Why I stick with Good Old USA Stocks

I’m sure there are many fine and safe stocks to invest in all over the world

I’m sure there are many fine and safe stocks to invest in all over the world. In fact I would be willing to admit that a few might be better investments that any you will find here in the United States.

Now given my admission I will state that ,I as a general rule, will not invest in non U.S. based stocks. Not because there are not good investments elsewhere in  the world but mostly because there are so many great investments to make here in the U.S. I doubt I will ever be able to own all the stocks I would like because there are just so many and my funds will never be enough to do so. Now I am not a Billionaire, in fact a long ways from it, but even if I were, I still could not invest in all the stocks in the U.S. I would like to. Chances are I will always discover more stocks to  invest in than I have money.

So if I cannot invest in all the stocks in the U.S. what would be my reasoning for doing so? One argument I hear is to help spread the risk and another argument is that the other markets might out preform our market. Maybe at one time those were valid arguments but I don’t believe they hold true any longer. Most companies operate internationally now days with many foreign companies selling here in the U.S. and many U.S. companies selling all over the world. In fact the markets also many times move in tandem but even when they do not it does not make a lot of difference to how much your gains will be.

My reasoning is I get all the international exposure I need just by owning most large U.S. stocks because they operate internationally. I also know these companies are scrutinized carefully by U.S Investors and the Federal and State governments and have to answer in American court systems. In addition I do not have to worry about foreign derived taxes. Another thing I like about American stocks are the dependability of the dividends. Many foreign based stocks pay irregular timed dividends , that is they do not pay on a set schedule.

So for me on this 4th of July I am declaring my patriotism by sticking with stocks from the  good ole USA !

Enjoy your holiday folks because I am heading out to back yard to grill some steaks and relaxing for the remainder of the day! Hope you are enjoying your day off as well.

 

Any thoughts are comments are always welcomed !

Advertisements

Risk Mitigation

There are many investors that argue against owning more than a dozen or so stocks

 

Risk Mitigation – # of stocks, $ Limits,

You are going to make mistakes – It’s a fact of investing! This is why in addition to Diversification of your stocks you should practice what I like to call “Risk Mitigation”. This entails investing in a large number of stocks to avoid concentrating too much of your money into any one stock.

There are many investors that argue against owning more than a dozen or so stocks stating that there is no need or quoting sources such as Warren Buffet and other big name investors. They also state that owning too many stocks will only serve to bring your returns down.  I would have you consider this though; these are the same folks that say you should own an S&P Index Fund containing 500 stocks!  Also consider that Warren Buffets Fund contains at least 45 publicly traded companies and many more privately held companies.

Things have changed with technology – An investor can easily keep track of 75 to 100 stocks ( I do) and the reason is technology. I can get real time alerts from by broker by simply setting them up in the control panel, I can get alerts from the companies themselves, from sites that let you set up portfolios and I can even get News Feeds since directly to me by RSS. It’s not like the old days when you had to wait until the next day to read about it in the newspaper and then try and phone your broker at the same time hundreds of others were doing the same.

  Some basic ways of limiting your risks are:

  • Spread your investment out over a large number of stocks ( How many depends on how much)
  • Limit your investments in riskier stocks – I allocate less money to riskier investments
  • Use the dividends of the riskier stocks and use them to purchase “safer” stocks – This is a great way to use the income from riskier but higher yielding stocks to fund safer stocks.
  • Monitor your stocks closely for signs of trouble –

When purchasing a stock have the intent of owning it forever.

Here is how your risk is mitigated using a larger number of stocks.

Say you have $100,000 to Invest.

If you buy only 10 stocks @ 10,000 each and the unthinkable happens – You could lose $10,000

But …..

If you buy 20 Stocks @ $5,000 each and the unthinkable happens your lost would be $5,000.

Of course we don’t want to lose money but it helps you sleep better knowing only half as much is at risk by buying more stocks! All by increasing the number of stocks and lower the percentage of our money invested in each we have reduced our risk exposure of each stocks by 50%.

