will I make more off of my savings or stocks?

Question

My savings pays 4.5 apy and I have 3700.00 in it. If I took it out and bought a mutual fund would I make more in dividends after all is said and done like taxes and management fees? I dont want to get into buying and selling stocks all of the time but would like a more long term stable investment that makes a good return.I want it to grow more than fall but I know my dividends should stay the same cause they are paid per share but will the same amount of money pay more in dividends than my simple interest?

Answer 1

Depends on your time frame. If you invest for 30 years or longer, stocks are highly likely to outperform a savings account. With shorter peroids of time, it's a coin toss. The shorter the time horizon, the greater the uncertainty.

Answer 2

First, no answer to this question can be guaranteed to be correct. If the market busts, even stocks that continue to pay dividends may still lose out to fix-interest investments b/c of capital losses. The huge advantage of dividends is that they are now taxed at only 15% as opposed to interest which is taxed at your marginal tax bracket (25% if you make over $30,000, and 32% if you make over $72,000). That's about double the taxes on interest in a savings account. Taking the lower %, $200 in interest would cost you $50 in taxes whereas $200 paid as dividends would only cost you $30. You'd also have the potential for long-term capital gains which are also taxed more favorably.

All that to say that if you're comfortable with a little added risk, strongly consider choosing solid stocks with a long history of paying dividends, and if history holds true you should win out even if the market doesn't sky-rocket. good luck

Answer 3

It depends on your time horizon. Generally stocks return better than savings, but this requires a long time horizon.

You can earn money one of two ways in stocks.
Buy stocks that pay no dividends, but grow in value per share
or
Buy stocks in mature, stable companies with good track records of paying dividends.

First understand this:
Dividends are NOT guaranteed. If a company can't pay dividends, they are under no requirement to do so. BUT most companies that traditionally pay dividends have shareholders that expect those dividends, so it is VERY rare for this to happen with stable, mature companies.

Here is a neat trick regarding dividends.

You can get a stock trading account and pick a good dividend stock. You can then automatically "reinvest" those dividends in that company simply by asking for a dividend reinvestment.

This means that when the company pays dividends, those dividends are reinvested in fractional shares of the stock. This purchas is free.

Over time your dividends buy more whole shares so you earn more dividends. This is a great way to buy and hold on autopilot for long periods. Think of companies like Coca-Cola, or Merck or so forth that have been around for 100+ years. They aren't going away anytime soon, and have such re-investment plans.

Then, when you want to actually start using that money, simply stop the automatic reinvestment.

You can earn money from the stock price going up, an increasing number of shares, and increasing dividends per share.

Generally companies like to grow their dividend per share payouts on a regular basis, so it works well.

The great thing about this is when the stock market tanks, you make a killing.

Example:
You have 100 shares that you buy at $100 each and get $4 per share per year, paid once per year.

The end of the first year you have 104 shares, if the price is the same.

BUT

If the price of the stock drops to say, $75 dollars, you will instead have 106.4 shares. Dividends rarely go down in large companies, so even in a market down turn you will likely see stable dividends. This means that next year you will earn dividends on an extra two shares.

If the stock market goes higher, you buy fewer shares with your dividends, but remember that the underlying value of those stock is also money that you can get if you sell them and take a profit.

Either way, up or down, you will make some money, and not have to pay trading fees.

This is known as dollar-cost averaging, by the way.

Answer 4

Altria (One of the most profitable companies in the World) currently pays 4.20% annually.

$3,000.00 in Altria shares from 1990 is now worth over $12,000.00