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I’d like to give you some background. My wife and I are modest people and live somewhat comfortably on my teaching pension, social security, and my part time job. We have had terrible financial advice and experiences for many years and am afraid that as expenses rise I will end up working“forever”.
We have managed to save approximately $300,000. I am 65 and wife is 61. We have no debt, our largest expenses being all the insurance to cover house, autos, health, etc.
My question is that I was wondering if I were to buy a group of quality dividend paying stocks with the $300,000 could I expect a significant increase in our monthly money flow? Or, is that just not enough money to expect much. Currently the money is in mutual funds - but our “advisor” is making much more than we are. Very upsetting.
Thanks in advance for any comments that may follow.

Dave -
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No. of Recommendations: 3
Dave,

I will tell you what we do and you can see if pieces of it might help you decide.

Our dividend core, companies we hold for dividends, currently yields 3.67%. Our dividend core is 29.76% of portfolio and includes ABBV, CAT, EMR, JNJ, KMB, KO, MO, NLY, O, PAYX, PLOW, SAFT, SYY, UTX and VZ. It more than covers the short-fall between our expenses and our income.

During the 2007 to 2009 market slide, we held most of these companies plus 9 others. Only one of the companies we held reduced their dividend during the down-turn, Pfizer (PFE).

Our dividend income has risen every year since we retired in 2005 including during the down-turn.

The only mutual funds we own are 2 bond funds which are only 3.37% of our portfolio.

We tried having "professional management" twice: in the mid-1990's and in 2011. Both times were for a portion of our portfolio. In 1996, the "pro" wanted me to sell all our stock like Intel (INTC), Microsoft (MSFT), Paychex (PAYX), etc. During the one year I let this run, our portfolio trounced the mutual funds. The 2011 experiment was about the same. It simply did not pan out at all.

My thought on the 2011 try was to have things managed for DW if/when I check-out. I decided that a list of instructions on what to do/sell and what to buy (S&P 500) will take care of 100% of her decisions.

If you do decide to create a dividend portfolio, do not chase yield. It too many cases, higher than normal yields are emblematic of internal company problems.

Look first for companies that have a long track record of increasing their dividend every year, have plenty of cash flow to cover their dividend and have solid businesses.

A $300K portfolio should be able to reliably provide $9,000 to $10,500 of cash per year. Divide by 12 and you get $750 to $875 per month. It should increase each year.

Since many of these companies pay quarterly dividends, the payments per month will be "lumpy."

As a retiree, you should have a cash cushion outside of your portfolio. This should be 3 to 5 years of the short-fall between your expenses and your income. We keep ours in passbook savings and in a Roth IRA.

The cash cushion allows you to live without being concern about market gyrations or lumpy dividend payments.

Does that help you?

Gene
All holdings and some statistics on my profile page
http://my.fool.com/profile/gdett2/info.aspx
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You should post this over on the Retirement Investing board. A synopsis of what you'll hear -

- To calibrate your expectations, a 4% annual withdrawal rate is a rule of thumb used for a safe withdrawal rate. Search for Bill Bengen for a history of where this figure came from, he was the first to study it and write about it.

- Per that, your savings will generate about $1K per month.

- The 4% withdrawal rate assumes you're in at least a 50/50 blend (equities to bonds). Most folks over there are much more tilted toward equities.

- Mentioning putting your money in dividend stocks will start a "spirited discussion". There are two camps on this, people who like the income stream approach, and the opposing camp who believe you should invest for best returns and sell as needed for the draw.

- Your broker ... yeah probably what you're observing and/or worse. Don't know if you're with the type steering you to front end load funds, or 1+% annual management fees. But either would be a huge drain on your returns. If it's 1% annual fees, that's one of the biggest sleight of hands in marketing. That's actually ***25%*** of your revenue stream.

Hope this helps and hope you do well
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Dave,

You say the $300k is in mutual funds and your advisor is making more than you are. What funds is the money invested in? What are the expense ratios? How much are you being charged? What are your funds yielding now? And how much would you owe in taxes if you sold everything in one go to invest it in something else? These are some questions that will help others get a handle on your current situation.

