Keep It Simple – Part 2

swanSo I recently spoke about keeping it simple when it comes to investing in the context of being able to easily decipher what a company does and even going so far as being able to explain that synopsis to a child.

But there are some additional points I wanted to address, as well as explain how this fits within the overall theme of financial independence and living off of dividend income.

Below, I’m expanding a bit on that original article with some additional thoughts which address sleeping well at night, avoiding asset classes and/or investment strategies that may not fit your personality, and being confident in your decisions.

SWAN

When I look at my Freedom Fund, I breathe a deep sigh of relief. I’ve hand picked each and every stock within the portfolio. And almost every company I’m invested in runs a fairly simple business model that’s easy to understand, where those business models are mostly predicated on selling ubiquitous products and/or services. That type of ubiquity and quality provides an enduring nature to operations, where it would take some kind of worldwide calamity on par with nuclear war to wipe them out.

And it’s in this ease of understanding and mostly ubiquitous nature that allows me to SWAN, or sleep well at night.

Look, I sleep like a baby. I promise you that. I’m not up at night worrying about what’s going to happen tomorrow with any of the companies that I’m invested in.

I’m not worried about whether or not Norfolk Southern Corp. (NSC) is going to continue transporting various goods across its rail and freight networks. I’m not worried about whether or not people are going to continue buying Crest toothpaste to brush their teeth, which is manufactured by Procter & Gamble Co. (PG). And I have no concerns over whether or not PepsiCo, Inc. (PEP) will continue selling Doritos chips and Tropicana juices over the next 10 years.

If I were invested in, say, Pandora Media (P), which was a darling growth stock at one time, I probably wouldn’t be sleeping so well. Are people going to find a better/more interesting way to access music? Is a better app going to come out tomorrow? How will this company make money in five years? I have no idea. And watching the stock decline some 58% over the last twelve months would probably have me up all hours of the night.

Confidence

It’s incredibly important to be confident in an investment. Keeping it simple and focusing on quality gives me a ton of confidence. When I understand what a company does, am assured of its quality, and I can reasonably explain it to a child, it gives me the confidence necessary not only to initially invest, but also to invest more down the road, if necessary and applicable.

Take that Pandora example again. Would I be confident enough to buy more stock in the company after a near 60% drop over the last year? Absolutely not, especially when the company isn’t even generating any profit. How can I be confident that they’ll generate a profit in the future? How can I be confident that they’ll still even be around in a decade?

But if Pepsi dropped by 20% or 30%, I’d absolutely be interested in buying more shares. I understand the business model. I get how they make money. And they’re sending me dividends every quarter, reducing the amount of capital I have on the line with every dividend payment. And I’m 100% confident that they’ll still be around tomorrow, a year from now, and 10 years from now. Even better, because a stock’s price and its yield are inversely correlated, a cheaper stock would provide me a higher yield, thus giving me more bang for the buck and more cash flow for the same investment amount.

Keeping Asset Classes Simple

Although I’m going to address this in an entire article at some point, I wanted to make a quick point here about asset classes and how it relates to keeping it simple.

I’m often asked why I don’t invest in real estate via rental properties. And that relates to desiring a simple life.

Rental properties can provide higher returns than the stock market, but it’s certainly not an apples-to-apples comparison and it’s also not a given. Does one have the desire to deal with tenants, credit reports, repairs, maintenance, management companies, banks, leverage, and vacancies? Only you can answer that question for yourself, but I already know that I have no desire for any of that.

I like easy. As I discussed in the original article on this topic, a simple blue-chip stock like Coca-Cola has returned over 10% annualized over the last 10 years, even with all the headwinds it’s dealt with over the last 3-5 years. And guess what? Coca-Cola doesn’t call me when a toilet at headquarters isn’t working. I’m not emailed when a refrigerator or a roof needs replacement. They just send me my cash dividends. And I like cash more than hassles. So that’s a great relationship there.

When thinking about investments, one should heavily consider the “hassle factor”. The higher that factor is, the less likely I’m going to invest in it and the higher returns I’ll need to even consider it. Why hassle oneself when it’s really not necessary? Now, you might love owning rental properties and all of the headaches benefits that comes with, but you really have to think deep down inside whether that’s right for you.

After all, how do you want to spend your time once you’re financial independence? Maybe you want to spend it managing properties. Maybe you don’t. But stay true to yourself either way.

Although not a separate asset class, options are another subject of interest for some. Again, why bother? If one can return near double digits over a long period of time by simply buying and holding high-quality dividend growth stocks and reinvesting the dividends all the way to financial independence, why complicate matters? And why add fees, turnover, and potentially additional taxes as well? There’s no reason for it.

Now, I’m not saying one can’t do better by trading and adding options to their repertoire. What I am saying, however, is that one can potentially do worse. Furthermore, “spicing things up” just isn’t necessary to attain financial independence in a relatively short period of time on a modest income. Why take a left turn when staying straight will get you where you want to go? Turning left may get you there faster. Or it may put you way behind. I’ve already discussed that your savings rate will matter far more than your investment returns, so I see no reason to overcomplicate what’s a very wonderful and easy system.

I hope to expand my horizons beyond just equities at some point in time, but I can guarantee you it will probably be with high-quality fixed income (when rates are more advantageous). I won’t be complicating things just to add an element of interest or fun. What could be more interesting or fun than collecting cash payouts, especially when these payouts are enough to pay for your lifestyle and likely increasing over the rate of inflation? That’s fun!

How Will The Dividends Continue To Flow?

One final point is this. The big reason I like to keep it simple when it comes to dividend growth stocks and invest in proven businesses that sell products and/or services that are fairly ubiquitous is that I like to be able to have some kind of reasonable assumption about future cash flow.

I plan to become financially independent by 40 years old, living off of the rising dividend income my portfolio generates. The last thing I want to do is not be able to sleep at night because I don’t know if my next dividend is going to hit my account.

I invest specifically in companies like Johnson & Johnson (JNJ), Kinder Morgan Inc. (KMI), and Unilever PLC (UL) because I can reasonably assume that they’ll still be in business a decade from now. And because I can reasonably assume that, I can also reasonably assume that they’ll be even more profitable then than they are today and my dividend income will continue to flow and grow. After all, Kinder Morgan isn’t going to transport energy products across its pipelines for the same amount of money ten years from now as it does today. And Unilever isn’t going to sell Dove soap bars for the same price for the next decade. As well, the odds are high that natural gas and bars of soap will still be in demand over that time frame.

So when I think about cash flowing and growing, I think about good odds. And when I think about good odds, I think about high-quality businesses. And when I think about high-quality businesses, I think about products and/or services that should remain high in demand for years or decades to come. Finally, when you think about great businesses that produce growing cash flow and share that with shareholders in the form of growing dividends, you should think about simple business models.

