In this episode, I show you how in just one coaching call with me, I saved Emma over $69,800 in fees, and helped her increase her annual investment income by 112% - all without adding any new money to her portfolio! You'll get to see the before and after transformation that simplified her investing, and lowered her risk.
I also cover the following topics in this episode:
- Our approach to investing
- Introducing Emma
- Emma's previous holdings
- Emma's new investment portfolio
Disclaimer: The views and opinions shared on this channel are for informational and educational purposes only. Simply Investing Incorporated nor the author and guests shall be liable for any loss of profit or any commercial damages, including but not limited to incidental, special, consequential, or other damages. Investors should confirm any data before making stock buy/sell decisions. Our staff and editor may hold at any given time securities mentioned in this video/course/report/presentation/platform. The final decision to buy or sell any stock is yours; please do your own due diligence. Stock buy or sell decisions are based on many factors including your own risk tolerance. When in doubt please consult a professional advisor. No advice on the buying and selling of specific securities is provided. All trademarks, trade names, or logos mentioned or used are the property of their respective owners. For our full legal disclaimer, please visit our website.
In this episode, I show you how in just one coaching call with me, I saved Emma over $69,800 in fees, and helped her increase her annual investment income by 112% - all without adding any new money to her portfolio! You'll get to see the before and after transformation that simplified her investing, and lowered her risk.
I also cover the following topics in this episode:
- Our approach to investing
- Introducing Emma
- Emma's previous holdings
- Emma's new investment portfolio
Disclaimer: The views and opinions shared on this channel are for informational and educational purposes only. Simply Investing Incorporated nor the author and guests shall be liable for any loss of profit or any commercial damages, including but not limited to incidental, special, consequential, or other damages. Investors should confirm any data before making stock buy/sell decisions. Our staff and editor may hold at any given time securities mentioned in this video/course/report/presentation/platform. The final decision to buy or sell any stock is yours; please do your own due diligence. Stock buy or sell decisions are based on many factors including your own risk tolerance. When in doubt please consult a professional advisor. No advice on the buying and selling of specific securities is provided. All trademarks, trade names, or logos mentioned or used are the property of their respective owners. For our full legal disclaimer, please visit our website.
In this episode, I'm going to show you how I saved a client over $69,000 in fees and increased her investment income by 112% all without adding any new money to her portfolio. Hi, my name is Kamal Sarai and welcome to the Simply Investing Dividend Podcast. In this episode, we're going to cover four topics. The first topic is our approach to dividend investing. In the next topic, I'll introduce to you our client, emma, and then, in the topic after that, we are going to look at Emma's previous holdings and then, finally, we will look at her new portfolio and see what it looks like. Let's get started with our topic number one our approach to investing. Now, our approach here at Simply Investing is to teach you how to invest safely and reliably for the long term, regardless of what happens in the stock market. Now, this approach is going to lower your risk, maximize your gains, eliminate your fees as much as possible and reduce the amount of time you spend on your investments. So how do we do that? We do that by investing in quality dividend stocks when they are priced low, when they are undervalued. So how do you know, when you're looking at a stock, if it's a quality stock and how do you know that it's priced low today. Well, for that I've created what I call the 12 Rules of Simply Investing, and we are going to use these 12 rules to help build a brand new portfolio for Emma. So let's go through the rules first, and then we'll move on with the rest of the podcast.
Speaker 1:If you're watching this, you can see it up on the screen. If you're listening to the audio version, I'm going to go through the 12 rules right now. So this, basically, the 12 rules here are your checklist, and it was the same with Emma. If a company or a stock fails even one of the 12 rules, you skip it. Move on to something else. Skip the stock, take a look at something else. So a company has to pass all of these 12 rules for it to be even considered for your portfolio.
Speaker 1:So let's take a look at rule number one Do you understand how the company is making money? If not, skip it, move on to something else. Rule number two 20 years from now, will people still need its product and services? Rule number three does the company have a low cost competitive advantage? Rule number four is the company recession proof? And rule number five is it profitable, which means does it have a track record of profitability, and we always look back at 20, 25 years or more.
Speaker 1:Rule number six does the company grow its dividend? Rule number seven can it afford to pay the dividend? So for that we look at the payout ratio. Rule number eight is the debt less than 70%? Rule number nine avoid any company with a recent dividend cut.
