Shortly after graduating college and working at my first job, I began to invest in the stock market and in short order found that I was losing money that I could not afford to lose.
It wasn’t that I was terrible at selecting stocks to invest my hard-earned money into, but I was atrocious at determining when to sell a stock.
To this day it makes me cringe to think about some of the huge gains that I saw evaporate because I was too foolish to sell, but in large part that experience was what led me to be an index fund investor for the majority of my adult years.
Indexing Made Easy
Don’t get me wrong–I am still an index fund investor and believe there is a place in everyone’s portfolio for index funds.
And at that time in my life, after losing my shirt trying to invest in individual stocks, investing in index funds was what helped me learn the mentality of investing with a long-term horizon. Through the various bear markets and pullbacks, when people were panicking, I continued to invest on auto-pilot.
As a result, I am on track to meet my goal of early retirement.
However, despite appreciating the fact that trying to time the market is a fool’s errand, I could not help but continue to think about how I may have done better over the last 10-20 years.
The Recurring Theme – Dividends
The more that I read, the more that I continued to see a recurring theme that I had largely ignored over the years.
It is important to note that you have to take what you read with a grain of salt, as many of the blogs and books focused on dividend investing will make it sound like the utopia where nothing can go wrong. You simply invest your money and in 10+ years you will be living off of your dividend payments.
We all know that it isn’t that easy, but what I found interesting about those that were focusing on dividends is that at a high-level, dividend paying companies–particularly those that continued to increase their dividends in recent bear markets–generally limited their losses more so than the broader market.
Birth of a Dividend Portfolio
With the looming expectations that we are closing in on the end of the latest bull market, and the good fortune of receiving a lump sum payment, I decided that now was the time to establish a new dividend portfolio.
The old faithful index funds aren’t going anywhere, as I will continue to maximize the tax advantaged accounts I have available to remain on track with my plan to reach FIRE.
But it was time to have a more focused plan on how to invest money in my taxable account. Historically I have been too conservative with my cash holdings, essentially losing value to inflation by holding cash in a high-yield online savings account.
With the decision made to utilize the lump sum payment as the foundation of a new dividend portfolio, I immersed myself in resources and tools on how to build a dividend portfolio. You can find the guidelines that I used to select dividend stocks, as well as which companies I chose to invest in and some additional information, by checking out my dividend portfolio.
Looking Into the Crystal Ball
While nothing is certain, and history is not indicative of the future, I expect that my new dividend portfolio will nicely supplement what we need to withdraw from our retirement accounts to cover our living expenses.
Another way I like to think of it is that we are fueling the FIRE furnace with dividends.
This portfolio may help us reach our FIRE goal earlier, or we can utilize it to take a more conservative draw on our retirement accounts in lean years. Alternatively we can also use the dividend payments to fund additional activities, such as more travel, or allow us to donate to more causes that are dear to our hearts.
Of course it could all go bust and we lose money–just like I did many years ago when I was bright-eyed and bushy-tailed after graduating college.
However, based on what I see when I look into my crystal ball, I am betting on this dividend portfolio to be a nice addition to our retirement income in the next 10+ years.