Tuesday, January 16, 2018

I Hit My Dividend Crossover Point

I wanted to share my exciting news with you today. I was going through my investments, and calculating my forward income and net worth numbers. After a little bit of adding things up, I came to the realization that I have exceeded my dividend crossover point in 2017. In other words, my forward dividend income from my taxable and tax – deferred accounts is set to meet or exceed my expenses.

I do not make monthly or quarterly updates like other blogs. The last update was probably in January of last year.  Though a lot of readers liked this update from 2015. I wanted to share this with you, and illustrate that aggressive savings coupled with patient dividend growth investing works.

Long-term readers know that this is a substantial increase from my position a little over ten years ago. Back when I graduated college in 2007, I had only a couple of thousand dollars to my name.

I was extremely lucky that my parents paid for my first year of college. This is why I cannot say that all accomplishment is entirely mine, since I had a large dose of initial help. But I was also lucky that I worked several jobs during school and summer breaks in order to pay for my college and living expenses for three subsequent years. Therefore, I had zero dollars in debt when I graduated.

After finding a job in 2007, I steadily saved a large portion of my paycheck. I had no idea how to invest my money however. The only no-brainer thing I knew how to do was to put enough in a 401 (k) to get the company match, and enough to get to the stock ownership plan. The stock ownership plan offered a discount on company stock, which could be sold right away for an almost guaranteed profit.

In reality, I had followed the financial markets since the 1990s and read a lot of books on various investment strategies. I had followed the business news off and on since then as well. So I was not a complete neophyte – but I didn’t know how to best utilize this theoretical knowledge to actually invest real money. So I ended up putting most of it in certificates of deposit, which were yielding 5% back then.

Once I started reading about dividend investing, everything I knew sort of “clicked”. It made perfect sense to me to see that I am investing in real businesses, not pieces of paper. As a partial business owner, I got to share the success or failure of those enterprises. If they succeeded, they earned more money and distributed extra cash to me in the form of dividends. I could use those dividends to determine how far I am in my quest for financial independence. If I needed $2,000/month, but generated $1,000/month in dividend income, I knew I was halfway through my journey. If I had over $2,000 in monthly dividend income, then I would be financially independent once I exceeded those figures.

Dividends are more stable than stock prices. This makes them an ideal source of income for anyone who plans to live off their nest egg in retirement. It is much easier to see that your dividend income exceeds expenses, than to go through complicated asset depletion methods that are exposing you to the risk of stock prices going down in the short term. This is speculation.

I view the streak of annual increases as a way to identify quality businesses for further research. It makes sense that a business with a long streak of annual dividend increases should be studied. If a company raises dividends for 50 years in a row, and earnings grew as well, this is a business that has withstood the test of time and creative destruction. If you identify a sufficient number of these businesses, available at attractive valuations, and build out a diversified portfolio, you can do pretty well for yourself.

As I was researching things at the beginning of my journey, I also started writing things down on paper. I firmly believe that writing helps you put thoughts on paper, which allows you to see opportunities for improvement. I also firmly believe that making myself do the work, and going through the numbers enabled me to develop an opinion only after going through a process.
I then moved my writing from paper to blog format ten years ago.

The nice aspect of blogging is that I get feedback on improvement opportunities. If I write something that is incorrect, I always get feedback on it. I need to be honest with myself, and take this feedback. Unfortunately, I also need to determine if the feedback is good too, because sometimes it is not. Again, investing is a very subjective field, where the ultimate outcome varies no matter how much we try. The goal is to have a process that will help us to achieve our goals. However, it is also important to strive to continuously improve on our process.

Ultimately, we should focus on things within our control, and hope for the best. Those things include what percentage of your income you save, what you invest those savings in and the ability to keep investment costs low. With dividend growth investing, the cost to transact has been zero to just a few bucks per trade. To minimize the tax bite, you should always place your investments in tax-deferred accounts first.

This last point didn’t really hit home until 2012. Ever since then, I have been maxing out any type of tax-deferred vehicle available, with zeal.

Ultimately, I think that my biggest strength was not the fact that I am a super investor.

My biggest strength was the fact that I am frugal and save a high portion of my income. If I enjoy something, I keep doing it. It is easy to keep investing in dividend paying companies, because I keep receiving positive feedback anytime the investment grows and distributes dividends on a schedule. I also have a process in place, that is second nature by now. I get cash regularly, which I invest in the best opportunities present at the moment.

In addition, I do not give up. I relentlessly try to pursue my goals. Unfortunately, this means that I spend a lot of time in the doldrums.

But that motivates me to improve, get better, and reach my goals!

That relentlessness and the frugality are second nature mostly due to necessity.

The thing is, I actually came here in the US at the beginning of the millennium with nothing more than money for first year of college, and a few scholarships. So I had to fight to get things finished and find a good paying job. Needless to say, when your name is not native sounding, it is tougher to secure employment. it means lots of rejection for a lot of things you guys and gals probably take for granted. When someone disagrees with me, I take it very personally. Because in my life, if I had not taken it personally, I would have not succeeded since I would not have relentlessly pursued my ultimate objective.

I know that from a behavior point of view, doubling down on your original views is supposedly dangerous and silly. But it did work for me. If I didn’t attack my problems using all of my energy, I would not have succeeded.