Look, some of the greatest businesses in the world not only generate the kind of growing profits that are necessary to pay growing dividends, but they also have excellent visibility which gives one the confidence necessary to assume that the cash flow will continue flowing and growing. And it just so happens that these businesses are also fairly easy to understand. What could be more wonderful than that?

Full Disclosure: Long NSC, PG, PEP, JNJ, KMI, and UL.

What about you? Do you have the confidence necessary to sleep well at night and continue adding to your equity stakes? Are you avoiding excess hassle?

Thanks for reading.

Photo Credit: bplanet/FreeDigitalPhotos.net

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79 Comments

  1. I love this post! I’ll admit, I haven’t started investing because I don’t know enough about it and it would cause me a lot of worry at this stage. There appears to be a lot more charges in the UK when buying stocks, and continuing fees that can make it especially high with individual stocks, rather than funds. In fact, the different over 20 years in terms of fees you can pay is absolutely staggering. But, this is a great post in keeping it simple and straightforward; know what you want and stick to it. You are proof that your approach works 🙂

  2. Hahahaha I lol’d at the comment on not getting a call from Coca Cola when their toilet breaks down. You make excellent points as always, DM. I am in a similar boat as you – every now and then I get the question of owning a rental property and leveraging…but it definitely isnt as passive – theres work involved…and all things considered dividend investing provides the best bang for the buck.

    Thanks for sharing another awesome writeup. Keep em coming.
    R2R

  3. Loving the site, DM.

    Not sure if you’ve covered this before, but have you done any experimenting with P2P Lending, such as Lending Club? That would seem to fit into your “keep it simple” investing model, as lending money to individuals in return for interest charged is simple enough to understand, and Lending Club makes it exceedingly easy.

    Right now, I’m only experimenting with them, using the loans more as a “high-interest savings account” than as a true investment. So I am investing in the “safer” A and B rated loans, since I’m new to it, hoping to churn out a decent 5%-7% return with cash that would otherwise be sitting in a Capital One online savings account barely earning anything. It would also fit into your monthly cash flow model, as you are generating interest (plus principal returned to you) on a monthly basis.

  4. Nicola,

    You read that article fast! I just posted it. 🙂

    Glad you enjoyed the post. Investing in what you know could be said across asset classes, regardless of whether its individual stocks or funds. If I were to invest in a fund, then I’d surely want to investigate what it is, how it generates returns, what it holds, what it charges, and where my money will be coming from.

    Thanks for dropping by!

    Best regards.

  5. R2R,

    I once heard that buying rental properties is like buying yourself a job. Seems to make sense to me. I imagine it works great for some people, but it ain’t for me. And recognizing what works for you and what doesn’t is really a huge step toward personal financial success.

    Cheers!

  6. Michael,

    I’m not particularly enamored with the idea of P2P lending. First, it’s not a particularly established business model/asset class, as it hasn’t been around for all that long. So it’s hard to compare it to the 100+ years of history and returns for equities. Second, the risk is hard/impossible to fully determine and appreciate. Third, I’m not sure how much my income would be affected if we were to enter another recession. Fourth, taxes can be more complicated and this income isn’t as advantageous as qualified dividend income, from what I understand. Fifth, returns have been coming way down. I remember people talking about how they thought they’d have 12% to 18% returns over the long haul with these micro loans. That’s now a pipe dream. You’re competing with big money now, which makes it more difficult and time consuming to find suitable loans.

    That’s the long answer.

    The short answer would be, again, why complicate my life? If I can invest in solid blue-chip companies that have historically returned me all I’ll ever need and will very likely continue to do so, why lend money to strangers? May work for some, but I have no desire.

    Best regards.

  7. Jason,

    I agree with you on selecting your own investments. I think that if you are really serious about achieving FI, you need to be hands on in almost every aspect of your life. And I think you are with selection of SWANs, and ignoring things outside your circle of competence.

    I think a lot of investors who purchase funds don’t realize that “fund” is just a fancy word for “portfolio of companies selected by someone”. Even an index fund is a selection of companies, chosen for a reason (hopefully). However, a fund generates annual costs, which can be a lot over time ( and very noticeable if you have say $1M or more in your portfolio). I am a little unsure what to think when investors tell me I should put all my retirement money in one or two funds where someone else/a committee selected a few hundred/thousand companies, and not to worry about it after that. Just the fact that someone else can screw up and change strategies down the road scares me. If I screw up, I want to be the one solely responsible.

    If I am going to live off my assets in retirement ( be it rentals, stocks, bonds), I want to make damn sure that I have spent time understanding what I am getting myself into. After all, my goal is to live off my nest egg and have the flexibility to do what I want with life (within limits), and stay “FI-ed” (even if it means posting rants on blogs with all that free time :-)). I understand that I am the only one who really cares about my success, and the only one who will suffer if I fail outright.

    If I fail with funds, then conventional wisdom is that it’s fine “since everyone else failed”. That’s not an option for me – I want to be in a situation where I am fine in 99% of the cases, whether we have a recession, depression, bear market, bull market whatever ( now if some government nationalizes industry, then we are all in trouble, but you get the point). If I die with $10M rather than a range of $8M – $12M with an Index fund is irrelevant to me.

    Your example of P illustrates a point very well – this is a company that is risky. It is not suitable for someone who wants to live in retirement. It could either pay off handsomely, or it could fail and go to zero. Why would someone select it as part of their retirement planning? And I keep asking myself, why would anyone rely on capital gains exclusively, which are fickle at best and not on dividend income, which is sustainable under most situations? After all, a market can evaluate $KO equally at $20 to $60/share. Noone in the world can really time this price fluctuation so that they sell at 60 and buy back at 20. Hence, it makes more sense to focus on the $1.22/share coming to you in 4 payments spread out throughout the year.

    Anywho, good luck in your quest for FI. You have just 7 years left…

  8. What is the target of your income from dividends if I may ask? And if you don’t mind revealing the size of your portfolio, how much of it is in bonds and how much of it is in stocks?

  9. DGI,

    I hear you. I think low-cost index funds are a fine alternative for those that have no interest in any of this and are just looking for a way to achieve market returns minus fees. Really nothing wrong with that. However, it’s certainly not the only way to invest. And I would argue it’s also not the best way to invest. Really all depends on your goals, personality, risk tolerance, etc. But those who think index funds somehow magically achieve returns, ignoring the fact that a good chunk of even an S&P 500 index fund is in the same exact stocks we invest in, are blind.

