Dividend Surprise Part 2

Risky business be careful!

After taking a parting blow to the head from CHEAP.SHOT his sparring buddy THE.CONTENDER was dazed and disorientated. Is the right thing to be doing, he asked himself? This fighting THE.FUTURE stuff is quite risky. Is he risking it all on black?

CHEAP.SHOT: "CONTENDER! CONTENDER! are you alright? Sorry mate I thought we were still sparring. I did not hear PLAN.AHEAD calling us over"

PLAN.AHEAD took THE.CONTENDER to one side: "Look what happened, you dropped your guard. You thought you were safe and in control. This is a risky business and you need to have your wits about you at ALL times"

In part 1 of this post (found here) we had a look at the pros and cons of dividend investing. Here in Part 2 we are going to have a look at the risks of investing in dividend stocks, our strategy and tracking progress.

Personal Financial Goals

As we are well into our financial freedom plans we have been fortunate to accumulate enough savings and investments to be very close to our desired goal. This is to buy a "nice" property in France and enough passive income to cover living costs. Currently this nest-egg is 2/3 in cash and funds and 1/3 is in dividend stocks. Ultimately we need our investments setup in the following manner:

• 45% in cash to buy a property outright
• 45% in dividend stocks. We are aware the nominal value will rise and fall with the market and company performance but the income that we need will hopefully grow over time.
• 10% in our protection portfolio for emergencies cash and cash alternatives such as precious metals.

So what do I think are the risks that lie ahead for this approach if we follow this route?

Mitigating Currency Risk

US shares carry a premium (more costly / lower yield) to them but the dollar is the reserve currency of the world. Likewise UK and Continental European stocks carry Pound Sterling and Euro risk (get the money printing presses ready, Mr Carney - New Bank of England Governor)

We are going to be living in France and paying for everything in Euros so what do we think are our options to reduce currency risk?

a) Ideally we want to have much more income than outgoings if possible. This is the ideal situation as we can continue to invest and grow our income and it will provide a buffer in hard times. Likelihood low - we want to spend as much as possible on a home.

b) Investments will be made in countries with strong currency fundamentals and good trade agreements that avoid double or punitive taxation. Global low cost funds can help to mitigate currency risk instead of trying to work out the "best" country to invest in. In our case we cannot invest in funds in the short term due to higher French taxation. Our income will be paid in multiple currencies before being converted to Euros.

c) PROTECTION - our cash will be spread across different currencies and cash equivalents. Primarily this will be covered by income from multiple countries in the form of dividends, pounds, euros and some precious metals fund.

d) We will monitor all investments and country risk monthly and change the mix of the portfolio as required. Our monthly dividend tracker and risk evaluator is outlined below.

There are several countries and currencies that are of interest to our little tribe Canada, China, Chile, Singapore and to a lesser extent Brazil, countries located in Eastern Europe and Australia.

Canada and Chile are of interest for example as they both have growing populations, an abundance of natural resources, are business friendly and have a lot of undeveloped land for agriculture and natural resources.

For more on risk management and the low cost fund approach to investing have a look at the videos on the Bogleheads wiki.

Please read on to have a look at the tribes own strategy and progress

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Dividend Surprise Part 1

THE FUTURE: "Jobs are being created, resources are abundant and technology is amazing - go out and enjoy yourself - I will look after you!"  
PLAN.AHEAD: "That is all good mate but I want options. I want freedom to do as I wish. If I spend all my money today I will have none for tomorrow"
CONTENDER: "What about dividend investing, will this work?" 
PLAN.AHEAD: "Contender, the stock market is a casino mate! you have less chance in it than in the ring with THE.FUTURE!"

Over the past 12 months a lot of work has been carried out to develop a strategy for a sustainable dividend income for our Tribe. 

Part 1 of this post is going to look at the pros and cons of dividends versus capital appreciation of stocks. Part 2 is going to look at risks of investing in dividend stocks, our strategy and tracking progress.

The Tribes Dividend Journey

We have been investing heavily for the past 7 years in three portfolios GROWTH, INCOME and PROTECTION (covered here). It is only in the last year we have been heavily interested in increasing the share of the INCOME portfolio. In particular we are buying individual company shares for their dividends.

