Supplementing Dividend Portfolio

[Navi]

Hi All,
I'm new to the forum, but I've been investing in dividend stocks for the past 2 years. I admit, my dividend goals are a bit lofty, as I want to have a multi-million dollar portfolio well before retirement. The main issue at the moment is that I need to "add far more fuel to the fire" than I currently am. I am taking a portion of my paycheck every 2 weeks to grow the portfolio (10% of take home pay), I am DRIPping everything I earn in the portfolio, and I am also working on becoming a better short term trader to use those gains to supplement the dividend portfolio. However, becoming a successful trader takes time, and there is no guarantee that I will get to a level where I can provide a lot more investment income. Relying solely on a percentage of my paycheck would take me multiple lifetimes for me to achieve the size portfolio that I want to achieve, so I'm looking to see if there are better methods to supplement the portfolio beyond a percentage of the paycheck. My questions to the forum are the following:

1) What are your go-to methods for supplementing your portfolio?
2) What are the timelines for achieving your portfolio goals?

I'm hoping to make this into a brainstorming session of sorts, so that I can figure out which methods of supplementation would work best for me. Please feel free to share whatever ideas you have used; so long as it's not immoral or illegal. Thanks  

[ken-do-nim]

When it comes to finding funds to invest, let me ask you some questions:
1) Can you live more simply? Smaller home, cheaper car, day trips instead of overnights? I've read stories about people who purposefully lived well below their means for 2-3 years in order to kickstart a portfolio.
2) Do you have valuables you can sell?
3) Can you find a higher paying job?
4) Can you / do you want to, lower your retirement savings in order to have money to invest in a taxable account now?
5) Are you saving for your children's college? Can they take out loans instead / pay their own way?
6) Can you do a cash-out refinance on your home?
7) Can you rent out a room in your home?

****

My answers to #1-#7 are:
1) Thanks to Covid, a whole bunch of camp & vacation money all went to the brokerage account last year. (I still managed to get out to the Grand Canyon this year)
2) I sold about $1500 worth on eBay last year that all went into the brokerage account.
3) No.
4) I lowered my 401k funding percentage from 12% to 6%.
5) I think I have enough saved for my daughter's college
6) In March I did a cash-out refinance and put $100k into my brokerage account.
7) No, but when the kids no longer need the house, I'll move out and rent it. I expect to make at least $1k in profit each month.

My timeline is 11 years to at least $3 million, hopefully more. Not accounting for taxes on pre-tax accounts, all sources combined I'm a little over half way.

[fenders53]

Waaaay back in the day I didn't have two nickels to rub together and the economy was horrible. Immediately after I got married I made a chart and told my wife we will invest each month, and try very hard to increase the amount as we could, no matter how hard it was, never go backwards. The first monthly investment was $25. It started a habit. Of course I had to accelerate the contributions.

-I worked side gigs early on and added extra money.
-First home was very modest and paid it off in 12 years. Paid my current home off in about 10 years.
-When I got a good job I contributed 10% to 401K. Increased that about 1% a year.
-We had some new cars and such, but vacations were modest. We lived below our means most years, but had a decent life.
-I invested in growth stocks. Not just dividend stocks. Endured a few crashes, made some horrible mistakes. But I never gave up and I kept my commitment to increase the contribution for about 30 years.

I recommend you publish your plan now with real numbers and goals. It's quite possible you will see some 5 year periods with next to no gains from the market. You have to keep feeding it, and feed it a little extra when you feel like quitting. The last two years have been fantasy investing. Folks with no real clue what they are doing are tearing it up like this is easy. If you want multi millions without waiting until you are 75 you'll have to be prudent. Don't chase FOMO, but don't chase yield traps that don't grow. Dividends are fun, but you don't need high income now. It will hurt your total return soon enough.

Get started on the what if calculator. Punch in your contributions and assumed returns. I used 6-8-10%. I had +40% years and almost a decade not much over 4%. It worked out but I invested hard when it was depressing. I had an employer match so it made it look like progress. Winning is fun but not when you make your real money.

There isn't a chance the returns of the past few years are sustainable. Plan for that time.

[Navi]

(11-01-2021, 06:48 PM)ken-do-nim Wrote: When it comes to finding funds to invest, let me ask you some questions:
1) Can you live more simply?  Smaller home, cheaper car, day trips instead of overnights?  I've read stories about people who purposefully lived well below their means for 2-3 years in order to kickstart a portfolio.
2) Do you have valuables you can sell?
3) Can you find a higher paying job?
4) Can you / do you want to, lower your retirement savings in order to have money to invest in a taxable account now?
5) Are you saving for your children's college?  Can they take out loans instead / pay their own way?
6) Can you do a cash-out refinance on your home?
7) Can you rent out a room in your home?

