Investing 102

[SSLance]

What Greg describes above is precisely why there is no right answer when someone asks how or what they should be invested in. Everyone's situation is different.

My situation is way different than most because of a couple of factors. First off, we don't have any children...or any heirs at all to speak of besides our furkids. So not only am I not worried about saving for college educations like a lot of my friends, I'm also not worried about leaving anything behind for anyone either.

Second, my wife and I worked very hard, were pretty successful at earning, made what I think are pretty wise economical and investment choices and lived pretty frugally for a lot of our younger years, enough so to build ourselves what I think is a decent little nest egg.

Now, what is hard for us to decipher (and anyone that I have asked for help) is...the nestegg is not large enough to provide enough income to live off of in our current state for the rest of our retirement years without dipping into the principal, especially when invested in safer, more steady eddie type of investments. But some sort of income off of the nest egg while dipping into the principal a bit at a time, while still earning a bit on side jobs, and having a little bit of passive income from our farm...and still living frugally...just might be enough for us to retire on sooner than later.

I have yet to find the person that can put that actuarial together for me though as it is a unique situation, different than most. Especially when nobody can accurately predict what Mr Market is going to be doing at the same time...

All we can do is the best we can do and try to enjoy ourselves at the same time.

[GregWeld]

Lance --- you lucky dog you!! I like the name FurKids!! LOL - Perfect description.


I just went thru this discussion with one of my buddies. He has extremely modest needs... was doing "fine" on just a union pension / SS / Savings account. House had a very small mortgage that he'd taken out to make some upgrades.... no other debt. Overall a really nice condition financially. Then came some new dough. That needed to be invested... he's single. One kid. So far so good. But he's very active - and finally wanted to be more like "me" (that's what he kept telling me). He also wanted to help "the kid" pay off his house etc.... which I advised AGAINST.

So let me tell you what I told him.

Let's make a plan to invest "X" dollars (seven figures) and see what that looks like on paper - using just dividend paying stocks.... And then figuring that you'll have 20% dividend taxes.... So we did all that - and Schwab now transfers automatically $6,000 a month. HE THINKS HE'S RICH NOW!! And frankly - compared to most people - he is doing pretty dang well!!! Since he was doing fine with what he had coming in -- this is all play money... that that play money is being played with I tell ya!!

A couple of things -- he's too old to want to travel anymore... so that expense is not part of his planning. People kind to fail to think about "trips" (they're no longer vacations cause you don't work!). Hotels and all that are expensive!!

Anyway let's get back on track....

What I told him to do is what I do. On a good year -- I skim some of the big fat gains... in the bad or down or flat years - I don't take anything extra other than just the income. So what's that look like?? On a million bucks invested - on a good year maybe 12 or 15% growth. Dude! That's like 120 grand!! So if you take HALF that - that's 60 grand gross. That's an extra 5 grand a month gross... There's the new car -- or a month in Hawaii... or the fishing boat.... or major home repairs.

Now -- if you really do the math -- and calc how long a guy is going to live.... a guy that's 65 maybe lives 30 more years?? IDK... that's the hard part!! You can't drain the bank and you MUST leave some growth in there -- otherwise you're going to run out of money. But not really..... because you won't buy a new car when you're 85 -- and who cares about going anywhere when you're 90.... so really -- expenses like that kind of dwindle. But what you will have is increases medical expenses! Even with good insurance - medical is going to play a MAJOR role in your expenses.

The "pros" will tell you that you can plan to take out 4% of your capital each year... so on a million bucks - that's 40 grand... and it should replenish that with "growth" in the good years. If you're in decent dividend stocks - they should also be increasing the dividend payout percentage - so your income should be keeping abreast of inflation.

Here's what worries me.... I look back at what I paid for stuff 30 years ago -- and it was OMG cheap! Meals - movies - cars - clothing.... it cost NOTHING compared to what that stuff costs today.... so we have to fast forward 30 years of retirement -- and we know stuff is going to go up. What I think happens is we just use LESS STUFF as we get older. We just won't want stuff.... we'll have been there and done that.

