As one of my resolutions for the year I will be paying closer attention to my investments and working to grow them this year. As I mentioned in my 2012 recap post I did make my goal of growing my investments by $10k for the year, mostly from my auto deductions to my IRA and some good market growth. This year I want to focus more on my dividend stocks.

Overall my investments did quite well for the year with a return of 12.35%. Although this a bit under the S&P rate of 14% it is not to shabby. I’m going to break down what I own and how they have done.

IRA Account

In my Vanguard IRA account I had an automatic contribution of $80 and it is distributed amongst these 4 funds:

VTSMX – Total stock market fund
VGSIX – REIT index fund
VGTSX – Total international stock index fund
VIPSX – Inflation-protected securities fund

Overall the this account had a 13.26% return for 2012 with no losers so I’m happy there. I am keeping this account balanced with 15% in bonds (VIPSX) even though Vanguard recommends 22% at my age. I figure when I hit 50 I’ll bring it mor in line but because of the late start I want to be a little more aggressive.

For this year I’m keeping the auto contribution as is for now and thinking about increasing a bit around April. Right now it is set at $4,100 a year and gives me room to contribute $900 more by April 15th.

Dividend Stock Account

I use Buyandhold.com for my dividend stock account. It has a low fee which gives me 2 free trades a month and free auto dividend reinvestment. Over all this account only did 7.62% return for 2012 and did have a couple losers that dragged it down.

The first loser of the year was Intel (INTC) which was down 19.69% for 2012. It is also my biggest holding for this account which helped bring it down. With a dividend yield of only 4.25% I’ll be looking at this closer this month and decide if its a keeper.

The other loser was Seadrill (SDRL) down 3.93%. I’ve only had this a few months and is my smallest holding. I know I bought high but with a dividend yield of 8.99% I will continue with Seadrill dollar cost average while it is down currently

My biggest winner of the year was Sempra Energy (SRE) which was up a nice 33.45% for the year. I have not put to much more into this stock as the price has taken off and I know from history (I owned this one before) that it will have a down cycle. For this year I will watch it and do small buys on the dips.

The other two stocks in this account are AT&T (T) and GE (GE) which were up 19% and 16% respectively.

For 2013 I plan on continuing to add to each of these holdings by making 2 purchases a month (to use my 2 free trades) at least. I’m also going to be looking for at least one more stock to add to the account as well.

How did your investments do in 2012? Any recommendations for 2013?

A while back when discussing my dividend stock portfolio I had mentioned that I was looking to add a new company to the portfolio. Yesterday I finally pulled the trigger and started my position in Sea Drill (SDRL). Not much but it’s a start.

Seadrill is a company that builds and aquires, operates and lease out various oil rig platforms and ships, currently sporting 66 vessels for operations in shallow to ultra deep water. Each rig earns upwards to $500,000.00+ a day for the operations of these rigs and with demand increasing worldwide more rigs are being added and daily rates increase. All pointing to increased revenues for shareholders.

Get Off The Fence!

One thing that was hammered home agin with this decision is that if you are buying for the long haul, don’t wait or worry about price. Just get in and dollar cost average. When I was first looking at this stock it was in the low 20’s, I was still reading up on them so was waiting. Then we had a little belt tightening and I wasn’t putting anything into the dividend portfolio. By the time I was ready it was up to $34 so I thought to my self  “self, let’s wait and I’m sure it will dive a little in the next couple days”. It didn’t, even on down days for the Dow it still went up. It did have a little dip on Thursday but I decided to just jump in. If it goes down a bit from here I’ll just buy more and lower my average cost. So I got in at $39 and at the end of the day already showed a profit 🙂

The Yield

As the past few weeks show that this stock has potential for some good growth. They are at the top of their field with contracts at least 10 years out. In fact just today they received a new contract worth 4 billion (and thats just for 3 rigs). Of course I wouldn’t be adding this stock if it didn’t have a dividend and it sure does, bouncing around 8-10%! With a yield like that I am kicking myself that I didn’t get in when I was first thinking about them.

I’m now in though and look to keep building my position while dollar cost averaging my share cost.

Have you considered any new investments lately?

Used again cause it fits

Well President Obama submitted his budget proposal last week. I know its mostly campaign gimmicks and doubtful much of it will pass, but there is something in there that hasnt been talked about much that scares me. You see President Obama is asking for a tax increase on the wealthy, no suprise there huh, but it hurts just about everyone else even more.

We are talking about the tax on dividend payments which is currently at 15% for everyone and which he wants it raised to 39.6% and on top of that there will be a investment surcharge tax of 3.8% and a reduction in exemptions and deductions making the effective tax rate 44.8% starting in 2013. Now you may be thinking, wait isnt that only for the filthy rich people (a status I aspire to be in). Yes it apparently is only for those making more than $200k which effects alot of small businesses and entrepreneurs. But it is still going up for everyone, instead of the max 15% your dividends will be taxed at your regular tax bracket as of 2013. Oh and your taxes are going up as well in 2013 unless something changes, but we are talking about dividends in this post.

