Fund Trader Pro, LLC
Chief Investment Officer
William 'Bill' DeShurko started in the investment industry in 1987, learning early the financial perils of bear markets during Black Monday (October 1987) when the DOW dropped more than 20% in a single day. That lesson has guided Bill's investment strategy ever since. During the "Tech Wreck"in 2000 - 2001, frustrated by the losses in typical "buy and hold/diversified" portfolios, Bill created the computer based algorithm used today at www.FundTraderPro.com. The strategy behind the algorithm was tested using data from 1972 - 2005 by Professors Samuel L. Tibbs and Stanley G. Eakins. The results were co-authored with Mr. DeShurko and resulted in the paper, "Using Style Index Momentum to Generate Alpha" that won the Charles H. Dow Award in 2007. The Charles H. Dow Award is the most prestigious annual award given for the best paper that advances technical analysis in the year. The award is granted by the Market Technicians Association, the home of the Chartered Market Technician® (CMT) Program, the preeminent, global designation for technical analysis.
His blog can be found at: www.deshurkoblog.com
Author of: "The Naked Truth About Your Money" a primer for the Millennial Generation and all new investors to help with making responsible financial decisions. Available at: https://www.amazon.com/Naked-Truth-About-Your-Money/dp/1592576508/ref=sr_1_1?ie=UTF8&qid=1485467128&sr=8-1&keywords=deshurko
Contributor to multiple financial news sites including; www.HorsesMouth.com, www.MarketWatch.com. www.Kiplinger.com, www.theStreet.com and more...
Bill is also a board and finance committee member for Homefull Inc. a non-profit group seeking to end homelessness in Dayton Ohio.
Managing Member and owner of 401 Advisor, LLC a registered investment advisor, since 2004
BA. Economics, University of Rochester
The opinions expressed are those of Bill DeShurko. Past performance is not a guarantee of future success. Consider all risks before investing and it is always advisable to consult with a professional before making investment decisions.
AI Marketing Video Bill DeShurko
There are many ways to go here, and honestly a lot more information needed to adequately address. But here are some ideas to explore/think about.
First speak to an estate planning attorney about setting up living trust(s) to hold your investments. The "living" part means that all terms and conditions can be changed at anytime...this need not be a lifetime decision. The trust allows you to manage your money "from the grave". That is, create instructions for who and how beneficiaries may access your estate. That's a lot of money to pass on without any guidance or limitations. If you haven't done this already it should be your first step.
Second step: Make allowances to pay your taxes. And don't fall prey to tax avoidance schemes.
I assume your question primarlily is concerned with investments. If you read any of my answers or articles (www.deshurkoblog.com) you can see that I am a big believer in the long term power of dividends from high quality companies. I would start off by determining how much current income you want from your portfolio. Divide that number by 3.5%. That will give you the amount you need to invest in a dividend portfolio, assuming a 3.5% yield to generate that amount of income. If you want a $250,000 income you would need to invest about $7.2 million.
The S&P 500 has grown its dividends in 44 of the last 45 years since 1973. Furthermore, dividends have compounded at an annual growth rate of 6.5% according to Ned Davis Research, Inc. from January 1, 1930 - December 31, 2016. That means that nearly every year you will get a raise averaging over 6% based on history. You will be set for life. If future opportunities arise, large cap companies that pay dividends are very liquid and can be converted to cash quickly should say a new business opportunities presents itself.
Put the remainder in a laddered portfolio of municipal bonds. Generate tax free income. Choose quality and/or insured bonds and you have another safe stream of very liquid income.
This strategy is how Warren Buffet pays a lower tax rate than his secretary. Emulating the most successful investor of all time seems sound to me.
You are spot on in your analysis. Understand that if everyone did what you are planning - live off of dividends, there would be no need for "investment experts" and about 50% of the investment industry. Most products and strategies are designed to make the fund companies and brokerage firms rich, not you.