I think it's the FIRST 10 years of retirement that might prove to be the greatest challenge. I know that at 61 -- I have LOTS of things I plan to do or I am doing. So those that say it costs less to be retired - I say BS!! Costs more to be retired because you have all this time on your hands and you want to go do things! A round of golf here is $135 -- play that twice a week and you've blown a grand just on the golf -- add lunches - beer -- and a bucket of balls... it ain't cheap!

I think this is a fundamental reason people plan to MOVE in retirement to somewhere that costs less to live. A resident of Indian Wells for example - plays golf for $35 !!! But then - if I lived there and it was that cheap - I might play every day!!

Lance -- there is NO ANSWER which is why nobody can tell you what the magic number is. I think you play it as it comes. In a good year you do some extra - in a bad year you suck it up and live within your means. At least - that's the way I've done it for the past 23 years.

[SSLance]

Originally Posted by GregWeld

Lance -- there is NO ANSWER which is why nobody can tell you what the magic number is. I think you play it as it comes. In a good year you do some extra - in a bad year you suck it up and live within your means. At least - that's the way I've done it for the past 23 years.

Hell, that sounds like the last 40 years for me...

I agree, just gotta keep doing the best one can and try to live a little at the same time.

[Vegas69]

It's a delicate balance. Many Americans are a slave to money and their careers. They wake up 65 ready to retire with poor health and not much life left to live. That's when money doesn't mean much. As I approach 40 I'm quickly learning that life is a short adventure. You sure as hell better make the best of it, today. That doesn't mean you should live like a drunken sailor. I've over corrected and made life no fun working towards financial independence not so long ago. We need a solid plan and wise choices. But I have to say, live it up because the wick is short and their are no guarantees you are crapping in depends.

[chichirone]

Lance, like you, we have fur kids. No college savings. No weddings. But also leaves us reliant on "other" resources to assist in our care when age and health requires it. Unlike our parents, we don't have 4 children to bail us out when we have a need or cannot afford our lifestyle choices.

The greatest challenge we face is the intermediate funds required to bridge our financial freedom over the next 20 years when we can obtain access to our IRAs and long term retirement accounts is quite the challenge, even at higher than average earnings. We work extremely hard, sometimes to a fault of fun and life enjoyment, requiring us to remind ourselves to not take ourselves too seriously and get out there with friends, family and our hobbies. It is amazing how a great laugh with friends makes you feel "richer" than any gains in a stock portfolio. Greg's $1M/$60k = $40k after taxes income calculation is a killer. To pay yourself $10k per month one needs around $3M in the bank. Thinking forward 20 years. $10k per month is going to go quickly with inflation and rising costs of everything. Healthcare will require an inequitable share of the available funds.

So this leads me to why we got so hooked on this thread, Investing 102, to begin with. Dividend investing offers us a tool to generate income when we hit our target number to be what we consider financially free. Greg described it as comfortable.

So after the diatribe, here is a question...what is better? A stock with a higher dividend %, higher potential growth rate, riskier investment profile or a proven player. Take PM vs VGR. I lean towards PM but the 7.29% yield of VGR is really attractive. 40% greater revenue on every dollar invested if it stays price neutral but the risk of loss makes me somewhat uncomfortable. What is the best way to evaluate the stock beyond the surface metrics? Curious how you look at this and what lens to add in an evaluation of peers in a group such as "sin" stocks?

[GregWeld]

Originally Posted by chichirone

Lance, like you, we have fur kids. No college savings. No weddings. But also leaves us reliant on "other" resources to assist in our care when age and health requires it. Unlike our parents, we don't have 4 children to bail us out when we have a need or cannot afford our lifestyle choices.

