The accumulation phase

[ken-do-nim]

I am in my late 40s and plan to keep working for many years to come.  I am in the process of accumulating a nest egg, so that one day I can retire and live off the dividends.  (To be more specific, in lieu of long term care insurance, I'm thinking of putting my nest egg into an irrevocable trust around age 70 and living off the dividends.)

Question: what place do dividend stocks have while you are in the accumulation phase?  Take AT&T for example.  The dividend sits at 7.5% which, were I retired, I think would be a cornerstone of my portfolio.  While growing my nest egg, however, why would I invest in it now?  A year ago the stock was at 38.47; it is now 27.49, a significant degradation in price.  I'm currently in mostly tech stocks, and even if AT&T hadn't dropped in price, they are doing much better than 7.5%.  Even the S&P 500 index VOO was 274.51 a year ago and today sits at 319.76.

[fenders53]

(10-14-2020, 03:37 PM)ken-do-nim Wrote: I am in my late 40s and plan to keep working for many years to come.  I am in the process of accumulating a nest egg, so that one day I can retire and live off the dividends.  (To be more specific, in lieu of long term care insurance, I'm thinking of putting my nest egg into an irrevocable trust around age 70 and living off the dividends.)

Question: what place do dividend stocks have while you are in the accumulation phase?  Take AT&T for example.  The dividend sits at 7.5% which, were I retired, I think would be a cornerstone of my portfolio.  While growing my nest egg, however, why would I invest in it now?  A year ago the stock was at 38.47; it is now 27.49, a significant degradation in price.  I'm currently in mostly tech stocks, and even if AT&T hadn't dropped in price, they are doing much better than 7.5%.  Even the S&P 500 index VOO was 274.51 a year ago and today sits at 319.76.

First of all I'd be interested to learn about the irrevocable trust.  Who are you leaving the trust to?  How does it work?

In hindsight I am a believer in the "mix it up strategy".  I have learned that whatever I did might be very good for 5-10 years, then mediocre at best for the next decade.       

From age 25-55 I invested 90% of my port in equities, often more than half of that in growth stocks.  At age 58 next week, I have found a much more conservative income approach.  Regarding dividend stocks, they are not all created equally.  T is an income stock.  In my opinion it's a poor excuse for a DGI stock.  It's fine in my port now, not so much if I was younger.  My best Div stocks were stocks with a potential to grow, and only add real money on pullbacks (other than DRIP).  Nothing at all like 2020 T. Back then it was stocks like JNJ.  T isn't JNJ 2000.  It's probably not even JNJ 2025.   

As far as tech outperforming T, we are in a 10yr bull market.  It looks a little different after a tech stock drops 75% and stays there for 10 years.  I've lived that one.  CSCO and INTC were my hard lessons.  Well actually the large CAP 90's tech that filed BK or sold out at <10% of previous market CAP were the real lessons.  That horrible time will come again. 

I still mix it up, and perhaps you should too?  I invest a lot of my T Divs into stocks with hope for growth.  Same with MO and a few others. In a back handed way I am still dripping DGI. The DRIP is just bigger with some high yielders in the mix.

[ken-do-nim]

Good reminder about the tech bubble burst of the early 2000s. I really hope it's a plateau and not a burst, but I agree it can't keep going up like this.

My plan for the irrevocable trust is that it pays out dividends to myself and all living descendants. If I, or a descendant, gets admitted to a nursing home, then it stops paying dividends to me or that individual(s). Hopefully it continues into perpetuity providing my descendants supplemental income. Of course as the family tree grows larger the dividend will get diluted, but that's okay. I'm thinking of adding a clause by which there's incentive for future generations to leave their assets to the trust in their wills as well, so that the principal inside the trust can increase. What that incentive is needs some brainstorming.

[fenders53]

Seriously interested in learning about the trust. We need an "old man exit this world correctly" thread lol.

And I am not predicting Tech Bubble II, but it's starting to rhyme in some of the small cap tech lol.

[crimsonghost747]

(10-15-2020, 09:55 AM)fenders53 Wrote: Seriously interested in learning about the trust.  We need an "old man exit this world correctly" thread lol.

definitely!

Regarding div payers in a "young man's" portfolio, sure go for it. Just be sure not to overdo it and go all in on the dividend and forget about the growth.
For one, you never know what happens and it's always nice to have some dividend income on the side. And of course you'll be DRIPing that dividend, so you'll get a nice little snowball effect with enough time. 


Diversifying is always good. So why not diversify in this too? Have some higher growth stocks with no div, some low div stocks with good div growth, and a few high yielders in the mix.

[fenders53]

(10-15-2020, 12:36 PM)crimsonghost747 Wrote:

(10-15-2020, 09:55 AM)fenders53 Wrote: Seriously interested in learning about the trust.  We need an "old man exit this world correctly" thread lol.

definitely!

Regarding div payers in a "young man's" portfolio, sure go for it. Just be sure not to overdo it and go all in on the dividend and forget about the growth.
For one, you never know what happens and it's always nice to have some dividend income on the side. And of course you'll be DRIPing that dividend, so you'll get a nice little snowball effect with enough time. 


Diversifying is always good. So why not diversify in this too? Have some higher growth stocks with no div, some low div stocks with good div growth, and a few high yielders in the mix.