Speaker 1:Rule number 10, does the company buy back its own shares? And rule number 11, is the stock priced low? And there we check for three things. We look at the PE ratio. We want to make sure it's low. We also compare the current dividend yield to the company's 20 year average dividend yield. We want to make sure the current yield is higher than its average yield. And the third thing we look for is the PB ratio, the price to book value. So if a company meets all three of those conditions, then it passes rule number 11, and we know that the company is priced low. It's undervalued, historically undervalued. So that might be a good time to invest in the company, assuming it passes all of the other rules. And finally, rule number 12, keep your emotions out of investing.
Speaker 1:Okay, so now let's put all this together and we're going to continue on to our second topic in this episode and we're going to come back to the 12 rules and apply them, but for now, let's continue with the next topic, introducing Emma. Now, of course, I've changed her name to maintain her privacy. Okay, emma is a client that I had a meeting with last year. We had discussed her current holdings and looked at what her new holdings could look like. At the time she was age 54, married with two kids. Her total portfolio size and this is across both accounts, the 401k and the IRA she had a little over $572,000 in across all of the accounts total and the portfolio included a hundred and sixteen individual stocks and then a total of six Funds mutual funds, index funds, etfs. It was a total of six. Okay, let's move on to the third topic. We're gonna take a look at her previous holdings, the current holdings before she had met with me, and we're gonna take a look at what was in there, how much income the portfolio was generating, what kind of fees was she paying, and then we're gonna move on to what her new current portfolio looks like.
Speaker 1:So before I begin the next section here, I just want to give you some assumptions that I've used in Calculating the fees for the mutual funds, the index funds and the ETF Right, because all of those funds have fees and they're known as an M E R, the management expense ratio. So up on the screen here you can see there's an article to our friends at nerd wallet comm. It's actually a Mutual fund calculator, fee calculator. It's online so you can see the link up on the screen. I encourage everyone to try that online calculator for yourself. You can add in your own numbers in there, depending on how much you have currently invested in Mutual funds, index funds and ETFs. You can then put in your own timeline, whether it's five years, ten, twenty, thirty years. And Then the average rate of return which I've used in my calculations is 8.5%, and that's based on the fact that the stock market Over the last 80 years has returned on average annually anywhere between 8 to 11 or 11 or 12 percent. So we're kind of staying on the low end. We're gonna put an 8.5 percent. If the average rate of return is higher, then naturally the fees that you're paying on those funds is obviously going to be higher as well. Now, to keep things simple, for the yearly contributions I've used zero, which is in fact not true because Emma, to this day continues to invest regularly in her retirement accounts. So every month she has a set amount of money that she puts into her retirement accounts. But to keep things simple for this episode and for our calculations, I'm going to assume that as of today, she doesn't contribute any more to any of the retirement accounts, so the yearly or monthly contributions are zero. So the fees that I'm going to show you are, in fact, even much higher because Emma is contributing to her funds. So I'm going to show you the fees, but they will be on the low end. Okay, so let's get started.
Speaker 1:Now that we've put the assumptions up on the screen, let's move on to the first account, which is Emma's IRA account. So remember, she's got two accounts there's the IRA account and then there's the 401k. Now the IRA account is the bigger one in terms of holdings. So there's a lot of numbers on the screen. I'm not going to cover all of the numbers. There's quite a few. In fact, there's five slides which have a lot of numbers on them. Only because it's impossible to put all of the holdings up on the screen in one shot, you wouldn't be able to read it. The fonts would be too small. So just a couple of things to note here. At the very top you'll see there's a couple of funds that she owns. There's ETFs, there's an index fund. You can see the MER. The fee is listed in the column to the right and to the right of that is how much she would pay in fees over the next 20 years if she held on to these accounts. And you'll also notice she also has some money in a money market account. So that's also in there.
Speaker 1:And the rest of the items on the screen are the 116 stocks that I talked about. These are individual stocks that she had bought over many years and just kept adding to it. So let's go on to the next page. Again, same thing. It's a list of stocks. It continues. If anyone's interested, you can always pause the video and look at it in detail, but I'm not going to go through them in detail now, so let's just keep moving on. We're on the next page Again, lots of stocks.
