My journey of becoming financial independence by 35 years old
I shall pay myself a fixed monthly budget for living expenses which shall be reviewed and adjusted if necessary in June and December.
Increases in the monthly budget amount shall not exceed 2% in a given year.
My monthly budget shall be $3,900.
This sounds very reasonable. My basic living expenses is $1500 + $200 (gift to Dad) + $400 vacationing/spending. In the link, I only calculated $1350, but I gave myself an extra $150 as leverage.
Dividend stock portfolio rules
The Portfolio shall be held entirely in taxable accounts.
The Portfolio shall contain stocks from each of the 10 major sectors with per-sector limits on the annual dividend contributions.
All dividends from the Portfolio shall be manually reinvested in a qualifying stock
It is true that it should be held in taxable account, so I’d have access to the money after I read FI. This year, I no longer qualify for Roth IRA, but I still want to maximize my 401K (It’s actually 457, which is good because after I leave my job, I could slowly convert to Roth IRA, and the money will be taxed free forever). As I get older, medical cost could be a burden someday. the extra income from retirement help.
The following rules apply to individual dividend stock purchases that add to, or establish new positions, in the Portfolio.
I shall only purchase stocks in dividend paying companies that meet the following criteria
Average dividend growth greater than 3% over the last 5 years
A current annualized dividend yield greater than 2% and less than 6%
A market capitalization of $250M or more
The current stock position does not exceed 7.5% of my Portfolio by value
The yearly dividends from the stock are less than 5% of the yearly dividend income
This I’ve been pretty bad at keeping track. But since I’ve been only invest in blue chip, market cap are all >$250M
I fail to keep track of dividend growth greater than 3% over the last 5 years – I’m investing stagnant stocks like WMT, GE, CAT, and DE these stocks everybody would agree that are solid, but the upside growth potential probably aren’t there in short term.
Current yield are within the 2%- 6% (I violated a lot, since I’ve been long BAC, C, and V, they are all paying well below the 2%). However, I see these company have a huge upside potential in dividend increase. as they are all paying <20% of their earning.
Current stock does not exceed 7.5% of Portfolio – I also violate this one, I have a huge lopsided BAC and other financial stocks. Which I’ve divided into two categories growth stock and dividend growth stock. Maybe, I’m wrong. I don’t know yet.
When comparing potential stocks, the stock with the highest value of a 5 year projection based on current yield and average dividend growth shall be preferred.
I shall follow a Buy & Hold approach and not use Options, Margin, Short Sales or attempt to time the market
I shall consider, but not be obliged to, sell a stock if it
Stops paying, reduces or freezes its dividend
I followed these pretty closely. I now only have the mindset of 5-10 years projection, and buy and hold approach rather than buy and sell approach. As Dividend Dreamer has been buying GE, from $8 during the Great Recession 2008-2012, and hold it until now. https://dividenddreamer.wordpress.com/2015/04/11/show-me-the-money/
I don’t use options, or short sale.
“Time the market” it is difficult to time the market like everybody said, but as B at Forever Finance analysis how the market is overvalued at the moment. So, I’ve decided to keep some cash on hand, and buy if I see value stocks.
Overall, I feel his strategy is pretty solid. I haven’t found my groove yet, so going around the blogger-sphere, and check out how other people do it, learn from them. Hopefully, one day, I’ll reach that well-rounded portfolio. 😛
What do you think of his strategy? How’s your strategy differ?