How to Invest for a 30+ Year Retirement with Ashby Daniels, CFP®
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Hey everyone, really quick before we start the show, I've enjoyed getting to know a number of you via email and I found myself just really energized by the thoughtful, intelligent questions being asked and I've given it some thought and I wanna do more to try and help out our listeners. So I've decided to offer up three one-hour investment consultations where I will review your current investments,

provide you with a personalized analysis and talk through all the ways that you can make improvements completely on your own. I will also answer any other financial planning questions that are top of mind.

I want to be really clear. There's no upfront cost here and you will never be contacted by me or my firm for any additional services. I'm simply going to send you a link after our consultation where you can make a donation of any amount based on how valuable you think our time was. And that amount will directly help to support the future of this show.

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Welcome to the Stay Wealthy Podcast. I'm your host, Taylor Schulte, and today I have a really special guest on the show. His name is Ashby Daniels. He's a retirement planning expert, and he's going to be talking to us today about how to properly plan and invest for a 30 plus year retirement. In today's episode, you're going to learn three things. Number one, why living longer shouldn't necessarily be considered a risk to our retirement. Number

Number two, how inflation impacts your nest egg and how to factor it into your retirement plan. And then number three, Ashby is going to be sharing a specific investment strategy that he's done a lot of research on that can be used to address some of the challenges that many retirees are facing today.

For all the links and resources mentioned in this episode, visit youstaywealthy.com forward slash 47. Without further ado, here is my conversation with Ashby Daniels. So I'd like to kick things off by talking about the term longevity risk. And it's that risk that if we live longer than expected, we might run out of money. And

And it's a common term thrown around in the retirement planning world. And I know you're on record saying that you don't really like this word, that longevity shouldn't be something that we're afraid of, but actually something that we should strive for. So I'd like to kind of kick things off and I'd like you just to talk to us about maybe your issue with longevity risk and kind of why you take this approach to that term. Sure. Well, first of all, thanks for having me on, Taylor. Certainly excited to talk with you.

I just think it's funny, first of all, that we consider living a long life a risk. I mean, I get it. People are worried about running out of money, but living a long life, living a long and healthy life should kind of be the goal. So this is a little obscure, so I don't know if you remember this, but back in the day on the Today Show, Smuckers used to sponsor a little piece of the Today Show that showed people that were turning 100s.

And it would be all these pictures of people turning 100. Ever since I was a kid, I said I wanted to be one of those people. And I think it'd be a privilege to live a long life and would be exciting and scary, I guess, to see how much the world might change. I said, but I also guess it bothers me a little that we call it a risk when I think it would be amazing to get to have a long relationship with grandchildren and great-grandchildren. I mean, I look at my grandmother who's 86 and

And I'm 35. And the relationship that we've been able to have is amazing. And she knows my children well.

And I just think it's funny that we talk about it as a risk when I kind of view it as more of a goal than a risk. Totally. And maybe we can just agree that it's a risk if it's not something that you're planning for. If you just simply ignore it, then I think it could easily become a risk. And we're going to dissect that today. And before we do, and before we talk about how to properly plan for

what could be a really long retirement. You could be in retirement longer than you're in the working world. So we're going to talk about how to manage life expectancy, longevity, and some other stuff. But before we do, maybe just give us just a brief background on you, who you are, and your journey to becoming a retirement planning expert. Sure. So I started in the industry in 2008, which I've listened to enough podcasts. It seems like everybody started in the industry in 2008.

But in 2011, I'd been working for my previous firm for about three years back in the D.C. area, working mostly with, frankly, millennial federal employees. I mean, obviously, the D.C. area is full of that. And in the spring of 2011, I got a call from kind of the management team inquiring as to whether my wife and I would be interested in moving to Pittsburgh and me taking over an office.

Pittsburgh wasn't exactly a focal point for my old company. So it was a one-man office. And what happened was there was a gentleman that the gentleman that ran that office, unfortunately, found out that he had stage four brain cancer and was going to pass away. So from a corporate standpoint, they needed somebody relatively quickly to come in and help the clients in Western PA. And that was me. What I didn't realize at the time was that the primary clients I would be serving were going to be retirees. So I was basically thrust into learning

all kinds of things as quickly as possible. I was driving about 35,000 miles a year working 80 to 100 hour weeks, trying to see all the clients and get up to speed on their issues. And once all that settled down, I realized how much I loved working with retirees. Their situations were far more complicated and they had a ton of extremely important decisions to make. So basically, I figured out right on the spot that I loved the specialty and

And at that point, really started to dedicate myself to learning all I could as fast as I could. I just love the planning and helping retirees. Plus, it also helps that I'm a jokingly a 65 year old and a 35 year old body.

