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President Donald Trump absolutely loves talking about the stock market. Even more than that, he loves tweeting how much it’s gone up. Since Monday, October 16, Trump has tweeted at least eight times about the stock market, which continues to power to record highs. Since November 9, 2016, the Dow Jones Industrial Average is up over 27%; the benchmark S&P 500 is up 20% over the same period. Twice last week Trump has referenced the blue chip index, which closed above 23,000 for the first time last week and is now sprinting towards 24,000.
As the Dow traded around 23,450 on Wednesday of last week, he treated us all to a pre-Halloween, spooktacular tweet-treat:
Trump has argued that the stock market would rise by “leaps and bounds” if tax reform were to be passed. The market has been rallying since the election on expectations of a huge infrastructure program to rebuild failing roads and bridges. This was one program that most politicians could get behind, no questions asked. Analysts thought this would be the easiest one to tackle and pass since it has so much bipartisan support. To date, this has not gotten off the ground.
Some Wall Street analysts are divided in their opinion on whether the market’s rally is “pricing in” tax cuts – that is, reflecting expectations that tax cuts will pass – or if a tax package would be an additional boost to a market enjoying its best year since 2013.
For his part, Trump contends that tax cuts, and the benefits that would accrue to the stock market and the U.S. economy, are not being fully appreciated by markets. Last week, however, Treasury Secretary Steven Mnuchin said the stock market’s rally would be imperiled by a failure of Congress to pass tax reform.
This appears to run counter to Trump’s view that the market hasn’t been appreciating the potential benefits of lower taxes.
Trump, however, is sticking with a position staked out by his treasury secretary back in February that the stock market could “absolutely” be seen as a report card for the administration’s economic programs.
Whether or not this turns out to be true, it is true that just over half of American adults have any exposure to the stock market. This translates to many Americans seeing no direct gains from the rise in stock prices.
Cheering The Tweets For Capital Gain Or Squeezing Out More Income
If you’re a Seeking Alpha, or other finance site, reader, you’re almost definitely in the plurality of adults that have at least some exposure to the stock market, or at least your contemplating doing so in the near future. The question then is, are you being dragged along by the constant tweeting and cheering by the T.V. talking heads, hoping to squeeze out the last drop of capital gains from this second-longest bull market in history?
Or, after such a long run, might you be contemplating your next move. Perhaps you’d like to hold onto some of those gains you’ve made before they evaporate in the next correction. You might be interested in exploring a way to squeeze more reliable and dependable income from your new-found assets in order to generate more income for retirement spending.
Case In Point
For several days running, there has existed a wide divergence in performance between the major stock market gauges. On Wednesday of last week, The Dow Industrials composed of 30 large cap stocks, was barreling ahead, up .72% at the close.
At the same time, the S&P 500 Index, composed of 500 large stocks closed up just .16%.
And the Nasdaq Composite closed up a similar .18%.
They were all to the plus side, but the Dow trounced the others by a factor of 4 to 5 times.
Oftentimes, when markets fall out of sync like this, it can be a sign of deterioration to come. And so, this might present a waypoint to consider another path.
Gently Squeeze Your Assets For More Retirement Income
Don’t squeeze too tight. Just gently, squeeze your newly acquired capital gains.
Then, give them a K.I.S.S.
No, not that type of kiss! I’m talking about the acronym we often use here on Seeking Alpha.
K.I.S.S = Keep it simple, stupid!
Much of my work is devoted to taking complicated concepts, words and systems and breaking them down so that anyone can understand them.
Over 160,000 readers on Seeking Alpha alone read my recent piece, “Retire Smarter: Big Social Security Changes For 2018 And FTG Portfolio Supplements” because I keep things simple.
“Batten Down The Hatches: FTG Getting Defensive For The Next Big Crash Part 1” was an attempt to communicate additional ideas on how I keep things easy to understand. I discussed simple ideas to ready your portfolio for the next, inevitable crash and how to monetize your portfolio assets. The follow-up article in that series, “Smarter Retirement: FTG Portfolio Gets Defensive For The Next Big Crash, Part 2” goes deeper into the subject and adds more color and recommendations as well.
Monetizing Assets For Retirement
The baby boom following World War II finds the United States with a large cohort of former hippies and hipsters, still referred to as “baby” boomers, no matter how old we are. There are now 10,000 of us retiring from the work force every single day. That’s a whole lot of folks staring retirement straight in the face and wondering how they’ll approach this brave new world.
We all have questions we need to answer. Will we downsize our homes and move? Where to move? Should we retire in place? What will we do with all of our hard-earned leisure time? Will we take those vacations to foreign lands we always dreamed of, or are our lazy bones aching too much for that now? Should we spend more time with our kids and grandkids? And then, there’s the matter of how will we pay for all this in retirement.
