I am retired and have a question...

[Badgerhater]

This commentary is stupid.

What is the definition of "quality?"
What is the "long-term?"

It's all gambling.

More importantly, buying certain dividend paying stocks will result in limiting your upside & opportunity.

There are arguments that can be made for various strategies & decisions... but it all gets down to the specifics of the investor.

I guess getting out of bed in the morning is a gamble because you might get hit by a bus....but if you stay in bed, you gamble that a plane won't crash into your house.  But it all depends on what strategy or decision a person makes and the specifics of what that person needs to get done that day.

[Chicos' Buzz Scandal Countdown]

This commentary is stupid.

What is the definition of "quality?"
What is the "long-term?"

It's all gambling.

More importantly, buying certain dividend paying stocks will result in limiting your upside & opportunity.

There are arguments that can be made for various strategies & decisions... but it all gets down to the specifics of the investor.

All risk looks like gambling to someone unable to manage it.

[MU82]

I don't think there's anything wrong with your philosophy, but wouldn't you be better off getting an index instead of trying to pick out one Blue Chip?

I own 30+ individual companies, mostly blue-chip, proven dividend growers. I did significant research and due diligence before each buy. I am a very reluctant seller; like Buffett, my goal is to own each company forever. Also like Buffett, I do occasionally sell, usually because something fundamentally has occurred to make me no longer want to own shares in a particular company.

Over just about any decade of time, a portfolio of high-quality, dividend-growing companies has beaten the S&P500 or the Dow or any other index.

Nevertheless, I am not into Dividend Growth Investing because of such outperformance. I am all about building a portfolio that will provide an income stream capable of giving me and my wife a stress-free, financially secure retirement. In 8-10 years, when both of us are retired, the combination of that income stream, Social Security and pensions will provide us with a six-figure "salary" -- something I never had during my working years.

One interesting thing is that, unlike the accepted retirement strategy of selling off 4% of one's investments every year to fund retirement, we will never have to sell a share of stock if we don't want to. The money we need to live on will come from dividends, Social Security and pensions. So we will be able to leave a legacy to our heirs, too.

Is it guaranteed that these companies will continue paying and growing their dividends? Of course not. In investing, nothing is guaranteed. However, if Johnson & Johnson, Procter & Gamble, Pepsi, 3M, Chevron, ConEd, AT&T, Altria, etc, etc, all stop paying dividends, there's probably been a zombie apocalypse and investing will be the least of our concerns.

I can't tell you if the stock price of Johnson & Johnson -- or the S&P 500, for that matter -- will be up, down or sideways tomorrow, next month, next year or next decade. But I can tell you with considerable confidence that JNJ will raise its dividend again the last week of April and in many Aprils to come. Why? Because this "Dividend Aristocrat" has been raising its dividend for 52 consecutive years through wars and recessions and political gridlock and Cubbie collapses.

I know it probably sounds like I am trying to sell folks on DGI. I am not. I am not a broker or adviser or financial professional and I gain not a single cent if every Scooper instantly adopts the strategy. (Nor do I lose a single cent if y'all reject it.) I was asked why I invest the way I do and I am answering that question.

All of us must choose investment styles that suits our personalities, risk tolerance and comfort levels. DGI suits me. It might not suit another person here.

And yes, just investing in an index would be far more simple. But not only does DGI let me achieve my goals better than any index I know of, I also enjoy the challenge and satisfaction of stock selection.

For those who are more interested, my favorite site on this subject is SeekingAlpha.com. Here is one writer's list of the 25 best authors on the site: http://seekingalpha.com/instablog/912334-tim-mcaleenan-jr/2782723-the-25-best-authors-on-seeking-alpha#comments_header

My favorites are David Van Knapp, Chuck Carnevale and a guy who goes by the pen name "Chowder," but most of the folks listed are very good. Some are older but many are quite young and offer that vantage point.

Anyway, happy investing.

[Badgerhater]

I own 30+ individual companies, mostly blue-chip, proven dividend growers. I did significant research and due diligence before each buy. I am a very reluctant seller; like Buffett, my goal is to own each company forever. Also like Buffett, I do occasionally sell, usually because something fundamentally has occurred to make me no longer want to own shares in a particular company.

