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A journey with many decisions that can tremendously impact an individual future, investing can be daunting for some. One of the most challenging decisions some investors face is determining the right time to shift from growth-focused stocks to income-generating dividend stocks.
Some investors struggle with this decision, fearing that a wrong move can put their entire portfolio at risk. One Reddit poster, a 49-year-old with a $1.2 million portfolio is pondering this exact transition.
His current portfolio is heavily focused on growth stocks, with substantial holdings in Vanguard S&P 500 ETF (NYSE:VOO), Invesco QQQ Trust (NASDAQ:QQQ), and individual stocks like NVIDIA Corporation (NASDAQ:NVDA), Microsoft Corporation (NASDAQ:MSFT), and Apple Inc. (NASDAQ:AAPL).
The investor’s main concern is whether it’s too early to start reallocating portions of his portfolio to income-generating investments.
He is considering moving some of his VOO holdings to Schwab U.S. Dividend Equity ETF (NYSE:SCHD), some QQQ to JPMorgan Equity Premium Income ETF (NYSE:JEPI), and possibly adding iShares Core Dividend Growth ETF (NYSE:DGRO) or iShares Core High Dividend ETF (NYSE:HDV).
"Been in tech for 20+ years and starting to think about stepping away in the next 5-7 years. Currently maxing out all retirement accounts but wondering if I should shift focus from pure growth to more income-generating investments," the investor said.
His goal is to build up $6,000 in dividend income per month while maintaining some growth exposure, so he took to Reddit to ask investors in the r/Dividends community if his approach is the right move.
Let’s see what Reddit investors suggested the poster do based on his portfolio and goals.
Is This the Right Time for the Investor to Shift to Dividend-Paying Stocks? Reddit Debates
Time the Transition
Several comments pointed out the fact that timing the reallocation is crucial, and some suggested the investor should ideally do this only when approaching retirement age.
“50 male here. I’m waiting till I’m 55 to make such a move. Plan to retire at 61. It really depends on you. But in my honest opinion, don’t go beyond 55 before making this transition,” a piece of advice reads.
“I think a good rule of thumb is to lean more into dividends as you move closer to retirement. I like an 80/20 split between dividends and growth at retirement, provided your dividends cover your living expenses,” another Redditor suggested.
Other Reddit users mentioned market conditions and advised the investor to consider those when making the move.
“Just from a valuation perspective, this does not seem (to me) like a bad time to alter the risk characteristics of one's portfolio. I know I am taking a hard look at mine,” one Redditor said.
“Just remember we go through a drawdown every 6-7 years and the current market [price-to-earnings] are rich by 40%. I think you're wise,” another comment reads.
Balancing income and growth is essential for a sustainable retirement strategy, and many Reddit members advised the poster to go for this approach.
“I personally prefer a 50% dividend and 50% growth. Preferably with all of your living expenses covered, buy the dividends. And you are just in time,” a Redditor recommended.
One comment suggested the poster dollar cost average into index funds instead of individual stocks and mentioned a few funds he would switch to.
“Dollar cost average out of the individual stocks and into index funds. 25% large cap value (SCHD for example), 25% large-cap blend ([Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX)] & VOO for example), 25% small cap blend, 25% small-cap value. Something will always be up. Charts show that each of these factors leads for respective 10-year periods. You'll have all your bases covered!” the comment reads.
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