You Need Five Dividend Investments That Will Be Untouchable Your Entire Life

Among the readers with whom I have had private conversations, the biggest investing regrets have generally been one of two things:

(1)    Either the person invested extensively in bank stocks prior to the financial crisis of 2008-2009 that wiped out 75-95% of the value of many supposedly safe financial stocks, or:

(2)    They owned some high-quality stocks that they had to sell to meet an inevitable need that crops up over the course of an investing lifetime.

It is the second point that I want to discuss.

Successful investing over the long-term, defined as regularly increasing your purchasing power over most rolling three-year periods, is quite easy. If you figure inflation is going to run somewhere around 4% annually over the next fifteen years and you had to make a list of twenty companies that have a very good chance of increasing profits by more than 4% annually over the next fifteen years, you could probably do it without stretching too many brain muscles.

The difficulty, though, is not necessarily identifying those companies, but rather, in avoiding situations that would lead to selling them prematurely (maybe the stock price declines too far too fast, maybe the stock price does not appreciate enough, and/or maybe a living expense shows up that demands you sell).

In these situations, the most important character trait to possess is an inner Calvin Coolidge. In such a situation, you would need to prioritize persistence as the most important character trait in your arsenal:

“Nothing in the world can take the place of Persistence. Talent will not; nothing is more common than unsuccessful men with talent. Genius will not; unrewarded genius is almost a proverb. Education will not; the world is full of educated derelicts. Persistence and determination alone are omnipotent. The slogan ‘Press On’ has solved and always will solve the problems of the human race.”

In terms of logistics, I would think of it like this: you make five investments of $10,000 or so in the most dominant enterprises on the planet you can find. Some candidates for consideration might be: Nestle, Coca-Cola, Johnson & Johnson, Procter & Gamble, ExxonMobil, Colgate-Palmolive, Chevron, General Mills, Disney, or PepsiCo. But the point is that you make a personal judgment call about the absolute highest five or so companies you can find, and then acquire meaningful stakes in them.

Now here is the hard part: once you have $10,000 worth of Coca-Cola, $10,000 worth of ExxonMobil, $10,000 worth of Procter & Gamble, $10,000 worth of Johnson & Johnson, and $10,000 worth of Colgate-Palmolive, you have to put them in the vault, automatically reinvest the dividends, and pretend they do not exist. This is your private pension. This is your fallback money. These are the dividends that will provide for you in old age. If you can give each of these companies more than 20 years to compound, holy cow, you’re going to be in great shape. If you need to touch the money before then, well, you should take what you can get—growth is growth, and increases in purchasing power is nothing to sneeze at.

The rest of your portfolio should also be somewhat untouchable, with the understanding that you will try to build a cash cushion so that it, too, can grow undisturbed. However, if “life happens” and you cannot avoid selling, well hey—you still have those five untouchables in your portfolio that will be growing undisturbed.

Even though you would legally be allowed to sell those five companies, you need to create the mental fiction that they act as a private pension for you. In much the same way that you cannot prematurely start taking assets from a real pension, you must not even thinking of Coca-Cola, ExxonMobil, Procter & Gamble, Johnson & Johnson, and Colgate-Palmolive as assets that you could consider selling. They exist to provide you money in old age, and you must pretend that the money is not there, lest you want to stick a middle finger up at your future self.

The harder you make it to sell these shares, the better off you will be. I inadvertently locked some Bank of America shares in stock certificate form in a state that I will not be visiting anytime soon. Guess what—that forces me to be a long-term shareholder because I would have to: drive for hours on end to get the stock certificates, mail them into a custodian, and then give them instructions to sell. If I went through the natural process and did not pay any “speed up” fees, the process would likely take an entire month from the time I decided to sell until the money hit my bank account. When you create those kinds of impediments, you cannot help but position yourself to be a long-term investor. With your life, you need to hitch your fortune to the absolute best businesses you can find, and then put the safeguards in place to make sure that you never sell them.

In thirty years, you want to put yourself in a position that you wish you could go back in time and hug a younger version of yourself for his foresight in delaying gratification, rather than desiring to punch him for his stupidity in selling just because a bump along life’s road cropped up.

 

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8 thoughts on “You Need Five Dividend Investments That Will Be Untouchable Your Entire Life

  1. Matthew says:

    Hey Tim, I really like your blog posts. You are so smart, and you are able to make the 'complex simple'. You clarify and articulate your thoughts so well. I am really in awe of how smart you are for such a young person. I wish I had started investing so much earlier in life (I am 36 now and have a decent chunk saved), and I feel lucky to have started reading about you from Seeking Alpha. I look forward to your posts all the time, and now today with 5 posts, you are truly prolific !! Take Care, Matt

  2. patrickM says:

    I left the stockmarket 10 years ago (net gainer but more luck than else). At 52, I am back now, fortunately I did not close my ameritrade account. With this thinking of Tim and others, I am confident again in stocks and I will buy a big amount of such companies that I will leave to my daughter who is now 14. At 52, I am happy to find a way to be present and persistent in stocks.

  3. Ben says:

    Tim,

    Thank you very much for taking the time to write these insightful articles! much appreciated!

    I am a Father to a toddler and trying to plant a few seeds for her future self.

    Ben

  4. seyoung says:

    Whenever my will is agitated or weakened, I come back to read your posts and I always find myself refreshed with new will power.

    Tim, you're such an energizer like a mother to a toddler or water to plants:)

  5. Austin says:

    Tim,

    I love this idea of having core holdings (holdings that you consider to be the pillars of your portfolio). I have a question for you – Why not diversify your top 5? Include Coke and Pepsi and invest $5,000 in each. Also, you could include Exxon and Chevron and invest $5,000 in each. This way, you diversify your risk without losing much quality. Everyone would agree that Coke and Pepsi dominate the soda industry and Exxon and Chevron dominate the large-cap oil space. All 4 companies have shown they will consistently raise dividends as well. Just a thought. Thanks for writing!

  6. henry says:

    Great suggestion, but I would add that if one really plans to keep those stocks for the long term they should set up DRIP's, especially with companies that allow OCP. Then you can invest additional money at no cost. Every dollar in fees or commissions will limit your growth in the long term.

  7. says:

    This is exactly what I am mentally doing as well. All my investments I have are untouchable until retirement. Thus I am creating my cash reserves which are touchable in the event of any unexpected life issue such as job loss, so I do not have to sell my investments. I have my cash partially in savings accounts and partially in brokerage account to ensure growth, but those are touchable. Then I have another accounts which are a no – no to sell and withdraw. Glad you have the same opinion on that.

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