Never forget these two axioms:
Money frees us, but its pursuit may enslave us.
It’s not how much you have at the end; it’s how much you could have made.
The blessing (for me) and curse (for all of you) is that when I run into insurmountable obstacles like endless revisions on the alternative funds only portfolios I can just move forward in time to a future post and then jump back in time (like this guy) once I smooth out issues with what was supposed to be the prior post (Sorry if this makes no sense).
ANYWAY…here’s a discussion on portfolios with stocks…
Portfolio Building, Part V
We talked about various fund only portfolios, but not one with stocks mixed in which is a good way to help increase your returns above what the S&P 500 as long as you understand there is at least a commensurate (nice SAT word, nerd!) increase in risk if not more.
An easy way to set up a retirement portfolio is to do the following:
25% S&P 500 Index Fund
25% Mid cap Fund
25% Small Cap Fund
25% Stocks
There it is.
That’s it.
That’s all there it is to do to retire on Easy Street.
That simple.
Well, I guess I should close down the blog now.
Wait, you want to know more?
OK then.
Let’s get started.
Let me introduce you to the brilliant David Fish who spent the past decade plus compiling publicly traded companies who kept increasing the dividend yearly for a string of consecutive years while you were learning about the difference between Golgi apparati and mitochondria and the finer points of the brachial plexus. Fish has categorized these companies that have increased their dividends to their shareholders year after year by the number of years that the dividend increases have taken place.
Dividend Challengers: the last consecutive 5-9 years
Dividend Contenders: the last consecutive 10-24 years
Dividend Champions: the last consecutive 25+ years
Then, to add to the confusion, there’s another overlapping category:
Dividend Aristocrats: the last consecutive 25+ years
SR: Umm…that’s the same thing there, Captain.
To explain, the Standard and Poor’s (remember them?) put together the Dividend Aristocrat Index with the principal difference between the David Fish’s Dividend Champions and the S&P’s DIvidend Aristocrats is the latter, not surprisingly, only contains companies in the S&P 500..
SR: The fix is in…
Dr. Scared: This is it!! This is how they screw you!!
PWT: Uuh..yeah..so anyway…
…whereas the Dividend Champions are any publicly traded companies on any index that fulfill the criteria as stated above (ie, increasing their dividend each consecutive for 25 years or greater). Therefore with this difference, there is a sizable difference between the Champions (115) and Aristocrats (53).
This “CCC” list is updated at the end of each month by David Fish to ensure if a company has not increased their dividend in consecutive years or, even better, if a company has increased its dividend in enough consecutive years to be listed in any of the above categories.
To be able to not just maintain the same dividend, but actually increase it year after year, especially after a quarter of a century or even longer is beyond remarkable, In fact, it’s stunning when you think about it. These companies would have not just survived, but actually thrived, in all sorts of conditions including recessions, wars, new competitors, changing technology, etc.
Let’s take a look at the dividend aristocrats in particular.
These 53 are large companies (multi-billion dollars in market capitalization) that have survived and even thrived through all the gyrations of the market and nation since their respective inceptions. These companies have few opportunities for significant growth because of how massive they are already, but make you lots of money in the long term even if their share price barely budge over the years. (One way to think of it is like this: ideally, the company whose stock you own keeps jacking up their dividend year after year with the stock price barely moving allowing you to buy more and more stock, and then three months before you retire it triples in value. This would be epic and awesome AKA The Unattainable Dream.)
As noted before, the beauty of dividend investing is getting paid to buy a company’s stock and then be patient to continue to get paid during which time the more stock you buy, the more dividend it generates thus leading to more cash to buy even more stock leading to an upward spiral of stock/dividend/cash which is a beautiful thing to behold.
Here is an example of ten Dividend Champions along with the number of consecutive years that dividends were raised (and placed in descending order of those number of years) :
3M–59
Coca-Cola–55
Johnson & Johnson–55
Colgate Palmolive–54
*Altria (Tobacco company; formerly Phillip Morris)–48
McDonald’s–42
RLI (Insurance Company)–42
Clorox–40
ExxonMobil–35
AT&T–34
*Altria is the one company above that is not in the S&P 500 thus making this a list of DIvidend Champions, not Aristocrats, to be technically correct.
It’s a pretty well diversified group that virtually every American purchases from at one point or another throughout any given year. If most or all of these companies go down, then you don’t have a portfolio problem, you have a national/global economic crisis (see 2008-2009).
So, in a portfolio sense, it would break down as the following:
25% S&P 500 Index Fund
25% Mid cap Fund
25% Small Cap Fund
25% Stocks with each of the ten above stocks receiving 2.5% each (also make sure all dividends in these stocks and even the funds above are set up to automatically be reinvested back into whatever stock or fund they came from)
Just make sure you regularly invest into the above four categories or thirteen discrete securities consistently (ie, monthly or even more frequently, not any less frequently than monthly however—more on the mechanics and logistics of stock/fund purchasing in a later post).
Then just sit back and watch the returns roll in.
Before we finish, it’s time for a little shouting however.
THE DIVIDEND CHAMPIONS I CHOSE ARE PURELY ARBITRARY OTHER THAN BEING WELL KNOWN COMPANIES AND DO NOT AT ALL REFLECT MY CHOICES OF WHAT A GOOD INVESTMENT CONSTITUTE. DO NOT THINK IN ANY WAY, SHAPE, OR FORM THAT I AM PROMOTING ANY ONE OF THESE COMPANIES FOR ANY PERSON TO BUY.
END OF YELLING DISCLAIMER…
Thanks for tolerating my CYA tirade!
We will discuss evaluating individual stocks in a future post however.
I’d love to hear from any and all of you about your thoughts, so we can all learn from one another.
Please spread the word about this blog to your friends (real and virtual), family, and colleagues. Talk to you soon.
Until next time…