Investing in high quality dividend growth stocks for the long-run is an effective way to build and maintain a retirement portfolio.
Q4 hedge fund letters, conference, scoops etc
ValueWalk readers can click here to instantly access an exclusive $100 discount on Sure Dividend’s premium online course Invest Like The Best, which contains a case-study-based investigation of how 6 of the world’s best investors beat the market over time.
But that’s only the first goal.
Many retirees will leave an inheritance of some kind for their children, grandchildren, and/or charity.
The average American retiree expects to leave behind ~$177,000 according to this 2015 survey.
Leaving behind an inheritance for the next generation is a special gift that can help provide a financial advantage for your descendants.
Unfortunately, the skills that it takes to build and maintain a growing investment portfolio are typically not transferred with an inheritance.
In fact, Time estimates that 70% of families lose their wealth by the 2nd generation, and 90% by the third generation.
Those are absolutely shocking numbers (to me, anyway). Based on the data above, many beneficiaries do not know how to prudently manage their inheritance.
There are 4 critical wealth ‘secrets’ to address when discussing investing with potential beneficiaries for compounding intergenerational wealth.
While they aren’t real ‘secrets’, they appear to be practiced so little they might-as-well-be secret.
Before we get to the 4 wealth secrets, here’s why it matters… The bullet points below shows what would happen if a family were able to compound $10,000 at 9% annually (the historical average of the U.S. stock market) over increasingly long periods of time:
- $23,673 after 10 years
- $56,044 after 20 years
- $132,677 after 30 years
- $743,575 after 50 years
- $55.2 million 100 years
- $4.1 billion after 150 years
This is without saving any additional money after the first $10,000.
As you can see, the payoff of teaching how to save, invest, and compound wealth to future generations is absolutely enormous.
4 of the wealth ‘secrets’ needed for intergenerational wealth compounding are covered below.
Wealth Secret #1: Have A Long-Term Mindset
When you focus on long-term returns, you set yourself apart from all the MBAs and analysts scouring the market and crunching numbers about what stocks will perform the best in the next 3 months to 1 year.
You can’t win at that game. But you don’t have to play it either.
“The single greatest edge an investor can have is a long-term orientation”
– Seth Klarman
Having a long-term perspective means investing in:
- Great businesses
- With strong and durable competitive advantages
- And attractive total return potential
“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.” – Warren Buffet
When one develops a long-term mindset, it makes sense to invest your money where it’s likely to grow the fastest over long periods of time, instead of looking at what asst class might be the ‘hottest’ next month or next year.
And that brings us to the next wealth secret for intergenerational wealth compounding.
Wealth Secret #2: Invest In Stocks For The Long Run
Investing in equities may seem abstract. To many people, the stock market is little more than a giant casino for ‘financial types’.
Broad-based index funds can intensify the ‘casino feel’, because one doesn’t have a connection to what they are investing in.
I have nothing against index investing. It’s a great way for investors to get broad market exposure.
And market exposure is a great thing because stock market has massively outperformed gold and other commodities, short-term debt, long-term debt, and cash over the long run.
But whether you are index investing or investing in individual securities (our preferred method at Sure Dividend), it’s important to understand what you are really investing in.
Investing in the stock market means you are investing in real businesses. Every share of stock is a tiny fractional ownership claim on a real business.
I believe equities have outperformed other asset classes by wide margins over long periods of time because businesses are around primarily to make money for their owners. And the people who run businesses work hard to make that happen.
As society progresses and businesses get more efficient, more money accrues to investors.
Income paying stocks pay out a portion – sometimes virtually all – of their earnings or cash flows to shareholders; the owners of the business.
And that’s where the next wealth secret comes into play.
Wealth Secret #3: Prevent Panic Selling With Income Investing
While building wealth over very long periods of time is nice, you need to fund your expenses today (or be prepared when you do retire) with income from your investments.
If your portfolio income covers your expenses through dividends/distributions, then you have reached a special investing state; you are no longer forced to sell. You get to pick when you sell.
If the stock market collapses 50% – and your high quality incomes stocks keep paying steady or rising income – your quality of life is unaffected.
In fact, you can take advantage of lower prices by rotating your overpriced past buys (if any remain overpriced) into deep value securities, or reinvest any excess dividends into undervalued securities.
