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Sunday, June 30, 2013

Bonus Deposit, June 2013

On Friday, June 28, I deposited $10,000 cash into my DivGro portfolio. This bonus deposit is in addition to my regularly scheduled deposits of $1,000 per month. I decided to transfer this money from one of my other portfolios, where I've had some cash available for a while. In this post, I'll try to explain my thinking.

In addition to DivGro, my dividend growth portfolio, I manage three other portfolios in which I use different strategies: an income portfolio, an aggressive growth portfolio, and an options trading portfolio.

I use the income portfolio to invest in stocks that provide an income stream in the form of dividends and other types of distributions. My focus is on stocks that earn higher yields, such as real estate investment trusts (REITs), master limited partnerships (MLPs), and business development companies (BDCs). REITs, MLPs and BDCs return a significant portion of their profits to shareholders in exchange for favorable tax status. Utilities and other slow growth industries also provide higher yields.

My aggressive growth portfolio is for investing in high risk/high reward stocks. Stocks in this portfolio usually have a high beta and are more sensitive to overall market fluctuations. Most companies in this category are in the early stages of growth, so they're usually smaller and not yet household names. I subscribe to several newsletters to identify candidates for this portfolio and I use a strict trailing stop strategy to help manage risk.

My options trading portfolio is actually a hybrid portfolio, because I favor trading covered calls. With this strategy, I'm obliged to own the shares against which I sell call options. In rare cases, I also sell naked puts. This is a risky endeavor, but, if used carefully, it can provide good income or allow one to buy stocks at a very favorable price. About half of my trades in this portfolio involves buying call options. I prefer LEAPS, which have expiration dates longer than a year out, but correspondingly higher premiums.

My aggressive growth portfolio is by far the largest of the four portfolios. I've built it over more than ten years of investing. My income portfolio, which I started about four years ago, is second largest. My options trading portfolio is older (about seven years), but it remains relatively small. Its size varies over time – right now it is third in line, just larger than DivGro.

In the last year or so I've slowly decreased the relative size of my aggressive growth portfolio in favor of the more conservative income and dividend growth portfolios. I need to continue doing so over the next ten years, slowly becoming more conservative and defensive, eventually focusing on capital preservation rather than pursuing capital appreciation aggressively. With this transfer to DivGro, I'm taking another step in that direction!

I've updated my current Portfolio page with this bonus deposit, now showing available cash of $12,025. I'll be on the lookout for more fair-valued dividend growth stocks to invest in. Stay tuned!

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