Retirement 2.0

Throwing out the old playbook + Full Retirement Positioning

Retirement Strategy Performance Update:

In my retirement article published on August 23rd, 2023, I shared how I was unpleased with my Vanguard returns:

Since July 2015 my retirement account has returned a total of 25.66%.

Source: WealthWise: More Than Double Your Retirement Income

Once I realized this and the fact that Vanguard is charging me a 0.48% annual fee to get me this return, I moved everything out of my 401k into a self-managed IRA.

I could not be more pleased to report that my retirement account has grown by 26.64% in just the last year (with one week to go for it to be 1 full year) as of August 13th, 2024.

Vanguard made me 25.66% in 8 years, I made 26.64% in less than a year.

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Retirement 2.0

Dividends consistently underperform tech. 

I don’t have any psychological need to receive income, I rebalance my portfolio diligently and can draw a much higher, nearly 2x higher yield from my tech + rebalancing strategy vs dividends. 

In this article, I will share why I am moving out of dividend stocks, why I am doing it now and where I am moving those funds to. You can find my full IRA account positioning at the end of this article.

I’ve been thinking about this for a while. Even when I wrote my first article, almost a year ago, I had charts in there that clearly showed that dividends underperform tech in the long run but I guess at that time the markets were a little scary and I was looking for some safety. 

Source: WealthWise: Only 3 ETFs You'll Ever Need for US Equities Exposure + Kicker ETFs

I chose $SPGP at that time, specifically because it performed well in a challenged marked environment:

Again it is self explanatory as to why having such an ETF in your portfolio is a good idea, specially in the current environment where there is so much dispersion in the market and stock picking is key.

Source: WealthWise: Only 3 ETFs You'll Ever Need for US Equities Exposure + Kicker ETFs

The more I thought about it, the clearer it became. Given that I have decades of investing ahead of me and there has been no bull market in the last 100 years in which tech didn’t do well (it led almost all of them), I cannot knowingly make half of what I could make, if I am more aggressive.

I am therefore announcing a major shift across my investment philosophy, which is to not focus on dividend. This does not mean that I don’t care about dividends or that they are not important to me. It simply means that I will not buy a stock where the primary incentive is the dividend. This also does not mean that I will sell all my dividend paying stocks but I will curtail my dividend portfolio a considerable amount and move that to other positions mentioned later in this article. I still intent to hold on to some high dividend paying stocks and access their performance further down the line.

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Why Now?

I think the months between July to October are ideal to make large changes to your portfolio including making changes to your positions as well to make changes to your broader retirement strategy, especially if you plan to switch brokers. 

This time is ideal to make changes to the portfolio because of high volatility. This is what I am doing with my move out of dividend stocks and into other areas of the market. While there are no guarantees in the stock market, I would look to cash-out mid-July and then reinvest it by mid-October. This is exactly what I did when I moved my 401K to an IRA last year, which worked out really well. In the most recent dip, I managed to rotate 25% of my intended rotation out of dividend and into growth. Once the gains qualify for capital gains, I will be on the lookout for more volatility to rotate the rest out of my dividend positions.

In regards to making large changes to your broader retirement strategy, like rolling over your 401K into an IRA or rolling over into Roth IRA: If you stay with the same broker and employ the exact same strategy in both the account you are moving funds from and to the account you are moving funds to, then this is not very relevant to you.

But if you want to switch brokers, that process can take up to a few weeks and if you’re going to sit out of the market for weeks, then it would be a smart idea to pick the weakest period of the year. And even if you stay with your broker but just want to change your investment allocation, then it might turn out to be beneficial to have all that cash to invest during the seasonally weak period.