****

My answers to #1-#7 are:
1) Thanks to Covid, a whole bunch of camp & vacation money all went to the brokerage account last year.  (I still managed to get out to the Grand Canyon this year)
2) I sold about $1500 worth on eBay last year that all went into the brokerage account.
3) No.
4) I lowered my 401k funding percentage from 12% to 6%.
5) I think I have enough saved for my daughter's college
6) In March I did a cash-out refinance and put $100k into my brokerage account.
7) No, but when the kids no longer need the house, I'll move out and rent it.  I expect to make at least $1k in profit each month.

My timeline is 11 years to at least $3 million, hopefully more.  Not accounting for taxes on pre-tax accounts, all sources combined I'm a little over half way.

Oh nice! Very detailed response. Unfortunately, most of those questions are a no for me as well. No kids as yet, so that's not currently an expense to worry about. However, I don't see the lifestyle going down any more than it already is. I could cut back on the 401k, but I want to leave that as a last resort. I want to keep that going as a nice supplement if I live to see those times. 
I was able to add some extra funds diring the pandemic, but that was short lived.

[Navi]

(11-01-2021, 07:39 PM)fenders53 Wrote: Waaaay back in the day I didn't have two nickels to rub together and the economy was horrible.  Immediately after I got married I made a chart and told my wife we will invest each month, and try very hard to increase the amount as we could, no matter how hard it was, never go backwards.  The first monthly investment was $25.    It started a habit.  Of course I had to accelerate the contributions.  

-I worked side gigs early on and added extra money.
-First home was very modest and paid it off in 12 years.  Paid my current home off in about 10 years.
-When I got a good job I contributed 10% to 401K.  Increased that about 1% a year.
-We had some new cars and such, but vacations were modest.  We lived below our means most years, but had a decent life.
-I invested in growth stocks.  Not just dividend stocks.  Endured a few crashes, made some horrible mistakes.  But I never gave up and I kept my commitment to increase the contribution for about 30 years.

I recommend you publish your plan now with real numbers and goals.  It's quite possible you will see some 5 year periods with next to no gains from the market.  You have to keep feeding it, and feed it a little extra when you feel like quitting.  The last two years have been fantasy investing.  Folks with no real clue what they are doing are tearing it up like this is easy. If you want multi millions without waiting until you are 75 you'll have to be prudent.  Don't chase FOMO, but don't chase yield traps that don't grow.  Dividends are fun, but you don't need high income now.  It will hurt your total return soon enough.  

Get started on the what if calculator.  Punch in your contributions and assumed returns.  I used 6-8-10%.  I had +40% years and almost a decade not much over 4%.  It worked out but I invested hard when it was depressing.  I had an employer match so it made it look like progress.  Winning is fun but not when you make your real money.
 
There isn't a chance the returns of the past few years are sustainable.  Plan for that time.

Some very good points here; thanks for the tips. The portfolio I have is pretty solid, so no real worries there. I may have to re-evaluate what the timeline really is though.

[crimsonghost747]

First of all, welcome!

And then to the subject. I would start off saying that your goals may be a bit unrealistic. You did say that your goals are lofty, and that with your current contributions it would take multiple lifetimes to get there... unfortunately we only have 1 lifetime. I do not want to discourage you from trying, but I think it would be prudent to set some more realistic goals to start with. You will need to adjust your plans anyway since you never know what life throws at you, so might as well start with something that you view as achievable.

Regarding the actual amount of $$$ flowing into your portfolio, you're definitely on the right path. Monthly contributions and reinvesting the dividends are the way to go. Now the reinvesting part will start to show the snowball effect on it's own. The part that you can easily change is the amount that you contribute. Whether it's cutting down on expenses or earning more, or maybe a bit of both. It's obviously a trade off between current spending habits and long-term wealth, but such is life... there is no such thing as a free lunch.

Another option is to just increase risk. Just be sure that you're comfortable with the risk you're taking... once again there is no such thing as a free lunch.
Some ideas:
-trading
-leverage
-investing into riskier sectors (more super high growth, less stable dividend payers for example)

[Navi]

(11-02-2021, 12:27 AM)crimsonghost747 Wrote: First of all, welcome!

And then to the subject. I would start off saying that your goals may be a bit unrealistic. You did say that your goals are lofty, and that with your current contributions it would take multiple lifetimes to get there... unfortunately we only have 1 lifetime. I do not want to discourage you from trying, but I think it would be prudent to set some more realistic goals to start with. You will need to adjust your plans anyway since you never know what life throws at you, so might as well start with something that you view as achievable.

