Before we take a look at how this portfolio has been constructed, let's start with a few facts. Firstly, this is a financial independence portfolio which has absolutely no end date. I am close to the end of accumulation phase: I suspect that I will be investing more for 1-4 years, depending on market conditions. The plan is to generate enough income mainly through dividends, but also incorporating option strategies and bonds. Selling equities in small amounts is also on the table, though it is not something I plan to do in the near term. (More on this later)
I also feel like mentioning that I spend a large amount of my time traveling around the world, using several currencies for my living expenses. Though most of my portfolio is from the US and Canadian markets, I have added some equities from Europe into the mix to lower my exposure to currency exchange rates.
While I do not wish to disclose the size of my positions, I will list them from smallest to largest and display the position size as a percentage of the total (rounded to the nearest 0.1%). For some foreign stocks, I have included their main ticker as well as alternatives from the US markets.
(all dividend yields taken from Yahoo Finance)
On top of the positions above, the remaining ~11% of my portfolio is in USD nominated bonds (both government as well as corporate). I hold all of the equities mentioned above with a long-term buy and hold strategy. There have been times when I do sell positions (either full or partial). These are mainly related to a drastic change in the performance of the company or significant overvaluation. On top of the positions mentioned above, I hold several option positions that change on a weekly basis.
The Dividend Is Not All That Matters
I want to be clear here: dividends are the main attraction of this portfolio, and they do make up for the majority of the income. However, there are other considerations here too.
Though I prefer safe and reliable stocks with competitive dividend yields, I also pay attention to growing that dividend. While the ultimate goal is to have a dividend growth rate higher than inflation, I realize that over the course of decades the growth rate will be the deciding factor in the income generated by this portfolio. As of now, the historical weighted average dividend growth rate for the portfolio remains close to 9% per year, significantly outpacing inflation. I am extremely satisfied with that number, and I believe that I have done a fairly good job of balancing dividend yield and dividend growth rates.
Due to including options as well as quite a few speculative plays, I realize that the income generated by this portfolio is subject to some wild fluctuations. And indeed, during the past 12 months, I have had months where my income has been more than 200% higher than average, as well as months where income has been negative. I realize this is a significant amount of volatility for a portfolio that is supposed to guarantee financial independence, but for the moment, I am ok with that. I can comfortably sell 1-3% of the portfolio during a 12-month period in order to generate cash, though of course I hope it will not come to that.
I currently hold a cash balance that is bigger than what is necessary, and as such, that cash will continue to be deployed into this portfolio until I reach a level where I am happy with the cash to equities balance. Will it take a year? Or 5 years? That simply depends on the market as I am avoiding investing large quantities if I am not happy with the valuation. I do not use any dividend reinvestment plans, but as long as I am not in need of cash, I will manually reinvest the pooled dividends on a monthly basis.
While I am constantly on the look-out for new opportunities, I find that between 20 and 30 stocks is an amount that works well for me. It's an amount where I feel that I can comfortably keep a close eye on all of them without spending too much time doing so. Therefore, the majority of my future investments will be in these same companies.
The future is always uncertain, I hope that, over the course of years and decades, I will be able to reduce the volatility of the income generated by increasing the weighted average dividend growth rate and reducing the size of my option trades relative to the whole portfolio. But this has to be a slow and gradual process, as any quick moves towards more safety would significantly lower the income generated at the moment.
In the spirit of continuously working towards creating a better portfolio for my future self, I welcome all comments and suggestions. And as always, I'm happy to answer any questions you may have on the subject.
Disclosure: I am/we are long ALL OF THE TICKERS IN THE CHART ABOVE. 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.