Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.
(I had to get a Sun Tzu quote in somewhere).
That said before I can have a strategy I need to define the objective otherwise I would end up on the road to nowhere…
My objective is to “build up a revenue stream in 10 years which will provide my wife and me an alternative or additional income to our current salaries”.
That is a nice simple statement but what does it mean? Well, in today’s terms I would like to have an income of 1,500€ per month.
If I have an investment yield of 5% I would need to have an investment of 360,000€ in 10 years in order to have an annual income of 18,000€.
Yikes! That would be (assuming no growth = as much increase in capital as decrease) 36,000 per year invested or 3,000 per month. And no I do not have that amount of disposable monthly income.
Digging a little deeper, if I make an investment which pays a dividend yield where the per share pay-out increases then I can theoretically increase the yield rate on cost over the space of 10 years.
So using the rule of 7 (where compounding at 7% over 10 years doubles the principle) if I have an investment now with a yield of 5% which grows at a modest 7% (?) then I would have a yield (on cost) of 10% after 10 years.
This would mean an investment of 180,000€ in 10 years giving an average yield of 10% would give me 18,000€ per year. Investing 18,000€ per year or 1,500€ per month is doable.
I need to work on the figures bearing in mind that the investment will be done over 10 years and so not all of the investments will have hit the 10% yield. Ho hum.
The strategy is now simply stated as being “Invest 1,500 € per month in companies which pay a dividend which based on their history and future outlook pay a dividend which has a yield which could rise to 10% after 10 years.”
The tactics define how I find and choose such companies. There are what are known in the trade as Dividend Champions – companies that have such track records which can potentially meet the requirements.
I have created a checklist which has already evolved and will probably continue to do so.
There is also a little bit to do on how I size a position (how much to invest in a single company) and therefore how many companies will I need to invest in to attain 180,000€ of investment.
I am writing this after nearly a year of having started investing and already I have learnt some things:
- I am no longer buying a full position with 1 purchase.
- I am now dollar cost averaging into a full position, this allows me to take advantage of the market down turn to buy in at an increased yield. Of course when the market is on the up I am dollar cost averaging in the opposite direction which I will try to avoid by investing only when the price goes down.
Does this make sense and is it doable – well only time will tell.
That is all for now. I will update this page as time goes by.