moving down the yield and risk curve

An interesting phenomenon has occurred;

Since I rolled my old 401k accounts to IRAs, no new money is going into them. Also, my new Schwab 401k (hybrid of traditonal and roth, rolled into one account) has been fully funded, I don't have any new money to play with.

What is occurring is that I am looking very hard at the holdings, comparing and contrasting them and reducing exposure to the more risky of them.

For example, as a part of my reading on bond funds, I learned that one should look hard at leverage in a rising interest rate environment. Funds borrow to invest. If interest costs go up, then investment performance tanks. So, I looked at the leverage ratios in the 4 funds I held, completely sold one and reduced exposure in another. Magically, some new cash was available to shore up some lower risk positions.

As another example, I realized that a high yield holding in the energy patch (SDRL) had returned almost 100% over the 4 years I have held it. SDRL carries a huge amount of debt as it buys and builds deep water drilling rigs. As long as they are constantly in use, the debt is covered and the payouts continue. If however, something causes a slow-down in drilling, those debts still have to be serviced, so down will go the payouts and down will go the valuation. So, I took my initial investment out and left the house money in the position.  Alikazam!  more cash to re-balance into higher quality dividends. My dividend income certainly took a hit, but I purchased more dividend growth prospects by working my way down the yield curve and purchasing lower risk stocks.

I'm still generally using the 3% dividend floor, but making minor exceptions for some blue-blood DGI issues such as KO, PG, GIS, KMB. I'm also driving down the entry price on some of these by using short-term at- or in-the-money cash covered puts. I can get 1-2% per month of premiums and keep the cash working; not bad for an amateur! I'll own the shares soon, at the premium discount.

I think it's now 6 years since I opened the first Roth 401k in Fidelity and started managing some money. It seems a lot less fearful now, since I have a strategy and understand much better how to select stocks that adhere to that strategy, as well as when and how to sell. I doubt that I have the "10,000 hours to mastery" under my belt, but I have a good 30-40% of that, and I pay alot of attention when I AM studying.  I'm clocking along at 8-10% year in and year out, which makes me quite satisfied. I'm not constantly comparing my results to the S&P 500, rather paying attention that my dividend yield keeps rising. That'll be my retirement paycheck someday, and it keeps me less worried about valuation. Good news is, as dividends rise, valuation tends to follow.

Now it's late, and time for bed...