    We’ll see how it goes. Either way, I’m documenting it all the way along, which is something few people have the gumption or foresight to do. 🙂

    Best wishes!

  10. I’ll try to answer to see how well I’ve been paying attention. The target of income from dividends is to cover living expenses. The size of the portfolio is about $185k. I think all of it is equity and none of it is in bonds.

  11. Andrew,

    My long-term goal for dividend income is $18,000/year. I think that’ll provide a level of income that’ll cover my entire lifestyle, or at least come pretty darn close. I’m on pace for that before 40, so there’s a margin of safety there.

    You can see my entire portfolio by clicking the associated tab at the top of the webpage. That lists all of my long-term investments.

    Take care!

  12. Andrew,

    Nice! 🙂

    Yes, I have zero bond exposure. Not intentional, but that’s just the way it is. That may change if rates become more advantageous. Or it may not. I wouldn’t mind 100% equities all the way through.

    Cheers.

  13. I can’t blame you for avoiding Real Estate, I just had a repair bill eat up my rent for the entire month. My shares of KO don’t stop paying dividends because one of their assembly lines needs repairs.

  14. Great article, that’s why I continue adding capital into Canadian banking stocks. I do not think the banks are going anywhere anytime soon. Furthermore, most of these banks have been paying dividend for decades and will continue paying dividend. Sleeping like a baby is a good thing. 🙂

  15. Being too open can have huge drawbacks…unless you are planning on capitalizing somehow on the publicity in the future. Although it you have inspired a lot of people I would never want to put my face on the internet and say I have $200,000…It is not safe for me, .. Plus, you never want to tell your boss that you are not going to stay there forever – it is bad for your earnings potential.

    I am actually really surprised that not one of the dogmatics has calculated how much better you would have been had you been an indexer.. I mean you have fill dates, tickers, buys and sells..

    I am not open about everything, because I think that many people just look at tickers and could blindly follow you. This is why I focus on sharing content that is timeless and will not be stale in 5 years. This involves strategy, etc.. The downside of sharing what you bought is that someone blindly follows you into it.. Which I think many do…

  16. Simplicity sure does reduce the stress level. Will PG continue to sell more razors and laundry detergent? Pretty sure they will. Will JNJ continue to sell Tylenol? I kind of have a headache right now so I’m an attentive customer.

    I do like options but don’t use it as a trading platform. I prefer to sell puts because it’s essentially setting a limit order and getting paid if the share price doesn’t get there. I only “trade” them when the share price makes a large move higher and can let me reap better rewards by closing it out early.

    I keep going back and forth on rental properties. For simplicity’s sake, they’re a much bigger headache than owning global blue-chip companies but the returns/cash flow can be better given that you get it right on the buy side. But getting diversified is much more difficult and requires a large amount of leverage. If I liquidated my current portfolio which is around $180k and invested that in real estate that’d be ~$720k worth of properties or 6 $120k properties, reasonable for my area. Assuming a 8% cash on cash return that’d about triple my current “passive cash flow but would I feel comfortable owning just 6 properties? Doubtful. Just a few bad things happening to a couple properties would be a serious issue. I still like the idea because maybe I’ll really enjoy being a landlord or there’s always the possibility of going the turnkey route. But DGI is definitely more simpler.

  17. Tawcan,

    If you know what you’ve got, have a great idea as to how they make money, and feel confident in the valuation, then cheaper equity is nothing more than an opportunity. Sounds like you’re sleeping very well at night. 🙂

    Best regards.

  18. Hi Jason!

    Great article! I’d also like my companies to be SWAN companies. I have recently bought JNJ and now I’m thinking UL or BAX. Which do you think offers better value? Also the upcoming Baxalta split is interesting. They still haven’t given any information about the dividend after the split so I don’t know if I should invest in it. Also there have been some doubts about the hemophilia drugs competitiveness so I’m a bit hesitant. Would like to hear your thoughts on BAX. Thanks in advance!

  19. DGI,

    “Being too open can have huge drawbacks…unless you are planning on capitalizing somehow on the publicity in the future.”

    I haven’t experienced any drawbacks at all, and I capitalized on being so open by appearing on Today, etc. Being open isn’t for everyone, but I haven’t had anything but a positive experience. I’m confident I wouldn’t be where I am today if I were being cryptic with everything.

    “I am actually really surprised that not one of the dogmatics has calculated how much better you would have been had you been an indexer.. I mean you have fill dates, tickers, buys and sells..”

    I’ve outperformed the S&P 500 index on an annualized basis since mid-2010 (when I first started). Not that that matters. But I couldn’t care less if someone wants to go back and take that kind of time out of their life to backtrack me. If anything, that just means that someone needs to build up some hobbies or something. Furthermore, the only way I know of to accurately check one’s total rate of return is to track cash inflows against a spreadsheet and use the XIRR function. Although, even then it’s difficult to compare yourself to a benchmark. You’d have to compare yourself to an alternative universe where you buy something else on those same exact days and times, etc. But I’ve already discussed ad nauseam that I don’t compare myself to benchmarks or any indexes, etc. So it’s a moot point and I’m shocked it continues to come up.

    “I am not open about everything, because I think that many people just look at tickers and could blindly follow you.”

    Ahh, but you post buys and what not as well. And you’ve emailed your entire portfolio out before. Someone could blindly follow you as well. But I don’t know why one would concern oneself over whether or not someone else follows what they do. Doesn’t make any difference to me and my situation. Sounds like you worry to much, bud!

    Best regards.

  20. JC,

    I think your comparison there is apt. You might generate more income via rental properties, but how passive would it be? And if you wouldn’t feel comfortable with triple the income at six properties, then how far ahead are you really? I think it’s apples and oranges. All depends on what works for you. Some have done incredibly well with rental properties. But I find my situation pretty optimal, so I seen no reason to crank the hassle factor way up. 🙂

    Thanks for dropping by!

    Best regards.

  21. Sampo,

    UL and BAX are very different companies with very different business models. Which one is better for you really depends on you and your portfolio. I think BAX offers more value, but JNJ is a higher-quality company, in my opinion. I see no reason why both sides of the legacy BAX can’t continue paying out a dividend that’s in aggregate on par with what’s being paid out now. It will probably work a lot like how ABT and ABBV worked out where you have two companies combining for a large payout. But BAX has a pretty good track record for shareholders. I see no reason why that’ll change all of the sudden. BAX’s FCF still covers the dividend, though that coverage for FY 2014 dropped in comparison to FY 2013. I suspect that’ll pick up over time as both units go their separate ways and Gambro is fully integrated. We’ll see.

    Best regards!