And then you fast forward to last spring, and I left my old firm to join my current firm, which is Shorebridge Wealth Management. At that point, I pretty much immediately began publishing all my thoughts on everything retirement related. And frankly, that's what led us led to some really cool relationships with people like you and the rest of the FinTwit community. So it really just retirement planning really just became a passion of mine just from getting thrust into it. I'm not sure if I would have made that choice had I not

gotten thrown into it, but I'm so glad that I did. And it's really what my kind of life's calling has become. Well, you've got a thriving practice and you've got a really successful blog called the Retirement Field Guide, which we'll link to in the show notes.

In a recent blog post that you recently wrote, you mentioned that there are two possible outcomes when it comes to your retirement portfolio. And people could probably guess these two outcomes. One, you will outlive your portfolio or two, your portfolio will outlive you. So either you're going to run out of money or you're not going to run out of money. And in the blog post, you identified these three primary drivers that you think will determine whether

which outcome you're likely to expect. And those three drivers are one, your life expectancy, which we just touched on and we'll dive into. Number two, inflation, which I think is a really interesting one. And then three, how you choose to invest your funds in retirement. So

For the rest of today's interview, I'd like to zone in on this and break down each of these three drivers so that listeners can factor them into their retirement plan and their investments so that they're no longer risks, that there's something that they're taking into consideration when they're planning for retirement.

So let's begin with life expectancy, which I don't know about you, but I always find it to be a controversial topic when working with clients and running retirement projections that are always saying, I'm never going to live to 100. I don't want to use age 100. But let's start with life expectancy. So the average life expectancy for a 65-year-old male today is 83. And for a female, it's 85. Right.

But you make this argument that these are just averages and they're not actually entirely reliable for a few reasons. One, they're just averages. Two, these assumptions ignore joint life expectancy. And then three, they ignore advances in health care. So let's talk about each of these and let's first start with the problem with averages.

Well, you bring up the fact that the average life expectancy for males is 83 and for females 85. And I find that to be actually what people believe they're going to live. And if you believe you're only going to live into your 80s, in fact, I've never had one client guess they're going to live into their 90s even, much less 100. So if you believe that you're only going to live into your 80s, and you're also likely to assume that you're only going to need income for about 15 to 20 years, why else would you?

If that's your assumption, you're probably making different portfolio decisions and reality, probably more conservative portfolio decisions than you would if you might maintain your health in your 90s or even longer. So if your assumptions are incorrect, then it's possible that your kind of entire income plan is incorrect. And so here's the issue with this, the issue with averages, if you will.

If you're listening to this podcast or reading blogs like mine and yours, as an example, there's a high likelihood that you're not average. It's probably not even close. You've probably made an above average income. You've probably worked a less physically demanding job. You've probably received more and better health care. You've probably eaten a healthier overall diet. You've probably exercised more. And maybe even most importantly, you've obtained more education than the average person. So to say that you're average is

It's probably a humble way to look at yourself, but I'm not sure it's useful retirement planning because the chances are that just factoring in all of those characteristics of the person that's listening to this podcast,

You're probably going to exceed the averages. And so that's problem number one. It's just that most people that are listening to this kind of stuff are probably not the average person. Fair point. So it's just an average. I think we can all agree that, yeah, most people listening to this, everything that you just said were probably above average. So that's one issue with using the average life expectancy. Number two is...

The assumptions ignore joint life expectancy. So talk to us about joint life expectancy and why that's a really, really important factor in. When you're talking about averages, that's for the individual person. But then when you talk about joint life expectancy, let's first define that. So joint life expectancy is the age at which the second of the two of a married couple, if you will, is going to pass away. So it's meaning you or your spouse, not you and your spouse, but you or your spouse. So who's the second person to pass away?

And again, the average joint life expectancy for just a non-smoking couple in good health at age 65 is 92 or 93 years old. So in other words, the joint life expectancy actually exceeds the individual life expectancy of the average 65-year-old male by nine years. So if you think about it, the average life expectancy for a male at 65 is 85, or excuse me, 83.

versus we're really looking at 92 or 93. And so it obviously exceeds the average life expectancy of a 65-year-old female by seven years. So again, I can't stress this enough, but these are the averages. So if the average joint life expectancy, the only qualification is non-smoking couple and good health. It doesn't factor in lifestyle or income or any of those other things we discussed before. So

Even if all you look at is just, yes, the average, but yes, the joint life expectancy, you're still need to be planning it well into your 90s. And just so listeners don't think that you're making this data up, where did you get this data? Where can they go to dig a little bit deeper? The joint life expectancy data is, I believe, from the Society of Actuaries. So they're the people who basically do nothing but care about how long you're going to live.