In one of my portfolios I own 100 stocks – with only 1% of the portfolio allocated to each stock I only have 1% at risk for each stock. That means that I could lose every penny of one particular investment and still retain 99% of my portfolios value.

Of course there are also other ways of providing risk mitigation for your self, like having multiple checking , savings, and brokerage accounts but that is a topic for another article so stay tuned for these ideas and much more!

As always your thoughts and comments are welcome. Please join in to the discussion.

 

 

Why Pay ETF fees – Build Your Own !

“Why would you pay someone a good chunk of your Investments to do what is so simple?”

I personally maintain between 75 and 100 stocks in my portfolio(s). Now I know many of you will argue that is way too many stocks to manage but that is not what this article is about so let us save that argument for another article ? Okay, now that we have that out of the way let’s get to the point.

One of my pet peeves is paying others to do things for me I can easily do myself. I know in some cases it makes sense to pay others to do jobs for you. For instance, I could put a new roof on my house, I’ve done it before and I know I would save money and probably do a better job than many roofing companies would. But, I am getting older, I am less agile and recently have developed a phobia of heights. In addition my time has become more valuable to me and I am in no condition to risk injuries that would only accelerate my natural aging conditions so in this case I choose to hire professionals to do the roof for me. It makes sense on a practical and a financial level. But that is not always the case and when it comes to my personal investments  well that is where I draw the line. I do it myself  and so can you!

That brings me to the do-it-yourself ETFs. Why would you pay someone a good chunk of your Investments to do what is so simple? It seems that the Financial community tries to make things sound very complicated to scare off individuals from doing it for themselves. I am not sure I am correct in my thinking but it is something that sure seems intuitively obvious to me. Whether I am correct in my thinking or not the fact is it is very easily for you to build your own portfolios of stocks and cut out the middle men fee collectors. This has become even more easily accomplished in recent years thanks to the internet and online brokerage accounts. For myself, it became very apparent during the 2008/2009 financial collapse that my broker was not working for me but for himself. He had steered me into a basket of mutual funds that paid him the best commissions and his 1 % yearly fee continued regardless if I made money or lost money. In other words the system was rigged to ensure his and the mutual funds commissions continued to flow positive regardless of what was happening to my accounts. In addition many have withdrawal fees to discourage you from daring to sell your investments.  At this point I had had enough! I was tired of seeing him with his $200 shirts and his shinny new Mercedes leeching off of me and my hard earned money, so I decided I would start managing my own investments.

I moved my money into Charles Schwab online accounts. It was a bit scary but as I quickly discovered not nearly as scary as watching my money transferred into the pockets of others.  My first investments were in all big cap, well known Blue Chip companies. Since many of these names had been caught up in the down draft of the collapse it was not only a smart move but as it turned out to be a very rewarding move as these companies rebounded rather quickly being the largest and most trusted names. Some were Bristol Myers Squibb, Johnson and Johnson, General Mills, Proctor and Gamble, Coca Cola, At&T, Phillip Morris, etc……….. All names of companies that have been around for a very long time, have products or services that almost everyone uses and recognizes. And it makes sense right? Think about it – It was scary times but  my reasoning was that if all these companies went bankrupt, well we would have more to worry about than our investments because it would have meant a complete collapse in our society. It turns out I did the right thing as my investments not only grew but far exceeded the value of my original investments. And they grew this time with the added value of not having to share with others.

I have evolved as an investor over the years but it is not as difficult as most think to build your own ETF. All you have to do is identify your goals. The majority of people choose a “low cost” S&P 500 Index fund. Now I know even for me it is almost impossible to buy a sufficient quantity of stocks to equal all 500 stocks so what I recommend (as a Dividend Income Investor) is to invest in the highest yielding stocks of the S&P 500. Then buy as many of those stocks that you can afford in equal weighted amounts. So as an example if you have $100,000 to invest you might choose to invest $4,000 in twenty five highest yielding stocks in the S&P 500, or another method would be to see what your favorite ETF has listed as it top 25 stocks then purchase those stocks. You can do the same for almost any index, or sector you choose to invest in. This way you have built your own mini ETF that does not include any fees from Brokers or Funds. You don’t have to go with say the top 25 stocks that are highest yielding either – I know sometimes I don’t have faith in a particular company or there are certain sectors I avoid altogether in my investments ( A current example is retail stocks, it a sector that is in transition right now and I do not trust it). You make the rules. And yes, as always, you will make mistakes. I’ve got  news for you – the people that put together the Mutual funds or ETFs they make their share of mistakes also. But unlike them it is much easier once you have identified the mistake to correct it. You simply hit the sell button in your account and invest the money into another stock that you have identified as more promising.