  22. Man Nail on the Head!! I have 4 duplexes and a house. I thought I was soo smart in my early 20’s. lol I still love real estate but man does it bite sometimes! I am so happy the light bulb clicked for the dividend lifestyle. I will need to generate quite a bit to retire early but I have a nice income and a stable career so I am going hard for 10-15 years and learning to invest in good strong companies. Also, you providing the ticker symbols works fine. Anyone with common sense will go and look up the stock to see where they are trading now. Also, your blog reads like a dream and “K.I.S.S everyone on the forehead. Thanks! Also, the other gentleman had it right. Take charge and build your own mutual fund! They are not going anywhere. I love being my personal fund manager!

  23. Thanks for your reply! I know that UL and BAX are very diffrent. Those are just a couple of ideas I’ve had that I’m possibly considering for my portfolio. I see UL as a little less risky right now.

  24. Sukina,

    Thanks for the kind words and support!

    Sounds like you’re doing really well over there. You’re certainly far ahead with four duplexes and a house at a young age. I was below broke at 28 years old. 🙂

    But that miniature real estate empire can funnel cash to your account, which you can use to further diversify your assets. That’s a great position to be in. Have fun!

    Best wishes.

  25. Sleeping well at night is a dream at my age. Not because of my investments, just a side effect of being a middle aged male. Long PG, PEP, JNJ, KMI, and UL.

  26. There are only two reasons I don’t sleep well at night. 1) Nights when I don’t use my CPAP machine. 2) The debt that I have. I think I have my investments set on autopilot (I just want to add more). It is those debts though that I want gone more than anything.

    Ultimately, there are many roads to Rome and if you can get to SWAN with stocks more power to you! That is why personal finance is truly personal!

  27. I lost about 800K in real estate before discovering dividend growth investing. I bought a rental house, and it was like a joke. Everything that could possibly break did. The toilet broke. Breakers fried in the electrical panel. A pipe in the kitchen broke and flooded the house. Water heater went out. Stove went out and needed to be replaced. A tree fell on the roof and had major damage. It was comical. By the end of the 6 years we owned it, I was ready to give it away. And I bought it at the height of the real estate bubble, so I wound up selling it at about 30% of what I paid. What a nightmare.

  28. DGI
    There are now lots of DGI bloggers and many others who write for SA that state what they are doing with their portfolios. I think you flatter yourself to think that people are going to follow you blindly. I personally enjoy Mantra and those bloggers who publish their buys and sells and more important their thought process. I agree with what Msntrs has to say about 80%-85% of the time. I wish I had listened to him on his purchase of NSC, and glad I didn’t on his sale of ABT and ABBVE.

  29. KeithX,

    I love my sleep. They say the best things in life are free, and sleep is one of those free things that is worth anything to me. I hope to always get a good 8-9 hours of sleep per night. Maybe once you’re a bit more free you’ll sleep a little better. 🙂

    Best wishes.

  30. jasondedwards,

    Debt would indeed keep me up as well. I got rid of a car loan early on in this journey and haven’t looked back. Other than some student loan debt with low rates, I’m debt free. I’m sure you’ll get there as well. Every dollar counts! 🙂

    Take care.

  31. dividenddad,

    Ouch. I’m terribly, terribly sorry to hear about that. Sounds like an absolute nightmare. I’m sure that’s not representative of the typical experience, but the fact that it’s even possible keeps me far away from real estate. At least you can say you tried it and you’ve moved on to greener pastures. I hope dividend growth investing is treating you a lot better. 🙂

    Thanks for sharing!

    Cheers.

  32. I love sleeping well at night! Ever since I really started embracing this lifestyle I continue to notice that there is weight being lifted off of my shoulders. I used to have 1 or 2 night of really bad sleep every couple of weeks and it was all finance related. I would wake up and think “What happens if my air conditioner broke?” or “What happens if I get real sick and have to do leave without pay? How long can I pay my bills before being bankrupt?”

    Getting married really helped with finances now that we have two incomes coming in with relatively the same bills as when I was single, but watching the dividends start to stack up month after month is amazing. We are getting closer and closer to having enough money to pay off all of our debts if we were to lose our jobs and that is a great feeling.

    We decided not to pay off the mortgage because the interest rate is low and we thought it would be better to get a jump start on investing. Once we get a nice base built up and if we have kids, we will start working to pay down the mortgage. Let the portfolio compound year after year while paying off the mortgage early, will lead to early retirement, or at least that’s what we’re aiming for.

    Keep doing what you do and I’ll keep reading.

    ADD

  33. Please don’t remind me of my folly ;-( I go back and forth about revealing everything I purchased.

    When you invest in stocks, you are given imperfect information, with which you need to make a decision – buy, sell or do nothing. You never know what the future holds, but you do know how to increase odd of a favorable outcome.

    In a lot of cases, when I give people cryptic information some get into detective mode. And I have some of the smartest readers in the world – I have had people who have found out who I am, and have also found out what my portfolio value is – all based on imperfect clues I have provided. These are the skills that have made them successful.

    Anywho, I am very happy that you can work online and write articles and make a living at it. But I would never see myself do that full time – if I had to depend on my living from writing, it would cease to be fun for me. Given my relative anonymity, I can go at it at my own pace around 2018..I can quit writing, or maybe I can double down? Who knows…

    Cheers!

    DGI

  34. ADD,

    I know exactly how you feel. I went through that same epiphany/transition early on as well. I remember going from being stressed out all the time to being slightly less stressed. Eventually, I started to feel pretty good. Then great. And I can tell you that it just gets better because the stress doesn’t really return when you no longer have stressful events/situations in your life. That lack of stress improves one’s quality of life dramatically.

    Appreciate all the support. Sounds like you’re on a great trajectory over there! 🙂

    Best regards.

  35. DGI,

    “I have had people who have found out who I am…”

    We live in a great age of technology, which makes it wonderfully easy to pursue this idea of financial independence. However, that comes with unfortunate side effects. A simple Google search will reveal your real name. Then one can figure out where you live and where you work. I did that in less than two minutes just now.

    But I think if one were to worry about things like people following you or knowing too much about you, you probably shouldn’t be blogging and sharing anything with the world. Just one of those things. Of course, why would anyone want to track you or me down when they can walk right up to Warren Buffett’s house? I guess I just think I’m a pretty insignificant speck in the investment world. 🙂

    Edit to add: I didn’t mean to insinuate you shouldn’t blog. I reread that and can see how it might have sounded that way. I love and enjoy your blog so I hope you keep at it. Rather, I was only mentioning that there’s an element of risk there when blogging or doing anything where you have some exposure to the public.

    Best regards.

