2016 Portfolio Business Plan: Getting Ready For Required Minimum Distributions

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Includes: TLT, XLU
by: Bob Wells

Summary

Every investor needs a Portfolio Business Plan to assist in managing their portfolio.

At no time is that more important than when facing Required Minimum Distributions.

At this stage in managing your investments this is only one of many concerns that needs to be addressed.

One of the most important things I have done as an investor is create and where appropriate modify my Portfolio Business Plan. My business plan was first created back in 2012 and has served our family well.

We are about to embark on a new stage in our investing lives as I turn 70 and prepare to face Required Minimum Distributions (RMD) for the first time. The last trading day of this year is important because our first RMD will be based on the dollar value of our portfolios at the end of the year. For 2017, the withdraw rate will be 3.65% of that amount.

Our goal for 2017 is to have the RMD paid exclusively from dividends deposited during the year. I am happy to say that we are currently on track to achieve this goal for 2017.

In 2018, the percentage of our portfolio value that is subject to RMD increases by over 3.6%. As we move forward the percentage value increases at an increasingly greater rate. By our mid-80s, percentage increases are as much as 5% each year.

As we age, whether we can continue to make our goal of handling RMD without selling shares of stock will depend on two variables:

  • Whether each position continues to both pay and increase its dividend.
  • The amount the value of the portfolio increases or decreases each year.

The tabled percentages required by IRS are the only constant in this equation.

Moving forward it's easy to see that maintaining strong dividend growth and avoiding dividend cuts will enhance our chances of continuing to achieve this goal.

One of my goals in writing this article is to identify other Seeking Alpha readers who are currently subject to Required Minimum Distributions or will be in the next year or two. If this is you I encourage you to take a short survey in the Comment Section following this article.

I also encourage you to share your specific goals and strategies for handling Required Minimum Distributions. Be sure to click on Track New Comments to the right of the start of Comments so you don't miss any of the great ideas and conversation that is sure to follow.

One additional goal must be better addressed in my plan as I age, since at any time I might no longer be able to actively manage our portfolio.

Neither my wife nor any of my three daughters has any real interest in becoming Self Directed Investors. As such it's up to me to design the portfolio in a manner requiring minimal management. While a true Buy and Hold portfolio may not be possible, I believe one requiring minimal management is.

In a moment I'll present my first formal effort to address this as a part of our business plan. My wife has agreed to work with me a couple of times a month to become more familiar with our brokerage accounts and the key information recorded there.

As you review my effort in a moment realize that simplicity is the key to its success. Part of that simplicity involves having income automatically deposited into our checking account by our broker, the first day of the month. In addition, our broker will deduct necessary taxes, eliminating the need for quarterly tax reporting. A small amount of additional cash will be left to ensure that payments are not disrupted should dividend income be cut.

I have sought to minimize the number of actions required to manage the portfolio. On a monthly basis, the account should be reviewed to ensure that funds are available to support the first of the month dividend payment. In addition it is important to compare the collective dividend amount received during the month with those received in a like month the previous quarter. As long as they are the same or higher, no further action is required. A stock by stock monthly report on dividend income received is available and can be printed and compared to the previous quarter if further review is warranted.

Over time some dividend cuts within the portfolio are likely to occur and positions will then need to be sold with funds re-allocated to positions with similar yield profiles. For now at least I have identified two ETFs that can be used for that purpose, XLU - a utility ETF and TLT - a treasury ETF.

As a stated earlier, it is possible that limited shares may need to be sold to meet RMDs in any given year. Should that occur I am recommending the amount of the dollars needed be divided by three. Shares equal to that amount would be sold from the three positions within the portfolio with the lowest current yield.

While I currently expect all portfolio management to follow the steps outlined in the Legacy section should something happen to me, I have continued to include my current portfolio business plan. I believe this is important for a number of reasons:

  • As years go by, interest in investing is likely to increase for members of our family.
  • While I remain as chief portfolio manager, it continues to provide guidance and structure to my actions.

There are still modifications to our existing portfolio that I expect will be made over the next one or two. Most of those are likely to take place in our MLP exposure.

