Thursday, August 30, 2012

Delayed Satisfaction Can Be Profitable

I have a confession.  This confession causes me to be made fun of by friends, something that I think causes my wife some embarrassment, and something that I'm oddly proud of.  I am a flip-phone owner.  And this isn't some new flip-phone (assuming they still make them), no, this is the same phone I have owned since 2006.  I love this phone.  It's small so it fits nicely in my pocket, the battery will still outlast most smartphones, and I don't have to have a data plan in order to use it.  And I'll be honest, that last point is the main reason I haven't upgraded.  I'm a techie, I like the latest and greatest toys and would love to have a smartphone but my sensible and maybe somewhat frugal mind always wins out.

If I could have gotten an iPhone without buying a data plan I'm sure I would have done it long ago. But the fact that I would have had to pay $30/month for something that I would rarely use made no sense. But for the past 3 years I have faced ridicule.  My friends ask me why it takes so long to reply to a text, or if I send out a longer text they joke that it "must have taken forever to write".  Indeed, it's kind of a pain to text with my flip phone, but still well worth the "cost".  Sadly my phone is dying, and with Verizon's (VZ) new shared data plan it actually makes financial sense for me to upgrade.  But before I say goodbye to my dear old friend, lets see how much money I have saved over the years by not having a data plan  (note to my ridiculing friends, you may not want to read on).

Data plans have been popular for some time, but I will use September 2008 as a good starting point as that gives us an even 4 years to work with.  I have been saving $30 / month for 48 months so a total savings of ($30 x 48) = $1,440.  That's a nice chunk of change.  Now of course I wasn't pissing that $30 away on something else, hell no I'm a dividend growth investor, so that cash was getting invested.  Over those 4 years I invested in Intel (INTC) more than any other stock so, for simplicity's sake, let's say I invested that $30 in INTC each month for the past 4 years (reinvesting dividends of course).

Initial investment amount: Sept. 2008
Recurring investment amount:
Total Investment
Number dividends paid
Final value with dividend reinvestment

Almost $2,000 in my portfolio, very nice!

Now let's assume that investment was in my Roth IRA since I contributed heavily to it from 2008-present. So I can't touch that money until I'm 60 years old, but all my reinvested dividends are tax free. Assuming Intel will have an average dividend increase of 8% each year and its stock price will average an 8% increase each year.

Portfolio Balance
Annual Div. Income

So, conservatively speaking, me not having a data plan the past 4 years translates into an additional $35,000 in my Roth IRA as well as an additional $1,200 of annual tax free income by the time I'm 60. So "suck on that" my teasing friends and "you're welcome" to my embarrassed wife.  Now excuse me while I go shopping for a new phone.

Disclosure: I am long INTC, VZ

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