The Most Misleading Words In Investing: You Can't Go Broke Taking A Profit [View article]
It's unfortunate too because the articles are great to learn from, but many times I would get even more out of the comments. Anymore, I really just follow a handful of commenters and go directly to their comments instead of reading the entire thread.
The Most Misleading Words In Investing: You Can't Go Broke Taking A Profit [View article]
Nice article Tim...and very great points DVK. The only thing I'd like to add is that sometimes businesses will divest divisions/product lines that are maybe not profitable or not core to what they do well. Taking this to the individual investor/business owner analogy, if I have a company that is slowing growth or has a low yield, perhaps I can sell some or all of it and increase my yield AND growth. I would say the times I have done this over the years has been minimal, however it does happen. Lowe's is a recent example for me...the position doubled since I have purchased. I could let it run, but with a 1.5% yield, I decided to sell half and increase my yield with another quality business. Again...doesn't happen often, but it sure is nice to have options as a business owner! :)
Don't Be Manipulated By Price And Valuations [View instapost]
@misscbd just click on Chowder's name which will take you to his profile. Then click the "follow" button. Then I get all his updates in my feed...both comments and instablog posts. I couldn't bear missing out on anything Chowder says...I can't believe how much I have learned form him just from comments!
How Long-Term Investors Can Prepare For A Looming Correction [View article]
There was an article about Opportunity Cost for dividend investors and this is another example of that. I tend to do the same as you, Tim. When I have money available, I put it in the best opportunity I can find. I'd rather not miss out on investing and getting the money compounding waiting for a disaster. There are usually enough opportunities in any given market. I'd rather have my money working than not.
4 Reasons Why Investors Should Sell Coca-Cola Near 52-Week Highs [View article]
Absolutely agree. Very few opportunities to pick up shares at a "fair" price over the years. However, the way they create wealth, perhaps the "fair" price is higher than I would normally think.
The nice thing about automatically reinvesting dividends is that you don't have to deal with any frictional costs, like trading fees. If I am sweeping dividends into cash, I am not reinvesting for sometimes quite a while for a few reasons. First, it might take awhile to add cash to the portfolio (if my only source or main source is dividends). Second, it may take me awhile for me to get this money reinvested. Not only do I have to build up the cash, but I also have to find something to invest it in. So why not reinvest $100 back into JNJ or whatever I may hold (for free) and get that money compounding immediately. Let the new money carry the weight of building new positions.
I used to collect my dividends in cash and look for undervalued positions....but I found that I just don't have that many good ideas and the money was just sitting there waiting for me to have one. After reading a lot (many of Chowder's comments but also other articles) I determined I was missing out on immediate compounding by not reinvesting.
Note: I don't do this in my other account where I have very little new money going in...I take those dividends in cash and use them to establish new positions...only because I am not actively adding to the account with new money.
As Chowder said, I also think this is a fine idea. I am 30...I put enough in my 401 to get the match and I contribute to a Roth. My wife also gets the match in her 401. Then we go to town on our taxable account. The taxable account, in my mind, gives you options. In about 4 (maybe 5...) years, the income from our taxable account will surpass our expenses. At that point, we have the option to do something different...maybe change careers, maybe go part-time, maybe start a business or maybe just keep on doing what we have been. As chowder said...if you don't need the money, then it just enhances your retirement...if you do, your older self will be thanking your younger self.
My wife and I have found that the easiest way to be in good financial shape is to spend way less than you earn. It won't be long (about 5 years at the pace we are going) until our dividends cover our expenses. The sooner you get there, the more options you have. Certainly not a groundbreaking strategy, but one that requires discipline. Kudos to your son.
Heck...if he makes 35k per year (pre-taxes, I assume)...ships off 6k per year to invest...he probably only lives on 20k, tops. Realistically...his portfolio will start covering his current expenses well before retirement!
I kept going back and forth on this one and have gone through periods of reinvestment and then taking them as cash. The math above, plus the consistent investing is when it finally dawned on me that reinvestment is the way to go. I have building up cash as I look to establish some new positions and in that time, I haven't been committing new dollars. Therefore, my only growth in income is coming from when a company raises the dividend. Why wouldn't I want to own more JNJ, PG, KMI, etc??? Especially with no broker fees!