You see it has been shown that dividend payments have a correlation to the dividend tax rate. When the tax rate is up dividend payments are down. When President Bush passed his evil tax cuts (I guess you can tell Im a bit biased here) dividend income tripled in the first few years. Increase the tax rates and it stands to reverse. Its not just the rich that will get soaked with the tax increases but the rest of us that depend on dividend income in our retirement accounts that will ultimately be hurt?

Besides in my mind dividend money has already been taxed several times. More often then not you are using after tax dollars to by dividend stocks. Dividends are also paid out profits that are left over after the company has paid taxes. So they are then taxed again when given to you…

Im tired of hearing the answer for every thing is to raise taxes, or tax the rich more. It’s been proven over and over that an increase in taxes does not always equal an increase in revenue. In fact often the case when you try to do targeted tax increases and fees it finds a way to trickle on down to the rest of us and it’s the lower brackets that end up paying.

So get ready to start seeing your returns dwindle again on your dividend payments , that is if dividends continue to be paid…

In case you missed it this started with the closing out of my Waddell account and transferring to Vanguard which i discussed in t a previous post Rolling the IRA: Step 1. Now the money has arrived! It really was a quite painless process. Vanguard did all the work, I just signed some paperwork that they emailed to me. The whole process took about 3 weeks till I saw the funds in my account. Still had to wait a few days after that for the check to clear, but they allow you to start allocating the money to the stocks/funds you wish.

That is the big dilemma once its all moved, where to put it? The easiest thing to do would be to park it in one of Vanguards target Retirement Funds. These are funds based on when you plan on retiring and you let them do the asset allocation for you. Over time as retirement approaches they will automatically reallocate your assets best suited for you. Adjusting the percent held in bonds and stocks to give you less risk as you get closer. All you have to do is keep investing. For the most part it looks like you are just invested in two index funds, all stocks and all bonds. This is great for those that really don’t want to take to much of an active role and like it all to be handled for you.

Me, I like to have a little more active role, just a little. Along with a little more diversification and a little more risk (not to much). In that case you can invest in several different index funds and then once a year rebalance yourself. Every couple years change your asset ratios to reflect your risk factor as you get closer to that retirement date. This is the approach I’m taking based on what I read in Ramit Sethi’s book where he suggested to follow a formula based on Swenson Model of Asset Allocation. His formula is this

• 30% Domestic Stocks
• 15% International
• 5% Emerging markets
• 20% Real estate
• 15% Goverment Bonds
• 15% Treasuries

The problem I had with doing this with index funds was Vanguard requires an initial $3k buy in to any fund and I didn’t have enough money to start this out right so my ratio and funds are as follows

• 40% Vanguard Total Stock Market Index Fund
• 20% Vanguard Total International Stock Market Fund
• 25% Vanguard REIT Index Fund
• 15% Vanguard Inflation-Protected Securities Fund

As time goes by of course the balance will get out of whack so each December I will move money around to rebalance everything out. In a couple years I can syphon off $3k from a fund or two and start up the bonds.

Next step Im doing this week (just keep forgetting to add my bank to my account) is to set up automatic investments. Now with an IRA I can only contribute a max of $5k a year, which equates to about $96 a week. Im actually going to do $80 a week and have it automatically split to the above funds in those percentages. Each December I can then look at my finances and hopefully be able to put in the remaining $840. I can then also put it where it needs to go to help balance the assets.

So where is your retirement investments parked? Auto pilot or do you take an active role?

I have my IRA now with Vanguard and will be putting that money into index funds and onto auto pilot. But I still like to ‘play’ in the market a bit on my own, so I put a little money each month in to my Buy and Hold account. In this account I only purchase dividend stocks with the goal of generating a nice income bearing account. Hopefully in 20 years it will produce a decent monthly income to cover something like food or my comic book habit (need something to do in retirement). I’m being realistic that I don’t think it will cover all living expenses, but who knows.

I may be weird or even wrong to do so but along with all the usual stuff to look for (price, growth, yield) one of the things I look for in the stock is the payment day of the dividends, or more so the month. Dosen’t really help if they all pay in the same month, then I would only see income quarterly. I also practice the thought of invest in what you know. I don’t go looking for the next big thing, but rather well know and established companies.

ATT

ATT as most know is a wireless provider, in fact number 2 among the US wireless carriers. I have been using ATT as my wireless phone service since 2001 (back in the cingular days) so they are a company I know and use daily.

Now if you are a trader or looking for a growth stock this may not be the one. It has been hovering in a tight 52 week zone of only a couple dollars, currently right in the middle. With the recent troubles with their attempt to purchase T-Mobile they may even be looking bleaker to some, with some saying the buyout is the only way for them to really grow. If the buy out dosen’t go through it will still cost them $4 billion and that may scare some investors away. I say good! With a cheaper price I can pick up even more shares. You see what I am looking at is the rare 6% yield on the dividends.

Att is a sound company that has been around a long, long time and I feel will be around for quite awhile longer (hoping at least 30 years). ATT has paid a dividend as far back as I can see and best part is it has increased every single year. Even through this slow economy it has still increased (ok only a penny but thats still an increase) in good times it was a good increase as well. The stock is one that when it has gotten to high it has performed a stock split as well. Haven’t had one in quite awhile but I’m sure once the economy gets roaring back it can happen again.

