Earlier this year, I decided to max out any tax-deferred accounts I am eligible for. This included 401 (k), Sep IRA and ROTH IRA. My goal is to not only have a diversified income portfolio, but to diversify from a tax perspective as well. At the beginning of September, I tweeted about purchasing shares in ten attractively valued companies in my Roth IRA. The Roth IRA has several very appealing features such as tax-free compounding of capital, distributions are never taxed and there are no required minimum contributions.
I allocated $2,000 to the purchase of ten securities in September, and have $3,500 more to invest until the contribution limit of $5,500 for 2013 is exhausted. The brokerage used to execute this transaction was Sharebuilder. I believe that this is the best brokerage to use if you are just starting out your dividend investing journey and have low initial amounts of capital to invest.
It is important to maintain low costs when purchasing dividend paying stocks. As a rule, I try to avoid paying more than 0.50% in commissions on my purchases. With my regular accounts, it is easy to achieve that if I pay less than $5/trade and invest at least $1,000 at a time. With Roth IRA’s however, the $5,500 limit makes it difficult to invest in more than 5 – 6 companies/year at such commission rates. Since I have much more ideas than that, and since I wanted to have a diversified allocation each year, I decided to buy a greater number of companies. I signed up for Sharebuilder’s automatic investment program, which charges $12/month for 12 automatic monthly stock purchases. These stock purchases are executed on Tuesdays, with the automatic investment program. I also wanted to build the allocation over a period of time, rather than in a lump sum. I am allocating $2,000 in September, $2,000 in October and $1,500 in November. Since the first month of signing up was free, I am essentially going to end up spending $24 to invest $5,500, which is only 0.43%. After that I am going to cancel the service, until I am ready to put the contributions for year 2014 to work.
I purchased shares in the following ten companies in early September: (open link in another window)
Full Disclosure: Long all stocks listed in the article
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