There are a great many theories on how to invest and the best method – one such method is called liability driven investing. The aspect starts with the question what do you want to do with the money you are investing in. Besides having more, which is a nice and good answer, you invested your savings, what kind of return do you want or need to meet the obligations that you are investing for? The liabilities driven investing method is linked to pension plans or life insurance companies who have obligations in the future and try to match the obligations with investment returns. In the pension world, at some point people retire and expect to receive a pension on a regular basis, with the baby boom starting to retire, the numbers can not be matched with new entrants to the work force. The pension funds have to match liability driven investing. On a personal level you do not have to, but liability driven investing would reduce the risk of selling when the market occasionally takes a downward part of the cycle. Ideally we all sell in the upward portion of the economic cycle.

Linking to dividend paying stocks, from a liability driven investing method, the dividends which you earn provide a consistent revenue stream which can be tailored to match your needs. If you pick companies which have consistently increased their dividends, then you can note the dates they are paid and match some of your needs and wants with those payments. The other wonderful piece of news is whatever the economic cycle, dividend paying companies tend to go down less and bounce back faster ehrn there is a move by the market to buy quality stocks. When the market catches up to the dividend paying stocks, there is switch to stocks that offer greater growth, but your dividends are continued to be paid. You can have the best of both world’s as the size of your dividends increase you can reinvest some of it and some of it can be put towards other investments.

There are more questions than answers, till the next time – to raising questions.