James Bray
Two of the most popular investors of the modern era — Charlie Munger of Berkshire Hathaway (BRK.A, BRK.B) and Ray Dalio of Bridgewater Associates — each offer investors Invaluable wisdom on how to successfully compound long-term wealth.
Charlie Monger emphasizes that reaching six figures in savings is an important milestone on the road to financial freedom:
The first $100,000 is a lot of money, but you have to do it. I don’t care what you have to do – if it means walking around and not eating anything that wasn’t purchased with a coupon, then find a way to get $100,000.
Meanwhile, Ray Dalio proposed the All-Weather Portfolio as a way for retail investors to adjust their portfolios to respond to various economic environments, including inflation, deflation, expansion, and recession.
Finally, we believe that income investing is a A great way to position your investment portfolio to support retirement because:
- It focuses investors’ attention on the company’s fundamentals rather than getting caught up in short-term momentum swings in the stock price. If you invest in a stock for dividend income, you don’t worry about whether its price will go up or down tomorrow. So you’re more likely to hold or even buy when the market is panicking, and avoid chasing stocks when they’re soaring to nosebleed levels.
- It also reduces your sequence of returns risk because it means you don’t need to continually sell stocks to meet living expenses. Instead, you can live off your dividend checks without worrying about what’s going on with the stock market right now.
Still, many investors may think a passive income approach to retirement sounds great, but when they actually put their hard-earned money into the market and experience market volatility firsthand, they end up panicking and selling their stocks. Therefore, the Ray Dalio All Weather Portfolio approach (which leads to more stable portfolio performance over time) combined with the income approach may end up being an investment with a relatively low tolerance for volatility and a low appetite for risk the best overall approach for A strong desire to build passive income through dividend investing.
In this article, we will combine the All Weather Portfolio approach with the dividend investing approach and then share a $100,000 model portfolio invested in this strategy to illustrate what it would have been like to achieve Charlie Munger’s first major milestone in financial independence.
All-weather product portfolio
Ray Dalio’s All Weather Portfolio is defined as:
- 30% Stock (Spy)
- 40% Long-Term Treasury Bonds (SPTL)
- 15% Medium-Term Treasury Note (SCHR)
- 7.5% Commodity(BCI)
- 7.5% Gold(GLD)
While you can replicate this approach using ETFs, or even recreate a high-yielding version of this approach using ETFs, in this article we will look to optimize it further by using a combination of individual stocks and ETFs.
How to Invest $100,000 to Create a Snowball of High-Yield Passive Income All Day
In order to achieve the goal of achieving high returns through common stock investments, we need diversified blue chip stock dividends. For example, we might want to choose:
- Real Estate: WP Carey (WPC) and Simon Property Group (SPG) have status as large blue-chip REITs that also pay large and well-covered dividends and should grow at a decent rate going forward.
- Tech stocks: Broadcom (AVGO), International Business Machines Corporation (IBM), and Microsoft (MSFT), as they all pay dividends, with IBM leading the way in terms of yield, while MSFT and AVGO offer pretty strong dividend growth.
- Infrastructure: Brookfield Infrastructure (BIP) (BIPC) and Brookfield Renewable Energy (BEP) (BEPC) offer a diversified portfolio of world-class infrastructure assets that deliver attractive dividends while delivering strong dividend growth Strong dividend yield.
- Financials: Ares Capital Corp (ARCC) – while not my favorite BDC right now – has a strong track record and tremendous scale, and carries an attractive and safe dividend yield. Therefore, it serves as a good representative of the wider BDC industry. Old Republic International (ORI) is an excellent long-term compounding and dividend grower in the insurance industry that could help round out the space.
- Healthcare: A sample of blue-chip stocks such as Johnson & Johnson (JNJ), AbbVie (ABBV) and Pfizer (PFE) – while I’m not particularly bullish on any of them – offer an attractive mix of yield and major component exposure Healthcare industry.
- Consumer: While truly high yields are rare in this sector, especially among blue-chip stocks, Coca-Cola (KO) and Home Depot (HD) deliver a solid combination of respectable current yields and solid long-term dividend growth.
- Communications: While I’m not particularly bullish on any of the major telecom companies, I think Crown Castle (CCI) is a solid company in the communications infrastructure space given its undervaluation and active participation, while Verizon ( VZ) is probably my favorite choice Arguably, it’s a terrible neighborhood to be in the telecom space.
- Industrials: Amcor (AMCR) and United Parcel Service (UPS) are two solid blue-chip dividend payers in the industrials sector.