Speaker 1:What you'll notice here is a lot of them have a annual dividend income of zero, and that's because those are stocks that don't pay any dividends. Okay, so she's not earning any dividend income by holding on to those companies. And then, lastly, we'll keep going. I think there's maybe one more page here. So again, lots of stocks here. A lot of them don't pay dividends. On this screen you can see, and I think this is the last page. So here we are, on the last page. So the total value of all of the 116 stocks, plus some of the funds, plus what's in the money market, all of that is a total of a little over over $437,000.
Speaker 1:Total dividend income. Annual dividend income, everything in her IRA account, including the funds and the stocks, is a little over $7,000 a year. So if we take that, we divided by the market value, you can see that her total portfolio yield, the dividend yield, is 1.64%. So that's not that great. Let's see if we can do much better than that. And in terms of the fees, because she did have a couple of ETFs and index funds in there over the next 20 years, she's looking at paying a little over $7,800 in fees. Okay, let's move on.
Speaker 1:Now we're going to look at her second account, which is the 401k account, and this account is a lot simpler. There's only three holdings, so she's got three funds in here you can see. There's the new horizon fund, there's a fidelity fund and then there's a Franklin growth fund. So just three. You can see the market value. Combined it's a little over $134,000 dividend income. Not that great. It's only about $200 in annual dividend income a year. So you can see the portfolio yield is extremely low at 0.15%. And here you can see the fees again. If she continues to hold on to these funds, after 20 years she will spend over $84,000 in fees. After 25 years she will have spent over $155,000 in fees.
Speaker 1:Now I know I'm going to get comments on this and I know those of you watching or listening. Of course her investments in these three funds will grow over time, over 20 years, over 25 years. Of course they will grow and the link I gave you before to Nerd Wallet's calculator will show you how much it would grow to. Our focus here is let's just laser focus on the fees themselves, right, because we're gonna compare it to individual stocks. So individual stocks will also. You know dividend stocks will grow over the next 20 to 25 years, but those individual stocks don't carry an annual fee. These funds do carry an annual fee. So that's why I want to point out Anywhere from 84,000 to a hundred fifty five thousand dollars in fees. In fact, the fees would be higher. Like I said before, we're assuming her monthly and yearly contributions are zero, but she does continue continue to Contribute to her 401k account as well.
Speaker 1:Okay, so the only thing I want to mention here with the 401k is, because of her company, she is not allowed in this plan to purchase individual stocks. She can only choose from a list of funds that are offered by the company, and it's a small list of mutual funds, index funds and ETFs. So that's going to pose a little bit of a challenge for us to try and build a portfolio for Emma, but we're gonna go ahead and do it anyway. So just keep that in mind. Okay, let's move on.
Speaker 1:So now I'm gonna put it all together. We're gonna look at we looked at the IRA account, we looked at the 401k account. Let's put it all together combined and See how much is Emma paying in fees, and so you can see here We've added up all of the the funds that she had in the IRA account. They're up on the screen. Then we add up the 401k. She had three Funds in the in that in the 401k account, so we put them up on the screen and so you can see if she remains invested in these funds. After 20 years she's looking at over $91,000 in fees. After 25 years, over a hundred and seventy thousand dollars in fees. Okay, let's move on. How much income is Her portfolio generating now? Remember, we're still looking at her previous holdings.
Speaker 1:So now again, we're gonna combine the IRA and the 401k together so we can see here we add up all of her holdings. I did not list all hundred and fourteen stocks again on the screen because it'd be too much to list, but I've added it all, added up all of the market values and the dividend income together. So total portfolio Market value, not as of this recording, but as of when we met last year with Emma. So market value at the time was five hundred and seventy two thousand dollars, a little over five hundred seventy two thousand Dividend income, a little over seven thousand three hundred dollars in income. So you can see the portfolio yield is about one point two, nine percent. I Think we can do much better than that, okay, so now let's move on.
Speaker 1:This is a quick summary of what I just stated. So we're gonna move on. We just combined both of the accounts, and the other thing I want to point out here is, of course, the dividend yield is low. It's one point. Two, nine percent. The fees are quite high, anywhere from ninety one thousand to hundred seventy thousand dollars in fees. And Also the number of stock holdings. That is a lot of stock holding. She owns a hundred and fourteen Companies Stocks and that is a lot. That's too much.
