Wednesday, January 23, 2008

My Goals

My personal goal is to achieve a significant amount of dividend income to cover my expenses. I would achieve that by investing an equal portion of my regular paycheck every month and reinvesting the dividend income. I would try to focus on high-yielding stocks, which increase their dividend payments over time. I try to cut my trading costs by switching to Zecco, which doesn’t charge you a commission once your account balance is over $2,500 and you don’t make more than 10 trades per month. Achieving a sufficient amount in dividend income is feasible depending on the amount of money you have invested as well as the yield on invested capital that you can achieve. For example, if the amount I need is $8,000/year in 6 years, it would be dependent on time I have to invest and amount I have to invest. Assuming that I have about $100,000 invested in 6 years, I would have to own assets yielding/earning 8% annually. If I have $200,000 invested at the time I would only need a 4% annual yield. I believe that this is a very conservative goal since I will have two powerful allies that would help me reach this goal - dollar cost averaging and dividend compounding. I won't put the money into a 401K or a ROTH IRA, because I plan on using them in a few years. If I put all the money for my dividend growth strategy in a retirement account, i won't be able to use the passive income when I want or need it.

Currently I am also contributing at a 401k plan though, which matches 100% of the first 5% of my income that I contribute. I am moderately diversified – 95% stocks and 5% bonds. 75% of my portfolio is invested in SP500, 10% in MSCI EAFE, 10% in Russell 2000. 2.5% of my 401K is invested in high-yielding bonds and the other 2.5% is invested in corporate bonds. I would continue contributing to my retirement accounts as well, which would grow tax free for 30 years or more.

I also have the option of contributing up to 25 % of my income into my employer stock participation plan, which allows me to buy company stock at a 10% discount and there’s no minimum holding period. I could simply elect to contribute 25% of my paycheck to the plan each quarter, buy the stock at quarter end and achieve an 11% quarterly return on investment!

As of now I have over 80% of my assets invested in certificates of deposit earning me around 5% per year. As they start maturing I would start investing these funds into dividend stocks that fit my buy criteria. I currently earn around $1,000 annually from interest income from these CD’s. The thing that turns me off from CD’s is the taxation of CD income as ordinary income versus the 15% tax rate on dividends. In addition, my stock investments would provide me with an income stream that is growing without having to reinvest any of my payments (in case I have to live off of them). I plan on retiring in a few years and moving to a beautiful country in East Europe, which recently joined the European Union. A dollar in Eastern Europe buys much more stuff and a dollar in US. The average salary is about $500/month there, but rents in big cities might go as high as my rent in the Midwest area.

Relevant Articles:

- Dividend Aristocrats List for 2009
- Dividend Aristocrats
- Best Dividends Stocks for the Long Run
- Best High Yield Dividend Stocks for 2009
- Best CD Rates

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