And then the information on the individual life expectancy, I believe, came from the Social Security Administration. So the first two issues with life expectancy is one, those numbers are just average. Two, the assumptions ignore joint life expectancy. And then the third thing that you bring up is they ignore advances in healthcare, which is changing rapidly right in front of us. So talk to us a little bit about advances in healthcare and why we should take that into consideration when planning for retirement.

So really, this might be the most fascinating one of all, if you ask me. And it's also the one that is by far the most overlooked. You know, when you think about things that might impact your length of life and maybe even more so a healthy length of life, medical advances are almost completely overlooked. Our only view of medicine is the treatments that we receive, not the ongoing research that's happening.

So, for instance, most people have no idea. I mean, unless they read my blog in which I shared it. But most people have no idea that in April, a group of scientists from the Tel Aviv University in Israel produced a 3D heart using a patient's tissue via 3D printing technology. So just think about that for a second. The technology is.

they use could eventually be capable of basically replacing your own heart using your very own cells and tissues, not to mention other body organs that may eventually follow or that is likely to eventually follow. But this means by using your own cells and tissue, this means that

you know, for example, a heart transplant, your body wouldn't reject it because it's made out of your own cells. And so the thing about it is that these types of technologies, they grow exponentially. So for example, 3D printing technology didn't even really become, didn't even really start until the 80s. And so we didn't start to see really significant strides in the capabilities in the technology until say the mid 2000s. And then you fast forward today, here we are, we're literally quote printing body organs, right?

To me, that is just wild. And then you factor in other technological advances, such as the increased diagnosing accuracy of artificial intelligence. One of the biggest issues facing retirees going to doctors is the idea of going to doctors over and over again due to either misdiagnosis or just not knowing what's going on. And that's not a dig at doctors, of course. I mean, it's just the human body is hard to understand.

But artificial intelligence, one thing that it is already very good at is extremely deep analytical learning capabilities that once it starts to get implemented, might all but eliminate the misdiagnosis of ailments, which allows treatments earlier and by extension, better care. And so those two alone are huge. So it's likely that

We're majorly underestimating what's possible over just the next decade or two and how that might impact the health and long life of today's retirees. So I find that the medical advances to be extremely interesting. And I feel like we're just touching the surface and I feel like it's being totally ignored.

And so that's one reason I brought that to light. Let's say that listeners are nodding along and they're like, yep, yep, yep. This all makes sense. I recognize now that life expectancy is a really important driver that will determine what my retirement outcome will look like.

What's the conclusion here? What do you do with this information in regards to life expectancy? Is it simply that we just need to plan on a much longer retirement? We need to plan longer than expected? What do you do with all this information to make sure that you put yourself in the best possible position? Well, the obvious extension to a long life is inflation. And I say that because if there was no inflation, a long life wouldn't be a problem.

because let's just say, for example, you could just do the typical conventional wisdom of buying bonds, even though bond rates are very low, but you could do the conventional wisdom of just buying bonds because there would be no inflation. So the principle doesn't really matter all that much. But the truth is we do have inflation. And so if you're going to live, let's just say on the average, another 30 years, then at least on a joint life expectancy basis, you're going to live another 30 years. Then

The other major issue to deal with is not long life, but you need an increasing income because of inflation. So inflation would be the obvious extension to a long life and what that means to somebody who's near retirement today.

So, yeah. So, you know, you're obviously kind of jumping ahead here. The second driver that we talked about that will determine the outcome of your retirement that you bring to light is inflation. And so I want to zone in on this and talk about a little bit more here. Inflation, as you just noted, is a big threat to a successful retirement, yet it's often ignored, which is kind of interesting. Why do you think inflation is often ignored and why is it such a threat to our retirement savings?

Well, I think inflation is largely ignored because it doesn't happen overnight. I kind of, even though it's a political issue, I tend to compare it to climate change. Like the climate doesn't change overnight. So a lot of people aren't really worried about it. There's plenty of people that are, certainly, and rightfully so. But inflation doesn't happen overnight either. So it's ignored. It's really just a slow erosion of purchasing power, which to this point,

People that are retiring today who've been working for the last 30 or 40 years haven't really noticed it. I mean, you notice it, but because it doesn't happen overnight and the fact that in most cases they get raises and promotions to offset inflation. So it really hasn't impacted you during your working years. But then you get to retirement and raises obviously go away.

