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Start fishing for financial freedom

Investing, like fishing, is about the big picture. Firstly you have to have bait in the water to catch anything and secondly, patience is king. For many of us, we’ve cast our biggest line into the water when we bought a house or property, but nothing is stopping us from putting in another. Diversifying your nest egg is not only the best way to save money — it’s one of the best ways to make money.

Having a portion in property, shares, bonds, cash and, if you’re savvy enough, in options or higher risk assets, are what any good financial advisor will tell you to do. However, many people mistrust financial markets because they don’t understand how they work and believe it’s too similar to gambling.

People like to invest in things that are tangible – things they can touch, feel they can maintain control over and can interact with every day. It’s not an investing strategy that has stood the test of time. However, below are four companies that allow you to diversify your investment through stock market exposure, provide excellent dividends and you have the luxury of knowing exactly what you’re getting based on their well-known brand names.

In the words of the world’s most famous investor, Warren Buffett, successful investing is done through living a simple or modest life and reinvesting everything you make (at the right time). Nevertheless you deserve to receive regular profit from your investment because, after all, you are buying a portion of the company. A 6% fully franked dividend yield is great if the stock can stand the test of time.

Bank stocks are one of favourite amongst income investors because of their yield and security. Westpac (ASX: WBC) and NAB (ASX: NAB) both pay fully franked dividends over 6.2%. There is a significant tax advantage too for fully franked dividends, where the dividend will be taxed at the maximum company rate of 30% instead of the investor paying up to 45% based on individual tax rates. However, these companies, like any stock, are susceptible to volatility and the underlying price will vary over the years, although history has shown our banks have a healthy but modest upward trend. So, although they may drop in price on the occasion, they always seem to pick themselves back up.

Every day we spend money to buy our groceries through Woolworths, Coles or IGA. The latter is driven by Metcash (ASX: MTS), which has shown year in and year out that investors shouldn’t rule it out of their portfolios. The company has managed to grow profits by 6.5% this year, despite enormous levels of competition between its larger rivals and has paid shareholders a 7.7% fully franked dividend.

Another rule that is key to Warren Buffett’s success is his ability to remain cool under pressure and make good judgements when others are afraid to do so. The proof is in the pudding.

Over his lifetime, he’s seen many financial crises, wars, interest rate falls or increases and recessions, yet he’s still managed to make over $50 billion through investing. His rule is to buy when others are fearful and sell when they are greedy. That is why Myer (ASX: MYR) could be a buy for investors as well as yield hunters. At current prices it pays a 7.7% fully franked dividend and has managed to survive in a pond with much larger fish, and faced threats such as online sales and huge overseas brand names.

Foolish takeaway

Consulting a licenced professional is a great way to know what type of investing strategy will work well for you. However, only you work in your own interests and financial freedom could be easier than you think. There are many services available (we even offer a few here!) that will help you kick start your investing career and take pride in doing so. They’ll bait your hook and tell you when to reel, just keep your eye on the horizon, or otherwise you could get seasick.

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Motley Fool contributor Owen Raszkiewicz owns shares in Metcash and Myer.

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