  36. I’m a fan of side hustles and rental houses but I certainly see why it wouldn’t be convenient for most people.

  37. Jason thanks for replying! I was just talking to a co-worker about how we save for regular retirement but not deliberately! I am so happy J.Money decided to do dividend investing and linked to you! I clicked and my eyes were opened! You inspire me to be VERY deliberate and to look at strong companies. Also, I played the options game and purchasing on margin and I couldn’t sleep at night! I lost money and just said forget it… that was 2 years ago and I have matured and plan to use my income property income to create another income stream. I am going to think of it like I do my employed sponsored retirement. Look for the strong global blue chips and diversify my portfolio. I started research today and a lot of the stocks are in your portfolio too!

  38. DM. I recently started following you. Your examples of simple, freedom living give me hope. I’m currently trying to decide where to start investing outside of traditional 401k and IRA’s. I’m currently maxing my 401K do to my match and age (40). Can I ask which site you buy with?
    Thanks.

  39. Sukina,

    I’m so glad your eyes were opened! 🙂

    This style of investing is very intuitive and very tangible. You’re actually receiving regular cash flow, so that’ll be familiar to you as a real estate investor. And the compounding effect of both reinvested dividends and dividend raises is really powerful. You’ll be picking up speed before you know it.

    Best regards.

  40. Hopingtoretireat50,

    Thanks for following along. Really appreciate the readership! 🙂

    I personally use Scottrade. I find the fees reasonable at $7 per transaction. The platform is fairly robust. The customer service is excellent. And I also like the fact that I can head five miles down the road and actually walk into an office and talk to someone if I absolutely had to. There are a lot of brokerages out there, and cheaper options as well. But I personally think Scottrade really offers a sweet spot in terms of costs, benefits, and service.

    If you want to try them out, you can support the site at the same time by using my affiliate link. It won’t cost you anything extra, but it’ll send me a small commission:

    http://track.flexlinks.com/a.ashx?foid=1051506.956111&fot=9999&foc=2

    Alternatively, you could contact me privately and I could give you a referral code. That’ll allow us both three free trades upon you opening an account.

    But definitely research the options out there. If you find one that works better for you, then go that route.

    Cheers!

  41. Hey Mr. Mantra.
    Great post. You always make it simple in Layman Terms for us to easily understand. I speak for all of us and say Thank you.
    See how much Love you get bud. That’s from being Real. You’re doing what you love and we appreciate it. It’s the law of attraction.
    Keep Hustling hard my friend.

  42. DM,

    I love receiving dividends regularly in my accounts. I agree with keeping it simple for the most part as much as possible.

    Not to say options cannot help you make quick money to pay for certain expenses or some quick cash. I think I recall reading in Getting Back To Even possibly about how Jim Cramer used options to help pay through Harvard Law. Of course the tax man will get you though.

    I can only diversify funds in my work retirement account. Add stocks to the Roth and just signed up to regularly accumulate more Disney stock. Only too bad couldn’t get more shares at $22-$37 anymore. 🙂

    SWAN is my first choice as well. So SWAN it is!

  43. DH,

    Thanks so much. I do love this. I love this lifestyle and I certainly enjoy sharing it and inspiring others in the process. I’m blessed. 🙂

    Sorry again about that ESV dividend cut. You’ll be just fine, though!

    Let’s keep hustling.

    Best wishes.

  44. SWAN,

    You must know all about sleeping well at night with the acronym there. 🙂

    Wish I would have been able to buy more DIS back in December as well. A lot of people were questioning the valuation, but it’s since popped quite a bit. I still think it’s a solid long-term buy, however.

    Thanks for dropping by!

    Take care.

  45. Hi DM

    If I have to be completely honest, i like the 2nd part much better than the 1st.

    I just feel like some value can be found in companies that have a complex business model. It does not necessarily mean that anyone and everyone has to understand the business model but rather one has the capability to try study, research and understand the business model.

    SWAN is definitely a concept I go much along. One has to go with the belief that investment is risky but sound knowing that every decision to invest is justified with the right reason. Leverage may make an inverse correlation with SWAN, so I definitely avoid that, either because one can become too excited or too depressed.

    Good provoking post.

  46. DM, I just love your blog.

    You write things simple and clear. I’m learning a lot from you.

    I just want to add one thing – each one of us has a knowledge in the industry he works today.
    For example, I’m working for an Data Security company – so I have a view of where the computer world would go in 5-10 years from today. If someone works in the Energy sector, he would have a better view than me of where this sector would be in the future.

    With the transition to a virtually powered world – new apps for phones, new technology to broadcast TV, more people get connected to the internet every year – I believe the demand for memory chips + storage would increase drastically. I don’t really have a company I’ve looked into yet, but i’m planning on. You analyze companies probably better than me (I’m a novice investor), I would be glad to get your comment on this.

    Great work, as always!

  47. I’ll jump in on the P2P or “Market Place Lending”.

    I’ve been investing in Lending Club for about 2 1/2 years now and I have enjoyed “reasonable” success. My adjusted ROI averages right around 9.7%. This is in a taxable account and I have purchased all grades of notes from A through G.

    What I do not like is the fact that your interest is taxed at your normal tax rates and depending on your situation, those taxes can actually lower your ROI quite a bit. In my case and tax situation, this brings my ROI down to a little under 6%. A little low for me on the risk-reward factor.

    With Lending Club lowering their interest rates and showing increased charge off rates, I’m not totally sure this is a place to be long term. If we go through another recession, these charge offs will amplify.

    Something to think about, even with higher grade A and B notes. As an example, I have had a couple of A1 notes go bad. In once case, the borrower borrowed $35k, made one payment, and filed chapter 7. My point is there is no “safe” note.

    Michael, what I might suggest is doing a Roth IRA with Lending Club if you plan to be there for a long time.

    I actually sold down most of my portfolio (good notes bring a premium), and have done a backdoor Roth. By doing this, the tax headaches are eliminated and your account grows tax free. Note, in order to avoid the high $100 per year fee on the Roth, you need to start with $5k in, and you will need another $5k in during the second year the Roth has been open. This will keep the fee’s away from you. My Roth account currently is valued a little over $15,000, and I buy A through C notes and only 36 month notes. Also, I only invest $25 per note.

    I’m not trying to discourage you from what you are doing here, I think Lending Club and Prosper have their places in today’s investment opportunities. I’m just trying to give you some different perspectives. I wish you great luck with your account!

    Jason – sorry to hijack!

    Ray

  48. It’s a good thing Coca-Cola isn’t calling you about broken toilets because a company of that size definitely has A LOT of them 🙂 Great breakdown of why your portfolio works for you. People have different risk tolerances and desires to “get their hands dirty,” and therefore people need to find what works best for them.

