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Decided to start a new thread since I changed my strategy a bit at the end of May. I added $131 in income in May. A pace that would add $1,573 of income over the course of the year. My goal is $1,000 increase yearly. Since no new money gets added (except at beginning of the year), all increases are due to reinvestment and dividend increases.
We had 2 dividend increases in May, although only 1 was impactful. Normally I automatically reinvest, but I have too much of a couple stocks so I take those dividends as cash and periodically buy with those. That happened in May. A purchase added about $60 of income. Otherwise we would have been about $70 increase which is kind of baseline these days.
But at end of May I switched strategies a bit. Here's why:
Friend 1: I have a buddy who told me 2 or 3 years ago that he'd become a millionaire. He is legally blind and had been for about 15 years. Can't drive, so no car expenses. House paid off. Single, no kids. Had been on SS disability for years and years which more than covered his living expenses and he had more than $30K coming in from investments. He said he had everything he wanted so every month he had more and more extra money, and next thing he knew he had a million.
Shortly after that, he got scammed. Big time. A guy doing repairs on his house convinced him to invest $250K in his business. No paperwork, no contract. When he told me I thought this sounded like a pretty terrible plan. It did go south. The guy got arrested and sent to jail for fraud, although what he was convicted of had nothing to do with my friend. He didn't like to talk about it, so we never bring it up. I casually mentioned something to a another friend that knows him better, and he said the scammer kept coming back to him for more money, and he had lost not $250K but $750K.
I was struck by two thoughts. One - how does a really smart guy fall for something like this? Repeatedly. It's bad enough to lose $250K, but to write 2 more checks of the same amount later? Crazy.
The second thought was: Why gamble? He was set for life. Reminded me of a saying. "when you've won the game, stop playing".
Friend 2: Recently widowed/retired. Getting SS Survivor. Had 2 different retirement plans that both offered annuity or lump sum. He was tempted by lump sum but knew nothing about stocks. I told him I'd advise him and invest with Dividend Growth principles. He took one as annuity and one lump sum.
The lump sum was about $165,000. We invested and by last August we hit $200K. At that point he became totally fixated on the $200K and was so fearful of losing that so he pulled out of the market. He's still out. He's earning nothing on the money. He's cost himself a pretty fair amount over the last 10 months. In 6 months he needs to start making withdrawals (for income, not for RMD's)
That brings me back to my situation. I'm married. Our investments are worth a nice amount, but far short of my buddy's $1 Million. My wife and I have different risk tolerances. I could tolerate losing $50-75K. Trust me, I wouldn't like it, but as long as the income kept rolling in I'd be ok. But, my wife would be a different story. A $50-75K loss would freak her out.
So our situation is a little like the mixture of these 2 friends. Like Friend 1, our pensions and SS will cover our living expenses after we both retire. Except for a period between the time my wife retires until I turn 70 and start SS (a maximum of 4 years from today) our investment income is "extra". We will need approximately 1/2 our investment income during that time frame.
So, in way we are like friend 1. Happy with the total of our investments, and with more income than expenses. So why play the game if we've won?
And my wife is like friend 2. Fixated on the total, and would not handle it well if that number had dramatic decrease.
So, at end of May, I started transitioning out of regular stocks and into preferred stocks and baby bonds. I'd already had some exposure in them. Maybe 15%-to 18%. I never captured the percentage. After a couple days of picking off the low hanging fruit, I'm up to 40%. I've still got more to do. But my guess is I'll top about (for now) at 50%. The rest of my stocks/funds pay more then the preferreds/baby bonds so I don't want to trade them in and lose income.
My plan is to stop automatically reinvesting and invest the dividends into preferreds. Slowly that will whittle down the percentage that is in stocks. Especially if I can trim a little of the regular stocks each time we do that. We'll see.
So, the plan is to stabilize as much as possible the total number, while keeping the income flow/increases coming. That means giving up the upside to protect the downside. I'm ok with that.
This plan wouldn't be for everyone. But I'm 66 with pension and SS that more than covers our needs, and am satisfied if our total number stays the same. (although I expect it to go up because of reinvestments)
...One - how does a really smart guy fall for something like this? ...
The second thought was: Why gamble? He was set for life. Reminded me of a saying. "when you've won the game, stop playing".
The rationale comes down to human nature. The sort of acquisitive and risk-embracing character traits that enable one to build affluence in the first place, also preclude one from calling enough, enough; and they leave one vulnerable to being seduced by an aggressive and risky scheme. After all, outright aversion to risk would have meant that your friend would have been limited to low-return investments, and thus he'd never have reached his claimed level of affluence. It is very difficult to "switch on" one mode of behavior, necessary to reach some goal, and then upon reaching said, goal, to "switch it off".
I would not reinvest the dividends you did not spend and put them into a cash reserve for several years of expenses. Cash can be CD's and maybe some of your bonds.
Once you have a good cash reserve I think I would look toward dividend paying ETF's assuming these will be around if your wife survives you. You could probably get double the dividend in individual stocks but that may not work for her confront level.
At any rate you seem to know what you are doing and how your decisions effect your life.
The same reason people who focus on total return do so even if they have enough money. It's what they believe in.
I focus on income that can be turned on in a moment's notice (practically). Because income that doesn't erode your principle is key.
everyone defines what is "enough" to themselves .
if i doubled my assets our punch list of things to do would still be unfilled . in fact we ever had enough to fill all our wants it would just shift to more for the kids and grand kids .
within reason and balance the carrot always stays on the stick . even at 65 there can be 30 years of unknown left
Well, June was our transition month. I made all the moves I wanted and we ended up at about 47% in preferreds, Baby Bonds, and CEF's of same or similar. The remaining 53% were either stocks that paid more than the preferreds or that I like too much to sell at this point. Slowly but surely I'll try and whittle that down.
Since I sold essentially everything that paid less than the preferreds,and switched into higher paying preferreds, my income took a one-time jump of about $1,155.
Not tapping into investment income much now. Will need it from the time wife retires till I turn and collect SS. After that the investment income can all be reinvested again. Maximum length of time that is now is 47 months. And she's made no mention of retiring yet.
One interesting thing I noticed is that many of the preferreds are on the Jan/April/Aug/Oct cycle. So I will pick up a lot of dividends this month, and not much in Aug and Sept. So I will try to spread out reinvestments to have a more steady increase in income.
Yep,lot of companies pay in March,June,Sep,Dec,these months my dividends are high,Average around 450 and other months its just half of it.
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