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Where We Were And What We've Learned

Writing my "Muddling Retiree" series, which begins here, has been a profitable exercise in becoming a much better educated investor for two reasons. First, it forced me to think about and to examine more carefully my wife's and my investing goals and to work to create a comprehensive plan to realize those goals.

Second, because of the extensive comments made by Seeking Alpha readers, almost all of whom are much more experienced and well-versed about investing than I am, I became aware of many aspects of investing, about which I had previously had no idea.

These comments alerted me to the dangers and risks to which I was exposing our portfolio, and also to different avenues of investment I had not considered before.

With each successive article, we felt that we had moved one step closer to becoming better investors, albeit still quite inexperienced ones.

Among the major steps we've taken toward our goal of becoming better investors:

  • We have put together an investing plan and constructed tactics and strategies to use in selecting and managing our positions.
  • We have made many modifications to our two portfolios in order to bring them in line with our plan.
  • We have gained a better understanding of our risk tolerance and are now acting in accordance with this understanding.

What We've Done Since Our Last Article

It had become obvious that we were far too overweight in mREITs for comfort; mREITs comprised 17.1% of our portfolio. So the first thing we did was to sell several of our positions. As you'll see in the portfolio listing below, we reduced that 17.1% to 8.86%; that is, we cut it in half. We did, however, increase our position in MFA in order to take advantage of the special dividend that will be paid in a few days. After that, we might sell some of those shares when the price recovers from the dip that will most likely follow the dividend payment.

We used the proceeds from those mREIT sales to buy eight new positions in other sectors and to increase the size of 12 positions we already held. Those increases helped us to get a better balance among our holdings. At this point, with three exceptions, all of our positions range from about 1% to 3.5%.

We sold our last preferred position from our Fixed Income portfolio.

We decided that we would limit the amount of our positions in any given sector to approximately 15%.

We elected to go heavier than we had previously in BDC holdings based on our belief that because the economic recovery seems to be gaining more traction, this type of business will most likely do well. Additionally, the returns are extremely attractive.

We added Consumer Discretionary and Materials sectors to our portfolio to help increase our diversification.

We reduced our cash position from 23.6% to 14.21%. We are still shopping and soon we'll maintain a 5% cash position so that we'll be able to take advantage of the pullbacks that are surely coming.

We feel very comfortable with our equity REIT positions and felt no need to either reduce or increase them.

We found that the average beta of our holdings is 1%, which means, of course, that the portfolio will move pretty much with the market. We're OK with that now because although, as almost everyone else, we feel that a correction is coming, we also feel that the nation's economic recovery will continue and, consequently, our stocks will recover, too.

Our Dividend Investing Portfolio

This is the way our portfolio now stands.

