I am retired and 70 years old, my investment goals have changed. I’m now in the “distribution” phase of my financial plan, I no longer have a paycheck. I use my Cash Machine IRA account to “fill the gap” between our Income and Expenses. My goal is a reliable, reasonable monthly cash flow. Our Income includes Social Security (I waited till 70 to build its value) and pensions. My Expenses includes a comfortable life style that my wife and I chose and enjoy, financial help for family members and charitable contributions. It just so happens that my “fill the gap” requirement is almost the same as my IRA Required Minimum Distribution. I withdrawal about half of my Cash Machine dividends to “fill the gap”, the other half or so gets reinvested in more of the same dividend stocks. I will never add any new cash to the Cash Machine account, won’t need to. The final balance of my Cash Machine will go into my Estate Plan when I pass away.

I developed some rules that I continually reference so that I don’t get side tracked by watching CNBC or the “noise” of the days to day stock market. This plan takes a lot of discipline for sure. I want to sleep well at night and not have money worries.

My Cash Machine Rules:

1. Portfolio value, capital gains and % yield are not my goals, highly predictable monthly income is my goal.
2. I only look at my monthly cash flow, I don’t watch the portfolio value.
3. I only buy and hold stocks (minor adjustments are OK), I don’t trim shares for income, only add as I wish.
4. I only invest in higher yielding stocks or ETF’s that pay 3%+ in dividends. I own equity and debt(bonds, loans).
5. I diversify to spread my risks.
6. The principle value of the Cash Machine account should never be much less than it is today in my 25 year plan. It may actually grow substantially.
7. In an up market or with stocks that outperform, I will add more. Known as the “beat and raise” concept.
8. In a down market when my portfolio value drops I’ll switch to “buy on the dips”.
9. I try and remember that market changes do not take away my shares or income, just “perceived value”.
10. The higher the yield, the lower the growth rate, overall growth is not a goal, monthly income is.

This Cash Machine portfolio and plan has been at least 5 years in the making, it took a complete change in mindset and a lot of patience. It consists of 32 stock, divided up among sectors I’m familiar with. I don’t invest in anything I don’t understand. 

I go with the higher yield investments, 3% or more, and the dividends that do get reinvested are generating more income. This method will generate more overall consistent income than a “dividend growth” strategy where say a 1-2% yielding company  might have 20% dividend growth. If that company can sustain the dividend growth for a number of years then it may work out, but I’ll still be ahead because I will still be adding to higher yielding companies. The math of compounding dividends is quite significant. In recent years the entire value of this portfolio has grown nicely.

I can also sleep at night, knowing that when (not if) we have a market down cycle and my portfolio value decreases, my dividends will be coming my way every month. This  will add balance and actually prevent my portfolio value from dropping as low as the market does. The more dividends you have coming in every month, the more balance that is being added to your account. Some of my stocks have been paying uninterrupted dividends for over 10 years.

So far my experience has been that the longer I’ve owned this Cash Machine the fewer positions I have, 30 or so positions is enough. Over time I have companies that perform very well and some that don’t, and I have found that owning more of what is working is better than owning less and having that money tied up in non-performing companies. So I sell weakness and buy strength. It often takes time to determine strength from weakness. I never feel under pressure to make all my changes at once. I try and stick with my plan and build on it. Patience is difficult.

Further disclosure. In addition to my Cash Machine account I have a taxable account that I view as my legacy account. I started this account in my 20’s and have consistently added to it. In that account I hold high growth stocks, most of which don’t pay dividends. This account is the core of our Estate Plan that will someday pass to my family and charities. In addition, we maintain ROTH accounts and a cash emergency reserve of about 3 years. My goal in retirement is to carefully plan and enjoy my volunteer work. Giving back to the world for all of my blessings is important while I still have my health. 

Building a Cash Machine is not difficult. You might want to try it. 

My Cash Machine investments are shown below.