What’s the “$1.10 A Day Retirement Plan?”

Sleuthifying out the latest 12% Letter Teaser

By Travis Johnson, Stock Gumshoe, February 27, 2013

I know that many of you have seen the teasers for the “$1.10 a Day Retirement Plan” that are being sent around the interwebs by the folks at the 12% Letter — not many folks have the email marketing might of Stansberry & Associates, that letter’s publisher, and lots of you have been asking about this one.

It probably won’t surprise those of you who’ve been digging in the Gumshoe salt mines for any length of time, but this is not a brand new idea. Nor is it the first time it’s been teased — this same basic spiel has been pitched before by the Stansberry folks as the 801(k) Plan (get it? 801k is twice as good as 401k, right?), the 424 Dividend Boost, Black Market Income, the “Post Office Secret” for “One Share Millionaires” and Wal-tirement (though apparently Walmart sent them a cease and desist letter for that one — a letter that itself became a marketing ploy) …

… and others have teased it too, of course, as “Retirement Plan B” or as “Pension Paychecks” or any number of other mysterious-sounding names for what is a pretty long-lived, well-established and, well, otherwise boring investment strategy.

Boring works pretty well in investing, but it doesn’t work so great in marketing investment newsletters. Thus, the subterfuge.

So what is the pitch? Well, that hasn’t changed much in the five or six years (or longer, perhaps) they’ve been sending out very similar ads for the 12% Letter — the pitch is that for a tiny investment, starting with just one share, you can sit back and sacrifice little and built a massive nest egg.

And it’s sort of true.

Here’s how the ad gets you excited:

“Atlanta couple’s amazing… $1.10-A-Day Retirement Plan

“One prominent news source calls it, ‘A retirement plan that leads to easy street.’

“Atlanta, Georgia residents Jeremy and Lynn Trudeau recently built a nearly $100,000 retirement account simply by setting aside about a dollar per day—and they did it WITHOUT touching penny stocks… options… mutual funds… bonds… or anything even remotely risky.

“And, they’re sharing their story with the rest of America.

“Can you spare an extra dollar per day?”

And it gets more interesting when some of the details of the big numbers are shared … partly because there are a lot of people who are in a similar situation to the “Trudeaus,” so there are probably at least a few of you out there in Gumshoedom who identify with this kind of problem (and solution):

“Back in the mid-90s, the 50-something couple had almost nothing saved up for retirement.

“Decades of hefty mortgage payments, countless bills, and paying off their kids’ college tuition left the Trudeaus with just $122 for ‘the golden years.’

“That wasn’t enough to get them started in a brokerage account (which typically requires at least $1,000) or even a low-entry CD or mutual fund (which typically require at least $250).

“‘We didn’t have the money,’ recalls Lynn. ‘We had just finished putting our three sons through college.’

“Then a friend told them about a new way to pay for retirement…

“It’s a unique retirement opportunity… one that has actually been restricted by the U.S. government from being advertised to the general public (don’t worry it’s perfectly legal… and extremely easy to start).

“In fact, it’s supported by more than 400 of America’s biggest and richest organizations. More importantly, it enables you to collect $50,000… $75,000… even $100,000 or more, beginning with as little as a $1.10 a day.

“For a couple like the Trudeaus, the opportunity was a godsend. Their initial dollar per day stake is now worth nearly $100,000. And it’s still growing.”

And the ad also quotes a few major newspapers to reassure you that no, Dan Ferris isn’t making this up:

“While the government has done its best to keep this unique investment opportunity under wraps, it hasn’t been able to stop some in-the-know financial journals from revealing the details:

**The Atlanta Journal-Constitution writes, ‘Building substantial wealth by investing [what amounts to a dollar a day] isn’t a pipe dream.’

**The Boston Globe calls it ‘A retirement plan that leads to easy street.’

**MarketWatch says it’s ‘The best-kept secret on Wall Street.’

**The San Francisco Chronicle heard from one participant, ‘It’s almost impossible not to make money…'”

So yes, these plans are not really marketed, they’re sensible, they’re mostly low cost … but they’re not magic. What’s being teased is, broadly put, dividend reinvestment.

