First, thank you for clicking on this link! Got a bit busy in 2010, when I appear to have last posted and, well, stuff happens.
Second, this is going to be long. I'm sorry. I'm just going stream of consciousness today.
Okay, here goes. After eight years with my most recent firm, our office was shut down due to profitability (or lack thereof). No sympathy necessary. I'm having a grand ol' time (Check back in six months.) and I remembered this forum, so it's a double bonus.*
The last thread that I started was this one from 2009, about dividend growth investing. I don't think FIRE had become big yet, and don't know if that's exactly what I had in mind, but it's what I've become ever since:
http://www.early-retirement.org/forums/f44/any-dividend-growth-investors-out-there-47338.html
My plan was to take a portion of my portfolio and dedicate it to dividend growth stocks, with the rest in cash or growth stocks. I was 37 at the time and am now 46.
Since that time, I'm happy to say that I've been largely successful. The dividend growth portion of the portfolio (our non-retirement assets, which are the majority of our portfolio). I'm estimating that my dividends grew at an average rate of 5-6% per year, including two companies that eliminated their dividends (Thank you Latin America.) and one that cut it significantly (I'm looking at you, Kinder Morgan.). Remember, that doesn't include capital gains, of which there have been few, since 19 of the 32 stocks that I now own are ones that I started with in 2009. Things I learned:
Here's what I've learned most, though: I'm extraordinarily happy. I was living with stress levels that I didn't know I had. I was following the international stock markets for a living*, so my "day" actually began the night before when the Japanese markets opened at 7pm, and it ended at 4pm, when the US markets closed. I wasn't on my laptop the whole time, of course, but I was certainly cognizant that the markets were open. Waking up at 2am was common.
As I mentioned above, I was extraordinarily lucky, and there's nothing better than blind, stupid luck. But the FIRE lifestyle can be done. The bit above about the magic of compounding? Huge. Tremendous. We've all heard the stories about the investors in high paying stocks 25-30 years ago and now earn more in dividends on those shares than the shares originally cost. The ability to reinvest dividends for no cost? Awesome. The ability to buy stocks for next to nothing? Incredible. Don't trade a lot!
But let's say that have an additional $100 to invest. If you buy a stock that pays a 3% dividend, you'll earn $3 today. But let's say that the dividend grows at 8%. In nine years, you'll earn $6. Nine years after that, you'll earn twelve. And nine years after that, $24 per share in dividends. In 27 years, your income will have octupled (Yup, I looked it up. It's actually a word. As a wise man once said, words are, in my not so humble opinion, our most inexhaustible source of magic). And that doesn't include any capital gains! Think 27 years sounds like a long time? Guess what? It is. But do you plan on being around in 27 years? Yup, I thought so.**
I'm not ready to be done with the workforce. Heck, I liked what I was doing and would do it again. But now, I have the freedom to pick and choose what I want to do. And my current "job?" Well, I'm a frequent flyer junkie, so when a friend offered me the opportunity to write the miles and points section of a website, I jumped. For years, I've been boring my family and friends with mileage "advice." And now, someone is going to pay me to do it.
Several years ago, my friend Henry left his job in my industry in his mid-40s. He was laid off and decided to retire. Henry is even more "Type A" than I am, and I couldn't imagine how he was handling all his free time. I saw him not too long ago, and he told me that he was happier than ever. Seriously. This guy was the Bill Belichick of the investing world. I swear, I don't think I had ever seen him smile before.
Anyway, I hope to be more active now that I have some free time. And again, I apologize for the length of this post.
-Mike
*I have worked as an equity analyst (the guy on the mutual fund who recommends stock to the portfolio manager) and, for a short time, portfolio manager for mutual fund companies for the past 19 years. If you want to know how the sausage is made, and I assure you that you don't, I'm happy to do an AMA. Suffice it to say: I was let go because people have moved into index funds and dumped actively managed funds. And I will state unequivocally that that's the right thing to do. An index fund, over any extended period of time, will almost always outperform an actively managed fund. That's not the kind of attitude that generates PMs offering me jobs, but what the heck, I'm on a message board.
So why did I keep doing it? Because it's a heck of a lot of fun, incredibly intellectually stimulating and paid decently. Emphasis on the first two, though, since there are a lot of jobs that pay well. Until the last few years, there weren't many days that I wasn't happy to go into work. And finally, while very few mutual funds beat the market, I have yet to meet either a portfolio manager or analyst who doesn't think that they personally can beat the market.
**And I know the statistics of "If you give up Starbucks twice a week and invest all that money..." Yup, you'll end up with more than you started with. Two $5 coffees per week will get you that $100 in a few months. But if you are dying for that latte, go for it! I've found saving to be like dieting: Self-control is important, but if you deny yourself everything, you'll eventually binge.
Second, this is going to be long. I'm sorry. I'm just going stream of consciousness today.
Okay, here goes. After eight years with my most recent firm, our office was shut down due to profitability (or lack thereof). No sympathy necessary. I'm having a grand ol' time (Check back in six months.) and I remembered this forum, so it's a double bonus.*
The last thread that I started was this one from 2009, about dividend growth investing. I don't think FIRE had become big yet, and don't know if that's exactly what I had in mind, but it's what I've become ever since:
http://www.early-retirement.org/forums/f44/any-dividend-growth-investors-out-there-47338.html
My plan was to take a portion of my portfolio and dedicate it to dividend growth stocks, with the rest in cash or growth stocks. I was 37 at the time and am now 46.
