Patience is not yet one of my strengths. I have the need to see progress, to see that things move forward, the need for action. Why is that a problem on my journey to FIRE? Investing is more a marathon than a sprint. I am also an index investor. According to me, the investment style with the least action. How do you deal with that?
My situation
My current focus is to build out an index portfolio and to invest each month in my trackers. I do this as I am convinced that indexing is a great way to do better than average. This is especially true in my tax situation: on trackers, for now, there is no capital gain tax.
Dividend investing is also a good way to get great returns. This is demonstrated by the results of a lot of bloggers out there. Dividends are taxed at 25pct (soon 27pct) in Belgium and there is the home country tax. A little too much? Or do I forget the bigger goal of dividend investing?
Back to index investing: I have defined my asset allocation and I have my monthly buy in place. Not all is automated, but the reflex is there. As a result, investing takes me less than 5 minutes per month. I need to wire money to my broker and place the trade 2 days later. Then, log it and follow up when making the amber index.
What is missing?
For me personally, this all looks boring and dull. This might be the goal: spend as less time as possible on your investments so you can do fun stuff in life. But what is investing and the markets is part of the fun? I have an interest in the markets, how it works, what others do. And with all these bloggers and good content sites out there, it feels as if I have a court side seat for seeing the action of others.
Off course, Things have been smooth since I picked up investing again since April 2014. No major crash causing a loss in my portfolio. But I understand volatility and mean reversion. I know it will happen one day. I just do not know what day. Most likely, a crash will make sure there is action in my portfolio. The plan is to stay calm at that time and to keep investing.
But, it is not that kind of action that I am looking for…
The one thing missing
I am missing the suspense that comes with tweaking and playing with the markets. I know, I should not do that, it does not work and it makes you loose money. And yet, I have the need for speed.
The plan is to have some DGI stocks, write covered calls and do some put writing. By doing this, I hope to get enough distraction and adrenaline. that is missing in the index investing strategy.
How would this work?
There is some action needed to select a good DGI stock that you can buy at a good price compared to its value. I believe this is something that could give me the satisfaction I need to see the results from my effort.
Next to that, I can get some action by writing calls and puts on these stocks. With the myths that cover options, it sounds like a guarantee to get some action.
I know I need to limit myself. Therefore, I will not rush into this, but I will do it slowly, one step at the time. My overall goal could be to have roughly 25pct of my portfolio in DGI with options on top of that. This sounds reasonable to me.
Do you also have the need for speed? If so, how do you deal with it?
amber tree leaves 
Hey ATL,
I have been dealing with these thoughts as well and struggling. I have a goal to finish the year without student loan debt while also building up my emergency fund. With those goals being set, I just want it to be the end of the year!
It’s very tough. I need to find a new hobby, or something to take up my time.
Have a nice day, hopefully we figure this out!
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A new hobby is what is on my mind. Or better, getting beck into an old hobby of mine: photography! I hope to pick that up again soon.
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I find joining an investment club, one associate with better investing. org, satisfy my need for tweaking with portfolio and stock in general. So far it been a good experience, I am getting better return from my investment club account than with my own. I constantly learn from others who have more experience than me (in term of life/investing…), and also learn to slow down and study the fundamental of stock investing. Instead of keep wanting to jump onto the next best thing. Good luck.
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An investment club is a good idea. You can get a lot of fresh views on the markets and access to a lot of experience. I looked into that as well, but I did not yet find a club I like. Mainly because you need to buy your way in and chip in each month. I kinda prefer just exchanging ideas… Fo now, reading and discussing on blogs helps me.
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I think this is part of the reason why I prefer DGI over more passive investing methods. I like the extra involvement versus just looking at a more abstract number of a broad market. The dividend taxes are hard to swallow but I think it keeps me more focused on the goal and makes it easier to stick to the plan than if I were index investing.
I’ve been looking into option writing too, like writing put options to buy stocks at a discount or using covered calls to boost returns. I haven’t really gotten into it yet for various reasons. As one option contract represents 100 shares the minimum commitment is often very large as a lot of the stocks on my watch list trade at a mid-double digit price.I also have little experience with how it all works and my broker only offers options on a select set of markets and shares.
