Weekend Reading – Dividends on FIRE edition
Welcome to 2023 – too late to say Happy New Year to everyone?
Nah…I just did that!
I hope this new year treats you and your family well…including returning many dividends and/or distributions for income your way!
Weekend Reading – Dividends on FIRE edition
Headlining this edition, I was impressed to read Kristy and Bryce’s 2022 Portfolio update. From them:
“Here are our final net worth numbers for 2022.
So that means we ended 2022 with a net worth of $1,762,965, for an overall change of -7.1%.”
Needless to say, they are doing extremely well financially for 30-somethings but that magic didn’t happen overnight for them.
To realize their financial independence dreams, they followed a very strict financial diet of very, very high savings rates for many years, ditching homeownership and finding low-cost rent instead, and in some cases practiced extreme frugality to invest as much money as often as they could.
You can read about that process in the post below:
Why dividends and distributions?
I wanted to highlight their post this week because it seems to me a growing number of younger DIY investors seem to be gravitating towards an income-oriented approach for their portfolios – or at least a hybrid investing path that I’ve chosen – and ditching any expensive financial advisor in the process.
That latter part is music to my ears of course.
With all the tools, support, blogs, and knowledge available to many investors these days – young and older – I feel you don’t need a wealth manager any longer unless your personal finance situation is very complex.
For too long, back in my 20s, I invested in funds I didn’t understand, paying fund fees that would penalize my portfolio returns, in a way that likely cost me tens of thousands of dollars in potential long-term returns.
At least I cut the financial cord when I did… Please check out my biggest financial mistakes and learn from them so you don’t make the same mistakes I made!
Back to Kristy and Bryce, and their income-oriented approach to investing, this was an interesting comment from their post:
“Despite stock prices having 20% of their value shaved off by 2022’s market rout, those companies are still making plenty of money. So much money, in fact, that they saw fit to increase dividend payouts. That means that the recent stock market declines are mostly driven by compression of their P/E ratios rather than a decline in earnings.
In other words, stocks went down in 2022 because the news spooked investors. But the underlying companies are still healthy. In fact, earnings actually increased during this time. And that means that there’s potential for a very rapid rebound in the stock market if and when investor sentiment goes the other way.”
…and this was the punchline, something I’ve been working towards for years myself:
“But if you use those strategies to successfully survive the first few years of retirement, eventually your portfolio grows to a point where the straight dividend yield is enough to live on. At this point, managing your portfolio becomes trivially easy.”
Kristy and Bryce are not alone in this journey and thinking – far from it.
Income from your portfolio is real and it matters…
Canadian @DRIP_Investor publishes these incredible dashboards on Twitter about his income journey:
Jordan Maas is also transparent enough to post his actual account balance via his hybrid ownership in dividend paying stocks and low-cost ETFs as part of his income journey:
Further still, there is Dale Roberts who is passionate about his “moaty” stocks and encourages all DIY investors to Cut the Crap when it comes to investing – to take more investing matters into your own hands. That approach can be via low-cost ETFs for more passive investing and/or as part of some index skimming like I do using ETFs like VDY or XIU as a proxy for what individual companies to invest in.
Here is Dale’s Canadian Wide Moat Portfolio, just seven stocks when compared to VDY.
Of course, I would consider owning more than just 7 Canadian stocks in my portfolio, as does Dale, but you can see the income and total return power here at work when you do own 10-15 Canadian “moaty” stocks as a collective over time for long-term wealth-building, including some lower-yielding stocks that offer higher dividend growth rates such as railroads, some Brookfield companies and others:
And then there is Dividend Dream who runs a fine YouTube channel and outlines all of her holdings in detail in various episodes:
Of course dividends and distributions matter…because the income is real
Beyond my list above, there are of course, dozens upon dozens of other friendly and passionate investors on the higher income investing path largely in pursuit of this:
Income investing, growing your income via investing in some dividend growth stocks has always made sense to me but maybe that’s the big echo chamber talking out loud too. Devout index investors will say so for sure.