Since that time, I'm happy to say that I've been largely successful. The dividend growth portion of the portfolio (our non-retirement assets, which are the majority of our portfolio). I'm estimating that my dividends grew at an average rate of 5-6% per year, including two companies that eliminated their dividends (Thank you Latin America.) and one that cut it significantly (I'm looking at you, Kinder Morgan.). Remember, that doesn't include capital gains, of which there have been few, since 19 of the 32 stocks that I now own are ones that I started with in 2009. Things I learned:
- I was incredibly lucky in terms of my timing. We started the plan in 2009, about eight months after the 2009 bottom and at the beginning of a historic bull market. Sometimes, there is no substitute for blind luck.
- Knowing what I know now, I should have invested every penny in Amazon and Netflix. Do I care? Well, sure. But the point is, I didn't know what I know now, and I did it the right way for us.
- The power of compounding is truly extraordinary. We never withdrew a dollar of dividends.
- Taxes are truly extraordinary, as well. The worst thing about dividends is their double taxation (at the corporate and individual level). And while those tax payments adjust my cost basis for when I eventually quit the working world altogether, I have a relatively big tax bill now. Also, international stocks are a pain in the neck when it comes to taxes. If you want a portion of your portfolio in international (and you should), do it with an ETF.
- Just because a company has a lot of cash doesn't mean that it will pay you dividends. And just because a company pays you dividends doesn't mean that it can afford you. Please, learn the very basics of income statements if you own indvidual stocks. Heck, I'll teach it to you. But you must know how much cash your company has.
Here's what I've learned most, though: I'm extraordinarily happy. I was living with stress levels that I didn't know I had. I was following the international stock markets for a living*, so my "day" actually began the night before when the Japanese markets opened at 7pm, and it ended at 4pm, when the US markets closed. I wasn't on my laptop the whole time, of course, but I was certainly cognizant that the markets were open. Waking up at 2am was common.
As I mentioned above, I was extraordinarily lucky, and there's nothing better than blind, stupid luck. But the FIRE lifestyle can be done. The bit above about the magic of compounding? Huge. Tremendous. We've all heard the stories about the investors in high paying stocks 25-30 years ago and now earn more in dividends on those shares than the shares originally cost. The ability to reinvest dividends for no cost? Awesome. The ability to buy stocks for next to nothing? Incredible. Don't trade a lot!
But let's say that have an additional $100 to invest. If you buy a stock that pays a 3% dividend, you'll earn $3 today. But let's say that the dividend grows at 8%. In nine years, you'll earn $6. Nine years after that, you'll earn twelve. And nine years after that, $24 per share in dividends. In 27 years, your income will have octupled (Yup, I looked it up. It's actually a word. As a wise man once said, words are, in my not so humble opinion, our most inexhaustible source of magic). And that doesn't include any capital gains! Think 27 years sounds like a long time? Guess what? It is. But do you plan on being around in 27 years? Yup, I thought so.**
I'm not ready to be done with the workforce. Heck, I liked what I was doing and would do it again. But now, I have the freedom to pick and choose what I want to do. And my current "job?" Well, I'm a frequent flyer junkie, so when a friend offered me the opportunity to write the miles and points section of a website, I jumped. For years, I've been boring my family and friends with mileage "advice." And now, someone is going to pay me to do it.
Several years ago, my friend Henry left his job in my industry in his mid-40s. He was laid off and decided to retire. Henry is even more "Type A" than I am, and I couldn't imagine how he was handling all his free time. I saw him not too long ago, and he told me that he was happier than ever. Seriously. This guy was the Bill Belichick of the investing world. I swear, I don't think I had ever seen him smile before.
Anyway, I hope to be more active now that I have some free time. And again, I apologize for the length of this post.
-Mike
*I have worked as an equity analyst (the guy on the mutual fund who recommends stock to the portfolio manager) and, for a short time, portfolio manager for mutual fund companies for the past 19 years. If you want to know how the sausage is made, and I assure you that you don't, I'm happy to do an AMA. Suffice it to say: I was let go because people have moved into index funds and dumped actively managed funds. And I will state unequivocally that that's the right thing to do. An index fund, over any extended period of time, will almost always outperform an actively managed fund. That's not the kind of attitude that generates PMs offering me jobs, but what the heck, I'm on a message board.
So why did I keep doing it? Because it's a heck of a lot of fun, incredibly intellectually stimulating and paid decently. Emphasis on the first two, though, since there are a lot of jobs that pay well. Until the last few years, there weren't many days that I wasn't happy to go into work. And finally, while very few mutual funds beat the market, I have yet to meet either a portfolio manager or analyst who doesn't think that they personally can beat the market.
**And I know the statistics of "If you give up Starbucks twice a week and invest all that money..." Yup, you'll end up with more than you started with. Two $5 coffees per week will get you that $100 in a few months. But if you are dying for that latte, go for it! I've found saving to be like dieting: Self-control is important, but if you deny yourself everything, you'll eventually binge.
