[NINJA EDIT for any newbies finding this thread]
For any newbies finding this thread, Retired To Win holds 30% cash, and has fixed income which covers living expenses.
Source:
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I earlier retired at 53, 14 years ago. My allocation has not changed much. My investments are 100% stocks. I also hold cash for various purposes that amounts to 30% of what I have in stocks. I'm also financially backstopped by fixed income which by itself covers all my basic living expenses.
So you probably don't necessarily want to go by what I do unless your circumstances are similar.------------------------------
http://forum.mrmoneymustache.com/investor-alley/asset-allocation-in-fire/msg626435/#msg626435So don't interpret the "Anyone Else Only Buying Dividend Stocks?" thread title as an indication that his/her net worth/life savings are in 100% dividend stocks. Usually when people discuss asset allocation, things like a big holding of cash are included. You can include fixed income too, but I'd guess that most people don't. It's important to look at all the factors when determining how much risk you should take. When you look at the full picture here, including the fact that Retired To Win owns a home without a mortgage, he/she has an asset allocation probably closer to 50/50 stocks/cash & fixed-income.
Since the cash & fixed-income side is less risky than even bonds, if you were to try and replicate this with a standard stock/bond portfolio, it would probably be something like 20/80 stocks/bonds. In other words, "only buying dividend stocks" is much less risky for Retired To Win than it would be for the typical person on this website trying to retire early. In truth, it doesn't matter what Retired To Win invests in, he/she is already set for life.
[/NINJA EDIT]
It sounds like your previous asset allocation was too risky for your personal risk tolerance. To solve this, you have to
reduce your risk. Investing in "carefully screened individual high-yielding dividend stocks" does not reduce your risk. It
increases your risk.
The following page explains pretty well how your strategy is subjecting your portfolio to unsystematic risk, or uncompensated risk. In other words, the additional risk you are taking, is not compensated with additional gains:
http://www.bogleheads.org/wiki/Risk_and_return:_an_introduction#DiversificationTo reduce your risk, you can adjust your asset allocation towards more bond index funds, and international stock index funds. I recommend reading the following wiki on Asset Allocation:
http://www.bogleheads.org/wiki/Asset_allocationThe Vanguard portfolio allocation models page also highlights this well:
https://personal.vanguard.com/us/insights/saving-investing/model-portfolio-allocationsHere are some real-life examples, If you funded these funds with $10,000 ten years ago in 2004, here's how they would have handled the 2008 crash:
100% Stocks - VTSAX
https://personal.vanguard.com/us/funds/snapshot?FundId=0585&FundIntExt=INT#tab=12007 Peak: $15,359
2008 Low: $7,550
Loss: 50.8%
60% Stocks, 40% bonds - VBIAX
https://personal.vanguard.com/us/funds/snapshot?FundId=0502&FundIntExt=INT#tab=12007 Peak: $13,768
2008 Low: $9,300
Loss: 32.4%
80% Bonds, 20% Stocks - VASIX
https://personal.vanguard.com/us/funds/snapshot?FundId=0723&FundIntExt=INT#tab=12007 Peak: $12,500
2008 Low: $10,562
Loss: 15.5%
100% Bonds - VBTLX
https://personal.vanguard.com/us/funds/snapshot?FundId=0584&FundIntExt=INT2007 Peak: $12,063
2008 Low: $11,587
Loss: 3.9%
Note, the 100% bond portfolio kept rising throughout the whole crash, besides a small blip down. It barely moved. We can see here, that stocks have higher gains, but are more risky (when measured in terms of volatility). We also see that bonds have less gains, but are also less risky.
Now let's compare this to the Dividend Aristocrats fund, a fund which is comprised of the 50 highest dividend yielding constituents of the stocks of the S&P Composite 1500 Index, that have increased dividends every year for at least 25 consecutive years:
100% Stocks, high yield dividends - SDY
http://etfs.morningstar.com/quote?t=SDY2007 Peak: $12,053
2008 Low: $5,602
Loss: 53.5%
By going this route, you have the worst of both worlds. Lower gains than bonds, and higher risk than stocks. Note, this fund is likely more diversified than your "carefully screened individual high-yielding dividend stocks", so you can expect your risk to be even higher than this.
In short, this move won't help you sleep at night during a crash. Move to a portfolio with more bonds, and maybe you'll even be
happy with a crash comes, as you'll have money sitting around (in bonds) just waiting for a crash, to buy stocks when they're on sale (rebalancing)!