May 19, 2025 • 18 mins
Building a retirement income strategy involves more than selecting dividend-paying stocks. A focus on total return — which includes both growth and income — can offer a more comprehensive approach for long-term planning.
• Relying solely on dividend-paying stocks may reduce portfolio diversification and growth potential
• Total return (income + growth) can provide a broader view of long-term investment outcomes
• Asset location strategies may improve tax efficiency depending on the type of account
• Bond ladders with staggered maturities can help create more consistent income over time
• Annuities can provide structured income, though they may have limitations such as fees or inflation sensitivity
• The most effective strategy is one that aligns with your goals, risk tolerance, and understanding
• Be cautious with complex products — understanding fees, liquidity restrictions, and structure is essential
Advisory services are offered through Root Financial, an SEC-registered investment adviser. This content is intended for general informational purposes only and should not be construed as personalized investment, tax, or legal advice. Advisory relationships are established only through a signed agreement. Any examples discussed are hypothetical and for illustrative purposes. If client experiences are referenced, no compensation was provided and their experience may not be representative of others. Comments shared publicly are unsolicited and do not reflect the views or experience of all clients. They are not verified and should not be construed as testimonials or endorsements. Root Financial does not provide tax or legal advice. Tax planning topics are discussed in the context of comprehensive financial planning and should not be relied upon as a substitute for professional advice. All investments involve risk, including possible loss of principal. Past performance is not indicative of future results. Watching or listening to this content does not create an advisory relationship.
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Ari Taublieb, CFP ®, MBA is the Chief Growth Officer of Root Financial Partners and a Fiduciary Financial Planner specializing in helping clients retire early with confidence.
“Early Retirement – Financial Freedom” is a podcast produced by Root Financial Partners, an SEC-registered investment adviser. The content provided is for informational and educational purposes only. It should not be interpreted as investment, legal, or tax advice. I may reference planning situations based on real client experiences, but they’ve been simplified for clarity. Always consult your own financial advisor before making decisions.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Please do not make this mistake that so many early
retirees make when it comes tocreating income in retirement,
what they're doing is they'reonly having dividend paying
stocks.
You do not want to do this, andI'm going to explain why in
today's episode.
Now, this was prompted by aclient who asked me a question
about whether it makes sense tohave safer companies when
(00:20):
they're retiring early becausethey need more income, of which
I replied absolutely.
For companies when they'reretiring early because they need
more income, of which I repliedabsolutely.
And then I followed up with whyyou don't want all dividend
paying stocks because ofsomething called total return.
So today's episode is going tobe a little bit more stat heavy.
I hesitate to even say thatbecause I don't want to go so
into the weeds that you fallasleep on me, but I want you to
(00:42):
understand a really importantdifference that I think will
shift the way you think aboutcreating income, which might be
the most important aspect ofyour retirement.
So these five portfolio changestoday should help you create
more income.
I'm going to walk through eachof them and give you an example.
So if you're new to the show,welcome.
I love recording these differentpodcasts on various topics,
(01:04):
whether it be healthcare or taxstrategy or finding purpose in
retirement, which I know.
At the beginning of the show Iwas even saying hey, I think
this might be the biggest topichow much income can you create?
But really it's purpose, andhow are you going to have a plan
for fulfillment?
In my personal opinion, becauseI see way too many people that
retire and then go.
I don't know what the heck I'mgoing to do.
I just worked for 30 years andnow I don't know what that looks
(01:26):
like.
So make sure you have thatdialed in.
But today is going to be more,once again, stat, heavy on
dividends and income creation,which I equally love.
I just think too many people gothe route of, financially, am I
in a good spot?
Yes, I can retire early, I'mdoing it.
And then they look back going,wow, I really didn't think
through this fully, and I seeway more people do that than
(01:47):
people who go.
Hey, it turns out I knowexactly what I'm going to do,
but financially, yeah, I don'tthink I can retire.
I don't see that as much.
So I'm going to hop into a fewdifferent examples.
Once again, if you're new,welcome.
My name is Ari Taublieb.
I am the chief growth officerhere at Root and I'm the host of
this podcast, the EarlyRetirement Podcast.
These are posted on YouTube, soif you wanna watch me right now
(02:09):
, you of course can.
And if you're listening on thepodcast app, awesome.
These get released first tothose on the podcast app.
So if you're trying to findthis on YouTube, the video might
not be up yet, which you do notneed for today's type of
content, so let's hop right in.
So this first example this isabout dividend paying stocks.
So I'm going to give you awider example and then I'm going
(02:30):
to start to dial it in for you.
So I had someone reach out andthey were new to investing, but
they were already adding totheir 401k.
It just they weren't so muchinto hey, can I retire early?
It was the traditional.
My employer set up a 401k forme.
I did what I was supposed to do.
