Monday, November 5, 2012

Romney/Obama and dividend machines

Comment on what I will do with my dividend machine portfolio in view of the U.S. Election.

No matter what happens with the election, we income investors have the same investment choices.  You must ask yourself, Can I make more income on my principal if I sell my dividend stocks and invest in something else?  Should I sell my dividend machines and move into bonds?   Should I sell my dividend stocks and hold cash.  You cannot predict how any market will perform even after you know the election results.  You can only examine the opportunities available to you at the time.  Let’s look at some scenarios.

If you are concerned that dividend machines will go down as a result of the election and you must have the income to meet your bills, you cannot sell your dividend machines until you can create equal to or more income from another investment.   Bonds will not replace your income and they are in their own bubble.  For this portion of a portfolio, you have to stomach the principal ups and downs in exchange for steady income.  I too am nervous but I have every confidence that this part of my portfolio will continue to pay me income and increase my income steadily.  But will I lose money?

Capital preservation is always to goal of the seller.  Sometimes you want to protect what is left and sometimes you want to maintain your gain.   This is market timing and trying to time the market is fools play. Yet, selling to protect principal has merit.

 How does this apply to a dividend machine portfolio?   Most investors who have the discipline to create a portfolio of dividend machines also may have enough cash flow flexibility that they can sell their dividend machines and hold cash.  They protect their principal and any gains they have while they examine the investment opportunities available in the future.  This type of investor can forgo income long enough to examine their options and is flexible enough to move back in if necessary.  Who knows we could have runaway inflation in a blink of an eye making bonds a consideration.   The tax changes or fiscal cliffs could cause a selloff of dividend companies and the person who sold and waited in cash will get to buy dividend machines on sale.

The answer to what to do with the dividend machine portion of a portfolio in view of the election is to decide which kind of investor you are:  income or capital preservation.  As for what I am doing… a little bit of each.   I do that all the time and the election results have little to do with my investment decisions.

Very Truly Yours,