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455%
- May 1, 2011
- 7,639
- 34,764
@Ozz81, congrats on your successful exit.
What I'm personally doing is investing in multinational dividend stocks. To make sure that I stick to it religiously, I decided to make it extremely simple. I might not get the best returns, but I don't have to deal with subjective company valuations, worry when to sell, worry about the crash, etc. My time investment (after the initial research which took a lot of time) is minimal.
First, instead of worrying about prices, I focus on income. I only invest in companies with a stable history of consistently growing dividends (ideally at least 25+ years of dividend history).
I use the dividend payback period calculator (check the article and download it here: http://www.suredividend.com/the-dividend-payback-period/) and only invest in companies whose dividends (based on the current dividend yield and historical average dividend growth) will pay back my initial investment in less than 20 years, which translates to 5% yield. I know, the calculation is simplistic, based on assumptions and might not be entirely correct but I don't care. I want things to be simple.
My reasoning is that I'm buying stocks for income. I don't care about their prices because I don't ever want to sell them. It's like buying real estate to rent it: you don't care about its current market price because you'd rather receive regular income.
Imagine you bought your dream house for, say, $1mm. A week from now a guy knocks on your door and says that your house is now worth $800k. Would you care knowing that you don't ever want to sell it? That's my thinking: as long as they don't go bankrupt (and it's highly unlikely considering I only invest in multinational blue chips, often with more than 50-100 years of history) no matter how much their prices drop or increase I don't care: I only care whether they continue providing regular income (growing dividends).
Second, because most solid dividend stocks are US companies (for some reason there are few non-US companies that have a stable dividend history), to diversify my risk, I only invest in multinational companies (and by multinational, I mean they generate substantial sales in several countries other than the US). I also invest in some European companies with a global reach (for example Nestle based in Switzerland - a great choice for you if you're after safety, L'oreal in France or Reckitt Beckinser in the UK).
Third, I only invest in companies that I believe will be around in several decades, that are simple to understand and that sell products that will be always needed (mostly consumer staples). This means that I don't invest in technology (Google might be extremely successful today, but Nestle has a much bigger chance of still existing in several decades due to the Lindy effect), banking (this is also because few banks have a stable dividend history and they're generally not to be trusted), energy (who knows what happens when solar becomes ubiquitous), or industrial (because I don't understand it so can't make any assumptions about its future).
Fourth, I never sell unless a company cuts a dividend. This dramatically simplifies the entire process as each month I only choose the best stock at the given moment to buy (making sure that all of my investments are more or less balanced) and forget about it until next month when I invest again.
At the moment my average portfolio yield is just a little over 2%, but based on the historical dividend growth of the companies in which I invested, each year my yield will grow by 10-15%+. It doesn't sound particularly sexy, but after 5 years my yield on cost will cross 4% and in 10 years it will be over 7%.
Also, please note that I'm only talking about dividend income. I don't focus on capital gains because again, I don't care about the price as long as the dividend is right. Obviously, if it goes up, that's a great thing but it doesn't really change much because I'm not going to sell anyway so it's just a paper gain.
Now, just to emphasize, I only started doing this a few months ago and am by no means an expert. However, I'm regularly investing five figures a month and intend to continue doing so until my dividend income covers all of my living expenses with a margin. Then I'll probably consider expanding to something else for additional diversification.
Please keep us updated what you plan to do.
What I'm personally doing is investing in multinational dividend stocks. To make sure that I stick to it religiously, I decided to make it extremely simple. I might not get the best returns, but I don't have to deal with subjective company valuations, worry when to sell, worry about the crash, etc. My time investment (after the initial research which took a lot of time) is minimal.
First, instead of worrying about prices, I focus on income. I only invest in companies with a stable history of consistently growing dividends (ideally at least 25+ years of dividend history).
I use the dividend payback period calculator (check the article and download it here: http://www.suredividend.com/the-dividend-payback-period/) and only invest in companies whose dividends (based on the current dividend yield and historical average dividend growth) will pay back my initial investment in less than 20 years, which translates to 5% yield. I know, the calculation is simplistic, based on assumptions and might not be entirely correct but I don't care. I want things to be simple.
My reasoning is that I'm buying stocks for income. I don't care about their prices because I don't ever want to sell them. It's like buying real estate to rent it: you don't care about its current market price because you'd rather receive regular income.
Imagine you bought your dream house for, say, $1mm. A week from now a guy knocks on your door and says that your house is now worth $800k. Would you care knowing that you don't ever want to sell it? That's my thinking: as long as they don't go bankrupt (and it's highly unlikely considering I only invest in multinational blue chips, often with more than 50-100 years of history) no matter how much their prices drop or increase I don't care: I only care whether they continue providing regular income (growing dividends).
Second, because most solid dividend stocks are US companies (for some reason there are few non-US companies that have a stable dividend history), to diversify my risk, I only invest in multinational companies (and by multinational, I mean they generate substantial sales in several countries other than the US). I also invest in some European companies with a global reach (for example Nestle based in Switzerland - a great choice for you if you're after safety, L'oreal in France or Reckitt Beckinser in the UK).
Third, I only invest in companies that I believe will be around in several decades, that are simple to understand and that sell products that will be always needed (mostly consumer staples). This means that I don't invest in technology (Google might be extremely successful today, but Nestle has a much bigger chance of still existing in several decades due to the Lindy effect), banking (this is also because few banks have a stable dividend history and they're generally not to be trusted), energy (who knows what happens when solar becomes ubiquitous), or industrial (because I don't understand it so can't make any assumptions about its future).
Fourth, I never sell unless a company cuts a dividend. This dramatically simplifies the entire process as each month I only choose the best stock at the given moment to buy (making sure that all of my investments are more or less balanced) and forget about it until next month when I invest again.
At the moment my average portfolio yield is just a little over 2%, but based on the historical dividend growth of the companies in which I invested, each year my yield will grow by 10-15%+. It doesn't sound particularly sexy, but after 5 years my yield on cost will cross 4% and in 10 years it will be over 7%.
Also, please note that I'm only talking about dividend income. I don't focus on capital gains because again, I don't care about the price as long as the dividend is right. Obviously, if it goes up, that's a great thing but it doesn't really change much because I'm not going to sell anyway so it's just a paper gain.
Now, just to emphasize, I only started doing this a few months ago and am by no means an expert. However, I'm regularly investing five figures a month and intend to continue doing so until my dividend income covers all of my living expenses with a margin. Then I'll probably consider expanding to something else for additional diversification.
Please keep us updated what you plan to do.