I put money into it for many,many years.
Now I'm kind of into thisinvesting thing because I'm
(02:53):
realizing if I get a betterreturn, that's actually more
important than if I were to savemore money, and that concept
really made them go.
Huh, that's interesting.
So the idea of them having amillion dollars.
Getting a 10% return of ahundred thousand was way more
attractive than having to putaway 30,000 into their 401k.
They're like I should justinvest better, which is true.
(03:13):
So you should do both,obviously, but you get my point.
So when we're talking strictlyabout income creation, we are
talking about dividends and whata dividend is.
Many of you know this, but Ilike to explain it a different
way.
So a dividend is a companysaying thank you so much for
owning us.
We appreciate it.
We're going to pay you adividend just to be nice,
(03:34):
because we believe in paying out.
You're an owner of the company.
It's essentially we're passingalong earnings to you, and so a
lot of people like this becauseshort term, it's like this is
awesome.
We're getting literal, passiveincome where we don't literally
do anything, and it's beautiful.
The thing we have to askourselves as investors which
people don't enough, in myopinion is what if this company
(03:56):
did not pay me the dividend?
What if this company did notpay me the dividend?
So let's assume I own JohnsonJohnson, which is the example
I'm going to share in just alittle bit.
Johnson Johnson they are knownfor being a really stable
company and they pay a healthydividend of about 3%.
It's a little north of thattoday.
So if I have $100,000, I know Icould get $3,000 that year in
(04:19):
passive income.
I don't do anything.
I mean, it's just so awesome.
Maybe I have to ride the upsand downs, but there's really
not that much volatility with acompany like Johnson and Johnson
.
So it's awesome and there's areason I like this company.
But what too many people do isthey go.
This is awesome.
I want only companies likeJohnson and Johnson that pay me
a healthy dividend, and here'swhy you don't want to do that.
(04:40):
If you're an investor, yourgoal is total return.
What is the quality of theinvestment?
If Johnson Johnson grew by 0%but paid you a 3% dividend every
year, that's awesome.
But your $100,000 remains at$100,000 and then you get $3,000
a year if nothing were tochange.
Great.
But we need to ask ourselveswhat if Johnson Johnson did not
(05:03):
pay us 3% dividend?
What if they paid us 1% andinstead invested that back into
the company to allow it toessentially innovate further as
a company, to possibly grow it?
Let's call it 5% or 6%.
Well, that's interesting.
It now grew at 6%.
We didn't receive all 6%, itjust went up in value.
So my $100,000, it's now notworth $100,000.
(05:24):
It's worth $106,000, but italso gave me $1,000 that year as
a dividend.
So the reason I'm explainingthis to you is Johnson Johnson
stock in the last year, soexactly a year.
It's up 6.8% and the yield is3.4%.
So that's north of 10%.
That's really good.
That is the reason I like it.
(05:44):
It's a stable company.
It's grown 6.8% and a yield of3.4% that's awesome.
This means it's a reallyhealthy company.
But if we go a little wider andwe look at the last five years,
johnson Johnson is up 1% overthe last five years.
Now it's consistently payingthis 3% yield, this dividend.
(06:05):
But if I put a hundred thousandin a Johnson and Johnson and it
grew by 1% over the last fiveyears and it still paid me 3%
per year, okay, so 3% is whatpaid me 3000 times five years.
Okay, so it paid me 15,000, butit only grew by 1%.
So now it's worth 101,000 and Ihave 15,000 to show for it.
(06:30):
That's not terrible.
But if we look at the S&P 500and I'm picking VOO for a second
, which is the Vanguard S&P 500index, the yield is less.
The yield of the S&P 500 is oneand a half percent versus 3%
with Johnson Johnson.
The difference is over the lastfive years.
Voo is up 85%.
(06:50):
So what short-sighted people dois they go.
I want companies just likeJohnson Johnson that are paying
dividends.
Yeah, that feels good in theshort term.
But now here I am withinflation rising and my VOO, for
example, s&p 500, my $100,000,it's up 85% over the last five
(07:10):
years.
I have $185,000.
That's awesome.
The difference is it didn'tthrow off $3,000 a year.
It threw off about $1,400 ayear, which is still really good
, and it grew for us.
Now it came with morevolatility.
But this is a really simpleexample and I'd want to go much
deeper, of course, if I wasworking with any of you.
And this is what we do for ourclients to show you how we build
(07:32):
a portfolio, what are the exactcompanies we put in, what is
the balance of dividend payingversus just total return.
But this is just a super simplething that I think people make
the mistake on of hey, let meget something like SCHD, which
is another famous ticker of highdividend paying.
Etf Sounds good, high dividendpaying, I want dividends, but
(07:52):
there's a risk to that that mostpeople are not always
considering, which is what ifthey didn't pay us that dividend
and instead grew it more?