To get to the target we are gradually selling our tracker funds from the GROWTH  (Primarily global, European and emerging markets) and adding capital from dividends and adding income from Mrs C's [delete] income into individual shares. The PROTECT portfolio is staying static.

In the current climate of a historically high priced stock market (P/E ratios are at towards the top of their historical trading ranges) and what THE.CONTENDER considers a stagflation environment this poses several concerns about the timing of owning MORE shares.

We currently live in a very different financial landscape with lots of printed money circling the globe. This is very supportive of stocks so there is no reason to believe the stock market will capitulate just yet.

• Our exercise is moving money out of one group of shares (funds) to another group (individual dividend stocks) 
• We are adding some extra earned income so we are in effect nearly neutral on purchases.
• Our objective is all about GROWING INCOME over CAPITAL APPRECIATION. 
• We are comfortable in owning a large amount of stocks but... we want to be more DEFENSIVE with the choice of these shares. 
• We are buying shares in these sectors that we consider DEFENSIVE: utilities, energy and pharmaceutical.
• We consider their goods and services as a "need" instead of "want". 
• We understand dividends can be variable such as energy companies that are beholden to the underlying price the the commodity they are selling.
• We hold some fixed income assets (preference shares and cash accounts)

While it may seem a little Kamikaze to keep holding so much wealth in stocks at the moment we are buying them for their income, not overall value (appreciation is desired ;).

Perhaps lots of cash is better? Unfortunately like anything in life it is all about risk aversion. Cash loses value to inflation but is safe. At our point in our lives we are do [which one?] not need to be overly safe. If a problem happens we will do what it takes to get back on track.

We are aiming for 80% INCOME and 20% in GROWTH and PROTECTION after the purchase of a property in FRANCE and the semi early retirement situation we are looking for.

Starting a portfolio

"An investment in knowledge pays the best interest." - Benjamin Franklin

 

We have read about dividend investing from several sites and blogs such as the dividend monk, seekingalpha, monevator and several early financial independence blogs such as brave new life, retire by 40 and jlcollinsnh.

We have a list of our our current holdings and the current dividend income they provide per month. We have added "what if" we bought x shares in each company to work out what the portfolio could look like to generate our desired final income (more detail will be provided in part 2 of the post).

All of the stocks are researched  (Mr C spends lots of time on this) and evaluated. Decision of what to buy each month are made by having a look at share valuations and performance. We are currently concerned about buying some of the shares we have identified that have had large run ups at the start of the year (typically 10-20%).

We are currently targeting the "laggards" - shares that are behind the market gains. Is this a good approach? Laggards are usually laggards for a reason? Well perhaps that is because their sector is out of favor and might be the next "performer". There is a "risk on" appetite in the market so some defensive sectors have been laggards / sold off in favor of stocks with perhaps more growth prospects.

Please read on for: Are companies paying dividends the right choice? High paying dividend stock considerations. Dividend champion investing.

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10 Happiness Guidelines

Someones Pursuit of Happiness?

THE.PAST: "Happiness, snappyness! Remember all of those problems you have had, you will have them again! Losses, humiliations, wrong choices are you had some good times but remember all those testing times!"
 
THE.PRESENT: "Happiness is it watching reality TV with a bowl of fries and a bucket of cola or is it walking in the mountains, seeing the arrival of your first born? Whatever it is live now, live free, live life!"
 
THE.FUTURE: "I'm gonna get you CONTENDER, no matter what you do I'm gonna get ya be  afraid very afraid. Stay where you are don't get.in.the.ring.with.me stay with a 9-5 job. Top up your pension and make sure you spend more that you salary. Debt is good. Yeah man don't plan for the future happiness is debt, happiness is working hard to pay the bills, happiness is long hours in work then you can have you shiny toys, crates of beer and lot and lots of vices. Bring it on!!"
 
THE.CONTENDER: "Geez what in the hell could happiness look, feel, smell, be like? I'm not sure these guys have hit the nail on the head what should I do?"

What is Happiness Anyway?

First up - your author has no idea - FACT! Here are a quotes are they just as clueless?

