Don’t Be Afraid To Change Course

Afraid of Change

Change is a dirty word for many people.

Just the thought of change can leave you with a queasy feeling in your stomach and increased stress, and unfortunately this results in the avoidance of change. Many people–myself included–are creatures of habit and would rather stay with what we know.

Stay where we are comfortable.

There is nothing necessarily wrong with that, but change can also be very positive and open doors that you never thought would be possible had you stayed in the bubble of familiarity and comfort.

Year of Change

Personally, 2018 has been a year of change on many fronts.

Some of the change was involuntary, such as being in a position to need a new job due to layoffs; while some of the change has been entirely voluntary, such as deciding to initiate a new dividend growth portfolio and start this blog.

Fortunately, everything has worked out quite well thus far (knock on wood).

Prior to my end date at my former employer, I had already lined up a new job and negotiated a start date that allowed me to take a few weeks off to decompress.

The time to relax allowed me more time to read and complete due diligence on getting started with dividend investing. And a positive aspect of being laid off was that my severance package afforded me increased capital to kick-start my DGI portfolio.

While I am definitely happy with how things have worked out, I will say that there were times that it wasn’t easy or that the fears of change did not rear their head.

But the experience has allowed me to look at change a little differently, and more openly.

Changing Investments

If you’ve read my about page, you will know that I’ve been a pretty staunch believer in index funds (and if you haven’t read it, go do so now).

So much so that when I started this new portfolio, the first thing I bought was more VTSAX.

But as I shared my purchases in the June Dividend Income Report, I recognized that my automated deposit of funds to buy more VTSAX was being done from the perspective of that bubble of familiarity.

Don’t get me wrong. I love VTSAX and own quite a bit in my retirement accounts, as well as a handful of other index funds.

But is it the best choice for a dividend focused portfolio? Nope.

Recognizing that my rationale for setting up the automated transaction to buy VTSAX every month was largely a result of keeping with my habits, I’ve decided to change that transaction.

While it will require more manual effort, I have changed that recurring deposit to go into the money market fund and I will purchase more of VYM manually.

Can a Leopard Change Its Spots?

Some might look at the change from an index fund to an ETF as inconsequential and think of the phrase that a leopard cannot change its spots, or that one really cannot change who they are.

There is some truth to that, as I will say that my rationale for building a position in VYM has some basis in wanting to be more broadly diversified than only holding the individual dividend stocks that I’ve selected as part of my portfolio.

That diversification, while I think is wise, is also a hedge against the fear of change.

Fear of the unknown.

Fear that I am making a mistake and the stocks I select will crater.

To that I would say that I value the diversification that VYM offers to my portfolio, and ultimately that my decision to hold VYM at all is not from a place of fearing change but rather from a place of desiring a broader scope of dividend paying companies than I can buy individually while still maintaining a nice dividend yield.

I am still a believer of index funds and continue to invest through my retirement accounts. However, I’ve learned to appreciate that change can be extremely positive and I should not be afraid to change course.

What do you think about this change from VTSAX to VYM?

How have you approached change in your life?

12 thoughts on “Don’t Be Afraid To Change Course”

  1. People that really know me say that I hate change. If I look inside myself I concur but even further down is a growing realization that change is inevitable. Change is the source of life and growth. And if I am to be better I need to change, to open up and embrace the unknown.

    So I’m changing, for the better is my hope but only time will tell that story…

    Sorry to get a bit philosophical in this post but change is a bit of a thing for me. 🙂

    1. My personal history also demonstrates that I hate change; I was at my former employer for about 17 years before change was forced upon me, and had it not I am sure that I would have stayed there until I retired.

      I get into the same ruts of resisting change when it comes to things like my eating habits and exercise too. Those are areas that I know change has a long lasting benefit, yet I find so difficult to change (and maintain the change). For some reason I find financial change easier, but I am working on taking that mindset to the other areas of life.

      Thanks for sharing your insight to change Mr. Robot!

  2. I’m with Mr. Robot and am not a big fan of change. But it depends on what kind of change and who is initiating it. Discussion for another day.

    As for your article point, I built a lot of our investments with automated investments in open end mutual funds. ETFs don’t provide that option and it can be a drawback. It’s not as big of an issue now since we are not as much in the accumulation phase as in the past. And VYM is one of my favorite investments for the broad diversification it provides. Tom

    1. That is very true Tom, as the different flavors of change can have a significant impact on how we respond to it.

      Like you, I owe a lot of my success in building my retirement accounts because I automated everything and let the machine run. With VYM, it will require a little more hand-holding but as I am now more actively engaged with my DGI stocks, I don’t anticipate that being an issue.