Symbol

Sector and Description

Yield

% of Portfolio

% by Sector

Cash

14.21%

14.21%

Energy: Stocks and MLPs

TOT

TOTAL SPON ADR

6.04%

2.40%

MMP

MAGELLAN MIDSTREAM PARTNERS LP COM UNIT REPSTG LTD PARTNER I

4.02%

1.58%

MWE

MARKWEST ENERGY PARTNERS LP

5.58%

0.93%

COP

CONOCOPHILLIPS

4.49%

2.24%

LINE

LINN ENERGY LLC UNIT REPSTG LTD LIABILITY CO INTS

7.60%

1.21%

QRE

QR ENERGY LP UNIT LTD PARTNERSHIP INT

11.32%

3.28%

VNR

VANGUARD NAT RES LLC COM UNIT REPSTG LTD LIABLITY CO INTS

8.60%

4.49%

16.14%

Materials

BBL

BHP BILLITON PLC SPONS ADR

3.63%

2.10%

SCCO

SOUTHERN COPPER CORP

10.16%

1.94%

4.04%

Consumer Discretionary

DRI

DARDEN RESTAURANTS

4.08%

2.18%

2.18%

Consumer Staples

MO

ALTRIA GROUP INC

5.19%

2.10%

2.10%

Health Care - Pharma

AZN

ASTRAZENECA ADR

6.11%

2.48%

MRK

MERCK & CO INC

3.86%

2.13%

4.61%

BDCs AND FINANCIAL STOCKS

BKCC

BLACKROCK KELSO CAP CORPORATION

10.05%

1.64%

MCC

MEDLEY CAPITAL CORPORATION

9.02%

1.52%

PNNT

PENNANTPARK INVT CORP

9.30%

1.92%

PSEC

PROSPECT CAP CORP

11.74%

2.00%

SLRC

SOLAR CAP LTD COM

9.75%

2.34%

TCRD

EFC

NYCB

THL CR INC COM

ELLINGTON FINL LLC

NEW YORK COMMUNITY BANCORP

8.64%

12.41%

7.12%

1.45%

2.76%

2.23%

15.87%

Equity REITs

EXL

EXCEL TR INC

5.01%

0.86%

HTA

HEALTHCARE TR AMER INC

4.84%

0.75%

LSE

CAPLEASE INC

5.03%

0.98%

MNR

MONMOUTH REAL ESTATE INVT CORP

5.45%

1.75%

OHI

OMEGA HEALTHCARE INVS INC

6.33%

5.21%

ROIC

RETAIL OPPORTUNITY INVTS CORP

4.57%

0.83%

STAG

STAG INDL INC

5.55%

1.36%

11.75%

Mortgage REITs

DX

DYNEX CAPITAL INC

10.64%

2.08%

MFA

MFA FINL INC

8.34%

1.52%

MTGE

AMERICAN CAP MTG INVT CORP

13.70%

1.67%

NCT

NEWCASTLE INVT CORP

7.77%

3.59%

8.86%

Technology

STX

SEAGATE TECHNOLOGY PLC

4.30%

2.25%

INTC

INTEL CORP

4.16%

2.07%

CA

CA INC COM

3.95%

2.13%

6.45%

Telecommunications

VOD

VODAFONE GROUP SPON ADR

5.61%

2.60%

T

AT&T INC COM

4.92%

6.99%

9.59%

Electric Utilities

PPL

PPL CORP

4.81%

2.04%

SO

SOUTHERN CO

4.33%

2.16%

4.20%

What Now?

As I mentioned above, we still have shopping to do in order to bring our cash down to 5% of the portfolio. Additionally, we will soon have more cash as two of our municipal bonds will be called in the next two months. I think that it would make a lot of sense for us to invest in solid, dividend-paying, defensive stocks. These stocks are a reliable part of any portfolio, of course, and assuming there really will be a correction soon (and if not soon, then certainly later), they will help to reduce the hit we'll take. In any case they will add more stability to the portfolio.

I will be closely monitoring our portfolio. Fortunately, I have the time to do that as a retiree. Even though our mREITs and BDCs pose the greatest risk to our portfolio, I don't believe that they will crash overnight. There will be plenty of signs if the economy slows down, which will give us time to adjust our BDC holdings.

There will also be plentiful signs regarding interest rates. As those signs appear, we will have time to deal with our mREITs. I am not saying that we'll avoid all losses, of course, but I do think that with close monitoring we won't get whacked.

In addition to keeping a close eye on macro events such as changes in the economy in general and interest rates in particular, we will be watching dividend payments very closely and looking for reductions and, heaven forbid!, suspensions.

Incidentally, for those of you that might not know this, Seeking Alpha has a great, free phone app that notifies you immediately about events concerning stocks in your portfolio. This is a super way to find out quickly about any major happenings that can affect your holdings.

Additionally, I will be closely watching earnings and valuations in order to make the necessary adjustments to our portfolio.

And, needless to say, I'll be reading articles on Seeking Alpha every day. I still have so very much to learn and nowhere have I found a source of information as reliable and as extensive, or ideas as interesting and rewarding, as those which appear continually on SA.

Regardless of the current state of our portfolio, I shudder to think of what it might look like had I not discovered SA and its generous contributors.

Finally, I'll continue to report on the results of our portfolios and the changes that happen to them.

Source: How One Retiree Is Muddling Through Dividend Investing: Part VI - The Changes We Have Made