Income Investing and My Retirement Strategy

My friend Henry Mah wrote a book called 'Your Ever Growing Income'. It is based on using a dividend growth strategy to grow income for retirement. If you don't own it you need it.

What does that mean?

A lot of things like; being a do it yourself investor, knowing what stocks to buy to fund your retirement and how to live off that income.

I use this strategy in all my retirement accounts because I'm comfortable with it and believe for me it's the best way to supplement my monthly pension cheques with monthly/quarterly dividend income.

There are so many investment strategies out there it can be overwhelming to us average people just trying to grow our money. This is just one of them and may not be for everybody.

Henry has posed a series of questions that I will now answer as it pertains to me.

What Stocks Should You Buy and Why?

I buy stocks from a small select group of companies for retirement.

• banks
• telecomms
• pipelines
• utilities
• railroads

Just this week I added to my positions in RY, TD and BMO.

These categories contain the stable, old and established companies that have a history of not just paying a dividend but raising it year after year.

Royal Bank has not missed a dividend payment since 1942. Except for 2008 it has also raised that dividend every year. This is how I invest for retirement. As a starting point I started with 1 company from each category. Currently I hold a max of 12 stocks in any one account.

How Should You Evaluate the Merits of the Stocks you are Considering?

I look at a 10 year track record of paying a dividend and raising it. I then look at how cheap it is selling for when I have the money. Some stocks are cheaper than others. Looking at a chart will tell you where it stands. Check out a current 1 year chart of EMA. You think it's cheap to buy right now? NO! 

So I look at a combination of things before I deploy new cash to buy income producing stocks. It's not a shotgun approach. All banks are cheap right now and also provide that growing income I look for.

When Should You Invest More Money Into New Stocks or The Ones You Already Own?

As it builds up in my account from dividends received.

I basically just add to the stocks I own which is a core of 10 stocks.

When Should You Sell Your Stocks?

If you have too many in one category. I sold CIX and SJR-B this week. They both underperformed my expectation and lagged other stocks I owned in the same category. I deployed the money into bank stocks I already owned, concentrating my PF further.

Should You Be Worried When The Market and Prices are Going Down? Why?

NO! I get excited by this.

When prices come down it's time to buy stocks that you have been looking to own. Utility stocks are expensive right now. Should you own some? YES!

Wait until they get cheaper to add is what I'm doing. Once you have a core of stocks then you can look to add on days the market is going down which is just a flashing BUY sign. This is what the smart money does. Look for down days don't run and hide. If you have no money or no desire to buy stocks just ignore one time down day events. You'll sleep better. Royal Bank is NOT going bankrupt.

Should You Diversify Into Other Stocks, Sectors and Markets?

To each his/her own. I mentioned above what I think the stocks are that retirees (of which I am) should be invested in.

I also like food as an investment sector. In one account I own Costco. That checks off another market (U.S.) and another sector with one holding.

People have to eat and food is a stable sector for income investment in my opinion. It's also essential for us but whether it's essential for your retirement is a matter of personal opinion.

My quarterly dividend payment combined with my yearly member's coupon pays for our membership in Costco. Use this strategy as a hedge at a place we like to shop. It helps ignore the annual fees when you're a shareholder too.

For tax purposes I stick to mostly a 100% Canadian Maple Bacon Portfolio. You can use that name if you want.

Should You Worry About Asset Allocation and Rebalancing? Why?

This philosophy comes from Modern Portfolio Theory which I don't believe in or subscribe to. It was invented to make advisors sound smart to sell investment products and funds to retail investors.

Charlie Munger calls it "twaddle". Basically just a set of words used to confuse people about investments.

I don't worry about it and add money to stocks when I have the money and the company goes on sale as mentioned previously.

I also don't believe in 60/40 balanced portfolios. More twaddle!

Should You Worry if your Stocks don't Perform as well as the Market? Why?

No. I don't even monitor or gauge this. I pay attention to dividend increase announcements. This way, I know my invested capital is growing and will continue to provide me with a growing income through rising dividends.

The greatest threat to retirees is running out of money. To avoid that scenario make sure your yearly dividend income is rising. If not, look at your investments and choose those ones that will help you achieve that goal.

When Should You Invest in ETFs, Mutual Funds, Bonds and GICs?

I don't and don't own any of these products. Buffett says most people (90%) should just buy a fund or ETF that tracks the S&P 500 and add to it monthly when you have the money.

I have tried all these products in the past and I'm now 100% individual dividend growth stocks. It's NOT for everyone it's just what I do and NOT what I recommend anyone else should do.

It's just what works for me and what I'm comfortable with. What you should have is a strategy to get to and live a comfortable retirement without running out of money. 

How Do You Determine How Well Your Stocks Are Performing?

Yield + Growth = Total Return

Is the yield growing? How much on a yearly basis? Is your investment going up or down in value? Nothing else matters or deserves attention.

Oh! Do you sleep well at night? If not, time to make some changes so you can.

Final Thoughts

I am not a personal finance blogger. I'll leave it to others on how to save, clipping coupons, how to get a cheap flight, what's the best credit card, budgeting and where to cut expenses.

I simply document and share my experiences trying to grow my retirement money and income. I document NOT create content or anything new that  investors don't already know. I just tell my story.

I further believe that if you are already retired then you MUST become an income investor. That way you can ensure you won't run out of money and in fact have even more money the longer you hold your income stocks.

Lately, I have been using some spare capital to invest for capital gains. High risk and I hope high rewards. I could lose all this money, but I have set it aside for gambling purposes.

I have been documenting my journey a couple times a week while doing this trading. Check back often to see how it's working but don'y buy and sell what I am unless you are prepared and can afford to lose most of it.

Thank you Henry for the invite to the questionnaire. It's been fun. Good luck to all trying to grow money and secure a financially sound retirement.