So that's the number one thingthat I see people not consider
when it comes to income creation.
So if you want to retire early,you probably don't want a ton
of dividend paying stocksbecause you want to grow your
portfolio as much as you can soyou can retire early.
(08:14):
And then, yes, when you'reactually retired, that's when
you want it to be more dividendfocused, but you don't want it
to be all dividend focused.
That's number one.
Number two and number one Ispent a lot of time on because
that's the most bang for yourbuck.
If you don't know my style, myjob is to advise you and
hopefully you take action onsome of these things, not just,
hey, this is cool to learn,which, yes, that's why I do this
(08:35):
, but I want you to go wow,that's something I didn't
consider.
And then there's other thingsthat I'm going to tell you
straight up.
Hey, this is not something youneed to worry about.
Maybe you have been worryingabout it, don't worry now.
So an example of that there'ssomething called a bond ladder,
and what this is is.
This is something where you buya bond, but it's not like you
go online and click BND.
(08:56):
So BND is a ticker symbol for abond index.
That's different from what I'mtalking about.
A bond ladder has differentmaturity dates.
What on earth does that mean?
So you might buy a bond thatmatures in one year or two years
or three years or four years orfive years, or a bond fund that
does that?
Do you think you deserve agreater return with a bond if
(09:19):
you hold it for one year or fiveyears?
If you're my client, I wouldmake you ask, but for all of you
listening, you do not have toanswer this.
So one year or five years,what's going to essentially give
you more return?
What should?
Well, the answer is five years,because you're holding that
money longer, you're actuallygiving up the ability to touch
into that.
You're saying I'm happy to takesome illiquidity today in
(09:41):
exchange for more return.
So what people will do is theywill ladder out a retirement or
they'll say I want at least100,000 this year of income, so
I'm going to put that in a bond.
So next year, I know at aminimum I got let's call it 4%
my $100,000 minimum.
I got 4% on that, and so now Ihave $104,000 next year that I
(10:02):
can spend on whatever I want,and then maybe the next one's,
5%, and then 6%, and so nowthose are not the rates today.
Just an example.
Here you want to make sure youare being rewarded when you have
more maturity, meaning whenthere's more time in between
when you can access that money.
So this is a common example.
There's also something called aCD ladder, which very similar
thing.
(10:25):
So the thing about real estateand I'll joke about this on some
of my other videos.
I'll say how great is realestate?
It's completely passive, exceptwhen the laundry doesn't work
and now you have to get a newwasher, except when the roof
leaks.
And then also, what about whenyou're traveling?
And then these things happenwhen your property manager quits
.
I mean, it's still just nohassle, and I'm just joking
(10:45):
around with people because I ownreal estate.
But the reason I say this isit's not completely passive.
The stock market is trulypassive.
The difference is there's notas much consistent income from a
stock portfolio compared to areal estate portfolio.
Now, stocks have historicallyperformed way better, but a real
estate investment trust is asimilar way to getting exposure
(11:08):
to real estate.
It's just not in thetraditional sense where, like,
you're putting your hand on theproperty Now it's a real
property, but you're owning italong many other investors.
So these are companies that ownor finance income producing real
estate, and they mustdistribute 90% of taxable income
to their shareholders.
For example, if I had a REITthat focused on apartment
(11:30):
buildings, for example, orshopping centers, that might
yield 4% to 6% in annualdividends.
That's generally going to behigher than if I had.
Let me give you a betterexample like Johnson Johnson
from before, johnson Johnson hadabout a 3% yield, and that's
really good for a company.
So the point here is sometimesit makes sense to have
diversification not justsometimes, most of the time and
(11:57):
if we're diversifying, what wewant to do is have what's called
a real estate investment trust,because this can be a really
cool way to get exposure to realestate without liability but
still good income.
The risk is, this is somethingit's going to distribute income
to you, so if you're not owningthis in the right account, your
tax bill is going to be muchhigher.
So this is called assetlocation not asset allocation,
but asset location, and this issomething that so many people
(12:19):
just overlook.
A common example is somethinglike a Roth IRA.
A Roth IRA is awesome.
That's your best account fortax-free growth forever.
That is literally the bestaccount you've got.
You probably don't want a realestate investment trust in that,
because it's not going to growlike crazy.
It's prioritizing more income,but at the same time, what's
really cool is Roth once again.
(12:39):
No taxes, ever again.
Fund is in there.
So what people do is they'll putsomething like a REIT in a Roth
IRA, because they're like I'm agenius, I just avoided taxes
when the income comes and I'llsay you're correct, but wouldn't
you rather add the S&P 500?
That's up 85%, which you didn'thave to pay any taxes on.
And now your Roth is worth waymore.