For long-term Treasury bonds and intermediate-term Treasury bonds, we will simply use the Vanguard Corporate Bond Index Fund ETF (VCLT) and the Vanguard Corporate Bond Index Fund Intermediate-term ETF (VCIT) because their yields are higher and only compared to Treasury bonds of the same maturity. , the risk gradually increases.
For commodity and gold exposure, we will select a group of high-yielding, diversified blue-chip mining, agriculture and energy stocks:
- Mining: Rio Tinto (RIO) and Newmont (NEM) are two blue-chip mining companies with attractive dividend yields and currently attractive valuations.
- Agriculture: Nutrien (NTR) and Archer-Daniels-Midland (ADM) – despite recent accounting practices investigations – are blue chips with solid dividend growth in the agriculture sector.
- Energy: Enterprise Products Partners (EPD) and Exxon Mobil (XOM) are top blue-chip stocks in this sector that also pay attractive and growing dividends.
Putting them together we get the following portfolio
| stock ticker | quantity | % | yield |
| VCLT | $40,000.00 | 40% | 4.92% |
| VCIT | $15,000.00 | 15% | 3.85% |
| Wood plastic composite | $3,000.00 | 3.00% | 6.05% |
| SPG | $3,000.00 | 3.00% | 5.19% |
| AVGO | $2,500.00 | 2.50% | 1.71% |
| International Business Machines Corporation | $2,500.00 | 2.50% | 3.70% |
| Microsoft Corporation | $2,000.00 | 2.00% | 0.75% |
| BIP | $3,000.00 | 3.00% | 5.09% |
| Best Practices | $3,000.00 | 3.00% | 6.04% |
| Asian Studies Center | $3,000.00 | 3.00% | 9.59% |
| Ori | $2,500.00 | 2.50% | 3.44% |
| Johnson & Johnson | $2,500.00 | 2.50% | 3.00% |
| ABBV | $2,500.00 | 2.50% | 3.54% |
| PTFE | $2,500.00 | 2.50% | 6.07% |
| yes | $2,500.00 | 2.50% | 3.17% |
| HD | $2,500.00 | 2.50% | 2.47% |
| CCI | $2,500.00 | 2.50% | 5.81% |
| Wiz | $3,000.00 | 3.00% | 6.47% |
| AMCR | $2,500.00 | 2.50% | 5.43% |
| ups | $2,500.00 | 2.50% | 4.40% |
| Leo | $2,500.00 | 2.50% | 5.41% |
| No | $2,500.00 | 2.50% | 3.24% |
| NTR | $2,500.00 | 2.50% | 4.21% |
| ADM | $2,500.00 | 2.50% | 3.71% |
| Environmental Protection Agency | $2,500.00 | 2.50% | 7.46% |
| XOM | $2,500.00 | 2.50% | 3.62% |
| all | 100000 | 100.00% | 5.50% |
risk
While this portfolio allocates capital by sector in a very similar manner to Ray Dalio’s All Weather Portfolio, with the advantages of high yield, potentially stronger dividend growth, and ultimately potentially higher total returns, it also has some potential downsides shortcoming:
- While it still has a degree of diversification, it’s more concentrated than investing in broadly diversified ETFs. As a result, this portfolio is subject to greater company-specific risks that also require active monitoring.
- Commodity and gold exposure is comprised of miners, producers and infrastructure companies, rather than purely direct exposure to commodities and gold itself. Therefore, while there is some correlation in the performance of this portion of the portfolio, there may also be differences that can sometimes be significant.
Therefore, investors adopting a portfolio similar to the one outlined in this article should expect its performance to be somewhat different than Ray Dalio’s All Weather Portfolio, although it may still experience some of its benefits.
Important points for investors
Mr. Munger’s advice on diligently building a six-figure base of savings to unleash the power of compound interest can be truly life-changing if implemented correctly. Once a portfolio composed primarily of high-yielding dividend growth stocks is in place, the focus shifts from actively contributing income to letting the magic of time and compounding take its course.
This 5.5%-yielding Dividend Growth Portfolio (modeled in part on Ray Dalio’s All Weather Portfolio) allows investors to get the best of both worlds through reduced volatility throughout the economic cycle and the ability to stay calm and let dividends flow. . A period when their portfolio may not have reached peak levels. Best of all, with a strong dividend growth engine underpinning the portfolio, the income stream should grow at an exponential rate over time through a combination of reinvested dividends and dividend per share growth from many of its holdings .
