May 17, 2019: A Cash Windfall, AGNC, LTC

Dividend Portfolio

Explanation of Tables here


A Cash Windfall


In April, I received a cash bonus for my work in 2018. Anytime you receive a cash windfall, I recommend paying yourself first. Here is how you do that:

First, I paid off all of my credit cards. I usually do this every paycheck, but I always think paying off debt with windfall cash is the best idea ever. Now I won’t have to spend my next paycheck on my bills. Getting to a point where you have no liabilities is such a better feeling than buying stuff in my opinion. Freedom isn’t always free.

Second, I wanted to increase my “emergency fund” from $2,500 to $5,000. I have a rental property and after a few years of owning it, I now think I should have a rather large amount of cash on hand just in case something happens. I had an oven go out last year and needed $500 and then $800 in property taxes, so it can really add up fast. I think everyone should have their own emergency fund amount that is tailored to their lifestyle. Windfall cash is a great way to knock out loans, debt, and emergency fund deficits.

Lastly, this isn’t “sideline investing” money. Emergency Fund should have a constitution to it such that you only use it for certain things and Investing isn’t one of those things. Stick to medical, car, job hunting/loss, and maybe even helping someone with their animal or child if it is a family member or close friend in need.

I took the rest and invested it into AGNC and LTC, per my investment schedule.

You may ask: Why didn’t you treat yourself?

Well, I did. I paid off all my cards and gave myself a life cushion.

However, I didn’t treat myself in the traditional sense because I’m living the best life I can every day. It is far from perfect or even ideal, but my hobbies are cheap, my friends and family are free, I eat out sparingly (but enjoy the heck out of it), and I spend time resting and relaxing - which is also free and very healthy. You should live a life that doesn’t need a cash windfall. Treat yourself EVERY DAY by calling a loved one, running outside, or learning something on YouTube (cooking, building, instruments). Create a lifestyle within your budget that brings you happiness. There is no direct correlation between money and happiness, so you should stop pretending like there is. The longer you perpetuate that ideology and feed it, the longer you will be beaten down by your salary. Live within your means and do what brings you happiness.

The future you will be happy you bought income with your cash windfalls. I didn’t need $4,000, but I’m happy to have an extra $40 a month to meet my future financial goals.


AGNC

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Table Takeaways

AGNC decided to cut their dividend after this investment, and that is just fine.

Cutting the yield from 12% to 11% doesn’t bother me one bit because I would prefer AGNC navigate prudently through the coming year. There is so much uncertainty and volatility in the market and I don’t want them to overextend themselves over $.02.

In reality, I believe the amount of investors interested in AGNC will only increase by lowering the yield. I think the risk profile of people who invest in these instruments probably sit between 0%-3.9%, 4%-7.9%. 8%-10%, and 10%+. Meaning someone may not invest in AGNC because it is out of their risk profile at 12%, but would if they cut their dividend to 10%. I think it is a good move and I imagine the stock price will only increase due to attracting a broader spectrum of investors. This is my bullish take, but the market sentiment seems to agree because cutting the dividend basically did nothing to their price. The lack of a knee-jerk reaction seems to be a vote of confidence for their management.

Unless I fall into some money again (not likely), I will invest two more paychecks into this stock in order to reach my final goal. If I had it my way, it would stay about the same price for the next two months so I can purchase as much ownership as possible. Then, magically, the price appreciates about 20% over the next 12 months and I can slowly sell off the gains and reinvest it into something a bit less risky. I wouldn’t mind a dividend hike either!


LTC

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Table Takeaways

LTC is truly testing my plan.

For the dividend portfolio, I invest $1,000 in two different stocks every other week until I reach $25,000 . Then I let it DRIP. If a stock appreciates 15%, I sell off the appreciation and reinvest it into another stock that will provide slightly higher income or diversify me into a new sector.

If the stock goes up, I make money. If the stock goes down, I make money because my DRIP buys more ownership and my monthly cash flow increases. It seems like a win-win and this has worked great so far, but LTC has been appreciating at a ridiculous rate since my first investment. Almost every month, I’m investing at LTC’s 52-week high. You can see from the chart above, that my yield per investment has been decreasing from 5.6% all the way down to 4.8% because the price keeps increasing. I don’t usually invest in something under 7%, but since AGNC is at 12%, I figured I’d average it down to compensate for the risk of AGNC. I just didn’t realize that the less risky stock, or LTC, is the one that would be appreciating at such a risky level. This would go against most financial theories.

Why would I keep investing at its high? Well, because 52-week high is not part of my criteria because it probably doesn’t matter, despite it being such an easy metric to conceptualize. Buy low and sell high.

The best stocks I’ve ever purchased have always continued to rise. This isn’t true for all my good performers, but specifically the best. I bought WM and ITOT in 2011 and they have both tripled and are still testing new highs. It just shows that time in the market is better than timing the market. If you would have waited on WM to pull back in 2013, you would have missed multiple dividend hikes and a 3x return.

I love a good 52-week high/low analysis, but it doesn’t always check out. As a lesson learned, I encourage you to evolve as you invest. You don’t need to change your plan because your plan should work no matter what. However, your ideology should always be evolving because the past is not a good indicator of the future. Things can and do change.

I know senior living is a promising industry and additionally the company meets all of my criteria for investing, but I am average dollar costing during this great bullish run and it is painful. However, the pros say you have to stick to a plan. I still have about a year of investing monthly in this stock. Usually, I’d like it to stay the same price or even depreciate, but I don’t see that happening as investors search for solid industries to move into. Senior living gets a ton of good press because, well, the population and all.


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