With a focus on dividend investing (coupled with low-cost ETFs for your back-up as you wish) there is implied:
- Discipline – to stay the investing course, including when markets tank in any given year.
- Inspiration – to keep investing, in any market climate, since you know from my site, money that makes money can make more money if you let it, and
- Motivation – to keep some greedy financial piranhas away from your hard-earned money, because nobody cares more about your financial well-being than you!
A reminder that one of the best financial books I’ve ever read, The Investor’s Manifesto by William Bernstein, talked about the attributes of a successful investor:
- They must possess an interest in the process,
- They need more than a bit of math horsepower, far beyond simple arithmetic,
- They need a firm grasp of financial history, and
- They need “the emotional discipline to execute their planned strategy faithfully, come hell, high water, or the apparent end of capitalism as we know it.”
It is point #4 that seems to support many income investors: my generation (GenX), a younger generation of investors as well, but also many Boomers who visit this site to remind me that an income-oriented investing path has been around far longer than they have too. Many Boomers have Tom Connolly to thank for trailblazing DIY investing in Canada since the early 1980s. I thank Tom too!!
Income investing is nothing really new.
Some quotes from Tom:
“Do not consult a wealth manager. Wealth managers are a class of middle-person unknown our forefathers. Their only source of wealth is other people’s money. They have no skin in your game. Invest directly in businesses yourself.”
“How many stocks? (Dec 2020) John Maynard Keynes said “A careful selection of a few investments . . .” . In contrast, VEQT, the big Vanguard ETF, has 12,532 stocks. Which would you rather hold, a few quality companies or thousands of mediocre stocks? Do thousands of stocks make things safer? Most of the companies in the Connolly Report list doubled their income in the last decade. Does your retirement income double every ten years? It’s the cash flow that counts.”
This approach is something I latched onto almost 15 years ago: rising cashflow matters.
Dividends on FIRE edition
I love dividends. I love dividend income.
But dividends from individual dividend paying stocks are never guaranteed. They also remain just an important part of total returns. Companies can and do occasionally cut their dividends. Some might this year. Stock prices are never guaranteed to go up in the short-term. Stock prices can fall, drastically at times.
But I see far more positives than negatives in following an income-oriented approach.
Dividends and distributions earned from an income-oriented approach continue to support my investing discipline, they keep me engaged and inspired to invest, and they motivate me to continually learn more about investing including my own relationships with money management in general.
They might even be other benefits depending on your investing risk tolerance and income streams – here are some interesting thoughts from Dividend Daddy:
Is it me or just simply living off dividends in early retirement is a lot easier:
* no selling stocks
* no rebalancing
* no cash buckets
* no bond ladders
* no sequence of return risk
* no capital gains/tax
* no tax loss harvesting
What do you think? Comment below 👇🏻
— Dividend Daddy (@DividendDaddy1) January 4, 2023
For these reasons and more, while Financial Independence, Retire Early (FIRE) might continue to be a hot topic in the coming years, I believe it’s really the subject of growing dividends and distributions that can offer DIY investors – that gets many DIY investors fired-up.
Yours truly included.
More Weekend Reading…
In case you missed it, I posted my latest monthy dividend income summary report here from a few key accounts. I’ll be making some BIG reporting changes in 2023 so stay tuned!!
Of Dollars and Data highlighted “it’s time to work” in 2023 – meaning to get your portfolio working for you so you don’t have to eventually. From Nick and his post:
“This is why savings (and our ability to save money) continues to be important for most people even into mid-career. It’s only once you have built a sizable nest egg that your investments begin to dominate your wealth.”
Yup. See above!
Have a great weekend and don’t forget my partnerships and Deals page including a major discount with Mike at Dividend Stocks Rock (DSR) should you want to take advantage of that.
Enjoy the weekend!