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Like myself, the majority of people on this site probably invest in individual stocks. If you are able to actively manage your portfolio, there are several reasons for this mode of investment, including the ability to buy stocks at below fair value, minimization of fees, and the ability to monitor the fundamentals of individual companies. At some point in retirement, most of us will either not be able to actively manage our portfolios or will die and leave our investments to spouses who can't or don't want to actively manage a portfolio.
I can see three investment options for this case. First, the individual stocks already owned can be kept with no active management; however, this works best if only dividends are being withdrawn, which requires a large portfolio. Selling stocks will require some type of judgement to select which stocks to sell. Second, sell the company stocks and buy ETFs or mutual funds, which will provide greater diversification and ability to continue following the dividend growth approach with greater fees and less performance. Third, sell the company stocks and buy an immediate annuity which will provide an income till both partners are dead with the drawback of a fixed income level and inability to give money to heirs.
I am leaning to trimming the stock portfolio back to a core of the absolute best performers and buying an ETF; however, I which there were better choices in dividend growth ETFs.
Another question is when to make the transition. At this point, I will probably leave instructions to my wife on what to do if I die suddenly (she has been asking), but further thought will be required for other cases.
I have started thinking about some of the possible transition phases, all of which involve me not being actively involved. We - my wife and I - invest primarily for high current income and secondarily for income growth. This is a natural consequence of an ever shortening time over which income is needed. The older you become, future income growth naturally declines in importance. We own a number of high yield stocks, and these require regular due diligence. It would not be realistic to expect my wife to continue with the due diligence that I perform, but if either or both of us were to continue to need investment income, we could reduce it somewhat.
What I would ideally like is a combination of relatively stable high current yield and a bit of true income growth, both of which someone else would manage professionally, i.e. as a fiduciary.
This could be an investment professional who understands and endorses dividend growth. I know of one commenter on Seeking Alpha who qualifies, Doug Meeks. David Van Knapp wrote an article several years ago that identified several others.
The high current yield component could be a fund or ETF that generates high current income, and the income growth component could be a fund or ETF that truly does dividend growth investing. There are a number of the latter that claim dividend growth, but I have not seen any that actually qualifies as dividend growth. They all reduced dividends during the financial crisis, and they all have a puny current yield.
As for high current income, there are many candidates and I certainly don't know all of them. Some I can think of:
> DVHL, a 2x leveraged ETN linked to the price and income performance of the NYSE Diversified High Income Index
> DVHI, similar to DVHL but not leveraged
> CEFL, a 2x leveraged ETN linked to the price and income performance of the ISE High Income Index
> BDCL, a 2x leveraged ETN linked to the price and performance of the Wells Fargo BDC Index
> BDCS, similar to BDCL but not leveraged
> AMU, Alerian MLP Index ETN
> MLPL, a 2x leveraged ETN linked to the price and performance of the Alerian MLP Infrastructure Index
> MLPI, similar to MLPL but not leveraged
> DVYL, a 2x leveraged ETN linked to the price and performance of the Dow Jones Select Dividend Index
> HYG and JNK, junk bond ETFs
> PFF, a preferred stock ETF (and part of DVHI and DVHL)
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06-08-2014, 10:07 AM
(This post was last modified: 06-08-2014, 12:56 PM by cannew.)
Nice summary Ken, but I'm 72 and still 100% DG stocks and re-investing the dividends. With 90% of our stocks we would keep them unless they went bankrupt (which is highly unlikely). I have a schedule when I'm going to begin drawing down a portion of the dividends. Would I ever consider switching to ETF's or Funds, Never! We've built our portfolio to provide us with a growing income and nothing will change. I've explained the investment strategy to my wife and have left specific instructions on where all the accounts are located, how to access funds, which ones to sell or draw down first, how the entries are recorded and who to contact for assistance.
Even if she does not want to monitor or continue being involved with the stocks, she can have all the dividends deposited to her account and they will continue to provide her with a growing income to cover all the expenses. We don't expect there will be a need to sell shares to obtain the income needed, worse, to start paying a fee to reap the benefits from our investments.
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(06-14-2014, 06:56 AM)rnsmth Wrote: Here is an option I will consider
$5,500 on a $million portfolio. Go for it!
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(06-14-2014, 09:17 AM)cannew Wrote: (06-14-2014, 06:56 AM)rnsmth Wrote: Here is an option I will consider
$5,500 on a $million portfolio. Go for it!
Less than ideal, but it would leave 30,000 in dividend income (and growing) for the wife after I am dead. I am in my second year as a subscriber to DividendInvestor and I like the way Josh thinks, writes and manages the two portfolios.
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06-15-2014, 08:22 AM
(This post was last modified: 06-15-2014, 08:23 AM by cannew.)
[/quote ='rnsmth' pid='3630' dateline='1402746966']
Less than ideal, but it would leave 30,000 in dividend income (and growing) for the wife after I am dead. I am in my second year as a subscriber to DividendInvestor and I like the way Josh thinks, writes and manages the two portfolios.
[/quote]
Agree, read pages 221 to 223 of his book. Once you've selected your stocks there is little need to pay someone to oversee your portfolio.
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(06-15-2014, 08:22 AM)cannew Wrote: Agree, read pages 221 to 223 of his book. Once you've selected your stocks there is little need to pay someone to oversee your portfolio.
I agree, but....once the portfolio gets passed on to someone who has little interest in investments there can be a need for that
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