nedsaid wrote: ↑Sat Jun 06, 2015 11:03 am
archii wrote:
Yes it was a blessing, and I am grateful every day to have a level of FI we did not enjoy before. It was also a huge responsibility, since the number of individual positions were north of 50. He liked stocks and with the help of a broker, put together a portfolio of about $9M by the time he passed in 2011. Since I took ownership of my half of that, evaluating the asset allocation was an early goal, since my wife and I are younger and needed to tweak things more to our long term goals. Last year I moved all the accounts over to a low cost brokerage (fido) to lower costs and have more control. The commissions alone for moving in and out of positions at the former brokerage house were significant, and I realized that even though I can't control the markets, I can control the costs. I have also had to be careful in liquidating positions since the cap gains are pretty high since 2011, a lesson I learned well in 2014 when I liquidated a couple of MLP positions. When I first took over the accounts I spoke to several broker 'advisors', most of whom were pushing me to manage this under a wrap fee, but I have not done so for a couple of reasons. One reason is that the portfolio is (suprisingly) well diversified, with the exception of being overweight in energy. The other is that I did not want to pay someone to manage something that I felt I could do with a reasonable amount of effort in educating myself (which is why I'm here) on the fundamentals of portfolio management. Even though my father put this together with stock and fund picking, I am finding myself (through the reading lists and forum posts) coming around to more of a boglehead philosophy. However, it will take a while to get there, since the overall costs of liquidating positions would be a HUGE tax hit at this point. I am aiming over the next few years to get down to a simpler, less complicated 'hybrid' type portfolio of holdings that still generates income, but is also in line with the idea of total growth.
I got started with individual stocks when a friend went into the brokerage business and I took my bank IRA account to him. He learned from a couple of brokers who were well-known in my area and were both featured in Money magazine as "All-Star Brokers." They were both value type of investors and liked dividends. "Get paid while you wait," was one of their sayings. What was really instructive was that these brokers did their own research and they followed a universe of about 30 companies at any one time. They also had people that helped them.
If these "All-Star" brokers followed a universe of 30 companies they were following pretty closely at any one time that is a pretty good clue to me. That is why I tell people that if they just have to own individual stocks to start out with a bare minimum of five stocks diversified over different industries. An ideal sized individual stock portfolio is probably 15-25 stocks and 30 at the maximum. The reason being is that a person only has so much time and interest.
If your dad had 50 holdings in the portfolio, that tells me he was spending a lot of time on this and had a huge interest in doing this. My guess is that this was his part-time job and he loved doing it. My suspicion is that you and your wife are working and aren't going to devote this kind of time. Your plan is a very sound one.
Over time, you probably want to get this down from 50 holdings down to something like 20-25 holdings while broadening out your diversification. It sounds like you are putting freed up money into the broad index funds which is a very good idea. No muss, no fuss. There is no reason that you couldn't eventually go to all index funds. I just find it really hard to pass up a nice income stream that will likely grow faster than inflation. It is up to you and it sounds like you know how to proceed from here.
Best wishes,
Ned
Two year old thread, I know. However, it came up in a search I just did - and I liked what you contributed in the thread, Ned.
I notice that archii has not posted here at BH since 2015. We'd be sort of curious knowing what he ended up doing with the inherited $120K dividend producing $4.5M portfolio, and how it has been doing since. Our guess is it has grown to $6M by now with dividend reinvestment, and the capital appreciation the bull market has provided.
There are so many excellent threads with regard to DI vs TR investing here at BH. I only chose this one as the discussion was civil, and some good ideas were included.
We had inherited a large dividend producing portfolio last year from a deceased parent that was perfect for them in producing plenty of retirement income to sustain him into his 90's. We followed the advice on the Wiki to take our time studying it all and making informed decisions. We've had Vanguard funds for 27 years, plus a lot of individual stocks, plus our Vanguard funds in our 403b plans. So we were a mix of strategies going into inheritance, and still remain in that mix. In no way was our inheritance the size of what archii and his wife inherited, but it was equally significant for us and our financial picture (had 57 different individual stocks from one parent, and about a dozen from another parent, and a bunch of high cost mutual funds from yet another - all that we have been trying to absorb the past two years).
We have managed to trim it all down throughout this year to the point that our portfolio is only producing about $25k in annual dividends now (which we have been reinvesting), and only about $15K of that is in taxable at this point which we are utilizing every possible tax strategy to absorb this year (maxing out tax advantaged accounts, itemizing deductions, using our last year of being able to claim both kids, giving to charity, etc...). We moved a huge chunk of the individual stocks we didn't understand (a lot of MLP's, gold/silver/mining stocks, etc...) into Vanguard Index Funds, and into growth investments (stocks) that don't pay dividends in the taxable account, while letting all the dividends from the individual stocks funnel into more shares of the Vanguard/Fidelity/iShares index funds we have. We couldn't afford to absorb the capital gains all in one year since we waited to make any decisions for quite a few months during a bull market. Now that it has been long enough from the stepped up basis that the second half of 2016 and all of this year has taken place, the more appreciation has occurred. But plenty was sold in tax advantaged, and TLH in the taxable has been ongoing throughout this year to offset gains.
The tenor of my tone has probably changed now that I have had a chance to take a deeper look at the issues of dividend investing vs. total return - and staring at both strategies in the face as our overall portfolio still remains a mix of the two (as well as a mix of individual stocks and Index/Bond Funds). Part of me says: "Heck, just set up a Dividend Aristocrat Portfolio that pays out $40K now mainly in tax advantaged accounts, and keep reinvesting the dividends the next 10-11 years so the number of shares grow to the point that it throws off enough to meet all of our retirement needs come 2028. Leave the rest, or other half in total return investments with the Index Funds, and growth stocks so they can be used for any additional needs or shortfalls come retirement." The other part of me says: "Just put it all in the Three Fund Approach and forget about it for now."
The Dividend Aristocrats we did not trim, and still own include Abbott Labs, Chevron, AT & T, Walmart along with high yield Blue Chip Verizon, and some other typical dividend names like Rio Tinto, Wells Fargo, Apple, Altria, Home Depot, Qualcomm, Amgen, DTE Energy, Exelon and plenty more that still total over 30 stocks (down from the inherited 57 - so we've made progress throughout this year
). We still have plenty of progress to make, and decisions to make as we learn and focus. I enjoyed reading the Vanguard PDF that Taylor linked comparing the distribution phase in retirement of dividend vs. total return, taxable and tax advantaged accounts, and really illustrative information.
Sorry to have dug up an old thread, but Ned - it's your fault because of your responses in the thread.
"Save like a pessimist, invest like an optimist." - Morgan Housel |
"Pick a bushel, save a peck!" - Grandpa