“On the same note, pf bloggers have also gotten awfully quiet about the 100 push up challenge, but I digress (as usual).”

Ouch!

@mattg – If you’re not confident or do not want to spend years learning it, you could always get an ETF that focuses on blue chip dividend payers like DVY (there are others!). For individual selection, about 20 companies is the sweet spot. It’s hard to keep track of more and if they are selected from different sectors, you get rid of almost as much company risk as a broad market index without hiding your performers.

@FB – Since I’m mainly in (semi)-solid (about 50/50 mix by position .. in terms of position size, the solids dominate though) dividend payers, I have been doing better than the market. Unless the emotional state of the market changes, I expect to do less well than the market on the way up. I simply have a lower beta. It’s not that I’m making superior calls.

I am sorry to report that the funds I hold (about 25% of my fortune) have been doing way better than market and better than me too. A solid blow to my ego. One of them (the largest, HSGFX) is down 15%, another (FPACX) down 25%, PRPFX down about the same .. the one that took the heaviest hit was DODFX.

I don’t think any of them are doing worse than the market, DODFX is on par depending on which day you check.

Who said I’m not market timing? 😉 No, I’m not picking trends or bottoms, but there are times to sell, .. well in my case buy less .. and then there are times to buy more. I’m picking statistical outcomes. Right now, long terms gains are likely to be high. Short term? Who knows? Who cares? I’m still getting income (that’s what I care about).

Currently, I am moving money from stocks that have held up and putting them in things that have been punished. I’m also decreasing my cash position with the goal of getting it down to 5% … and then there’s of course new cash.

As for inflation, some dividend payers tend to increase their dividends often 10-20% although lately that has kinda sucked. You have the same inflation problem with an asset based model though and don’t forget that the underlying stocks are still assets. This is also why I’m not too keen on bonds.

@Trug – Indeed!

@Judith – There are three answers.
1) I used to use the 4% rule. If 4% of your stock investments exceeds your living expenses, you’re historically good for at least 30 years and in some cases forever. I am still below that number i.e. annual expenses are less than 4% of my invested assets. Technically, once you cross it, the fluctuations should cover you. For instance, if you pull the plug in an up market, you will see the number drifting up as the market goes down, but that’s okay since future appreciation of your stocks will be higher thus compensating.
2) Since 2005 my capital gains + capital income as per my tax return have been higher than my expenses. Not every year, but if you keep a running average. Later on I have become smarter about realizing losses to cancel out gains so I ideally pay close to no taxes.
3) I started the quest for income/cash flow at the beginning of 2007 – it was gradual, so I currently do not have quite enough dividends from individual funds to cover my expenses ($6000). Dividends currently stand close to $5000/year. There are also dividends from funds to be added on top of those but it is always hard to predict what fund dividends are going to be so I’m not counting those in.

I am biased of course but I also believe that dividend/income investing is the way to go as long as the investor follows these rules:

1) diversify accross industries
2) diversify across companies ( hold at least 30+)
3) focus more on dividend growth prospects and less on the highest dividend yield
4) make sure you research your positions and that their dividends are adequately covered
5) sell after a dividend cut, but hold on if the dividend is kept unchanged
6) If you are ready to live off your cash flows, place at least 25% of your portfolio in fixed income. I am a fan of laddered CD’s, as the only risk there is inflationary as long as you are not over the fdic limits.
7) As a general rule i would prefer to own my place of residence at retirement so that I am “hedged” against rent increases and in the worst case scenario live off my house either through a reverse mortgage or sell it a move into a smaller house in smaller towns

This is definitely a buying opportunity, just like last year at this time was a selling opportunity. GE at $13 and roughly 10% dividend last week…just plain awesome.

More buying opportunities ahead for many stocks.

Ok. You need $5,000 to cover your annual cost of living. Why gamble on stocks? (The stock market is a gamble in the short-term regardless of what anyone tells you; and as Jacob wrote: the market has gone flat before for 10 – 15 years at a time.)

To be truly FI you need guaranteed returns. So, if you need $5,000 a year, you need enough in 30 year bonds (or an annuity) to cover that.

But, then, you need to account for the possible and likely effect of inflation on that income. But inflation will seldom affect all our indiviudal consumptions equally. Food is probably it but one can obviate that by growing some of the necessities, composting, and keeping chickens.

The tricky part is housing; even if you own your home without a mortgage a single-family residence is probably the most expensive option. I own four rental units (free and clear), live in one and the others provide me income and inflation protection because I can raise the rents to keep that income constant.

I keep half my money in cash and half in bonds although I don’t need income from either to meet my living expenses since I own an inflation-adjusted annuity that is almost double my cost of living.

Certainly, it is possible to accomplish FI using stocks (or playing the lottery, or 21 in Vegas) but I don’t believe it is prudent or hardly the most desirable or even sustainable means to that end.

I see the stock market as a gambler’s ploy to avoid the longer-haul of saving enough to buy sufficient 30 year (Federal government) bonds or some form of federally-insured annuity.

[quote]Incidentally, I’ll lend money to the government the day they pay interest in gold There’s a certain moral hazard associated with lending money to people who can print money at will to pay you back.[/quote]

True.

Everything I’ve read suggests that market timing is impossible for the “small potatoes” investor.

What makes you think you can consistently pick winners when Malkiel, Bogle, etc… have made such convincing arguments that we cannot do it?

Realise this post is very old but has turned up in my Inbox as a recycled post.

Now we are in 2013 and I think most would describe the market as “up” – what would you suggest for people just starting out? Are the tactics exactly the same, i.e. research income producing companies and buy some holdings, or do we try to hold more cash in case of another crash / buying opportunities?

@Sobert Gummer – You need to read more than just the standard popularized accounts of 1950/60s financial research such as Malkiel and Swedroe—or whatever simple methods they teach econ undergraduates(*). In the past 50 years, more modern research using mathematical methods has made convincing arguments that it can be done. Being able to use fast computers (the microchip was invented in 1971) really makes a difference in terms of extracting signals from random noise. You no longer need to rely on the simplest of simple statistical assumptions (e.g. random uniform distributions). See e.g. Lo & MacKinlay’s “A Non-Randon Walk Down Wall Street” (warning: heavy math!).

(*) They still teach Newtonian methods in Physics101 but that doesn’t mean it hasn’t been superceeded. It also doesn’t mean that it has been rendered irrelevant. It’s still useful for some things…such as creating and selling low-fee pension funds to people.

Also, this year’s Nobel prize in econ went to Fama for showing the efficient market hypothesis and Shiller (observe the relation between the Shiller P/E10 and subsequent returns — if markets were unpredictable this relation would be all over… it isn’t!) for showing that it doesn’t always hold. Shiller’s research proceeds Fama’s by a couple of decades. Also Hansen for the statistical methods used.

In addition, small investors don’t suffer the slippage problem of big fund managers. Scaling is a big advantage! If you look beyond the trite “the average fund investor can’t beat the market” (well, obviously, duh! Because they are the market.) and look towards smaller operations, you will find overperformances nearing hundreds of standard deviations. If that performance was random it would takes trillions of years to happen by random chance.