Investment Objective: Income or Growth?
What’s your investment objective?
My ultimate goal is to replace a majority of our pre-retirement income, salaries from our day jobs, by incomes generated from our investments when we retire (we still have 20+ years to go). Since neither of us has a pension plan (my wife used to have one with her employer, but the plan was terminated last year) and the social security system is facing an uncertain future, we may eventually have to rely on our investments to pay the living expenses in our retirement.
To reach that goal, I need to build a portfolio that can produce the income stream, including dividends, interests, and probably capital gain distributions. Though I try to avoid any investment that distributes excessive capital gain in our taxable accounts, I do pay a lot of attention to equities that produce a healthy amount of dividends. Currently, I have the following dividend paying investments in taxable accounts:
|Bank of America (BAC)||4.50||25|
|Progress Energy (PGN)||5.30||13|
|Procter & Gamble (PG)||2.30||11|
|PowerShares HighYield Dividend Achievers (PEY)||3.00||502|
|PowerShares Dividend Achievers (PFM)||1.74||156|
|PowerShares Intl Dividend Achievers (PID)||2.54||200|
|Alpine Dynamic Dividend (ADVDX)||12.79||307|
In addition, I also have some other mutual funds that distribute both dividends and capital gains, though they are not categorized as dividend paying funds.
So far I consider we are doing quite well in generating passive incomes from our investments. In 2006, we had a total of more than $16,000 in dividends, capital gains, and interests, among them a little over $9,000 are from investments in our taxable accounts.
Conventional wisdom says I should place income generating securities in tax deferred accounts to minimize taxes and hold equities that pay little or no dividend in taxable accounts. While I hate to give back a big chunk of the incomes as taxes, I just don’t have the same flexibility in tax sheltered accounts (due to selection (401(k)) and contribution (IRA) limits) as I do in taxable accounts. I won’t avoid these investments simply because I have to pay taxes. Fortunately, the majority of the incomes qualify for the 15% tax rate for qualified dividend or long term gain.
If you are interested in dividend investment, here’s a post on dividend paying ETFs and stocks.
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