2014 IRA contributions limits remain at $5,500
IRAs are a great place to park funds because dividends (and the occasional capital gain) grow tax free. I prefer the ROTH variant because I plan to access funds prior to age 59.5. The main advantage is that past contributions can be withdrawn anytime without penalty in a ROTH (not so with a traditional IRA). I have been thinking about pursuing part time work as little as 4-5 years from now if I can build my passive income to around $1,000/month. Life is not about working for money! I regularly day dream about moving to the beaches of Thailand or being a full time ski bum. Perhaps "work" as a ski instructor would be suitable! Anyways that's why I choose a ROTH.
FRIPs
I really like Scottrade's FRIP program and I plan to take advantage of it. My Scottrade account is still young and I do not have a sizable income stream in place yet. In fact tomorrow's payment from TGT will be the first dividend to ever hit this account. However I am directing all new taxable deposits and all taxable dividends from my Fidelity account over to Scottrade. It will grow over time and FRIP is going to be the vehicle for reinvestment. Two examples demonstrating how I'll use FRIP:
#1: I am currently happy with the size of my KMI position and am not interested in buying another $1,500 chunk of this company all at once. There's no incentive to DRIP KMI since it doesn't offer a discount. KMI is currently trading around $32-$33 and would be a great candidate for new money despite the fact it's already a large position for me. FRIP. I already have enough PM shares, but if it trades under $80 I want more. FRIP it. With FRIP (unlike DRIP) I can direct reinvestment to whatever offers the best value and since I'm only getting 1-2 shares at a time it won't screw up weightings.
#2: I haven't bought shares of General Mills or Abbot Labs going on 3 years. However I'm not interested in using $1,500 of new funds to purchase GIS over $50 or ABT over $37 which is where they currently trade. Unfortunately both those positions are smaller than I'd like them to be. How can I solve that problem? FRIP. I could use reinvestment to shore up under weight positions not suitable for new money 1-2 shares at a time. Great method to maintain portfolio balance while actually having a say over purchase price.
I see FRIP as a superior program over DRIP, although any applicable discounts unfortunately do not apply.
DRIPs
I turned on the OHI and BNS DRIPs in my Fidelity ROTH. Omega offers a 1% discount on dividend reinvestment, Scotia Bank 2%, I'll take it. At one point I planned to DRIP TD, but they discontinued their discount maybe a year ago. That is something I'll have to keep an eye on with Omega and BNS. It can change over time.
TD set to split shares 2:1 next month, announces third 2013 dividend raise
Investors don't really gain anything from a stock split. However I do not want my companies pulling a Google on me. Google currently trades at $1,078. How am I supposed to invest $1,750 into something priced that high like I recently did with LEG? Stock splits alleviate this problem. They are also good for options in case I ever decide to start selling covered calls.
I'm pretty sure the American shares of TD will split just like the Canadian shares. I ought to look this up though. Toronto-Dominion will be 4th company I hold to split its share price. The others being KO (2:1), SBSI (21:20 twice), and LO (3:1).
TD also announced a small dividend raise of $.01(Can $) per share. This particular raise was small, but completely unexpected. I wasn't anticipating a raise until next quarter, I hope it's still on the table.
Your vote counts
One of our privileges as stock owners is the right to vote in company matters. I voted "yes" to the Linn Energy BRY acquisition, and "yes" to the W.P. Carey CPA 16 acquisition. Make sure to voice your opinion in the companies you own and follow when it's time to vote! If you don't understand the issue at hand, consider siding with management's recommendation. Management are the stewards of our capital, if you own shares you have to trust them.
I wish the Roth IRA contribution limit was higher, but I guess I'll have to settle for the max they allow. I will likely max out my 2014 contribution in the first quarter. After that cash is invested, then I will turn on FRIP in my Roth and direct the dividend reinvestment to one or two fairly valued or undervalued stocks. In my taxable account I will continue my practice of selectively reinvesting dividends by combining them with new capital because I can do that throughout the year.
ReplyDeleteSounds like a great plan! I'm going to continue using Fidelity for my ROTH and reinvest dividends by combining them with new deposits (I'll spread out the deposits over the course of the year). I did turn on the BNS & OHI drips, and would be open to dripping anything else if it has a discount.
