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first post here. It will probably be quite long, but I hope to provide all the relevant details to get specific answers.

Introduction:

I have never been active in investing: on one hand, I never encountered the topic, on the other hand I never had in-depth discussion with my parents. I was the "put money in the bank, and leave them there" kind of guy.

Recently, however, I started diving into the subject prompted from what I consider "good life ideas" from the Mr. Money Mustache blog.

My objective:

My objective is to reach "financial independence" or "early retirement" as in: I have a stream of income which is good enough to sustain myself even if I were not to work (in reality, I just want to quit my current job and have time to pursue other interests, which might lead anyway to a job).

Boundary conditions:

I am Italian. I live in France and work in Switzerland. I have no idea where I might be next year: most likely in another place in Europe (likelihood > 99%).

I already own an apartment in a big city which gives me 1350 euro/month (before taking away expenses and taxes, I started renting it last year so I don't have clear numbers on this).

I have monthly expenses around 1000/1200 euro (all included, but excluding pension fund and health insurance...those 2 are subtracted by my company before giving me the money, so I don't even consider them as expenses, they are just money I never see and over which I have little control. Plus, given the benefits they give, I am not looking to change them).

My salary (order of 6000 CHF/month) right now goes fully into my bank account.

First order approximation, I am living off my rent and not touching the salary money.

Investor profile:

One of the things which is clear about myself is that I am a low-risk investor + I am a lazy investor (I don't want to check my investments once a day...more like once a month, maybe). On the other hand, given the plan I came up with so far (read next section) I don't see the advantage of having a financial adviser managing my money.

My plan so far:

After some reading, it seems to me that the best strategy (as in: the best for me, of course) is to invest in dividend-paying entities. In particular, I think I want to approach this in 2 steps:

  • First: buy some stable/low-risk ETFs that pay dividends, in order to start seeing results
  • Second: do my own homework, and look for stocks of companies with good track records of dividend paying in order to create my "personal" diversified portfolio (the typical suspects here are Coca-cola, J&J and similar companies)

Question 1: How do I start? or "the broker" problem

Right now, the only thing stopping me from starting this plan is that I am quite confused when it comes to "how to start".

  • Option 1 would be to use the investment tools that my bank offers (UBS); I could buy stocks/ETFs directly from the bank and there would be no need to transfer money around. On the other hand (not considering fees, right now) I don't understand what would happen the moment I will move to another country: can I transfer my ETF shares without incurring in fees? Notice: I asked this to my bank but I spoke to a person with poor English skills, so I am not sure she understood what I was asking, because her suggestion was "open an account with a French bank, since you live there" (???).

  • Option 2 would be to use an online broker such as Interactive Brokers. They seem to be available in Europe and, as far as I can understand, there should be no problem in case I move to another country (except that I have to notify them, I guess).

Could you please provide some insight about this? I am planning to talk again to my bank (hopefully with another adviser), so if you have any ideas about questions I should ask, please let me know.

Also: what kind of insurance do I have about the money I send to the broker? if I have my money with a bank, they are "guaranteed" up to a certain amount. Does something similar exists for brokers or should I just trust their reputation?

Question 2: What criticism do you have for my plan?

I have been reading quite a bit about dividend investing around the web. To me it seems like a solid plan, once a person has a clear goal in mind and long-term perspectives. However, there are 2 issues I have with it:

a) it seems "too good to be true", in some sense. What kind of critiques do you think are appropriate for such investment plan? If you had to play devil's advocate and try to convince me that this is a bad idea, what would you say? :)

b) most of the material I found is US-based. While I managed to differentiate quite clearly what will work and what will not work for me (being based in Europe), do you have any insight/suggestion that I should look for, when considering dividends in Europe?

