I have the money but not the income

brian · Post by **brian** » Fri Sep 21, 2012 3:50 pm

So after four or five years of YMOYL charting, frugal living, and extreme saving, I have the money, but I do not have the income. I follow William Bernstein type portfolio management. (I know that is not always cool to say on this forum, but it has worked really well for me). I am now 80/20 stocks to cash. (I am seriously contemplating going 50/50 stocks to cash with the recent market run up because with the capital I have because I just don't need more stock risk.) The problem is my income from dividends would currently only cover 1/3 of my expenses. I could stop work any time and spend the dividends and spend down cash for five years without damaging my long term FI prospects. I am just not sure, how wise that would be. If there were another global sell off, I would have no qualms about going 100% stocks and high yield ETFs or CEFs, but no one knows when that would happen. If bonds prices dropped to historical norms, I'd also have the income. These events could tomorrow or they could happen five years from now. What do people think? Should I pull the trigger or wait until I can get my income from investments up more?

secretwealth · Post by **secretwealth** » Fri Sep 21, 2012 4:06 pm

What yield do you need to cover your costs and inflation? That could help us get a better sense of what you need and where you should go.

George the original one · Fri Sep 21, 2012 4:09 pm

Yeah, secretwealth beat me to the question. It may be that you need to alter your investments to increase the liklihood of enough dividend income. It's not hard to alter a dividend growth portfolio to reach 5%-6% yield on the invested portion and still have adequate dividend growth to beat inflation.

secretwealth · Post by **secretwealth** » Fri Sep 21, 2012 4:27 pm

Sadly, it was much easier to get 5-6% on dividends about a year ago, back when I was too busy paying down my mortgage to invest.
There are a lot of High Income funds that will get you that level of yield, and they have pretty strong historic returns. Another option is municipal bonds--a lot of these are tax free and can yield 5%-6%.

Obadobadope · Post by **Obadobadope** » Fri Sep 21, 2012 4:36 pm

Personal preference. If you really think it's borderline, then I'd lean toward either working a bit longer to get your withdrawal rates lower, OR if possible lowering your personal consumption to bring the withdrawal rates down. Or work part time for a while as a transition period. Or make the FI leap with the understanding that you may need to go back to work for a year or two to defend your portfolio in the event of a stack crash. I personally want my FI day to be past the borderline and into the compounding wealth freedom zone, but maybe I will change my tune on that after a few more years of work.

brian · Post by **brian** » Fri Sep 21, 2012 5:54 pm

I'd say about 3.5% on the taxable portion of my portfolio should cover at all of my expenses 90% of the time. Also, I like buying in really bad markets b/c even I make a mistake on investment selection then I still do okay. Buying anything right now in the US looks really dangerous to me.

George the original one · Fri Sep 21, 2012 6:37 pm

You only need a 3.5% yield and you find you're not getting it?!?? I think, then, you're more worried about capital preservation than income and should change your focus a little. Have you considered an annuity to establish the floor of your income needs?

secretwealth · Post by **secretwealth** » Fri Sep 21, 2012 6:51 pm

Yeah--3.5% is pretty easy to get in several ways. Diversify with mutual funds, muni bond funds, and annuities if you're worried about capital preservation.

brian · Post by **brian** » Fri Sep 21, 2012 8:52 pm

At Secret Wealth and George - I am open to advice. At this point in market cycle, what portfolio would you buy to get a 3.5% average yield across the portfolio? I am also 39, are annuities really an option?

George the original one · Fri Sep 21, 2012 9:31 pm

Start with David Fish's Dividend Champions: http://dripinvesting.org/Tools/Tools.asp
Throw away anything yielding <2.8%. Throw away anything not increasing dividends faster than average inflation. Now research the remaining companies to see if they're increasing revenue and earnings... the survivors are your candidates to mix & match to obtain the desired yield and inflation protection/growth.