Wednesday, August 13, 2008

My Dividend Growth Plan - Money Management

In my previous article I discussed my dividend growth plan in more detail, by focusing on my diversification criteria. Today I will be focusing on the money management part of my plan.

I believe that managing my money is an equally important part of my strategy, in addition to the stock selection and diversification. My money management plan involves owning equal dollar amounts in the 30-100 stocks that I own. However, I won’t be rebalancing by selling shares in companies which take a large amount of my portfolio, but I will be adding to positions that still fit my entry criteria and which are having a lower weight in my portfolio for one reason or another. Since I am still in the accumulation phase with my dividend portfolio, I will be forced to dollar cost average in my positions. This should minimize some of my risk, but it will most probably also decrease my returns at least in the first several years.

A very important money management issue is taxation. Most working Americans who work and invest in the stock market do so through and employee 401K plan or through an IRA plan, which are tax advantages accounts. These accounts have some limitation on the age at which you can start withdrawing money. Since I plan on retiring on my dividend portfolio earlier than most other people, I wouldn’t exclusively use these tax advantages accounts. I do believe however that they are important in terms of overall wealth building.

The price of not owning my dividend growth portfolio in a tax sheltered account that I will pay is that I will be taxed on my dividend income every year. If you plan on withdrawing your funds after the age of 59, you should definitely consider a 401K or an IRA account.

This concludes my series which cover my dividend growth plan.

Relevant Articles:

- My Dividend Growth Plan - Diversification
- My Dividend Growth Plan - Stock Selection
- My Dividend Growth Plan - Strategy
- Some Cheap Stocks to Consider

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