gain that is not reflected in the information portrayed. The performance results shown do not represent the results of actual trading executed using client assets. Investors on Stash may experience different results from the results shown. 

What is a high dividend stock?

The table above lists the dividend yield of all investments offered by Stash. A dividend yield is a mathematical formula that measures a company’s annual dividend payment compared to its share price. The dividend yield of a particular stock is calculated by dividing the annual dividend per share by the price per share, and multiplying that by 100. You can do your own calculation or use a table like the one above to find out the dividend yield. 

The dividend yield of a stock inversely relates to the price of the stock. So, if the price of the stock increases, the yield will decrease. And if the price decreases, the yield will increase. 

A high-dividend yield is one that falls above the average yield of stocks sold on that market. For example, the average dividend yield of the S&P 500, which is known as the market’s main bellwether, is 2.31% and usually hovers around 2%. So, a stock with a dividend yield of say 5.3% would be considered a higher dividend stock.

The Benefits of High-Dividend Stocks

High-dividend stocks come with benefits and drawbacks. A high-dividend yield might mean that the company is in a good position to pay out high dividends relative to how much you’re paying per share. So you’re getting a good deal for what you paid. 

Remember that you can reinvest dividends automatically into stocks and ETFs using DRIP. Higher dividends can mean more money to reinvest and further grow your accounts.  

The Drawbacks of High-Dividend Stocks

However, a high-dividend yield can also indicate that a stock is a risky investment, and it doesn’t necessarily mean you should automatically invest in that stock.

Here’s why: When the stock price drops relative to the dividend, the yield will increase. (Remember our ratio above, where a stock’s price and dividend yield move in opposite directions.) So, while a low share price and a high-dividend yield might seem like a great combination, it might also spell volatility for that company. If you’re interested in investing in a company with a high dividend yield, make sure to do your research about news related to the company. 

Additionally, research other important performance metrics such as revenue, profit, losses, and P/E ratio. And when you’re ready to invest, remember that you can start with any dollar amount on Stash. 

The post Pros and Cons of High-Dividend Stocks appeared first on Stash Learn.

If you already invest your money, you probably know that you have to pay taxes on the money you’re putting into the market. But you might not know when or why. In a standard brokerage account, you may have to pay taxes on investments that earn money when you decide to sell them, and on most dividends earned from investments. 

We’ll explain when you might have to pay taxes on your investments, and the different rules that might apply to you.

Taxes on capital gains

If your investments increased in value and you decided to sell them, you will probably have to pay taxes on that sale. This kind of tax is a capital gains tax. Let’s say you buy a share of a stock at $20 and its value increases to $60 while you hold it. When you decide to sell your share at $60, that increase in value, or profit, once realized, is called a capital gain. The profit is “realized” when you sell it. 

There are two different kinds of capital gains, and the amount of tax you pay on those gains depends on this type: 

• Short-term gains are earnings on investments that you held for less than a year.
• Long-term gains are earnings on investments that you’ve held for more than a year.

Short-term capital gains are essentially taxed at the same rate as your ordinary income for federal income tax purposes, and that rate can be nearly twice as high as the rate for long-term capital gains. The top ordinary income rate, for example, is currently 37%. The top long-term capital gain rate is 20%. 

• Good to know: There are seven ordinary income tax brackets ranging from 10% to 37%. There are only three long-term capital gain brackets: 0%, 15%, and 20%. So the longer you keep your money invested, the less you’re likely to pay in taxes.

Say for example that you invest $200 in a company’s stock and the value of your investment increases to $250. If you sell your shares after less than a year, you’ll pay the short-term tax rate on your gains. So if your tax rate is 24% (based on your income), then you’ll pay $12 in capital gains tax. If you sell your shares after a year, you’ll pay the long-term tax rate of 15%, or $7. 

This might seem like a small difference, but the more money you invest, the bigger this difference can be. Remember that you won’t pay taxes on the money you first invested, but only its increase in value once you sell that investment.

Another thing to keep in mind is your capital losses or the losses you incur if you sell an investment that has decreased in value. If you lost more than you’ve gained in a given year, you might be able to deduct that value from your taxable income when you file. 

How dividends are taxed

A dividend is a portion of a company’s earnings, paid out to shareholders. Some people reinvest their dividends automatically with a dividend reinvestment plan or DRIP², which you can set up with your Stash account if you have one. Whether you reinvest your dividends or not, you’ll likely have to pay taxes on dividend earnings, at the same rate as your income is taxed. So if your income is taxed at 24%, dividends you earn are also taxed at that rate. 

An exception is something called a qualified dividend, on which you’d pay the lower long-term capital gain rate. Generally speaking, a qualified dividend is for a stock that you’ve held for a period of 60 to 90 days, usually within a specified window of time counted from something called the ex-dividend date. 