Business Name: Wells Family Retirement Income Portfolio

Goal: Generate a steadily increasing stream of income paid solely from the growing dividends generated proven by high quality, recession proven companies with a track record of five or more years of providing safe and growing dividends.

My target is an increase in income from dividends and dividend growth at least twice the rate of inflation, while continuing to grow the portfolio capital.

Target dividend growth for 2016 will be 4%, resulting in a 4% increase in retirement income generated by the portfolio by the end of 2016.

Business Model Strategies:

Stock Selection:

Use the current Champion, Contender, and recession proven Challengers (CCC) lists available here as principal shopping list when considering new equity purchases.

Alternative: Select stocks from Safe Dividend Stock document generated from year by year back-testing of Dividend stocks from 2002 to 2011. Give priority to stocks that meet both standards.

Require the following from any stock selected:

  • Minimum projected yield of 1.5Xs that of the S&P 500 Index at the time of purchase.
  • Positive annual total returns in four of past five years.
  • Increased dividend payout in each of past five years.
  • An understandable and sustainable business model with meaningful competitive advantages, also called a "moat."
  • Good fundamental business metrics. Low debt. Low payout ratio, or one below average for that sector. Strong credit rating -- reflected by investment grade credit of BBB+ or higher for most equities. BBB+ and above is preferred for MLPs and REITs with BBB the minimum for new purchases.

Stock Valuation

Buy only stocks with "Fair" or better valuations.

Consider multiple sources of value assessment (FastGraphs and Morningstar) when seeking to determine value. Buy stocks with a current payout ratio of under 70% or one in line with its peers.

Buy stocks that meet the Total Dividend Return (TDR) rule, a/k/a the "chowder rule." This requires, at a minimum, yield plus five-year Dividend Growth Rate (DGR) to total 12% or more. In the case of utilities including tel-cons, MLPs and REITs, the total needs to be 8% or more. The chowder rule score is located as part of the CCC spreadsheet.

To help insure capital preservation, est. five-year growth figures will be examined and compared for all stocks under consideration. As a minimum standard, only stocks with minimum growth equal to inflation will be considered. Ideally stocks with estimated five-year earnings growth twice that of inflation will be selected.

A watch list of stocks of Dividend Champions, Contenders and recession proven Challengers and with investment grade credit and a minimum yield of 2.5% shall be maintained at all times and revised quarterly.

This edited list of all Dividend Champions, Contenders and Challengers will serve as an informal benchmark and shall be referred to as the Total Dividend Return Index.

A full year-by-year performance back test for each stock will be conducted and maintained going back to 2002 or in the case of Challengers, the earliest date possible prior to purchase. Results will be used when considering new holdings or adding to existing holdings.

Portfolio Construction:

Aim for a well-rounded portfolio. Diversify across sectors, industries, geographies, and different ranges of yields and growth rates.

Aim to hold between 40-50 stocks at any time.

The portfolio should maintain an overall beta of 0.7, helping insure 30% or more less volatility than the general market. This serves as a substitute for the use of 30% bonds often recommended to help manage reduction of principal during bear market conditions.

Be alert to position sizing. Initially investing an equal initial amount in each stock is the norm. Stocks yielding 5% or more shall be purchased initially in an amount not to exceed 1% of the value of the portfolio. Adjustments may be considered as prices change, yields decline and perceptions of risk and reward change.

Be alert to sector size. No sector should represent more than 25% of the portfolio holdings.

50% or more of the portfolio value will be invested in defensive sectors which include: Consumer Staples, Utilities, Tele-con, Drugs.

Less than 20% will be invested in REITS and no more than 12% in Energy. Since this is an income generating portfolio favoring low beta, the following four sectors should be underweight and represent less than 10% of the portfolio value each: Industrial, Material, Technology and Consumer Discretionary.

Hold no more than 5% of the portfolio's value in a single stock, with 2% or less being the norm.

No stock in an underweight sector shall represent more than 1.5% of the value of the portfolio.