(13:00):
And then they're like oh yeah,so this is an example of people
saying, okay, now it's getting alittle complicated.
I don't want to miss the boathere.
So I struggle to go to thislevel of detail today, but I
think it's important and I thinka lot of you who are longtime
listeners are able to graspthese concepts.
If not, if you're like hey,you're starting to lose me here.
I know you like this stuff, butsome of us are just trying to
get the basic information.
(13:20):
How do we retire early.
Well, I try to make differentepisodes and I try to go to a
different level of detail foreach, so I apologize if you
don't feel this is exactlyhitting the nail, but for some
of you I think it is.
So the final thing here that Iwant to talk about is an annuity
.
So annuities.
Some annuities today are payinga really healthy rate, such as
(13:42):
7%.
Or if you put a million bucksinto an annuity, you're like,
wow, I could get 7%, like$70,000 a year.
That's awesome.
But what happens is it pays outthis rate and then over time
you're still getting 7% of yourmillion bucks, but your million
bucks isn't really growing by awhole bunch.
And so 20 years from now you'relike, hey, 70,000 a year is
(14:02):
like not cutting it for myliving expenses, but things cost
way more and so it becomes abig risk.
Now there are certain annuitiesthat I will see where I go.
Look, that's not the worstannuity in the world.
But generally I'm not a big fanof annuities because they don't
keep up with inflation.
Even if you get an inflationprotected annuity, what happens?
We need to ask ourselves, kindof like the dividend.
Okay, I'm going to circle backhere.
(14:23):
Why is this company offering usan annuity?
You know what on earth are theydoing by?
Like?
What's the literal thoughtprocess?
And what I find for me, doingthe research is, if a company is
willing to go to you and say,hey, we're going to pay you 7%
guaranteed, I'm asking myselfand this is what the research
said why would a companyguarantee 7%?
(14:45):
Like?
That's not that easy.
There's times where markets aredown Now there's times where
it's up a whole lot.
But the reason that theseannuities work and the reason
they sell and the reason I'mhesitant to actually ever
recommend an annuity, is myparents were sold an annuity
that did not make sense for themand in that situation, this
person was preying on my parents, who were not financially savvy
(15:06):
and they were not the type ofperson to go hey, show me the
numbers as to why this works.
It was a trust thing for them,and so this advisor received a
big commission by selling thisannuity.
Not saying all annuities areevil, but in this case, what I
saw was my parents heard wait,my, my money that I've worked so
hard for will never be downmore than 10%.
That's awesome.
(15:27):
Now, on the flip side, they'llnever be up more than 6%, but
they're like that's okay, wedon't really need a ton of
growth at this point.
And the risk is, if you missout on some of these really big
years, like last year wheremarkets were up north of 20%,
what happens is, yes, yourmoney's never down a whole bunch
, it's never up a whole bunchand you're still getting income.
(15:47):
So it's a good sale from anadvisor perspective.
But what happens is inflationerodes that over time really
quickly and many annuities whenyou pay into the annuity if it's
not set up correctly.
Let's assume I get an annuity at60 years old and then all of a
sudden I go, hey, you know what,I'm going to go take this fun
trip and I pass away on thattrip because I'm skydiving.
Well, if you don't have theright type of annuity, that goes
(16:10):
away.
It doesn't go to your heirs, itdoesn't go to your spouse.
It can, but you're paying othercosts for that product.
So these really complexproducts, if you don't
understand something easily andsimply don't go into it.
Even the CD ladder I mentionedthe bond ladder a few minutes
ago.
If you're like, hey, that didn'ttotally make sense to me, why I
would actually get more returnfor owning a bond five years out
(16:31):
versus one year out.
That might not be the strategyfor you.
I don't know who said it, butsomeone once said the best
strategy is the one youunderstand, and I do this today.
I will go to my physicaltherapist and go.
I'm sure there's 100 exercisesI should do.
I want five that make sense tome, that make me feel good, that
are going to make me actuallydo it, because I can actually
feel it when I'm playing soccer.
I'm sure there's other onesthat they think are better, but
(16:52):
I'm using the one that Iunderstand, so I would encourage
you guys to do the same.
That's it for this episode.
Now, if you were like, wow, thisis awesome, this was a lot.
I want to work with Root, thisis of course we do and we love
getting to do it.
So you can see in thedescription of this episode how
you can start working with Root.
If that example resonatedearlier about Johnson Johnson,
let me know, because I want tomake different episodes that
(17:13):
hopefully, are tailored to you.
And then, finally, if you wantto retire early, it's more fun
with your friends, so Iencourage you retire early, but
inform them about the podcast,about the YouTube videos.
I want to help as many peopleas possible retire early, so I
appreciate it when you pass thisalong.
Please like this video, pleaseshare it, please subscribe,
please comment.
