I really want to understand all of this and apply it. I made it about 3/4 of the way through it before thoughts of engine building popped back in my head. So my question is, does studying all this out and purchasing company stocks like this make for better gains then just contributing to a work 401k? Like, 20 years from now you plan to have the same money, more, WAY MORE then putting all that money in a 401k?At this exact moment, I am very pleased with NextEra Energy (NEE). They just announced a 10% dividend increase, and management just stated their resolve to continue at 10.0+% DGR <dividend growth rate> for at least the next few years. I am planning to significantly increase my wife's position in NEE as soon as I can gather a few thousand dollars.
Now let me go a little deeper. First, more background. Yes, I have a Roth IRA which I have dedicated entirely to dividend growth investing. We also opened a Roth IRA for my wife, and that account is also dedicated to dividend growth investing. While my dividend stock investing strategy has evolved a bit over the years, I do try to keep my investing choices somewhat conservative... but for my wife's account, I am even more conservative. In her account, I have set some rules for myself--I will not even consider buying shares in any company unless it meets the following criteria:
Rule #1: 5DGR. I admit that when I first began dividend investing, I forgot that what I really wanted was to be a dividend growth investor. Chowder (the screen name of a Reddit poster who is well known in a few of the investing subreddits) helped me see the light here, pointing out that if you plan to live entirely off of dividend income, your dividends must grow at a faster pace than inflation. Since inflation historically averages around 2.5% or so, I rounded that up to 3.00% and then doubled it to 6.00% as a minimum requirement to help make sure I stay ahead of inflation. In addition, this rule reminds me not to fall into yield traps and avoid stocks with high current yields but very low dividend growth. For example, a certain stock might have a current yield of 8% but a 5DGR of only 2%. Inexperienced investors will salivate over the starting yield and dive right in, but in the long run the slow growth rate will eventually cost you as inflation takes over your income.
- 5DGR must be 6.00% or greater
- Chowder number must be 10.0 or greater
- Dividend must currently be rated Very Safe by Simply Safe Dividends
- Stock must currently be on sale according to the current dividend yield
Rule #2: Chowder number. Chowder came up with his own metric which helped guide him in buying dividend stocks: he would add the current dividend yield to the current 5-year dividend growth rate. He would use this number as a forecast for future dividend return, and he referred to this metric so frequently that it became known as the Chowder number. I liked it, so I decided to use it, also.
Rule #3: Very Safe. Simply Safe Dividends is a web site that digs into the financials of every company which pays a dividend. Based on the findings, they assign each company a grade on a 100-point scale... but they only share these scores with subscribers. However, they also broadly break down the scores into five categories (0-20 = Very Unsafe, 21-40 = Unsafe, 41-60 = Borderline Safe, 61-80 = Safe, and 81-100 = Very Safe) and these broad scores are often listed around their web site in free articles and posts. Historically, these guys have a pretty good track record of predicting dividend cuts and eliminations; while there are occasional surprises (such as new management suddenly deciding to suspend the dividend for out-of-the-blue philosophical reasons), dividends rated Safe and especially those rated Very Safe are rarely cut. For this reason, SSD is my first checkup on the future health of a dividend.
Rule #4: on sale. Before buying, I will look up a stock's 4-year average dividend yield (I can find this for free at seekingalpha.com) and compare that to the current yield. If the current yield is higher, then the dividend is currently 'on sale' and I may buy some shares. If the current yield is lower than the historic average, the stock is currently overpriced and I will try to find a better value elsewhere. I base this philosophy on the work of Geraldine Weiss, which was later backed up by the Kovacs (a modern father/son dividend investing duo who write articles for Seeking Alpha in addition to running their own web service) in their 'MAD dividend strategy' charts.
I use these four rules as a starting guide. If a stock fails any of these criteria, I will set it aside and move along to something else. If it does meet these four criteria, that doesn't mean I immediately buy it; it simply tells me it is worthy of further research and consideration.
So let's go back to NextEra Energy and see how it fares. The current 5DGR is 11.00%. Rule #1, check. NEE's current dividend yield is 3.64%, giving it a Chowder number of 14.64%. Rule #2, check. NEE is currently listed as Very Safe by SSD. Rule #3, check. Finally, seekingalpha shows the 4-yr average yield at 2.17%, much lower than the current yield. Rule #4, check. Having passed all four tests, I am eager to look closer at this potential investment opportunity (and, as you know, I've already started a position in it in my wife's portfolio).
I made it about 3/4 of the way through it before thoughts of engine building popped back in my head.
does studying all this out and purchasing company stocks like this make for better gains then just contributing to a work 401k?
Like, 20 years from now you plan to have the same money, more, WAY MORE then putting all that money in a 401k?
I'd like to do something else with this money as we've enjoyed the extra income. I've thought a lot about just dumping it into some kind of retirement account and forgetting about it.
I really like the idea of keeping the money pretty liquid, but also have it working for me. Can you do that when you buy the types of stock you listed above?
I really want to understand all of this and apply it. I made it about 3/4 of the way through it before thoughts of engine building popped back in my head. So my question is, does studying all this out and purchasing company stocks like this make for better gains then just contributing to a work 401k? Like, 20 years from now you plan to have the same money, more, WAY MORE then putting all that money in a 401k?
This! I struggle so bad trying to pay attention to it all.