When I talk about monetizing your assets for retirement income, I’m simply addressing the conundrum faced by many investors as they near retirement. They lived on less than they earned. They saved all their working lives, trying to put away enough money so that it lasts them an indeterminate amount of time in retirement.
Why Must Our Retirements Be Indeterminate?
Well, if we knew how long we’d live after we retired, this would not be a problem. In fact, a determined amount of time would certainly make planning for retirement a heck of a lot easier.
Unfortunately, none of us knows how long we’ll live after we retire and how long our spouse will live. So we need a way to deal with this in a way that assures our success with some degree of dependability.
A Simple Way To Monetize Your Assets For An Indeterminate Retirement
O.K. Let’s try to keep this simple. Let’s say you and your spouse both worked and qualify for the average Social Security benefit of around $16,000 each, or $32,000 between the two of you. We’re going to round that down to just $30,000 to keep things simple.
And let’s further suppose that you’ve already figured out that the two of you will need $50,000 in retirement to pay your bills.
Here’s the quick math:
$50,000- $30,000 = $20,000
Okay. So now we’ve figured out you’ll need $20,000 in additional income to meet your expenses.
Well, if you’ve been saving up your entire working life in preparation for this big event we call retirement, you now have a sum of money that you can begin to “monetize.”
Put simply, this means you have an asset that you can put to work to generate that extra $20,000 you need to fill the gap. You’re turning your assets into money you can use for spending without using up those assets.
Further, if you found an investment for your assets that paid you more each year, more than the inflation rate, theoretically those assets will never have to be drawn down.
This means you’d never run out of money in retirement. You could stop worrying if you’ll have enough to last you in retirement. If you like, you’ll have the ability to leave a nice legacy to your children and grandchildren to make their lives easier. Or, you could leave the balance to your favorite charities.
Ways To Get There
Let’s imagine you were a prolific saver, lived below your means and managed to save $400,000. Here are some examples to illustrate how you could monetize that sum, using high quality dividend stocks with long histories of paying and growing their dividends.
If you invested your stake in companies like the huge, dividend aristocrat called AT&T (NYSE:T), you’d get around 5.5% annual income from this investment.
.055 X $400,000 = $22,000
Whoa! That’s even more than the $20,000 you decided you needed. And, AT&T has a very long history of raising the dividend by more than 2% each year. So that will keep you ahead of inflation. Problem solved.
Say you have saved $500,000. Well, if you wish to monetize that sum to yield $20,000 in annual income, you’ll only need to get a 4% yield in dividends from your stocks.
.04 X $500,000 = $20,000
Have you saved less money, say $350,000?
.057 X $350,000 = $20,020
So, in order to get to that $20,000 goal you’ll need to obtain an overall 5.7% yield on your portfolio investments.
Diversify, Diversify, Diversify
Some investors say if you have good conviction in your investment idea, go all in. Put all your money into that one investment and you’ll do fine. They refer to investors who prefer to diversify their investments as cowards.
Call Me A Coward
If diversifying your assets in order to prevent total portfolio failure, or total income failure is cowardly, I’m glad to be considered the #1 coward.
In fact, I believe going all in on one investment is rather fool-hardy. It’s akin to betting your entire stake on one throw of the dice at the casino, or one spin of the roulette wheel.
So, don’t mistake my demonstration above as being advice to invest your entire retirement savings into one stock, like AT&T. This was a way to simply demonstrate that if you invested your savings in a diversified portfolio of stocks that provided the dividend yield as shown, you’d be able to meet your retirement income goals.
Monetizing Your Assets For Fun and Income
If you’re a DIY (do it yourself) investor like me, you want to monetize those assets in order to get to your goals sooner. And you want to monetize them in the most efficient manor, to squeeze as much income out of them that you can.
To use the example of AT&T that we highlighted earlier, you realize that a stake of shares bought at $33.20 per share, paying a current dividend of $1.96 was producing a current yield of 5.90%. When T was selling for $39.10 per share the yield was a much lower 5.01%. Now that we purchased additional shares for the FTG Portfolio at $32.60, we obtained a substantially higher yield of 6.01%.
Income Failure Prevention
This method of weighting a portfolio by income generation results in a balanced approach for the income investor, one that affords us protection against total income failure. If one or a few stocks in a 20-30 stock portfolio fails to increase the dividend in a particular year, or cuts it, you’re left with 90% or more of your income generators to pick up the slack for you. They will normally continue paying the dividend, and many will continue raising the dividend, even when the economy goes into recession. This is especially the case if you load up your portfolio with stocks similar to the Fill-The-Gap Portfolio or our RODAT Subscriber Portfolio, which both contain many defensive names that pull their weight no matter the economic environment.
It’s all about helping you monetize your assets for income.
