How DGI Fits Into My Goals

12 Oct 2013 11:37
Tags emergencies income retirement

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My investment goals are very simple and probably similar to most investors:

Intermediate Goals (10+ years)

  1. Maintain a significant cash position for emergencies
  2. Build a passive income stream to supplement lost income during emergencies

Long Term Goals (Retirement)

  1. Build a passive income stream to replace my income
  2. Maintain some wealth my children can inherit

Dividend Growth Investing (DGI) is one of the key strategies that I am employing to meet both intermediate & long term goals. For passive income of intermediate goals, DGI is my 100% solution. If I find myself unemployed prior to retirement I plan on supplementing unemployment payments with my dividend stream and cash position in the hopes it will tide me over until I land a new job. If I’m lucky enough and a severe emergency never arises then there is the additional bonus of rolling this into my retirement.

For long term retirement goals, DGI is not my 100% income solution and there are two primary reasons for this. The first is asset risk diversity which I have posted about in the past. Since DGI composition is entirely tied to stocks your portfolio lives and dies by the success of stock markets. By diversifying in other asset classes it reduces exposure. The second reason for multiple solutions has more to do with my spouse. My spouse is extremely intelligent but has no care or interest in investing. If I pass away during retirement and our portfolio was entirely DGI what position would that leave her in? DGI is not a “set it & forget it” investment, it requires constant financial monitoring to ensure dividends are stable and dividend growth is still achievable. Without those skill sets it leaves my spouse exposed to long term risk.

Taking my spouse & risk into consideration here is my projected income stream to simplify things:

20% Social Security
20% Annuity (with survivor benefits)
30% Bonds (combination of U.S. Govt, Corporate, Foreign & Munis)
30% Dividend Growth Investing

As far as preserving some wealth for my children the plan is to leave 15% of my 401K invested in an ETF index fund that mimics the S&P 500.

Without a crystal ball this is my strategy with what is known today and if the investing landscape changes in the next 20 years I’ll have to re-think my approach but for now I believe this to be a conservative and considerate approach. If you have not thought about replacing your income in emergency or retirement situations then now may be a good time to reflect on the topic and start your plan.

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