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Make sure you're taking advantage of tax-deferred investment tools like a k or IRA to the max. If you're self employed, you have the solo k at your disposal that can really allow you to save. Simplicity is important. The more complex you make things, the harder it is to manage.
Investing can be simple. Pick a few funds, keep your accounts together, and watch your money grow. The stock market goes up and down. In fact, as of writing this, it's near all time highs. It might crash. But you need to stay the course and keep investing for the long run. Buy low, sell high - don't fall for the panic and do it backwards. Bogleheads invest and keep it simple by buying mutual funds or ETFs that try to mimic the entire market.
Or, to build a proper asset allocation for their own individual needs, they may buy a stock mutual fund and bond mutual fund to be diversified in both asset classes. When buying these funds, they pay special attention to fees, and only invest in funds with low fees and expenses.
Taxes are also a huge consideration. To maximize tax efficiency, investment vehicles like ks and IRAs are the preferred mediums. Finally, they stay the course - the stock market goes down, they keep investing. The stock market goes up, they keep investing. This is a controversial topic. And Vanguard, as a fund company, typically has some of the best mutual funds and ETFs to invest in. However, over the last few years, competition has been fierce amongst the best online investment brokers.
And there has been a so-called "race to the bottom" in low cost investing, with some companies offering truly free investing. As such, while Vanguard is still highly regarded as a great place to invest, there are alternatives that may work better for some people.
These include:. Fidelity - Fidelity is consistently a top pick to invest at, as they have a large selection of low cost and no cost funds to invest in. Check out our Fidelity review here. It's a great way to get a diverse portfolio at low cost.
Check out our M1 Finance review here. The Bogleheads have a fantastic philosophy for the average investor. Buy and hold for the long term, focus on low cost index investing, and keeping it simple. But furthermore, their forums are a great place to learn. It's highly likely that your question has already been answered if you do a quick search of their forums, and if not, post - and you'll likely get a great response. That community is fantastic, especially when it comes to more complex subjects around investing, taxes, investment vehicles, and more.
What do you think of the Bogleheads? Are you one of them? You can learn more about him on the About Page , or on his personal site RobertFarrington. He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future. He is also a regular contributor to Forbes. The College Investor is an independent, advertising-supported publisher of financial content, including news, product reviews, and comparisons.
Other Options. Get Out Of Debt. How To Start. Extra Income. Build Wealth. Credit Tools. Here's a little more about this awesome group of investors and personal finance lovers. What Do Bogleheads Follow? Bogleheads follow several simple investing philosophies: 1.
Live Below Your Means This is a simple strategy - spend less than you earn. With those factors in mind, I recommend Realty Income O 1. It also typically works with large, secure chain stores in essential industries. Those solid tenants proved their worth at the beginning of the pandemic when they were allowed to stay open and paid their rent while nonessential stores had to close, with some of them delaying rent payments or closing up shop altogether.
However, Realty Income works with over 1, tenants in 70 industries. As for its dividend, it pays a monthly dividend and has done so for months consecutively, including 98 quarterly increases. Its dividend yields 4. Prudential is a financial services company that offers insurance policies, retirement plans, and general investing services for individuals. It's one of the oldest companies in the U.
As a financial services company, Prudential is highly susceptible to interest rate changes. This isn't a growth company, and investors shouldn't expect high gains from its stock. That's why it's incredibly cheap, trading at less than 6 times trailing month earnings. What they can expect is a super-reliable dividend that yields 4. It's even older than Prudential -- around since So while it's an established essentials giant, it's still managing to increase its presence and capture market share.
However, it has been able to successfully navigate these difficulties with price increases and cost-cutting. The other reason is the dividend. Its stock yields 2. That has decreased as the price per share has risen. Cost basis and return based on previous market day close. Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of Discounted offers are only available to new members.
Calculated by Time-Weighted Return since Volatility profiles based on trailing-three-year calculations of the standard deviation of service investment returns. Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services. Premium Services.
Other strategies such as annuities typically lack this flexibility. When it comes to implementing a dividend strategy in retirement, holding individual stocks rather than dividend-focused ETFs or mutual funds protects the full income you signed up to receive while keeping you in complete control of what you own. Investing in individual securities yourself eliminates the fees assessed each year by ETFs and mutual funds, potentially saving thousands of dollars along the way.
And with trading commissions having been eliminated across most brokerages, the direct financial costs of implementing this strategy are virtually nothing. However, actively managing a portfolio requires time and behavioral discipline, making it inappropriate for some people.
For investors interested in pursuing this path, better performance is not guaranteed but a do-it-yourself strategy does eliminate a major drag on returns — the high fees charged by many fund managers and advisors on Wall Street. Higher fees mean less dividend income for retirement.