The Fill-The-Gap Portfolio
The FTG Portfolio contains a good helping of dividend growth stocks. It was built with the express purpose of benefiting from this and other strategies.
Two and a half years ago, I began writing a series of articles on December 24, 2014, to demonstrate the real-life construction and management of a portfolio dedicated to growing income to close a yawning gap that so many millions of seniors and near-retirees face today between their Social Security benefit and retirement expenses.
The beginning article was entitled, “This Is Not Your Father’s Retirement Plan.” This project began with $411,600 in capital that was deployed in such a way that each of the portfolio constituents yielded approximately equal amounts of yearly income.
The FTG Portfolio Constituents
Constructed beginning on 12/24/14, this portfolio now consists of 21 companies, including AT&T Inc. (NYSE:T), Altria Group, Inc. (NYSE:MO), Consolidated Edison, Inc. (NYSE:ED), Verizon Communications (NYSE:VZ), CenturyLink, Inc. (NYSE:CTL), Main Street Capital (NYSE:MAIN), Ares Capital (NASDAQ:ARCC), British American Tobacco (NYSE:BTI), Vector Group Ltd. (NYSE:VGR), EPR Properties (NYSE:EPR), Realty Income Corporation (NYSE:O), Sun Communities, Inc. (NYSE:SUI), Omega Healthcare Investors (NYSE:OHI), W.P. Carey, Inc. (NYSE:WPC), Government Properties Income Trust (NYSE:GOV), The GEO Group (NYSE:GEO), The RMR Group (NASDAQ:RMR), Southern Company (NYSE:SO), Chatham Lodging Trust (NYSE:CLDT), DineEquity (NYSE:DIN), and Iron Mountain, Inc. (NYSE:IRM).
Because we bought all of these equities at cheaper prices since the inception of the portfolio, the yield on cost that we have achieved is 7.57% since launch on December 24, 2014.
Due to our recent purchases of additional shares of AT&T at fire sale prices, current portfolio income now totals $31,160.58 annually, which is $392.00 more annual income than just last month. This represents a 1.95% annual income increase for the portfolio.
When added to the average couple’s Social Security benefit of $32,848.08, this $31,160.58 of additional supplemental income brings this couple annual income of $64,008.66. This far surpasses the original goal set to achieve a total of $50,000.00, which is accepted as a fairly comfortable retirement income in many parts of the country. That being said, this average couple now has the means to splurge now and then on vacation travel, dinners out, travel to see the kids and grandkids and whatever else they deem interesting.
Taken all together, this is how the FTG Portfolio generates its annual income.
FTG Annual Dividend Income
Everyone with eyes and ears knows that President Trump just loves to tweet. It is his preferred method of communicating daily to the masses. His tweeting has given the impression that he feels he deserves a big pat on the back for the performance of the stock markets. For now, the verdict is out on that. However, we also know that nothing grows to the sky.
For those readers and investors trying to find their way to squeezing their hard-earned assets to provide a comfortable stream of income in retirement , there are defensive measures we can take now to shore up the fort before any eventual collapse in prices.
One of the most important ingredients in these measures is to add high-quality names with long histories of steadily growing their dividends. By itself, this will go a long way toward helping assure a reliable income stream and to mitigate the possibility that a few equities hold theirs steady or reduce the dividend somewhat.
Investors who dismiss the pernicious effects of inflation do so at their own peril. The pervasive loss of purchasing power that it inflicts can turn a comfortable $500,000.00 nest egg into a scrambled egg, just twenty or thirty years into the future. Monetizing your assets and investing to stay ahead of inflation will keep this bogeyman away.
Our subscriber portfolio uses these and many other strategies as we actively manage it on an ongoing basis to generate steadily growing, reliable income for retirement. In addition, subscribers get the benefit of instant free texts and receiving material days before the public in addition to many exclusive articles, updates, commentary and analysis throughout the week. If you’d like a taste of even better performance and faster dividend growth, before the free two-week trial offer expires, I encourage you to try it before you buy.
Author’s note: Should you be interested in reading any of my other articles detailing various strategies to enhance your returns on a dividend growth portfolio, you will find them here.
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As always, I look forward to your comments, discussion, and questions. Do you belong to the exuberant camp or the nervous Nelly camp? Are you concerned whether the dividends in your portfolio are sustainable? Have you started to play defense in your choices for participation in your portfolio? Please let me know how you approach these situations in your own portfolio and how you arrive at your decisions.
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Disclaimer: This article is intended to provide information to interested parties. As I have no knowledge of individual investor circumstances, goals, and/or portfolio concentration or diversification, readers are expected to complete their own due diligence before purchasing any stocks mentioned or recommended.
Disclosure: I am/we are long ALL FTG PORTFOLIO STOCKS.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.