Speaker 1:If anybody's interested, go back and watch episode 44, where I talked about what's wrong with too much Diversification, because she does have a lot of diversification in here and it's too much. In fact, it's hurting her investment portfolio. So I Encourage you to go back and watch episode 44 if you're interested in learning about the problems of having too much Diversification. Okay, so what's the solution then? Right, the fees are quite high, the portfolio is Overdiversified and the yield is low. So let's take a look at the solution now, which is our last topic in this episode.
Speaker 1:So what does Emma's new portfolio look like? So remember, we're gonna follow the 12 rules, we're gonna Apply the 12 rules, which you, I've already done and we're gonna look for high quality, dividend paying stocks that are undervalued at the time last year when we met with Emma. So we're gonna take a look at, of course, the 401k I just showed you. This is what she had. So we're gonna do the 401k first and then we'll move on to the other account. So in the 401k this is I just showed you the same slide a couple of minutes ago she had two, sorry, three funds the new horizons, the fidelity and the Franklin growth and you can see the fees Listed up on the screen just to cross these three funds.
Speaker 1:Now I mentioned before, because of the company that where she works and the company that manages 401k, she is not allowed To buy individual stocks. So we have to stick with a list of funds that are provided by the company. So what we did was to take a look at the funds, make sure she had sufficient diversification, make sure that we could maximize on her dividend income and make sure that we could lower the fees, the MER, the management expense ratio, and that's exactly what we did. So you can see here we stuck with just three funds. She didn't need more than that. Remember, too much diversification can be a problem. So we kept the Fidelity fund so it's still up on the page.
Speaker 1:We added the Vanguard equity income fund and then the Fidelity 500 index fund, and what we did is we took the same dollar amount, which was a hundred thirty four thousand nine hundred dollars divided by three, invested equally across the three funds. You can see the MER is much lower than what she was paying before and the dividend income Is much higher than what she was receiving before, and so the fees are still there. You can see, after 20 years she'll pay over twenty six thousand dollars in fees. After 25 years She'll pay over forty nine thousand dollars in fees. But now if we compare the difference, so let's take a look at Before, which was the old 401k Investments, and then we'll compare it to the new, after we made those changes. So you can see that the portfolio yield went up from 0.15% to 1.6%. That's good. The annual dividend income went from two hundred and two dollars annually to over two thousand one hundred and fifty five dollars. So that's incredible. That's an increase of nine hundred and sixty seven percent in her annual dividend income. Now remember we didn't add a penny of any new money into this account. We just took what was already there and just redistributed amongst the three funds that we suggested to her, and you can see that over 20 years and over 25 years she will save over 67% in fees. So if we just look at the 25 year mark, she went from would have paid Over a hundred and fifty five thousand dollars in fees to now paying over forty nine thousand dollars in fees. So, right there, we've saved her a little over a hundred and six thousand dollars over the next 25 years. So that's pretty good.
Speaker 1:Let's move on now to the IRA account. So Just a recap in the IRA account she had some money in a money market fund. She had a ETF and then two index funds and then, of course, the hundred and fourteen stocks. So you can see the total amount, you can see the dividend income. So we made a couple of changes here.
Speaker 1:So Emma decided, after we talked about the simply investing approach, she had decided to sell her funds in the IRA account, so the three funds that were there, plus the money market fund as well, and Then she decided to sell the 78 stocks in her portfolio that were earning no dividends or very low dividends, so where the dividend yield was one percent or less. So all of those got sold off. She wanted to keep Apple, so that's fine, the yield is low, but it's a large company, it's a blue chip company, it's paying a dividend. She had bought it many, many, many years ago. She wanted to hold on to it, so that was fine. So, out of a hundred and fourteen stocks, she kept 36 of them, and so you can see those 36. The value was a little over two hundred forty five thousand dollars, earning annual dividends of $6656. So that remained unchanged.
Speaker 1:She wanted to keep those 36 stocks, so we left them where they were now. Having sold the 78 stocks and having sold the money market fund and the other three funds, she was now left with a hundred ninety one thousand nine hundred twenty eight dollars to invest. So what we did then was to go through the twelve rules of simply investing Look for quality stocks, dividend paying stocks that were priced low Last year when we had that meeting. So what we did is we took that money and divided it Equally amongst the ten companies that you see up on the screen right now. So you can see that the total market value is approximately the same. It's about a hundred ninety one thousand nine hundred dollars. However, her annual dividend income is now over six thousand eight hundred dollars. Now she still has the dividend income from the 36 stocks that she kept, but this is an additional income over and above what she would still be receiving. So here, with just these ten companies, you can see that our portfolio yield is over 3.5 percent, so way better than what she was getting before.