Over just about any decade of time, a portfolio of high-quality, dividend-growing companies has beaten the S&P500 or the Dow or any other index.

Nevertheless, I am not into Dividend Growth Investing because of such outperformance. I am all about building a portfolio that will provide an income stream capable of giving me and my wife a stress-free, financially secure retirement. In 8-10 years, when both of us are retired, the combination of that income stream, Social Security and pensions will provide us with a six-figure "salary" -- something I never had during my working years.

One interesting thing is that, unlike the accepted retirement strategy of selling off 4% of one's investments every year to fund retirement, we will never have to sell a share of stock if we don't want to. The money we need to live on will come from dividends, Social Security and pensions. So we will be able to leave a legacy to our heirs, too.

Is it guaranteed that these companies will continue paying and growing their dividends? Of course not. In investing, nothing is guaranteed. However, if Johnson & Johnson, Procter & Gamble, Pepsi, 3M, Chevron, ConEd, AT&T, Altria, etc, etc, all stop paying dividends, there's probably been a zombie apocalypse and investing will be the least of our concerns.

I can't tell you if the stock price of Johnson & Johnson -- or the S&P 500, for that matter -- will be up, down or sideways tomorrow, next month, next year or next decade. But I can tell you with considerable confidence that JNJ will raise its dividend again the last week of April and in many Aprils to come. Why? Because this "Dividend Aristocrat" has been raising its dividend for 52 consecutive years through wars and recessions and political gridlock and Cubbie collapses.

I know it probably sounds like I am trying to sell folks on DGI. I am not. I am not a broker or adviser or financial professional and I gain not a single cent if every Scooper instantly adopts the strategy. (Nor do I lose a single cent if y'all reject it.) I was asked why I invest the way I do and I am answering that question.

All of us must choose investment styles that suits our personalities, risk tolerance and comfort levels. DGI suits me. It might not suit another person here.

And yes, just investing in an index would be far more simple. But not only does DGI let me achieve my goals better than any index I know of, I also enjoy the challenge and satisfaction of stock selection.

For those who are more interested, my favorite site on this subject is SeekingAlpha.com. Here is one writer's list of the 25 best authors on the site: http://seekingalpha.com/instablog/912334-tim-mcaleenan-jr/2782723-the-25-best-authors-on-seeking-alpha#comments_header

My favorites are David Van Knapp, Chuck Carnevale and a guy who goes by the pen name "Chowder," but most of the folks listed are very good. Some are older but many are quite young and offer that vantage point.

Anyway, happy investing.

My style of degenerate gambling is the same as yours.

[Tortuga94]

First off, in the interest of full disclosure, I am a financial advisor so don't hold that against me.

Most financial advisors, or at least most good financial advisors, are using Modern Portfolio Theory when designing or building portfolios for their clients. MPT is basically the idea that you should be able to construct portfolios that can achieve the highest possible returns with the least amount of risk as possible through broad diversification and asset allocation.

Every distinct asset class has strengths and weaknesses that let it play a specific role in your investment strategy. Balancing how much of each asset class to include in your portfolio should be your primary goal as an investor. This will depend on factors such as risk tolerance, income needs, time horizon, etc.

So, what are these distinct asset classes? Most people think it's just a mix of stocks, bonds and cash. But it's a bit more complicated than that. Within those categories there are different asset classes, different kinds of stocks and different kinds of bonds. It's important to have exposure to all these areas as the returns are not always correlated and can protect you in the years the S&P gets clobbered like the early 2000s.

 

[Benny B]

First off, in the interest of full disclosure, I am a financial advisor so don't hold that against me.

Most financial advisors, or at least most good financial advisors, are using Modern Portfolio Theory when designing or building portfolios for their clients. MPT is basically the idea that you should be able to construct portfolios that can achieve the highest possible returns with the least amount of risk as possible through broad diversification and asset allocation.

Every distinct asset class has strengths and weaknesses that let it play a specific role in your investment strategy. Balancing how much of each asset class to include in your portfolio should be your primary goal as an investor. This will depend on factors such as risk tolerance, income needs, time horizon, etc.

So, what are these distinct asset classes? Most people think it's just a mix of stocks, bonds and cash. But it's a bit more complicated than that. Within those categories there are different asset classes, different kinds of stocks and different kinds of bonds. It's important to have exposure to all these areas as the returns are not always correlated and can protect you in the years the S&P gets clobbered like the early 2000s.