The greatest challenge we face is the intermediate funds required to bridge our financial freedom over the next 20 years when we can obtain access to our IRAs and long term retirement accounts is quite the challenge, even at higher than average earnings. We work extremely hard, sometimes to a fault of fun and life enjoyment, requiring us to remind ourselves to not take ourselves too seriously and get out there with friends, family and our hobbies. It is amazing how a great laugh with friends makes you feel "richer" than any gains in a stock portfolio. Greg's $1M/$60k = $40k after taxes income calculation is a killer. To pay yourself $10k per month one needs around $3M in the bank. Thinking forward 20 years. $10k per month is going to go quickly with inflation and rising costs of everything. Healthcare will require an inequitable share of the available funds.

So this leads me to why we got so hooked on this thread, Investing 102, to begin with. Dividend investing offers us a tool to generate income when we hit our target number to be what we consider financially free. Greg described it as comfortable.

So after the diatribe, here is a question...what is better? A stock with a higher dividend %, higher potential growth rate, riskier investment profile or a proven player. Take PM vs VGR. I lean towards PM but the 7.29% yield of VGR is really attractive. 40% greater revenue on every dollar invested if it stays price neutral but the risk of loss makes me somewhat uncomfortable. What is the best way to evaluate the stock beyond the surface metrics? Curious how you look at this and what lens to add in an evaluation of peers in a group such as "sin" stocks?

The "best" metric IMHO is TOTAL RETURN. It is - after all - what we seek. TR is the measurement of dividend (if any) and growth. The combination - regardless of the % of either (dividend or growth) is how you make money on your money.



Total Return for 5 years on Philip Morris (PM) is 90%


Total Return for 5 years on Vector Group (VGR) is 270%


Would you rather make triple or merely double on your money in the same timeframe? LOL



The key to ALL investments is DIVERSIFICATION -- you balance some risk with some "steady eddies". And what you'll always see is a horse race... if someone was calling it out at the track - it would be one horse leading - then falling behind or being passed by some other horse -- and suddenly (over long time periods) the horse in the way back starts pulling and passing.... THAT is why we want some diversity - some risk - some growth - some "sure things" in the mix.

[GregWeld]

Forgot to respond to your other question - about measuring stocks in a group against each other.

This is a "research" question - which I tell people to use... look up the name you're interested - and then (say on Google Finance) see the list of what they consider 'peers'.... start researching those... start with the names you are familiar with but didn't come to mind... look at their dividend - look at their TOTAL RETURN numbers... did their TR come from a great dividend or growth or some combination... is the company diversified.... is one pure tobacco or are they into other stuff... how do you feel about that? What's the risk / reward... a company with a single horse vs a company with a team of horses....

Depending on your investable resources --- you might end up splitting your SIN STOCK investment between two or three names... rather than one - or maybe this year you buy one name -- and pay attention to a couple others moving forward... get familiar with them - watch them - get comfortable (or not)... So when you have your next buy to put in - maybe you put some in the same one or maybe you add a name.

[GregWeld]

Originally Posted by Vegas69

It's a delicate balance. Many Americans are a slave to money and their careers. They wake up 65 ready to retire with poor health and not much life left to live. That's when money doesn't mean much. As I approach 40 I'm quickly learning that life is a short adventure. You sure as hell better make the best of it, today. That doesn't mean you should live like a drunken sailor. I've over corrected and made life no fun working towards financial independence not so long ago. We need a solid plan and wise choices. But I have to say, live it up because the wick is short and their are no guarantees you are crapping in depends.

Wow! I've never looked at life as a ticking time bomb.... My plan is to live forever!! And have fun the entire f'n time!

In order to do that -- I need a plan!