"The pursuit of happiness is a most ridiculous phrase: if you pursue happiness you'll never find it." Carrie P. Snow
 

“For every minute you are angry you lose sixty seconds of happiness.”  Ralph Waldo Emerson
 

“People are just as happy as they make up their minds to be.” Abraham Lincoln

“Happiness is not something ready made. It comes from your own actions.” Dalai Lama XIV
 

“Now and then it's good to pause in our pursuit of happiness and just be happy.” Guillaume Apollinaire

It is easy to see there is no consensus from the few quotes above. Happiness is not a science based on facts and figures, something quantifiable, it is something more ethereal like a religion.. From what THE.CONTENDER can gather happiness is what comes from within. It is hugely personal, built on current circumstances and needs for the individual or family.

So is this a pointless post on our tribes personal guidelines for happiness? If happiness is a unique, unquantifiable, very personal goal, is there any point in sharing some of our ideas? Perhaps a better way of looking at the list is to see it as a set of guidelines to help us to reflect on life, build relationships and be positive and optimistic people who tackle challenges head on. Is this our idea of happiness or a desired way of living - are they the same thing. Again who knows but here goes:

1. Always turn things into a positive or a challenge to be overcome - THE.FUTURE throws all types of obstacles in our way (most of them are probably self inflicted). There have been numerous times where THE.CONTENDER has messed up in work (or at home Mrs C points out) but perseverance to make things right and better won out. THE.CONTENDER actually learnt something from the experience.
   
   Happiness in adversity anyone? Any hard knock we receive will be seen as an opportunity. We will enjoy the satisfaction of turning a difficult position into a winning one. Everyone like to win once in a while ;)
    
2. Life is too short to dwell on THE.PAST - Learn and move on the past is a wonderful nagging voice in the back of the mind. It is there to remind us of past mistakes so we do not do them again. We almost have to pull out the good stuff while the bad stuff surfaces from the subconscious without asking.
   
   THE.CONTENDER speaking to THE.PAST: "OK I know what do do this time now sod off!"
    

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Downshifting - Are you mad ??**!!

Time to Think

GET.A.LIFE: "I hear THE.CONTENDER is considering getting out of the game. What is he doing? Lack of status, no new shiny toys. You would not see me doing that - frankly nuts!"
 
PUT.IT.IN.PERSPECTIVE: "Sounds interesting doesn't it? I have never really considered down shifting myself. I wonder what it would be like. Would I like it? Could I manage without my high salary? How could I possibly be financially independent from my job?"

GET.A.LIFE: "From what you have just said  my mind boggles. Just thinking about it gives me a headache. I have put so much into my career and lifestyle I would be mad to give it up."

Our Tribe is well into its down shifting plans. We have addressed a lot of challenges but still many remain. We constantly go through all of the pros and cons of our plans. What if something happens to our forecast income once we have resigned jobs and downshifted and end up with much less each month? What if we cannot find the right place to live? Why don't we wait a while and stay where we are without changing anything? How long for? It is so easy to fall into having negative thoughts about changing. We needed other opinions and points of view.

We have sought guidance by sharing, discussing and listening to our friends and families. We have listened to concerns and received encouragement.

We certainly don't have all the answers and never will (life would be so boring:). We don't know what THE.FUTURE holds for us but we welcome him it with open arms. Will we run into trouble at some point? Most likely. We have to accept these bumps in the road and move on, learning from the experiences that life throws at us.

We are aware out path is one of thousands of directions people can make. There is no right and wrong. Only THE.FUTURE ahead for all of us. Every day people make billions of little decisions around the planet which ones will affect us - we haven't go a clue.


To answer one challenge down shifting is not about running away from responsibilities. We are not rebels shunning the system. We see it as a way to develop our full potential.

We will have time to work on our personal development, help the kids flourish, participate in community activities. It would be nice to think, if we are seen as useful citizens, that we can offer some part of us to help a few people in THE.FUTURE.

With all that in mind here are some observations on the impacts of our down shifting decision. In particular a look at the implications on social interactions, living arrangements and a change in mindset:

Socially

Being surrounded by friends and colleagues who all work hard to make ends meet can be difficult when talking about downshifting. In our circles we have seen a lot of people where income is there to be spent as a pension plan is in place for THE.FUTURE. It is probably better to not discuss down shifting in some cases...