No single stock position yielding 6% or more should represent more than 1.5% of the value of the portfolio.

When any position exceeds 3%, consider selling the excess and re-deploying the proceeds.

Make opportunistic switches from one stock to another if such a swap will upgrade the portfolio. The expected frequency of such exchanges is low.

The major focus of my portfolio strategy is total dividend return -- dividends and dividend growth not share price. The portfolio will usually be 95% or more invested. Generating a steady and growing income stream from dividends remains job one.

Dividend Reinvestment:

My goal is for retirement income to be supplied solely from dividends and dividend growth. As such dividend reinvestment will likely be rare. My goal remains to enjoy the dividend income while preserving capital for future generations.

When reinvesting dividends, consider new positions designed to improve the portfolio in one or more of the following dimensions: yield, dividend growth, diversification or credit quality.

Selling Guidelines:

Investigate and seriously consider selling a stock for these reasons:

  • It cuts or freezes its dividend. Sell within 30 days upon learning of a dividend suspension.
  • Credit rating is reduced from BBB to BBB-, eliminating the margin of safety.
  • It becomes seriously overvalued as determined by a current dividend of under 2% or a combined evaluation by Fast Graphs and Morningstar. Trimming a position enabling the recapture and re-investment of capital gains will likely be the first step.
  • It underperforms an average of stocks in its sector and sub sector in Total Dividend returns (price + dividends) for three years running. Sector ETFs can be used to assist in making this determination.
  • If a holding incurs a price loss in excess of 10% from the price at the time of purchase, it is placed "on the Bench." During time on the bench it is unlikely that additional shares will be purchased provided that loss represents a significantly greater loss than similar stocks in that sector or industry.
  • If losses increase into the next quarter and again are larger than those of the sector as a whole, suitable replacements will be carefully evaluated. A stock can continue on "probation" as long as it is showing a price improvement.
  • Plans are announced to split or divide the company and clarity is not provided by the company with respect to the dividend.
  • Acquisition announcements are made and clarity is not provided by the company with respect to the dividend.
  • Announcements of an investigative inquiry will prompt a sell within 30 days.
  • A foreign holding incurs more than two quarters of lower distributions due to currency exchanges.
  • Stocks that significantly under perform with respect to the growth of its dividend for over two years and have a current dividend yield of under 3.5% may also be sent to the bench until such time dividend growth improves. In support of my dividend growth goals, it is not unusual for my combined portfolio to have 30% in positions yielding between 3.5%-2.5% at today's price. Since higher yields are often slower growers, stocks yielding 3.5% to 4.5% are generally expected to maintain strong and accelerating dividend growth. Additional shares are generally not added while a position remains benched. Exceptions are made where there is generally a slowing of dividend growth that reaches sector wide. Payout ratio is monitored as well as credit ratings, cash flow and projected earnings.

PORTFOLIO REVIEW:

Monthly Review - Estimated Time - 30 minutes to 1 hour

The first of each month download a new copy of Dividend Champions, Contenders and Challengers using Next clip on Changes Tab at the bottom. Check for any stocks that cut or froze their dividends or were acquired that month. Consider possible replacement for stocks cutting dividends from the Dividend Growth Income Index. In the case of a freeze, consider a period of probation as the first step, where yield is 5% or more. Conduct a performance review the next quarter.

Quarterly Portfolio Review - Estimated Time - 2 hours

  • Measure the Portfolio's overall progress toward the overall goal of maintaining stable growing income and capital preservation.
  • Record monthly dividend income for the portfolio.
  • Note dividend increases for each quarter.
  • Measure performance for any stock "on probation."

Measure success in this manner: Do a quick check to see if this quarter's income from dividends exceeds that of the same quarter last year. If it does, celebrate with a cold one or two. If it doesn't, make appropriate adjustments based on stated guidelines and portfolio objectives.

Semi-Annual Portfolio Review - One Additional Hour

Check for any changes in credit ranking.

Check for changes in payout ratio.