In over 30 years of investing experience, researching the market, writing a book and receiving awards for my research, I will not accept a client unless they understand and are willing to live off of our dividend strategy throughout retirement. Here are some considerations:
- Dividend stocks still need to be managed. The highest yielders can be "dividend traps" - great yields but negative overall returns. The Dividend aristocrats are stocks that have increased their dividends for 25 consecutive years, or more. This is a good place to start.
- Yields are low now as prices are high, don't force the issue and buy bad stocks. You have a long time, be patient.
- Don't worry about benchmarking to the market. This is the biggest reason IMO that more people don't use a dividend strategy. One "bad" year compared to the S&P 500 and they bail out.
- But stocks that paid their dividends and increased them through both the Tech wreck and the financial crisis. Despite current turmoil, look at PG as an example. Their stock dropped 30% in market value during the financial crisis, but they increased their dividend payout each year. While your fellow retirees were getting crushed in their buy and hold asset allocation strategies, a P&G investor got a rise every year! And of course the stocks price did go on to recover.
If the above amount of manement is within your expertise you can do fine. If not find an advisor that focusses on a dividend strategy. Feel free to send me an email, of course I'd love to work with you directly, but I can also give you some great resources online to help you out if you prefer to do it on your own.
And one last suggestion - consider waiting until age 70 for social security, it is significantly higher if you wait.
Because it is so easy to buy investments, investors tend to overlook the sell side. Many CEF's are very thinly traded. If you were to try and sell during a market decline, you may have a hard time getting the trade executed at the price you are expecting. That is why you see CEF's trading above or below their net asset value. It's about supply and demand as much as market value.
Tips: look at historic market price vs NAV and make sure you are not paying a premium relative to "normal" valuations. On the other hand, CEF's that are trading at a steep discount (10% or more) relative to their historic valuation vs NAV can be a bargain. When stocks, bonds or any specific sector are out of favor CEF's tend to get hit hard. If your style of investing is "value" vs "growth" there can be opportunities.
Look for average daily volume and stick with CEF's that have higher volumes.
And FYI - brokerage firms may make much less on CEF's then regular open end mutual funds. Open end funds pay a "shelf space" fee to brokerages, a fee that comes out of your return.
No, please wait! Just kidding!!!!
My words of advice are this: Avoid any insurance product that is pitched for "tax deferral". May sound good now but such products are ridiculously overpriced, destroy liquidity and just push you into higher tax brackets when you do want your money. Let me broaden that to say, don't invest in anything that does not stand on its own investment merits without any alleged tax benefits. Never invest in anything where you need to borrow back your own money to spend it. Other than municipal bonds, in 30 years I can't think of a tax advantaged investment that I didn't regret using for my clients.
What to do: Start building a very solid boring portfolio of high quality large company stocks. Stocks are tax deferred until sold. Unlike annuities and insurance products, when cashed in you pay lower capital gains taxes instead of higher ordinary income rates. Individual stocks have no insurance or management fees. In 30+ years every single account of substantial size that a client has inherited looks nearly the same - filled with bellweather stocks (yes many pay dividends that are taxable, but like capital gains at a lower tax rate). Reinvest dividends when paid and take advantage of compounding.
Read about investing - not the BS "How To..." books, but focus on books about or that interview real successful investors. Read about Warren Buffett. Read the series of books by Schwager - The Market Wizards, The New Market Wizards... Also "Just One Thing" by John Mauldin. Anything by Michael Lewis. By 40 you will be your own market "guru"!...and pretty darn wealthy!
Not only are taxes lower on dividends then an IRA withdraw, but think of it this way; if you take regular distributions from a mutual fund within your IRA, what happens if the market declines? You would be liquidating shares of your mutual funds to meet your distribution requirements. This depreciation accelerates the lower and longer the market declines. When the market does recover, your account will be worth less than what you started with because you have fewer shares.
On the other hand, if you have a portfolio of solid dividend stocks, you can live off your dividends and not sell any shares of stock even during a market downturn. When the market recovers, your portfolio should too.
Even though you lose the tax advantage, I recommend using dividend stocks in your IRA as well and match your distributions to the portfolio's dividend yield.