Dear DTA,
I have a large portfolio, but I now need caretaker help 24/7. As a growth investor, I now need to think about income. I’m 92 years old.
-Daniel O.
Hi, Daniel.
Thanks for your readership. And thanks for taking the time to write in to us. We appreciate that.
I’m sorry to hear about the need for caretaker help, but I’m confident that you’ve made the right choice for your situation.
All of us value our independence, but there’s nothing wrong with seeking help when the time is right.
I’m actually a little bit surprised that you’re making that move now.
Generally speaking, a move like this would have been made many years prior.
Regardless, I’ll do my best to bring a few concepts and ideas to your attention that I believe can help you maximize your short-term income without coming at the expense of negatively affecting your estate and ability to leave a legacy behind.
I’m assuming that’s at least somewhat important to you. Otherwise, I would imagine spending down the principle would have already been considered.
So you have a bit of choice to make at this stage of life.
It boils down to fixed income versus stocks.
Now, I pretty much recommend stocks as a universal matter of course. They vastly outperform bonds over the long run as an asset class.
If you can stomach the volatility along the way, stocks will treat you much better over the long term. You’ll almost certainly end up with more wealth. And you’ll probably even end up with more income.
Since you mention being a “growth investor”, I’m assuming you’ve been heavily invested in stocks up until this point anyway.
However, your advanced age means you may want to consider allocating a significant portion of your portfolio/wealth toward fixed-income investments because your investment time frame is shorter and your need for current income is greater.
If that’s the road you want to take, there are a number of acceptable paths to take.
You could look at Treasuries. Investment-grade and/or high-yield corporate bonds are also options.
The best option for you, though, may be tax-free municipal bonds.
A municipal bond is a debt security issued by a state, municipality, or a county. They issue these securities so that they can finance capital expenditures, including the construction of highways, bridges or schools. It’s money for infrastructure, essentially.
The right municipal bond can provide you with high yield, tax advantages, and low risk.
However, there’s something important to keep in mind here.
Fixed-income assets obviously come with the disadvantage of greatly limiting any opportunities to build long-term wealth or appreciate. That’s due to their very nature.
This should be something you think on carefully, as it can impact what you leave behind for your heirs.
If a legacy is important to you (I’m assuming it is), you may want to think about allocating an appropriate amount of your portfolio toward high-yield, high-quality dividend growth stocks.
Said another way, you may want to sell some or all of your growth stocks in favor of high-quality dividend growth stocks.
In the interest of full disclosure and remaining completely transparent, I’ll show you what that looks like for me.
I have 100% of my portfolio invested in high-quality dividend growth stocks, as you can see by looking at my FIRE Fund.
That’s my real-life and real-money dividend growth stock portfolio that generates the five-figure and growing passive dividend income I need to pay for my bills in life, rendering me financially independent.
However, I’ve been slightly aggressive with my wealth because it was my goal to quit my job, become financially independent, and retire as early as possible.
I’ve shared that journey from below broke to early retirement in my Early Retirement Blueprint.
It’s obvious that some of this doesn’t apply to you. We are in vastly different stages of life, with very different goals.
However, that’s not to say that this information doesn’t apply at all.
Indeed, I think you should take some time to read through fellow contributor Dave Van Knapp’s Dividend Growth Investing Lessons.
That’s a series of articles that are designed to educate novice and experienced investors alike (of all ages) on what dividend growth investing is, why it’s so useful, and how to successfully implement it.
He’s a fellow writer and dividend growth investor who’s allocated a notable percentage of his wealth toward high-quality dividend growth stocks. And Dave is quite a bit older than I am (though not quite at your age), so he’s using the growing dividends these stocks generate to supplement his other sources of available retirement income.
Indeed, you could use dividend growth investing to accomplish a similar feat.
Dividend growth stocks are basically shares in businesses that are paying their shareholders regular and reliable growing cash dividend payments, which are funded by the regular and reliable growing profits the companies are producing.
Oftentimes, a dividend growth stock is a blue-chip stock that represents equity in a world-class enterprise that’s been around for decades (or, in some cases, more than a century).
You can see what I mean by this, Daniel, by checking out the Dividend Champions, Contenders, and Challengers list.
That list contains invaluable information on almost 900 US-listed stocks that have raised their dividends for at least the last five consecutive years, with many stocks doing so for decades on end.
Now, if I were 92 and primarily interested in income, I’d be looking at only the higher-yielding high-quality dividend growth stocks out there.
However, they’re not that difficult to spot.
I actually share a compelling dividend growth stock idea every Sunday, after I go through a thorough analysis, risk assessment, and valuation process.
Once I compile that data and conclude that a dividend growth stock looks appealing, I share that idea with the investment community at large via the Undervalued Dividend Growth Stock of the Week series.
Not all of these ideas will suit you due to some of them sporting relatively low yields.
But I’ll share a few recent ideas here that all offer very appealing yields – much more appealing than what you’ll likely find in the fixed-income space.
Here’s the link to an article I put together on AT&T Inc. (T) – it yields over 6%!
Also, take a look at this piece on Altria Group Inc. (MO) – it’s offering a yield of over 5%!
And then there’s the very recent analysis I put together on The Kraft Heinz Co. (KHC) – it’s a Warren Buffett pick that yields 4.5%!
There are options for you in both the fixed-income and equity space, Daniel.
But you should take this time to do your research and make the most appropriate choices for your goals.
There’s no time like today to get started.
I wish you luck and success.
Jason Fieber
Disclaimer: Jason Fieber is not a licensed financial advisor, tax professional, or stock broker. Please consult with a licensed investment professional before investing any of your money. If your money is not FDIC insured, it may decline in value. To protect the privacy of our readers, any names published in this article are under aliases. In addition, text may be edited, omitted or paraphrased for grammar or length.