Seeking Alpha
Long only, value, long-term horizon, dividend growth investing
Profile| Send Message|
( followers)  

First off, I want to wish everyone a very late Happy New Year. I hope everyone does better than they have in years past and that your goals are realized.

In life we can never predict what happens next, but we try to do everything we can to soften any setback. This is true in life as well as investing for retirement. In the past six months or so, we have had a couple setbacks. Why am I telling you this? Simply to show how we are adjusting and how it will affect our saving for retirement.

I lost my job last year. For a couple of months, my wife and I had no income, she was a stay-at-home mom. We lived off our savings for about six months. To add insult to injury, the transmission on my wife's car went out, which means we have to buy another one. This may add anywhere from $5,000 to $7,000 in an additional expense, money that would otherwise be put into our retirement.

In 2012, the average 4019(k) contribution was $2733, 2013 numbers are unimpressive as well. Based on this data, this could equate to two years of not being able to contribute to retirement, only time will tell.

On a side note, make sure you have an emergency fund set up. Conventional wisdom says 3-6 months in living expenses. This is simply not enough. Keep at least a year in living expenses in a savings account.

Let's look over our year-end stats for our retirement account:

Q1 2013

Q1 Div.

Q2 2013

Q2 Div.

Q3 2013

Q3 Div.

Q4 2013

Q4 Div.

Shares Purchased

Total Shares

Increase

KO

73

0

61

0.505

0

0.939

16

1.089

150

152.5

1.60%

IBM

0

0

23

0.106

0

0.119

3

0.14

26

26.37

1.40%

MPC

0

0

29

0

0

0.175

6

0.173

35

35.35

.99%

NSC

0

0

13

0

-13

0

0

0

0

0

0

PG

0

0

13

0

-13

0

0

0

0

0

0

WFC

0

0

0

0

110

0.803

14

0.851

124

125.7

1.33%

WMT

8

0

29

0.101

0

0.239

6

0

43

43.34

.79%

The first thing you will notice is that I sold my very small positions in Proctor & Gamble (NYSE:PG) as well as Norfolk Southern (NYSE:NSC). Not because I thought they were bad investments, but because I believe there is something better.

I was looking at a couple of financial companies to add to my portfolio. As you can see, Wells Fargo (NYSE:WFC) won out. I added the capital from the sale of P&G as well as Norfolk and bought a larger position in Wells. Wells has performed considerably better than other banks in the Fed's stress tests, and still trades at a lower multiple than its counterparts.

In October of 2013, we had a small pullback in the market. I took that opportunity and added to all 5 positions. The additions were small, however the pullback allowed for a reduction in the cost basis for all 5 companies.

None of the positions had a share increase equal to the underlining yield. This is mainly due to how the positions were entered. My position in Coca-Cola (NYSE:KO) is the largest and allowed for the greatest increase in additional shares through dividend reinvestment. In 2014, I expect the increase in share count will better reflect the dividend yield as the positions will be held for a full year.

Strategy Defined

The main issue I have with conventional retirement investing is that the assets are sold in retirement with the hope that the money will last longer than we do. I have even more of an issue that these assets we spend a lifetime to accumulate are not passed on to our children and grandchildren.

Let's say, in retirement I will need $50,000 (pre-tax) a year. If each share of stock I own pays a $1.00 dividend, I will need 50,000 shares total in retirement. This allows me to not have to sell assets in order to fund retirement and allow me to pass on these assets to my children, which is the goal.

A lot of people are still out of work, 6 years after the crash. Many, especially young people are underemployed and barely paying bills. Not only do I want to provide my wife and me with a stable retirement, but I want to ensure my children have a cash flow to soften any setbacks they may experience in the future. This is, to me, the essence of the American Dream, our children doing better than we, as parents, did. Liquidating assets in retirement seems counterproductive and simply continues the cycle to economic instability for many families.

Conclusions

So far, we are off to a good start. The main headwind to the economy and in general is growth. Economic growth and the perception of growth will drive stocks up as well as down in the coming year. I have geared my portfolio to be able to largely ignore this aspect of the economy.

If I owned a small business, my main concern is that we have enough revenue to pay bills, pay our employees and then take a salary as the owner. I don't see how it should be different when owning stocks in a large corporation. The beautiful thing is that as an average person, I can buy into any listed company and receive additional cash flow by being an owner. Additionally, I can use that cash flow to buy additional assets.

Because of this, I decided to change the name of the portfolio, after all the concept is about an average person accumulating assets, becoming a partner in the ownership of a business and producing income from the profits. Something in this day and age, anyone can do.

The Proletarii Portfolio, named after the Roman Social class of citizens owning little or no property.

Source: Footsteps Of Buffett Retirement Portfolio: Setbacks, 2013 Year-End Review And A Rose By Any Other Name...