The Road to Independence // Chapter Two

Welcome to the first of many TRTI posts, this will be a new series I’m starting. And it all starts here, with a fresh start to my portfolio. I can hear you asking: ‘If it’s a fresh start why is it called Chapter Two?’. Well, this is the second stage of my investing plan, I hope you are as excited as I am to find out more!

Summary.

Sold profitable DGI stocks for around $3000 gain.

Will put most of the money into six carefully selected ETF’s available in The Netherlands.

Single stock investing turned out to be a great money maker, but to active for my liking and with money being lost due to currency exchange costs.

I will not be focusing on income anymore as I’d reinvest it anyway, most of the ETF’s will reinvest dividends automatically.

Most remainging stocks will be sold when they turned a profit, I’m in no rush to sell good companies for bad prices.

 

Currently I’m a Dividend Growth Investing blogger, basicly I buy stocks that pay sustainable dividends to hopefully one day pay all my bills with the dividends from my investments. I’ve been doing so for close to two years and it worked wonders. Steady companies pay steady dividends and (mostly) have a steady run up in stock price. It should mostly be a passive investing strategy but I’m noticing more and more that it’s quite active for me personally. Investing is a hobby and thus I keep looking at individual stock prices, paying transaction fees, keeping score of all the dividends coming in. And there are also some negatives for me as a European based investor, most solid DGI stocks are American and it costs me money to transfer my Euro’s into Dollars.

The idea of making it even more passive and steady by using ETF’s has been in my mind now for quite some time. And a few weeks ago I started planning how my portfolio would look using my new thesis and it should look like this.

As you can see there is longer an endless list of individual stocks, just a few Dutch and Chinese companies. All my American and world exposure will be through ETF’s that note in Euro’s. They don’t all neccessarily pay dividends and they don’t need to in my case. I don’t need the income yet and I would just reinvest the paid dividends anyway, so why not automatically do it with an ETF that invests the dividends back into the ETF immediatly.

I’ve chosen a world index as main component of the portfolio, this as a steady fundamental base. Together with the US Dividend Aristocrat ETF it should be the most solid part of my future. To have some extra exposure to technology I’ve chosen a specific American Information Technology fund, and there is some Emerging Market exposure as well. To truely diversify I’ve decided to add a High Dividend fund, a Global Real Estate fund and last but not least a bond of a Dutch bank for 6,5% yield.

My income will drop significantly from what it is now solely using dividend stocks, but as stated above I don’t need the income yet so I prefer it being as passive and diversified as possible.

 

What I did with my dividend stocks.

As most of my portfolio was in the green I decided to sell a majority of my positions immediatly, and place a few limit orders on other stocks. It’s kind of heart breaking having to say goodbye to stocks that have been so good to me the past two years, but they don’t fit my new plan anymore.

The stocks that are in the red will remain in my portfolio as each and every stock I used to own was a company I trusted in for the long term. I’m not in such a hurry that I’ll be selling all my stocks no matter the price.

Slowly but surely I’ll be transfering small amounts of money into the ETF’s and distributing the cash on a monthly basis. I’m looking to spread the buys out so I’m not buying everything at the top of the cycle with all my cash, I want to phase in to these investments.

I’m very curious to your opinion about my new ideas, do you invest in ETF’s yourself, and if so, what ETF’s do you use and do you care to share your diversification with me? Let me know down below!

 

Happy investing!

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9 Comments

  1. Completely understand where you are coming from, a more passive investment style is not a bad thing to strive for. But you might lose some return on investment, but I guess you are ok with that. Kind of buying piece of mind and time with going the ETF route!

    • DutchIndependence

      Yes exactly, it might kill a little ROI and cost me my current income. But the diversification and long term passive investing makes up for it in my mind. No more endless staring at stocks or reading as much Seeking Alpha articles as possible to know about ‘the next DGI gem’. Thank you for your kind words CF, have a great week!

      DI

  2. I understand your reasoning, but:
    – can you indicate what you are losing with currency exchange cost? If you regularly biy US stocks, you largely average the effect.
    – what revenue do you need with etf’s to become independent? Etf’s do not grow their dividend regularly like individual stocks, so you need far more investment to cover the expenses on the long run. For example the SPDR aritocrats etf has even cut its dividend in the past several times, thus even not applying the growth rule of the stocks it represents.

    My approach is based on a mix. See my blog: groeigeld.blogspot.com

    • DutchIndependence

      Hi, thanks for your comment. I also think you average out the currency issue overtime, but the currency cost I meant is more about when you have enough dividends to retire and you have to exchange USD to EUR every month for your own paycheck. I’d be too dependent on the current rates and always paying 0,25% to exchange the currencies is just a waste. The SPDR US Div Aristocrats ETF has mainly been selected for the underlying companies, I still believe that dividend growers outperform the market, so i bought them. Absolutely not just for the dividend income, I won’t mind if the ETF cuts it payout a little, I’m in that ETF for the huge capital growth advantage that dividend aristocrats have to offer.

      Thanks for the little debate, it’s exactly why I started this website!

      DI

      • Transferring USD to EUR at DeGiro costs 0.1%. If you need $3000 that is $3 lost per month. That looks small to me. But agreed, the currency issue is a valid risk (I also wrote about this on my blog).

        The SPDR aristocrats ETF looks interesting. Time to write something on ETF vs stocks.

        You also thanks for the discussion!

  3. Investing in ETFs simply saves a lot of time. You do not have to study annual reports and analises.
    Personally, I invest in individual shares. Especially because I like to read about companies. As a result, I am learning more and more about how the world works.

    When I look at your portfolio, I see a low percentage of bonds. And also the low diversification in bonds. Do you have a special reason for that?

    • DutchIndependence

      I get your point, I also like that a lot and it will probably remain a hobby and this is even why I couldn’t eliminate all individual stocks from my portfolio. It just got out of hand ever so slightly, I want it to be more passive in the long term. I figured to diversify a bit more I’d add a bit of bonds to the portfolio. I’m still a firm believer that equities will do more for me than bonds, but it’s nice to start with a small amount of bonds and increase this part of the portfolio when I get older and older.

      Thank you for you comment!

      DI

  4. Bart

    I fully recognize the choice you have made! Up until 2014, I was also spending way too much time investigating and keeping track of individual dividend growth stocks. It started to change from a great hobby to feeling like work 😊 and was not really as passive as I would like.

    But your portfolio idea looks a bit like a mixed bag with overlap in ETFs and a heavy tilt towards US stocks with the same USD currency risk which you said you wanted to avoid.

    To avoid the risk of keeping tinkering with your new portfolio allocation in the coming years and changing strategies every now and then (which will probably eat some of your returns), I would advise to read several books on portfolio construction, like ‘all about asset allocation’ from Rick Ferri or ‘the intelligent asset allocator’ from William Bernstein. Only then remind yourself that you live in a Euro country, which means it is probably good to have a bigger portion in EUR stocks and (hedges) bonds.

    I also have the SPDR US dividend aristocrats etf by the way, as well as the Euro variant! Good luck!

    • DutchIndependence

      Thank you for your extensive comment! Good to hear I’m not the only one feeling this way, I do have a preference for American stocks as they just outperform the others, the underlying assets are in a different currency but the ETF in EUR so it makes me feel a lot better. I think it’d be very smart for myself and many others to pick up such an allocation book, and I will definitly make some time to go and do it! Thank you for the recommendations.

      DI

Next ArticleChapter Two // Options