Dividend Investing to Total Return Investing

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HappyJack
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Joined: Thu Jan 10, 2019 7:45 am

Dividend Investing to Total Return Investing

Post by HappyJack » Thu Jan 10, 2019 3:38 pm

I have a portfolio of individual equities of 169K which are all dividend oriented and in a taxable account. I would like to switch this to a total return orientation using low-cost ETFs. What would be an effective plan to move these equities over and how quickly should I do it. I am comfortable with my asset allocation and my overall portfolio. But I am not sure about the timing issue of moving these particular equities over. Age: 65 Retirement soon. Thank you

MotoTrojan
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Re: Dividend Investing to Total Return Investing

Post by MotoTrojan » Thu Jan 10, 2019 5:05 pm

HappyJack wrote:
Thu Jan 10, 2019 3:38 pm
I have a portfolio of individual equities of 169K which are all dividend oriented and in a taxable account. I would like to switch this to a total return orientation using low-cost ETFs. What would be an effective plan to move these equities over and how quickly should I do it. I am comfortable with my asset allocation and my overall portfolio. But I am not sure about the timing issue of moving these particular equities over. Age: 65 Retirement soon. Thank you
Stop reinvesting dividends and sell anything that’s at a loss. From there we need to know your tax/income situation to determine how best to exchange the rest.

Topic Author
HappyJack
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Re: Dividend Investing to Total Return Investing

Post by HappyJack » Thu Jan 10, 2019 5:38 pm

28% bracket (I think). Would like some income out of thus portfolio beginning next Jan, in neighborhood of $700 plus per per month. Have already tax harvested for 2018 and have about 4k carry over for 2019. I will incur a further big loss dumping my losers right now. Didn’t know if I should hold some of them for a while longer To see if they’ll come back. All of these losses are the reason I’m considering changing over to a total return portfolio. Or do I just need to face the music right now. Thank you for your help.

Topic Author
HappyJack
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Re: Dividend Investing to Total Return Investing

Post by HappyJack » Thu Jan 10, 2019 5:57 pm

Losses would be $15.7k if I took them now.

dbr
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Re: Dividend Investing to Total Return Investing

Post by dbr » Thu Jan 10, 2019 6:22 pm

Generally if you have decided to change over a portfolio being able to realize losses in the process is a windfall. The difficult case is trying to change something while being faced by a large tax cost to do it.

MotoTrojan
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Re: Dividend Investing to Total Return Investing

Post by MotoTrojan » Thu Jan 10, 2019 6:37 pm

Looks like a ~9% loss, great! The broad market is down a similar amount off its high so I wouldn’t fret selling it all tomorrow and investing in your newly desired equity AA.

Assuming you don’t realize any capital gains you’ll now have 5+ years worth of $3K income reductions from this loss. A win win :).

MotoTrojan
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Re: Dividend Investing to Total Return Investing

Post by MotoTrojan » Thu Jan 10, 2019 6:40 pm

HappyJack wrote:
Thu Jan 10, 2019 5:38 pm
28% bracket (I think). Would like some income out of thus portfolio beginning next Jan, in neighborhood of $700 plus per per month. Have already tax harvested for 2018 and have about 4k carry over for 2019. I will incur a further big loss dumping my losers right now. Didn’t know if I should hold some of them for a while longer To see if they’ll come back. All of these losses are the reason I’m considering changing over to a total return portfolio. Or do I just need to face the music right now. Thank you for your help.
A total return would’ve had similar losses but is still a good move so maybe you need to evaluate overall risk tolerance. $700 a month is a 5% annual withdrawl rate and will eat into your value considerably (4% has a 95% chance of lasting 30 years historically).

If you want to switch to indexes I wouldn’t let a 9% loss hold you back, especially when the broad market is similarly down. Do it tomorrow if you are ready.

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patrick013
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Re: Dividend Investing to Total Return Investing

Post by patrick013 » Thu Jan 10, 2019 7:46 pm

HappyJack wrote:
Thu Jan 10, 2019 5:38 pm
I will incur a further big loss dumping my losers right now. Didn’t know if I should hold some of them for a while longer To see if they’ll come back. All of these losses are the reason I’m considering changing over to a total return portfolio. Or do I just need to face the music right now. Thank you for your help.
I doubt I would sell anything at a loss. Examples. Kenosha Trucking lost a big order - a year later fully recovered.
Caterpillar suffered a season sales slump and a year later fully recovered, sold at no loss. Occidental Petro always volatile and held an additional year and sold at no loss.

My fav for dividends BTW is ticker SPYD which has no commissions at TDAmeritrade. The usual dividends plus diversification, index replacement, and annual capital gains. Comparable total returns expected after taxes to the 500 and even better in a Roth.