We are downshifting

The trappings of modern life can be easy to be taken for granted. All available income is spent on items such as a newspaper with a cafe latte and pain au chocolat in a nice comfortable (and usually expensive) café. Jumping in the car to do the food shopping instead of walking. The deserved luxury holiday half way around the world compared to a beach you can actually find much closer to home.

What about the down shifter? Do they spend all their money - no. Do they save and invest - most likely. Do they like showing off status - unlikely. So the contrast between the down shifter and the wage slave is quite wide. You are not seen partaking in all of the trappings of modern life. This throws up several social challenges.

What if you come out of the closet and state your intention to downshift. What would your work college think - "geez this guy has just sent his career down the swanny talking about downshifting". Not considering the fact that as you are down shifting the career can go down the swanny for all you care?  

You want to down shift, you are your own master, you are not beholden to your career. You are just approaching work from a different angle. We would like to continue to practice our professions but for only 2-3 days a week and only half the year at that! 

What about outside of work? "This family is different, they don't spend much money, they don't have many expensive activities, they aren't part of the club any more". Not to be disingenuous no one has actually said this to us. We have sensed some of these concerns though from some people when they have offered their opinions ("let me give you some unsollicitod advice"). Some "advice" explaining the pitfalls of our decision have been gratefully received and have helped challenge (or fortify) some of our thinking. A few positive individuals have been cheering us on which is appreciated.

We are planning to down shift but are not telling anyone...yet

From a work perspective are managers evaluating people in the following way: Is he ambitious? Does he deserve a pay rise? Does he fit in here? In THE.CONTENDERS opinion this is highly likely so the other route is not to even talk about your plans for the future in work. 

You are in work, don't talk about your personal life and keep everything professional!

Sometimes keeping quiet really is the best course of action. If you really want to talk about your plans perhaps an online forum is a better and anonymous place.

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Project ANGELFISH | Financial Independence and Seeking Happiness

Project Angelfish - Gloves Off

THE.FUTURE: "Take that CONTENDER!"
HYPE.IT.UP: "THE.CONTENDER has been FLOORED! Can he get up again?"

Well, being a full time dad has its little challenges. Young children are notorious for colds and illnesses. They have been kind enough to pass them around. From chicken pox for the kids yours truly felt sorry for them and developed mild shingles.

Ah London... what great things to see, do and CATCH!!!! Next up THE.FUTURE throws a low blow with the London norovirus. It has been over the news in the UK and we were one of its victims.

 This highlights the impact of living in a high density city. The occurrences of these nasty bugs  has been increasing (in C's opinion). The mass transport system carries hundreds of thousands of packed commuters each day spreading their germs around. Kids meet their friends from other schools at the play ground and other public areas we frequent such as the library.

Is this storing up issues for THE.FUTURE?

BBC Headline 11th March 2013

Diet and alternative medicines help to recover from these nasty bugs. From a prevention standpoint as a family we use anti bacterial hand washes and gels and disinfect work surfaces. Perhaps our ultimate protection is leaving the damp, overpopulated city of London for the countryside. Let's see what THE.FUTURE has in store for us then!

In this post we are going to have a look at a New Project called Angelfish 
and what it has in store for us

Project Angelfish

The blogs first project MUFFLER | My Unconventional Life and Early Retirement created a tool kit called PERL | Plan for Early Retirement and Life; with the following goals

1. Build a strategy for financial independence and life goals
2. Create short, medium and long term plans to obtain financial independence, plan continuous education, look after our health and get a grasp of what happiness could look like for us.

This first project came with a spreadsheet planning tool that can be found here and a user guide that can be downloaded here.

A first attempt it was. Time to take it to the next level by spending a few months tearing it to pieces and putting it back together again. Will this planning tool be more useful to those who seek to plan their next move towards financial Independence and happiness?

It will be interesting to look at how business skills can be used in everyday life. At its core what really leads to happiness? Damned if I or anyone else knows but we can have a look at a few things that can contribute to a happy existence.

