Follow the dividend investment decisions of a person who has no background in financial investment and wishes to take control of their financial future.

Game of Life - 19 Oct 2014 17:30

Tags: income life risk

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My oldest child is now 16 and just a few years away from being an adult. This got me thinking as to how she should be prepared for life which further led me to see how life in some ways is similar to a game. Their are always pieces in play and you need goals and strategies to succeed.

Odds are Against You

If you talk to a financial planner, the pieces you should have on on the board are really simple; you get a full-time job, max out retirement savings and build-up an emergency cash fund equivalent to 6 to 12 months of income. It is their belief that these are all the pieces you need to succeed in the game of life. We can call these pieces “Team Income & Assets”. Below is a summary of the pieces you are expected to place onto the game of life:

Team Income & Assets

  1. Full-time Job
  2. Emergency Savings
  3. 401K
  4. Roth IRA
  5. Social Security

But life is not as simple as financial planners lead you to believe. The opposing team we will call “Team Liabilities & Risk” and they have a heck of a lot more pieces to play with:

Team Liabilities & Risks

  1. Student Loans
  2. Rent
  3. Utilities
  4. Internet/Cable
  5. Food & Living Expenses
  6. Healthcare
  7. Maintenance (auto, home, etc…)
  8. Credit Cards & Loans
  9. Taxes
  10. Misc Insurance (auto, renters, etc…)
  11. Wedding Expense
  12. House down payment
  13. Kids
  14. Mortgage
  15. Unemployment
  16. Disability
  17. Kids College
  18. Caring for Elderly Parents
  19. Retirement

Now this is completely lopsided, 5 versus 19! How can you win with such a diverse team constantly attacking your 5 pieces?

Leveling the Playing Field

When I started off life no one told me that the opposing team would have so many pieces on the board and to make matters worse the longer you were in the game the greater the risks became. Unlike my introduction to life, I can now bestow unto my child the wisdom of my life experiences. First lesson is explaining the enemy pieces on the board. Second is to change how many pieces we have on the board.

It makes sense if you are being attacked by a diverse set of pieces that you also get a diverse set of pieces to effectively combat that onslaught. Three of your five pieces are focused on long term retirement so they sit on the game board and do nothing until the end of the game. That leaves just two pieces to carry the burden for most of your life! To change the odds in our favor we we can add some more pieces by diversifying your income. Here are the additional pieces we can possibly add:

Team Income & Assets Additions
6. Dividend Growth Investing
7. Real Estate Investing
8. Money Lending
9. Part-time Job
10. Part-time Business
11. Royalty or Residual Income
12. Annuities

Dividend Growth Investing – I personally love this one because it is available to everyone regardless of your social class, race, or ethnicity. You can start with just $50 and grow from there. Dividend growth allows for a passive income stream that can be used to help during times of unemployment, help pay some of your child’s college expenses, or fund your retirement. What is even better, the longer you employ DGI the more powerful piece you have to use in the game.

Real Estate Investing – This is another great source of income and there are two approaches to achieving. The first is physically buying and maintaining property while collecting rental income. Though this approach does require effort and may not be for everyone so the second approach for people that do not want to be bothered with property maintenance or collecting past due rents is to buy shares in Real Estate Investment Trusts (REITS). REITs provide the benefit (via dividends) of income but the REIT firm is burdened with the hassles of property maintenance and rent collection.

Money Lending – Sites like “Lending Tree” have opened up a new investment trend where you can lend money directly to another person at a set interest rate. Downside is you bear the risk of loan defaults. An alternative to directly lending money is buying shares in companies that do this for a living. Types of companies you can invest into are Business Development Companies (BDCs) and Mortgage REITS (mREITS).

Part-Time Job or Business – This used to be an old go to but for some reason has become an overlooked alternative. My belief is you can approach this in two ways. The first is short term that is aligned to a specific goal where all the money earned from a part-time job goes towards paying off debt or creating savings to invest in other income producing assets. The second approach is long term where you find a part-time job that you personally enjoy that not just adds additional income but could provide personal satisfaction.

Royalty or Residual Income – It is amazing the sources of royalty income available. If you are talented you can get royalties from music, art or video. You can write a book or e-book, publish photos, or even start a website with advertising. I’m sure there are other sources but these are the few I am aware of.

Annuities – These get a bad rap for their high expenses and loss of assets after you (or your spouse) passes away. But a small annuity can fit into your retirement planning as they offer a simple lifetime payment. The problem with stock, bond or even real estate investments is that you have to always monitor and adjust in order to keep your portfolio relevant. Though what would happen if you lost the capabilities to manage investments (think Alzheimer’s) or worst yet you died and your spouse has to figure it out. A small annuity income stream would help lessen the burden during these times.

Adding these 7 additional pieces to the board it is now 12 versus 19, a much fairer fight by any means.

Summary

Unfortunately I figured out the rules for the game of life pretty late and I am currently working to get some of these pieces on the board. On a more serious note, life is not a game but a true struggle of ups and downs where people really can get hurt. Financially speaking, I truly believe growing multiple sources of income and having the right insurance packages (home, life, etc…) is the key to reducing the risk in one’s life. While I am a big proponent of dividend growth investing it is not the only strategy I employ for achieving goals. Lastly, do not let fear and saving rule your life. Remember to take some time out and enjoy life. - Comments: 0

How DGI Fits Into My Goals - 12 Oct 2013 11:37

Tags: emergencies income retirement

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. - Comments: 0


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