Thursday, September 1, 2011

Living Off of Dividends

When you are living off your portfolio how you invest in stocks changes. Also, because I am taking money from my portfolios, I make sure that I have enough dividends and cash to cover money withdrawals over the next 5 years. I look at each account separately. I have a Trading Account and two RRSP accounts. I never want to be in the position of having to sell any stock at an inopportune time.

Also, what I am basically doing is selling in the RRSP accounts and buying in my Trading Account. I have budgeted to take out 4% of my portfolio each year. When this drops below 4%, I still take out budgeted amount from my RRSP accounts, but that means that I can increase investments in my Trading Account. Currently, I am taking out 3.1% of portfolio.

I am following the 8%, 4% income withdrawal from portfolio theory. That is I am trying to earn 8% on my portfolio each year and take out 4%. One implication of this is that the value of my portfolio will grow at 4% each year. Another implication is that I can withdrawal 4% more from my portfolio each year. However, I have only been increasing my budget by 3% each year to give me some leeway for future unexpected expenses.

As I have said when you are living off your portfolio how you invest in stocks changes. I have been asked what I would buy at this time of volatility in the market. There are a couple of problems. First I cannot legally advise on what stocks to buy because I do not have the certifications. Another thing is what I may want to buy may not be suitable for others. I am not building a portfolio.

I am generally fully invested. I am also taking money out of my portfolio rather than making new investments. Also, where my money is coming from in investments is from my RRSP accounts. Each year, usually in December, I transfer money from my RRSP accounts into my trading account. Of course, most of this money is needed for spending in the following year.

Currently, when I buy, I look to see if it is a good idea to buy more of some stock I already own. I do have a fair number of stocks and I would rather increase one I have than get a new one. What I pick may not be best in its category, but I do not want to have too many stocks.

Too many stocks can hamper portfolio management. So, this can be a trade off in deciding what to do. Do I get a new stock at a really good price or an old one that may be relatively more expensive? Usually if an old one is at a reasonable price, I will go with that. Of course, if none of my current stocks are reasonable price I would go for a new one. This does not happen much. I usually have some stock selling at a good price.

When you are starting out to build a portfolio it is probably best to build up shares in only 2 or 3 stocks, until you have a reasonable size investment in each before branching out. Although you would want each stock in a different category and, for example, categories like Financial, Utility and Consumer Staple would be good.

I also may look at some stock to fill in my portfolio in some area where my relative investment has gone down. For example, the percentage of my investments in Financials has decreased from 30% to 27% over the past year, so I may look there. Also, my investment percentage in Info Tech and Telecommunications has also gone down.

I would currently probably not be buying any utility stocks as my percentage in utility stocks has gone from 18% to 19%. Although, I must admit that my most recent purchase was of Emera because I have wanted some more of this stock, but it was overpriced. One of the recent dips in prices got the stock price in the reasonable category, so I went for it.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.


  1. Susan,

    I enjoyed reading your blog today. You said you budgeted to take out 4% of your portfolio each year. When the market is down like now, the actual amount of dollars of the 4% will be less since the value of your portfolio decreases. Should one be taking out all or a percentage of the actual amount of dividend received assuming that the YOC is at least 4%?


  2. Excellent post, Susan.

    I just wanted to let you know I read your posts like a child watching there favourite superhero on TV, hand on the side of my face and arm supporting my head.

    Keep up the good work!

  3. I am tracking my portfolio against the ideal of 8% earnings and 4% withdrawal from when I stopped working in 1999.

    I am also tracking what I earn each year less what I take out since 1999. I do not want to take out more that I earn. (In this case earning is both dividends and capital gains.)

    I track my spending against my dividend income because ideally for me, I do not want to take out more than dividend income.

    I also track my budget against my portfolio at the end of the previous year. I do not want to take out more than 4% of the previous years portfolio.

    My all my measures, I am doing fine. I do not think that you need to track against every movement of your portfolio. I think this could drive you crazy and in any event, my spreadsheets are complicated enough with the track I do.

    I do not look at my portfolio value each day, although I could as my broker provides this info online.

    I usually look at my portfolio value and dividends earnings at the end of each month. I sometimes look at it between month ends, but not that much.

  4. Thank you for your response to MML. I will be starting to pull out my dividends in a year or so (right now they are "DRIP"ing) and I was wondering about tracking the withdrawals from the portfolio.

    Thanks, Susan. Great food for thought as always!