Have you compared the return and yield you’re getting in your collection of mutual funds to what you’d get in a simple, very low expense S&P 500 index fund or total stock market index fund? At the minimum your stock funds should be matching the index return over time since you can get the index return for (almost) free. The S&P 500 index is yielding 1.78% now, which would give you about $5,300 on your $300k. Are you making at least that much?

You talk about selling your mutual funds to invest in “quality dividend stocks.” This assumes though that you know how to pick stocks, know what quality is, know when there’s a sale price on those quality stocks, do the research and have the temperament necessary in order to hold on to those stocks during the inevitable gyrations of the market, and know when it might be worth selling. Unless these are things you know how to do and enjoy doing, you may want to stick with a low cost fund.


Mike
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Thanks for the responses everyone.
To answer some of the questions above -
My current funds are in an IRA, they include:
DODGX
IJR
NEZYX
ODVYX
PCRPX
POGRX
SGOIX
TAREX
TYBS
VMNFX
The advisory fee = 1.49%
My YTD return = .005% compared to the S&P 500 return of 1.78%
( yes you read that right )
I hate to tell you what the return since inception is - very disheartening. Like I said - he has made more on my money than I have.

I'm not sure where to begin in choosing a solid dividend stock(s). I thought about opening a brokerage account and transferring these funds without liquidating just to get away from my "trusted advisor" and his high fee, doing research and selling to buy dividend yielding stocks that have solid balance sheet.
I'm at a point where I really don't want to be overly concerned about the performance of a portfolio - I thought I had that in check when I went with my current advisor, who has performed abysmally. I take most of the blame for the lack of performance for not keeping current with my account.

Thanks again -
Currently but not completely deflated.
Dave
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No. of Recommendations: 2
Wow. Yeah, a 1.5% fee is hard to win against. Your advisor would have to outperform the market by a little over 1.5% just for you to match the market.


My YTD return = .005% compared to the S&P 500 return of 1.78%

I imagine this isn't YTD (year to date) return, but the current yield. Stocks can return money two ways: capital appreciation and dividends. If you combine the two together you get something called total return. The total return for the S&P 500 year to date is 8.87%. It will be useful for you to find out the yield on your portfolio as well as the total return for this year, last year, and the average returns for the last five years. Anyone can win or lose to the market any given year. The trick is to on average over time outperform (or at least match) the market. If you can't, you can easily just get the market return for no work by buying an index fund. Wikipedia has a nice list of the total returns of the S&P 500 index going back to 1970:

https://en.wikipedia.org/wiki/S%26P_500_Index#Annual_returns...


I'm also assuming here that you have cash set aside in another account and we're just talking stock picking here. I have a portion of my net worth in treasuries and high yield savings accounts where the goal isn't to beat the market, but to preserve cash in case I need it.

Regarding your funds, I had a couple thoughts. First, that's a whole lot of funds. It looks diversified on the surface, but make sure it really is. A problem with large funds is that they're limited in what kind of company they can buy. A $50 billion fund can't buy a micro cap company easily and if it's a domestic fund it won't buy anything overseas, so if you have multiple of these funds many times what you'll see is that the top ten holdings are all very similar. That's one of the reasons I like a broad-based index fund and just call it a day. With an S&P 500 index funs (ex. VFIAX) or a total stock market fund (ex. VTSAX) you get a massive amount of diversification in just one fund.

Regarding the fund choices, the only one I have personal experience with is DODGX. I actually really like the Dodge and Cox guys. DODGX is a great value fund, has a good long term track record, and has low expenses. I can't offer an opinion on the other ones. Dodge and Cox also has a good income fund.

Good to hear your funds are in an IRA. That way you could sell everything in one go if you wanted without incurring a lot of taxes. Even an underperforming collection of funds has probably done okay these last few years.


I'm not sure where to begin in choosing a solid dividend stock(s). I thought about opening a brokerage account and transferring these funds without liquidating just to get away from my "trusted advisor" and his high fee, doing research and selling to buy dividend yielding stocks that have solid balance sheet.

