Investment plan

An individual investor without an investment plan is like a company without a business plan: sooner or later, it’s going to fail.

While making the rounds of some of the blogs I follow, I came across a great post by My Own Advisor that summarizes some mistakes do-it-yourself investors make. All those points were great, but the one that jumped out at me was #5, “Lack of a plan”. When I sat down to think about it, I don’t believe I’ve really had a plan while investing until recently. I just looked at some S&P Capital Reports and Thompson Reuters StockReports, maybe glanced at P/E ratios and debt levels, and that was it. After I left my broker, I began to take my investing much more seriously. I became aware of dividend growth investing, and began to modify it to suit my own needs. Now, I need to crystallize it once and for all. So here we go, DividendDeveloper’s Official Portfolio Investment Plan!


DividendDeveloper’s Portfolio Investment Plan:

Overall Portfolio Goal: To replace my current earned income with a mix of dividends and growth stock sales, such that I may retire safely and without financial worry. My target retirement age is 35.

Dividend Growth Portfolio (includes standard taxable account and personal IRA):

  • Goal: Replacement of earned income
  • I will invest solely in stocks that pay a dividend.
  • I will invest in stocks as follows:
    • My starting point is David Fish’s US Dividend Champions list.
    • I will remove companies that do not meet the following criteria:
      • Have 5 years of dividend increases.
      • Have not frozen their dividend for over 8 quarters since appearing on the list (an exception is granted for the years 2008-2010, due to the financial crisis).
      • Have a Chowder number of 12 or more.
        • For REITs, MLPs, telecoms, utilities, and other such special cases, this number may be dropped down to 8.
      • Have an EPS payout ratio of less than 70%.
      • Pay a dividend monthly or quarterly.
        • A semi-annual dividend is acceptable for ADRs/international stocks only.
    • With this abbreviated list, I shall use FAST Graphs to remove companies that do not meet the following criteria:
      • Have an S&P Quality Ranking of ‘A-‘ or better.
      • Have generally increasing earnings over the past 10 years.
      • Be fairly valued or, preferably, undervalued according to their Normal P/E ratio (the blue line).
        • Special consideration will be given to companies who are also undervalued compared to their Intrinsic P/E ratio (the orange line).
    • Criteria used to make my final choice may include, but is not limited to: economic moat (according to Morningstar), stewardship rating (according to Morningstar), dividend yield, dividend growth rate, debt levels, and expected total return (according to FAST Graphs).
  • Dividends shall always be reinvested into the company that generated them (see this SeekingAlpha comment and a different article that summarizes that philosophy nicely)
  • My holding period is forever.
    • I am allowed to, but not absolutely required to, sell on a dividend cut, or a freeze that last more than 8 quarters.
  • This should ideally about 85% of my portfolio, sans 401(k).

Notes: This is the meat and potatoes of my investment strategy. I want this to be a solid portfolio, as I hope it generates enough income to cover my expenses, my definition of FIRE. I don’t want to sell a stock if I don’t have to, since if I do, I lose out on the power of compounding, which to me is a Very Bad Thing. As an aside, here’s a great article by Dividend Growth Investor on the power of compounding. Going off of my desire to not sell if possible, here’s a great post by DivHut that summarizes why I may not want to sell even on a dividend cut or freeze. I also don’t care too much about capital appreciation, although it is nice. As long as my income stream is undamaged, I’ll be okay even if my overall portfolio is in the red. I will not modify my current portfolio to apply to these rules, and reserve the right to add to existing positions that do not meet these rules, if needed.