A Real Dividend Growth Machine: 2012 Review [View article]
@ComputerBlue
Read Chowder's comment. I would say it depends. How long do you want to work? If you want to work until you are 55-65, then keep on keeping on. If you want to have more freedom and options earlier in life, then I would reduce it to just get the match and take the difference and put it in a taxable account. As Chowder said, it is the price we pay for flexibility and options. Personally, I don't mind paying that price. This is the first year that my dividends will have made a difference in my income...I definitely don't mind paying the taxes knowing that in 5 years or so, I will have plenty of options available to me life and career-wise.
A Real Dividend Growth Machine: 2012 Review [View article]
@poundofbutter
Some won't agree with me on this point, but I had the same concerns as you around the same age (I am almost 30 now). I settled in trying to build both portfolios, albeit focusing on my taxable more since I'd like to retire sub-60 for sure. My wife and I both contribute enough to get our company match and then I have a decent start in a Roth that I contribute a bit to from time to time. Then I plow the rest into a taxable account. Since the Roth and 401s have 30 years to grow, I don't feel as bad putting the minimum there right now. My taxable account will bridge the gap until I can tap my regular retirement accounts. The key though is how big of a "gap" do you have to bridge? If you want to retire at, say, 55, then you should probably only save a little in the taxable and more in the retirement. If you want to retire at 40, then maybe a little in the retirement and more in taxable.
Am I giving up tax benefits by doing this? Yes. Do I want to work until I am 50? Absolutely not. That's why I am fine saving 60% of our households take home pay and putting a bunch of it into a taxable account instead of an IRA.
As always, do your own due diligence. This is the plan that works for me...may not work for you.
The Most Misleading Words In Investing: You Can't Go Broke Taking A Profit [View article]
The Most Misleading Words In Investing: You Can't Go Broke Taking A Profit [View article]
Don't Be Manipulated By Price And Valuations [View instapost]
How Long-Term Investors Can Prepare For A Looming Correction [View article]
4 Places To Find The Dividend Machines [View article]
I believe that is a Buffett quote.
4 Reasons Why Investors Should Sell Coca-Cola Near 52-Week Highs [View article]
Dividends: Should I Reinvest Or Not? [View article]
Dividend Reinvestment - Yes Or No? [View instapost]
I used to collect my dividends in cash and look for undervalued positions....but I found that I just don't have that many good ideas and the money was just sitting there waiting for me to have one. After reading a lot (many of Chowder's comments but also other articles) I determined I was missing out on immediate compounding by not reinvesting.
Note: I don't do this in my other account where I have very little new money going in...I take those dividends in cash and use them to establish new positions...only because I am not actively adding to the account with new money.
Why Accomplished Dividend Growth Investors Can Ignore Price Volatility [View article]
Retirement: Am I There Yet? [View article]
Retirement: Am I There Yet? [View article]
Dividend Reinvestment [View instapost]
Thanks for the article...very thought-provoking.
A Real Dividend Growth Machine: 2012 Review [View article]
Read Chowder's comment. I would say it depends. How long do you want to work? If you want to work until you are 55-65, then keep on keeping on. If you want to have more freedom and options earlier in life, then I would reduce it to just get the match and take the difference and put it in a taxable account. As Chowder said, it is the price we pay for flexibility and options. Personally, I don't mind paying that price. This is the first year that my dividends will have made a difference in my income...I definitely don't mind paying the taxes knowing that in 5 years or so, I will have plenty of options available to me life and career-wise.
And Chowder...I love reading your comments!
A Real Dividend Growth Machine: 2012 Review [View article]
Some won't agree with me on this point, but I had the same concerns as you around the same age (I am almost 30 now). I settled in trying to build both portfolios, albeit focusing on my taxable more since I'd like to retire sub-60 for sure. My wife and I both contribute enough to get our company match and then I have a decent start in a Roth that I contribute a bit to from time to time. Then I plow the rest into a taxable account. Since the Roth and 401s have 30 years to grow, I don't feel as bad putting the minimum there right now. My taxable account will bridge the gap until I can tap my regular retirement accounts. The key though is how big of a "gap" do you have to bridge? If you want to retire at, say, 55, then you should probably only save a little in the taxable and more in the retirement. If you want to retire at 40, then maybe a little in the retirement and more in taxable.
Am I giving up tax benefits by doing this? Yes. Do I want to work until I am 50? Absolutely not. That's why I am fine saving 60% of our households take home pay and putting a bunch of it into a taxable account instead of an IRA.
As always, do your own due diligence. This is the plan that works for me...may not work for you.
The New Seeking Alpha Portfolio iPhone App [View article]