Time to get in?

Anyone not living under a rock this week knows that the stock market took a big dive.  Not the end of the world for a dividend investor, so long as the price decrease doesn't coincide with a dividend cut.  That being said, I have about 40K on the sidelines in money market accounts.  I sort of consider this my emergency fund, although I'm not sure what kind of forty-thousand dollar emergency I might ever encounter.  So is now the right time to take some/all of that money and invest in stocks?  If so, which ones?  I'm leaning towards holding off for now, and see where things are in a month.  What would you do?

Life After Debt: The Next Phase

After paying off my car this week, I can't help but spend some time thinking about how I want to invest what used to be my monthly car payment.  Also on the horizon is my big dividend check, which comes around the 16th of October.

I feel like my first order of business is to straighten out my Roth IRA.  I started a Roth in 2002 without really knowing what I was doing.  I went into the bank I was using at the time and sat with one of those financial planners at "the desks" and set the thing up.  It was in in B shares of what is now the oppenhiemer main street fund (I had no clue what I was doing at the time).  The exit penalty should have expired by now, so here's the plan as I see it:

Next month, go to scottrade and with the dividend check I'm getting, open a new roth IRA there.  Once the account is established, roll over the oppenhiemer funds into this account.  This will give me approximately $7500 dollars in the account.  As I can, I will continue to put money into this account until the end of the year until I have reached my 5k contribution limit.  Then, in subsequent years, do the same thing, until I get wildly rich and can no longer contribute to a roth because my MAGI is too high (I know, really wishful thinking).

As far as investing goes, my thought is to set up a ladder-like effect, first investing in extremely high yielding (and much riskier) dividend stocks, then stepping it down to lower yields (and also lower risks).  I was thinking for the first investment, maybe an mREIT first (ARR has piqued my interest recently), followed by one of the telecoms, and then finally, utilities and consumer staples (think PG, JNJ).

Any thoughts?  This plan is by no means set in stone.



                 

Paid off the car!

A big moment for me happened this week, I finally paid of my car, a 2010 Subaru Impreza.  I'm hoping that I won't have a car payment for a long time now!  Next (and last) on the list is paying off my TV, which I hope to do by the end of the year.  Then my investing can kick into high gear!

Recent Purchase

I got the dip I had been waiting for today, and I picked up 58 shares of CLMT.  The stock (MLP) took a pretty hefty haircut today, closing at 18.00 per share.  This is due to the company selling 11 million units (shares) to finance some debt that was generated in the purchase of an oil refinery.  I'm confident that this is a good entry point for this stock.  At its current price its distribution (dividend) is yielding 11%.  My purchase means an additional $28.71 per quarter at the current distribution.  I'm not concerned with the possibility of a distribution cut at this point, as they recently raised it from 0.475 to 0.495 per share per quarter.  Anyway, I'm happy with this one; I've had my eye on CLMT for a while.  Time will tell how good of an investment it is, what do you think?

August Dividend Income

Well, August was another good month for me, my total portfolio jumped in value by about 3k, and my dividend income was up slightly from the previous quarter.  Since most of my dividends pay by the quarter, to do monthly comparisons, I typically compare August with May, February and November.  While these months yield good dividends for me, they aren't as good as January, April, July, and October, but I'm working on that.  Without further ado:

O - $10.14
ERH - $42.38
LINE - $414.00
CLMT - $247.50

I'm looking to take this money and add to my position in CLMT, as I feel it is slightly undervalued right now.  What do you think?

Why I don't really like my 401k

If you read any main stream financial advice tailored for just about anyone, advice to contribute to a 401k is always there.  The three major reasons why anyone would contribute to a 401k is as follows:

1. Contributions do not count towards your modified adjusted gross income (MAGI).  So lets say you make 50k a year, and contribute 10% (5k) of that towards your 401k.  Come tax time,  you will only be taxed on 45k, which will in turn lower your tax bill.
2. The match.  Although not as generous as they were before the 2008 downturn, some employers still offer some sort of match to their employees contribution, usually limited to a certain percentage or yearly dollar amount.  Not contributing when your employer has a match is sort of like throwing money away.
3. In theory, it should be better than a savings account.  Your investment choices are a basket of mutual funds, managed by professionals.  They should be able to beat the 0.3% a year a savings account spits out, right?

So whats not to like?  Well, a lot.  My employer matches up to 4%, but in order to get that, employees need to contribute 6%.  I contribute the 6% and nothing more.  In fact, if there was no match, I wouldn't contribute anything.  I probably still shouldn't contribute anything, but maybe I'm a sucker.  Why do I feel this way?