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The taxes are what hold me back for going DGI. Especially as Belgians, we have only access to a limited number of dividend stocks.
The option writing is where I find some joy now. I am only serious for 3 months now. I do as you describe: covered calls to enhance returns. Until now, I did not yet got called away… I wonder how I would feel if that happens. The put writing to to buy at a discount is on my todo list. Until now, I wrote a far out of the money put on RDSA… It gave me some pocket change to cover the next brokerage fee.
The option markets that I look at at generally available with Belgian brokers: euronext and the US.
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My broker offers Euronext and a selection of the more popular US stocks. The UK isn’t available and some of the US dividend growth stocks I’m interested in aren’t part of the broker’s selection.
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ATL,
You described why I enjoy DGI a little bit better than index funds, even though we’re subject to pretty heavy taxes in Belgium. Index investing is great, but a little too passive for my taste. I need to be reinforced once in a while that I’m doing the right thing – and dividend payments are just that.
Why are you also going the options route? Because that’s taking on a ton more risk than either index funds or DGI have.
Cheers,
NMW
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NMW,
an answer in line with what I read on your blog: DGI offers indeed great gratification due to the monthly cash flow. It also requires you to do your research on the companies you own and plan to buy. I totally understand that. It is just the taxes that I more than dislike.
Why the options route: for the experience, the learning effect and the potential returns.
I do not consider my option play a ton of risk. With a covered call, the risk is that I loose the stock when it gets called away. As mentioned to DAC, I a curious to see how I react to that. The downside risk I already have, as I own the stock before writing the covered call.
With puts, I can be obliged to buy the stock. Therefore, I only plan to do this with stocks that i actually would like to buy at the price of the put that I write. I plan to test this this coming week with KO.
Greetz
ATL
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I think writing cash-secured put options can be an interesting way to acquire stocks you want to own at a little discount. The risk in this case is primarily to the upside, the premium collected is the maximum profit you can achieve. The worst-case scenario is that you get assigned, in which case you have to buy the stock but because you received option premium your purchase price will be lower than if you had bought the shares.
DGI explained it pretty well over here: http://www.dividendgrowthinvestor.com/2014/09/selling-puts-pros-and-cons-for-dividend.html
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thx for the link. I will check it out
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Amber Tree,
Can totally understand where you’re coming from, as this has always been one of my biggest challenges – to stop doing too much with my investments, and just stick with the simple plan! I’ve found keeping a detailed checklist, and spending some time doing research on new investments with this checklist in mind, is a great help for me, as it gives me something to do without transacting too much. I even recently set a rule where I’ll only buy every 3 months, but man it’s hard to stay patient when you see opportunities all the time!
I dabbled in options at one point, but was a little too much ‘noise’ for my own personal liking. I think the individual stock investing is the right balance for me.
Cheers,
Jason
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I fully understand the noise part. Every time I have an option position running, I check the stock multiple times per day. This is not good and not part of the long term plan where investing should be effortless.
Lets just say that I am trying to find a new balance in my approach now that the indexing is set up and running.
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Hi Amber – I think you’re right that investing is boring and speculation is fun.
I have in the past invested in individual stocks and the overall returns aren’t better than index investing. It was a lot more action but one of the stocks I had invested in lost 80% of its value and it wasn’t a great feeling.
I now much prefer the diversification that an index provides.
If you want to experiment and learn a few things, I would recommend dedicating a fixed portion of your portfolio, eg. 5%, and stick to it.
Also if you are interested in Dividend Investing, there are ETFs for this too. Vanguard and iShares have a few options that should be available in Europe as well.
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For now, it is all about experimenting and learning. The 5pct rule is a good idea.
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Hello there AmberTreeLeaves!
I have nominated you for the Sunshine Blogger Award, it’s an award that is passed on from blog to blog. I’ve posted an article about it on my page, you can also check it here http://wp.me/p5EoP1-c1.
Looking forward to know a little more about you and keep up the good work! 🙂
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SCHD is a Schwab ETF that is becoming more popular among the DGI crowd. Might be worth a look? Yields a nice 2.7%, roughly.
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