Decreases in credit ranking and increase in payout ratio can be early signals of problems that could lead to dividend freezes or cuts. Monitor more closely as the first step. Measure dividend growth rates for 5 year, 3 year, 1 year as well as most recent. Those with consistently declining dividend growth may be candidates for the bench.

Neither the Dow or the S&P 500 will be used as a measure of the success of the portfolio. Each sector within the portfolio will be individually examined and serious underperformance by portfolio holdings in that Sector will result in an exploration to see if an exchange for other DG equities within that Sector Index have the potential to further strengthen both the income stream and capital preservation.

Research Resources

MORNINGSTAR

Year by Year Performance Back test - Just go to the Morningstar website. Put in a ticker. Go next to the Performance Tab on the Grey bar. After you click on Performance click on the Expanded View - Light Blue Tab. You now have a 10-year performance on your stock year by year. If you purchase a stock at a yield higher than its 10-yr. average, you create yet another layer of safety. While conducting your 10-year history, average out the yield recorded for each year. If the current yield is higher than its 10-yr. average that is yet another indicator that it is a fair or better value.

Stock Credit Rating -

Stock Value Rating - Two stars suggest the stock is overvalued. Three stars suggest the stock is fairly valued. Four stars suggest the stock is undervalued.

SEEKING ALPHA

Portfolio - click on portfolio tab to access current family portfolios

Dividend Increase information - click on Market Currents tab. Next click on Dividends.

FASTGRAPHS

Information on stock value and so much more (sign in required). Paid service. Billed at $9.95 per month.

There are three basic sections that need to be fully reviewed:

Fast Facts

P/E - Is it at or below Normal P/E

Dividend Yield- Needs to be 1.5Xs that of S&P 500 Index or higher

Normal P/E Ratio

S&P Credit Rankings - Should be BBB+ or better

Debt Cap - Lower the better

Performance Results

Dividend Growth- Look for steadiness and current figures twice inflation

Dividend Payout Ratio - Under 70% a good indicator of room for dividend to grow·

Estimated Earnings and Return Calculator

Projects a stock's earnings growth - and therefore its increase in fair value - forward for 5 years, using consensus earnings growth forecasts.

· Gold Lines represent the range - High and Low of "Fair Value"

· Upper Blue Lines represent the range of "Over Valued"

· Lower Blue Lines represent the range of "Under Valued"

Make certain to never over pay. Purchase only when stock is fair value or under.

Consider reducing position size and taking profits for any stock in the top range of over-valued.

Dividend Champions, Contenders and Challenges (CCC LIST)

Access through link provided above

Dividend cuts and freezes - click on Summary tab at bottom of the spreadsheet. Review any Deletions as this means a dividend has been cut or frozen.

Dividend Growth Rates - Columns L plus AL-AO on spreadsheet

Look for steadiness. Trending up - good

5 Yr. Estimated Earnings Growth Rates - Columns AE

Look for a rate twice inflation

Payout Ratios - Column S

Dividend Yield - Column I

Beta - Column CM

Chowder rule- a/k/a total dividend return rule - Column CD

FAMILY LEGACY - INTRODUCTION

Legacy Guidelines have been prepared to assist each of you in fully understanding my preferred approach to investing and how I envision it might be maintained for future generations.

I will be subject to Required Minimum Distributions for the first time starting in January of 2017 with your mother wife joining me next year. I feel that these legacy guidelines provide the necessary instructions for managing our portfolio when I am no longer here or no longer able.

As part of our legacy guidelines I have included detailed brokerage account instructions. These guidelines should enable any member of our immediate family to access the account, monitor the portfolio and make any necessary changes.

I am recommending and including as part of our estate plan that should I be unable to continue active management of our portfolio, that our portfolio at the time be maintained in the manner described below.

WELLS FAMILY LEGACY GUIDELINES

I, Robert Wells will be responsible for the day-to-day management of the portfolio. Should I be unable to perform those duties, management responsibility will fall to my wife who will be assisted by our oldest daughter.

The family portfolio as designed should be maintained and modified according to the following instructions in order that it continues to produce a growing stream of income to support my wife during her lifetime and serve our family for generations to come. I would ask that the instructions as outlined be honored during the lifetimes of myself and my wife.

