Dividend Growth

It’s Monday and My Portfolio Sucks

It finally happened-you woke up this fine Monday morning and realized that you are now 40 or 50 something and realize that your portfolio sucks, and that’s being kind! The truth is, your “portfolio” consists of fancy cars, hot dates and exotic vacations-great job!

Learning About Dividend Stock Investing

But on this particular Monday you’ve decided to start executing a new plan and you were fortunate enough to come across a blog post over at Dividend Ninja, extolling the virtues of building a portfolio of dividend paying stocks-Using Dividends For Passive Income In Retirement.  You love the idea of dividends and fortunately continued your stumbling to another great post over at Dividend Growth Investor called When Can You Retire On Dividends.

At first, you’re annoyed that both of these posts are written by people younger than you with more knowledge and the dreaded “D” word, discipline! But on this Monday morning you decide to swallow your pride, read the posts and pull your head out! Welcome to reality and the new you!

Is It Too Late for Financial Freedom

You’re fortunate in the fact that you still have good earning power but you are so far behind the curve in saving that you nearly have a coronary-now what? Let’s say you decide to open a brokerage account in addition to the retirement plan you have at your company. I personally like both Scottrade and Etrade. For our purposes today, let’s say you go with Etrade. Their service is very good and they have all the tools you need to turn around your pitiful retirement saving account!

Taking on Calculated Risk

Because of the fact that you need to put your portfolio on steroids you decide you will consider using margin with your dividend paying stocks, why would you do that? Well, let’s take a peek. Here are the current margin rates for Etrade:

Debit Balance
Margin Rate
$1,000,000 or more
3.89%
$500,000 to $999,999
4.14%
$250,000 to $499,999.99
5.14%
$100,000 to $249,999.99
6.14%
$50,000 to $99,999.99
7.44%
$25,000 to $49,999.99
7.94%
Less than $24,999.99
8.44%
The hard part of picking good dividend paying stocks has already been done for you by the above mentioned blogs. Now, you just need to act. Let’s assume that your portfolio has less than $50,000 in it-your margin rate will be 7.94% based on the above table. So, you purchase an additional $14,000 worth of dividend paying stock that yield an average of 4%. You decide to be prudent and instead of margining your portfolio at 50%, that would be overly aggressive and not necessary! Instead you decide to “borrow” 30% against your portfolio and buy additional dividend paying stocks. That would amount to an additional $14,000 worth of stocks and you would be charged 7.94%. You are earning 4% so your net cost is 4%, rounded off.

Taking Baby Steps Towards Passive Income

Since you can write off your margin interest against your stock income-you don’t have to worry about paying taxes. You’ve now accomplished a few good things. You have a solid portfolio of dividend paying stocks that also have a very good chance of price appreciation, you’re not paying taxes and you have jump started your pathetic portfolio.
This may seem like a quantum leap and maybe you are not comfortable using margin, there are risks and you should read about them; but this is one strategy you may consider to getting on track to a comfortable retirement. Good luck!!
What about you-would you consider this strategy if you were behind the curve in having a great divined paying portfolio!

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Dansette