It sounds better to say it’s a unique opportunity, restricted by the government, and can help you collect $50,000 or $100,000 beginning with a buck a day — but really, the example of the Trudeaus given in the teaser, and so many others, are examples of people who consistently saved, let their dividends reinvest and compound, and ended up with nice-sized bank accounts.

If I told you to start out saving $30 a month and move it up gradually every month to save slightly more, and invest that money consistently in dividend-paying “blue chip” stocks and let the dividends compound and buy more shares, you probably wouldn’t be terribly shocked if it turned out that a habit that started at a dollar a day turned into $100,000 over 20 years. The 20 years part is important.

It’s not that first “dollar a day” that turns into $100,000, but that first dollar is the start of what can build into something substantial if you invest consistently, reinvest, compound the dividends … and, of course, if you choose the right stocks that really can be foundational holdings that you can halfway ignore for 20 years.

More specifically, the tease is for direct stock purchase plans (DSPPs) and dividend reinvestment plans (DRIPs), which are basically systems that are set up so you can buy stock directly from companies instead of through a brokerage firm. This was more revolutionary 40 years ago (or even 20 years ago), when full-service brokers charged $100 commissions and had high minimums and tried to hard-sell investors on their pet stocks, but there is still an argument to be made for these plans in the age of free and cheap discount brokerages and easy dividend reinvestment options in brokerage accounts — I’ll tell you where you can find some lists of these plans in a minute.

These plans are usually administered by one of the two or three big stock handling companies, and each company has a different set of rules — the only stock that Ferris lightly teases specifically in his ad is Walmart (WMT), which he’s made plain many times in the past that he likes as one of his “World Dominators”. And you don’t get any more stock in Walmart for your $50 or $100 or $500 if you buy direct through their DRIP or DSPP than you would if you bought through a broker, but you might get a better deal on the dividend reinvestment or more flexible regular or automated investment options. An account like this does not grow magically large, but if you pick the right “blue chips” or “world dominators” who have businesses that will survive most any crisis over the long term, and who pay a decent dividend and have a record of raising that dividend consistently and significantly every year, then the growth can really be very nice and maybe even startling … particularly if you can set the plan on autopilot and not think about it for a few years.

And yes, those articles that are cited in the ad are real — the San Francisco Chronicle one is here, from 2007. And the Marketwatch one, form 2005, can be read here. They won’t tell you anything shocking. Saving, compounding, choosing big, dominant, dividend-growing companies is boring, and it gives you a better chance of slowly growing your nest egg than anything else.

But be ready to put in some time. If you buy a stock that pays a dividend of 3% and can consistently grow the annual dividend by 10% a year, and get the actual underlying stock to also rise an average of 10% a year, and reinvest those dividends into new shares, then your investment should more than triple over ten years. If the stock price only goes up, say, 4% a year, and the dividend is increased just 8% a year, then your investment roughly doubles in ten years.

Adding more to the pile with additional savings each month or each quarter or whatever will obviously speed that up — assuming, of course, that you don’t end up with a stock that falls in value by 30% over those ten years or stops growing its dividend, as is not unheard of. But, assuming that you diversify with a half dozen or so companies that are, on average, consistent enough to generate those kinds of (very good and market-beating) returns, it’s a good first step … even if it is perhaps little solace to the 58-year-old who only has $10,000 saved for retirement. There isn’t an easy way to turn “not nearly enough savings” into “enough savings” just by investing, you have to save a lot more and invest reasonably well.

So that’s what the 12% Letter is really selling — their expertise in picking those dividend growth stocks that will be steadfast, rising in most markets and holding up better than average in weak markets, and always, always raising the dividend, without fail, at least once a year.

