Investment BS Thread - Stocks/Futures/Mutual Funds/Bonds/Commodities/Options/ETFs/401ks/Etc

Yeah! It’s a bit annoying. I don’t have much invested with m1, so that’ll be easiest to let go. I hope Robinhood starts retirement options eventually. That way I could roll over my Roth with them and have all my investments in one place.

 

Sold some stuff, paid off house and 4runner

 

Thanks I'm getting old lol

 

Here's how my last 365 days have just bottom fishing oil and natgas ETFs (just my robinhood acct, not 401k lol)

 

Please elaborate.

 

Well, if you have a one million dollar portfolio with a yield of 4.75%, you’re getting $47,500 in cash deposited into your account every year. You don’t ever have to sell or buy another share.

Most quality companies increase their dividend annually, so you’ll get a small raise every year along the way.

That’s a conservative example, you can pull a relatively safe 8% yield (with mREITs, eREITs, CEFs, BDCs, etc.) and get $80,000 a year off of the one million dollar account. You could get riskier and a 10%+ yield ($100,000+ annual income), but you’d probably be putting your capital at risk at that point.

There are a lot of people out there living this way. I might someday but I like to work so it’s more of an insurance for me.

An easy way to do it if you don’t want to do any research into individual stocks is to put the one million dollars into SPHD. You’ll get a yield of 4.12% (with a .3% expense ratio). You will get a deposit of $3,183.33 at the end of every month. It’s a managed fund with about 50 holdings. You’d never have to buy or sell a share if you can live on that income.

With dividends, you’re buying a portion of a company’s profits. As a shareholder (owner), they’re distributing the profits to you. If it wasn’t for dividends, I wouldn’t be in the stock market. I don’t trust the market enough to rely on share price appreciation. I would buy real estate and get my income that way. It’s just easier with stocks that pay dividends.

 

You know.... I ha ve been looking at M1 as mentioned above. Are there any Pros/Cons for the platforms? I like M1 from what I see. Robinhood is mentioned a lot even other than here.

 

Really its all down to personal preference on which brokerage firm you use now thanks to almost all of them going to $0 trade fees. Usually it boils down to what firm your 401k is with(if you have one and are trading with it). For example, I have my work 401k with Schwab but I have a separate individual brokerage acct and roth ira with Fidelity because I like their app and all the e-learning tools that they provide. Eventually Id like to roll my 401k over to fidelity and have everything be in one place.

The partial shares that M1 and Robinhood are offering is interesting and I plan on keeping an eye on how that works out. However its not something that interests me enough to make me want to open an acct.

 

We'll see how this goes...

 

If everything works as I think it should, this will enable me to invest funds I would otherwise keep liquid in the bank.
If I can have money invested, sell shares, and spend that money 20 minutes later on a card..... That's a game changer.

 

Funds and ETF's that pay a monthly dividend is a good way to build up your 401K or IRA. You won't see a big return like 15-20% but the monthly dividend being reinvested in the fund will allow it to build on it's own even if you never put more money into it. They are usually a lot lower risk and generally don't move a lot in price. I stopped working 4 years ago at 49-1/2 so I'm still too young to tap into my retirement money without paying the early withdrawal penalty (10% if you're under 59-1/2) so I just let my 401K, IRA and Roth IRA reinvest the monthly dividend into itself. And depending on the fund or ETF, there can be an additional dividend at the end of the year. If you're still working and putting money into the funds, they will go up even quicker. It really depends on how much risk you want to take, but monthly dividend funds reinvested will increase your shares regardless of what the price is.

 

I just suggested SPHD as an example to explain what the other poster asked. He asked me to elaborate on creating income with stocks. I use individual stocks to do the same thing (pay dividends which I currently reinvest). I am not big on "retiring" at 65 or whatever people are supposed to do. I want cash flow now (in my 30's) so I can stop working whenever I want. It's not as tax efficient but that's fine with me.