My work puts a ludicrous amount of money into a 401(A) for me that I'm hoping is enough
By definition, stocks are essentially liquid as you could sell them at any time. But depending where/how your bought them, selling them might cost you taxes and even penalties. One of the nice things about a Roth account is that you contribute post-tax money into it, and you may withdraw these contributions at any time with no tax or penalty.
It's simply one of those "Pick roughly what timeframe you expect to retire, and we'll adjust the equities vs. bonds make up accordingly"I would suggest you do only one thing: find out where this money is going. Most retirement plans offer many choices for investing your contribution, and some of them are poorer choices than others. When they initially set up your retirement plan, it is common for an employer to arbitrarily select their 'default' option for you... and thus they put all your money there until you specifically tell them otherwise.
For maximum return and maximum simplicity, make sure your contributions are going into a low-cost index fund (assuming your plan offers one--most do). Once that has been done, you can just forget about it and let time take care of you. Seriously.
Just to clarify this for some people. Only the original contribution amount can be withdrawn without penalties. If you have any gains in the account and withdraw prior to the retirement age of 59.5, you will pay a 10% penalty and taxes, outside of very limited circumstances.
It's simply one of those "Pick roughly what timeframe you expect to retire, and we'll adjust the equities vs. bonds make up accordingly"
Right, I think I did a 2060 target date. But then went in and made sure that it was aggressively focused on equities over bonds. Which it is. IIRC the plan I looked at basically put it at 95% Stocks until around 2040-45 and then progressively switches to bonds until 2060.Thank you. I should have included that additional explanation in my response.
Ah, target date funds. These are designed to be as 'hands-off' as possible, which is good... but many people (including myself) feel that they tend to be too conservative and thus result in less growth. If you have the option for an S&P index fund, I'd suggest switching to that. If target date funds are your only option, you can try to increase your return by selecting one for a later date (ie, if you want to retire in 2045, choose the 2055 or 2060 fund instead).
Either way, once you make your choice you can pretty much forget about it from that point forward.
First off, I don't know what I am talking about. I invest based on what makes sense to me. I bought my first stock in Feb of '21 so I am new. I have studied a bunch and to me it seems that 2 things matter. Time and input. If I put money in and wait I will be okay.BUMP just because I like this thread and refer back to it often. My accounts are killing it right now since the majority is in index funds and obviously the market is doing great.
I do however have some HSA funds I want to invest and I want to delve into some dividend stocks just for funsies. I have 15 different stocks w/dividends in my robinhood account but the share #'s are pretty small potatoes. @TurboMinivan and @mesha I know the two of you are super into dividend stocks, do you have any you are really psyched about right now?
If it isn't fun for you, just put auto deposit into a low cost index fund/401k/roth IRA and forget about it for 30 years. Time and input. You will do better than 99% of active investors. I put my money first into a Roth IRA, 401k, 403b, 457, and THEN I buy stocks.This! I struggle so bad trying to pay attention to it all. I understand in a basic sense how stocks and even Option trading work. But keeping track of it all and understanding the corporate moves and changes that facilitate the big money making just hurts my brain. I get bored and can't possible see how I'm going to make money with it and just move on.
My work puts a ludicrous amount of money into a 401(A) for me that I'm hoping is enough because I really struggle throwing more money at something I don't understand. Taxes fill that void enough for me.
You just have to do a rollover to an IRA at the new company’s provider. I had to do it when our employer was purchased and it’s nbd. It was a little confusing at first but both your old and new provider will work with you to make sure everything goes ok. I actually had some pre-tax and ROTH so I have two IRA’s and the new 401k now.Just thinking about money this morning. I have accepted a new position here in AZ and will be starting it in April. For the last two years here working at my brother-in-laws business I have not added to my 401k. It is still in place with my old company in Utah. The new company I will be working for has a proper 401k I can start adding to. My question is, what do I do with the money in my Utah 401k? Can I add it to my new company? Do I leave it where it's at? Do I move it somewhere else and have two 401k's?
My other question is what to do with a chunk of cash I have sitting on hand. It was invested in my BILs business (we purchased a similar business together and graphed it into his large business. He made me sell out when I told him I was leaving) and we were getting a monthly dividend which I would still like to get somewhere else.
I ran across a site called Fundrise and am interested in dumping that cash there. I've been reading up on it a bit, but it's all sales jargon and sounds great. Any one on here using it? Any knowledge about it?
You can leave the Utah money where it is or you can open a rollover account. You wouldn't add this money to the new companies 401 though so it'll remain separate. Which is fine. When I left my Murray City job I had a few bucks in a 401k and opened a vanguard account with a rollover IRA and dumped all the money in it. I thought I had "invested" the money but a year later I saw that it was sitting in a savings account collecting 1% interest. I felt dumb.My question is, what do I do with the money in my Utah 401k? Can I add it to my new company? Do I leave it where it's at? Do I move it somewhere else and have two 401k's?
If it isn't fun for you, just put auto deposit into a low cost index fund/401k/roth IRA and forget about it for 30 years. You will do better than 99% of active investors.
Agreed. Both my IRA's are 100% in FSKAX and I'm up just over 20% in the last year. Index funds are my jam for money that I want to keep growing. Sketchy penny stocks on Robinhood are for the gambling moneyI am sad that I can only like this post one time.