And the direct purchasing stuff, while a useful tool for imposing discipline if you want that, and in some cases a nice convenience, is of constantly declining importance as many direct purchase plans impose fees that are similar to discount brokers, or make recordkeeping more difficult, or whatever — but the custodians like Computershare are also getting better all the time, and the convenience of regular automatic investing can be really useful. You can browse the plans managed by Computershare here, or the ones from American Stock Transfer and Trust here. There are a few other banks and managers who run these services, but those are the two biggest that I’m aware of, and they have thousands of companies you can invest in directly.

Do note that every company has its own policies, minimums and procedures for DRIP/DSPP investing, and that the really compelling bonus features (like the stocks that let you reinvest dividends at a discount to the share price) are pretty rare. I prefer the flexibility of discount brokers who will reinvest my dividends automatically and without charge, but they don’t (with a few exceptions, like Sharebuilder) offer partial share purchases that some direct plans do, and those purchases (ie, putting exactly $250 a month into Intel shares, instead of $243.75 for 11 shares next month or $259 for 10 shares the following month) can make it more efficient to invest a flat amount monthly instead of buying only full shares.

Usually when folks look for these kinds of stocks they start with the mid-cap and large-cap companies who have established a pattern of dividend growth that they are extremely reluctant to break, even in down years — you can find all kinds of lists of dividend growth companies, but one good starting point is the Dividend Aristocrats list put together by S&P, the folks at BuyUpside have made a nice chart of them here that includes dividend growth rates. Some of the picks that I know Dan Ferris has touted before at the 12% Letter don’t have enough of a dividend record yet to make that list, picks like Cisco (CSCO) or Intel (INTC) (I know I’ve seen his Cisco teases, not sure about Intel), but others that he has touted like McDonald’s (MCD) and the one “secret” pick he alludes to in this letter, Walmart (WMT) are certainly on the list.

You can also buy ETFs or mutual funds that are focused on dividend growth, there are hundreds to choose from, but then you probably overdiversify and take on fund expenses and their trading expenses, which might dilute the impact of the compounding dividends by a little bit — or, in some cases, add what they so kindly call “manager risk” if you’re not just getting an indexed ETF. Of course, we all take on that “manager risk” when we choose our own stocks, too, but at least we can look at that manager in the mirror.

How about you? Any favorites in dividend growth land that you think make good candidates for DRIP investing, stocks that you can ignore (within reason) as they grow and compound on a nice gradual slope over time? Let us know with a comment below.

We’ve been talking about favorite newsletters of our readers quite a bit over the last couple days, and collecting more subscriber reviews, and the 12% Letter has come up several times as a relatively inexpensive and sober letter — you can see those reviews or add your own two cents here.

Disclosure: I own shares of Intel. I won’t trade in any stock mentioned above for at least three days.


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23 Comments on "What’s the “$1.10 A Day Retirement Plan?”"

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bonnieember
Member
0
February 27, 2013 11:48 pm

Once, the Hedge Funds have bought in, & made their profits, What is the beauty of these divi’s? I don’t by stocks that are this high, when there are some SCREAMING deals out there right now

Anyone heard of PCGS? They grade coins & they pay a very Nice Divi.

Check it out…

The Universe is Infinite.

Dusty
Guest
0
Dusty
February 28, 2013 12:25 am
I absolutely love this article. Thank you. I learned much of this the hard way and morphed into doing my investing with this kind of strategy. When there is an accumulation of money in the dedicated bank account that meets my minimums ($1000 or $2000) I buy some shares of a stock. The minimum keeps my percentage costs for (Online Discount) Brokerage fees in line. Dividend Achievers and Dividend Aristocrats are a major discussion at the website SeekingAlpha.com, which is free. The reader can sign up for kinds of articles and ‘Follow’ individual contributors at Seeking Alpha which will provide… Read more »
Deborah G Flynn
Guest
0
February 28, 2013 4:56 am
I think one or two of these dividend growqers in a good portfolio is a must for their stability. Years ago [I’m 62 now] I statrted a drip with P&G each year I’d raise the automatic amounbt a few bucks. It did grow but probably if I had invested in simply growth stocks I’d be ok too. It is quite funn to get a statement online and see those “free” shares. I did start with 10 shares and now have hundreds. I don’t touch it not because it is such a great dividend but because I think of it as… Read more »
twjd
Irregular
13
February 28, 2013 4:15 pm