Introducing - ANGELFISH | Another New Gadget to Encourage Learning for Financial Independence and Seeking Happiness (or another silly acronym if you like).


This is to flesh out the content of PERL. Get into the murky depths to find a new FISH | Financial Independence and Seeking Happiness.


Well fight fans here we are for the next title fight with THE.FUTURE please read on for the round-by-round fight plan:

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Downshifting One Year On

Enjoying Downshifting - Walking on thin ice in the park and life?

THE.PAST: "CONTENDER why are you boxing so infrequently and why stop for a couple of years in your prime? What about the perks, the stature of it all?

CONTENDER: "I want to spend some time with the children while they are young, life is no longer chasing the next fight to prove my credentials. I need some time out to look after the family, reflect, relax and keep in shape.

THE.FUTURE: "I'm here! I'm here you yellow bellied son of a *****!"

THE.CONTENDER follows the blog A Good Day To Live and his latest post Downshifters in Australia – Interesting Case Study has inspired him to have a look at his own downshifting in the last year and all of the joys and calamities along the way. What did THE.CONTENDER learn and could these new skills benefit work in the future. All is revealed below:

For newcomers to the blog try here is a post on our Financial Independence journey - Family Financial Freedom in 7 Years! and benefits and budgeting to downshift - Daddy CONTENDER a Financial Frugality Case Study of Bringing Up Baby

THE CONTENDER is a 36 year old professional dad of 2 children (1 and 4 years old) having downshifted from the corporate world one year ago. This was not because of ill health or any major dislike for the job (there are always going to be some gripes) but because our well laid plans to move to France and exorbitant cost of childcare where we live and which are covered here on this blog.

After working solidly for 13 years and having a strict savings routine for the past 7 years it was time to become very frugal. Could we as a family be better off financially and happier with THE.CONTENDER at home taking over the childcare duties at the end of Mrs CONTENDER's maternity leave? So what has happened in the last year, has downshifting worked for us?

Downshifting the tribe

THE.CONTENDER had at least taken an active role in the upbringing of our eldest child making sure he was around at evenings and weekends while Mrs CONTENDER was on a full year of maternity leave.

When Mrs CONTENDER had to go back to work our child started full time nursery. She did the morning drop off and the contender rushed home before the creche closing time at 6 pm.

With the arrival of the second putting both in nursery was too expensive. We decided to downshift. THE.CONTENDER stepped out of the ring to become the children's full time carer whilst Mrs contender went back to work.

Looking after the Kids

With the perhaps limited experience of looking after the eldest, now both were  the contenders responsibility. A corporate conditioned bloke now full time carer for two young children. What is all that about! Could he hack it?

To ease the transition we had a couple of plans in place. THE.CONTENDER took parental leave so if it was not going well at least the old job was there. Alternatives were a new higher paying job or part time. We had lists of nannies, child minders and nurseries should we need them.

The first few months went smoothly, it was heading into spring, the 6-month old baby slept and rolled around. Our eldest still had a couple of days a week in creche. So good, so far, right? THE.CONTENDER on the other hand was wiped out with....

Work Withdrawal Syndrome!

No more hour long commute to work in the morning in the car on the motorway through lots of traffic.
No more predefined routine
No more boring business conversations
No more work stress
No more kissing a***

THE.CONTENDER knew it it would be coming and it happened - he became sick. A cold and chest infection that lasted for two months. Sometimes he got a cold whilst on holidays after hard stressful work, so this was nothing new. Work withdrawal syndrome - his body was expelling the stress of work and detoxifying his body.

THE.FUTURE: "Got ya! You can't survive without the buzz of the ring"

With the concerns on workload, appraisals and not letting anyone down were lifted from the shoulders he could relax. Actually do something he wanted to do in a weekday afternoon with the little angels in bed for their nap. Result!

After a couple of months we were in spring. THE.CONTENDERS office was now a park instead of a cubicle. Meetings were in the playground instead of a corporate, white, bland boardroom. AND continuous exercise for all!

The need to have a snack or a coffee was gone. Food for the family is now my responsibility to take time to make. It needs to be healthy for the kids - time to get out the kiddie recipe book and beat some eggs with one kid bouncing on my knee with the other wondering what the plug socket is.