It would be hard to convince me this isn't a very prudent strategy over time.  (I mostly didn't do this)  A few higher growth stocks will make it possible to achieve market returns overall.  That can get you to your goals years ahead of time.

The real reason though, is we just can't know what happens in 5-10 years.  The market has hated value stocks for a decade, and ran quality growth stocks to double the average historical PEs.  Is this forever?  Nobody knows that and it will likely be too late to react when you do.  With some diversification, you can react to some degree no matter what happens.  I truly smile when the market gets hit 10% in a few weeks.  Maybe you sell a share of AMZN and buy some financial stock trading at PE 5.  Or maybe your tech crashes hard and you can pick up some cheap shares with those boring T dividends.  I definitely lean far more bearish than I ever did in the past, but short of a severe blowout like MAR 2020, I maintain a position where I can try to make the future a little better.  It helps me ALOT when I feel like I have some control.

[ken-do-nim]

I'll start a new thread on the trust.

[NilesMike]

Regarding growth versus DGI for young people, it is quite a bit easier IMO to identify the DGI stocks than the ones that will grow for 20+ years.

We all may latch on to a high flyer now and then but I don't think being that type of stock picking is easy.

A simpler approach, again IMO, is to have a couple of different portfolios. One in leveraged ETF market timing (this will provide all the growth one needs), DGI, conservative options and one for a simple futures trading strategy.

RE the exit strat, I am 61 last week. At 65, all of my assets will no longer be under my control. I plan to give it all to my 2 kids and have them pay me out of the assets.

What form that takes is uncertain, it may be in a business trust with a Family LLC as the benficiary, not sure yet but it will not be exposed if/when the nursing home is needed.

Looking forward to thread as well.

[ken-do-nim]

Ah, so you're planning the give-it-to-the-kids approach. I hope that works out well for you.

New thread was put up a few hours ago : http://dividendgrowthforum.com/showthread.php?tid=1936

[fenders53]

(10-16-2020, 02:42 PM)ken-do-nim Wrote: Ah, so you're planning the give-it-to-the-kids approach.  I hope that works out well for you.

New thread was put up a few hours ago : http://dividendgrowthforum.com/showthread.php?tid=1936

That was my plan as well but I'll take this to the new thread.....

I agree with Mike somewhat on picking growth stocks.  I get sick for missing the generational highflyers I was well aware of. 

-I remember laughing when Bezos started an online bookstore.  He was a showman back then.  Showed up to one of his early conference calls wearing cowboy boots and SPURS lol.  Then his stock crashed during the tech bubble and I had a good laugh.    

-Passed on AAPL at $13 when they were down and out, who knows how many splits ago?  Stuck with MSFT and Dell and rode them into the dirt for a LONG time.

-The NVDA graphics card I bought in 1995 was a joke and it was expensive.  Sure glad I dodged that bullet and didn't waste any money on shares lol.

That said, you are a techy and you don't have to hit many homeruns to succeed.  You don't even have to buy that much tech.  I love my DGI stocks.  I got a lot of growth out of some of them.  1995 JNJ and PEP come to mind.  The biggest trick is sorting out the companies that have little chance of growing much.  Today's KO, IBM and XOM are not likely to give you significant growth.  Room for them in my port and obvious Div stocks.  Finding that established midcap/smallish large cap that has room to grow and a Div.  Best to research now and hope to swoop in during a crash as valuations on high growth are obscene right now.  This is a very dangerous time to buy and hold fast growth, and you do have to hold them to get the benefit for taking the risk.

[EricL]

I've found that finding great stocks isn't hard, but actually buying them and holding onto them is.

I was long MNST and CMG back around 2008 and sold both with 100% gains only to watch them go higher by another 1000%.

I've watched NFLX and AMZN gain 1000%+ but never bought either because I either didn't believe the story, thought competition was coming or thought they were too expensive for my portfolio.

I now have a side portfolio that I buy things like that with. I'm long stocks like DG, SHAK, NVDA, SQ, SHOP, TTD, FB, and TDOC. Stocks that have potential to be the next 10 baggers. 

Now I just need to manage them right and not screw it up by selling them! =)

[fenders53]

(10-16-2020, 03:39 PM)EricL Wrote: I've found that finding great stocks isn't hard, but actually buying them and holding onto them is.

I was long MNST and CMG back around 2008 and sold both with 100% gains only to watch them go higher by another 1000%.

I've watched NFLX and AMZN gain 1000%+ but never bought either because I either didn't believe the story, thought competition was coming or thought they were too expensive for my portfolio.

I now have a side portfolio that I buy things like that with. I'm long stocks like DG, SHAK, NVDA, SQ, SHOP, TTD, FB, and TDOC. Stocks that have potential to be the next 10 baggers. 

Now I just need to manage them right and not screw it up by selling them! =)

If I had it to do over Eric, here's my master plan lol.  You buy those promising stocks and if they run you don't sell, but you get most or all of your initial cash off the table when they run 2X or 3X, then try to forget you own them. Then add another with your profits.  I won't call it a lotto shot, but only a few go parabolic and more stocks increases your odds.  You only need a few homeruns and you don't need a $10K investment to make you smile.  Maybe grand slams in the bottom of the ninth is more accurate lol.  Reality is some boring stocks I sold in the 90s are five baggers in not much over 20 years.  A five bagger is not all that amazing in two decades, but a half dozen on them will fix a port with some total loss BKs in the mix.