Regarding the actual amount of $$$ flowing into your portfolio, you're definitely on the right path. Monthly contributions and reinvesting the dividends are the way to go. Now the reinvesting part will start to show the snowball effect on it's own. The part that you can easily change is the amount that you contribute. Whether it's cutting down on expenses or earning more, or maybe a bit of both. It's obviously a trade off between current spending habits and long-term wealth, but such is life... there is no such thing as a free lunch.

Another option is to just increase risk. Just be sure that you're comfortable with the risk you're taking... once again there is no such thing as a free lunch.
Some ideas:
-trading
-leverage
-investing into riskier sectors (more super high growth, less stable dividend payers for example)

Thank you for the welcome. You're correct in terms of my goals being out of reach at my current pace. I would need to consistently invest magnitudes more to get to the place where snowballing takes over. That's why I'm looking into what those options may be. If all else fails, then I will simply keep re-investing payouts until needed. Of the ones listed, trading would probably be the only one that I would take on, as the risks for the others may be a bit out of my comfort zone. You've certainly given me some things to think about. Thanks for the feedback.

[fenders53]

Trading will put you in a battle with SPY returns.  Pro's fall short but it's fun to try and with experience you have a chance.

[ChadR]

(11-01-2021, 06:48 PM)ken-do-nim Wrote: When it comes to finding funds to invest, let me ask you some questions:
1) Can you live more simply?  Smaller home, cheaper car, day trips instead of overnights?  I've read stories about people who purposefully lived well below their means for 2-3 years in order to kickstart a portfolio.
2) Do you have valuables you can sell?
3) Can you find a higher paying job?
4) Can you / do you want to, lower your retirement savings in order to have money to invest in a taxable account now?
5) Are you saving for your children's college?  Can they take out loans instead / pay their own way?
6) Can you do a cash-out refinance on your home?
7) Can you rent out a room in your home?

****

My answers to #1-#7 are:
1) Thanks to Covid, a whole bunch of camp & vacation money all went to the brokerage account last year.  (I still managed to get out to the Grand Canyon this year)
2) I sold about $1500 worth on eBay last year that all went into the brokerage account.
3) No.
4) I lowered my 401k funding percentage from 12% to 6%.
5) I think I have enough saved for my daughter's college
6) In March I did a cash-out refinance and put $100k into my brokerage account.
7) No, but when the kids no longer need the house, I'll move out and rent it.  I expect to make at least $1k in profit each month.

My timeline is 11 years to at least $3 million, hopefully more.  Not accounting for taxes on pre-tax accounts, all sources combined I'm a little over half way.

Ken, I would advise you not to do #7.  Turning a primary residence into a rental is a mistake.  You are giving up to $250k ($500k) tax free profit from the sale of your primary residence.  If you turn it into a rental, you have a lower depreciable base and you just gave up a huge tax free gain.  If you really want a rental, sell the house and then turn around a buy a rental for what you just sold your primary residence for.

[ken-do-nim]

(11-02-2021, 01:31 PM)ChadR Wrote: Ken, I would advise you not to do #7.  Turning a primary residence into a rental is a mistake.  You are giving up to $250k ($500k) tax free profit from the sale of your primary residence.  If you turn it into a rental, you have a lower depreciable base and you just gave up a huge tax free gain.  If you really want a rental, sell the house and then turn around a buy a rental for what you just sold your primary residence for.

Wow, I didn't know that!  Thanks for the advice!

[fenders53]

I can't even imagine #6.  The small piece of my world that is risk free is my paid off home.  If I want to gamble I will ask my broker for margin.  Sounds like a Reddit kid YOLA plan. This will fuel our next crash.  At the risk of being impolite it's an idiotic strategy that will have a high price eventually.

[ken-do-nim]

(11-02-2021, 02:08 PM)fenders53 Wrote: I can't even imagine #6.  The small piece of my world that is risk free is my paid off home.  If I want to gamble I will ask my broker for margin.  Sounds like a Reddit kid YOLA plan. This will fuel our next crash.  At the risk of being impolite it's an idiotic strategy that will have a high price eventually.

You are entitled to your opinion but it can be absolutely the right move depending upon a person's situation.  It was for me this past March.  I, however, wasn't even close to paid off.  I went from 27 years of mortgage remaining back to 30, and my rate lowered in the process.

Ric Edelman wrote about this in his book "The Truth About Money".  He advises people to always carry a mortgage.  I probably wouldn't recommend a cash-out refinance if the rate is higher.