Speaker 1:Now this list is not a buy list, because not. These companies may not be undervalued when you watch this video. They may not even be quality companies. When you watch this video, they were quality companies and undervalued at that time. Now I know some of you may look at that list of 10 stocks and say, well, it's not diversified, she's missing Stocks in other industries and other sectors. Well, what happened is Last year, when we put the portfolio together, there were no good quality companies that were undervalued in those specific sectors and industries. So we only have the ability to choose from those sectors that happen to be undervalued or those stocks that have been undervalued and Are quality stocks at that time.
Speaker 1:So what would happen is, as Emma over the years has more money to invest or has additional dividend income to reinvest, then at the time she would look at okay, let's apply the 12 rules, what is undervalued today, what is a quality stock today, and then pick and choose from industries and sectors that she might be missing. And that's how we Diversify our portfolio as dividend investors, how we diversify our portfolio over time. It's very difficult to have a well diversified portfolio on day one, so it takes time, but you're going to build Over time, you're going to have a diversified portfolio, okay. So let's put all of this together here. So I'm going to look at just the IRA account and then we'll combine both of them. But let's one last slide here on the IRA account.
Speaker 1:So before, with 114 stocks, emma was making $6,900 in dividend income. Now, with just the 36 stocks you wanted to keep plus the 10, so 46 stocks, so way less stocks. Look at her dividend income. It's gone up by over 95 percent in one year. And again, we didn't add any new money to the account, we just took what was there and Distributed and reinvested that money a lot better. So her annual dividend income today, instead of being 6,900, is now Annually is going to be over $13,400. So that is a huge difference. We've almost doubled her annual dividend income.
Speaker 1:Okay, so now we're going to put all of the both accounts together. We've got the IRA account, we've got the 401k account and let's take a look at the difference so you can see all the numbers on the screen. So I'm not going to repeat them again. So you can see before she was making roughly over 7,300 dividend income. Now she's going to make over 15,600 in dividend income. That is an increase of 112 percent. So that is incredible, and remember we didn't add any more money to the account, any new money, and we've more than doubled her dividend income across both accounts. And, in terms of fees, she is now going to save over 73 percent in fees over 20 years, which amounts to a little over 69,800 that she will save. So in summary, of course, as I just mentioned in the previous slide, over her lifetime she's going to save over $69,000 in fees. We've increased her portfolio income by 112 percent. We've minimized the problems over diversification. So we went from 114 stocks to just 46 stocks total, and now Emma will continue to invest in In quality companies that follow the 12 rules of simply investing.
Speaker 1:So remember our approach, like I said in the beginning, was to invest safely and reliably for the long term, regardless of what happens in the stock market. So how do we do that? We invest in quality, dividend paying stocks when they are priced low, and how do we know when they're priced low and how do we know when their quality stocks. We follow the 12 rules of simply investing, so you can see the rules up on the screen. I'm not going to cover them again because we already talked about them at the beginning of this episode.
Speaker 1:So, if anybody's interested, we have an online simply investing course that covers all of these in detail. The course is Broken up into 10 different modules. There are video modules. The first module, one, covers the investing basics. Module two covers the 12 rules of simply investing. Module three Applies shows you how to apply the 12 rules using real-life examples. Module four we show you how to use a simply investing platform. Module five show you how to place your first stock order.
Speaker 1:Module six, building and tracking your portfolio. Module seven went to sell, which is just as important as to know when to buy. Module eight how to reduce your fees and risk, especially when it comes to mutual funds, index funds and ETFs. Module nine, covering your action plan. And module ten, answering your most frequently asked questions. So if you're also interested in the platform as well, the platform is an online web application that applies these rules to over 6,000 companies in the US and in Canada every single day, so you can tell immediately which companies to consider and which ones to avoid, and so that makes it a lot easier To invest. If you're interested in the course or the platform, you may want to write down this coupon code save 10 SAV e 1 0. Save 10 is going to save you 10% off of the course or the platform. If you enjoyed today's episode, be sure to hit the subscribe button. We have a new episode out every week. Hit the like button as well, and for more information, take a look at our website. Simply investing calm. Thanks for watching you.