Is this a Market Top? What Will You Do?

You might have noticed the general market represented by the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) is trading in a sideways channel between roughly $185 and $209.

SPY technical chart May 2016

In fact, Financial Visualization’s daily chart marks a double top, which technically means it’s going down from here. There’s a strong support at $180, but if it falls through that, there will be more downside.

SPY finviz chart May 2016

OK, so all of this is like reading tea leaves. How does the market look fundamentally?

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How to Know If a Dividend is Safe

To determine if a dividend is safe or not, one must analyze the company that’s paying the dividend. There are multiple things to look for.

get safe dividends

Is the company financially strong?

Dividend companies with financially strong profiles are less likely to cut their dividends. So, invest in companies with credit ratings of BBB+ or better to improve your dividends’ safety.

For example, Telus Corporation (TSX:T)(NYSE:TU) has a BBB+ S&P credit rating.

Is the earnings stable?

As one of the leading Canadian telecoms, Telus also earns stable cash flows and earnings from its subscribers. It has 12.4 million total subscriber connections, including 8.5 million wireless subscribers (about a third of the market), 1.6 million high-speed Internet subscribers, and one million TV subscribers.

Businesses that are dependent on volatile commodity prices, including oil and gas producers and mining companies, will experience volatile earnings. Read More

How To Save More Money

Do you find that you’re not saving enough even though you have a plan to limit your spending? Let’s go back to the basics to see how to save more money. These tips should lead you to more savings and money in your pocket.

save money

First, we have this savings formula: Savings = Earnings – Expenses

It tells us that:

  • The more you earn, the bigger your savings can be.
  • The less you spend, the bigger your savings can be.

So, let’s think of ways to increase your earnings and reduce your expenses.

Increase earnings

Increase earnings through passive income

What’s exciting to lots of people is to earn a passive income. You can earn a passive income by investing and renting out real estate properties to collect monthly rent.

However, that comes with managing properties and dealing with tenants. It could turn out to be more work than expected and would defeat the purpose of a passive income, which should require less work than an active income.

Perhaps a simpler way to generate a passive income is through a portfolio of dividend stocks. Less money is required for an initial investment compared to a real estate property.

Let’s say a condominium costs $300,000 and you rent it out for $1,500 per month, that’s a return of 6%, excluding the mortgage interests, maintenance fees, property tax, strata fees, and so on.

Historically, the market has returned 7-10% per year. Theoretically, you can buy quality dividend stocks when they’re on sale. After the commission fee for buying, you can hold and avoid paying any more commission fees that are required for sales.

Then, you can just collect passive income from dividends. It’s common to find 3-4% dividend yields that can grow at least 5% per year and 5% yields that may grow 2% a year.

Eligible Canadian dividends are favourably taxed if received in a non-registered (taxable) account for Canadians, and likewise, qualified U.S. dividends are favorably taxed for Americans. Canadians can receive qualified U.S. dividends in registered retirement savings plans (RRSPs) without the 15% withholding tax.

The business growth, which eventually translates to capital gains, is tax deferred until you sell, at which time, only 50% are taxed at your marginal tax rate (if you’re Canadian).

If Canadians buy and hold in a tax free savings account (TFSA), they don’t have to pay any taxes on dividends and capital gains!

If your goal is to generate a passive income, then, you don’t even need to worry about the sell side. Just focus on buying quality, dividend-paying companies when they’re at reasonable valuations and collect their dividends forever.

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