      My approach right now is to keep my 401k running on auto-pilot, and then have my automated deposit of $525/mo go towards buying VYM while I direct additional capital to my DGI stocks on a purely manual basis.

      Thanks for chiming in!

  3. Damn Millennial

    Why the focus change to dividends? I am always curious.

    I think that a total return strategy on a long term portfolio is easier to apply and more tax efficient. You essentially create your own “dividend” amount each year by selling off some of your portfolio.

    Really a dividend payout unless in your retirement accounts is a tax drag on your overall portfolio.
    Ultimately if you sell a share your portfolio goes down, if you receive a dividend your portfolio also goes down. The NAV of a fund or a company drops by the dividend amount. So it really comes down to character and when you will need the money.

    1. Great question Damn Millenial, and for me the addition of dividend growth investing is to supplement our draw down from our retirement accounts and allow for a more conservative withdrawal rate. In addition, I am looking at that to also help bridge the gap from my planned early retirement date until we begin drawing down from the retirement accounts.

      You’re correct that the NAV drops by the dividend on payout, and there is a tax drag, but looking at the overall gains in the market and the percentage of those that come from dividends has led me to believe that I have been leaving money on the table. We already maximize our tax-advantaged accounts, which are primarily invested in index funds, therefore I have opted to funnel new capital into my taxable account to build a passive dividend income stream.

      Yes, there is a tax hit now while we are earning but the appeal for dividends (in my eyes) versus investing solely for capital appreciation, is that the companies I am investing in have a long track record of paying (and even increasing) their dividends in good years as well as bad years. With relying solely on capital appreciation, in a down market I am needing to sell shares in a depressed value, further magnifying the reduction in invested capital. In a down market, I can take my dividends and leave the number of shares untouched (or increase if I am still reinvesting dividends) thus preserving my capital.

      Interested to hear what you think, as by no means do I feel like I have all of the answers. For us, I have opted to use this DGI portfolio in combination with my index funds to prepare us for early retirement.

  4. Change can always be difficult. I’m someone that isn’t exactly a fan of making changes for the sake of changing. Plus, changing investment strategies and a way I am thinking about them is not easy and if shouldn’t be quick.

    In terms of individual investments, I wouldn.t so much be afraid that you are going to pick a loser if you plan on building a diversified portfolio over time. If you are interested in ever pursuing that route. Start with the long-term companies like PG, JNJ that have been around for a while and you know aren’t going anywhere. Dip your toes in the dividend investing pool and see if you like the water 🙂

    But it is always a great thing that you are taking such a hard/deep look at your finances . Thanks for the read this morning.


    1. Thanks for the feedback Bert. The two companies that you mentioned are both part of my portfolio, and as a matter of fact I just added to my JNJ position (upcoming post about recent buys).

      The move into DGI was one I have considered for some time, and didn’t move towards lightly. In addition, I have not completely changed my strategy but have decided that DGI stocks need to be part of my revised strategy. Fortunately I do feel good about the portfolio that I’ve built, and I think that fear of change will subside as I continue to move along this path.

  5. I think the change from index to a dividend portfolio (if those chosen individual stocks are built on a solid foundation vs chasing yields) isn’t *that* big of a deal. I think it is a small step, which may make it a bit more palatable – it also helps that you aren’t going from zero to 120mph with it.

    I think the bigger change (and more likely to fail) are the individuals that go from a zero savings rate to 25% overnight and try, at the same time, to learn about individual stock investing.

    Good luck with the blog!

    1. Thanks Evan, appreciate you stopping by and sharing your feedback.

      I agree that with solid stock choices the risk is definitely lower, and the index funds have positions in those stocks as well. Definitely not chasing yield here, as I know that is a recipe for dividend cuts and significant losses.

  6. It’s about properly evaluating your opportunity costs. If your time and money are better spent pursuing other endeavors, you should abandon your current path and follow this new way. Sunk costs be damned! Of course, that’s easier said than done.

    1. Absolutely agree with you, and particularly on that last part about it being easier said than done. However, once one does commit to a change it is often found not to be nearly as bad / difficult as we made it out to be in our minds. Thanks for sharing Y&I!

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