Taxes on retirement savings

Retirement accounts such as 401(k)s, 403(b)s, and both traditional and Roth IRAs can provide you with some tax benefits. Gains in retirement accounts are generally not subject to taxes as long as you make no withdrawals from the accounts prior to age 59 1/2. With the exception of Roth accounts, which are funded with post-tax dollars, you pay ordinary income taxes on the amounts you withdraw once you’ve reached retirement age.

If you close your retirement account prior to reaching age 59 ½, the money you earn will also be subject to taxes, plus an additional 10% penalty. (Generally speaking, if you do something called a rollover, which means you transfer your retirement account from one financial institution to another, there are no taxes or penalties.)

You can learn more about 401(k)s and IRAs here.

Tax forms you should know about 

You may have already filed your taxes this year or you might not have, given that the deadline for filing was pushed to July 15, 2020 due to the Covid-19 pandemic. If you have a Stash account, Stash will provide you with the forms you need regarding your investments. For the 2019 tax year, you can access those forms here.

You will have tax documents from Stash if you: 

• You received dividend payments greater than $10 from your Stash Invest investments in 2019
• You received more than $10 in interest on your Stash Invest account
• You made a withdrawal from your Stash Retire IRA of $10 or more, or
• You sold an investment in your Stash Invest account in 2019.
• You received dividends on any stock owned, or any stock sold.
• You will also generate a form 5498 if you made a contribution to your retirement account during 2019.

If you invest elsewhere, you’ll need to get the above forms and information from the brokerage or company you use to invest. And remember, everyone’s tax situation is different, so remember to do your own research and consider working with a tax professional.

The post How Investments Are Taxed appeared first on Stash Learn.

If you invest in stocks and ETFs, you might be surprised when you receive something called a dividend. A dividend is one way you earn money on your investments. In fact, if you receive one in your Stash portfolio, you’ll get an email letting you know. We’ll explain what a dividend is, and how you can use dividends to increase your investments with a tool called DRIP.

What is a dividend?

A dividend is a distribution of a company’s earnings, paid out to investors. Say you purchase a share of a company, and that company earns a profit one quarter. The company can decide to pay out a part of those profits to shareholders in the form of dividends. That amount is determined by the value of the company’s profits and by how many shares you have. The more shares you have, the higher your dividends are likely to be. (Note: Not all companies pay dividends.)

Dividends are almost always paid out in cash, but occasionally they’re distributed as additional shares of stock. And these payments usually occur four times a year, at the end of every quarter. 

What is dividend yield and what does it mean?

When you’re researching the stocks and ETFs that you want to invest in, one element you may want to keep in mind is something called dividend yield. It can help you measure how much cash you’ll get back in dividends for every dollar you invest in the company. Dividend yield is a percentage that is calculated by dividing the annual dividend per share by the price per share.

So, for example, if the annual dividend per share is $2.50 and the price per share is $100, the dividend yield will be 2.5%. The dividend yield of a stock is directly affected by the company’s share price. In fact, there is an inverse relationship. When a company’s stock price goes up, the yield will go down. And when the share price goes down, yield will go up. As of March 2020, the average dividend yield of the S&P 500, the market’s main bellwether, was 2.31%.

The dividend yield can be found on financial websites with stock information. On Stash’s website, you can look at single stocks and ETFs where you’ll be able to find the historical performance of the investment, as well as dividend yield and other information.

How can you use your dividends?

Of course, one way you can use dividends is to take the cash and spend it, or put it towards savings. But another option is to reinvest those dividends. Cash dividend payments tend to be affected more by inflation, whereas stock values can often increase at rates above inflation over time—though that’s not necessarily guaranteed.

Some brokerages, like Stash, offer a plan called DRIP so that you don’t have to manually reinvest dividends. DRIP stands for “dividend reinvestment plan,” and it allows investors to automatically reinvest dividends from the companies in which they invest in, as those dividends are paid out. You can turn on DRIP with Stash and automatically reinvest dividends in your portfolio. 

By reinvesting the cash you receive as a dividend, you can also increase the impact of compounding over time. Compounding is one of the most important concepts for new investors. It’s the echo effect that earnings and dividend payments can have on your total investment holdings, allowing them potentially to really add up over time.

Stash and DRIP

If an investment in your Stash receives a dividend, you’ll be notified via email. To turn on DRIP, go to “Invest” in the app and select the gear icon at the top right of the screen.Then select dividend reinvestment and enable the tool. When you receive a dividend from an ETF and you have DRIP turned on, the dividend will automatically be reinvested as either a fractional share or whole share of that ETF, depending on the value of the dividend. The same goes for a stock dividend.

You can start investing, and receiving dividends on those investments,on Stash with any dollar amount today.