So, you know, inflation, while even in the first few years may not be a big deal, but over time it becomes far more noticeable and will likely play a much larger role in retirement because you need an income that will offset it. If you just go with a fixed, you know, there's all these people who are out there saying, well, I have a fixed, I'm living on a fixed income, so maybe I can't afford to do that. Well, that's because their fixed income isn't necessarily keeping track. I think that's why. It's just that it...

it's largely ignored because it just doesn't happen very quickly. I have to think too that, take the current landscape, for example, we haven't really seen a whole lot of inflation for a long period of time. And so people start to think, well, it's not an issue right now. So it's not something I really need to plan for. And so I think that poses some issues as well. Exactly. Spot on. I mean, what does inflation average over the last 10 years? I mean, the Fed even says they're marking 2%. That's their goal.

But that doesn't sound like very much one year over one year, but over 30 years, that still ends up being quite a bit. So maybe share some examples. Let's stretch it out over 30 years. Share some tangible examples of how inflation has impacted our purchasing power.

So, I like to use simple examples. So, you know, in the article that you're that we're referencing, you know, I compare a postage stamp. So in 30 years ago, a postage stamp costs about 25 cents, but it costs 25 cents, not about it costs a quarter. Well, now today it's 55 cents. So it's roughly doubled it a little bit more than doubled. A gallon of gas 30 years ago was 97 cents.

The gallon of gas today is 273, though I don't think it is in San Diego. I know it's not in Pittsburgh. It's much more than that. You know, the average price of a new car. Also, not the kind of cars that probably many of the people that are listening to this are buying. But, you know, the average price of a car 30 years ago was about $15,000. And today it's $36,000, $37,000. So the price of everything is more or less somewhere between doubled and tripled.

So, you know, that's what people are looking at. I mean, if inflation comes back to historical norms, which is somewhere along the lines between two and a half percent and three percent, that's about what we're looking at. I think what I found really interesting about the topic of inflation is you made this comment that

Over long periods of time, let's take 20-year time periods. Over long periods of time, the stock market has essentially been a riskless investment. I think you shared that in the worst rolling 20-year time period in history, the worst return was 7%, a positive 7%. So over long periods of time, the stock market has essentially been riskless, yet we lose sleep over this daily volatility. Right.

On the flip side, inflation is very real and happening right in front of us. I mean, the Fed is telling us what the inflation rates are, yet we don't seem to have problems ignoring inflation and not really factoring it in. So talk to me more about this and why you think this is the case. And I think that data goes back to 1950. And I'm not sure that the 7% is correct, but it's just that it's positive inflation.

every 20-year rolling period since 1950. I just want to be clear about that. I might be wrong. You might be right on the 7%, but in any case. Yeah, I did look it up. I think it's actually like 6.4% is the worst 20-year rolling period going back to there. So yeah. Okay, good. So I think it comes back to a couple of points that I made in a different article, which is about the fact that a person's portfolio is kind of, if you think about it, the only material representation of their entire life's work.

And that portfolio is also kind of their insurance policy, if you will, or that they won't end up in the poorhouse. So for many people, I think they kind of feel that this is the most money that they'll ever have. So they have a natural tendency to natural tendency, excuse me, to protect it. Kind of metaphorically, they want to wrap their portfolio in bubble wrap. But as we've discussed, inflation over a 30 year period doesn't really allow for that.

You need an increasing income. You can't really just wrap it up and hope that nothing changes. So while I can absolutely understand a desire to protect it, I find it ironic that retirees fear something that their entire working lives show an entirely different story. So for example, 30 years ago, the price of the Dow Jones was around $2750. And here we are now around $26,000. And that growth doesn't even include dividends, yet we're scared to death of it.

And I get it. I do get it because, you know, things can change very quickly overnight. But yet their entire life, their entire life story says that that's what's likely to continue. And even the data supports it. You know, over any 20 year period, as you state, the worst return is 6.4 percent. And yet we're still scared of it. And then we almost totally ignore inflation, which we've also experienced.

entire working lives. And so, or our entire lives really, but our entire working lives more specifically. So I just find that to be psychologically fascinating. It's why it's so important that, you know, when it comes to building a retirement strategy, which I know you do with your clients is it's, it's important to find kind of the intersection between emotional and rational thinking. So the issue with retirement planning is that it is such a, it is so important to have a strategy that is makes managing your emotions a

So important, because even though we gleefully ignore one issue that we know to be true, and we embrace a quote risk that historically doesn't exist. And we do those concurrently. And I just, I don't know, I just find that to be so fascinating.