As an immigrant, I have to work twice as hard to get the same level of appreciation as the regular native person. I use any situation where anyone is trying to put me down as an opportunity to motivate myself and reach my goals. Luckily, as a dividend growth investor operating in a bull market, there is plenty of opportunity for that as well.

I grew up in a country right when communism was falling apart, and making way for the wild west type destructive capitalism. It was brutal, and made a lot of people very unhappy ( and reduced life expectancy pretty significantly as well). As I was growing up, I do not believe my parents ever earned more than $1,000/month. We experienced economic depression, hyperinflation and stagflation in the 1990s. You had to live within your means merely to survive. Many were self-sufficient, out of necessity. But an economy of self-sufficient people does not make for a successful economy. And an economy that is not successful produces a group of intelligent candidates that want to realize their human potential at a better price – mostly through emigration.

I mention that a lot of the things I do have been out of necessity. I started this site to discuss investments, because initially I hoped to retire in 2014 after six years of working. Dividend investing provided the perfect strategy to generate income from a nest egg that I was going to save up for.
I managed to exceed my goal in less than four years actually. Unfortunately, my initial goal was to move back to Eastern Europe, where cost of living was low. However, I realized that I was a different person than the one who left their fatherland a decade earlier. So I ended up to modify my plan to strive for financial independence in the US.

I thought I would reach this goal sometime in 2018… Well, here I am in 2017, reaching it in my early 30s.

Where would life take me from here?

Nowhere (yet).

While I can call myself financially independent, my spouse isn't. I call myself financially independent, because I was the one who chronicled my journey for the past decade. We only recently got married last year.

But we need to work together to get there as a team. We would do this at a more leisurely pace, since we are working to reduce our work hours. We like working, learning and growing.

Money provides options. I want to use this flexibility to reduce our work schedules and focus on our family. But I do want to continue having variety in opportunities. It also provides opportunities to shift focus towards intangible things that provide true meaning to life, that are more important than money.

We would likely work in some form for years. However, we would try our best to focus on areas that interest us.

For example, my spouse is reducing her hours to focus on our offspring. One of us may switch career paths in a few years.

You may already be aware that parental leaves for having a child in the US are horrendous. Having some flexibility is helpful for new parents. For example,  I was able to take an unpaid leave for several month to help take care of DGI Jr. The HR rep at my company that I worked with, had never seen anyone take a paternity leave. If I hadn't saved and invested all those years, I wouldn't have even had the flexibility to take this step.

For the past two years ( 2016 and 2017), I had been living off my dividend and side incomes, and just saving my whole salary. For whatever reason, I find it stressful to live off income streams.  Perhaps it is because I have a scarcity mindset. Or perhaps it is because expenses from month to month are more volatile than the income streams that cover them over the course of an year.

Ironically, if we were to follow the 4% rule, we could both be financially independent, but have no margin of safety in case anything goes wrong.  On the other hand, I do not feel comfortable relying on selling shares to fund my retirement, because share prices are very volatile, while dividend checks are more stable and reliable. I prefer to go by dividend income, since it is more stable and reliable.

By the way, I like it where I am. I like my job, my family and my life. So I do not foresee lots of drastic changes yet.

I do not want to become the full time blogger who tells you how amazing their life is. That's boring.

Most bloggers want to become full time bloggers. But that doesn’t interest me. I have been on all sides of the spectrum, and dislike doing what everyone else is doing.

I lost my job in the 2009 recession, and was very lucky that I had saved up a lot of my income. I was even luckier that I had a large portion of my networth in high yielding CD’s in 2007 – 2009. I was regularly putting that money to work in dividend growth stocks through dollar cost averaging.
Per conventional theory today, I should have simply bought stocks in a lump-sum in 2007.

But I didn’t, and this worked out for me. This was pure luck of course, but goes to show you that just because the past data and the experts claim that a certain behavior is the correct one, that doesn’t mean this will work out well for your specific situation.

I was also lucky because enough people thought that this little blog you read is mildly interesting and it started earning some extra income for me. I will be forever grateful to my readers and dividend growth investing for this opportunity. This allowed me to continue investing through thick and thin even after losing my job in 2009.

If I didn’t have this opportunity, I would have likely not been able to invest, since I didn’t get another job until 2010. I did consider becoming a full-time blogger, but I found that this endeavor is not for me. I prefer to do several things at once, rather than concentrate on one single thing. I value diversity and variety, more often than doing one single thing over and over again.

I do not understand the bloggers who strive to achieve financial independence at all costs, while hating their lives. While I have had challenges along the way, as well as job situations that were toxic, I always managed to move on to better things. I always learned something from every situation I am in.

Either way, I kept investing money for the past 10 years, and here am I at 32 hitting my financial independence milestone. This is despite the fact that I came to this country with little, had little money a decade or so ago, and hit several roadblocks in my journey.

The things that helped me was my high savings rate, my investment strategy that showered me with cash on a regular basis and my persistence. What also helped me a lot was the support of everyone of you who helped me along the way.

Of course, I am also lucky in that I caught a few lucky breaks along the way. If things had taken the wrong turn, I could have been much worse off today. It is important to be grateful and thankful for what I have, because there are always those who are equally as talented as me, who may have been simply unlucky.

Relevant Articles:

How to retire in 10 years with dividend stocks
The Simple Math Behind Early Retirement
Financial Independence Is Easier to Model with Dividends
Dividend Investing for Financial Independence
Achieve Financial Independence with Dividend Paying Stocks
How much money do you really need to achieve financial independence?

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