I know this might sound complicated to some but it is not. It takes very little time to put together and manage so even those with full time jobs can easily do it whether you are an office worker or a busy CEO I am 100% sure you will have the time. And as a bonus, there is nothing more rewarding than accomplishing work for yourself. I also believe this first crucial step will lead you to even more rewarding accomplishments in your financial life like becoming a full time Dividend Income Investor and finding out how simple and rewarding life can be.

Your thoughts and comments are always welcome. Please share them with us below.

.

 

113 Dividend Increases Expected

“The CCC list is an excellent resource for Dividend Income Investors.”

One hundred and thirteen companies from Davis Fish’s Dividend Champions, Challengers and Contenders (CCC) list are expected to raise their dividends prior to June 30. This list was compiled by Mr. Fish from his  CCC List and is based on the companies prior history of raising dividends.

Here is a compiled list:

Dividend Champions ( 25 or more years of Dividend Increases )

W.W. Grainger Inc., PPG Industries Inc., Exxon Mobile Corp., Sonoco Products Co.,MSA Safety Inc., Johnson & Johnson, Weyco Group Inc, Conn. Water Service, NACCO Industries, RLI Corp., PepsiCo Inc., Donaldson Company, Farmers & Merchants, Leggett & Platt Inc., UGI Corp., First Financial Corp., Tootsie Roll Industries, National Fuel Gas

Dividend Contenders (10-24 years of Dividend Increases)

Costco Wholesale, Donegal Group Inc. A, Donegal Group Inc. B, People’s United Financial, Franklin Electric Co., Ameriprise Financial Inc., AmeriGas Partners LP,International Business Machines, Southern Company, Xilinx Inc., United Technologies, CCFNB Bancorp Inc, Cullen/Frost Bankers, Expeditors International, FactSet Research Systems, Monro Muffler Brake Inc., Northrop Grumman, Flowers Foods, Travelers Companies, Chesapeake Utilities Corp., W.R. Berkley Corp., FedEx CorpRepublic Bancorp KY, Tiffany & Company, Portland General Electric Company, HDFC Bank Limited, Chubb Limited, National Healthcare Corp., Armanino Foods, Cardinal Health Inc., Farmers & Merchants Bancorp, Regal Beloit Corp.

Dividend Challengers ( 5-9 Years of Dividend Increases)

Signet Jewelers Limited, Aon , Celanese Corp., Lazard Limited, Heritage Financial Corp., Lakeland Bank Corp., Wells Fargo & Co., American Water Works, Apple Inc. , Aspen Insurance, Webster Financial Corp., West Bancorp Inc., Winmark Corp., Invesco Limited, Lithia Motors Inc., Sabra Heath Care REIT, Tractor Supply Company, Materion Corp., Phillips 66, HNI Corp, Pool Corp., Marriott International Inc., PetMed Express Inc., Whirlpool Corp., LyondellBasell Indus., Barnes Group Inc., Avery Dennison Corp., Hyster Yale Materials, KeyCorp, ManPower Group Inc., Sinclair Broadcast GP, Insperity Inc., Southwest Airlines Co., CNO Financial Group, NASDAQ Inc., Legg Mason Inc., Ominicon Group Inc., El Paso Electric Co., Extra Space Storage Inc., Macy’s Inc., MB Financial Inc., Service Corp Int’l, First Financial Bankshares Inc., Franco-Nevada Corp. UnitedHealth Group Inc., Convergys Corp., Lennox International Inc., Towne Bank, Black Box Corp., Domtar Corp., Shoe Carnival Inc.