It helps more people find theshow and love you guys, as
(17:34):
always, see you next time.
Thank you all, as always, forlistening to the early
retirement podcast.
I love getting to host theseshows and make different content
for you guys every single week.
I've not missed a single weekin years and that is because I
love getting to do this.
Now, please be smart about this.
Before you actually execute anystrategy that you see me talk
(17:54):
about or hear me talk about,should I say Please talk to your
financial advisor, your taxpreparer, your estate attorney.
Please be smart about this.
None of this should beconstrued as financial advice.
This is for fun, educational,informational purposes only.
Once again, just quickdisclaimer here.
Guys, please be smart aboutthis.
Appreciate you listening, asalways, and you can, of course,
(18:17):
submit a question on my website,earlyretirementpodcastcom, if
you, of course, want me toaddress a specific case study or
topic.
I will not promise I can get toit, but I respond to every
single person and if I find itwill be helpful for a lot of
people.
I will absolutely make anepisode on it.
At the very least give you someinsight.
That's it.
Thanks guys.
Please do not make this mistake that so many early
retirees make when it comes tocreating income in retirement,
what they're doing is they'reonly having dividend paying
stocks.
You do not want to do this, andI'm going to explain why in
today's episode.
Now, this was prompted by aclient who asked me a question
about whether it makes sense tohave safer companies when
(00:20):
they're retiring early becausethey need more income, of which
I replied absolutely.
For companies when they'reretiring early because they need
more income, of which I repliedabsolutely.
And then I followed up with whyyou don't want all dividend
paying stocks because ofsomething called total return.
So today's episode is going tobe a little bit more stat heavy.
I hesitate to even say thatbecause I don't want to go so
into the weeds that you fallasleep on me, but I want you to
(00:42):
understand a really importantdifference that I think will
shift the way you think aboutcreating income, which might be
the most important aspect ofyour retirement.
So these five portfolio changestoday should help you create
more income.
I'm going to walk through eachof them and give you an example.
So if you're new to the show,welcome.
I love recording these differentpodcasts on various topics,
(01:04):
whether it be healthcare or taxstrategy or finding purpose in
retirement, which I know.
At the beginning of the show Iwas even saying hey, I think
this might be the biggest topichow much income can you create?
But really it's purpose, andhow are you going to have a plan
for fulfillment?
In my personal opinion, becauseI see way too many people that
retire and then go.
I don't know what the heck I'mgoing to do.
I just worked for 30 years andnow I don't know what that looks
(01:26):
like.
So make sure you have thatdialed in.
But today is going to be more,once again, stat, heavy on
dividends and income creation,which I equally love.
I just think too many people gothe route of, financially, am I
in a good spot?
Yes, I can retire early, I'mdoing it.
And then they look back going,wow, I really didn't think
through this fully, and I seeway more people do that than
(01:47):
people who go.
Hey, it turns out I knowexactly what I'm going to do,
but financially, yeah, I don'tthink I can retire.
I don't see that as much.
So I'm going to hop into a fewdifferent examples.
Once again, if you're new,welcome.
My name is Ari Taublieb.
I am the chief growth officerhere at Root and I'm the host of
this podcast, the EarlyRetirement Podcast.
These are posted on YouTube, soif you wanna watch me right now
(02:09):
, you of course can.
And if you're listening on thepodcast app, awesome.
These get released first tothose on the podcast app.
So if you're trying to findthis on YouTube, the video might
not be up yet, which you do notneed for today's type of
content, so let's hop right in.
So this first example this isabout dividend paying stocks.
So I'm going to give you awider example and then I'm going
(02:30):
to start to dial it in for you.
So I had someone reach out andthey were new to investing, but
they were already adding totheir 401k.
It just they weren't so muchinto hey, can I retire early?
It was the traditional.
My employer set up a 401k forme.
I did what I was supposed to do.
I put money into it for many,many years.
Now I'm kind of into thisinvesting thing because I'm
(02:53):
realizing if I get a betterreturn, that's actually more
important than if I were to savemore money, and that concept
really made them go.
Huh, that's interesting.
So the idea of them having amillion dollars.
Getting a 10% return of ahundred thousand was way more
attractive than having to putaway 30,000 into their 401k.
They're like I should justinvest better, which is true.
(03:13):
So you should do both,obviously, but you get my point.
So when we're talking strictlyabout income creation, we are
talking about dividends and whata dividend is.
Many of you know this, but Ilike to explain it a different
way.
So a dividend is a companysaying thank you so much for
owning us.
We appreciate it.
We're going to pay you adividend just to be nice,
(03:34):
because we believe in paying out.
You're an owner of the company.
It's essentially we're passingalong earnings to you, and so a
lot of people like this becauseshort term, it's like this is
awesome.
We're getting literal, passiveincome where we don't literally
do anything, and it's beautiful.