Yeah. I think there's this behavioral challenge where maybe psychological challenge where, you know, you're working for 30 or 40 years and building up this nest egg and watching your nest egg grow and grow and grow. And then you get to this point of retirement and maybe you're still working a little bit in retirement, but you're starting to use these savings and spend down these savings. And maybe those savings are invested and you're watching them go down as well. Like

And so there's this weird point where it's like, you've worked for 30 years, you've watched this pile of money grow, and now it's going the opposite direction. And like you said, people get scared, they want to protect it, they want to put money under the mattress. But now you're really exposing yourself to massive amounts of risk, even more risk than investing it. We talked about longevity risk, we talked about inflation, but I think it's just really challenging mentally for people to get over that hurdle.

100%. And I think that the issue, a lot of it has to do with the fact that people view short-term risk as permanent potential loss. And there is unquestionably immense short-term risk. In fact, the graph I shared in there shows the volatility in short periods, which can be very broad.

But then you look at longer term periods, like a 30-year retirement, and that risk doesn't exist. And so that's why it's important to find the balance. So we talked about the first two drivers that will influence how your retirement outcome will look like, whether you will or will not run out of money. Again, the first is life expectancy. The second is inflation.

The third is, I think, maybe the most important, which is, again, what do you do with this data? How do you actually invest your money in retirement while taking these other drivers into consideration?

Maybe let's start off by just talk to us about the current economic landscape and why people retiring today have this unique set of challenges to overcome when they're making their investment decisions. Well, I think it's funny that we just finished on talking about what's psychologically fascinating about the willingness to almost, I don't want to say ignore long-term returns, but

to kind of write them off a little bit. But it's no wonder, it's not hard to see why retirees are stressed about retirement. It's why you and I do what we do. Because I think that people retiring today are facing a very unique set of circumstances compared to any generation that's come before them. Certainly you have the rising life expectancy and the accompanying inflation that we've already discussed. Pensions have gone by the wayside. I mean, the previous generation of retirees

almost all had pensions. Those almost don't exist anymore. I think only 18% of people have pensions anymore. People are questioning the viability of social security. That's a whole other subject for a whole other day. But you have historically low bond yields at the end of a 40-year bond bull market. So what do you think is going to happen there? And then lastly, at least at current, we're still very much near a stock market peak. So it's really not hard to see why retirees are stressed.

And if you or I were picking a time to retire, to me, this doesn't seem like an ideal combination from which to start, which is exactly why it's important to have a strategy that you no doubt advocate for. Yeah. It's interesting. There's been some research done. You and I both know a guy named Ben Carlson, writes at a wealthofcommonsense.com. And he wrote this article and I'll link to it in the show notes in case anybody wants to look at it. But

The title of it's something like, what if you're the world's worst market timer? What if you invest your money at the peak of the market through every single cycle and you held on, what would happen? And as we both know, the power of compounding returns is magical. And so even if you do invest at these quote unquote market peaks, if you stick to your strategy and own it and stay committed, the power of compounding can actually be pretty powerful, which again is often ignored.

I think he also wrote one that's what happens if you retire at a stock market peak, which was really interesting. I'm pretty sure he did. It might've been somebody else. I'll take a look. I'll link to that as well if it's on there. So let's talk about this. So when you're investing your money for retirement and you're taking these risks into consideration, there are four primary goals that you outline when somebody should be constructing their portfolio for retirement. And those four primary goals are one,

that you want a sustainable and growing income that keeps up with inflation. Two, you want to grow the underlying principle with less volatility.

Three, focus on things that truly matter to you rather than what's going on in the markets. And then four, just a peace of mind, just be able to enjoy your retirement without worrying about every little thing. Your solution that effectively addresses today's economic environment, along with these four primary goals is something called dividend growth investing.

And dividend investing is often thrown around. It gets beaten up on a lot. Before we talk about kind of what this strategy is and how listeners might be able to adopt something like this, let's just start with what dividend growth investing is not. That's a fair question. And I, you know, in accordance with, you know, everything that follows, I

I just want to be clear that I don't advocate for this for everybody or that it's the strategy that just anybody should follow. Or these are just kind of my observations, thoughts and research. So just to be clear about that. So what dividend growth investing is not is it kind of as I outline it is it's not a thinly veiled attempt to beat the market. You know, whatever that means anyway. I always say I wouldn't rule the possibility out. I'm just saying it's not the goal.

