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Balancing dividend income throughout the year
#11
(08-24-2019, 12:43 AM)crimsonghost747 Wrote: I'm bringing this thread back to life!

I've been thinking about this a lot lately. And after some calculations etc, I've found a way that seems like it would work for me.

Monthly budget = trailing 12-month average cash flow. At first I wanted it to be a shorter time frame but I quickly realized that it's not doable with my portfolio. It might work if you have a pure buy and hold portfolio with quarterly dividend payers but I trade options, I have fixed income instruments that pay out once per year and I have maybe around 10% of my portfolio in stocks that pay once or twice a year instead of quarterly. So 12-months was the shortest amount of time where the trailing average remained relatively stable. Anything shorter and those once in a year payments made it jump much higher than what I need and a bad month or two with options pulled the average below what I require for a decent life. Just for reference: in 2018 my best month was 21% of the total cash flow for the year. And my worst month had a negative cash flow.

I think this requires a cash buffer of at least 1 year's expenses. Right now I have a way too large cash buffer (though Trumpet and his twitter account are trying to make me spend it!) so I actually won't be moving any money out of my investment portfolio, rather I'm reinvesting it and eating from my cash pile. This is just a way for me to calculate what sort of money I should be spending each month. And being the super cheap person that I am, it's more about having a number which I must spend rather than having a number that I can spend. :p
While I do understand the logic, having a cash buffer seems like an easy solution.  If worrying what month a stock pays it's dividend causes an income problem, you are living month to month IMO.  Maybe you retired from work a month or so too early?
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#12
I was never talking about worrying which month a stock pays a dividend, rather I was wondering what sort of a strategy people are using in order to distribute it more or less evenly throughout the year. If you are a simple buy and hold type of a person, then your quarterly income is pretty stable. But as I said, I have negative months (from bad trades) as well as some months where I'm making over 100% more than the month before, so it was necessary to find a system that balances it and also adjusts for changes in my earnings.

A simple cash buffer and "withdraw X per month" is the most simple solution (and indeed very close to what this is) but you need a way to determine X. If you just stick to X being one figure, then it will quickly lose touch with reality and you will find your cash buffer either increasing or decreasing. When your money is coming from a salary, it's normal for X to be the same for every single month because you are earning the same amount of cash each month. But when it's investments then every time I buy or sell something; every time a company raises or lowers their dividend; every time the interest rate on the cash buffer changes; every time I make a trade... the old X becomes out dated.

This trailing 12-month average is basically a more or less automated way to keep X in line with what I am actually earning right now. And it does not involve guessing anything about the future. (because I'm not good at that) It automatically balances out the highs and lows and automatically ensures that my cash buffer remains at a stable level.

While at first this might seem like making things overly complicated, in reality all that I need to do is change 2 numbers in my spreadsheet once per month and everything stays up to date.
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#13
I think I understand what you are up to.  I am currently funding my cash buffer with dividends and conservative option premiums.  My buffer is actually sitting in very short-term bonds as I don't need it until about 2022. I want to practice and see if I can maintain stability.  I intend to fund it for two full years of draws before I attempt to completely stop working.  This would gives me two years to react if my future income is going to decrease. I have other pensions so the dividend draw only determines if I live larger or not.  I don't want to be forced to sell shares until later on in retirement.
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#14
(08-24-2019, 08:27 AM)fenders53 Wrote: I think I understand what you are up to.  I am currently funding my cash buffer with dividends and conservative option premiums.  My buffer is actually sitting in very short-term bonds as I don't need it until about 2022. I want to practice and see if I can maintain stability.  I intend to fund it for two full years of draws before I attempt to completely stop working.  This would gives me two years to react if my future income is going to decrease. I have other pensions so the dividend draw only determines if I live larger or not.  I don't want to be forced to sell shares until later on in retirement.

Yes, now we are talking the same language. My cash buffer is actually seriously over funded at this moment but I'm planning on bringing it down to 2-3 years of expenses by investing the excess into the market slowly, or very aggressively if we do see a proper correction.

But this thread is really all about that stability of the cash buffer that you mentioned. About finding a way to calculate the withdrawal rate so that it matches your incoming cash flows, keeping that cash buffer at it's desired size through dividend raises, failed trades, sporadic lump sums etc. This 12-month trailing average cash flow is still work in progress but it certainly looks to be more promising than anything else I've found. 