MPT is great for high net worth individuals who have the "entry fee" to get into solid, diversified investments within various asset classes... it doesn't work as well for your average investor/saver who wants (or is told) he/she needs exposure to various asset classes, and ends up buying into bad FoF or real estate investments (whose performance is hamstrung on the buy) just so they can check the "DIVERSIFIED?" box.  Real estate, especially, is the hot asset class again... but talk to anyone who bought TIC shares in the mid-2000s or zombie REITs more recently, and you'll find most people (read: not all) are better off foregoing a full-blown MPT strategy for a simple, but diverse, offering of mutual funds, because short of going out and buying your own foreclosure to flip, TICs and zombies are pretty much the only RE investments that the average, "median-net-worth" individual has access to.

http://www.wsj.com/articles/latest-fear-for-property-investors-zombie-reits-1427221093?mod=WSJ_hpp_MIDDLENexttoWhatsNewsForth

[Tortuga94]

MPT is great for high net worth individuals who have the "entry fee" to get into solid, diversified investments within various asset classes... it doesn't work as well for your average investor/saver who wants (or is told) he/she needs exposure to various asset classes, and ends up buying into bad FoF or real estate investments (whose performance is hamstrung on the buy) just so they can check the "DIVERSIFIED?" box.  Real estate, especially, is the hot asset class again... but talk to anyone who bought TIC shares in the mid-2000s or zombie REITs more recently, and you'll find most people (read: not all) are better off foregoing a full-blown MPT strategy for a simple, but diverse, offering of mutual funds, because short of going out and buying your own foreclosure to flip, TICs and zombies are pretty much the only RE investments that the average, "median-net-worth" individual has access to.

http://www.wsj.com/articles/latest-fear-for-property-investors-zombie-reits-1427221093?mod=WSJ_hpp_MIDDLENexttoWhatsNewsForth

We have never used non-traded REITs. There is no need to buy these illiquid investments when you get exposure to the asset class through a mutual fund or etf. We use Vanguard's (VGSLX) and T. Rowe Price(TRREX). Both excellent REIT fund options.

Non-traded REITs pay very high commissions to the broker. You have to be very careful with them.

Also, MPT can be used by everyone, not just HNW clients. Most fund companies do offer broadly diversified funds(asset allocation, target retirement funds, etc)

[mu-rara]

We have never used non-traded REITs. There is no need to buy these illiquid investments when you get exposure to the asset class through a mutual fund or etf. We use Vanguard's (VGSLX) and T. Rowe Price(TRREX). Both excellent REIT fund options.

Non-traded REITs pay very high commissions to the broker. You have to be very careful with them.

Also, MPT can be used by everyone, not just HNW clients. Most fund companies do offer broadly diversified funds(asset allocation, target retirement funds, etc)

Non traded REITs are not for everyone.  They are for high net worth investors who are looking for alternatives.  If they are placed as a small part, 3-5% or less, of a HNW investor's portfolio, given that all your other due diligence is complete, there is nothing wrong.  As for your commission concern, any respectable non traded REIT is available in a fee based program.

[Jay Bee]

In 8-10 years, when both of us are retired, the combination of that income stream, Social Security and pensions will provide us with a six-figure "salary" -- something I never had during my working years.

Yikes. Must have been a liberal arts major, ai nal?

Nonetheless, that's great if your disciplined investing will result in a relatively comfortable retirement. Congrats!

For the guy on here saying he was retiring soon at what sounded like ~age 45... and others... How much net worth would you need today (or at some age in the future) to be comfortable in making a decision to retire?

[Skatastrophy]

For the guy on here saying he was retiring soon at what sounded like ~age 45... and others... How much net worth would you need today (or at some age in the future) to be comfortable in making a decision to retire?

That depends on how aggressively you control your spending (which will also accelerate your wealth accumulation). My wife and I will, based on forecasts, be able to comfortably retire indefinitely on $1.5MM.

http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

I consider it to be less of a traditional retirement, and more of a "we don't have to work anymore, but if we generate some income that'd be cool too." I'll be under 45 and my wife will be younger than that, so that's a lot of years to travel/work/whatever else. No more cube-farms for me, though. That's for sure.