A list is attached of trusted Dividend Growth investors whose counsel can be sought to assist with any decision making concerning the portfolio.

The holdings in our portfolio have the distinction of strong histories of sustained growing dividends as well as investment grade credit BBB- or higher. Holdings are spread across stock sectors with a majority in traditionally defensive sectors holding up well during turbulent periods in the market. Most are invested in companies that produce things and services needed even during economic recessions. Most are companies you will know by name.

The portfolio account(s) have been set up to automatically transfer income from dividends received to our primary checking account on the 1st day of business for each month. There should be no need to sell portfolio holdings, i.e., stock shares for necessary income.

Each year income received each month ideally should be increased in an amount equal to 1/12th the Required Minimum Distribution rate for the upcoming year. A call needs to be made to the broker to complete this action.

Portfolio Cash Flow Assessment

At the end of each year a simple assessment needs to be made regarding income generated by the portfolio during the year past. This assessment helps guide the amount of dividend income received each month. Your assessment will reflect the following:

  • How much the income from dividends has grown or dropped.
  • Any loss of income from dividend cuts or mergers
  • Required Minimum Distributions as required by the IRS exceeding expected dividend income withdraws. This is not likely to occur until the year 2020.

Even if you experience a dividend cut, it is possible that dividend growth experienced by your portfolio holdings will be greater than the final amount sustained as a result in the cut.

As you can see from the following example it is important should a dividend cut occur where ever possible to transfer into a stock with similar yield. Where this can be done there will be no loss of retirement income.

A stock position just cut its dividend and is now valued at $10K and yields 4%. It produced $400 in income each year. If the same $10K were to be transferred into a holding yielding only 3% it would produce only $300 income, which would represent a $100 loss in annual income in the year ahead.

In this cases where the new position produces reduced income, income for the next year may need to be adjusted accordingly. In past years where we experienced dividend cuts or suspensions we were still able to raise the income received the next year by an amount equal inflation.

Two positions, XLU and TLT, have been established to handle transfer of funds from any position experiencing a dividend cut. Until such time that interest rates increase significantly, funds should be transferred into XLU. XLU is a fund made up the stock markets best utility companies. The same companies providing electric and gas to cities across the country. Traditionally this fund has yielded between 3 and 4% yield.

The second position is TLT, which holds 20 year Treasury Bonds. At such time in the future that this fund has a yield in excess of XLU, it should become the dominant positions for the purpose of transfer due to dividend cut.

Dividend Cuts or Suspensions

Even with a portfolio like ours the unexpected can happen. A company can reduce (CUT) or suspend its dividend. There are two simple ways to track dividend cuts. One is a quick month review. Writer David Fish post an article on Seeking Alpha around the first of each month called Dividend Champions (current month and year). This article lists stocks we own that might have experienced a dividend cut or suspension. Anytime that occurs, the stock should be sold and the dollars transferred in the manner described below.

Another method is to record dividends received each month in a composition book. Those dividends should be matched with what was received three months earlier -- what is called the previous quarter. Most stocks pay their dividends quarterly or every three months. In our current portfolio there are three stocks that pay dividends monthly and are the exception to the above rule.

Mergers/Spin-offs

On average expect at least one stock holding per year in the portfolio to be involved in a merger or spin-off.

If your holding is acquiring, i.e., buying another company there is likely no action needed unless its overall dividend income is reduced.

Sometimes cash will be received as part of a merger between two stocks. Cash should be used to purchase additional shares, which will result in additional dividend income.

Sometimes a holding will spin-off a part of the company. When this happens you may be given shares in the new company. Again the key is whether the action reduces the income produced. The dividend income produced by a combination of the two companies should be equal to or exceed the amount of the original company.

Again Trusted Dividend Growth investors can assist with any questions you might have.