Btw I'd like to point out that, for the moment, I'm not taking the total value of my investments into account in any way as selling is not something I'm planning on doing anytime soon. I'm just focusing on the cash flows from my investments.
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#15
(08-24-2019, 11:19 AM)crimsonghost747 Wrote:
(08-24-2019, 08:27 AM)fenders53 Wrote: I think I understand what you are up to.  I am currently funding my cash buffer with dividends and conservative option premiums.  My buffer is actually sitting in very short-term bonds as I don't need it until about 2022. I want to practice and see if I can maintain stability.  I intend to fund it for two full years of draws before I attempt to completely stop working.  This would gives me two years to react if my future income is going to decrease. I have other pensions so the dividend draw only determines if I live larger or not.  I don't want to be forced to sell shares until later on in retirement.

Yes, now we are talking the same language. My cash buffer is actually seriously over funded at this moment but I'm planning on bringing it down to 2-3 years of expenses by investing the excess into the market slowly, or very aggressively if we do see a proper correction.

But this thread is really all about that stability of the cash buffer that you mentioned. About finding a way to calculate the withdrawal rate so that it matches your incoming cash flows, keeping that cash buffer at it's desired size through dividend raises, failed trades, sporadic lump sums etc. This 12-month trailing average cash flow is still work in progress but it certainly looks to be more promising than anything else I've found. 

Btw I'd like to point out that, for the moment, I'm not taking the total value of my investments into account in any way as selling is not something I'm planning on doing anytime soon. I'm just focusing on the cash flows from my investments.

Not that you need to be concerned with my every personal detail, but I am 57 and eligible for one pension starting last year at a reduced rate so putting it off.  Another at age 60 and SS at 62.  My buffer needs to be fat in three years so I can smoke Cubans and fly over to have lunch with you on one of those islands lol.  I would need less Div money after those two years, but if I could maintain it that would be awesome.  

I have a lot more in cash and cash like assets than these segregated funds, because I am a market timing scaredy chicken until this market gets whacked for real.  The cash buffer is permanently off limits for risk on investing unless we get the mother of all corrections.  Probably still off limits then.
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#16
Pensions etc certainly make it easier.
I do not have one, and most likely never will have anything similar to it, so I'm on my own. Big Grin

And that is kinda what prompted this whole thread in the first place. It wouldn't matter much if investments were 30% of my income but they are the only regular income I will have so it's important to adjust for the swings in either direction.
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#17
I am very fortunate to have an employer pension.  They are a thing of the past. I think you are wise  to "practice" your allocation mix in advance.  It's challenging to find a sufficient yield other than stock dividends.  Yields are likely to fall further.  Option premiums could be some part of it, but they are going to be lumpy.  Mine vary from very significant, to minimal as I shouldn't be chasing stocks very far with puts at these above average valuations.  Over the course of a year the premiums are a significant part of my plan.  The cash buffer is absolutely required if you want to smooth out the monthly draw.  It would be easier to smooth out dividend payments with stock selection. (obviously)  I think CD rates are going to go low enough to not even interest me.  This is affecting current retirees already.  They're almost forced to chase higher yield bonds and the risk reward may bite them from here.  I think this is partially responsible for holding the market up going forward.
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#18
I'm 12-14 years away from retirement--looking at 60 to 62 to hang it up. I'm lucky like fenders with a traditional pension, albeit, a small one but it's something--as we speak there is a cash option or a monthly annuity option. I'll actually be pension eligible at a reduced rate in two years but the amount is so small it's not even worth my effort to crunch the numbers--the most I can do is just look at it, would you look at that....Just look at it...lol...youtube "just look at it" and you'll get it...lol..

Anyways, if available, I will most likely take the cash option on the pension and roll it over into an IRA. The 401k mutual funds (most of them distribute long/short term capital gains and dividends) but they will be re-distributed into mostly dividend paying stocks. I'm not a fan of the funds because when the market is doing well there's really nice distributions and when the market is not doing well there's little to nothing--so--it's like they force you to buy high and bupkis when the market is doing poorly.

I don't factor in SS into any of our calculations--so any of that income will be a bonus. I'm thinking the divi income will suffice, it should, as we speak but who knows? The cash buffer will be a mix of cash and maybe layered CD's that an "x" amount will come due every month.

So, that's the plan unless I'm dead
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#19
Well there's 12 minutes I'll never get back looking at "just look at this" videos.... Tongue
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#20
That's pretty much what I did Ray. I had a GOV plan that was basically a 401K IRA and I could buy an annuity upon retirement like everybody else I ever worked with did. It was not a good plan. If you die in ten years your family gets ripped off badly. I did the math and it was obvious I should flip the money into an IRA I control. I could buy riders for my wife or ten year guaranteed payouts. that would significantly reduce month checks. I couldn't think of a scenario that made an annuity a good idea unless my wife or I live to be 95. Not certain it even made sense then. It appears I need about a 2% return to put things much in my favor.
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