Technology Growth Portfolio:

  • Goal: Capital appreciation
  • I may only invest in technology companies in sub-sectors I understand (usually software).
  • I may buy one stock for this portfolio every 3 months. No extra money I earn (bonuses, unexpected windfalls, side income/consulting, etc) may be invested in this category.
  • My stock selection criteria is as follows:
    • The company must have a ‘narrow’ or better economic moat, based on Morningstar’s judgment.
    • The company must have a quality rating of ‘B’ or better (‘A’ or better preferred), according to S&P’s credit ratings.
    • Earnings must be on a consistent and significant uptrend since going public or 5 years, whichever is shorter.
    • FAST Graphs must show undervaluation based on the Normal P/E ratio (the blue line).
    • Expected return is 8% or more over the next 5 years, according to FAST Graphs.
  • All dividends collected, if any, shall accumulate in cash.
  • My holding period is as long as possible.
    • I may sell only I notice significant fundamental deterioration or loss of competitive advantages. This restriction may be loosened upon early retirement, should I no longer be able or willing to follow industry trends. In which case, I shall sell this section of my portfolio and move my money to normal dividend growth stocks.
  • This portion of my portfolio must never exceed 10% of my total assets, sans 401(k).

Notes: As I mentioned before, I’m a software developer. Part of my job is keeping up with industry trends. I actually understand what these companies do, what makes them tick, how they make their profits. I feel that gives me a ‘leg up’ on many other investors, who just invest in Apple or Facebook for no real reason other than momentum chasing or the hope of quick profits. The one reason I don’t like dividend growth investing per se is because there are so few tech companies that I can invest in. Essentially, I feel my knowledge is going to waste. Hence, I want to invest in certain companies that don’t often get invested in by DGIs (usually because of the lack of dividend). However, I want to cap my exposure to this area to 10%, since I a) get my income from the sector, and b) want to retire on dividends within 15 years or so, and not have to sell stock. That’s also the reason I won’t reinvest dividends, in the off chance that the company pays them.

Hard assets:

  • Goal: Pseudo-inflationary hedge; diversification into non-standard assets
  • I may invest only in investment-grade emeralds, with my criteria as follows:
    • The emeralds must be certified untreated.
    • The emeralds must be from Columbia, specifically the Muzo, Chivor, Gachala, and Coscuez mines.
  • I may purchase up to 2 emeralds per year.
  • I will never sell an emerald.
  • This portion of my portfolio must never exceed 5% of my total assets,, sans 401(k).

Notes: I chose emeralds here, instead of the common gold/silver/platinum, because I have had an interest in gemstones going back to childhood. I know gemstones much better than I do precious metals, and I am reasonably versed in their value and market. I like Columbian emeralds, since they generally have a more vivid green color, are often freer of inclusions, and most resemble a ‘pure’ emerald. The mines listed are known for producing top-quality gems, with Muzo being the best. The purchase cap is to limit my portfolio’s exposure to hard assets, and my holding time is forever since it takes a very long time for a gem collection to appreciate significantly in value. And hey, I just like shiny things!


  • Goal: Preservation of capital
  • This portfolio must contain only index funds.
  • These index funds must be balanced accordingly:
    • 80% domestic/US stock fund
    • 20% US bond fund
  • I may only view my portfolio once per month, for net worth tracking.
  • I may change my balance ratio once every 6 months.

Notes: I view my 401(k) as a failsafe of sorts. It’s a sort of protection for me. If I have a chain of stock choices go wrong, or I make terrible investment decisions overall, I’ll still have this backup, so I can still have a decent retirement. Accordingly, I want it well-balanced, with a small but noteworthy amount of my assets in a bond fund for diversification. I don’t want to choose individual stocks here. I know I may sacrifice income, but I feel that comes at the expense of minimized risk, so I’m willing to deal with it. A nice feature of my employer’s plan is that it automatically reinvests my monthly contribution such that my 80/20 ratio is best preserved; that makes life even easier for me.

Do you have a investment plan in place to guide your investment choices? What’s in it?

Image source is available here.

Disclosure: None.



  1. My Own Advisor October 1, 2014 at 11:42 AM

    Detailed plan….

    On the topic of dividend growth (one of my favourite topics)….here’s what I liked in your plan:

    I will invest solely in stocks that pay a dividend – good, otherwise, you should index invest :)

    My starting point is David Fish’s US Dividend Champions list – good start!

    Have 5 years of dividend increases – there are some great dividend studs that don’t always increase their dividends, don’t rule them out necessarily since they can provide capital appreciation.

    Have an EPS payout ratio of less than 70% – this is good, the dividend should be sustainable this way….

    Pay a dividend quarterly – some companies can pay a nice monthly income, again, don’t always rule them out.