The relatively high fees charged by most fund managers are also a key reason why Warren Buffett in his shareholder letter advised the typical person to put their money in low-cost index funds for the best long-term results:. But what about some of the low-cost dividend ETFs with fees as low as 0. In many cases, investors who are less willing to commit the time or lack the stomach to buy and hold dividend stocks directly would be wise to evaluate such funds for their portfolios.
However, they lose a valuable benefit: control. Specifically, almost all ETFs own dozens, hundreds, or even thousands of stocks. Some of these are good businesses with safe dividends, while others are lower in quality and will put their dividends on the chopping block. Some have high yields, others hardly generate much income at all. Simply put, an ETF is a hodgepodge of companies which may or not match your own income needs and risk tolerance very well.
Vanguard's High Dividend Yield ETF got into trouble during the financial crisis because it was not focused on dividend safety. VYM's individual payout are below and demonstrate how volatile the income from funds can be.
It's hard to know what yield you are really buying. Source: Simply Safe Dividends Hand-picking your own dividend stocks gives you immediate visibility into your income stream. You'll know exactly how much you're getting paid by each company and when. Source: Simply Safe Dividends.
Selecting your own holdings with a focus on income safety can also deliver higher and faster-growing income compared to most low-cost ETFs. You will better understand all of the investments you own as well, helping you weather the next downturn with greater confidence. In summary, owning individual dividend stocks for retirement income has numerous benefits.
Your principal can be preserved, your income can maintain itself regardless of where stock prices go, you can protect your purchasing power through dividend growth, your investment fees will be substantially lower, and you will understand exactly what you own and when you'll be paid. However, there are several risks to be aware of when it comes to living on dividend income in retirement.
Proper diversification is one of the hallmarks of portfolio construction. If an investor goes all-in on dividend stocks for retirement, he or she would be concentrating completely in one asset class and investment style.
However, asset allocation depends on an individual's unique financial situation and risk tolerance. A primary investment objective in retirement is to guarantee a minimum daily standard of living so you don't outlive your nest egg and can sleep well at night. Some folks are able to meet that minimum income amount they need through a combination of pension income, Social Security payments, annuities, rental income, and guaranteed interest from certificates of deposit. While this goes against traditional asset allocation advice in retirement, which calls for holding a more balanced mix of stocks and bonds plus years of living expenses in cash , these retired folks view their guaranteed Social Security and pension payments as their "bond" income.
Therefore, they are comfortable investing more heavily in stocks. Going more into stocks even higher quality dividend stocks will increase your portfolio's volatility compared to owning a mix of bonds and stocks. The upsides are that you will generate more income, that income will grow faster Treasury payments are fixed , and your portfolio will have much greater long-term potential for capital appreciation.
However, your short-term returns will be less predictable, which can be troublesome if you need to periodically sell portions of your portfolio to make ends meet in retirement or don't have a stomach for much volatility. Another way you could run into trouble with a dividend strategy is by only owning high-yielding stocks concentrated in one or two sectors, like real estate investment trusts REITs and utilities. Should interest rates rise and trigger a major investor exodus in high-yield, low-volatility sectors, significant price volatility and underperformance could occur.
Dividend investors can also fall into the trap of hindsight bias if they are not careful. These stocks get the attention of dividend investors because they have outperformed the market and we like to assume that they will always keep paying and growing their dividends, which is not guaranteed. The pandemic was another reminder that dividend income is not risk-free. With the U. This doesn't invalidate a dividend investing strategy but rather highlights the importance of focusing on owning companies that can sustain their payouts in good times and bad.
The bottom line is that dividends have risk. Investors pursuing this strategy in retirement should monitor the dividend safety of their portfolios, make adjustments as necessary, and diversify their holdings. However, many of us would prefer to leave our principal untouched and live off the dividend income it generates each month, even if it resulted in a somewhat lower total return. This mentality, coupled with a desire to produce even more income, can create an urge to chase high-yield dividend stocks.
In these situations, your principal often faces the greatest risk of long-term erosion. You must always understand what is enabling the company to offer such a large payout. Folks who view investing as more of a chore than a hobby may also find downsides to a dividend investing strategy in the amount of time it requires to stay current with your holdings and the learning required to get started. Managing your assets for retirement can feel like an overwhelming process.
There are many big decisions to make, based on your current financial situation, long-term goals, risk tolerance, and quality of life expectations. These individual differences will drive asset allocation decisions, but they should not be rushed into. With every decision, be sure to thoroughly review the fees, flexibility, and fine print of the investment strategies you are considering.