[ChicosBailBonds]

That depends on how aggressively you control your spending (which will also accelerate your wealth accumulation). My wife and I will, based on forecasts, be able to comfortably retire indefinitely on $1.5MM.

http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

I consider it to be less of a traditional retirement, and more of a "we don't have to work anymore, but if we generate some income that'd be cool too." I'll be under 45 and my wife will be younger than that, so that's a lot of years to travel/work/whatever else. No more cube-farms for me, though. That's for sure.

Good for you.  With my wife not working, it's all on me and I have to wait a bit.  45 has already come and gone, but I'm hopeful a few more years.  What will more than likely happen is I get out of the rat race, still work but at something entirely less stressful (and less income as a result).

[Skatastrophy]

Good for you.  With my wife not working, it's all on me and I have to wait a bit.  45 has already come and gone, but I'm hopeful a few more years.  What will more than likely happen is I get out of the rat race, still work but at something entirely less stressful (and less income as a result).

Life can always throw me a curveball or two, and I'm sure it will. It's tough to plan more that a decade out.

[Tortuga94]

That depends on how aggressively you control your spending (which will also accelerate your wealth accumulation). My wife and I will, based on forecasts, be able to comfortably retire indefinitely on $1.5MM.

http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

I consider it to be less of a traditional retirement, and more of a "we don't have to work anymore, but if we generate some income that'd be cool too." I'll be under 45 and my wife will be younger than that, so that's a lot of years to travel/work/whatever else. No more cube-farms for me, though. That's for sure.

Just out of curiosity. How much of the 1.5MM is in IRAs/401Ks vs non-qualified?
I ask because of your young retirement goal, your IRAs won't be accessible without a penalty before you turn age 59.5. Unless you plan on doing a 72-T distribution, but that really isn't a good option at age 45.

[Benny B]

Non traded REITs are not for everyone.  They are for high net worth investors who are looking for alternatives.  If they are placed as a small part, 3-5% or less, of a HNW investor's portfolio, given that all your other due diligence is complete, there is nothing wrong.  As for your commission concern, any respectable non traded REIT is available in a fee based program.

High net worth investors don't buy non-traded REITs... they buy into private equity funds that invest in real estate.  Non-traded REITs are bought by investors who want to think they're high net worth, or, at the very least were high net worth investors before they bought non-traded REITs.

[Skatastrophy]

Just out of curiosity. How much of the 1.5MM is in IRAs/401Ks vs non-qualified?
I ask because of your young retirement goal, your IRAs won't be accessible without a penalty before you turn age 59.5. Unless you plan on doing a 72-T distribution, but that really isn't a good option at age 45.

SEPPs are a viable option if you split your IRAs into multiple accounts the calculation and draw-down would only be from one account. That wouldn't be a ton of cash, though, and not factoring into my plans.

I have about 25% of my investments in a Roth at the moment, and growing. The Roth 401k option is very powerful to make a ton of principle available without penalty. That, in addition to a Roth conversion ladder, will allow me to access my tax-advantaged accounts while only paying income tax on the money.

That is all assuming, though, that tax law won't change over the course of my lifetime. That's why this year, after we sell our home, we are ramping up our taxable investments in addition to our tax advantaged investments. Better safe than sorry!

[4everwarriors]

That depends on how aggressively you control your spending (which will also accelerate your wealth accumulation). My wife and I will, based on forecasts, be able to comfortably retire indefinitely on $1.5MM.

http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

I consider it to be less of a traditional retirement, and more of a "we don't have to work anymore, but if we generate some income that'd be cool too." I'll be under 45 and my wife will be younger than that, so that's a lot of years to travel/work/whatever else. No more cube-farms for me, though. That's for sure.

Entirely depends upon how long y'all plan on livin'. 1.5 ain't what it used to be. May wanna rethink pullin' the plug so early even if you and da Mrs. Live like paupers. Just sayin', ai na?

[Jay Bee]

Entirely depends upon how long y'all plan on livin'. 1.5 ain't what it used to be. May wanna rethink pullin' the plug so early even if you and da Mrs. Live like paupers. Just sayin', ai na?

I think dude is speaking a little crazy, but he may not be ballin 'Quon style.