The post Congrats, You Received a Dividend! Here’s What That Means and How You Can Use It. appeared first on Stash Learn.

But how, exactly, investing pays is something of a mystery to many investors. For some people, the idea that you can stash money away in an account or security and that it could grow into more money seems at best, like magic and at worst, suspicious.

We all know people that have made money “investing”. But what they actually did (and where they figured out how to do it) can seem like a Mulder and Scully-level mystery.

So how does your money actually make money?

While almost everyone invests their money with the goal of turning a profit, investing involves risk.

Markets can be volatile and investors need a sound strategy to weather the ups and downs over the long term.

That said, over the long run, though, markets (and returns) trend up:

Disclosure: This is not a prediction or projection of performance of an investment or investment strategy. Past performance is no guarantee of future results. Any historical returns, expected returns or probability projections are hypothetical in nature and may not reflect actual future performance. The rate of return on investments can vary widely over time, especially for long term investments including the potential loss of principal. For example, the S&P 500® for the 10 years ending 1/1/2014, had an annual compounded rate of return of 8.06%, including reinvestment of dividends (source: www.standardandpoors.com). Since 1970, the highest 12-month return was 61% (June 1982 through June 1983). The lowest 12-month return was -43% (March 2008 to March 2009). The S&P 500® is an index of 500 stocks seen as a leading indicator of U.S. equities and a reflection of the performance of the large cap universe, made up of companies selected by economists. The S&P 500 is a market value weighted index and one of the common benchmarks for the U.S. stock market. Source: Yahoo Finance. Source: Yahoo Finance.

The Dow Jones Industrial Average, for example, saw big gains over the past two or three decades. After the market bottomed-out during the financial crisis in 2009, the Dow more than doubled, briefly topping out above 29,000 points in early 2020.

Here are the three primary ways that companies pay back their shareholders, or, by which investments can earn you money.

1. An increase in share value

Perhaps the most obvious way in which an investment can make you money is that it gains value. As stock prices rise, shares become more valuable. And if you’re a shareholder, you can sell your stocks, earning you a profit, or return, on your initial investment.

The same applies to bonds, exchange-traded funds (ETFs), and other investments. When a company’s shares are worth more, shareholders reap the benefits.

2. Dividends

A dividend is your cut of a company’s earnings. If you own shares in a company, you own a part of the company — and therefore, you get a cut of the profits.

Typically, dividends are cash payouts to shareholders which can be reinvested, or sent to your accounts t through a dividend reinvestment plan (DRIP). With Stash, you can turn on DRIP and have dividends automatically reinvested. They can, however, be issued in the form of additional shares.

3. Interest payments

Interest payments are generally associated with fixed-income securities, like bonds. Bonds are a form of debt, meaning that you’ve loaned a company your money. In exchange, a bondholder is due interest payments and the bond’s full amount upon maturity.

If you’re a bondholder, then, you can expect periodic interest payments.

A quick note about stock buybacks

Sometimes, companies will engage in stock buybacks, which is when a company buys its own stock on the market. There are a few reasons why a company might do this, but one of the most common is to consolidate stakeholder value, and to increase share prices.

While somewhat controversial, a stock buyback is another way that companies can effectively “pay back” their shareholders.

The post How Your Investments Earn You Money appeared first on Stash Learn.

The layoffs are intended to help GE achieve $1 billion in cost savings over the next few years, the company said in a press release.

Behind the GE layoffs

GE Power, which produces a wide range of energy systems including power plants, turbines, and generators, is the company’s largest and most profitable division. It employs 57,000 people and had $27 billion in revenue for 2016, according to the Wall Street Journal. *

GE claims its power unit delivers one third of all electricity globally. The unit ran into trouble after it made a big bet on coal production, according to reports. It will now shift gears to renewable power such as wind and solar.

“This decision was painful but necessary for GE Power to respond to the disruption in the power market, which is driving significantly lower volumes in products and services,” Russell Stokes, president and chief executive of GE Power said in a statement. “(GE) Power will remain a work in progress in 2018. We expect market challenges to continue, but this plan will position us for 2019 and beyond.”

Remember when GE cut its dividends?

The layoffs are in line with GE’s announcement last month that it also plans to reduce its dividend by half. GE had been one of the biggest dividend payers in the U.S., distributing about $8 billion a year in cash annually to its shareholders, according to reports.

GE will now shift gears to renewable power such as wind and solar.

Companies tend to cut their dividends, which are a share of profits distributed to shareholders typically on a quarterly or an annual basis, when their earnings decline or their cash flow isn’t sufficient to fund the dividend payment.

Despite an economy and stock market that has roared ahead in 2017, GE reported weaker than expected earnings in the third quarter, with particularly soft performance in its power generation and oil and gas segments, which both posted losses, according to reports.

