My Dividend Holdings

Hey ammyhour,

I’ll attempt to answer your questions, although I just want to add that I’m not a professional by any means and none of my email should be taken as financial advice. Not only because I don’t want to be sued but also because I’ve made quite a few investment mistakes along my way. As I try to describe in my blog, I’m simply a guy on a journey and I want to share my experiences along the way in the case this path fits others’.

Q: Since you are retiring soon, I assume that these holdings are in a normal brokerage account and not any kind of retirement fund that would penalize you for taking money out early. Is this correct?
A: The majority is in a taxable brokerage account (I use eTrade and Fidelity) but not all of it. About 35% is in IRA accounts which I plan to access as necessary using a little know tax trick of rolling over money into a Roth IRA after I retire and I’m in a low income bracket, holding it for 5 years, then cashing it out penalty free (see strategy 2 here). I did, however, reduce my 401K contribution to the employer mathcing amount once I decided to retire extremely early. This may or may not be wise, but it made me feel more comfortable building up my taxable account.

Q: From your previous posts, it seems like you have been working in the corporate sector, where 401K’s are a common perk. How did you manage to save so much money in an individual fund while also funding the employer-matching accounts? Are those separate, or did you roll your employer’s account into this one?
A: I’m assuming you are referring to my “taxable portfolio” that I mention in my monthly report. For that, I achieved this amount through a combination of sacrifice, hard work, and luck. For “hard work” I was working 80-90 hours/week for the first several years of my career (before kids). This alllowed me to increase my salary from $50K to $120K within 8 years. I won’t argue that anyone can do this because that’s not true, I also don’t consider myself unordinarily smart, so it’s not out of reach for most people. Regardless, that type of income is not required for this path of early retirement… For “sacrifice” I mean that my wife and I didn’t go to fancy dinners and fancy vacations that our peers were doing. Instead, we made do with each other (not so bad) and continued to save as much as possible. We didn’t always agree on the sacrifices, but as we began our family we quickly realized we were making the right decision. Finally for “luck,” I mean to say that I was lucky to pursue a career I happen to be very good at and that pays pretty well. I think that the majority of poeple that read this blog are in a similar situation, or could be if they are willing to explore change. They just need to consider their options.

Q: How long did it take you to build this account? Did you start buying dividend stocks immediately upon entering the work force, or was your DRIP strategy a transition from holding indexes, mutual funds, etc.?
A: I invested like an idiot for years. I thought reading the Berkshire Hathaway annual report and a couple of value investing books made me an investing genius. Then I started picking stocks. Unfortunately for me, I got lucky on a few early on which allowed me to continue this ignorant path. Eventually, after losing $150K in 2008, I wised up. This is why I recommend that people start saving first, and only begin investing once they have the capital to make it worth their time. For example, if you make 50K/year, spending 30K and saving $20K, after 3 years you have 60K saved. You could spend tons of time figuring out how to make an extra 3% in the market, but that only equals $1800/year. You’d be better off spending that time working to increase skills that result in an increase to your salary. Let’s say you do that for 5 years and get to 100K while keeping your expenses down. If you do, then you can easily have $500K saved up after 10 years. Now at this point if you find a way to get an extra 3% return that is $15K/year (extra). If your expenses are still low, this could be enough to retire! I was a terrible investor for the first 8 years of my savings career because I didn’t have a good strategy and didn’t understand the modern portfolio theory. — By the way, my next post I’m working on discusses some of the things to consider when investing (risk tolerance, passivity, etc)

Q: Did/do you invest in any more speculative stocks for faster growth in your early investment days? Most of the advice that I have received suggests that I (as a youngish guy) should concentrate on growth, and transition towards a more conservative portfolio as I age. Do you agree with this strategy?
A: I can’t say, because I think it’s highly dependent on situation and personality. For me specifically, if I could go back a decade to when I was first starting my investments I would spend my time and money investing in income payig investments with reasonable stability such as real estate rentals and a balanced approach of dividend stocks and dividend paying treasury bonds. However, to be fair, this could be biased by what I realize now would have made me signifiantly wealthier and, as you know, previous results do not predict future results… My only non-prfoessional adive would be that you should invest in what you understand (as Warren Buffet says) and not follow the advice of others.

Q: How did you go about building these holdings? For example, how often did you buy a stock and how did you decide how much to put towards it? For example, you own 208 shares of MO, but I assume you did not buy them all at once, and you probably did not focus on this stock over some of the others on the list. What made you decide that 24 stocks was the right amount of companies to invest in, and then continously buying more shares in them as opposed to buying shares in other companies? Was this perhaps based on a target amount of diversification that you were looking for?
A: The specifics of my holdings are not reflective of my long-term strategy. For example, the 208 shares of MO are not shares I want to continue to own. However, I’m sitting on significant capital gains and have already exhausted any capital losses for this tax year. My long-term plan is to only own about 10 different stocks, mainly high-paying dividend DOW stocks. I completely revamped my investments about a year ago to focus on 4 things: cash (for stability), gold (for inflation protection), dividend stocks (for income) and to capitalize if/when our economy recovers, and US T-bonds (for income and deflation protection). My strategy is to implement the modern portfolio theory using these for asset classes. If you aren’t familiar with this “theory”, I recommend reading The Intelligent Asset Allocator.

Q: I would be very interested in hearing more about your investment strategies and the process you went through to get where you are today.
A: As I mentioned above, my “investment strategies” have been chaotic until the past year. I was lucky not to lose it all, but I certainly haven’t done well or even beat the market. Instead, I saved like hell until I reached a point where it became worth my time to research ways to beat the market. Financial independence can be reached through saving early and aggresively, lowering expenses, and after some savings… learning to make your money work for you. I believe that if I had followed that advice in that order when I was 22, I’d be closer to $2M and several years into retirement.

Thanks again visiting the blog. I started the blog to document my personal journey, but to be honest I think I’ve worked out all the kinks in my individual plan. The only reason I still write on it at this point is because of emails like yours where people find a connection to me – and I think I might help them reach the same destination. I hope this helps, and if you have questions, let me know.
Brave New Life recently posted..The Non-Retirement Generation

I’m in the process of simplifying my portfolio. I’m switching over to a modified version of the permanent portfolio to keep it simple and reduce volatility. Part of the modification is that my 25% in stocks will be following the Dogs of the Dow strategy. This has it’s flaws, but I liked the dividend income which PP does not provide for natively.

CINF doesn’t fit into this, and to be honest I wouldn’t own it anymore except that I’m sitting on some short term gains and exhausted my losses for this year. I’ll get rid of it when the time is right for taxes.

My guess is that you know a lot more about dividend investing than me. I’m more interested in focusing on a portfolio strategy. Perhaps once I’ve mastered that bigger picture, I’ll take the time to learn each asset class better.
Brave New Life recently posted..The Non-Retirement Generation