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.