Changing My Investment Strategy

I have decided to change my investment strategy for retirement.  My previous strategy was to max out my retirement accounts first before setting aside any additional savings.  Since my plan is to retire at 50 though it doesn’t make sense to have most of my savings in retirement accounts where it will be difficult for me to access them without paying penalties.  The main benefit of having your money in retirement accounts is that it is allowed to grow tax-freee.  This isn’t much of a benefit to me due to my short time frame and low tax bracket.  I expect to stay in a low tax bracket for the foreseeable future.

I’m also not happy with the performance of the mutual fund in my Roth IRA.  I know the stock market is taking a beating but I don’t like the idea of paying a management fee to lose money.  I could lose my money myself.

My new strategy is to invest in dividend paying stocks.  I won’t go into too much detail since this isn’t an investment blog.  Right now I have a portfolio of five stocks and I plan to expand that to ten to fifteen stocks.  I’m more concerned with yield than capital appreciation.  I want companies that will continue to increase their dividend.  This way I can use the dividends to pay my expenses and still have a hedge against inflation.

So far my results have been pretty good.  I’ve had the stocks about two weeks and I’m up a small amount and I should receive about $250 in dividends for the next year.  This represents an almost 10% yield but that is skewed due to one very high-yielding stock.  Most of my stocks are paying around 6%.  If anyone wants to know how I chose my stocks I’ll do a post on that.  My selection process is somewhat based on guessing though so I wouldn’t recommend anybody follow my picks.  I feel I’m taking an acceptable risk to have a good shot at retiring early and am willing to live with the consequences if this strategy doesn’t work.

5 thoughts on “Changing My Investment Strategy”

  1. I am always interested in learning about dividend stocks. I would generally caution you against picking up stocks with too high yields especially if those have high payouts.

    A recent reminder for me was ACAS yesterday, which suspended their high dividends for 2008 and possibly 09..:-(

    Reply
  2. I initially wanted to concentrate on Dividend Aristocrats but they weren’t paying as high a yield as I wanted. GE is the only Aristocrat I’ve purchased so far. If they get some government money they should continue paying their dividends. I think a couple of the other stocks might be dividend achievers. I have a shipping stock that is paying the very high dividend. I know shipping is down but it looks like they have plenty of cash to pay their dividend.

    Reply
  3. TFM,

    The beauty of dividend aristocrats is that they are paying market yields right now. However with their dividend growth your yield on cost is most likely to reach double digits in a decade or so..
    JNJ is always cited as a “perfect” dividend growth stock having increased its dividends by 10-15%/annualy for decades.
    Another thing that’s important is diversification. I wouldn’t have less than 30 stocks. If you were a holder of BAC which cut its dividends by 50% you would have only lost 1.5% of your income.

    You should also consider having a 25% allocation to fixed income in retirement. However since most people have a large emergency fund their fixed income portfolio allocation could be lower.

    I am in the process of building my dividend portfolio, which could take a while since I doubt I could live on $1000/month.

    Reply
  4. moom- The 72t plans would work but since I won’t have a large balance in there my payments would be pretty small. Being able to take out the contributions would allow me to take out a lot of money though. So far my contributions are much more than the balance of my IRA.

    I might start contributing to my IRA again but right now I don’t feel that I would benefit much from it.

    Reply

Leave a Reply