This makes market declines almost enjoyable as they become sales on great businesses instead of permanent wealth destroying events.
I believe that panic selling during market downturns is likely the single biggest mistake most investors make. Avoiding this one mistake will likely do more for your retirement portfolio than anything else.
The final wealth secret is another way to improve returns by reducing money coming out of your investing account.
Wealth Secret #4: Minimize Investing Fees
People don’t like to think about investing fees all that much. It’s far more fun to think about how to make money with investing than to think about the costs of investing.
But fee minimization is critically important…
The typical fee based investment advisor charges 1% in assets under management annually, and they are much fairer than the typical commission based financial advisor.
In addition, many active equity mutual funds still charge 1% or more annually. It’s not uncommon for an investor to be paying 2% annually in total investment expenses every year.
On a $500,000 account this comes to $10,000 ever year. That’s serious money going out of your account instead of compounding for you.
Many analysts predict stock market returns of less than 5% annually over the next several years due to high valuations. Paying two percentage points out of five total is the same as giving up 40% of your investment growth – quite a high price to pay.
Another aspect to minimizing investment fees is trading infrequently. Less trading means capital gains taxes are triggered less often (in taxable accounts). Instead of paying capital gains taxes to your ‘friend’ Uncle Sam, it stays in your investment and continues to compound. This is likely why Warren Buffett is known for such long holding periods.
Additionally, infrequent trading reduces brokerage commission costs and trade slippage expenses. While these costs have come down a great deal, every little bit of extra money in your account helps over the long run.
Minimizing investing fees certainly isn’t as exciting as finding quality stocks to invest in… But it is one of the surest ways to increase your returns over the long run.
Implementing Intergenerational Investing
In the final analysis, you can’t force your children and grandchildren to invest the way you’d wish (unless if a complex trust is involved, perhaps).
But you can make sure they understand the concepts of:
- Compounding
- Long-term investing
- Investing in businesses / stocks / equities
- Avoiding panic selling
- Minimizing fees
Understanding these points makes it more likely that your investments will continue to compound for the benefit of future generations.
With that said,you can’t save for future generations unless your own retirement is taken care of first.
And that’s why we created The Sure Retirement Newsletter
The Sure Retirement Newsletter provides actionable buy and sell decisions and new Top 10 lists of 4%+ yielding securities each month so you stay up to date with high income investing in quality securities.
Here’s how…
The Sure Retirement Newsletter is powered by The Sure Analysis Research Database, which includes more than 480 individual company reports which are updated quarterly. And we will be adding more year after year (our goal is 100+ new securities this year). We will spend well over $100,000 on maintaining and updating Sure Analysis this year.
There are high quality income security bargains to be found in the market, but it requires analyzing hundreds of candidates to find the few that really stand out.
“The person that turns over the most rocks wins the game. And that’s always been my investing philosophy.” – Peter Lynch
Having a subscription to The Sure Retirement Newsletter means you have a team of investment researchers ‘turning over’ hundreds of income securities for you, constantly looking for the best income stocks, and sending you the 10 best 4%+ yielding investments we find each month.
The Sure Retirement Newsletter costs $89/year. It is priced to be an absolute no-brainer bargain relative to the value provided.
But we wanted to do even better…
That’s why from now through Tuesday morning (2/26/19), you can join the Sure Retirement Newsletter for just $49/year.
And, we have a risk-free 7 day trial. You are literally not billed for 7 days. Opt out during that time frame by emailing support@suredividend.com, and you won’t pay a penny (but most people stay on past their free trials because our newsletters deliver serious value).
Note: This offer expires Tuesday morning (2/26/19), no exceptions. Enter coupon code Big40 if it doesn’t apply automatically.
The same offer is also available on our Sure Dividend Newsletter. While Sure Retirement focuses exclusively on 4%+ yielding REITs, stocks, and MLPs, The Sure Dividend Newsletter focuses on dividend growth stocks.
These are stocks that have, on average, lower yields than Sure Retirement recommendations, but have (again, on average) better growth prospects.
Email suppport@suredividend.com if you have any questions. We look forward to hearing from you!
Thanks,
Ben Reynolds
ValueWalk readers can click here to instantly access an exclusive $100 discount on Sure Dividend’s premium online course Invest Like The Best, which contains a case-study-based investigation of how 6 of the world’s best investors beat the market over time.
