My wife has little interest when it comes to investing. Maybe your spouse is the same. The only investing advice she ever gave me was "Don't lose money." She knows I enjoy investing and write for Seeking Alpha and will even ask "What's the market doing?" from time to time. In spite of that, I know she would never have the interest in managing a portfolio even if it is a Dividend Growth portfolio should something happen to me.
Bob Johnson recently wrote an insightful article on the subject of what to do if the unexpected occurred.
In his article Bob explored issues like estate planning, taxes and ideas for building a portfolio with ETFs and Mutual Funds.
I thought the topic was deserving of expansion since I am currently hard at work on adapting many of Bob's suggestions to our personal situation.
Over the course of more than forty years of marriage we carefully divided the day to day tasks of managing a family. In our relationship, I assumed responsibility for managing the budget and balancing the checkbook. I developed skills in internet applications like internet banking, access to on-line brokerage accounts and investment sights like Morningstar and of course Seeking Alpha.
The bottom line is that in today's world both spouses need a certain level of mastery of these necessary life skills. If you are retired or nearing retirement and find yourself in a similar situation, consider doing what we just did. First I drafted a comprehensive list of accounts and passwords including: bank accounts, credit card accounts and brokerage accounts. Next I prepared a step by step instruction guide for online banking and bill paying and another covering on-line investment accounts. For the next few months I stand ready if necessary to assist my wife as she pays bills and performs the other tasks described above.
Now on to the big question: If something happened to me what would happen to the Dividend Growth portfolios I've painstakingly created over the past few years?
Let's examine our most common options:
Hire a financial planner
If we were to consider a financial planner it would need to be a "fee for services" planner who both understands and fully subscribes to our basic view of Dividend Growth investing as outlined in our portfolio business plan.
Purchase an annuity
We both rejected this option early in the process when a manager for my wife's 401K visited our home to discuss investing options prior to the release of funds required for a rollover. Neither of us liked that there would be nothing left for the kids and that we would be giving up the ability to access our capital should life's circumstances require it.
Invest in a balanced portfolio of low cost mutual funds
Again we rejected this option early based in part on fees and on lack of control over specific investment choices.
Design a dividend based ETF portfolio yielding 4 plus percent
As we explore this option we soon discovered that most of the available choices yielded around 3% and failed to allow holdings that were equally weighted. There were of course fees associated with this approach. We'll return to this option later as it may be the best available choice for some. As Dividend Growth investors our goal remained to have monthly income produced solely from the dividends of our holdings growing at a rate greater than that of inflation. None of the ETFS I reviewed fully embraced that concept.
Appoint a No Cost Dividend Growth Advisor
Now here's an option with merit. I jokingly admitted I could simply provide instructions on how my wife could access "chowder's profile" on Seeking Alpha along with instructions to "just buy what he does." I wondered however with Percy's bad influence just how long that would handle the problem.
Designate family member(s) to maintain active management of the portfolio
Ultimately this is the option we chose. Since I have a carefully structured business plan in support of this portfolio any transition should go smoothly. It seems fitting since it remains our goal to have the portfolio serve them and the generations to come. Why not start to get them actively involved now.
For those not comfortable with this choice let's return for a moment to the ETF portfolio concept. As I said earlier the good news is there are countless options. The bad news is that they currently fail to follow a true dividend growth model and yield what most retired Dividend Growth investors require, chiefly 4 - 5% yield. Those wishing to explore this further might consider SPDR Utilities (XLU) - currently yielding just under 4% - to supply safe exposure to the utility sector. Those interested in exposure to MLP pipelines could chose some exposure through Alerian MLP (AMLP) - currently yielding just under 6%. Those favoring REITs may choose exposure through Vanguard REIT ETF (VNQ) - yielding 3.4%. Wisdom Tree Total Dividend Fund (DTD) yielding 3.73% and Wisdom Tree Equity Income (DHS) yielding 3.77% could provide exposure to common dividend growth stocks in other sectors.
Let's hear from you on this subject. What's your back up plan?