    Overall, a good plan. The reality is, while you can “expect” capital appreciation and dividend growth, you have no control over this whatsoever.

    So, take advantage of both worlds: invest for income (via dividend stocks) if you feel you need the income but don’t forget about the capital appreciation (via indexed products).

    In the end, it’s total return that matters.

    Happy investing,

    • DividendDeveloper October 1, 2014 at 11:54 AM

      Wow, thanks for taking the time to comment so thoroughly! I appreciate it. In regards to a few points you make:
      -The 5 years rule – You are of course right. First example that comes to mind is DIS. However, inflation is a concern for me, especially if I intend to live off this from an early age. For every company that doesn’t increase it yearly, it becomes harder for me to sustain my lifestyle on that income. So I don’t feel I can afford a bunch of companies that don’t increase it every year, especially when my portfolio is so small.
      -Quarterly rule – great catch. I completely forgot about monthly payers. Kind of sad, since I own O and ARCP! Fixed.
      You are right. I need the income eventually, so that’s my priority, but I have capital appreciation covered as well, via index funds in my 401(k) and tech growth portfolio. Thanks for stopping by!

  2. Special Agent Dividend October 1, 2014 at 6:53 PM


    Very solid plan you have. I particularly like that you split your individual stock investments into two, as you can concentrate one on DGI and another on your expertise. I really like the plan of having the separate portfolio for tech stocks, as you can hedge your own knowledge of the companies and their products to focus investments and ultimately have substantial growth. Overall, it is an excellent plan and I’m sure you can easily meet your target of retiring by 35 if you keep it up.

    • DividendDeveloper October 1, 2014 at 7:20 PM

      Thanks for the support and for stopping by! Yeah, I feel I have a slight edge with my industry knowledge, so that I can pick some decent companies overall. Whether it helps my portfolio or not at the end of the day, who can say? But it will be a fun journey anyway. Take care!

  3. JC October 2, 2014 at 8:43 AM

    Very detailed and well thought out plan. I’m sticking primarily with the the DGI portfolio for our own investments although once I reach $200k there I’ll probably start trying to branch out into a few growth plays. Given your education/work experience I can’t blame you for wanting to branch out into the higher growth plays. Especially since you’ve got a really good idea of how they operate.

    • DividendDeveloper October 2, 2014 at 8:59 AM

      Thanks for the compliment! I kind of have the same philosophy in that DG stocks will be a still large portion of my portfolio (~85%). When I get closer to FIRE, those ratios will change in favor of more growth ideas. But for now, my first priority is still to cover expenses with dividend income.

  4. Autumn @ The Barefoot Budgeter October 2, 2014 at 5:56 PM

    That’s a really detailed plan. It looks like you have a good system set up – I’d imagine it saves a lot of time and trouble.

    • DividendDeveloper October 2, 2014 at 6:20 PM

      Yeah, the hope is it keeps me from making stupid or excessively-emotional decisions. Thanks for stopping by!

  5. Grow Independent October 6, 2014 at 3:04 PM


    looks like a well thought strategy. I like it very much.
    Seems like you turned it into a nice portfolio already.

    How do you decide whether to hold stocks in the tax deferred account or not?
    We don’t have that in Germany, so I am curious.

    • DividendDeveloper October 6, 2014 at 4:50 PM

      Thanks! Honestly, there’s no real reason why I put a certain stock in my tax-deferred account instead of a normal taxable account. Just comes down to when and where I have money. I usually put away the max $5,500 in my tax-deferred account in the first two months of the year (maximum tax-free compounding), and whatever stock looks good at the time, I buy it there, because that’s where my available funds are. I have heard REITs may be better in tax-deferred accounts, but I don’t quite understand why (something how the US tax code treats REIT income). However, my REITs are currently in there because of coincidence (the money was available there when they were good value to me). So basically, no real thought process besides figuring out where my free money is :)

  6. DividendDreamer October 8, 2014 at 1:53 AM

    Very detailed indeed. Lots of work, but worth the effort.

    Keep cranking,

    Robert the DividendDreamer

    • DividendDeveloper October 8, 2014 at 7:34 AM

      Thanks, Robert!


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