Transcript

Mike:

Let’s talk a little bit about why you do not want to use stock dividends as your solution. If you will, for retirement income, I’m gonna go back in time and tell you the story of my grandfather. My grandfather’s name was Wes. If he walked into a room, he basically took over the room because he had a big personality, always smiling, always happy, always in a positive mood, just, you know, the kind of guy that everyone wanted to be around. I was maybe eight years old and I went to see him. When I saw him, he had the newspaper open and I’m like, grandpa, what are you doing? And he says, he showed it to me. He goes, son is the wall street journal. This is, oh, the wall street journal. It’s like, ha ha it’s. In those days, you, they have pages that listed all the stocks.

Mike:

What he would do is he would save some money. And then once he had some money safety, he’d go to his stock broker, which, you know, this was, we’re talking the seventies here, you know, the stock broker. And he would buy some of the Oxford. He had underlined in the wall street journal. Why do you do that grandpa? And he says, well, when I retire here, coming up in a few years, we wanna buy a cottage on a lake up in Northern Michigan. And we want it to be kind of a place where all you grandkids can get together, right? So what do you really want? He wanted a family enclave and the way would do it is he would buy these stocks and they would hopefully grow over time so he could buy that cotton. Here’s why I wanna introduce a model to you because this is important.

Mike:

We’re talking about why you don’t use dividends for retirement income. And I want you to think about it this way. Whenever you do your retirement plan, you have some different elements that you need to think of. And we call that goals, strategies, and tools, all right. Goals, strategies, tools. So I just shared with you what my grandfather was trying to do. He had a goal by the family cottage, right? He wanted to get that cottage. And what was his strategy to do that? He wanted growth and accumulation. That’s what he wanted and the tools, dividend paying stocks. And by the way, when my grandfather bought these dividend paying stocks, it was a, every time you bought a stock, it was a company that everyone knew who it was like, if you were doing it today, it might be Coca-Cola. We all know who Coca-Cola is.

Mike:

And blue chip company paying a big dividend cottage is a goal. Let’s grow our money and we’re gonna use dividend paying stocks to get there very stress. And by the way, as a certified financial planning professional, I have to tell you, I got no problem with that. When my grandparents retired a few years later, guess what? Boom, boom, boom. They got the cottage. They got it. They, I mean, it worked, everything worked. It was awesome. And then one day my parents said to us children, they said, you know, I’m the oldest of four. They said, come on kids time to get in the car. We’re going up north to the cottage for the last time. Mom, dad, what are you talking about? What do you mean the last time? Wow. Grandma and grandpa are kind of running outta money and they need to sell the cottage.

Mike:

So here’s my grandfather’s stock portfolio here. And when he retired and I don’t let’s imagine it was $300,000, which by the way, it was in those days, that’d be worth a, over a million dollars today. What he was doing with the dividends. Cuz remember this was spitting out dividends every year when he was growing it, what was he doing? Boo reinvesting the dividends, which is exactly. That’s what Warren buffet does. That’s exactly what you’re supposed to do with dividends. But when he retired and he got the cottage, what did he do? He said, ah, no more, this reinvesting stuff. I’m gonna use these dividends for income. That’s what I’m gonna do. And guess what? It worked out really well at first, sometimes the stock market goes up over time. Sometimes it goes sideways over time and sometimes it goes down over time. And what happened was the downs started happening.

Mike:

And so when the stock values started going down, guess what was happening at dividends? They were going down. In fact, they went down so far that suddenly my grandparents were like, uhoh these are not enough. We’re in trouble. It’s not enough money. We need more money to make ends, meet where they gonna get more money to make ends meet right there. They had to sell stock, not when it was high, but when it was low. And when you sell stock low, that means you have to sell more shares. And when you sell more shares, that means there’s less shares to generate dividends next year, which means next year you have the same problem. It’s only a little bit bigger. And then the next year you have the same problem. It’s only a little bit bigger and a little bit. It’s a, this is the downward spiral.

Mike:

This is how you go broken retirement. I’ve seen it happen over and over and over again. What was their mistake? Their mistake was this. When they hit retirement, they got the cottage, got their goal. Their goals shifted. At that point, they changed because now we had to add a word here. What was their new goal? Their new goal was keep the cottage they went from. I wanna get a cottage to, we need to keep the cottage. And when, and that little shift, that is a fundamental shift in life. That fundamental shift was right here. Instead of reinvesting, instead of adding money to the portfolio, we’re now going to take it out. And that means that when it came to their investment strategies, their fund financial strategies, do they still want to grow their portfolio? Yes, but they need to add something. Stable income is a strategy that they needed to add and they didn’t do it because guess what?

Mike:

Dividends are not stable. You can’t use at no point are dividends stable. And I don’t care if your dividends in your company were going for 30 years, that they were for my FA grandfather too. And they grow for 30 years until they don’t 2000 through 2002 dividends grew for 30 years. Suddenly didn’t anymore. 2008. They didn’t anymore. They grow until they don’t. We should probably carve out, right? Carve out some of these stocks into some type of income tool, right. Something that would generate income so that we didn’t have this worry so that we know that, Hey, if markets go up, we want to put a green check. We wanna say, Hey, we’re gonna be okay if markets go sideways, we want a green check. We want be okay. And if markets go down, we want a green check. We gonna be okay, well guess what if all of your money’s in dividend paying stocks, you’re only okay.

Mike:

If markets go up and we need better than that learn from my grandparents because they made that mistake. They had to sell the cottage. And when my grandparents had to sell that cottage grandfather larger than life, super positive, happy guy within a year, he was dead. That broke him. I never saw him laugh or smile. Again, it was a tragedy. One that never had to happen. He just made a little tiny mistake. Unfortunately it was at the time of life. When little mistakes are magnified into big mistakes, don’t be my grandfather learn from him. My grandfather, he had enough money. If he did the right thing, he never would’ve had to worry about money. He would’ve been able to keep that cottage forever, but you gotta make sure you’re setting up your accounts the right way. You need to make sure you understand. Retirement is a fundamental shift in life and remember stock dividends. They’re not for retirement income. They’re for reinvestment. Use the tool for what it’s designed to do. There you go. That’s our message. This week. Hope you found it helpful. See you again soon.