UASIT

Considering doing the Dogs of the Dow strategy. Anyone tried it or currently using the strategy? I'd appreciate your insights. I'm thinking about doing the 5 cheapest with the highest divident payment. 20K per year for a 3 years. Then holding the portfolio for 25-30 years.

Or should I just buy and hold gold?

Thanks...

jungle

Just a guess, but I would take option two of the available choices you list, or you could short Greek bonds. Or Spanish, Portugese, Italian, or Irish. More to follow.

PW305

If you want hands-off investing you might consider setting up a DRIP directly with some solid, high-yielding companies. Otherwise what I've been doing is buying on pullbacks, waiting for a move up of >5% and then writing calls on some or all of the shares.

Let's say you bought 1000 shares of GE today at $19/sh. You could have turned and sold DEC 20 calls for $1.10. You'd get $1100 today to do what you want, you'd collect 3 quarters of dividends ($510) and if the stock was at $22 on expiration you'd have sold for $20 + premium and dividends, or $21600. A gain of $2600 on $19k is over 13%, not bad in 9 months.

If GE was at 18.50 by expiration you could sell another call, collect the premium (and dividends) and wait. You would already have downside protection from the initial premium to $17.90, something the buy-and-hold investor doesn't have.

globalexpress

Are you investing in order to reach some sort of financial goal, or are you talking play money?

UASIT

Play money from a deployment I'm doing this year. For long term I'm do Vanguard. No company stock - except what they give out as a bonus...no debt, max out the 401K. Can't do an IRA. Been keeping the cash in an emergency fund (savings) and putting the rest (not in the 401K) into Vanguard Wellington fund.

Thanks...

globalexpress

Why can't you do an IRA? I ask because if you're going to play around with the Dogs of the Dow (or any of the variations), you're going to incur tax from the frequent trading if you end up with gains, in particular short term capital gains if you hold the stock for less than a year. You obviously will also have to pay tax on the dividends as well. All of that could be avoided if you trade within a IRA.

Ditto with gold. You're going to incur that "collectibles" tax on any gains, even if held longer than a year and even if you own the physical gold through a vehicle like an ETF.

UASIT

Co-worker said we can't due to the income limits on a IRA...I better check this myself. I feel like a dope...

globalexpress

Nope, no income limits ever to contribute to a nondeductible traditional IRA. There are limits on deductible traditional IRA's and Roth IRAs. But even with the Roth, you can contribute via a "back door" approach, regardless of income, by contributing to a nondeductible traditional IRA first then converting it to a Roth. You'll owe taxes on the earnings at the time of conversion if there are any, but if you do the conversion right away they will likely be minimal.

Your coworker probably got confused about the Roth limitations or the deductability limitations of a traditional IRA.

So put your play money in a IRA at a good, cheap broker for all those trades you will be doing and make sure it is an IRA account. You will defer (or never owe with the Roth) all the taxes due on those dividends and capital gains and you'll avoid that pretty high tax on gold. Let us know when you make your first million :-)

UASIT

Nondeductible IRAs: Worth the Hassle?

Found this on Fool.com: Stock Investing Advice | Stock Research

Thanks for the inputs...

501D22G

Every day investors lose miserably in their futile quest to outperform the market, which DoD attempts. In fact, this decades-old strategy (which attempts to exploit a market inefficiency that vanishes once a few people know about it) actually lags the DJIA in down years just as often as it "outperforms" the DJ index in good years.

If you just have $60k (20k over the next 3 years) that you would like to send up in smoke, go ahead, but if you are actually going to go downrange 25-30 years with this investment, I feel there are many better options out there.

Yes it may be "play money," but even in Vegas people "play to win," rather than to lose. After that length of time you could end up with more "play money" than you know what to do with if you invest it more wisely now.

Broad diversification through several index funds, reduces both the opportunities for very high returns and very low returns. If you pick a group or just 5 or 10 stocks you have just the opposite effect.

In short, you could pick just 1 mutual fund that tries to mirror the DJ index, and end up with about the same money (likely more) than if you try DoD, especially after adjustments for risk, transactions costs, and taxes.

Just my $.02