Hey all,
It’s been a hot minute since I’ve rapped at ya. What I mean is, I’ve been busy and haven’t had any time for writing on the blog. Hopefully that’ll change soon, but in the meantime I didn’t want you to think I’d forgotten about you.
Today let’s think for a minute about what I’ll call “Flipping the Switch”. Let’s say that you’ve been chugging along, dutifully investing in your dividend paying stocks for years and now you find yourself at a point where you have a nice stable portfolio of income producing assets. The only problem: you have yet to collect any income from these assets. If you’re anything like me, you’ve been trying to let the assets build up over time. In my portfolio, I currently have all of my dividend payers set to automatically reinvest the dividends each time they pay out. That means if we take my January payments and extrapolate for an entire year, at the end of the year I will have $342.36 more in income producing assets, but I won’t have $342.36 more cash. So when do we flip the switch from reinvesting dividends to collecting that sweet, cold, hard cash?
There’s no right answer.
For me, in my situation, I don’t necessarily need the extra $30 or so each month that I am currently earning. I can better deploy that potential capital by turning it into future cash than I could by taking the cash now and doing something with it. There are a whole bunch of considerations here. Taxes, inflation, future income, etc. In my case, I’m content to let my dividends earn me more dividends. As we’ve talked about before, by reinvesting dividends I am doing a lot to ensure that I’ll start to see some level of exponential returns as time goes by. Right now, I want to let those shares grow as much as possible and then in the future I’ll flip over to receiving cash instead of extra shares. The goal is that when I start taking cash, I’ll receive as much cash as possible. And hopefully dividends will still be taxed at a pretty low rate.
Like I said, there are lots of different considerations and things to think about around this topic. I could probably write 10 posts on this (and maybe I will, if I get back to writing regularly). But for now, I’m letting my shares grow until I need or want the cash.
Brick By Brick Investing | Marvin on February 25, 2013 at 3:03 pm said:
We miss you in the blogosphere, hope you’ll be able to return soon!
Martin on February 26, 2013 at 1:29 am said:
I also thought you dumped the blog, happy to see you back.
As far as the switch flipping I was thinking about it recently, how long do I want to reinvest my cash and proceedings and when to start using them for my own needs and pleasures.
I remember once Jesse Livermore saying: “when you make money in the stock market, take 50% of your gain off and reward yourself, keep that money with yourself and feel them in your pocket, you will be happy with your deal”
Since we decided taking a different approach, we shouldn’t be investing and saving the whole life and then die. So I made a goal saving, investing, and re-investing for next 10 years and if I reach income able to cover my expenses, I am flipping the switch.
Rich Croce on March 1, 2013 at 10:46 am said:
Nice to see you back…as to flipping the switch, you’re right, it’s different for everyone…personally, I’m still in “build it up” mode, in a few more years that may change, but I like the idea of stocks paying for themselves through divvy reinvestment.