I wouldn’t rely on Seeking Alpha for legitimate information. All I have seen is it is a place for short sellers to bash stocks they are short on.

stockinup
Irregular
9
February 28, 2013 7:40 pm
STRONGLY AGREE — Seeking Alpha has a big audience and the temptation to move the market to benefit short selling has been just too much for some contributors, especially for the hot stocks. This can be the case on any board that accepts articles without taking responsibility for them so the disclaimer you see on those sites that the site ain’t editing or reviewing, etc., is the warning you need to understand that you may be reading a fairy tale or a solid analysis but you have to double check anything you want to rely on. Be aware too that… Read more »
Roger Bond
Guest
0
February 28, 2013 9:49 pm

You need to pick your authors carefully on Seeking Alpha. I written on this many times as it’s not really rocket science.

If the writer is a college kid studying investing with no money ever invested…do you really want to invest based on his picks?

Read a few of their articles, see how many are following them, read the comments they make and their readers make and evaluate whether there is intelligent discussion or just chat room style idiocy.

Whether or not the writer has investments in the stocks he/she recommends is important but there are exceptions like Brad Thomas.

Regards,
Roger
InvestLetters.com

Wende
Guest
0
February 28, 2013 2:52 am
This is my first time to comment after years of reading. I started to take control of my own finances ( after disappointment in financial advisors) by investing in dividend stocks and have been very pleased with my compounding growth. I get excited every day to see the money I have made. I follow the DAILY PAYCHECK, and hopefully one day soon I can turn off the reinvesting my dividends and live off of them. I know it is boring but it works in this no interest word. I also make a Stock of the Month pick , to add… Read more »
bmc123
Guest
0
bmc123
February 28, 2013 4:01 am

“this same basic spiel has been pitched before by the Stansberry folks as the 801(k) Plan (get it? 801k is twice as good as 401k, right?), ”

I’m no financial genius, but isn’t twice 401 = 802? 🙂

baygreen
Member
32
February 28, 2013 4:33 am
Travis is cool in relating to the understanding of the drama to get customers to buy news letters, and even when he puts the teaser on call he does with respect. Very proud to be part of that and in even say that if you are in your 50’s there is no magic pill/stock unless you fall into the 1 in a billion penny sock before you loose your 1 mil. pennies. I give much credit for both sides of the fence the way you call the shots you print I salute you for that. But you just gave 2… Read more »
solyom
Member
1
solyom
February 28, 2013 8:18 am

This data base site will tell you which companies have DRIPS. I notice INTC is on the list. I value the company at 30-31 and pays a 4-5% dividend. I notice AMT is on the list. I value the company at 85 plus and it pays a 1-2% dividend which should grow rapidly. I won both.

http://www.dripdatabase.com/Default.aspx or”Google dripdatabase”

olivan leach
Guest
0
February 28, 2013 10:36 am
I did this back in the early 90’s. I made some mistakes that we need to tell about. 1’st is I didn’t keep paying into the drips as I should. 2’nd is I picked to many,10 or more is too many. Next when some got bought out I took the money and spent it instead of putting it into others. Next I didn’t toss the bad one’s,yes there is some that just don’t work out to well. The best of the bunch I would say has been Colgate. If I would have done what I should have with it I… Read more »
richardwong
Irregular
0
February 28, 2013 12:35 pm

Travis, what is Byron King going off about?? He is over-the-top on this new investment theme. http://agorafinancial.com/reports/ESI/TechBoom/SiliconValley_091912_vp.php?code=EESIP293&o=937006&s=942438&u=46859455&l=545559&r=Milo
Can you sleuth it out??

richardwong
Irregular
0
February 28, 2013 12:36 pm

ok, I see. Graphene. You might have already wrote about this about 100 times already.