The CCC list is an excellent resource for Dividend Income Investors. While there of course no guarantees that companies will continue to raise their dividends , history is one of the best indicators. You are encouraged to to visit the CCC List site at the link above.

 

Thoughts or Comments? We would love to hear them.

Why I became a Dividend Income Investor

When my wife died I realized I still had two minor children living at home

My main personal motivation  for becoming a Dividend Income investor was the death of my wife. When my wife died I realized I still had two minor children living at home that I now had the sole responsibility for. I had two other children that were grown and married with good jobs so I knew they would be okay but what about the two minor children? I wanted to ensure my two youngest children were provided for. Reviewing my Investments I realized that even with leaving my two youngest children the entire Insurance policy I had would not be enough to support them for more than a could make it for a minimum of six years financially to ensure their well being. So this is when I switched couple of years. My youngest child was 14 years old at the time so my thought was that I needed to ensure they I sold most stock that was paying dividends below a 5% yield. My main focus became providing enough income for them to live on should anything happen to me. This meant sticking my investing neck out and taking on some risks that I hadn’t been willing to do.  I increased my average yield from less than 4% to right at 10%! Now I know what many will say – Why be so risky buying higher yield stocks when everyone says they are “Yield Traps” or “very risky”.

Amazingly what I discovered was that my new way of investing was not any more risky than my previous “safe” style yet I was bringing in right at three times the amount of monthly income. Since I was not in need of the extra income it was being reinvested into even more stocks. In other words my income was now compounding about 2 times faster than it was previously and it did not take me very long at all to make sure that my monthly income goals of providing for my children were met.

Did I have any failures? Sure, a couple of stocks that I purchased cut their dividends but I simply sold them and bought other stocks that were paying similar , if not more in Dividends than the stocks that I was replacing. A few stocks, I kept in spite of the dividend cuts. An example is a stock that I purchased during the oil bust. I remember one in particular was paying over 30% in dividend yield and after the cut I was still receiving a yield in excess of 15% so I decided to keep it. My reasoning was that a 15% yield is great by any measure, and that the company having reduced its dividend was in much better shape financially. Of course by practicing “risk mitigation” (see chapter —-) I had not put an excessive amount of my investment money at risk, even if I had lost every penny of that stock. I am now near three years into my new style of Investing so I am sure you would ask , do I regret switching to my new style of investing that I call Dividend Income Investing? The answer is absolutely not.

My Dividend income has increased almost every single month. Now of course you have to be smart and selective and make sure not to get too greedy with the yields. A portfolio yielding 8-10 % is quite doable. One of the first things you have to look at is the yield out of whack with the Sector it is in. Many stocks like MLPs, REITs and BDCs naturally pay out more in Dividends and Distributions. This is so because they are either passing on taxes to you, or because they are required to pay out distributions as a percentage of their Revenue. The other very important step is to do a little (or better a lot) of research to make sure the company is on solid ground and is not in danger of going bankrupt or drastically cutting its dividend. You don’t have to be an expert in the Charts and financials of each company, much of which is very confusing to the average investor but I have found a great way to research companies is to read every single article you can find before investing.  I even like to read the comment sections below the articles to see if the average Joe agrees with the author’s conclusions. Once I have determined the company as a safe investment then I act upon it.

The amazing thing is my portfolio generates much more than it would otherwise and with the extra dividends I can purchase even more stock which helps to make the Portfolio safer each and every month as well as grow in value!

Now I am not an Financial Advisor, so I can’t say my method will work for you, but what  I can say it has worked very well for me.

Please feel free to share your comments below, I look forward to hearing what you think.

 

 

Investing For Specific Goals

“She wanted to earn enough money to cover the rent of the apartment for the rest of her life.”