DeleteFRIP is pretty awesome. You could select something with a high price like BRK-A or GOOG as the default reinvestment (so it never triggers), then change it to whatever you think is a good buy when the opportunity presents itself. That's how I plan to manage mine. Lots of interesting strategies with FRIP.
Looks like you got a plan together. i like it. :)
ReplyDeleteI have vanguard for my ROTH IRA right now. I will switch to Scottrade once the new year begins. I too will be using FRIP for my ROTH IRA once the I am done with the switch.
I like Scottrade for the FRIP program and the $7.00 commission. I think Fidelity offers better research tools and has a much friendlier system for tracking positions (it's kind of hard with Scottrade). I find value in both brokers and like them for different reasons.
DeleteFRIP sounds like a useful program! Do you know if other brokers offer something similar?
ReplyDeleteScottrade is only broker that I know of that has a Flexible Reinvestment Plan. It's still fairly new, before FRIP Scottrade did not offer any type of reinvestment plan. It also works for ETFs, but not mutual funds.
DeleteGreat thoughts all around. I may have to consider moving my Roth and rollover IRA's in Fidelity over to Scottrade. The FRIP has a lot of appeal to me.
ReplyDeleteVery much agree with you on the voting issues. I voted yes to the BRY acquisition for Linn, as well. Here's hoping things level out for LINE and the distribution gets raised (fingers crossed - I wouldn't mind a hold right now, as long as I knew it was secure).
Btw, I posted a link to your blog in one of my recent posts. I hope you don't mind. If you do, let me know and I'll take it down. http://dividendwarrior.blogspot.com/2013/12/sale-snh.html
Yeah you can use the link, no worries. We'll have to see what happens with the BRY acquisition, but if it goes through I would expect that Linn either increases the distribution by a small amount or they just decide to increase the distribution coverage. I plan to hold on with Linn, but I must say this year was pretty rough. Funny how they were cleared of the SEC inquiry and never decreased distributions. Seems like a lot of bad information was put out to the masses. Quite a few suspect authors on Seeking Alpha.
DeleteI love FRIP by Scottrade. I think it was a very smart move from them. I like that I can move all my dividends from that account and basically DRIP a totally different stocks and accumulate that stock faster. Love that program.
ReplyDeleteAnother great program, in my opinion is Motif investing allowing fractional purchase of stocks. Great for beginning investors.
Motif is also pretty interesting. I might consider that one sometime in the future, but in general I'm more comfortable parking my life savings with a broker that's been around for a while.
DeleteCome on out and relax on the beaches of Thailand anytime. That's where I'm posted right now. Headed TDY to Kabul in a few days through mid January. Talk about a lame assignment. I'll miss the warm weather. When are you headed out again?
ReplyDelete-W
Good times Thailand is so much fun!
DeleteI was supposed to be headed to BAF around February, but honestly I don't know anymore. We deploy as small teams and I joined the team late as a replacement for a guy who had issues. Everybody else was supposed to leave earlier this month (and I would arrive later), but that was all cancelled. Then they postponed the whole deployment for a month. I just came back from leave today only to find out we might not be going at all. I really like this assignment, I but I sure wish senior leadership would make up their minds. I know there's a draw down right now, but this back and forth crap really screws up my personal life. Guess I have to ready for anything... it does what it's told.
I like your plan to fund your Scottrade FRIP with Fidelity's dividends. I hadn't really thought about doing that but it makes perfect sense. I'm heavily leaning towards opening an account with Scottrade. I'd love to contribute to the Roth IRA but unfortunately/fortunately our income is too high. Thanks to some Rollover IRA funds I can't do the backdoor Roth without having to pay more taxes this year.
ReplyDeleteI like Scottrade for the following reasons: FRIP, reputable business, low commissions, physical locations in my area, program to earn free trades for referrals, deposits can be invested immediately
DeleteI don't like: dividends/transactions are posted a day late, harder to get money out, portfolio tracking kind of stinks, no commission free ETFs offered.
Overall I like Scottrade and would recommend them, but beware they do have shortcomings.
Take it easy.