FINANCIAL HOUSEKEEPING | Test your “Dividend I.Q.”
Over the past 60-plus years, nearly two-thirds of the return of the Standard & Poor’s 500 index has come from reinvested dividends, so investors are wise to understand how dividends contribute to total return for their investments. And yet, many investors moved away from dividend-paying stocks during the bull market of the 1990s, preferring to focus on stocks that generated all of their return through price appreciation, rather than sharing a piece of the profits with investors.
To see the role dividends can play in a balanced investment portfolio – and to test your knowledge of how dividends work – investors should check out “The Dividend Story,” as told by investment management firm Eaton Vance. Go to eatonvance.com, click on “mutual funds” and look for the link to “Learn More About the Power of Dividends.”
SHORT COURSE | Option ARM
An “option ARM” is an adjustable-rate mortgage that gives the consumer four basic choices on how they will make their payment each month. It is sometimes called a cash-flow ARM, a pay-option ARM or a pick-a-payment loan.
These loans offer four monthly payment options: There’s a 15-year payment schedule, a 30-year amortization, an interest-only payment plan, or a minimum payment determined when the interest rate is locked in on the loan.
This ultra-low minimum payment allows the consumer to buy more house, under the premise that future pay raises will cover the increase in mortgage costs.
This is also the most dangerous option, as payments don’t cover either the principal or the interest, meaning the outstanding balance of the loan is growing, rather than shrinking, when this option is used.