Required Minimum Distributions

The IRS requires that investors withdraw funds from their investment accounts beginning at age 70. Currently our dividend income and withdraws are in excess of the required withdraws. It is possible according to this chart that could change as early as the year 2020. The final amount of each year's required withdraw is based on the total value of each stock portfolio for the year. You will always be notified by our broker of any withdraws required by the IRS.

I recommend that when shares of stock need to be sold in order to satisfy this requirement, they be taken first from the lowest yielding positions. I recommend selling equal shares from our three positions having the lowest yield. Simply place the cursor over the ticker of each position within the portfolio to reveal the box with the current yield of the position. Write the yield on a note pad and repeat the process for each of our positions. This process once completed will reveal the three positions with the lowest yield.

Only sell the number of shares necessary to satisfy the additional distributions required by the IRS. This is more likely to be necessary in those years where the stock market enjoyed large gains.

Some adjustments can be made if found necessary when reviewing in December based on total portfolio value at that time. Simply take mid December portfolio value and multiply by the Required Minimum Distribution percentage for that year. Take this amount and compare it to the amount of dividend income generated the previous year. If this amount is greater, no adjustments are likely necessary. Under certain conditions capital gains can be harvested. For example, if the RMD is greater than current income generated by dividends, equal shares of the three lowest yielding positions can be sold and the funds used to purchase additional shares of the highest yielding stocks in similar sectors. Efforts should be taken to maintain as a minimum exposure to the holding, the original position value at the time of purchase , known as cost basis.

Age

Life expectancy

Withdrawal Rate

70

27.4

3.65%

71

26.5

3.77%

72

25.6

3.91%

73

24.7

4.05%

74

23.8

4.20%

75

22.9

4.37%

76

22.0

4.55%

77

21.2

4.72%

78

20.3

4.93%

79

19.5

5.13%

80

18.7

5.35%

81

17.9

5.59%

82

17.1

5.85%

83

16.3

6.13%

84

15.5

6.45%

85

14.8

6.76%

86

14.1

7.09%

87

13.4

7.46%

88

12.7

7.87%

89

12.0

8.33%

90

11.4

8.77%

Let's look at some possibilities. It's the year 2020, our dividend income started at $2400 per month or $28,800 per year. We will assume the portfolio experienced a growth in this dividend income of 4%, or $29,995.

Let's assume our portfolio value at the end of 2019 is $700,000. Assuming the account experiences 10% capital gain , $31,185 would need to be withdrawn. In this case, shares equal to $1,190 would likely need to be sold to make the required distributions.

Let's look at another possibility. Our portfolio value at the end of 2019 is $700,000. This time the account experiences a 10% decline in capital reflected in the end of the year account balance of $630,000. Required distributions in this case would decline to just $25,500 under the amount already produced solely by dividend generated income.

ACCOUNT INSTRUCTIONS

Activity Page

This page records stock by stock the dividends paid over the past 30 days.

To assess this page simply sign into the Investment Account.

Once signed in you will see a box on the right "Activity Center"

In the box to the far right you will see "Dividends and Interest". Click on it.

At the bottom of the box you will now see "view all dividends and interest", which again you will click on.

Find the bar containing the word "Show" in bold.

Click on the arrow in order to review each dividend received for up to the last 24 months.

Estimated Investment Income

On this page you will get an estimate of your dividend income month by month for the year ahead.

To access simply log onto the Investment account

Next place cursor over "Accounts"

Right under the Blue logo you will see "Accounts" and "Holdings" in bold.

Under the bold "Holdings" you will find "Estimated Investment Income"

Historical Account Performance

To access simply log onto the Investment account

Next place cursor over "Accounts"

Right under the Blue logo you will see "Accounts" and "Holdings" in bold.

Under the bold "Holdings" you will next click on "Historical Account Performance"

Next you will find and then click on "Rate of Return By Period"

Next click on "Monthly" color coded blue.

Three columns over you will find "Interest/Dividends"

This column is important because it shows month by month the amount of dividends paid into your account.

Ideally the amount paid for the most recent month will be the same or larger than the monthly amount paid three months before. If it is all is well.

Accounts

To assess this page simply sign into the Investment Account.

