One of the things that I find difficult, is too choose the best solution for my FIRE. Applied to investing, this translates into what core investing strategy you decide on. You know, they say you need to set up a plan and stick to it.
I feel that I am in a discovery phaze only. I would like to see, play and experience with a few investment styles before making up my mind. And I know that is bad, so how do I deal with that?
Reasons not to choose.
There is always an article out there that brings an inspiring story on the results they have with their style.
Being an index investor at the core, I keep being fascinated with the results of the dividend investors. That draws my attention. I want to go and explore it myself.
There are also the people that use indexing to get market returns. That is what I do now, but it is boring. What if I am missing out on something great?
How to proceed?
Some time ago, I already figured out that I need a layered approach to investing. This should enable me to sleep at night and try to have almost zero worries about the basic aspects of money. So yes, I do believe I have the basic hygienic covered like an emergency fund, pension saving, some guaranteed products and first-step products.
This actually leaves me with the following question:
What style is ok for me?
As time is the most precious thing of all, I want to make sure my investment style can deal with a flexible amount of time it gets from me. So, I should
- avoid the feeling that I have to free up time to invest. Hence, I need to automate as much as possible and have a main system that does not fail if I skip a month
- have fun with my investments
Based upon the above criteria, here is how I see the different styles
1. Index investing with rebalancing
This is what I do. It is actually easy to implement. I have the allocation thought true, now it comes down to spending approx 5 minutes per month to execute it. Perfect fit for criteria 1: It asks almost no time and if I miss a month, nothing really happens.
The fun part here is really low as it is execution only. On the bright site, it leaves a lot of free time to do other things.
2. Index investing with momentum or other technique
This sounds like a lot of fun and allows to be occupied for quite some time. However, It means you “have to” follow up regularly to see what you need to do. I do read from a lot of studies that you can get superior results.
Looks tempting, but takes more time – do the calculations – and temperament to follow the system. Missing a month could mean you do not sell when you are supposed to sell.
For now, I exclude this.
3. Dividend investing
Others make it look easy. I believe it is more difficult than people think. It requires time to follow up the stocks you own and see if the basics for the dividend growth is still there.
What interests me in the DGI approach is that you do not need to sell the principal to get income and that a market correction should have a limited impact on your income. For sure, there will be companies that stop paying a dividend.
Living in Belgium, I will pay 27pct dividend tax to the Belgium government. I need to add to that foreign tax. In the case of many countries, this will cost me another 15pct. This leaves out of 100USD dividend, about 62USD net in my pocket…
I am sure that dividend investing will end up being a big part of my portfolio, just not now, while I accumulate.
I secretly have already dividend stocks, as part of my play portfolio. This is where I learn about DGI.
All things considered, I believe that at this moment of the journey, indexing is the best for me. The fun part comes from my play portfolio. It is a small portfolio, so no real harm can be done. I am also convinced that over time I will switch to a dividend paying portfolio to support my FIRE lifestyle. I might end up being invested half-half. The doubt will never go away… The right style is personal and might change over time
Why did you pick a certain style? Or do you mix certain investment styles?