  • Re: your comment "if I have my money with a bank, they are "guaranteed" up to a certain amount." Perhaps this is different in Europe, but in the US such guarantees are made based on the type of account the money is in, not the type of organization that is managing it. Do not assume that investing in equities through your bank gives you any insurance against losses. – Wesley Marshall Apr 12 '17 at 4:14
  • Note: as at March 2018, the 6,000 CHF mentioned is approximately 5,100 Euro. – TripeHound Mar 20 '18 at 9:16
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This has been answered countless times before:

  1. Get out of consumer debt
  2. Build an emergency fund
  3. Buy mutual funds or free ETFs.

One example you may want to look at is DGRO. It is an iShares ETF that many discount brokers trade for free. This ETF: offers "exposure to U.S. stocks focused on dividend growth".

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How do I start? (What broker do I use?)

We don't make specific recommendations because in a few years that might not be the best recommendation any more. You are willing to do your own research, so here are some things to look for when choosing a broker:

  • Does this broker have low fees for individual trades?
  • Does the broker provide index mutual funds branded under their name that can be traded for free?
  • Can you keep that account open regardless of which country you move to in Europe?
  • Can you manage the account entirely online (so that frequent updates to your mailing address will not interrupt communication)?

What criticism do you have for my plan?

Seeking dividend paying stock is a sensible way to generate income, but share prices can still be very volatile for a conservative investor. A good strategy might be to invest in several broad market index and bond funds in a specific allocation (for example you might choose 50% stocks and 50% bonds).

Then as the market moves, your stocks might increase by 15% one year while bonds stay relatively flat, so at the beginning of the next year you can sell some of your stocks and buy bonds so that you are back to a 50-50 allocation. The next year there might be a stock market correction, so you sell some of your bonds and buy stock until you are back to a 50-50 allocation. This is called rebalancing, and it doesn't require you to look at the market daily, just on a regular interval (every 3 months, 6 months, or 1 year, whatever interval you are comfortable with). Rebalancing will give you greater gains than a static portfolio, and it can insulate you from losses when the stock market panics occasionally if you choose a conservative allocation.

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Question 1: How do I start? or "the broker" problem

Get an online broker. You can do a wire transfer to fund the account from your bank.

Question 2: What criticism do you have for my plan?

Dividend investing is smart. The only problem is that everyone's currently doing it. There is an insatiable demand for yield, not just individual investors but investment firms and pension funds that need to generate income to fund retirements for their clients. As more investors purchase the shares of dividend paying securities, the share price goes up. As the share price goes up, the dividend yield goes down. Same for bonds. For example, if a stock pays $1 per year in dividends, and you purchase the shares at $20/each, then your yearly return (not including share price fluctuations) would be 1/20 = 5%. But if you end up having to pay $30 per share, then your yearly return would be 1/30 or 3.3% yield. The more money you invest, the bigger this difference becomes; with $100K invested you'd make about $1.6K more at 5%. (BTW, don't put all your money in any small group of stocks, you want to diversify). ETFs work the same way, where new investors buying the shares cause the custodian to purchase more shares of the underlying securities, thus driving up the price up and yield down. Instead of ETFs, I'd have a look at something called closed end funds, or CEFs which also hold an underlying basket of securities but often trade at a discount to their net asset value, unlike ETFs. CEFs usually have higher yields than their ETF counterparts. I can't fully describe the ins and outs here in this space, but you'll definately want to do some research on them to better understand what you're buying, and HOW to successfully buy (ie make sure you're buying at a historically steep discount to NAV [https://seekingalpha.com/article/1116411-the-closed-end-fund-trifecta-how-to-analyze-a-cef] and where to screen [https://www.cefconnect.com/closed-end-funds-screener]

Regardless of whether you decide to buy stocks, bonds, ETFs, CEFs, sell puts, or some mix, the best advice I can give is to a) diversify (personally, with a single RARE exception, I never let any one holding account for more than 2% of my total portfolio value), and b) space out your purchases over time. b) is important because we've been in a low interest rate environment since about 2009, and when the risk free rate of return is very low, investors purchase stocks and bonds which results in lower yields. As the risk free rate of return is expected to finally start slowly rising in 2017 and gradually over time, there should be gradual downward pressure (ie selling) on the prices of dividend stocks and especially bonds meaning you'll get better yields if you wait. Then again, we could hit a recession and the central banks actually lower rates which is why I say you want to space your purchases out.

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