Next place cursor over "Accounts"

Right under the Blue logo you will click on "Account Holdings"

Under "Group by" you will find "Money Accounts"

This account acts in a manner similar to a checkbook. There needs to be enough in this account each month to cover the payment sent to your checking account the first of the month.

I recommend a once a month review be scheduled on your calendar for the third week of every month.

Further down the Accounts Holdings page you will find stock tickers for each company we own. Two important holdings are TLT - The US Treasury Bond Fund and XLU - the Utilities (Power Company) Fund.

If you place the cursor over the stock ticker a Box will appear and within that box you will find the dividend yield for that stock position.

Should another stock position cut its dividend, that stock should be sold and the money transferred into whichever of these two positions has the largest dividend yield at the time of purchase.

Selling a Position or Purchasing a New One

Selling

It is unlikely you will need to sell out an entire position unless there is a dividend cut or reduction.

Should you need to sell open the "Accounts Holdings" page, see instructions above.

Find the stock ticker on the left of the company you need to sell.

Place your cursor over the ticker and a box will appear. In the lower right hand corner of the box you will see the grey button "trade" which you will then click on.

Under the word "action" you will find the word "select" with an arrow pointing down.

Click on "select" and the words "buy" and "sell" will appear.

After clicking on "sell" you will notice the stock ticker for the company you are selling. To the right you will notice the word "Quantity". Since you are selling the company completely simply check the box "sell all".

On the next line down you will see the words "order type"

Click the arrow under the word "select"

Scroll down to and then click on the word "market".

Next scroll down to the blue button "Preview order"

Just above the blue button "submit order" you will find the estimated cash that will be available to re-invest following the sale.

Click blue button "submit order".

Buying

Every time you sell a position because of a dividend cut the dollars received from that sell need to be re-invested into one of the two positions established for that purpose: the utility fund - XLU or the U.S. Treasury Fund - TLT.

Open the "Accounts Holdings" page, see instructions above.

Find the stock tickers XLU and TLT on the left.

Place your cursor over each the ticker and a box will appear. In the box is the dividend yield for each. After checking both pick the one with the highest yield.

In the lower right hand corner of the box you will see the grey button "trade" which you will then click on.

Under the word "action" you will find the word "select" with an arrow pointing down.

Click on "select" and the words "buy" and "sell" will appear.

After clicking on "sell" you will notice the stock ticker for the company you are buying. To the right you will notice the word "Quantity". To the right you will find another box which contains the name of the company and the last price of each share of the same company. Divide that amount into the number of dollars you are re-investing. Round to the number before the period. Place this number in the "Quantity" box. This is the number of shares you are purchasing.

On the next line down you will see the words "order type"

Click the arrow under the word "select"

Scroll down to and then click on the word "market".

Next scroll down to the blue button "Preview order"

After reviewing the order is correct, click blue button "submit order".

ADDITIONAL THOUGHTS

You know my commitment to helping each of you have a stronger education in proper investing than I enjoyed until reaching my 60s. We have established for each Grandchild a college investment savings account. I hope to have talks with each as they grow about the account and how it works to help support their future.

I know that each of you enjoys employer supported 401K investment plans. Some are restricted to mutual funds. Others offer a range of options including stock and bond ETFs. I strongly encourage each of you to contribute to your company plan in the manner that insures you receive the complete company match to those funds.

I have established several small investments accounts with Motif Investing each embracing a unique approach to investing. This has been done to foster discussion and provide a stronger foundation for your further investment decisions. I encourage you to establish your own accounts on Motif in order to further test ideas and approaches.

Most of all I hope that you each embrace as I do the importance of establishing for your own families a personal portfolio business plan that helps to guide your future investment decisions. Our current portfolio business plan can be modified for that purpose.

Legacy Account(s)

Your mother and I share a common desire for our investments following our death. It is our desire that they support the strengthening of our family by helping to financial support the expenses associated with family get-togethers. It is likely such support can be provided by withdrawing a portion of the dividend income generated by each remaining portfolio. By only withdrawing what's necessary, the remainder can continue to compound.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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