Index fund investing is boring!


#1

I retired this year at the ripe age of 48, now I have to revamp my investing strategy. Why, because I will no longer have “earned” income so I will be unable to invest tax deferred as I have done in the past.

Currently, my stock market investments are in 98% tax deferred and 2% taxable accounts. While I will not have earned income I will have investable dollars coming available through the sale of various assets and I want to invest those funds in the stock market.

All my retirement monies are in index funds, low fees, good returns, you know the deal. But what about these new monies? Index funds are boring, you throw the money in and watch it go, where is the sport in that?

Should I stick to the tried, true and boring? Or, should I follow my heart which wants to buy individual stocks? More specifically, I have a desire to build an income generating machine… a dividend portfolio which generates at least 50 percent of my living expenses moving forward.

I have done my due diligence, I know what it takes to evaluate and buy dividend stocks at a good value, and I have my eye on several Dividend Aristocrats and Dividend Kings. Next steps, make a decision (Index, Dividend, or a mix) and act.


#2

It looks like you already made your choice … :wink:

Both index investing and dividend growth investing are good ways of building wealth and ‘passive’ income. Depending on your risk appetite you could go for the latter.

Can’t advice you on this, since I have little to no experience in index investing. Personally, I’m investing in dividend stocks and real estate. Very active, higher risks, and hopefully higher returns. Biggest reason: I love doing it.

Oh and congrats on the early retirement :slight_smile:


#3

Maybe buy a few of your top picks just to add some enjoyment, then invest the bulk into something like VYM (Vanguard High Dividend Yield)? I know it’s boring, but it’s also far less risky.


#4

With so much tax deferred money, you may have a hard time staying in the 15% tax bracket where qualified dividends and long-term capital gains are (currently) tax-free. Or not. I don’t know the size of your nest egg.

But if you might be finding yourself in the 25% bracket or higher, you want to be as tax-efficient as possible, and a dividend portfolio may not be your best bet. You can always create your own dividend by selling from taxable and get the amount you need whenever you need it.


#5

I like the dividend approach - it lets me purchase companies that match my own values (I don’t feel comfortable in an index fund making money off of products like smokes that hurt people) and simply look to see what my income is - you get a quarterly report each month on your project annual income. No need to drawn down capital and no need to even worry about stock market quotations. Takes longer though since there isn’t a draw down but that is ok with me.I want to do it my way and not make money via products that cause suffering.


#6

Indeed I am leaning heavily toward dividends.


#7

Good thoughts, I will probably use an approach similar to what you have suggested.


#8

Thanks for the input. I have given some thought to taxes but I need to really dig in and figure out the full impact of dividend investing on my future taxes.


#9

Great input, I hadn’t consciously considered the benefit of being able to invest within my values. I say consciously because I have ruled out certain individual stocks because I do not use or like the product but I never worried about what was within my index funds.


#10

Go for dividend stock. It will give you something to write about.


#11

Short and sweet but so insightful, thanks!


#12

I also agree that index funds are boring. I have them for my 401k, but my brokerage account is all individual stocks. Pick some stocks that are leaders in their fields, have a wide moat, are inexpensive according to their metrics, expect to grow in the future, and if they have dividends that’s good too. Buy more if the market goes down so you get them on sale.


#13

Here is a break down of what’s in it by percentage if you want to see what companies are in it.


#14

I went through the same feelings about the boredom. I love reading about dividend growth investing but I don’t have the time, knowledge, or confidence to buy individual stocks of my own. So instead I built a dividend growth fund out of indexes. 30% VIG, 30% VYM, 20% VDC, 10% VHT, 10% VPU. I use this asset mix in my IRA since my entire 457 is in VFIAX. It scratched my boredom itch, produces a solid ~2.5% yield, and is made up of mostly dividend growth stocks (not to mention it has outperformed the S&P 500!).


#15

Investing is suppose to be boring. That’s how you know you are doing it right. Index funds are great. Dividend growth stocks are great. Real estate can be great as well. I invest in all 3

Stick to what you know.

Sounds like you’ve done well for yourself. Don’t mix things up just because things are ‘boring’


#16

When doing a shift like this I think it´s good to setup some rules to gradually shift allocation and at the same time feel comfortable with it. An example could be:

  • Over the next 3 months my portfolio can exist of max X % stocks
  • Over the next 3-6 months my portfolio can exist of max X % stocks

Also decide today on your rules to reevaluate existing rules in the future. So, if your plan is to generate 50% of your income from dividends you make a plan on how to get there but in a very controlled way.

At some point you would probably want to have a measurement of your success because this will affect your comfort level switching over to stocks. So, if you start today with your plan and measure your initial success a year from now. How will you feel if your stocks are performing better/worse than your funds?

Decide on your actions on what to do in different scenarios.

The most important function of these rules is not what to do when the scenarios occurr, it´s what not to do when there is no predefined scenario.

What happens to even the best is that we take irrational decisions in the abscense of a plan. Panic sell off at a major macroeconomic event or excess buying when things are going well.

Setting these rules, documenting them and following up on them makes some great blog content as well!

I am currently on 75% funds and 25% stocks. Like you, I think stocks are more fun but to be honest, my stocks aren´t performing better than my funds so I will not go over the 25% limit which I feel comfortable with.


#17

Never invest in stocks! (Obviously I’m kidding… as you can see from the name of my website haha)

As I love me some stocks, I would suggest taking your time. I’ve known people who think it’s easy to pick stocks and they start doing some idiotic things and lose a lot of money. Do the old Warren Buffett trick. Assume you have a punch card with 20 punches in it, and you only get to pick 20 stocks for the rest of your life. If you think like that, you will be careful for sure.

Also, even thought I love stocks - dare I say - municipal bonds can be a part of an income generating portfolio as well. They pay interest tax free (unless you have a weird alternative minimum tax situation going on).

I am extremely picky when it comes to the stocks I purchase. I still have over 50% of my money in an index fund and have been slowly selling funds in the index fund and purchasing stocks as I find them. It takes time and effort, but the search is addicting!


#18

Good timing - my tribute to my investor posted today!


#19

You can make an income-generating portfolio with index funds as well, as you’ve alluded to.

There’s a bit of a give-and-take that’s worth mentioning. You could probably manufacture a better dividend yield than many dividend-focused funds, but you probably won’t be able to beat the expense ratios when you take into consideration commission fees that you’ll pay when buying and selling individual stocks.