Dividend based investing – Go slow to go farther

Summary

Generate monthly cash flow using dividends

Diversify portfolio to be equally exposed in different sectors

Gradual monthly investing to average out the buy price

Hold long to avoid short term gain taxes

I have been investing for more than 12 years now and have tried everything from Equity stocks, ETFs, Futures, Options and Mutual funds. I even tried day trading from 2 years to get make quick money but in reality these things can’t make you super rich because they have high risk involved and even if you make money lot of it goes in taxes only.

After trying everything, I have now moved into investing in bonds and stocks that have good dividend yield and keep them for longer term to get the growth benefits also. Idea is to use this vehicle to create an asset and then generate at-least $1000 per month in dividends. Initially it seemed difficult to achieve this goal with not much cash in hand but consistent investing for couple of years can definitely make this possible. I believe everyone should do this in their first 10-20 years of their professional  career so that by mid 40s person has enough cash flow and good value stocks in portfolio. After reading this, you might be wondering if it’s so simple why doesn’t everybody do that and be in a good financial position in 10-20 years of their career and yet there are people who have to fill even in old age. I can think of following reasons why people don’t do this –

  1. Investors generally entering into market consider this as a quick rich scheme and never stay for long.
  2. Investors get influenced by the experts, media, news and exit the market in panic.
  3. Investors don’t have that long a vision to keep investing and reap the benefits later.
  4. Consistency and Patience is the key and ball gets dropped in between.



Dividend based portfolio

In my new dividend based investing, I picked up below 6 ETFs that have good dividend yield and started investing 5 stocks monthly for all these 6 ETFs. These might not be the best ones to choose in terms of dividend yield but these are selected to keep growth in mind and just based on little research. In this type of investing consistency is the key. If person is consistent and putting this much money every month without getting influenced by the market factors, he is going to make money in long run and have good monthly cash flow. You can play around with other securities too or keep rebalancing between different securities.

S.No ETF Name Annual Dividend/Yield Monthly Stocks Monthly Est Investment Annual holdings
1 BND (Vanguard Total Bond Market) $2.18/2.66% 5 $410 60
2 EMB (ISHARES JP MORGAN EMG BON) $5.67/4.89% 5 $580 60
3 SPY (SPDR S&P 500 ETF) $4.78/1.89% 5 $1250 60
4 VGT (Vanguard Information ETF) $1.62/1.06% 5 $775 60
5 VYM (Vanguard High DVD yield) $2.42/2.97% 5 $410 60
6 XSLV (S&P 600 Low Volatility) $1.08/2.33% 5 $235 60
Total $3660



Total first year estimated dividend – $590

Total second year estimated dividend – $1590

Total third year estimated dividend – $2590

Total forth year estimated dividend – $3590

You can see the actual calculations in following screenshots –

 

You can see with each passing year, $1000 dividend is getting increased on annual basis and consistency is the key. After 10 years it will result into $9590 per year and after 15 years it will be $14590 and the increase in portfolio value will be additional thing and it might be leaps and bounds based on the historical charts.

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