I should say that I was in a special mood when writing the blog post about DGI and if it was right for me. When choosing a strategy that one will focus on for the next 10 to 50 years, I think it’s only natural to be critical. Let’s see what I figured out.
14 days ago I was contemplating if I should follow the Dividend Growth Strategy or just do indexing. So, the point about this blog is the show others what’s going on inside my head. The blog will also work as a memoir when I get older. As long as I write it down, talk with people, I can improve or learn from it. Another important part of the blog is I want to be honest so other people can learn from it. Since it’s anonymous, I don’t need to think about losing character (the investing world and its society is a place where uncertainty is looked upon with contempt).
It´s not that I am performing badly, or that my stocks are moving one way or another. I’m making money and the stocks are performing well, but I don’t really care about that. It’s the short term. I want to know my strategy by heart.
I found out that DGI is right for me. Here’s why
I’ve used the last two weeks to think about DGI, how I should do it if I’m doing it right, and the pros and cons. After some great conversations with other DGI investors, I’ve realized these things:
It’s much harder starting with the DGI strategy than continuing the strategy.
That’s because, in the beginning, you should find the best companies that you want to hold on to for a very long time. After a while, once the portfolio is stable and you have your companies, it’s easier. You don’t need to look for more companies, stay updated on stupid financial news or care about noise. The companies you have chosen (if you have chosen the right ones, later on, this topic), will manage best in their industry in any storm. Therefore it’s normal to be doubtful in the beginning.
You just got to stay focused and think about the long-term goal. It’s hard in the start, but easier once the dividend income rolls in. I’ve tried to use a strategy that makes things more complicated than necessary. I’ve talked with a lot of great investors, read a lot of books and tried to come up with a strategy that compiles all this information into one bulletproof strategy.
But, I came to realize that what I’m doing is something like trying to make a great dinner by making a meal that consists of different parts. Some from the French cuisine, Italian cuisine, and Arabic cuisine. Yes, all of these are great dishes alone, but trying to mix them isn’t smart.
You end up with a dish that tastes a bit like everything, and it’s unclear what you just ate.nTherefore I have to make some changes to the portfolio. DGI is the main focus, and the portfolio should reflect that.
I have always been aware of these companies, and the terms, but I haven´t really thought about it in the best way.
This is how you should think about the DGI Strategy:
Make a list of the HIGHEST quality stocks you can find (30 should be enough) that are likely to still be around in 40 years time.) Build these positions over the next 40 years by the dollar cost averaging method. Never sell. Reinvest all dividends.
Tune out ALL noise (Especially Trump Tweets!) as it is only short-term. DO NOT BE SIDETRACKED.
When you retire you will have a very nice income stream from dividends, backed by a very, very nice capital position. Concentrate on building the income stream. Remember prices will go up & down, but over 40 years they are only going one way, and that is UP! When dollar cost averaging and choosing a company, invest as follows
Add on dips or add after quarterly earnings if the company has beaten earnings and raised guidance going forward.
Don’t waste much time following the value of your portfolio, stock prices or listening to financial news. Use your time reading investment books (carefully!)
So, throughout the next couple of years, just wait until these companies are undervalued or fairly valued, and then add them to your portfolio. All of the following information can be found at SimplySafeDividends (a wonderful site)
Which Sector Should You Focus On?
How about size? How many positions? Let’s use some information from SSD:
Now that we know all this, let’s just relax and think for a second. How does my portfolio look like? Well, it´s nothing like this. I am heavily under-represented in the two best performing sectors.nI’ll change this very soon. The game is on. I’ll continue with REITs, because I love REITs. They are such a great income machine, but there will be a change.
Part 2 of this blog post theme (DGI, Why it’s Right For Me) will focus on the issues about being a DGI, and what we should look for because now it’s decided! Do you have any other company that should be included? Feel free to comment!