  49. Thanks for making my point that my readers are smart with your example.

    I like your site too. You bring a fresh perspective to something very important to people. But each one of us has to do what’s right for them, in their own situation 😉

    I have no issue with people finding out who I am. Back when I first started I had name, picture etc. I was looking for employemnt several years ago, and I was striking out. The minute I removed my name and picture, I started getting more positive responses and invites to explore oppotrunities. In my field, blogging is not viewed as a positive in my opinion. I guess when you worked at the dealership, noone had an issue with it. But in many josb, your boss will have an issue.

    The interesting part to being open is that some of the sites like Get Rich Slowly and Consumerism Commentary got very big in 2008 – 2009. This is when they were advised to not disclose so much online. I wonder why they did it?

    I am not saying this to be mean/rude to you. But as you saw with your family example a few months ago, not everyone will be happy for you.

    I do hope all the best for you. But I really hope you are covering downside risks and you have an LLC, insurance etc.

  50. B,

    Well, I wasn’t saying that value or great returns can’t be found in complex business models. Rather, if you have no idea what you’re investing in, you’re setting yourself up for all kinds of problems. If you don’t know how a company makes money or how it’s going to generate dividend income for you for years to come, then how is one supposed to react when the fundamentals change or if the stock drops dramatically? It’s really all about being comfortable with what you’re doing, which relates to sleeping well at night. And like I mentioned, I sleep like a baby. 🙂

    Have a great weekend!

    Cheers.

  51. DN,

    Thanks so much. Appreciate the kind words. 🙂

    You make a great point there. I remember Peter Lynch mentioned something along those lines – using your knowledge to your advantage. So working in the field you work in gives you some insight that others probably lack. So that’s definitely something that allows your circle of competence to expand in a direction that others won’t be able to match.

    I worked in the auto industry for quite a while. And that’s exactly why I don’t invest in the industry. There’s so much spending going on. Every few years a new model is designed and built, which requires new tools, potentially even new factories, new marketing, new customer and worker education. It’s an extremely competitive industry with a ton of upfront spending. Now, some automotive stocks have performed really well over the last five years or so coming off of lows from the financial crisis and all that. But long term, I just don’t see myself investing there.

    Use your intimate knowledge to your advantage! 🙂

    Best wishes.

  52. Sensim,

    Simplicity is beautiful. Banks are indeed complicated in some ways. But if you look at a number of really successful banks, a good chunk of their revenue/earnings comes from traditional banking practices that have been around for a century or so. The more complicated, the less likely I’m going to be interested.

    Thanks for sharing!

    Take care.

  53. FF,

    Yeah, Coca-Cola knows better. I couldn’t fix a toilet if you gave me a garage full of tools and a week to do it. 🙂

    We all have to figure out what works for us. Trying to make money in a manner that is ill-suited for you, however, is generally a bad idea, even if it could potentially offer superior returns. People seem to chase money too often, rather than chasing peace of mind and happiness. I’ve often chased the latter, which is why I’m at where I’m at.

    Thanks for dropping by!

    Cheers.

  54. DGI,

    “I am not saying this to be mean/rude to you. But as you saw with your family example a few months ago, not everyone will be happy for you.”

    That example has nothing to do with my blogging activities. I would have been/was open with my family, regardless of how open I was with the website. And that resentment came about in response to my overall lifestyle – I live what I write about. My family doesn’t read my blog at all, so being open or not open here has nothing to do with that situation. Moving back to Michigan and working on a computer all day long (isn’t he lucky!) was all they saw, and I was obviously open about my financial success in hopes of coaxing others into improving their own situations. But I could have been blogging about comic books here and they wouldn’t have known the difference.

    So in the context of being open in the blogging world, that has nothing to do with what I experienced. Being open here has actually been fantastic with no drawbacks whatsoever (as I already mentioned). It was being open in my private life that led to issues.

    Edit to add: This is getting amazingly off topic. Nobody is trying to convince you of being more open. We all must do what makes us happy and comfortable, but I would appreciate examples being used in the proper context. If you want to continue the discussion, you’re more than welcome to contact me privately.

    Cheers!

  55. I think the full disclosure is what makes DM a better and more tangible site than the rest.

    First it is pretty brave to put out there for the world, your financial moves because you expose yourself to criticism and failure, so I commend you on that.

    Second, as a reader not that this happens on this site but I know exactly the conflicts of interest what the author may have when you can clearly see where his money is.

    And it really just seems to separate this info from the world of CFP and money managers who give advice and never disclose any stocks they are in. Besides they say imitation is the most sincere form of flattery out there.

    But in your original article with the rentals being headaches, they are about as hands-on as you want to make them. I have some near by me in the city I live in and self manage and I have many out of state that are completely managed by Property Management, all you get is mail box money every month. Not saying real estate is for everyone but much like you have delved into the stock world and become educated with reading financial documents and determining a great place to park your money, you could easily apply the same determination to RE it is an industry build around fundamentals and you need to invest with the same discipline. I wouldn’t rule it out on the road to financial independence.

  56. Nickfitz,

    Thanks for the support! Much appreciated. I agree that it’s brave to put yourself out there. Not many have the courage to do it. It doesn’t necessarily make me any better than anyone else, but I think it’s a required step to show what this journey looks like completely from start to finish. Generalities just don’t get the job done. I have no plans on changing anything here, even with the criticism I frequently get. 🙂

    As far as rental properties go, I’ve written them off for me personally. They just don’t fit my personality at all. I have no desire to spend time looking at properties, getting loans, dealing with tenants or a management company, etc. But that’s not to say they can’t work for others. As I wrote in the post, you have to do what works for you. And for some, real estate works out fantastically.

    But I’m not quite sure management companies are a panacea to the problems of rental real estate or somehow make it completely passive. I rent a condo from a private owner who lives in Canada. We’ve been through two management companies now because they couldn’t get things done and we had to keep contacting the owner directly. And even when they would handle things, they were contacting the owner anyway (the blinds are broken, repair or replace?) Now, they manage it themselves, saving themselves some serious coin in the process. Just an anecdote, but I’ve also read a lot of other cases where management companies were somehow incompetent or weren’t getting things done in a proper/efficient manner. As always, YMMV.

    Best wishes!

  57. JC –

    Congrats on building a nice dividend producing nest egg there, impressive! Just to chime in on the rentals, you would never get into a deal that produced a financed 8% Cash on cash return, that would mean you have to buy an asset with a CAP rate of 1.6 (not even SF or NYC are this low). Your cash on cash in the RE world is commonly over 20% especially in the last 6 years with the cost of capital being so cheap. The 8% return your speaking of would be a common capitalization rate, and that is the return you can expect year one from a property is you purchase all cash, it take gross rent and deducts all tax/maitenance/repairs/vacancy/HOA/any operation expense etc.. and your left with your NOI or net income. This figure would be 8% of your purchase price in an 8 CAP. Now if you leveraged that at 25% down your would have 4 times the return minus the cost of capital, and at low interest rates you see how that can produce better returns.