Dusty
Guest
0
Dusty
February 28, 2013 1:20 pm
For: Cathy Kandravi And anyone who may relate to this question (above): Subscribe to Seeking Alpha. Some ideas will be there. Most contributors and commenters in that forum are highly competent in finance. Maximize your Social Security by continuing to work as long as practical. At the very least, achieve ‘Full Retirement’ before hanging it up. The penalties for retiring early are severe and are forever. If you are a Veteran or can claim benefits from spousal military service, go visit the VA Representative at the nearest VA Hospital. Veterans should find out what benefits and medical care VA can… Read more »
Charles Young
Guest
0
Charles Young
February 28, 2013 1:54 pm

What is Steve Sjuggerud’s pitch on the “William’s Plan” conversion of a regular IRA to a ROTH IRA to reduce taxes in retirement?

mark
Guest
0
mark
February 28, 2013 2:16 pm
My wife works at a Sam’s club. (wal-mart) She set aside through the company a certain amount of money each check to buy the stock, At first this was done as a Christmas account. every December we would cash out what was needed to buy the kids Christmas presents. However she was always accumulating more stock than we spent. She has 160 shares now it’s in a Drip. She very slowly picks up a few extra shares a year because of the dividend, but still buys another share a month through the payroll deduction. Reinvesting dividends is a good thing… Read more »
chuck
Guest
0
chuck
February 28, 2013 6:39 pm
Dusty, although being a bit long winded, gave very sound advise for those approaching retirement. Would especially cite his discussions on retiring in the home you already have if at all possible, working as long as you possibly can, waiting as long as you can to collect Social Security, and especially don’t retire completely with any outstanding credit card debt — personally have done all of those since retiring for the second time (sort of) more than 5 years ago. And personally I don’t plan on completely retiring (no gainful employment) until my residence home is completely paid off (this… Read more »
David Low
Guest
0
David Low
February 28, 2013 7:58 pm
Hey man! this is MY plan! I invented it. In reality it started when I subscribed to sharebuilder. It costs me $12 a month. That entitles me to 12 buy transactions. Since I already paid that money (& I’m Scottish) you better believe I’m gonna use those 12 buys every month. So I do $XX dollars every month. Then, sharebuilder reinvests the dividends DRIP fashion for all the holdings I have directed to do so, whether the entity offers a DRIP plan of it’s own or not. There are some downsides to sharebuilder but it has facilitated my consistent small… Read more »
David A
Guest
0
David A
February 4, 2016 8:23 pm

Ive been doing this through Sharebuilder now for three years. It is the BEST bang for
the investors buck. As of PRESENT, they do not offer it any more. I was lucky, I got in
when they had it and they allowed me to grandfather in.

Roger Bond
Guest
0
February 28, 2013 9:53 pm

The guy thinks Walmart is a secret pick? Perhaps it’s in consolidation but the last 6 months or so have not been impressive.

I can’t stand shopping there, went there today after the Dentist, not sure which was a worse experience.

Roger

RHandyman
Guest
0
RHandyman
February 28, 2013 10:42 pm

Currently i’m doing an auto pay in ARR which is paying about 14% in dividends paid monthly which is reinvested. Previously i was accumulating shares in ATO until the price started to rise now i DRIP the dividends. The plan is to have multiple Stocks paying out dividends on a different monthly cycle therefore collect a check to supplement SS each month.

Dan
Guest
0
Dan
April 4, 2014 8:46 am

I am a very big fan of LOYAL3.com. The dividends are not reinvested automatically instead they sit in your account until you make another buy. But for $10 or $25 on my credit card (with 1.5% rewards) I can easily reinvest those dividends in a company I like and get rewarded for the purchase. There are about 10 on the site that I like and 5 that I am actually invested in.

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