Do you want to know my dividend strategy? I am hoping the moves I make will pay off within my retirement accounts aka Mutual Funds. I am not suggesting anyone try implementing this strategy for their finances. It has worked well for me on most occasions and I have an ultimate goal in mind, to achieve a high portion of retirement income off my mutual fund dividends. Imagine owning 20 thousand shares of dividend paying mutual funds and stocks growing every quarter. I am on track to finally break the 4 grand total shares owned mark.
I keep a record of fund prices on all funds as to help me decide when is a good time to sell one fund and buy another. The same goes for the dividend amounts each fund pays and how often they pay. The best scenario is when the fund that pays the smallest dividend is at its 52 week high, and the fund that pays me a high dividend is priced lower than usual. I would immediately exchange a set amount of dollars from one fund to another, with no fees or charges. The reason is because they are all in retirement accounts and doing exchanges are free. (401K and IRA) See below for my dividend strategy:
The first reason I am doing this is because I am betting that the best performing stock will pay me increasingly more dividends that will buy more shares due to compounding. Now before you ask, the funds that I am purchasing I have already owned for a while, and they on average pay two to three times above and beyond the fund I am selling. It just makes sense to move away from the dogs in my retirement accounts.
The second reason is I foresee a better outcome with the funds I am purchasing that their price per share will go up higher over the long term. (Hopefully)
The third reason is I want to slowly remove any funds with higher than normal expense fees. If the opportunity is there to make a buy, I will take it and slowly move away from these not up to par retirement funds.
I know you might be asking why in the world you bought into these funds if they do not comply with your investment strategy. Well for arguments sake I bought into them because, 1. The price was decent at the time, 2. I wanted to diversify myself, 3. You don’t know a fund until you own it, 4 The dividend was recently cut or reduced on other funds, and I wanted to weigh my options. What will all these changes amount to over time? I will be less diversified as a whole and I will own all the winners in my portfolio.
Besides this I will grow my dividend income every year, and pay fewer expenses with every move I make. When a mutual fund is compounding to the tune of 50 shares a quarter, you have grown the compounding effect, and every little piece of the stock going forward will provide future little bits of income. Those new 50 shares will continue forever to provide more shares and it just keeps growing the eventual income I will be able to use later on in my financially independent life.
What crazy things are you doing that compare or contrast my dividend strategy?
Rich Uncle EL
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Interesting strategy! I'm very new to dividend investing, so I'm sticking with buying and holding some of the staples initially. So far, I've only purchased KO and KMI. I think what's most important right now is to save as much as possible and keep investing.
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Yes it’s important to save as I will not stop saving, this will just optimize my investments to increase dividend income over time.
It's something different for investing. I think anytime you can reinvest your dividends that proves to be a good strategy.
Yes it is, I just want my funds to compound as much as possible, so that I can be financially secure and give more later.
I have it automatically set up for my dividends to reinvest themselves in all my funds. I'm curious to look into dividends as a source of passive income though. I really know very little about it.
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It’s not that complicated. Retirement fund dividends are reinvested as you can’t use them until retired. After tax non retirement brokerage accounts you can buy shares in dividend paying stocks / funds that will pay you a set amount, this money can be used at any time or reinvested.
Our family has also started to slowly build a dividend growth stock portfolio. We will also have my pension, my 457K (which I now only contribute up to the city match), Roth IRAs, but intend to use the dividend portfolio for supplemental income as well as assure that some wealth is transferred into future generations. In fact, the main reason we fell in love with dividend stocks investing is the thought of using the dividends received to live on, rather than the standard 3-4% withdrawal rule which slowly depletes your wealth. Since we want the security of stable dividends, we are currently in the process of de-risking our portfolio. Once completed, we hope to eventually own ONLY solid companies with a long history of dividend payouts and/or raises!
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Great strategy and that sounds very similar to my dividend plans. I Think you’ll be very good financially because you have many retirement options.
I have to give you credit for having a unique method of compounding shares etc. and growing your investments when compared to most investing and dividend growth blogs out there. Most, like myself, invest in individual companies and not in funds but I can see the ogic behind your method. Thanks for sharing.
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Hey Divhut, I am focusing on retirement funds first, then I will transition to individual stocks next after I accomplish my pretax nest egg goal. Hope that makes sense. I am looking to do a 50/50 pre and after tax strategy.
The only thing I would caution you about is the frequency of your trades. Many 401k plans have trading rules that if you trade too often, then cut you off from making more trades for a period of time. You might want to look into that just to make sure you aren't close to that number.
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