I just wrote an article in which I updated our "Team Alpha" portfolio. The portfolio was opened on November 23rd, 2011 and has had a significant run-up since then of 24%. It has beaten the S&P over the same period by roughly 10%, and has delivered the cash flow that we as retirees require.
Our "Team Alpha" portfolio consists of; ExxonMobil (XOM), Johnson & Johnson (JNJ), AT&T (T), General Electric (GE), Annaly Capital (NLY), Southern Company (SO), Procter & Gamble (PG), Philip Morris (PM), Intel (INTC), Realty Income (O), Chevron (CVX), E.I. du Pont (DD), Coca-Cola (KO), Bank of America (BAC), Tenet Healthcare (THC).
Within the article, I described and suggested some actions to be taken to re-balance our portfolio, take some profits, build up some more cash reserves, and begin to redeploy those funds into better opportunities as they crop up (and they will, trust me).
Buy And Hold Yes, Never Take A Profit? Not A Chance!
Let me be clear. I am a dividend growth investor, and I will buy and hold stocks forever. We enjoy the dividend stream, we believe in the companies, of which just about all have a rich history of paying shareholders with increasing dividends and total returns.
That being said, we feel, as retirees, that when a stock has risen nicely, we will reduce our stake or sell all the shares and lock up profits. If there are headwinds that we feel could impact those profits, we are more inclined to take what we have earned and sit tight.
We will seek out other investments that might offer a more defensive approach during turbulent times, or wait for pullbacks in the very same stocks we just sold.
Other stocks need to be re-evaluated because they have not done what we thought (like THC), and the money from that can be plowed into better opportunities immediately. Some stocks might have hit some technical highs, like DD, and we stuck with it all the way up. Others are just not good for us like Duke Energy (DUK), in which we were monitoring the merger and did not like the uncertainty.
Let's review what our streamlined portfolio looks like right now:
Take a look at some of the amazing stocks with very rich dividend histories; XOM, JNJ, T, PG, and KO have all remained untouched, even though their prices have risen significantly. Obviously, we still require most of the cash flow from the dividends, while we seek out other places to invest our solid cash reserves, even if we need to wait a month.
That is what a prudent investor does. Buy and hold, yet take some real cash profits from time to time. Otherwise, if a really bad turn hits, not only will we be giving up profits, but companies MIGHT even cut dividends.
We Must Be Vigilant, Not Passive
Taking steps to protect our nest egg is just as, if not more, important as getting those sweet dividends. We want our money to last as long as it can. By being vigilant, we can achieve that goal far more readily than being a passive investor.
There is no free lunch, and we are in charge of our own financial futures. We will not lose cash flow if we implement some other basic strategies we discussed.
- Sell covered calls for the premiums if they make sense.
- Sell naked puts on positions we want to either add to, or re-open, or on new stocks. We will collect a significant premium on these transactions as well
The Bottom Line
As retired folks, we owe it to our financial health to do the best we can do all the time. That means to take some well-earned profits from time to time and not just let them sit there for eternity.
We will not live forever. Let's live and enjoy, while we are alive!