 

If that "cash flow" is coming from retirement account dividends and you're under 59-1/2, you'll be paying the 10% penalty on it so add that cost to your planning. I'm slowly rolling over some of my 401K into the Roth IRA so I pay income taxes on that amount and try to keep it to a minimum. The Roth IRA will make tax free interest/dividends but you still can't touch it until 59-1/2 or pay the penalty. Roth money also needs to be in the account for 5 years so the sooner you start to build it up, it will be available to you. The Roth is also not susceptible to the RMD that starts at age 70. I never realized how involved it gets dealing with your retirement money until I stopped working. The sooner you look into it and understand things, it will help you decide where to put the money. I'm still figuring things out.

 

I use a regular brokerage account. I can have the dividends directly deposited into my checking account if I choose to (I don't do that yet). This has nothing to do with retirement accounts.

I also have a 401k, which I use for the employer match. I will cash that out if I ever stop working where I work. That money will go into the regular brokerage account.

It is very difficult to give advice to someone without knowing their entire situation, so I try not to do it. A lot of things come into play like other passive income streams, health insurance, expenses, etc. I wouldn't recommend anyone do what I do unless they were in a very similar situation overall to me. The best cookie cutter advice is to max out your retirement accounts, and then buy SPY if you have extra money. That's not for me though.

Edit: I should also add that I am not trying to "beat the market." I would actually be satisfied if the market stayed entirely flat for my whole lifetime, and I only received my 4.5%+ in dividends with about 9% dividend growth. That would be more than enough. The 25%+ price appreciation this year is actually frustrating because now stocks are expensive and I am hesitant to buy for their yield.

 

I'm not disagreeing with anyone and I was trying to back up your idea of dividend stocks/funds being a good option for people. And yes, it's very difficult to have these types of discussions not knowing what situation people are in. I left my 401K intact when I stopped working and I've been rolling it into the IRA and Roth IRA slowly. If you cash it out, you will most likely pay the extra 10% penalty. The 401K doesn't have the flexibility of an IRA in terms of what is available to pick from. So rolling the 401K into an IRA or Roth IRA will give you more control. I lost 50% of my 401K back in 2007/8 when the market tanked and I maxed out my 401K contribution after that and it worked out well. It still took 3-4 years to get back those lost funds.

Do you know if you have to pay capital gains on your brokerage account dividends? The gov't has many ways of taking a slice of the profit pie so figuring out how to minimize that can be a difficult task.

 

You do pay taxes on dividends in a regular brokerage account. That is the downfall of this kind of investing. I just like the idea of an actual income now (as opposed to when I'm 65), so I chalk it up as a cost I have to pay to do that. I intend to work my whole life, but like to know that I could stop at any time and not miss paying a bill. I'm sure I am sacrificing gains and would end up better off if I just put everything into SPY for the next few decades, but I like the insurance I am providing myself. I also don't trust the market enough to not completely crash (not like in 2008, but much worse than that). I could see it happening, and my 4.5% dividends will look nice (assuming they aren't cut).

 

Yeah, if stock/fund prices stayed the same and dividends didn't change, this would be easy! I never planned on SS being there when I retired so if it is, it's a bonus for me.

 

Dividends do stay the same if you invest in dividend aristocrats. Actually, those 57 stocks have increased their dividend for 25+ years to make the list. That’s increases through at least 2 recessions. Owning the 17 that I do doesn’t keep me up at night, might actually help with sleep!

 

Another decent trade off with having to pay capital gains is also being able to write off losses. Which is decent when it come tax time in the spring. Luckily/unluckily I had an ESPP and the company stock has been going downhill for years so I am able to sell off chunks every year and get a decent long term loss to counteract the capital gains/dividends/interest that the govt wants to take their cut from.

In addition to the liquidity of an individual brokerage acct; I think a big bonus for the individual acct vs 401k for me was that in the individual acct I started to research and become more aware of where my money was going and what companies I wanted to invest. The first few years I had a 401k I was just contributing but could care less what funds I was contributing to other than just a target date fund. Now I'm able to make informed decisions and do weekly checks on it and move money around to different stocks/funds.