1. The fund choices.  I work for a small company, so when we first started our 401k, we had about 10 fund choices.  None of them have done particularly well since 2007, and to have picked the right ones you would have been better off throwing darts blindfolded at them.  The funds I chose aren't that hot, but at least I haven't lost money, or I wouldn't have lost money, if it hadn't been for:
2. The fees.  Even the bond funds have fees associated with them.  I'm all for giving someone money when they're doing a good job for me, but managing money is so black and white - you either made me money, or you didn't.  If you didn't make money, what exactly am I paying you for?  My employer is already paying you to manage the 401k's at the company.
3. The pomp and circumstance surrounding these investment vehicles.  Ok, so this point is a little irrational, but hear me out.  A few months ago (April) we changed over to a new company to manage or 401k plan.  They sat all of the employees down, and trotted in this man with a tacky looking watch and an ill-fitting suit.  He came in claiming we now had access to thousands of funds, and charts showing how much money we were going to have after 30 years as a result of all of this.  He also claimed that we now had direct access to a professional money manager (him) that we didn't have with our old plan manager.  The fact that we had access to so many funds actually piqued my interest, I mean there are some mutual funds out there that consistently beat the dow, even minus the fees.  So after he left, I emailed him the names of some of the funds I liked to see if they were on the list.  I heard nothing back.  I waited 2 weeks and picked up the phone to call.  He claimed he was just about to write me back to let me know that he was just about to dive into research on the funds I sent him.  Needless to say, I still haven't heard back.  Further, our old 401k still hasn't transferred into this new one, almost 4 months later, so even if I could get a list of the funds we have access to, I couldn't transfer into anything new. I'm not impressed.
4. Its pretty illiquid.  Taking money out of a 401k before retirement is not a good idea.  First, its now taxable upon withdrawal, plus an early withdrawal penalty (I believe 10%).  You can also take a loan out against it, but that might be an even worse idea.  I've known a few people to do this, it doesn't end well.  And I get it, its supposed to be for retirement, but you know what?  Life happens.  I might someday need the money in there today to make it until tomorrow, who is the government to take a cut of my money that I might need for a financial emergency?  Is that really better than these payday loan places everyone shakes their head in shame at?  And the whole time in the background, the fee collectors are laughing, knowing that as long as it remains illiquid, people are stuck paying fees.

So there you have it.  I'll still keep contributing to get the match, but nothing more for now.  The only thing that could make me contribute more is if my MAGI goes above 105k, thus preventing me from contributing to a roth IRA, but I'm still below that for now.

First post - About me

I've been an avid believer in dividend investing for several years now, from my very first purchase of rochester gas and electric at the ripe old age of 12.  I went on to college, and then started graduate school in the fall of 2002 in a biochemistry program, and for most of that time I did practically no investing.

Then in 2003, the wonderful woman that was my grandmother passed away.  We were pretty close, it was a tough loss for me.  Upon her death, she willed to me shares in a small community bank that pay a not spectacular, but steady dividend.  It didn't make me uber rich or anything, but the value of the shares was still a substantial sum of money for a 23yo to walk into.  Instead of doing what most people that age would do, which is sell the shares, take the massive tax hit, and by the material possession du jour (clothes, new car, maybe a condo), I decided to keep the stock.  It had some sentimental value, and besides, it spit out a quarterly dividend of about 1200 bucks, which was nice for a graduate student to have coming in every 3 months.

As time progressed, both the dividend and the value of the stocks incrementally increased.  In eight short years, the value of the position I inherited more than doubled, and today the quarterly dividend check is almost 3k.  In the meantime, my potential earning power was increasing.  I finished my PhD in 2007, worked as a postdoc for 2 years, and now work as a scientist for a biotech startup company.

In 2008, I finally had saved up enough money to open an account at a discount brokerage.  I decided to go right back to the well, and start to diversify away from my inherited stock by purchasing shares in other companies that pay dividends.  As of today, these investments (which I will describe in detail at a later time) pay about 1k a quarter in dividends.  I also purchased some physical gold and silver in 2009, and you don't need to be a financial expert to know how well that investment is doing :).

So at this point, I'm working at a job I really like and am compensated nicely for, all while simultaneously making about 4k a quarter in dividends.  What could possibly go wrong?  Well, life happens.  While I probably could have made 16k a year work in grad school, I live in a much more expensive area in the country now.  Further, I just got done going through a very costly, both financially and emotionally, period of my life.  Its a story for another time (and probably another blog).  Let's just say that marriage is not in my future.  But the dark cloud that was once overhead is now clear, and it could have been much worse than it turned out.

I feel like I was granted a new lease on life.  So what do I want it to look like going forward?  I want to cut down on expenses.  That means clearing my car debt and credit card debt ASAP.  I'm actually hoping to have both paid off by the end of the year.  Next, I'd like to take the money that I've been using to pay these things down monthly, plus the 4k in quarterly dividends that I receive now, and ramp up my investment efforts.  Lets face it, while I like my job, its a tough economy out there and I work in a highly specialized, pretty shaky industry (startup biotech).  This blog will document my journey towards greater financial freedom.

A few other things.  While I enjoy reading some great dividend blogs out there (Dividend Mantra, Early Retirement Extreme, Dividend Partisan, Dividend Pig, etc., my journey is much different.  I've been granted a head start, which I'm grateful for, but I think it allows me to take a few more risks.  I also really like my job, so I'm not counting on having to touch either the principle or the dividends for a long time from here on out.  I guess this is just a long winded way of saying, "The investments I choose are probably not right for you, and maybe not me either, as I'm really a scientist having some fun with money on the side."  Anyway, hope you enjoy it.