Just posted this to reddit, thought I would post it here to the community if anyone fancied a read!
This is quite a long read! You have been warned…
Firstly I want to be clear, when i use the term wealth I mean it in the form of taking a portion of my income which I “clock in” at work for everyday and placing it in a specific vehicle which will allow it to generate me more income. The below image is simple example of how different groups of people use money. “Wealthy” is going to be different for ever person but for me it represents a shift in how i look at my money and how more importantly how i can get it to work for me. I plan on doing this in the form of slowly aquiring assets to generate forms of income which over time i will use to replace my earned income which i like so many others are reliant on.
To keep up to date with my Portfolio click HERE !
MY WEALTH GENERATING STRATAGY
The specific vehicle I am using to do this is called Dividend Growth Investing (DGI). For anyone who is unfamiliar with dividend growth Investing. The basic concept of it is to help investors ignore the current valuation of their portfolio and instead focus on the dividend income of their portfolio. So the "growth” is concerning your dividends increasing not your valuation increasing, however over a long period of time the two SHOULD go hand in hand. This helps investors who may be prone to rash decisions, getting wrapped up in the day-to-day Buzz of Political noise or more recently tariffs and terrorist incidents in the middle east, etc that causes many short term fluctuations in asset prices, and instead focus on purchasing companies that that will continually pay out Dividends whether or not the economy is good or bad and even increase the Dividends they pay out over time.
I will continue to buy more shares over time month after month and the company’s increase the amount they pay per share slowly this will begin to snow ball and eventually become self fulfilling. I will likely miss out on some growth. Most high dividend paying companies are mature companies that are established and have large market share. These are likely companies that will not see massive growth ahead of them. There are of course exceptions in every category but this is a risk, missing out of growth is to be expected.
I need to make a few key points here, I am in the British military and therefore move a lot with my wife, due to this I currently have no Mortgage due to being placed in military housing, this works for us currently and do not plan on buying a home until approximately 10 years from now due to my Career priority’s (we can debate this all day but this is our choice). My car is owned out right so only fuel and Insurance to pay here. All other bills are fairly normal, food, electric, Netflix, the odd Freddo!
SO HOW MUCH DO I PLAN ON INVESTING?
This is the real question, I am looking at investing on average £800-£1000 every single month, that being said my methods for this will be specific but simple. I am not a Warren Buffet or Ray Dalio… I do not know when stocks will go up or down, however I want to keep some firepower for fantastic opportunity’s, so I will invest £500 every month once I’m paid, into current positions or into new positions as I see fit. The other £300-£500 will be stored up and used to purchase Great Company’s at more attractive valuations.
The reason for this is simple at the time of writing this 17 January 2020, the US Stock market (where all my current holdings are) can be seen as “historically Expensive” in my opinion this does not mean impending doom is around the corner nor does it mean that one should just continue to buy at less attractive valuations. If Valuations become more attractive then I will inject whatever cash I have stored up over time and possibly move more aggressively with my deposits for example moving from £500 monthly deposit up to say £800 or possibly £1000.
WHAT WILL MAKE ME SELL MY HOLDINGS?
Firstly I plan to Buy and hold indefinitely unless the following points below happen….
- They slash or cut their dividends.
- The underlying story of the Company is deteriorating and I don’t see a future in the business model.
These two are basically the only reasons I would sell one of my holdings. THESE ARE NOT SET IN STONE. If there is a major recession and a holding does a small cut to its dividend and I can see that it is justified and if the rest of the financials look good then I may continue to hold it, on the otherside of the coin, even if a company is growing its dividend year over year, if the fundamentals of the company are erodding then i may look to reduce the position size or sell out of it all together.
I have put the above together as form of plan for myself, some accountability is always good in my opinion. This might even generate some discussion.