I hear a lot about DGI as a retirement strategy but rarely do I hear anyone talking about DGI as a safety net. Which is a shame since most Americans are more likely to benefit from DGI as a safety net than a retirement account. This is not a knock against using DGI for retirement. I believe all DGI portfolio will eventually transform into a retirement account with enough time. But this post is about the benefit of using DGI in a taxable account as a way to safeguard your finances.
Before I start I want to explain why I am the average american. I am a 34 year-old non-military government contractor. Military contractors make 100ks per year...non-military government contractors make...$12.75 an hour or $26,520.00 year. Yep, I make less than kids flipping burgers in California. Best part about being a non-military government contractor? If I move up I am more likely to be fired than if I remain a drone. Government contractors are replaced annually. The main drones are kept while the old supervisors and management are replaced by the new company’s people. Move up to make more money=Get fired. Stay poor your entire life=less chance of getting fired (you will eventually get fired).
How on earth am I bringing in $3000 a month with a $12.75/hour job? Often time I work two side jobs. Right now I am an overnight security guard and weekend CDL local delivery driver. I also make little money doing surveys (swagbucks, cashcrate, inboxdollars=an extra 60-100 bucks a month) and little odd jobs here and there (Bing=$5-10 a month). Plus there are seasonal jobs that tend to pay higher when demands are low (agricultural worker, salvation army bell ringer, walmart/target/costco holiday employee). Night shift for a gated community is my favorite side job. Little to no crime which allows me to do research, work on my blog, and do some surveys.
While most of my readers, bloggers, and seeking alpha folks are middle class one job plus overtime. However, I believe the majority of Americans are like me. We were born poor or “lower middle class” who made bad choices as youths and now working 2+ jobs with the possibility of being fired at any time. We are too old to go back to college full-time but are working so many hours that part-time education is impossible. We are stuck in a quagmire. We want an education to make more but have no time or money to do so. Without an education and ability to leverage we are sitting ducks waiting to get laid off at the whim of some guy in HR.
This is where I believe DGI comes in. Instead of using DGI for retirement, I build mine inside a taxable account so I can have an immediate stream of income for time of necessities. If I need to use it I can if not reinvest the funds. I would recommend Loyal3 or Motif for those starting out. So what good is a stream of income for an average american? Let me tell you a story.
From January-March of this year I got laid off from my government job. I used to work for Serco but when the government changed contractor everyone was laid off; even us drones. I stayed in contact with several of my contractor friends who were having a hard time making ends meet. Many resorted to digging into their savings account, borrowing from their family and friends, and some even took out high interest loans from a bank or payday loan.
As for me, I had my part time jobs but it was frustrating not having a semi-stable 40 hours a week job. To assist in my time of need, my portfolio produced $113.60 in January, $215.16 in February, and $283.92. It doesn’t seem much but when you’re laid off these are like manna from heaven. $612.68 is not enough for retirement but it was enough to pay for my gas, water, and electric bill for all three months plus an extra $50 left over which I used to guy gas for my car. I borrowed nothing on my accounts.
In my time of need my portfolio provided. Doing a back test I found that 80% of my portfolio would have increased its dividends or remain stable even during time of turbulence and the greatest chance of being laid off (2008-2009). Only 5% cut their dividends and the rest didn’t exist in 2008 yet.
As globalization continues, I believe my experience will become the norm not the exception. Low wage workers will be laid off continuously. We will seek new holy lands only to be laid off. Our only salvation is using DGI to build up a continuous stream of income that grows. If we start early and push hard, eventually our DGI portfolio will produce enough income to retire. The only other option is to work hard and retire when we die.
The only downside are the taxes on dividends. But if most Americans today are working low wage jobs, the dividend tax shouldn’t be too much of a burden on them. In a sense a taxable DGI portfolio could be seen as a hedge against modern society.
These are just the thoughts of a rambling madman.