As I mentioned in an earlier article, I am ramping up my contributions to a 401(K) plan, in order to reduce current tax liabilities and enjoy tax-free compounding of gains. However, I already had an old 401 , which was eligible for a rollover. In early April I cashed out the index funds in it, and rolled the money over into an IRA. After that I decided to equally allocate the money in twenty individual dividend stocks. The money was immediately available for me to invest in the very next morning. This is a different account from the IRA I used to lower my current tax liabilities.
I had identified a list of stocks to purchase, and decided to buy them throughout the day and be done with it immediately. I read many blogs, newspapers, financial websites, and only saw negative sentiment toward the stock market. This is a strong sentiment indicator that the market will continue going up from here. This is why it is best to purchase stocks that look fairly valued today rather than wait, and purchase them when they get more expensive. My review of dollar cost averaging identified that putting money to work as soon as possible might be a better solution than waiting to allocate the funds. Of course, since i went from 100% invested in stock mutual funds to 100% invested in dividend stocks, this should have minimal effect on me.
Over the past four years, I keep hearing the same information that stocks are overvalued and that we are going to see some sort of hyperinflation. Lucky for me, I only pay attention to company fundamentals. I should know better, since economists as a group are known for having forecast nine out of the past five recessions. I also keep looking at the number of perma-bears, who have been consistently bearish on stocks and the economy for the past 20-25 years. At one point they will be right for a few years, but then, even a broken clock is right two times per day.
Markets can easily go higher from here, given the fact that everyone is expecting corrections. However, I am not a market timer, which is why I reinvested almost all of the money immediately into the following 20 stocks:
The one thing I care about is purchasing great businesses at fair prices. My analysis of these businesses has shown that each of them should be able to generate higher earnings to pay me a rising stream of dividends for years to come. Even if stock prices fell by 50%, the dividend income would most likely hardly change. Because I do not plan on adding any money in this particular IRA account, I have set up the distributions to be reinvested automatically.
You might have also noticed that I am holding an MLP in an IRA. However, for the two years since I owned Oneok Partners (NYSE:OKS), the UBTI has never been even in positive territory. This is why I doubt I would have any taxable issues with this MLP in my rollover IRA.
Disclosure: I am long ADM, AFL, APD, CVX, DLR, FDO, JNJ, KMI, KO, MCD, MDT, MMM, MO, OKS, PG, PM, UTX, VOD, WMT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.