We recently talked about taking our investing to the next level. There are tons of blogs and books out there about contributing as much as possible into your 401k, max out savings, etc. Yes we got it! Therefore, what does it mean to take investing to another level? It means, once you have the fundamentals down, perhaps it is time to create other passive income streams and future buckets of money to draw from.
As a refresher, here are the fundamentals:
sound quality employment & general budget
well managed debt
contributing significant amounts to IRA, 401k, Roth IRA, automatically
If you succeed in setting up the above items, then a person is well on their way to a secure retirement and successful middle class life. Keep in mind this is not easy, so if you are doing this then congratulations! But if all those boxes are checked, there may be ways to move to the next level.
Dividend Bucket of Passive Income
One of the next level approaches I am utilizing is building a separate portfolio of high quality dividend stocks. In the far future, 10-20 or more years, I could utilize the income from the dividends to pay for some living expenses. Or be clever like Jerry and use some of the dividends to pay for THE CELL PHONE BILL or COFFEE HABIT.
I have designed a 5 point strategy for building this passive income dividend machine. The goals are to generate thousands of dollars a year in dividend income and preserve/grow the underlying value of the assets.
1. Robinhood Core Portfolio
Step one was to open My Robinhood Account For Free Stock Acquisitions. I do not have a huge amount of lump sum money to invest all at once. Therefore, I will need to build my portfolio one small “lego brick” at a time. But in order to do this cost effectively I need free or low cost trades. This is what I get from Robinhood, free trades and acquisitions over time.
Next through research I have established a core portfolio of about 20 different companies.
2. Establish Target Stocks
I am not some kind of stock picking expert at all. And never claim to be. I do enjoy learning about great American companies and perhaps investing in them. In fact, none of us are really that good at stock picking.
Therefore I basically follow two criteria. One, would Buffett invest in it? Two, is it a dividend Aristocrat? The dividend aristocrats have a long track record of operating successful companies in all kinds of economic environments. They have been able to show a proven track record of success and in many case have what it takes to succeed.
3 Criteria For Long Term Dividend StocksJohnson & Johnson JNJ Dividend SnapshotDividend “Viking” Kings & Aristocrats
I am a big fan of dividend stocks because the shareholder shares in business income. That said, I do hold a couple non-dividend paying stocks. The main one is Berkshire Hathaway BRK-B. I hold Berkshire as a kind of forever stock. I hope to pass it onto my heirs some day in fact, that is how long term I am thinking.
3. Establish an Acquisition Budget
The next step after establishing target assets to acquire, is to establish about how much we have to invest each pay check. I had to look at areas where I was perhaps wasting money in order to free up some cash to invest. Again, this is a “one lego brick” at a time approach. Some pay periods I am only buying 2-3 shares at a time.
But slowly and surely the positions build. I will admit this approach does take discipline. Most of the time we should be automating investing in order to not be our own worst enemies. In this case, it will take some action on our parts.
A person can set up automatic investments into Robinhood. But I have not set that up yet and am not sure if it can automate into a particular stock purchase. But, automating it into the account may be the first step to getting the funds in in order to make acquisitions later.
4. Buy on Down Days
To some this may sound like market timing, and I admit perhaps it is. In general, I am not fan of market timing, we should harness the power of dollar cost averaging and The Investing Trifecta!
In other words, simply invest a set amount every two weeks no matter what the market is doing in the moment. Therefore on “down” days you buy more shares, on “up” days less, but it averages out to a lower cost per share over time.
But for my dividend portfolio, I basically try to buy on down days. In other words, trying to make a mini value play. These are solid companies and most have a nice long prosperous future ahead of them.
5. Build Over A Decade
My plan is to continue this practice over the next decade and build the portfolio to sizable level. By using Robinhood I will save thousands in transaction costs over that period.
My Dividend Portfolio
Below is my most recent snapshot of the dividend portfolio that produces over $1,000/year in forward income. Recent additions were AT&T and MMM.