Thursday, October 22, 2015

What are my goals?

I have rewritten my Goal page and have added more information on my goals:


My goal is to reach a $1,000,000 dollars in assets less debts by my early 30's which should generate for me around $3000 a month in passive monthly income. My philosophy is passive income growth. Income generating assets with strong histories of growth are my choice of investment.

Short bio:
My investing began in late 2013 when I started at ground 0. I fortunately did not have student debt since I only chose to attend the public schools that gave me a scholarship. I did not receive any inheritance and everything posted on this blog have been procured using my two hands. I also do not envision receiving financial assistance in the future, so I need to acquire my own capital if I want to be financially independent.

I am not a high flying banker, business owner, or corporate manager. I am not from a wealthy family. I do hold a technical degree that can be attained rather affordably at a public university by someone who enjoys technical subjects and is willing to spend time studying. I am an engineer and like to look at the facts on a table and form an optimal solution. I am incredibly grateful that I can live in the United States. I feel that there are a lot of wealth opportunities available in this country if one picks the right vocation, works hard, studies one's vocation well, and reduces the desire to procrastinate. Procrastinating on one's plans or procrastinating on available opportunities will greatly hurt one's wealth, and procrastinating has always led to bad results for me. That is why I tried to graduate as soon as possible and get in motion my financial plan in my early 20's.

My investing philosophy:
I am nearly all invested. I hold some cash for emergencies but since I still live like a college student, I do not need a large emergency fund as the average person or family. I hold no CD or bonds since I don't believe in income generating assets that do not grow their income over time. All my investments are tied in U.S. equities because I live in the U.S. and plan on receiving and spending money in Dollars. Some of the equities I hold are multinational or international (but stationed in the US) so I am still vulnerable to currency fluctuations. I believe these currency changes are temporary and my investing horizon is in the decades which should average out currency fluctuations.

My favored approach is with income generating assets with dividend growth stocks. Dividend growth stocks are different than other income assets like CDs and bonds in that they have what I like to call a multi-compounding effect.
Compounding Effect #1. Dividend reinvestment: Cash dividends received can be reinvested into the companies that paid them, increasing one's share count year after year, which increases the dividends one receives year after year.
Compounding Effect #2. Dividend increases: Cash dividends from dividend growth stocks increase year after year, increasing even further the cash one receives every year. Note that this stacks on top of the increasing number of shares from reinvested dividends; so if the yield is 3% and the company raises its dividend by 9% that year, the income grows by around 12% if one reinvests the dividend.
Compounding Effect #3. Share price growth: Companies that raise their dividends  year after year usually do so because they have increased earnings or cash flow. This results in higher share prices, which increases one's portfolio value. So in addition to accumulating ever increasing number of shares year after year from dividend reinvestment and dividend increases, one also sees each of those shares increase in price year after year.

The rate at which the dividends can grow will likely exceed rental income and other forms of income investment. Stocks in the long term have historically been the highest rate of return but with a higher risk. This risk can be severely diminished by one's desire to research and learn. Doing the lazyman way and buying an index fund is not my way to invest since an index contains all the good apples and bad apples. That is why the S&P500 index dropped by 60-65% in the financial crisis, but a portfolio of dividend champions will only fall in the 30-40% region (while increasing their dividends for that year). A basket of consumer staples in the dividend champion category will likely only see falls in the 30% region (again, while increasing their dividends for that year). Although past results cannot predict future results, I am going to place my bets that the US will still be a reasonable place to invest and live in the future. Otherwise my financial plans are ruined :)

I view my stocks as employees, each generating increasing revenue every year. Price fluctuations in the stock are not of my concern as long as the business can successfully pay increasing dividends. If they are not cut for the job, the stock will be fired from my portfolio. My main objective is income acquisition and not market timing. My time horizon is so far out that buying at a 52-week high today will likely not make a difference decades down the road. I am a believer in dollar cost averaging: I will buy shares at the lowest lows and shares at the highest highs and in the long term everything will average out.

A large chunk of my investments come from dividend champions with over 25 years of dividend increases. This demonstrates that the business is strong enough to increase their payouts even during many different recessionary periods. My ideal requirements are listed below for my core positions.

Core Positions
•  Financial Strength. Quality is stressed with very high priority. BBB+ credit rating minimum.
•  Dividend Yield + Dividend Growth Rate over 12% (8% for utilities)
•  25+ years of dividend growth
•  Appropriate value (I use various metrics such as P/E, P/S, P/FCF, etc...)
•  Low debt
•  Low payout ratio compared with history
•  No banks
•  Prefer US equities over International
•  Consistent and steadily increasing earnings are preferred

Selling of Positions
•  Decrease or removal of dividends
•  Deteriorating business fundamentals
•  Fraud or scandal

My view on housing:
I would like to own my house one day. I view a house that one lives in as a liability since there are a lot of expenses involved. I want to own a home one day for the sake of owning my own home. It is after all the American dream to eventually have your own place. Once acquiring $1,000,000 in assets, I will strongly consider taking some of the cash out for a down payment, or start building a sizable down payment utilizing the money received from my primary vocation and my dividend checks. When the house is finally purchased with a mortgage, my monthly positive cashflow from dividends and primary vocation will be able to sustain all payments easily. Even if I were unfortunate enough to lose my job, I will still be able to pay off the monthly payments and living expenses using my monthly dividend checks. This ability to cover my monthly living expense with dividends will be a big turning point in my life, since I will no longer have to worry about unemployment. At that point in time, I will consider myself financially independent and give myself a pat on the back :)

In terms of rental property investment, I may consider that form of "passive" income in the future when I have more capital. I quote the word "passive" because rental properties are not truly passive even with a property manager. Rentals will require more work on my part and I am not sure how much spare time I will have in the future if I were to continue working. Rental properties also require a larger capital starting base since purchasing properties is a capitally intensive task. I prefer dividend stocks because they are truly passive aside from the followup research to keep up to date on the company news, which I think is easier for me than dealing with tenants and maintenance calls.

Favorite Books
For those new to dividend growth investing and want to learn more, I highly recommend these two books as starters. The SeekingAlpha website can also provide insightful commentary.

•  The Single Best Investment - Miller
•  The Ultimate Dividend Playbook - Peters

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