Anyone want to talk stocks and retirement?
I'm enthused about something new I've been doing recently. I'm closing in on retirement. I'm eligible for Social Security next summer. Retirement is happening with a whimper and not a bang.
I went from full-time, to part time with consulting, to just part time to just consulting a bit. So it's been tapering off.
I'd been following the axiom about making your stock investments more conservative the closer you are to retirement. In the last couple years we'd gone ultra-conservative. Much was even in money markets just to ensure no loss of principal.
The theory being to amass as much money as possible because you will need to draw on it in retirement. There's a theory about drawing 4% of your money out yearly and that leads to discussion about whether you will outlive your money.
I had kind of an "a-ha" moment recently listening to an financial adviser discussing that the goal shouldn't be how much you have, but how much of a yearly stream of income will it produce. For example if you had a million dollars, you could earn 5% and get $50,000 yearly and NEVER touch the principal.
That led me into the world of "Dividend Growth Investing". There's a subset of investors out there who are not trying for growth of principal, but growth on the amount of dividends an investment creates.
Example - Facebook will be coming out as an IPO soon. The stock will pay no dividends, but tons of people will be betting that an investment in Facebook will pay off like an investment in Google. A Dividend Growth Investor would have no interest in it.
Instead they would be more interested in McDonald's. McDonald's has increased it's dividend for 36 straight years. So if you buy McDonalds, and let the dividends re-invest automatically, over time it will really add up.
There are lists of companies that have paid (and increased) dividends for 50, 40, 30 etc years in a row.
Last edited by JaxRed; 04-24-2012 at 12:57 AM.