And, you know, just to be kind of abundantly clear about that. It's certainly, you know, as we've discussed all the psychology of retirement planning, it's certainly not a foolproof way to eliminate mistakes. I like to think that it should certainly reduce the probability of those mistakes, but it's certainly nothing is foolproof.

This is a common misconception, but it's not a strategy that's designed to provide the highest yielding portfolio. There's a lot of talk about high yield versus dividend growth, or a lot of people think they're synonymous. So while it is not that, though...

while it may provide a yield that's higher than, say, the overall market, it is not a high-yield portfolio in a general sense. And then I say this kind of tongue-in-cheek, but it's not an answer to every retiree's prayers. And so while I very much believe that this is a viable and effective way to build a portfolio for a 30-year retirement,

assuming that certainly the withdrawal expectations are reasonable with regard to the size of the portfolio, amongst obviously many other variables, but it's certainly not an answer to every retiree's prayers. It is and can be an effective strategy for the right investor. Okay. Fair enough. So we know what it's not, which is really important to understand. So what is dividend growth investing? Maybe just try to break it down really, really simply what dividend growth investing is.

So there's always a lot of talk in retirement about portfolio growth and income or total return investing. I think that the easiest way to describe what dividend growth investing is

It is not growth and income, but growth of income, at least historically speaking. It's a way of investing in high quality companies that have consistently paid an increasing dividend. So to be clear, it is not an increasing dividend yield because that takes price into account, but an increasing dividend, which means it is a dividend that is actually increasing in actual dollars.

So there's a very clear distinction there, but it's very commonly stated that, oh, this is a high dividend yield portfolio. It is not.

It is a way of investing to provide an increasing dividend income. I even almost misstated it. So it's a way to provide an income that is increasing rather than a high yielding portfolio, so to speak. So that addresses goal number one, which is a sustainable and growing income that keeps up with inflation.

how does a dividend growth portfolio address goal number two, which is growing the principal with less volatility? Before we jump there, I want to mention one other thing about the sustainable and growing income. And that is just kind of the history behind it, if you will, or really just the evidence behind it. Because as I know, many of us in kind of the FinTwit community are evidence-based kind of portfolio managers, if you will. So

One thing that makes it unique is that most retirement strategies rely on price growth. So in other words, the growth of the overall market to provide the income needed. But dividends particularly have done this without issue. For example, since 1960,

The inflation rate has averaged about 3%, as we were talking about before. But the cash dividend, so this is the actual dividend of the S&P, has grown from $1.98 from 1960 all the way up to $48.93 in 2017. So if you actually compound that out and see what that growth rate is, that is actually a compounding annual growth rate of about 5.79%. I say about, that's pretty exact. But

About 5.8% is what that's done. And it's done it with remarkably low volatility. And just to be clear, that's the dividend growth rate of the entire S&P, not just the dividend grower, which is kind of like my philosophy. In other words, just to break it down a little bit more simply, the dividend income of the S&P 500 would have almost doubled the rate of inflation.

through basically all sorts of market environments. I mean, you had the crash in 87. You had certainly the tech bubble. You had obviously the Great Recession, or I call it the Great Panic. So you have so many scenarios that have come about since 1960, and yet the dividend income of the S&P has grown at about double the rate of average inflation. So I just wanted to throw that data out there because I think that's important.

Okay. So talk to us about how dividend growth investing addresses that second goal, which is growing the principal with less volatility. Okay. So regardless of strategy, I've found, and I'm sure you have as well, that retirees are going to worry about their account balance. It's just...

It's just something that I've come to terms with. So while that's true, retirees, and I don't mean this meanly at all, but retirees want to have their cake and eat it too, which I can understand. They want to see the combination of lower volatility, but they also want to see some price growth. And so I don't really believe that you can have your cake and eat it too, but in some cases, the data would show that you can to a degree.

And it doesn't mean you're going to, just as I stated in my kind of disclaimers, this is not an attempt to beat the market. But when you look at it, the beauty of dividend growth is that it can provide both lower volatility and some price growth. So

When you're investing in the ownership of companies, particularly these companies tend to grow over time, albeit dividend paying companies tend to grow at a slightly slower rate than many companies that are kind of new to the scene. Like you think of tech companies and things like that. Well, theoretically, they should grow faster because they're maybe not paying out any of their cash flows and reinvesting into the company. Well, companies that pay increasing dividends, that kind of becomes part of the

character of the company. These types of companies tend to be more mature in nature because they've gotten to the point in their life cycle where they're paying dividends. They tend to have more stable cash flow. As a result, they tend to be historically less volatile. When it comes to the volatility of these underlying companies, the data that I looked at comes from Ned Davis's

The volatility of these underlying companies, dividend growers and initiators tend to have lower measures of volatility than the majority of other companies. So you can still have some price growth, but you can also have less volatility. I think it just speaks to the maturity of the companies and the industries that they come from more than anything else.