I'd probably hold on to what you've got. One thing is 100% certain. Markets recover.
age in bonds, buy-and-hold, 10 year business cycle

Topic Author
HappyJack
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Re: Dividend Investing to Total Return Investing

Post by HappyJack » Thu Jan 10, 2019 8:05 pm

Thank you all so much. Any and all other input is appreciated. Thanks again.

delamer
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Re: Dividend Investing to Total Return Investing

Post by delamer » Thu Jan 10, 2019 9:50 pm

patrick013 wrote:
Thu Jan 10, 2019 7:46 pm
HappyJack wrote:
Thu Jan 10, 2019 5:38 pm
I will incur a further big loss dumping my losers right now. Didn’t know if I should hold some of them for a while longer To see if they’ll come back. All of these losses are the reason I’m considering changing over to a total return portfolio. Or do I just need to face the music right now. Thank you for your help.
I doubt I would sell anything at a loss. Examples. Kenosha Trucking lost a big order - a year later fully recovered.
Caterpillar suffered a season sales slump and a year later fully recovered, sold at no loss. Occidental Petro always volatile and held an additional year and sold at no loss.

My fav for dividends BTW is ticker SPYD which has no commissions at TDAmeritrade. The usual dividends plus diversification, index replacement, and annual capital gains. Comparable total returns expected after taxes to the 500 and even better in a Roth.

I'd probably hold on to what you've got. One thing is 100% certain. Markets recover.
Markets recover, but there is no way to determine if a particular stock ever will.

With the OP’s level of capital gains (assuming they are long term), the federal tax bill would be around $2300. Any state/local taxes would also be relevant.

But I wouldn’t let that amount of money stop me from reallocating $169,000 into a better portfolio.

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patrick013
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Re: Dividend Investing to Total Return Investing

Post by patrick013 » Thu Jan 10, 2019 10:57 pm

delamer wrote:
Thu Jan 10, 2019 9:50 pm
patrick013 wrote:
Thu Jan 10, 2019 7:46 pm
I'd probably hold on to what you've got. One thing is 100% certain. Markets recover.
Markets recover, but there is no way to determine if a particular stock ever will.

With the OP’s level of capital gains (assuming they are long term), the federal tax bill would be around $2300. Any state/local taxes would also be relevant.

But I wouldn’t let that amount of money stop me from reallocating $169,000 into a better portfolio.
My general routine is to sell the stocks with a gain and buy indexes as long as tax bill isn't too high.
Sometimes just a few a year.

Losers I keep for a year before I sell. Once you sell at a loss the money is gone. Nothing says these
indexes are going to go up tomorrow either. I can't remember the last time I sold at a loss.

Most dividend stocks are blue chip stocks so going to a fire sale with them isn't very appealing.
The loss you propose is probably unnecessary.
age in bonds, buy-and-hold, 10 year business cycle

Topic Author
HappyJack
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Re: Dividend Investing to Total Return Investing

Post by HappyJack » Fri Jan 11, 2019 6:09 am

Final thought. Is there a thread on total return vs dividend investing. What are your opinions. Thanks again.

andrew99999
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Re: Dividend Investing to Total Return Investing

Post by andrew99999 » Fri Jan 11, 2019 6:34 am

HappyJack wrote:
Fri Jan 11, 2019 6:09 am
Final thought. Is there a thread on total return vs dividend investing. What are your opinions. Thanks again.
https://www.cnbc.com/2016/12/08/dont-bu ... warns.html
https://www.bogleheads.org/wiki/Why_did ... p_in_value
viewtopic.php?f=1&t=258311
https://www.forbes.com/sites/jimdahle/2 ... d036e07479

dbr
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Re: Dividend Investing to Total Return Investing

Post by dbr » Fri Jan 11, 2019 9:38 am

Here are 13,600 results in Bogleheads alone: https://www.google.com/search?sitesearc ... +investing

Topic Author
HappyJack
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Re: Dividend Investing to Total Return Investing

Post by HappyJack » Fri Jan 11, 2019 10:28 am

Wow. Thanks.

delamer
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Re: Dividend Investing to Total Return Investing

Post by delamer » Fri Jan 11, 2019 11:08 am

patrick013 wrote:
Thu Jan 10, 2019 10:57 pm
delamer wrote:
Thu Jan 10, 2019 9:50 pm
patrick013 wrote:
Thu Jan 10, 2019 7:46 pm
I'd probably hold on to what you've got. One thing is 100% certain. Markets recover.
Markets recover, but there is no way to determine if a particular stock ever will.

With the OP’s level of capital gains (assuming they are long term), the federal tax bill would be around $2300. Any state/local taxes would also be relevant.

But I wouldn’t let that amount of money stop me from reallocating $169,000 into a better portfolio.
My general routine is to sell the stocks with a gain and buy indexes as long as tax bill isn't too high.
Sometimes just a few a year.

Losers I keep for a year before I sell. Once you sell at a loss the money is gone. Nothing says these
indexes are going to go up tomorrow either. I can't remember the last time I sold at a loss.