This is a great plan if you know how to pick and value stocks and enjoy the process. If you don't, you could still pick up a 1.5% annual increase in performance and a whole lot of extra yield just by putting everything into an index fund. Without too much work I'm sure you could find a more income-oriented fund that has a higher yield (but which likely also has lower likelihood for as much capital appreciation). For example, the Dodge and Cox Income fund (DODIX) yields 3.21% and has a 0.43% expense ratio. That would give you about $800 a month for very little work. The Vanguard Equity Index Fund (VEIPX) yields 2.76% and has a 0.26% expense ratio.


Mike
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To all of those who responded on this board and the SA Investing for Retirees board - I want to thank you for your input and for sharing what you do with your finances. All the info gives me food for thought which will lead to a plan. Thanks for the links which I found helpful and informative.
I will come up with a plan of action and present here for any input. I know one cannot give ultimate advice but would like to have some confirmation on whether our not I'm making any glaring mistakes. You all have been very helpful.

Best to all -
Dave
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If you need help in picking stocks you might want to go to "Sauls Discussion Board". A great source for great growth stocks. It's a free board like this one.
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Saul's board is one option of many... the folks there are very focused on active trading and high growth stocks in the cloud industry. I follow Saul and the folks there but do not put all my eggs in that basket.
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Besides being a good place to start, Saul provides us with 3 Knowledge Base documents that tells us how he does it.
He truly is a stick whisperer.

The NPI board has same people more or less but they allow political discussion, Saul does not.

The MF Retirement discussion board has some good stuff. It helped change my portfolio diversification based on a WSJ article someone linked to.
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FWIW, I'll suggest 3 options for the relatively passive investor, all of which i am considering for my heirs when i am long gone, which won't be that long from now.

My story has quite a bit in common with Saul's. My returns are less impressive over a shorter time period though still excellent, 20%+ compounded annually over 20 years, and i began my retirement a decade later at 52.

I don't trust money managers so I'm looking at these 3 options for the family when i can't do this anymore.

Option #1. Load everything in the S&P 500 or other large cap indexes. For example, VOO. Dividend is 2% and principle will increase or decrease with the general market.

Warren Buffett has pretty well demonstrated that very few mutual funds can outperform the general market. Most mutual funds feel the need to be highly diversified, which means they invest in the entire market. The 1.5% expense fee makes your return nearly impossible to beat the market for any 5 year period.

Still, there are risks here to principle in the case of a prolonged downturn.

Option #2. The Dalio All-Weather Fund. Seems superior to option #1 to me, as it better ensures near market returns over a longer term and regardless of timing of market undulations. You can look it up but it is roughly a combination of the general market, a larger allocation of shorter and longer term bonds than you might expect, and small allocations of gold and commodities.

Option #3 A little more complex and the eone to which i am currently leaning of my own concoction. A fairly equal distribution of 5 ETFs, one mutual fund i like in AKREX, and BRKB. The 5 ETFs are VUG, VWO, MTUM, VTIP, and EDV(or TLT). It is my belief that this combination would outperform under most market conditions.

Hope this helps.

Disclaimer: I am no pro or expert on these macro issues.

My predictions on macro trends is average, and my understanding of technicals is poor.

My main edge over time has been picking individual stocks by identifying exceptionally capable, shareholder friendly leaders.

Growth or value companies, early stage or late stage, all are options for me. Of course it is more rewarding to find unrecognized genius in early stage stocks.

Companies tend to grow or shrink to the size of their leadership, almost regardless of products and markets. Outstanding leaders change products and markets when necessary. They move to where the TAM is going.

But capable leadership, while necessary, is not sufficient. They must deeply value their fiduciary responsibility to all shareholders. Where executive comp or SBC is excessive, i avoid those stocks.
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For steady income I'd recommend B of A preferred stock that pay 6%. They're callable at $25. Depending on which one, you often have to pay a premium. Over the long haul, the premium is worth it. Your $300,000 will earn dividends of $18k a year. Nothing fancy but sure beats the current market uncertainty for anyone on a fixed income.

JT
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