And how does this strategy address goal number three, focusing on things that really matter to you, not focusing on the markets day to day and gaining that kind of peace of mind around your portfolio? Because I think this is a really interesting, like you said, dividend growth investing is not for everybody. Personally here, we're fans of something called total return investing. We don't need to go into that today, but you do touch on something that's really important about dividend growth investing. So just talk to us a little bit about

why that allows you and how that helps you ignore what's going on in the markets and just focus on enjoying your retirement. To be very clear though, I don't really take a position of total return is worse than dividend growth. The dividend growth is better than total return.

I find it resonates with me, it resonates with my clients, and seems to make a lot of sense. And so, you know, if your income needs are properly addressed via a historically reliable and increasing dividend stream that is roughly keeping pace with inflation, if not outpacing inflation, you know, based on the data we've already discussed,

then kind of the way I like to look at it is there's little need to worry about what's going on with the underlying principle, which I think is a nice benefit. And so the way that I do it is I also tend to pair this dividend income stream with a bucket approach, meaning I also incorporate fixed income to make up any income shortfall to hopefully allow for a sustainable income stream throughout retirement.

certainly at least historically speaking. So I want that dividend income stream to continue to grow without regard to the underlying principles. So if my income is growing, then my hope is that it kind of allows people to kind of focus on the income and not necessarily... Nick Murray has a great quote where he says, you don't take your account statement to the grocery store. The idea is just that if your income is coming in, Ryan Kruger talks about mailbox money.

If you have income coming in the door, then you really don't have to worry about what's going on with the underlying principle. And that's really the key. Sometimes when we talk about stocks and dividends and income and yields, people's eyes glaze over. So tell me if this is a fair analogy, but sometimes when we relate things to the real estate world, it kind of makes more sense. But if you own a piece of real estate, if you own a residential home and you rent it out, that rental income is your dividend, right?

That home might go up and down in value on a daily basis, yearly basis, but you're still receiving that rental income, that mailbox money that you're getting. Hopefully that rental income goes up every year with inflation. So that's your dividend that's growing over time. The home itself is fluctuating in value. Who cares? I'm still getting my rental check.

Is that a fair analogy to dividend investing, dividend growth investing? I think it's actually a fantastic one. It's so funny that you say that because I had that exact example written in this article and ended up taking it out because I was like, this is a very appropriate analogy. And then I ended up taking it out. So I think it's perfect. Awesome.

So let's say somebody manages their own investments. They don't use a financial advisor. How does somebody implement something like this? Do they go out and use a screening tool to identify companies that have grown their dividends over long periods of time and buy a bunch of individual stocks? Do they buy an ETF? Are there mutual funds out there? How do they actually implement this?

I'll certainly say that no strategy is perfect. And certainly, each individual strategy has its own respective downsides. I will say that I personally, even in my own portfolio, but I'm not receiving income, obviously, but

I utilize index strategies to implement this strategy, to implement this overall dividend growth strategy. I'm fully aware that I technically give up, I think, potentially at least, a little income in order to do so. But I think it provides a less stressful approach because I don't have to worry about any individual company risk. However,

I tend to be a believer of passive management tools. However, in this one instance, I can actually see a case for individual securities for someone who is confident and willing to put in the work to learn everything that they need to do and is willing to do the appropriate research.

I can absolutely see a fit for it because there's a variety of great resources out there that people can utilize to kind of implement this on their own. If you just Google dividend growth investing, you will come up with a litany of information on the subject. And in fact, I actually have a couple of resources that people could check out if they're interested. But I personally utilize index strategies to implement this, but you could...

There's no shortage of ways to do it. That's for sure. So when you say index strategies, you're using index funds, index mutual funds or index ETFs to implement this. Okay. Correct. So there are index funds that are mutual funds out there that buy up dividend growth companies. They buy up hundreds of them, maybe thousands of them. So you don't have to go and do all that due diligence and homework. Of course, it comes with something called an expense ratio. So you're going to pay a little bit of a cost difference.

to do that, but it might be worth it if you don't have the time or expertise to do it on your own. Technically, I mean, with the research capabilities that we have here at our firm or the resources that we have at our disposal, I feel like I probably could put together individual securities. I've just chosen not to.

