While I may have a dividend stock portfolio with over $300K, I still invest in small amounts throughout the year. The fact is, it’s the easiest way to invest. I could wait until I have more but I set my minimum at $1,000 as my $9.99 transaction fee represent 1% and I don’t want to pay more than that. Back when trading used to cost $35 per transaction, it felt prohibitive if you remember those days. Since I have been able to invest this way, I wanted to share my process on how to invest $1,000. Please share your thoughts or add to it.
How to Invest $1,000
The follow steps assume you already have a discount broker and are ready to make purchases on your own. If not, feel free to continue reading but you will first need to research the discount broker that works for you. Depending on your investing goals, different discount brokers may fit your needs.
Step 1 – Which sector needs money?
The first thing I do is to take away the emotion by simply looking at my portfolio allocation to see where I am short. Usually there are a couple of sectors that are in need of extra funds.
With the size of my dividend income portfolio, there are always movement in stock value which easily create a gap of $1,000 in a sector so it’s not like I feel I have to break it down. I can usually put all on one stock. For the most part, I am also adding to existing holdings.
Step 2 – Review the stocks from the selected sectors in my list
I look at both my Canadian and US list to assess what options I have available. I make a short list to see what the best opportunities are at the time.
I don’t always pick the stock with the highest score. I will assess if the stock matches the 10/10 rule of 10 years of consecutive dividend growth with a 10% growth on average for the 10 years.
Step 3 – Deeper look into my short liststockchase.com to get an idea of what is being said by analysts to make sure I don’t miss anything.
At this point, I will be making my decision and get ready to make a purchase. Believe it or not, I don’t set a purchase price based on some value formula and I cannot predict where the stock price would go either. I usually purchase knowing stocks move up over time and I get paid dividends to wait and I DRIP where I can. If the stock drops, my sector allocation will pick it up and I can add to the sector by adding to same position or create a new position if I find I am overweight in that one stock.
Step 4 – Choose the account
There are 3 accounts I can choose from where I manage my diversification which are non-registered, TFSA and RRSP. As it happens though, there are some rules to choosing an account. For example, all my US investments go in my RRSP (I have plenty of room to add more funds) as it is more tax efficient. If my decision is to buy a US company, I have to make an RRSP contribution but otherwise, it also depends if there is room in my TFSA.
I usually make my TFSA contribution in the first week of January so it’s not usually an option except when Step 4 becomes Step 1 where the account is already chosen at which point I don’t look at my US list.
Readers: What are your steps?
Image courtesy of Stuart Miles – FreeDigitalPhotos.net