Life is a gamble - with risks just like everything else we do. Had a buddy retire early @ 58 -- he died 4 months later from a rare form a pancreatic cancer. But on the other hand - my MIL is 89 and has mostly outlived her "decent" retirement stash when my FIL passed away when he was 60. So she's lived basically 30 years -- READ THAT AGAIN -- THIRTY YEARS in retirement. What's happened to her is INFLATION has eaten into her really nice retirement cash flow.... WHY?? Because despite my wanting to put her into some dividend payers -- she wanted a strategy that avoided paying taxes... Meaning Muni Bonds... Guess what -- Bonds SUCK as a retirement strategy. What do you get when you roll your 10 years muni bond that was paying 6% tax free - into a new muni that's paying 3% tax free?? A cut in income by 50%..... and when you hold a bond to maturity - you only just get your money back. ZERO growth. So after 30 years she has the same amount cash - earning about 1/3rd.

What did she need?? A strategy that had her money growing at 3 or 4% to stay even with inflation -- and an income strategy that had her income increasing so she could stay even with inflation. Yeah - she'd have paid taxes along the way -- very very minimal taxes.

I used to ask her -- do you want to earn 25,000 per year and pay zero taxes - or would it be smarter to earn 40,000 per year and pay 15% taxes and have 9,000 more to spend per year. Her answer was always "NO TAXES". Thus her current situation.

Funny --- 30 years ago - it cost maybe 3 grand to paint her house -- but the house has needed painting 3 times in 30 years - and it now costs 10 grand to paint her house. That's almost half her annual income. And that 30 year roof she put on back then - that needs replacing now... and the furnace... and property taxes have quadrupled... and insurance / medical costs. And you know what -- today -- "80's is the new 60's" -- People live a long time these days.

[GregWeld]

Originally Posted by SSLance

Hell, that sounds like the last 40 years for me...

I agree, just gotta keep doing the best one can and try to live a little at the same time.

WORD!!!!


Like my buddy that just retired == guy never made squat - but retired nicely. He put a little away for 40 years.... He didn't wait 40 years and then try to make it all up. He used the POWER OF COMPOUNDING... Didn't keep him from owning a 32' Grand Banks... or going on nice vacations... or driving "decent yet used cars". He lived within his means and his means meant he also factored in that monthly payment towards retirement.


Love that statement - money is like air - it's only important when you don't have enough.

[SSLance]

My FIL worked hard his whole life, Electrical Engineer by day that worked up to being President of a firm with over 500 employees...and ran a large retail store by night with his wife. Worked 70-80 hours every week...lived well also, but his main activity was always work of some sort. Two months before he was to retire from his day job at 69 years of age, he was diagnosed with Multiple Myeloma and was gone about 6 weeks later.

My Dad also worked hard his whole life, made it and lost it all at least 3 different times, but spent his last 20 years of his working life as a consultant and was able to stash away about 150k in his IRA before retiring in 2003 at age 65. For about 10 years after, he lived large...in his own way. Did what he wanted too...when he wanted too...and by 2012 his IRA was gone and he was down to living on $2,000 a month SS check. He was also in poor health, was diagnosed with COPD around 2005 and steadily declined in health over the years, basically spent the last 5 years of his life as a hermit, the last 3 living in an apartment I built for him in the back of my outbuilding. He passed away Feb 22 with just enough money in his checking account to take care of his arrangements.

Two stark contrasts...My FIL earned and saved a ton and never got to really enjoy the retirement he worked so hard for. He had just turned 69 when he passed. My Father earned okay, spent and lived as he pleased...and ran out of money 3-4 years before he passed basically because he ended up living longer than he really thought he would. He was 76 years old when he passed away. Both were what you might call in pretty good health when they turned 65 other than my Dad had smoked cigarettes his whole life.

You just don't know... 3 weeks before my FIL died, my wife lost both of her Grandmothers 5 days apart, they were 87 and 97 years old. That little stretch of time really had an affect on us...we scaled way back and started to do what WE wanted to do instead of busting our tail to make every dollar we could. Everyone is different and things you encounter along the way shape your view of the world. How you invest whatever you have saved up is just part of the whole picture. It is an important part for sure...but one has to look at the rest of the picture as well and just make the best decisions you can for yourself.