Over the course of his career, Mike Edens from Fly High Investing crafted a successful career path. During his tenure as an airline pilot, he anticipated a potential decline in income upon retirement. This prompted him to strategize ways to generate revenue from his portfolio without resorting to liquidating its assets. This contemplation led him to delve into dividend stocks, setting in motion an investigation that culminated in the investment strategy now embraced by Fly High Investing.
Many individuals lack familiarity with dividend stocks and may not anticipate substantial upward trajectories in stock prices, particularly when compared to blue-chip stocks. Index funds, a widely embraced and proven method for long-term wealth accumulation as endorsed by Charlie Munger, have consistently delivered average returns ranging between 8% to 10% over decades. However, the inherent volatility often prompts investors to exit the stock market, leaving them unable to recover losses. Another prevalent investing trend involves chasing speculative stocks, especially meme stocks, frequently featured in headlines. Yet, unless one is exceptionally fortunate, relying solely on such stocks can lead to disappointment. Timing the market, a strategy widely discredited, consistently proves ineffective due to various factors such as market dips, turmoil, unforeseen circumstances, and more, which can further erode returns. To mitigate these risks, many investors nearing retirement transition from risky stocks to more conservative, albeit less profitable, assets such as bonds and annuities. Consequently, a standard stock portfolio may not yield the anticipated long-term profitability.
Dividend investing emerges as a compelling alternative, offering returns that can average over 12%, a figure that may seem unreal at first glance. While market projections typically hover around 8%-10%, our approach combines dividend investing with a carefully crafted strategy that focuses on earnings, to effectively manage portfolio risk while generating substantial yields. The Fly High Investing portfolio consists of 50 high earning, high-yield dividend stocks. This prompts the question: What are these criteria, why the emphasis on 50 stocks, and how does this strategy address the skepticism often associated with investing?”
Let’s begin by addressing skepticism, particularly regarding returns. Historically, it’s important to acknowledge the market volatility, marked by years with significant downturns, sometimes up to 50%. This level of volatility poses a challenge, especially for those approaching retirement. In such scenarios, a downturn in the market could compel individuals to sell off a substantial portion of their stocks to generate income, and if the market rebounds afterward, they may be left with a diminished portfolio, making full recovery unlikely. Our focus was on maximizing portfolio yield while ensuring that dividends originated from earnings. It’s counterproductive for a company to pay dividends without generating sufficient profits to cover them, as this could lead to the gradual erosion of the stock’s value.
Surprisingly, there is a category of stocks that yield significantly higher returns than what is typically observed among common stocks, known as Regulated Investment Companies (RICs). Since 2019, inclusive of Covid-related market fluctuations, our portfolio of 50 RICs has delivered around a 12.5% dividend yield paid out of earnings. This level of performance is achievable with effective portfolio management. Notably, during market downturns, there are instances when you can acquire stocks with even greater yields, making it advantageous to continually reinvest your dividends. Regardless of market conditions, this strategy enables the creation of a substantial and enduring passive income stream. Traditional financial advice often recommends a defensive portfolio for retirees, emphasizing a higher bond-to-stock ratio. The strategy involves withdrawing 4% of the portfolio in the first year of retirement and increasing it by 4% annually. However, this approach, known as a spend-down plan, can lead to exhausting the portfolio around the time of one’s actuarial death date. With many people out living this estimate, relying solely on Social Security becomes a challenge in later years.
Consider the following recommendation: If you can sustain yourself on approximately half of your retirement dividends and reinvest the remaining half, you’ll consistently outpace inflation. In fact, the older you grow, the more your income will grow throughout your life because of the power of compounding dividends. This not only provides a tremendous sense of financial security but also ensures that your income remains more than sufficient to support your lifestyle, regardless of external circumstances or how long you live.
While it’s clear that aspiring to live off dividends is a commendable goal, you might wonder why our Fly High Investing portfolio advocates for a diversified approach with 50 stocks. The rationale behind this lies in effective risk management. By distributing your investments across a substantial number of stocks, you limit your exposure to any single stock to just 2% in a balanced portfolio. This deliberate diversification allows you the flexibility to replace underperforming stocks with more promising ones. Additionally, we mitigate risk by closely monitoring the earnings of each company, a topic we’ll delve into further in an upcoming blog post.
Subscribing to the Fly High Investing portfolio ensures you’ll have access to the PORTFOLIO tab (which lists the symbol and name of each of the 50 stocks in the portfolio), the UPDATES AND PERFORMANCE tab (which includes the weekend update and various performance charts), and the FAQS AND SUGGESTIONS tab (to help you manage your portfolio and maximize your returns). This information empowers you to make informed decisions about managing your portfolio. Such active management significantly mitigates overall risk and saves on expensive management fees.