[jficke13]

I'm guessing Skatastrophy has run the numbers on his scenario with a little more thoroughness and diligence than we have. I'm cautiously skeptical of what he's saying, but if it works for him and his family then I'm very impressed. Well done.

[GGGG]

I'm guessing Skatastrophy has run the numbers on his scenario with a little more thoroughness and diligence than we have. I'm cautiously skeptical of what he's saying, but if it works for him and his family then I'm very impressed. Well done.

The thing that I would be concerned about is the unknows that time brings, and say 20 years into it, you find yourself having to re-enter the workforce.

That being said, I'm 46 and enjoy my job and have no desire to retire anytime soon.

[Skatastrophy]

I think dude is speaking a little crazy, but he may not be ballin 'Quon style.

Truth. This would be living on $45k to $50k a year. Most likely using geographic arbitrage to lower our expenses and facilitate easier travel.

Shoot for the moon, you know? If I don't feel comfortable retiring on that much when push comes to shove, I'll still have a ton of money socked away and a career to continue until I do feel comfortable.

Check this out if you're interested in running numbers for yourself: http://www.firecalc.com/

The interface sucks (you navigate through the tabs up top to plug your numbers in, and it's not all straightforward), but it can run simulations based on past time periods to try and predict how long your money will last. As a note: Past performance is never a guarantee of future success.

Edit: I don't mean to take over this thread with my, admittedly, extreme views on budgeting and saving. Thanks for listening guys. Hopefully I didn't come off as preachy.

[Jay Bee]

Hopefully I didn't come off as preachy.

Preachy? Nah, don't sweat that. Crazy? Now that's more like it.

[mu-rara]

High net worth investors don't buy non-traded REITs... they buy into private equity funds that invest in real estate.  Non-traded REITs are bought by investors who want to think they're high net worth, or, at the very least were high net worth investors before they bought non-traded REITs.

They buy non traded REITs and PE funds and other alternatives.

[Avenue Commons]

There is a lot of really bad investment advice in this thread.

If you're so desperate that you're coming to MUScoop for investment advice, I'd suggest contacting a fee-only financial advisor instead.

One doesn't have to look at it as advice; just insights and case studies. I think this is one of the more interesting threads in a while.

[Badgerhater]

The thing that I would be concerned about is the unknows that time brings, and say 20 years into it, you find yourself having to re-enter the workforce.

That being said, I'm 46 and enjoy my job and have no desire to retire anytime soon.

Same here.  However, I do save and invest like I could retire at 55 but I want to work until 65.  I can't trust today's economy to allow me to work that long.   Always save now because you may not be able to save later.

[MU82]

That depends on how aggressively you control your spending (which will also accelerate your wealth accumulation). My wife and I will, based on forecasts, be able to comfortably retire indefinitely on $1.5MM.

http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

I consider it to be less of a traditional retirement, and more of a "we don't have to work anymore, but if we generate some income that'd be cool too." I'll be under 45 and my wife will be younger than that, so that's a lot of years to travel/work/whatever else. No more cube-farms for me, though. That's for sure.

Great stuff, Ska.

I was "involuntarily retired" at 48. I was worried at the time, but, 6+ years later, I have no complaints or concerns. I have no stress in my life, and I work when I want to while doing what I enjoy (freelance writing, basketball reffing, baseball umping, coaching, volunteering, etc). We are debt-free and have no financial worries.

Our caveat is that my wife is still working and plans to work another 6-8 years; she makes about 60K. Our single biggest expense -- by far -- is our investments. We max out her 401k and both of our Roth IRAs. So we have gotten used to living on relatively little money and should have little problem getting by with our $1.5M or so when she finally does hang it up.

While we watch our money -- in other words, unlike most folks, we actually think before we spend -- we are not cheap. We take nice vacations, buy what we need, maintain a nice house, take care of our health, do fun spontaneous things (like a last-minute trip to DC for the S16/E8 in 2013), treat our grown kids to join us on vacation, etc.

Truth is, my wife could stop working tomorrow and we'd be just fine. But she likes her job so we might as well bank a little more $$$. Plus, I like saying I have a Sugar Mama!

Anyway, just wanted you to know you're hardly "out there" with your plans. I wish you good fortune.