Principles for Designing A Dividend Growth Portfolio for Retirement: Part 1


This article is a refresh and an update of an article I originally posted in 2015. However, the principles I am presenting are timeless and worthy of being revisited. Moreover, I have updated the supporting examples to more precisely reflect our current market environment.

Managing an investment portfolio is a very personal matter. Consequently, the most important consideration is to design a portfolio that meets your own unique goals, objectives and risk tolerances. Everyone is different, and consequently, every investment portfolio can and should be appropriately different as well. Stated more straightforwardly, I do not believe in cookie-cutter or one-size-fits-all approaches to portfolio design.

In the same vein, I believe that investment portfolios, especially retirement investment portfolios, should be designed and constructed to meet the specific needs of the individual it is built for. In some cases, the objective might be current income and safety. In other cases, the objective might be the necessity to earn the highest possible rate of return. Importantly, the most appropriate objective for each individual case will often be driven by factors that are external to the portfolio itself.

Two of the most important external factors are the size of the portfolio relative to the investor’s needs, and/or the amount of time the investor has before entering the withdrawal phase. These important factors are the major contributors regarding whether the individual will be required to harvest principle upon retirement, or whether they will be able to live comfortably off the income their portfolio can prudently generate.

Of course, the optimum scenario belongs to the prudent planner and disciplined saver that started early and built up a portfolio over time that can generate more than enough income to live off during retirement. More simply put, the larger the size of your portfolio, the more options you have. For example, if you have amassed a portfolio that is large enough to generate more income than you need to live off, you can position your portfolio as riskless as possible if you so choose.

On the other hand, if you have determined that you must continue to grow your assets to meet your needs, then you will be required to take on more risk. Therefore, I believe that the best investment advice that any individual can receive is to start early and save regularly. Whether you are inclined to invest in equity (stocks, real estate, etc.) or debt (bonds, CDs, etc.), the sooner you start, and the more often you contribute, the more you will accumulate over time. I am a firm believer that no matter what type of investment you choose, “time in” is more relevant and better than “timing.”

Nevertheless, and with the above stated, this article is oriented to those investors that have had the good fortune to amass assets large enough to comfortably live off in retirement. However, the specific size that a portfolio needs to be will also differ from one individual to the next. Some people desire or require lavish lifestyles while others will be more modest with their needs. Regardless, the primary focus of this article will be on implementing portfolio design principles that apply best practices for achieving yield or income.