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I am just getting my IRA started. I've looked at a lot of different strategies for asset allocation, but am having difficulty determining which one to pursue. I am in my mid-thirties and have been avidly reading my trial subscription of the Motley Fool Income Investor. The big question is; given the time frame I have to invest, (25 to 30 years until retirement) should I really be looking to purchase stocks that pay out large dividends? Wouldn't the better strategy be to purchase stocks that use their excess cash to grow and expand and appreciate more rapidly? I am also quite sure that the tax bracket I am in right now is higher than it would be after I retire. Wouldn't investing for income be something that someone would do after retirement when they are trying to earn income from their life savings?
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"Wouldn't investing for income be something that someone would do after retirement when they are trying to earn income from their life savings?"

Look at it this way: Do you NEED income right now? Then why invest for income? Looks to me like right now you want growth, not income. But having said that, keep your risk as low as possible consistent with that growth. If you are content with "average" growth, you can go with mutual funds. But if you want superior growth, you're going to have to go for high-quality growth stocks.

Ray
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Two more-or-less independent comments:

First, one of the most severe problems in a new IRA is that you only have a few thousand dollars to invest, more or less by definition. That means that you must be very careful about costs - every time you trade, you're going to pay a selling commission and a buying commission, and those can eat up your money very quickly. Consequently many really good investment strategies are simply not practical for a while, because they involve too much (or too frequent) trading to be cost-effective.

Second, reaping the dividends from high-div stocks is not the only reason to buy them. If a lot of other people are buying them, presumably for the dividends, you can buy them for the consequent price appreciation alone; the dividends for you are then just the cherry on top.

Just as an example, check out these REITs:
GGP: http://finance.yahoo.com/q/ta?s=GGP&t=1y&l=on&z=m&q=l&p=e50,e200&a=&c=
NCT: http://finance.yahoo.com/q/ta?s=NCT&t=1y&l=on&z=m&q=l&p=e50,e200&a=&c=
SPG: http://finance.yahoo.com/q/ta?s=SPG&t=1y&l=on&z=m&q=l&p=e50,e200&a=&c=
VTR: http://finance.yahoo.com/q/ta?s=VTR&t=1y&l=on&z=m&q=l&p=e50,e200&a=&c=

Note that I am in no sense proposing this sort of thing as LTBH investments, as there is no guarantee whatever that the trend will continue; if, on the other hand, you have the time and the interest to keep an eye on them, they might make you a fair bit of money while they last.

Neither am I saying that you ought to buy these particular stocks, or even REITs in general. I'm just offering the thought that you can make money in investments that are making a lot of sense for other people even if not (nominally) for you, if you treat them as momentum investments rather than growth/value investments.

You definitely need to do your homework, and you definitely need to keep a close eye on them, but the money is there to be made.

Regards,
holzgrafe
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One more thing:

Wouldn't investing for income be something that someone would do after retirement?

In theory, yes, but your goal after all is simply to make as much money as possible and to do it as quickly as possible. You're doing it in an IRA so the tax implications are largely not relevant. That being the case, dividends are money and high dividends are lots of money.

If you can find good investments that also pay high dividends, what's not to like? You get to keep the money either way.

I'm currently running two ports, one using Mechanical Investing and one simply consisting of a couple of good closed-end funds, about a dozen really good REITs, and QQQ on a timing system, and so far this year the REIT port is handily beating both the MI port and the market.

IMHO, it's not wise to depend too strongly on categories in your planning -- instead, examine every way you can think of to make money and choose the one (or ones) that make the most money within the real constraints of time, assets and legalities.

Regards,
holzgrafe
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Being that you are now in your thirties, your goal should be to grow your assets. Growing them inside a Roth IRA is all the better. Imagine having $1,000,000 in an account that you can take money out of any time you want TAX FREE!

Whether or not the stocks pay dividends is not really that important. Your focus should be on quality.

Now, to keep costs low, you should consider buying Exchange Traded Funds (ETF). However, each time you purchase a share, you will be charged a commission by your broker. So,... I would buy once a year.

To check out ETFs, go to http://www.ishares.com

Good Luck,

Jeffrey
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