I agree fposte, and if I may add, it works out very much like a buckets strategy.fposte wrote:Sure, if that mental boundary is, as it is for my friend, what keeps somebody interested in dividends and what keeps somebody from bailing, that's personally helpful. But that doesn't make it financially superior to total return as a concept.nedsaid wrote:Phineas J. Whoopee, I am asking a rhetorical question and pointing out the weakness of a "total return" approach. That is that portfolios sometimes have negative returns. I also want to repeat Rick Ferri's observation that if retirees can live off the income derived from their portfolios in down markets that this will help them hang in there staying the course and not selling their stocks at or near the bottom. It preserves the mental boundary of not "dipping into the principal."
If one has a mixed portfolio of stocks and bonds that's what one has. Some proportion is in one, and 1 - that proportion in the other.
One can think of dividends and interest as "income" and pretend the rest doesn't exist. Note I didn't say doesn't matter - what matters or not depends on the individual or organization. But think of it that way or another way, the portfolio is there, and after a negative return in one component or both, it has a proportion in one, and 1 - that proportion in the other.
The same works for buckets. Thinking of short-term and intermediate-term bonds as separate from the mixed portfolio is fine, but it doesn't change the fact that it has a proportion in one, etc.
nedsaid - you're free to think of things however you want and to explain and even promote your views, but the facts remain that taking interest and dividends out of a portfolio is withdrawing from it, and that it's still a mixed portfolio of stocks and bonds each of which has a market value at a given time.
The difference is not one of substance.
PJW