Did THE CONTENDER miss the ring work? Of course he did (a bit) in those early months. How could he keep the brain ticking over? All those years of hard work and education. Must use it! A strong psychological war was raging in his mind.  

THE.FUTURE: "CONTENDER! what a waste, what are you doing, what about financial security, shiny status symbols? You will loose all of your friends!"

So what did THE.CONTENDER experience and learn from with the kids during the year? - please read on:

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Frugality+Budgeting+Investing+Planning+ Hard Work=Financial Independence

Nice shiny stuff - usually very expensive....

Exposing the ways of the financially Independent Wealthy

SPEND.A.LOT: "I'm off shopping it's Saturday after my pay check. I've worked hard this month and deserve a new pair of shiny flashing light beep beep sneakers"
THE.CONTENDER: "Aren't the beep beep sneakers way expensive? Can you buy them out of your pay check after paying all the bills?"

SPEND.A.LOT "Well I just received this card through the post it has $2,000 of credit to spend now on it and no payments for 6 whole months - result! I want a new car as well there is a nice sports car in the local dealership with 10%. We can use the other car for the kids and I get to look the business"


Card issuer (AKA THE.FUTURE) - what a sucker! They never read the small print, interest rate of 2000% he will be my little slave before he knows it.

THE.CONTENDER: Would you hold off your purchases a minute, mate? I would like you to read a little book before you buy the sneakers and new car. It is called "The Millionaire Next Door"

Millionaire Next Door on Amazon

"The Millionaire Next Door" by Thomas Stanley and William Danko  exposes the truth that great defense (that is "controlled spending on necessities" compared to consumerism is the road to wealth. 1 Million + copies sold in the US alone speak for itself. This post has:

1. A short review of the book 
2. THE.CONTENDER concerns for the kids
3. A look at putting some of the recommendations of the book into practice

"The Millionaire Next Door" written in 1996 investigates the lives of the wealthy. Their spending habits and investing traits versus high income low net worth individuals. Again the same result as the one THE.CONTENDER believes in:

Frugality + Budgeting + Investing + Planning + Hard Work 

= Financial Independence

The Book
 
Simple enough isn't it? What was more fascinating about the book for daddy CONTENDER is the impact of your own consumption and traits rub off on the kids. In the book some very concerning points are made.

Spendthrift high income families generally:

1. Care about status and keeping up with the Jones
2. Spend a lot on expensive consumer goods (Cars, boats, clothes, blenders, cappucino makers and the like)
3. Do not have a household annual budget
4. Do not dedicate enough time to financial planning and investing
5. Some rely on sustaining their lifestyle on "gifts" from rich parents.

Compare this to millionaires

1. They save at least 15% of their income
2. Their income is a very small part of their total wealth
3. A significant amount own their own business, leverage their contacts to get good deals and business passed onto them.
4. Are humble in front of their employes and neighbors showing no signs of their real wealth
5. The are fully satisfied with their humble living and have no intention to change and turn into a consumer. They have clearly defined life goals.

It is a fascinating look into the lives of the wealthy with loads of case studies. What is even better is that as it has sold over a million copies, you can pick up a second hand copy for a very modest price so I cannot recommend the book highly enough.

Please read on for the  impact on the kids, FI state of mind what would the Millionaire Next Door ask himself?

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Facinating Real World People

THE.FUTURE: "So you think you have what it takes to survive what I have in store for you? 

THE.CONTENDER: "You are so full of it. I have a whole bunch of advisers that have you in their sights. They are free thinking and certainly not controlled by you!"

This post is short and sweet. Below are some videos of some very interesting REAL WORLD outspoken people THE.CONTENDER keeps tags on. Covering future trends, investing, ecology, philsophy, fiat money and financial independence. A smart interesting bunch of free thinkers. Have a look at any of the videos that take your interest.

Gerald Celente - Trend Forecasting Master Jedi

Max Kaiser - Maverick Ex Trader who Is not afraid to Speak his Mind here talking to the Dollar Vigilante

Nassim Nicholas Taleb - Black Swans and Anti-fragility

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