The thing we have to askourselves as investors which
people don't enough, in myopinion is what if this company
(03:56):
did not pay me the dividend?
What if this company did notpay me the dividend?
So let's assume I own JohnsonJohnson, which is the example
I'm going to share in just alittle bit.
Johnson Johnson they are knownfor being a really stable
company and they pay a healthydividend of about 3%.
It's a little north of thattoday.
So if I have $100,000, I know Icould get $3,000 that year in
(04:19):
passive income.
I don't do anything.
I mean, it's just so awesome.
Maybe I have to ride the upsand downs, but there's really
not that much volatility with acompany like Johnson and Johnson
.
So it's awesome and there's areason I like this company.
But what too many people do isthey go.
This is awesome.
I want only companies likeJohnson and Johnson that pay me
a healthy dividend, and here'swhy you don't want to do that.
(04:40):
If you're an investor, yourgoal is total return.
What is the quality of theinvestment?
If Johnson Johnson grew by 0%but paid you a 3% dividend every
year, that's awesome.
But your $100,000 remains at$100,000 and then you get $3,000
a year if nothing were tochange.
Great.
But we need to ask ourselveswhat if Johnson Johnson did not
(05:03):
pay us 3% dividend?
What if they paid us 1% andinstead invested that back into
the company to allow it toessentially innovate further as
a company, to possibly grow it?
Let's call it 5% or 6%.
Well, that's interesting.
It now grew at 6%.
We didn't receive all 6%, itjust went up in value.
So my $100,000, it's now notworth $100,000.
(05:24):
It's worth $106,000, but italso gave me $1,000 that year as
a dividend.
So the reason I'm explainingthis to you is Johnson Johnson
stock in the last year, soexactly a year.
It's up 6.8% and the yield is3.4%.
So that's north of 10%.
That's really good.
That is the reason I like it.
(05:44):
It's a stable company.
It's grown 6.8% and a yield of3.4% that's awesome.
This means it's a reallyhealthy company.
But if we go a little wider andwe look at the last five years,
johnson Johnson is up 1% overthe last five years.
Now it's consistently payingthis 3% yield, this dividend.
(06:05):
But if I put a hundred thousandin a Johnson and Johnson and it
grew by 1% over the last fiveyears and it still paid me 3%
per year, okay, so 3% is whatpaid me 3000 times five years.
Okay, so it paid me 15,000, butit only grew by 1%.
So now it's worth 101,000 and Ihave 15,000 to show for it.
(06:30):
That's not terrible.
But if we look at the S&P 500and I'm picking VOO for a second
, which is the Vanguard S&P 500index, the yield is less.
The yield of the S&P 500 is oneand a half percent versus 3%
with Johnson Johnson.
The difference is over the lastfive years.
Voo is up 85%.
(06:50):
So what short-sighted people dois they go.
I want companies just likeJohnson Johnson that are paying
dividends.
Yeah, that feels good in theshort term.
But now here I am withinflation rising and my VOO, for
example, s&p 500, my $100,000,it's up 85% over the last five
(07:10):
years.
I have $185,000.
That's awesome.
The difference is it didn'tthrow off $3,000 a year.
It threw off about $1,400 ayear, which is still really good
, and it grew for us.
Now it came with morevolatility.
But this is a really simpleexample and I'd want to go much
deeper, of course, if I wasworking with any of you.
And this is what we do for ourclients to show you how we build
(07:32):
a portfolio, what are the exactcompanies we put in, what is
the balance of dividend payingversus just total return.
But this is just a super simplething that I think people make
the mistake on of hey, let meget something like SCHD, which
is another famous ticker of highdividend paying.
Etf Sounds good, high dividendpaying, I want dividends, but
(07:52):
there's a risk to that that mostpeople are not always
considering, which is what ifthey didn't pay us that dividend
and instead grew it more?
So that's the number one thingthat I see people not consider
when it comes to income creation.
So if you want to retire early,you probably don't want a ton
of dividend paying stocksbecause you want to grow your
portfolio as much as you can soyou can retire early.
(08:14):
And then, yes, when you'reactually retired, that's when
you want it to be more dividendfocused, but you don't want it
to be all dividend focused.
That's number one.
Number two and number one Ispent a lot of time on because
that's the most bang for yourbuck.
If you don't know my style, myjob is to advise you and
hopefully you take action onsome of these things, not just,
hey, this is cool to learn,which, yes, that's why I do this
(08:35):
, but I want you to go wow,that's something I didn't
consider.
And then there's other thingsthat I'm going to tell you
straight up.
Hey, this is not something youneed to worry about.
Maybe you have been worryingabout it, don't worry now.
So an example of that there'ssomething called a bond ladder,
and what this is is.
This is something where you buya bond, but it's not like you
go online and click BND.