You know, I find that, you know, there's a there's a stress level associated with owning individual securities that, you know, a lot of people just aren't comfortable with. So to me, to pay, you know, a few basis points and potentially give up a slight bit of income in order to achieve it, it seems to be just a less stressful approach from both for me as a business owner, because I also don't frankly don't want to shoulder that risk either. Sure.

Well, I'd love to link to some of those resources you mentioned in the show notes. So be sure to send those over to us and I'll link to them. This will be episode 47. So you stay wealthy.com forward slash 47. And we'll link to everything there. You've mentioned this a few times that, you know, there is no perfect investment strategy. There's not one solution for everybody.

So dividend investing does have a set of challenges associated with them. Maybe you could just share with the listeners some of the downsides to dividend growth investing or just dividend investing in general and some of the things that they should look out for before just aimlessly going and buying a bunch of dividend stocks. So I'm so glad that you asked me to highlight the downsides because I think that anytime...

People are advocating for something. The natural question that at least I have in my mind is, what is not being said or what is being kept from me? And so I'm so glad you asked me to highlight the downsides. So generally speaking, if you're going to implement a dividend growth strategy, your portfolio is likely to end up being quite concentrated in the U.S. large cap space. So certainly domestically traded large companies.

Within taxable accounts, if you're receiving non-qualified dividends, they can be taxed at ordinary income tax rates. What that means is these are dividends from companies that are non-US companies or have not been owned long enough to qualify for

All dividends received, whether they're qualified or not qualified, you are taxed on that in the year received. So that's clearly an argument for total return investing because there are certain instances where you may want to defer the taxes. Well, if you utilize this strategy, the dividends are going to be taxed. And then

The other two pieces are that you could end up, frankly, you could end up with a higher allocation to stocks, but this would be entirely dependent on your personal financial situation and circumstances. And then the last piece, and this is kind of a FOMO kind of one, but

Because most companies that pay increasing dividends are mature companies, you may miss out by default on the big winners, the ones that everybody's searching for, the sexier names. That's more of a mental hurdle to overcome than anything else. But if somebody is embracing this strategy, then probably none of those are of major concern. Got it.

And I know you're going to share some resources with us, but are there any specific books or blogs or specific articles that you would point people to if they want to learn more about this on their own? Well, the two resources that I think would be the most beneficial, I think, to anybody that's listening to this is one is a book. Yeah.

And it is called The Case for Dividend Growth, very clearly. The Case for Dividend Growth, that's by David Bonson. I think he runs the Bonson Group up in New York. And then the other, if you're looking for an extremely informative but entertaining read, not that The Case for Dividend Growth is not entertaining. I certainly found it to be. But the blog of a guy named Ryan Kruger, he's a partner at Kruger in Catalano.

His blog, he's a fantastic writer, and his blog is kind of a thoroughly entertaining guide to this type of investing. I mean, he writes on a variety of other subjects as well, but those two sources have probably helped to steer the evolution of my own theories.

We'll definitely link to those resources in the show notes as well. Speaking of blogs, before we let you go here, maybe you can just tell us a little bit about your retirement blog, where people can find you and learn more about what you're up to these days. Pretty much everything I do revolves around my blog. That's theretirementfieldguide.com. You can find absolutely every other way to find me there, whether that's Twitter or Instagram.

Pretty much Twitter. If you Google my name, Ashby Daniels, the blog will be one of the first things to come up. So everything pretty much revolves around that, to be honest with you. Awesome. Well, I really appreciate you coming on the show and sharing this information with us. It's not something that's talked about very often. I think you made some really good points, some good cases for utilizing dividends in a portfolio.

It's not for everybody, but even if it's not for you, taking into consideration life expectancy, inflation into your financial plan is absolutely critical. So hopefully everybody walked away with something new here. Again, thanks so much for joining me. I really enjoyed the conversation, Taylor. Thanks so much for having me. Big fan of everything you're doing over there, for sure.

Hey, it's me again. I just wanted to say thank you one more time for listening and remind you to please, please, please leave a quick review. If you're on an iPhone, leave a quick review on iTunes. If you're enjoying the show, I'm getting great feedback from listeners just like you. And I really want to keep the momentum going. So if you have a chance on your iPhone, leave a quick review on the Apple podcast app. And thank you so much in advance for all of your help and support.

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