Today, we discuss the advantages and challenges of an income only approach for your portfolio. It’s still possible to have a portfolio generate 4% or more with a well-selected collection of high-paying dividend stocks. The key to success is how you react to market volatility and the occasional market blackout.
Bruce Miller, CFP® is a retired Certified Financial Planner™, who with his wife of 41 years, enjoy their retirement in Vancouver, Washington and Manzanita, Oregon. Bruce retired as an Air Force Major in 1998, having been deployed in 1990 during Operation Provide Comfort. Bruce has a BS in Medical Science as a Physician Assistant from the University of Texas at Dallas (1975) and a Masters of Science in Health Education from the University of Oregon (1982). Bruce taught retirement planning in the University of Portland CFP® Course for 8 years (2004 through 2011) and today is active in the Oregon and SW Washington Chapter of the Financial Planning Association.
“It’s not the movement of the price of a security that matters. What matters is the company’s ability to pay their dividends.”
He is the author of Retirement Investing for Income ONLY: How to Invest for Reliable Income in Retirement ONLY from Dividends.
Show Notes – Timeline
Part I: Dividend Income Only
- It’s still possible to achieve 4 or even higher dividend income returns
- High returns can be achieved after tax through dividends alone
- This particular dividend strategy is ideal for people approaching retirement (50s)
- Start right away studying this approach to income investing
- Start adding great dividend paying companies to your portfolio
- At the time of retirement, you will have a fine portfolio of dividend paying stocks
- Altria (Philip Morris) Jonson & Johnson, Caterpillar are prime examples
- You need to be diversified. A 3% position per holding is a good rule of thumb
- These are 30 to 35 stocks which will give you plenty of diversification and good dividend income
- Try to diversify by industry and within an industry
- Many US companies are diversified overseas. No need to buy foreign stocks.
- Focusing on US dividend paying companies simplifies your portfolio management
- Anyone can execute such a strategy. It’s not a question of can you do it, but do you want to do it.
- This strategy is not for everyone. Bruce is not advocating this strategy in general. It has its disadvantages and challenges.
- Resources to execute such income focus strategy are limited
- If you choose an income only strategy, there is a particular way to do it
- It requires effort to learn, to study and to research dividend paying stocks and securities
- Overcoming your own cognitive biases is challenging is difficult. Market volatility should have no meaning on how companies pay their dividends as long as they have a strong track record.
Part II: Retirement Investing in the USA today
Part II will be part of another episode on retirement investing in the USA.
Retirement Investing for Income ONLY: How to Invest for Reliable Income in Retirement ONLY from Dividends