(08:56):
So BND is a ticker symbol for abond index.
That's different from what I'mtalking about.
A bond ladder has differentmaturity dates.
What on earth does that mean?
So you might buy a bond thatmatures in one year or two years
or three years or four years orfive years, or a bond fund that
does that?
Do you think you deserve agreater return with a bond if
(09:19):
you hold it for one year or fiveyears?
If you're my client, I wouldmake you ask, but for all of you
listening, you do not have toanswer this.
So one year or five years,what's going to essentially give
you more return?
What should?
Well, the answer is five years,because you're holding that
money longer, you're actuallygiving up the ability to touch
into that.
You're saying I'm happy to takesome illiquidity today in
(09:41):
exchange for more return.
So what people will do is theywill ladder out a retirement or
they'll say I want at least100,000 this year of income, so
I'm going to put that in a bond.
So next year, I know at aminimum I got let's call it 4%
my $100,000 minimum.
I got 4% on that, and so now Ihave $104,000 next year that I
(10:02):
can spend on whatever I want,and then maybe the next one's,
5%, and then 6%, and so nowthose are not the rates today.
Just an example.
Here you want to make sure youare being rewarded when you have
more maturity, meaning whenthere's more time in between
when you can access that money.
So this is a common example.
There's also something called aCD ladder, which very similar
thing.
(10:25):
So the thing about real estateand I'll joke about this on some
of my other videos.
I'll say how great is realestate?
It's completely passive, exceptwhen the laundry doesn't work
and now you have to get a newwasher, except when the roof
leaks.
And then also, what about whenyou're traveling?
And then these things happenwhen your property manager quits
.
I mean, it's still just nohassle, and I'm just joking
(10:45):
around with people because I ownreal estate.
But the reason I say this isit's not completely passive.
The stock market is trulypassive.
The difference is there's notas much consistent income from a
stock portfolio compared to areal estate portfolio.
Now, stocks have historicallyperformed way better, but a real
estate investment trust is asimilar way to getting exposure
(11:08):
to real estate.
It's just not in thetraditional sense where, like,
you're putting your hand on theproperty Now it's a real
property, but you're owning italong many other investors.
So these are companies that ownor finance income producing real
estate, and they mustdistribute 90% of taxable income
to their shareholders.
For example, if I had a REITthat focused on apartment
(11:30):
buildings, for example, orshopping centers, that might
yield 4% to 6% in annualdividends.
That's generally going to behigher than if I had.
Let me give you a betterexample like Johnson Johnson
from before, johnson Johnson hadabout a 3% yield, and that's
really good for a company.
So the point here is sometimesit makes sense to have
diversification not justsometimes, most of the time and
(11:57):
if we're diversifying, what wewant to do is have what's called
a real estate investment trust,because this can be a really
cool way to get exposure to realestate without liability but
still good income.
The risk is, this is somethingit's going to distribute income
to you, so if you're not owningthis in the right account, your
tax bill is going to be muchhigher.
So this is called assetlocation not asset allocation,
but asset location, and this issomething that so many people
(12:19):
just overlook.
A common example is somethinglike a Roth IRA.
A Roth IRA is awesome.
That's your best account fortax-free growth forever.
That is literally the bestaccount you've got.
You probably don't want a realestate investment trust in that,
because it's not going to growlike crazy.
It's prioritizing more income,but at the same time, what's
really cool is Roth once again.
(12:39):
No taxes, ever again.
Fund is in there.
So what people do is they'll putsomething like a REIT in a Roth
IRA, because they're like I'm agenius, I just avoided taxes
when the income comes and I'llsay you're correct, but wouldn't
you rather add the S&P 500?
That's up 85%, which you didn'thave to pay any taxes on.
And now your Roth is worth waymore.
(13:00):
And then they're like oh yeah,so this is an example of people
saying, okay, now it's getting alittle complicated.
I don't want to miss the boathere.
So I struggle to go to thislevel of detail today, but I
think it's important and I thinka lot of you who are longtime
listeners are able to graspthese concepts.
If not, if you're like hey,you're starting to lose me here.
I know you like this stuff, butsome of us are just trying to
get the basic information.
(13:20):
How do we retire early.
Well, I try to make differentepisodes and I try to go to a
different level of detail foreach, so I apologize if you
don't feel this is exactlyhitting the nail, but for some
of you I think it is.
So the final thing here that Iwant to talk about is an annuity
.
So annuities.
Some annuities today are payinga really healthy rate, such as
(13:42):
7%.
Or if you put a million bucksinto an annuity, you're like,
wow, I could get 7%, like$70,000 a year.
That's awesome.
But what happens is it pays outthis rate and then over time
you're still getting 7% of yourmillion bucks, but your million
bucks isn't really growing by awhole bunch.