With things the way they are now its a good time to start on this one and dollar cost average from now till retirement.Recently heard a statement attributed to Warren Buffet about his love for Coca Cola (the stock not the soft drink, and another I am considering) which he has been buying regularly just for the dividend. He said about 2015 or so he will being earning dividends form coke in the amounts greater than what he has paid for the stock! Now I can’t buy in the volumes that he can but this is my goal. To dollar cost average into divided paying stocks like ATT here so that when I retire they will be paying me a hefty monthly income.

I don’t own ATT at this time but it is one I think I will be acquiring next for the following reasons.

• Sound and long established company
• High dividend yield
• Dividends increase each year
• Currently very affordably for me
• Pays dividends on a month that I currently have no payouts.

Little disclaimer if you can t tell I am not a professional broker and my reasons are my opinions. If you are considering investing please do your own homework and make your own decisions.

SO what do your think of ATT as an investment? DO you invest in dividend  stocks?

In a past life when I worked as an engineer in a cubicle (it was a rather large cubicle) the company I worked for started a SIMPLE IRA program for us. I am entirely grateful to them for doing this as I was not preparing at the time for retirement and should have taken more of an advantage of the matching funds. The company they choose to use for the program was Waddell.com which in hindsight for me wasn’t the best of choices. With them you had to use one of their funds which were all Load funds (5.25%) plus the maintenance fees which were almost 2% annually. Fast forward to present time where I am ready to continue investing in retirement account and the only way to do it with them is to mail a check or hand deliver it to one of their offices. Pretty 1980’s isn’t it.

So for all those reasons I’m looking at doing a roll over to another brokerage. Its not a lot as when I quit I took out 30k to build up the business and to survive on while the business picked up. Yes I paid 10% penalty and taxes on it, maybe not the best of moves but I am on my own now. At first I was just going to do a traditional IRA but have found out that since I am self-employed I can do the typical business IRAs as well, each having their pros and cons.

The How

Solo 401(k)

Yes as self employed I can do a regular 401(k) for myself (and spouse). This does have the benefit of a large annual contribution. First I can contribute up to $16,500 as an ’employee’ then I as the ‘Employer’ I can contribute up to 20% of net profits as profit sharing. This can add up to no more than $49,000 a year but hey thats quite a bit, so much that I don’t think I would ever get near that. This kind of program as I understand it can also be limiting as to what you can invest in and their are additional fees and paperwork that really don’t make it worth it if you can’t get near that max amount.

SEP IRA

This one is much like the Solo 401k but the IRS makes it a little more complicated to figure out your max contributions. Its the lesser of 25% of your net earnings or $49,000. Ok sounds simple so far but you calculate your net earnings by subtracting your expenses from your income (well duh everyone knows that you are thinking, just wait) then subtracting…

• The deduction for one-half of your self-employment tax
• The deductions for contributions to your SEP IRA

SIMPLE IRA

The Simple IRA is just that, simple. You can contribute 100% of your net earnings up to $11,500 plain and simple. Besides that it is just like a traditional IRA and you can invest in what ever you wish.

Traditional IRA

This is your run of the mill IRA for individuals outside or their businesses or work plans. You can only contribute up to $5,000 to this account per year but can invest in anything your broker has. As I understand it I may cable to have one of these and one of the above, still checking on that though.

Next is the where…

The Where

Share Builder

Share Builder is part of ING Direct, where I have recently opened a savings account for various purposes. I kind of like them as if I set up automatic contributions to be performed on a Tuesday then trades are only $4.00 with the option of real time trades at $9.95, $19.95 for funds. Real time trades are a little high for me but the object is not to time the market but to dollar cost average your investments over time. So $4 is not to bad and I can invest in funds, EFT or stocks. Gets down to $0 if I choose from about 5 family of funds.

Vanguard

Vanguard is on of those old time brokers that has been around awhile and has a good reputation. Unlike Waddell they have come around to the 21st century  and you can invest online with them. The big plus with Vanguard is if I choose their funds or EFT there is no trade commission! Vanguard also has some of the lowest maintenance fees for mutuals, about .2% compared to waddell’s almost 2%. If I do want to choose stocks its only $7 per trade.

Others

There are others like Scottrade, Etrade, Ameritrade, etc etc. They are all pretty much the same with small variations between their trading fees. I have in my mind narrowed it to the two above, one for the low for fees and other for the convenience.

The What

Ill save this for another post as it takes 4-6 weeks to complete the rollover so that gives me more time. If I go with Vanguard Im looking at either a target retirement fund or several sector index funds that will give me more control.

So for me Im leaning heavily towards a Simple IRA and if I happen to max it out then look at a traditional as well If I can. Still want to do some reading and at the least ill just do the traditional, I was prepared for the 5,000 a year. Im also leaning towards going with Vanguard, yes its another account but will have the least amount of fees so that puts more money back into the investing. Have some questions out to them as well but looking at starting the more this week or next.

I would like to hear from you and what you are doing and perhaps how you feel about some of the services mentioned.