Remember that you are looking to meet a consistent cash flow objective and are not necessarily wedded to achieving your goal through any one source such as bond interest, annuity payments, asset sales, or dividend income. Not even Joshua Kennon. Whether or not you end up on the winning or losing side is essentially a coin toss. Most research backs the three-fund approach. Another Reader - thanks for the info and blog recommendations.
My husband may be working longer than me which could help us out in terms of increasing the portfolio value. Klyleaa - can you explain this further with numeric examples - I think this is where I may be getting confused. So I could still get the same income in a downturn from a dividend portfolio versus a 3-fund approach where my SWR would end up being much higher in a downturn. Obviously with the dividend approach - picking winners is very difficult and not likely possible - I fully get that.
I still want to make sure I understand the differences in the approaches. Quote from: savingtofreedom on April 29, , PM. Dividends from some companies, especially banks and other financial companies, fell precipitously or were eliminated in Most blue chip companies other than financials did not reduce dividends significantly. I suggest you look at the payout history of the stocks mentioned in Mr. Kennon's blog and on Dividend Growth Investor.
Dividends are generally based on the business income, not the stock price. Kyleaaa - thanks for the explanation. Based on your feedback and my minimal level of ability in this manner - the Boglehead approach seems like the way to go for now. As you mentioned the tax implications of a dividend only approach would be not ideal in a taxable account. Another Reader - To your point - more research is in order.
At the early stages of the journey, don't worry about it. Simple vanguard index funds, say even just 1 balanced fund to start with, and keep saving. The trick is not really in the Investing. It's first in getting that saving rate up.
Worry about SWR etc once you're at a few k Mark - we are at more than K - that is the issue. We were frugal before but wasted more money. I would like to set myself up for my own retirement in 7 years or less. I am hoping husband will work for another 15 or so years - he is ok with that plan as long as he is working for the same company. Quote from: kyleaaa on April 29, , PM. Thanks Alex in Virginia. This is why I am confused - is there a study that illustrates your perspective and my initial basic understanding of dividend investing essentially that if I retain dividends stocks through a downturn I may still get a some amount of dividends per share with the understanding that some may stop due to financial issues.
That does sound like a potentially better deal then having to sell. But due to luck I could get screwed when those drops happen and they could be pretty damaging to my retirement savings and SWR rate. As I look to allocate more cash to additional investments I was considering performing heavy research into how to value stocks to purchase as dividend producing assets.
But I wanted to make sure that was a worthwhile effort. The index investing is pretty easy conceptually. Now I totally understand that picking dividend producing stocks that are here for the long term is a completely different challenge. There is no difference between returns from dividends or capital appreciation: they both spend the same. OP, go play with firecalc and look at the path of returns that would have happened historically. Firecalc assumes you just withdraw whatever amount you specify and does not make a distinction between interest, dividends and cap gains.
Some years are down years and firecalc in the base version assumes you still take your specified amount. What the tool helps show is how your portfolio would have done during different periods in history. Quote from: brewer on April 29, , PM. The fact of the matter is though Alex, the math just doesn't work as you claim. Total return and dividend end up the same. To anyone wondering about this: do the research yourself. There's lots of articles out there, and they basically show that the company that pays the dividend will grow less, such that you can sell the one that didn't pay the dividend to earn that same amount of money and still have the same amount of shares you would with the dividend stock.
I actually personally think it ends up a little better for total return, personally, due to dividend yields being driven down due to popularity over the past few years and search for yield, but that's just a guess, and I wouldn't invest based on that. The power of dividends comes from reinvesting in down markets - if you have other ways to invest more or rebalance, it's moot. I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well. I rarely blog at AdventuringAlong. Check out the Now page to see what I'm up to currently. To the OP: I withhold judgment of the various people on this forum who espouse different investing strategies. There are lots of ways to make money, but it can be hard to compare one with another. It certainly does get confusing trying to evaluate dividend growth investing, real estate, lending club, stock picking, etc.
The way I deal with all of it is this: before I get heavily involved in any of these, I ask myself if I think I understand the approach better than the average person participating in it: Can I pick stocks better than the average Wall St analyst? Can I time the dividend market better than the average investor? Can I evaluate personal loan criteria and protect myself from taxes better than the average Lending Club investor?
Someone living off SS and dividends only actually has a pretty big risk of spending inefficiency on their portfolio more so than running out of. investmenttradeexchange.com › › Career › Starting A Business › Business Ideas. Nov 30, - A look at what a Boglehead is, and how they follow the investing philosophies and lessons of Jack Bogle the founder of Vanguard.