And so 20 years from now you'relike, hey, 70,000 a year is
(14:02):
like not cutting it for myliving expenses, but things cost
way more and so it becomes abig risk.
Now there are certain annuitiesthat I will see where I go.
Look, that's not the worstannuity in the world.
But generally I'm not a big fanof annuities because they don't
keep up with inflation.
Even if you get an inflationprotected annuity, what happens?
We need to ask ourselves, kindof like the dividend.
Okay, I'm going to circle backhere.
(14:23):
Why is this company offering usan annuity?
You know what on earth are theydoing by?
Like?
What's the literal thoughtprocess?
And what I find for me, doingthe research is, if a company is
willing to go to you and say,hey, we're going to pay you 7%
guaranteed, I'm asking myselfand this is what the research
said why would a companyguarantee 7%?
(14:45):
Like?
That's not that easy.
There's times where markets aredown Now there's times where
it's up a whole lot.
But the reason that theseannuities work and the reason
they sell and the reason I'mhesitant to actually ever
recommend an annuity, is myparents were sold an annuity
that did not make sense for themand in that situation, this
person was preying on my parents, who were not financially savvy
(15:06):
and they were not the type ofperson to go hey, show me the
numbers as to why this works.
It was a trust thing for them,and so this advisor received a
big commission by selling thisannuity.
Not saying all annuities areevil, but in this case, what I
saw was my parents heard wait,my, my money that I've worked so
hard for will never be downmore than 10%.
That's awesome.
(15:27):
Now, on the flip side, they'llnever be up more than 6%, but
they're like that's okay, wedon't really need a ton of
growth at this point.
And the risk is, if you missout on some of these really big
years, like last year wheremarkets were up north of 20%,
what happens is, yes, yourmoney's never down a whole bunch
, it's never up a whole bunchand you're still getting income.
(15:47):
So it's a good sale from anadvisor perspective.
But what happens is inflationerodes that over time really
quickly and many annuities whenyou pay into the annuity if it's
not set up correctly.
Let's assume I get an annuity at60 years old and then all of a
sudden I go, hey, you know what,I'm going to go take this fun
trip and I pass away on thattrip because I'm skydiving.
Well, if you don't have theright type of annuity, that goes
(16:10):
away.
It doesn't go to your heirs, itdoesn't go to your spouse.
It can, but you're paying othercosts for that product.
So these really complexproducts, if you don't
understand something easily andsimply don't go into it.
Even the CD ladder I mentionedthe bond ladder a few minutes
ago.
If you're like, hey, that didn'ttotally make sense to me, why I
would actually get more returnfor owning a bond five years out
(16:31):
versus one year out.
That might not be the strategyfor you.
I don't know who said it, butsomeone once said the best
strategy is the one youunderstand, and I do this today.
I will go to my physicaltherapist and go.
I'm sure there's 100 exercisesI should do.
I want five that make sense tome, that make me feel good, that
are going to make me actuallydo it, because I can actually
feel it when I'm playing soccer.
I'm sure there's other onesthat they think are better, but
(16:52):
I'm using the one that Iunderstand, so I would encourage
you guys to do the same.
That's it for this episode.
Now, if you were like, wow, thisis awesome, this was a lot.
I want to work with Root, thisis of course we do and we love
getting to do it.
So you can see in thedescription of this episode how
you can start working with Root.
If that example resonatedearlier about Johnson Johnson,
let me know, because I want tomake different episodes that
(17:13):
hopefully, are tailored to you.
And then, finally, if you wantto retire early, it's more fun
with your friends, so Iencourage you retire early, but
inform them about the podcast,about the YouTube videos.
I want to help as many peopleas possible retire early, so I
appreciate it when you pass thisalong.
Please like this video, pleaseshare it, please subscribe,
please comment.
It helps more people find theshow and love you guys, as
(17:34):
always, see you next time.
Thank you all, as always, forlistening to the early
retirement podcast.
I love getting to host theseshows and make different content
for you guys every single week.
I've not missed a single weekin years and that is because I
love getting to do this.
Now, please be smart about this.
Before you actually execute anystrategy that you see me talk
(17:54):
about or hear me talk about,should I say Please talk to your
financial advisor, your taxpreparer, your estate attorney.
Please be smart about this.
None of this should beconstrued as financial advice.
This is for fun, educational,informational purposes only.
Once again, just quickdisclaimer here.
Guys, please be smart aboutthis.
Appreciate you listening, asalways, and you can, of course,
(18:17):
submit a question on my website,earlyretirementpodcastcom, if
you, of course, want me toaddress a specific case study or
topic.
I will not promise I can get toit, but I respond to every
single person and if I find itwill be helpful for a lot of
people.
I will absolutely make anepisode on it.
At the very least give you someinsight.
That's it.
Thanks guys.
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