A Poster on a popular Money Forum I follow had asked for advice. She had just sold her home and had $225,000 in proceeds to Invest. Her dilemma was that her Financial Advisor seemed to be less than enthusiastic about helping her. She was selling the home and moving into an apartment. The apartment’s rental rate was

e$1,300 per month. She wanted to earn enough money to cover the rent of the apartment for the rest of her life. Wisely – She didn’t want to be told “Invest in Bonds” or Invest in an Index Fund because she knew it would not give her the Income she needed to cover her rent.

I knew I could help her. I had recently been through a similar experience. So I shared with her on how I would handle the problem.

First thing to be done is to determine how much of a yield would be required to generate the $1,300 a month in rent.  So doing a quick check shows that she needs to earn a 7% yield from her investments in order to the required $1,300 per month.

Here was my advice:

Buy individual stocks. Use the Dividend Income Method. That is stocks that pay higher yields than most because she needs income today – not twenty years from now.

For Diversity and risk mitigation we identified 27 stocks of various yields that would help reduce the risk of losing large amounts of money should the unthinkable happen. This came out to an average  amount of $8,333 per stock. I did end up weighting the higher yields slightly to ensure she met her goal.

So what I ended up with is: 10 Stocks @ $9,000 each, 16 stocks @ $8,000 each and 1 stock @ $7,000.

Here are my choices:

Continue reading “Investing For Specific Goals”

What is a Dividend Income Investor?

Dividend Income Investing is suited very well for Retirees.

You will discover that there are various philosophies when it comes to investing, in fact, probably hundreds or even thousands of variations on investing styles.  For our purpose of this blog  we will ignore many styles and investing in non stock portfolios such as bonds and treasuries. Some people prefer stocks that considered Value Stocks; others prefer Growth Stocks and some like Dividend Growth stocks. The Dividend growth area is where I started (in reality, I was probably more like a nomad trying to find my way around in the big investing desert) Over the years I have evolved into what I like to call a Dividend Income investor. My primary focus is producing current income.  I like to see the income rolling in each month. It serves a couple of purposes for me

  • Produces tangible Income results on a monthly basis that I can use if I need to.
  • Provides a secure platform in a declining market for me
  • Keeps my results at a steady pace. – I know how much I will earn each month on a minimum amount, that is if I have $500,000 dollars invested with an average Dividend Yield of 8 % then I know that I will receive $40,000  per year or $3,333 dollars per month minimum ( If you are reinvesting that money then it will be steadily increasing) ( No, this is Not unrealistic because I am actually generating 8-10% in my own portfolios!)
  • You can predict your income growth over periods of time.

If you use one of the other investing styles your focus is in other areas – you might be looking for your stocks intrinsic value to increase. You have to determine that a stock is undervalued, and then hope that eventually other investors see the opportunities that you saw and bid up the price of the stock for you to make your money.  For me, all I have to do is determine that the stocks I pick will be able to continue their Dividend Payouts.  If they do, using the example above, I know the minimum I will make off my investments will be $40,000 that year. Of course there could be other increases. If I am reinvesting the Dividends the income compounds, Companies could raise their dividends or traders might discover that a stock is a good bargain and drive up the price so that your investment appreciates in value.

Dividend Income Investing is suited very well for Retirees.  As a retiree your income will be limited to just social security and a pension or a 401K (if you are lucky). The majority of people will receive a check for about $1,200 per month (in today’s dollars) when they retire. That’s only $14,400 per year in income to live off of ($28,000 on average for a couple). This is not comforting at all. In fact it is depressing, especially if you don’t bother to do anything about it. There is good news however, for those of you that are reading this blog you will now have the knowledge to turn a depressing situation into one that is filled with happiness and joy.

This blog will show you ways of achieving a comfortable income in your retirement years.

Already an investor with a significant amount of savings but not earning enough income from it to retire ? Well this style of investing might be something you will want to consider.

After converting one of my portfolios to the Dividend Income method this past year I doubled the income that was being generated each month. This not that difficult to achieve as almost anyone can do it. To learn how you can do it I invite everyone to follow along with this blog and we learn the ins and outs of Dividend Income Investing and how it can help you achieve not only a better retirement but maybe even retire much sooner than you ever dreamed of !

post