GE also said cash flow to fund operations for the year would be about $7 billion, roughly half earlier estimates of $12 to $14 billion, according to the New York Times.

More about GE

GE, one of the largest companies in the U.S., is a sprawling conglomerate with approximately 300,000 employees around the world. Its numerous business lines include the manufacture of aircraft engines, equipment for oil and gas mining, and diagnostic imaging systems for the healthcare industry, as well as home appliance manufacturing, not to mention consumer finance.

GE, an icon of U.S. business for 125 years, is the last remaining original component of the Dow Jones Industrial Average, and once one of the most admired companies globally. Its stock price has fallen about 44% in 2017.

News of the layoffs caused GE’s stock to increase 1.4% on Monday morning.

The post Power Trouble: GE Slashes 12,000 Jobs to Cut Costs appeared first on Stash Learn.

We’re guided by three principles we call The Stash Way.

• Choose individual stocks and funds that reflect your goals and beliefs.
• Buy and hold. Investing is a long-term game.
• Turn on Recurring Transactions to keep adding to your Stash on a regular basis. It will keep you on track to reach your goals.

Buy and hold

At Stash, we believe that you should invest for the long term. After all, you are investing for your future, right? Stash isn’t about trading, or getting rich quick. We believe in getting cozy with your investments, and watching them grow over years, and even decades.

Which will mean buying and holding them through ups and downs.

Recurring Transactions. Invest automatically

With Recurring Transactions you can thoughtfully choose how much and how often you want to invest, but then let the power of automation do the heavy lifting.

Consider this auto-investing in yourself and for your future. Recurring Transactions makes investing easier than ever. You choose how much you’d like to invest ($5, $10, $100?), how often you’d like to invest (every week, every other week, once a month?), and where you’d like that money to go.

You set it in the app and the transfer happens automatically. No need to remember to do it.

Recurring Transactions is so effective that investors with Recurring Transactions turned on are almost tripling their Stash deposit rates when compared with their non-Recurring Transactions counterparts*.

Ready to start investing?

The post Intro to Stash: Everything You Need To Know To Start Investing appeared first on Stash Learn.

In a recent financial literacy survey, Stash found that over 25% of people expect a return of 16% or higher on a moderate risk fund after one year*.

While we applaud these investors’ enthusiasm, we thought this was a great opportunity to talk about what to expect when you’re making a moderate risk investment.

Investing: What is a realistic expected return?

Here’s the thing that all investors should know. The market is going to experience peaks and valleys. There will be great years, and there are going to be, well, not so great years.

A moderate risk investment might show a return of over 20%, which happened in 2009. It wouldn’t be an anomaly, it would just be a part of the fluctuations of the market. However, in a bad year, you could see a return of -18% (which happened in 2008**).

If you look at the S&P 500 index over the course of 10 years (2013 – 2022), the average return is over 7% if you don’t adjust for inflation***. That said, if you’re a moderate risk investor, your portfolio will likely also include bonds. Bonds, which generally have a lower rate of return than stocks (in exchange for lower risk), may lower the return of your overall portfolio.

So as you can see, it’s not so simple to give a number when it comes to an expected return.

Dividends and Interest Payments  

Moderate risk exchange-traded funds or ETFs make up the majority of the investments found on Stash. ETFs are a type of investment that more often than not tracks an index.

If you’ve got both equity and debt (stocks and bonds) in your portfolio, you may receive interest payments on your debt investments and dividends on your equity investments.

(Confused? Check out: Debt & Equity, What Every Smart Investor Needs to Know)

So you’re expecting some dividends and interest payments, but when should you expect them?

ETFs distribute dividends and interest according to the schedules of the underlying securities of the funds. So if you have a nice diversified portfolio, distributions could occur at different times during the year.

While dividends and interest are typically paid out quarterly, investments all have different schedules for when distributions are made.

Moderate risk exchange-traded funds or ETFs make up the majority of the investments found on Stash.

Stash and dividends

At Stash, we shoot you an email when you receive a dividend or interest payment. These payments may seem usually pretty small at first, because they are based on the amount you have invested. But if you stick with it for the long term, they can really add up!

As always, if you want to know more about the distribution history for a particular investment, check out the fund’s website, which you can find linked in all of our investment profiles.

BONUS: The Rule of 72

This rule can be pretty handy when estimating potential returns.

Here’s how it works: Take the number 72 and divide by the expected return you think you’ll get per year. That’s how many years it will take for your initial investment to double, assuming a fixed rate of return.

For example: 72 divided by 5 percent means it will take 14.4 years for your money to double.

The post What to Expect When You’re Investing: Getting Realistic About Returns appeared first on Stash Learn.