Continuing with our recent theme of learning from each other, this week's question hopes to dig a little deeper into lessons learned over the years, particularly when it comes to investing for retirement.
If you could start investing for your retirement all over again, what would you do differently knowing what you know now?
Here's what several of you had to say in response. The rest of you, please chime in below in the comments!
If I could go back in time and give my younger self some words of wisdom, it would simply be that investing is a process and not a "get rich quick" scheme.
Looking back on my early years, I made some good investments, but also burned a lot of capital on silly ideas that I had no business "investing" in. I was always quick to buy into the good story stocks I found on message boards or that were the latest trend, but found out that they were often more sizzle than steak.
I managed to lose money on LCD television makers, speculative medical breakthrough stocks, oil basin royalty trusts, cell phone screen suppliers, and even a Chinese fertilizer company! Those are just the ones off the top of my head - I'm sure there were plenty more!
Fortunately, I came across Seeking Alpha in 2012 when I was doing some research on MLPs, and I discovered the Dividend & Income section. I read articles from the three Daves - David Van Knapp, David Fish, and David Crosetti - and countless others, and quickly realized that dividend investing was the way I should go with my portfolio.
I then rebuilt my IRA portfolio by selling out of the junk stocks and mutual funds and buying 50 dividend growth stocks. I began writing about that portfolio in early 2013 and continued providing updates on its evolution ever since.
Simply put, if I could go back to when I started saving for retirement and do things differently, I would focus on high-quality companies with long records of dividend growth and build my base in those blue chip type of companies. Time in the market is the greatest advantage that young people have over older investors; I regret wasting 10 years of valuable time trying to get rich quick rather than getting rich easy.
It has been ingrained in us all that price appreciation is the most important aspect as an investor. During my working career, saving and investing for retirement was focused on growth. Retirement was a long way off, and my only concern was building my career to earn more income.
When I came within a stone's throw away from retirement, I suddenly realized I needed to build a paycheck replacement. I have determined through experimentation that trying to time the market to preserve capital was the most destructive endeavor during any market cycle. If not done correctly, you could be out of the market during a bull trend that continues for years, or not getting back into the market during a recession.
When it came time to build a paycheck replacement for retirement, I needed to determine if I wanted to chase capital appreciation or find income-producing investments. The question I began to realize was: Why sell stock for income when I could purchase high yield income generators? In retirement, I invest for increasing cash flow and let the portfolio balance follow along - always in the accumulation phase.
I treat my income portfolio just like a business where you spend capital to generate income. A typical company may purchase equipment to create a product to generate sales and earnings. The main purpose for selling a product is to generate cash flow to pay expenses and reinvest the remainder for company growth. Does the company keep track of the new equipment's worth on a daily basis? No, they use the equipment to generate profits for the company. Once purchased, the equipment is part of the collective, contributing to the company's earnings growth.
This is what I have realized differently than most in the market; cash generating investments are no more than pieces of equipment creating cash flow. I look to purchase equipment (stocks) that adds to my cash flow and do not sell the equipment unless it has outlived its usefulness. The cash generated is used to pay my expenses, and I reinvest the remainder back into the portfolio, creating my own growth.
What I have learned building my retirement portfolio over the past few years is that market price is an illusion of confusion controlled by the short term emotional behavior of investors. I look forward to price dislocations to accumulate investments on a continual basis during any market cycle. High yield income investing is a process that evolves over time.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.