  58. Dear DM, I know your name is Dividend Mantra, but I follow you for your story, for bootstrapping yourself from nothing to $200,000 invested and working for you. It’s a wonderful story, and congratulations.

    Me – all I have is Vanguard index funds. I actually think they return like 2.0 percent per year, so it’s like one giant dividend stock to me, allowing me to SWAN! The thing is, you never know when a stock is going to turn to crap like ARCP did. MCD (although having a good run back up in the past week) seems like potentially on a long term trend down. And soft drink sales are declining precipitously in the last few years, so Coke and Pepsi are scrambling to diversify. So I prefer just to buy them all, thru good old VTSAX (total stock market index). On a million dollar portfolio, the .05% management fee is just $50/year, probably much less than the commissions you pay monthly to make your adds to your portfolio. You own Pandora on the way up, and on the way down, as investors sell that stock, they put it to work in one of the other (all stocks) that I own. It works great! I send $1,250 each 2 week payday to Vanguard, on auto invest. Cost to invest it? Zero. It just happens. I sleep well at night.

    Congratulations on your engagement and for doing so well, DM!

  59. Kenneth,

    Thanks for the kind words!

    Owning VTSAX isn’t owning one big stock, as you know. Rather, you own thousands of stocks. So you own a portfolio like me, but rather it’s much larger in terms of the number of positions and much smaller in the weights. It’s more diverse and spread out. You’ll also collect much less income from it, likely requiring you to sell chunks of your ownership stakes here and there. But it sounds like that’s what works best for you in order to sleep well at night. That’s really all that matters. 🙂

    As far as fees go, that’s about as low as they get. Though, .05% of $1 million is actually $500 per year, my friend. And that $500 is actually more than I pay every year, let alone every month. Furthermore, I won’t be paying many (if any) fees once I’m living off of my dividend income. So that $500 I’ll be saving every year will compound for three or four decades. But I’ve discussed this ad nauseam already.

    Thanks for stopping by. Enjoy your well-earned sleep!

    Best wishes.

  60. Jason,

    Thank you so much for this awesome part 2 post! I just wanted to chime in that I recently helped my father open a scottrade account and was disappointed that they no longer offer any options for dividend reinvestment. I tried calling them and they said they’re rolling out a new form of dividend reinvestment “soon” but the representative had no estimated time frame. I know that you don’t reinvest your dividends with a DRIP or FRIP program, but I thought it might be worth knowing for Hopingtoretireat50. My father has a ROTH IRA with limited contribution capabilities so a DRIP is a must and unfortunately I had to transfer to a new brokerage. (I’m not trying to take away from you affiliate link, so forgive me for the comment!) Hoping you both have a great weekend 🙂

  61. Jason,

    To each their own on ETF vs. individual stocks, but I read your response on this over a year ago and thanks to you, I won’t go back to ETFs. I’m now at 43 stocks and I get free trades, so it didn’t cost me a single penny and won’t in the future. Thanks for your sound advice on this subject, you made me see the light.
    Jim

  62. Jim,

    Glad you’ve seen the light and you’re pursuing a plan that works for you. In the end, there’s a lot of different ways to make money in life. I just happen to find the way I’m doing it as the most appealing of all the options. If I thought there were a better way for me, I’d already be doing it.

    It sounds like you went through the same process and checked off the other options. I anticipate we’ll both continue enjoying our dividend income for decades to come. 🙂

    Thanks for dropping by!

    Best wishes.

  63. Ryan,

    Thanks for sharing that!

    Yeah, it’s unfortunate they took away the FRIP. I thought that was a great service that differentiated them from other brokerages while also doing their clients a huge favor. Not sure if/when they’ll bring it back or what they’ll do as far as reinvestment options. I know you can be grandfathered into it if you signed up previously, but that’s pretty much it.

    Though, anyone hoping to retire early (50 or otherwise) will likely be contributing enough fresh capital to where selective dividend reinvestment will probably serve them better anyhow. But it sounds like your father isn’t in that kind of situation over there, in which case he’s better off with something more automated and regular. I hope the other option(s) work out well for him. 🙂

    Best regards.

  64. Jason,

    Loving the SWAN acronym and keeps it simple, yet again. I find it funny that people invest into companies where you can’t explain not only their business, but if they can/will ever generate profits. I’m not sure what puzzles me more – individuals who chase the latest discussion/hot topic or the individual who buys the latest fad such as pandora for example.

    What’s funny is I work with a few different people that have different philosophies when it comes to this. I tend to listen more now than to show how I like to do things, simply because our styles just do not mesh and think my way is boring and not exciting… haha – I have a co worker who has lost probably a little bit, it generates no dividend and has held this investment for a few years. I almost think his cash was better to be, well – sitting in that.

    Nice article and looks like you may have a “keep it simple” series going. Thanks DM, talk soon.

    -Lanny

  65. Lanny,

    I’m doing my best to spread the word that simple is oftentimes best. Making money just isn’t that complicated. It’s largely the same as it was 50 years ago, except nowadays it’s even easier. We just need to get out of the way and let our money go to work. 🙂

    Appreciate all the support. You’re spreading the message as well. Keep at it, bud.

    Best wishes!

  66. I’d also like to jump in.

    As for it being a new and untested asset class, well that’s not ENTIRELY true. This is actually a time-tested way of making money……….for banks.

    After all, these loans are simply the same unsecured fixed rate personal loans that you would find being offered by any bank, except that rather than the bank loaning money to these people and making money off the interest, it’s YOU doing so. And that’s really the only noticeable difference. All the same concepts, rules, and consequences apply to the person applying for a loan at Prosper as it does to the person applying for a loan at Chase. So has P2P Lending been stress tested? Well, in a way, it’s been stress tested since there was a private American banking system. And if these loans have been proven safe and profitable enough for the banks, then certainly these same loans are safe and profitable enough for us.

    Not only that, but it’s not like you are just lending your money on a leap of faith. Underwriting policies aside, there are free online tools (such as nickelsteamroller.com) that allow you to plug in a VAST array of data and filter actual results and returns of loans going back years. While we know that “past performance is not a guarantee of future results”, we can go back and see the results of P2P Lending from before 2008 through the Great Recession and the so-called recovery (not getting into a debate on that here). You can filter everything from loan grades to the geography of the loan to credit scores to income to the reason for the loan, etc. And I will say that if you take the time to filter, even putting your money towards the lower grade, higher risk/return loans have produced very respectable returns even factoring in charge offs and harsh economic times. It’s no different than researching stocks before you buy. And like researching businesses, you can do all this before ever even opening an account with these P2P companies.

