It’s been a full two weeks since I started my Dividend Growth Investment (DGI) portfolio and I’ve been contributing to it bit by bit any spare cash I am not using.
If you want to catch up on DGI #1, click here.
I started with $1000 not really doing much but after extensively research various stocks and ETFs on the market, I decided to contributing towards my overall portfolio. You may notice that the screenshot is of a donut pie-chart and each color represents a “slice” as M1 calls it.
Each slice of the Pie has a purpose and you can see the various categories I have in my pie.
Concept: Roth IRA Dividend
While I do not still have a Roth IRA (but will create and max out for 2019 soon), I did create concept portfolio for a Roth “Dividend” IRA which is a consists of ETFs which I am fairly confident in and I (or you for that matter) can invest in and forget – thus not needing constant management effort.
If you’re thinking of starting a Roth IRA (and I’d suggest you contribute as much of the $6000 limit as possible, $7000 if over the age of 50 before 2019 ends) this may serve as a starting point as an idea.
Clearly I will be taxed on this contribution as it is not a part of my Roth IRA – but it doesn’t bother me as much for now – this is for your reference. I see this slice as a low risk low yield position while still paying out ~2.854% dividends.
Real Estate REITs
In layman terms, Real Estate Investment Trusts (REITs), are companies that own or finance income-producing real estate across a range of property sectors which could be leasing properties or housing/apartments, etc… .
By law, REITs are required to pay out at least 90 % of their taxable income to shareholders (as dividends) — many of which pay out, in some cases excess of 100 %. Do note however, the shareholder is responsible for paying taxes on those payouts.
The reason 15% of my portfolio is in the current selection of stocks is because they have steadily been paying growing dividends and have long-term capital appreciation. Since their correlation with other open market assets is low (they aren’t affected as much), they help reduce my overall risk while also increasing my “prospective” returns.
Do note, as a DG investor, I’m not as concerned with the gain being down this week since my investment is for the long term. Collectively, this slice will yield me ~6.3% in dividend payments which when automatically re-invested into other slices will overall help me work towards my long term goal passively.
Medium Term Bonds
Before I talk about this pie, I want to quickly brush over on the basics. There are two major investable assets in the world – stocks and bonds.
A bond is a debt security, similar to an IOU. When a bond is purchased, you are lending money to a government, corporation, federal agency or any other issuer and in return the issuer promises to pay the agreed upon interest rate during the life of the bond and to repay the principal (the amount that was lent at the beginning) when it matures.
In general, the longer a bond’s term, the higher the interest rate will be and the more creditworthy an issuer, the lower the interest rate will be. This slice almost equally weighs three ETFs which track major bond issuers, the U.S. treasury, corporations, and municipalities.
I hold a ~9% slice as it is in line with my risk tolerance and it helps control for volatility incase the market has a blowout/ temporary negative performance. If your risk tolerance is low and you do not like seeing wide swings in the net value of your portfolio, maybe a 40% slice may work better for you or vice-versa, 1% – its very individualistic and I recommend you read more into them. Once you understand them and their purpose better, you can decide how much you’d like to be invested in bonds.
My goal with healthcare was to try to cover almost every aspect of it that I read up on and companies that I know are popular due to their size, performance and commitment to their investors.
Without doubt there are companies that may be either better performers or ones that payout higher dividends but I settled with this slice because I see growth in some companies after a collective loss in the last five years, new and existing drugs with strong sales and also a more important factor to think about: rising cost of healthcare.
As the baby boomer generation grows older by the day, expenses towards their healthcare will continue to rise. The average cost of medicine in the American economy is far higher than anywhere else in the world and quite frankly, I do not seeing prices go down any time soon.
Additionally, companies in this slice have realized they need to be well diversified enough such that if something were to happen to one of their sectors/markets (as we are seeing with JNJ) it doesn’t hurt their overall company as significantly.
For now, I am satisfied with this selection and am curious to see how it holds up in the future.
This slice is still in experimentation mode for me as I keep following the companies. Ideally I would’ve liked to have a higher % share in WM because fact of the matter is that more people = more trash and that means more contracts to collect/manage it.
I hold more of UPS for now but will no longer be buying into it (tweaked the %s) as with the e-commerce boom, I know people are shopping more online/having packages delivered.
That being said, I also know amazon is expanding it’s own delivery service so I’m curious to see how that pans out. $288 isn’t a big chunk of money but I am more interested in seeing how this mix performs more than anything else for now.
The companies however all pay good growing dividends and either in their growing stages or almost capped with not a whole lot of room left for innovation. Note: UTX will soon be undergoing a stock split.
I’ll cover the remaining slices in a future post.
It’s all about the dividends
My main goal – as highlighted in my first post – is not to beat the market, but for my portfolio to consistently grow as well as passively earn money which can be re-invested automatically without me having to do anything.
While this is not my only brokerage account, I am happy to see my portfolio’s first (almost) dollar in dividends and I know it’s only going to grow as time passes.
I contribute whenever I can and my focus is to buy stocks when I feel they are at a fair market value (and I’ll get into what I use to help me with that decision in the future). I am less concerned with the principal amount fluctuating +/- 5% right now because I see volatility in the market, but in a long position I am setting up for myself, I see my portfolio (hopefully) growing to a point where it can self-sustain by re-investing all earnings.
Here are some dividends I am expecting in the next few days (in Robinhood):
Don’t judge me wrong if you feel I hold some bad stocks – I’m sure I do but this is a learning experience for me and mistakes I make now (which also don’t cost me as much) as important experienced with lesser capital than with say over hundreds of thousands of dollars.
If you feel you find value in this initiative I am taking – of which the content quality will improve as I understand what works and what doesn’t, I’d recommend following my blog to stay up-to-date with not just this but all articles (free travel, credit building, etc…).
If you’d like to start investing with M1 Finance, click the link below:
If you feel Robinhood might be better, click here:
If you’re confused and have absolutely no idea as I did when I started investing, check out this article where I cover the different investing apps.