Getting more pay raises is quite simple & obvious. I’m really surprised it’s not a common metric for evaluating investment performance since raises are so much fun to receive!
Your Elephant’s Paycheck portfolio for 401K rollovers is based on 2 key principles:
- Invest in dividend aristocrats; companies with a long history of annual dividend increases
- Reinvest dividends each quarter; and measure your results with metrics designed to highlight the benefits of compounding reinvestments (increasing raises over time) and letting time do the heavy lifting.
As an investor with an Elephant’s Paycheck Blueprint portfolio, each of these two principles represent events that deliver a pay raise for your Elephant.
Each year when your companies increase their dividend? Raise!
Each quarter, when the dividends you receive are reinvested? Those newly reinvested dollars buy more shares that give you a larger dividend in the following quarter. Raise! Raise! Raise! Raise!
The quarterly raise is going to happen four times a year, so you’re getting more pay raises than you’d think. In fact, each raise is larger than the one before it because of the effects of compounding.
Each company you’ve invested in delivers five raises a year. A portfolio with just three companies in it, 15 more raises a year than you’d get just from your own paycheck. Three’s a number I like for the Elephant’s Paycheck portfolio. Take our free 10-part email course and you’ll get our stock selection worksheet in lesson #7 that explains how to pick the right companies to get started.
Are You Standoff-ish With Your Brokerage Statement?
So many people are, I think because the market goes up and down seemingly at random. When a company’s stock price goes down but it looks like the company is doing well it’s confusing. You invest in a good company, it does well, and the stock goes down. You wonder “who understand’s this stuff?” and respond by paying attention to something in your life that you have control over. When it makes sense, and good behavior (investing for your future) is rewarded, you participate actively. When it’s not rewarded, you withdraw. Or, just “do what you should do” (by contributing to your 401K/IRA) and hope for the best.
Statements are also boring. Well, no kidding. Why should statements be anything other than boring?
Why shouldn’t they be fun? If I give you a choice — fun or boring, which would you choose? Fun every time.
Therefore, given the choice, why not making investing fun?
What’s fun about investing? More pay raises!
Using the Elephant’s Paycheck Blueprint, instead of looking at your boring statement at the end of every month, you get to count your pay raises 15 times a year. How cool is that? And, each pay raise you get accelerates over time because the reinvestments compound each quarter. (You’ll earn dividends on past dividends that were reinvested.)
In order to measure how well we’re doing with all these raises, we’ve introduced a new metric in our tracker called “Actual Return”. The Actual Return measures your Elephant’s Paycheck relative to the starting size of your portfolio. Brokerage statements don’t think to measure it this way because it’s not how you pay taxes on your investments. It’ too bad, because raises (yay!) are much more fun than taxes (boo!).
It gets better.
Not only do you get a lot more raises each year, the raises become easy to project into the future. We can anticipate the raises, which magnifies our fun. Anticipation boosts happiness (for investing, as well as for vacations).
Using our portfolio tracker (lesson #9 in our free 10-part email course) we’ll project our raise for the next 12 months. It’s a conservative projection, but still helps to keep us on track. In fact, our sample portfolio that we’ve been running for about 13 months now shows a projected 12-month raise of about 13.5%.
It might be hard to believe, but it gets even better.
You might have experienced this at work. Early career years of your 20’s, full of promotions and raises, have turned into the flatness of your 30’s. Promotions are there, but the raises are less grand . At some point in your late 30’s, especially these days, you might only be receiving something close to a cost-of-living increase. Maybe a little more1. Your Elephant’s projected pay raise doesn’t flatten out (unless something goes wrong with the company, but this is in comparison with a company’s stock price where they can seem to do everything right and still the stock price goes down or remains flat for years at a time).
In fact, our Elephant’s raises accelerate over time because the raises tend around a percentage over time, like Exxon’s 6% average raise year-over-year for the past 30 years2.
An example of this can be seen in our sample portfolio. Over the last 13 months we achieved a 15.6+% raise. Next year, we are projecting a 13.5% raise — a lower percentage than last year3. However, the actual dollar amount is just about the same $275. Even with a lower percentage, the raise measured in dollars is equal. When the percentage is consistent, you can see that the actual dollar amount is higher.
This is what makes the Elephant’s Paycheck Blueprint so powerful. Increasing raises year-after-year-after-year.
Maybe if it were more obvious how to have fun investing, more people would be able to stick with their investment plan?
Congrats if this is the case, nicely done! ↩
This statistic comes from the Exxon investor home page. ↩
In case you are wondering why the projected percentage is lower than last year’s accomplishment… it’s because we project conservatively. The details of the conservativeness are also covered in lesson #9. ↩