Most dividend stocks are blue chip stocks so going to a fire sale with them isn't very appealing.
The loss you propose is probably unnecessary.
Nobody says “these indexes are going to go up tomorrow” because nobody knows if they will.

And who cares about tomorrow? Buy-and-hold index fund investing is based on the fact that over the long run the stock market will go up.

The Wizard
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Re: Dividend Investing to Total Return Investing

Post by The Wizard » Fri Jan 11, 2019 11:34 am

patrick013 wrote:
Thu Jan 10, 2019 10:57 pm
delamer wrote:
Thu Jan 10, 2019 9:50 pm
patrick013 wrote:
Thu Jan 10, 2019 7:46 pm
I'd probably hold on to what you've got. One thing is 100% certain. Markets recover.
Markets recover, but there is no way to determine if a particular stock ever will.

With the OP’s level of capital gains (assuming they are long term), the federal tax bill would be around $2300. Any state/local taxes would also be relevant.

But I wouldn’t let that amount of money stop me from reallocating $169,000 into a better portfolio.
My general routine is to sell the stocks with a gain and buy indexes as long as tax bill isn't too high.
Sometimes just a few a year.

Losers I keep for a year before I sell. Once you sell at a loss the money is gone. Nothing says these
indexes are going to go up tomorrow either. I can't remember the last time I sold at a loss.

Most dividend stocks are blue chip stocks so going to a fire sale with them isn't very appealing.
The loss you propose is probably unnecessary.
You may have Loss Aversion.
Livesoft is good at explaining why this is not a good thing.
You might want look into the benefits of Tax Loss Harvesting...
Attempted new signature...

SovereignInvestor
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Re: Dividend Investing to Total Return Investing

Post by SovereignInvestor » Fri Jan 11, 2019 11:47 am

I just did the same thing. Had a dividend growth portfolio and wanted to just index in S&P with VOO, etc.

This pullback was a gift since the stocks I own on average dropped maybe 20% as did SPX so I could sell the stocks and transfer to index while reducing amount of gains I'd have to realize.

Your situation is even better since you can realize a net loss and get tax benefit in process of optimizing your AA.

Good luck resetting your positions!

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patrick013
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Re: Dividend Investing to Total Return Investing

Post by patrick013 » Fri Jan 11, 2019 3:32 pm

The Wizard wrote:
Fri Jan 11, 2019 11:34 am
patrick013 wrote:
Thu Jan 10, 2019 10:57 pm
delamer wrote:
Thu Jan 10, 2019 9:50 pm
patrick013 wrote:
Thu Jan 10, 2019 7:46 pm
I'd probably hold on to what you've got. One thing is 100% certain. Markets recover.
Markets recover, but there is no way to determine if a particular stock ever will.

With the OP’s level of capital gains (assuming they are long term), the federal tax bill would be around $2300. Any state/local taxes would also be relevant.

But I wouldn’t let that amount of money stop me from reallocating $169,000 into a better portfolio.
My general routine is to sell the stocks with a gain and buy indexes as long as tax bill isn't too high.
Sometimes just a few a year.

Losers I keep for a year before I sell. Once you sell at a loss the money is gone. Nothing says these
indexes are going to go up tomorrow either. I can't remember the last time I sold at a loss.

Most dividend stocks are blue chip stocks so going to a fire sale with them isn't very appealing.
The loss you propose is probably unnecessary.
You may have Loss Aversion.
Livesoft is good at explaining why this is not a good thing.
You might want look into the benefits of Tax Loss Harvesting...

You bet I have loss aversion. I don't jump into a TLH at every opportunity. After I decide to liquidate stocks waiting just one year for losers to recover has been very profitable. At least half of them have gone up 30-40 dollars while the alternative, an index, just putts along. If a stocks is still dead after a year I'd sell. Depending on your tax basis it could be a smarter move, providing more cash to invest in the index, and a quicker return than dumping stocks that should recover and depending on an index to outperform immediately or even over a long term if invested funds are not needed immediately.

One TLH is good for long term IMO. Selling a LC at a loss and buying a high beta SC. They recover quickly and adds that index to your AA. If that is what you want to do. I usually buy and hold anyway. Things usally equal out.
age in bonds, buy-and-hold, 10 year business cycle

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patrick013
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Re: Dividend Investing to Total Return Investing

Post by patrick013 » Fri Jan 11, 2019 3:46 pm

HappyJack wrote:
Fri Jan 11, 2019 6:09 am
Final thought. Is there a thread on total return vs dividend investing. What are your opinions. Thanks again.
https://us.spindices.com/documents/rese ... nload=true

The above is a little old. See Exhibit 14. Usually dividend funds in studies that beat the 500 are yield or equal weighted.
age in bonds, buy-and-hold, 10 year business cycle

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