Many of us are familiar with what bonus pay is and I’m pretty sure all of us would look forward to receiving it as the financial year comes to a close. In fact, I would be lying if I’d say otherwise. Employers often distribute bonus pay at the end of the company’s financial year or, for some companies in Singapore, right before the Chinese New Year.
Often given as a reward (and gratitude) by companies to employees for hitting certain goals or attaining high performances, this bonus (which may include two months or more worth of pay) goes a long way for them, especially for those who are actively saving for their long-term goals.
Yet interestingly, there are some companies who distribute dividends instead.
So, what is a dividend?
In simple terms, a dividend refers to a sum of money (or stocks) regularly distributed to shareholders out of a portion of the company’s reserves or profits. Depending on the company, dividends can be distributed on a monthly, quarterly (every three months), or annually basis. In many ways, dividends may act as a source of reliable passive income.
However, not every company has the capability to issue dividends.
New startups and companies that face fast growth tend to either report losses in their early foundation years or attempt to reinvest whatever profits that come in for further growth. If that’s the case, it thus makes sense that the best dividend payers, who seek to maximise their shareholders’ wealth, are larger and well-established companies with reportedly predictable profits.
Like bonuses, mature companies with consistent profits tend to disburse annual and performance bonuses as compared to startups which may fetch it lower profits.
Why do some companies issue dividends while others offer bonuses?
When a company consistently issues dividends, it does send a strong signal to investors that the company is doing relatively well and has confidence in yielding future profits. Together with the allure of the steady income dividends provide, potential investors would be more inclined to purchase the company’s stocks and thus increasing its stock price.
On the other hand, when a company issues bonuses as a token of gratitude for employees’ performances, employees are more likely to be motivated to work harder to attain such goals, thereby improving morale and company’s productivity.
In other words, one can say that companies that issue dividends aim to reward shareholders while companies that give out bonuses aim to reward employees.
The bottom line … why not make money work for you?
Undoubtedly, there are great similarities between bonuses and dividends, the former is earned because you, as an employee, have somehow contributed to the company’s annual growth while the latter is issued to you, as a shareholder, regardless of where you are or what you are doing.
Equipped with a diversified portfolio of ETFs which include a list of companies that issue dividends, Smartly offers interested investors a fuss-free solution to invest. Not only does Smartly boost great transparency and efficiency, it also exercises initiative to reinvest your dividends so that your investment can grow faster.
(Dividend) This is the day the Board of Directors announces their intention to pay a dividend. The company then creates a liability in its books; it now owes the money to the stockholders. The Board will also announce a date of record and a payment date.
(Bonus) The date when your company declares that they decide to give out three months of bonus at the end of this financial year.
Date of record:
(Dividend) This date is also known as “ex-dividend” date. It is the day upon which the stockholders of record are entitled to the upcoming dividend payment.
(Bonuses) If you joined the company after the ex-dividend date, you would not receive the upcoming bonus. Only employees who have joined the company before the ‘date of record’ is entitled to the bonus.
(Dividend) This is the date when the dividend is given to the shareholders of the company.
(Bonuses) The date that most people await eagerly for — the day when the company issues out the bonuses to the employees.
Everyone knows about gold. From watches to jewellery, you might probably have seen your grandparents wearing them or keeping them in their drawers; which would be given as dowry.
While most people see gold as a symbol of wealth and status, how many understand the dark history behind gold – how wars, racism and nativism were caused because of the shiny yellow object that we called gold.
Back in the year 1519 – 1521, the Spanish plundered Aztec (Modern-day Mexico City) for their concept of wealth. For the Spanish, gold and silver represent wealth. They would prefer to have them in bars or coins – the more, the better.
Illustration by Irina Botcharova
The Aztecs have a different perspective of wealth. While gold was abundant in Aztec, it was used primarily for ornaments, decorations and plates. Their concept of wealth was elaborate cloaks and headdress made out of brightly coloured feathers – like the image shown above.
At this point, you might be wondering why are feathers used as a symbol of wealth.
This is because human wants are subjective, and it varies from person to person and at different time period. Value is assigned to a particular instance of thing based on how useful one believes.
For example, our representation of wealth may be branded goods such as Louis Vuitton. While we may agree that these products allow us to be associated with high Socio-Economic Status (SES), the perception of humans may change a century later. They would probably be wondering why humans in the 21st century used leather goods as a representation of wealth.
Putting the brief history lesson aside; there is no intrinsic value to gold. It is attributed just like how humans did for feather headdress and leather goods.
Why is gold still valuable if the value is subjective?
Gold possesses intrinsic physical qualities such as durability and malleability. Although there is no intrinsic value, the rarity, luster and colour of gold have made it a prized possession throughout the world. It has played an essential role in the international monetary system as countries were using gold coins as currency. This helps to unite us despite our language and cultural differences.
The rarity, luster and colour of gold
After the introduction of paper money, there was still an explicit link between paper and gold. This is also known as the ‘Gold Standard’ – it is when a country ties the value of its money to the amount of gold it possesses. Anyone holding that country’s paper money could present it to the government and receive an agreed upon amount of gold from the country’s gold reserve.
Unfortunately, the gold standard only lasted a period. The country’s gold reserve was depleting as people were hoarding gold because they didn’t trust any financial institution.
Fast forward to the present day, countries no longer use the gold standard, and it was replaced entirely with fiat money – A currency without intrinsic value that has been established by the government as money.
Will gold retain its value?
There is no implicit guarantee that any forms of currency will retain its value in the future. For example, Venezuelan bolívar (VEF) used to be valuable (In the year 1998, 1 USD = 0.5 Bolívar); individuals are using bolívar as an exchange of value for products and services. However, with the recent inflation of more than 40,000 per cent, the currency is essentially ‘worthless’ (Today, 1 USD = 206,840 Bolívar).
USD – VEF for the past 20 years
Unlike fiat money, gold does not have any inflation and is not issued by any government. It is commonly known as a safe haven for investors since it has withstood various social, political and financial climate throughout history. Just like how the gold price went up during 2008 financial crisis, it would continue to be valuable as long as there is demand.
Gold’s Correlation to the Equity Markets
SPX refers to S&P 500 Index – An American stock market index based on the market capitalisations of 500 large companies having common stock listed on the NYSE or NASDAQ
How can we invest in gold?
One of the most common methods is to invest in gold ETF (exchange-traded fund). It is a commodity ETF that consists of only one principal asset: gold.
If you are using Smartly to invest, your investment portfolio may consist of SPDR Gold Trust (GLD). It is the largest ETF to invest directly in physical gold. It tracks the gold spot price, less expenses and liabilities, using gold bars held in London vaults.
While there is no ‘gold standard’ when you redeem a gold ETF, you’ll be given the cash equivalent of the gold. The price of GLD is about 1/10 of the price of gold – if gold futures are trading at $1,500, then GLD will trade at approximately $150.
How does it work?
GLD trades like any stock. Depending on the number of shares you hold, you may make a profit or loss depending on the price movement. For example, if you are holding 100 shares of GLD and the price moves from $150 to $151, you would have made a profit or loss of $100.
To get started with gold investment, you can head over to our platform and get a personalised investment portfolio based on your appetite for risk. You may have a portfolio which includes SPDR Gold Trust (GLD) as one of your investment holdings.