    Now, that said, there are risks involved. Naturally, of course, as you are a lender. And “diversified” in P2P lending means something different than in dividend growth investing. Personally, I wouldn’t put a particularly large sum of money towards P2P lending; a fraction of a fraction. Build up a portfolio of dividend growth stocks long before touching P2P lending. That’s my advice and that’s what I did and it’s certainly working for me.

    P2P lending isn’t necessary for financial freedom. But it can definitely help. While I won’t say something stupid like “it’s just as safe as dividend investing” since, no matter what, all your money is in consumer loans rather than a diverse array of businesses, it’s still a lot safer than most types of “investing” (stock day trading or investing in Silicon Valley start ups). I think it’s less risky than being a traditional business owner, and it’s probably less risky than junk bonds (and even US Savings Bonds when you consider the effects of inflation). It’s a smaller-than-you-think twist on something that’s been around a long time: The traditional bank loan. And it’s a way to earn money the same way the banks do without using them as a proxy. I’m all for owning bank stocks (I own Wells Fargo, New York Community Bank, and US Bancorp, and am planning to buy TD and M&T Bank as well), but sometimes you just want to cut the middleman out and earn money the same way they do (well, the banks also charge fees, but this blog does a very quick mention on little a bank’s fee income is in relation to their costs: http://www.angryretailbanker.com/2014/12/27/the-nonsense-of-fee-refunds/). I think P2P lending is a very simple, safe, and passive way to do so as long as you don’t put too much money in it.

    Well that went on longer than I planned.

  67. Joey,

    Good points there in regards to the comparisons between banking and P2P lending. Though, I’m not sure if an individual sitting at his/her computer can quantify risk quite the same as a bank. And can an individual handle losses as well as a bank? Depends on their capitalization. Again, I don’t see the need to dabble when I can reasonably expect 10% returns over the long haul from stocks.

    “Now, that said, there are risks involved. Naturally, of course, as you are a lender. And “diversified” in P2P lending means something different than in dividend growth investing. Personally, I wouldn’t put a particularly large sum of money towards P2P lending; a fraction of a fraction. Build up a portfolio of dividend growth stocks long before touching P2P lending. That’s my advice and that’s what I did and it’s certainly working for me.”

    I’ve heard this a few times now from other investors – go ahead an invest, but keep is small, especially in relation to other asset classes. I guess if one doesn’t feel comfortable with a large chunk of their net worth with something, then how good is it really? If it’s subpar, more risky, or the risk/reward doesn’t seem particularly advantageous, then why divert funds there? I guess I just don’t see it.

    Best regards!

  68. carl,

    There’s always a “new normal”. There’s always a “this time is different”. I see no reason why any of that’s true. Great businesses have prospered for a long time and nothing I can see makes me believe they won’t prosper for the foreseeable future.

    Most of what you hear, see, and read is noise. Even this blog is noise. Do what makes sense to you. That’s keeping it simple.

    Best regards.

  69. “”The unconventional, but inescapable, conclusion to be drawn from the past fifty years is that it has been far safer to invest in a diversified collection of American businesses than to invest in securities,” Buffett explains.”

    http://www.usatoday.com/story/money/business/2015/02/28/warren-buffett-berkshire-hathaway-letter-to-shareholders/24173407/

    I found this to be interesting since he has such a big stock portfolio. Or, does he mean bonds (and not stocks) when he talks about securities?

  70. blahblah903,

    Always go straight to the source:

    “There is an important message for investors in that disparate performance between stocks and dollars.
    Think back to our 2011 annual report, in which we defined investing as “the transfer to others of purchasing power
    now with the reasoned expectation of receiving more purchasing power – after taxes have been paid on nominal
    gains – in the future.”

    The unconventional, but inescapable, conclusion to be drawn from the past fifty years is that it has been far
    safer to invest in a diversified collection of American businesses than to invest in securities – Treasuries, for
    example – whose values have been tied to American currency. That was also true in the preceding half-century, a
    period including the Great Depression and two world wars. Investors should heed this history. To one degree or
    another it is almost certain to be repeated during the next century.

    Stock prices will always be far more volatile than cash-equivalent holdings. Over the long term, however,
    currency-denominated instruments are riskier investments – far riskier investments – than widely-diversified stock
    portfolios that are bought over time and that are owned in a manner invoking only token fees and commissions. That
    lesson has not customarily been taught in business schools, where volatility is almost universally used as a proxy for
    risk. Though this pedagogic assumption makes for easy teaching, it is dead wrong: Volatility is far from
    synonymous with risk. Popular formulas that equate the two terms lead students, investors and CEOs astray.

    It is true, of course, that owning equities for a day or a week or a year is far riskier (in both nominal and
    purchasing-power terms) than leaving funds in cash-equivalents. That is relevant to certain investors – say,
    investment banks – whose viability can be threatened by declines in asset prices and which might be forced to sell
    securities during depressed markets. Additionally, any party that might have meaningful near-term needs for funds
    should keep appropriate sums in Treasuries or insured bank deposits.

    For the great majority of investors, however, who can – and should – invest with a multi-decade horizon,
    quotational declines are unimportant. Their focus should remain fixed on attaining significant gains in purchasing
    power over their investing lifetime. For them, a diversified equity portfolio, bought over time, will prove far less
    risky than dollar-based securities.”

    I lost some of the formatting and italics there. For the passage in the letter, it can be found on page 18:

    http://www.berkshirehathaway.com/letters/2014ltr.pdf

    Stocks and businesses are synonymous with one another. What he’s saying here is the same as he’s been saying for decades now.

    I plan to discuss the letter a bit more in-depth over the coming days. However, I always recommend to go straight to a source rather than relying on mainstream media to decipher it for you.

    Cheers!

  71. I hear what you’re saying. FWIW I wasn’t really digging specifically for anything that Buffet said. It was a random link on Google Finance I clicked (as I click many per day) and thought it was interesting.

  72. Keeping things simple is the way to go. Our dividend portfolio is mostly in blue chip stocks. I have a few positions that are a bit speculative. I really should get rid of them soon. Rental properties are a lot more trouble than stocks. 🙂

  73. Joe,

    You would have a great idea of the differences seeing as how you have fairly significant investments in both asset classes. Glad to hear I’m not totally crazy in regards to the work/trouble that’s involved in rental properties. I understand they can be much more lucrative, but one really has to decide for themselves if they’re up for it. 🙂

    Thanks for stopping by!

    Best wishes.

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