Is this a real strategy?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
DecoyDave
Posts: 23
Joined: Sat Jan 05, 2019 3:21 pm

Is this a real strategy?

Post by DecoyDave » Thu Aug 29, 2019 12:20 pm

Vague question, and vague answers are fine! My dad's small portfolio is managed by a financial advisor. I looked at his statement and saw that he earned a whopping 5% the first half of 2019, while S & P or total stock market index had earned roughly 18%. He's in almost 100% equities. 6 or 7 individual stocks, and 1 mutual fund (like an American Funds front-load fund with a tiny amount of bonds in it). So we went and met the guy and I asked him, for example, why he had my dad in GE stock and held onto it while it dove 40%+ over a two-year period. His answer was that he held onto it because it was still yielding dividends. This one kind of stumped me (I didn't do real good in school lol). Is that a thing? Do some of the stocks from large, established corporations continue to pay out dividends while the stock is plummeting? Is it wise to hold on for that reason ever? My dad is retired, and the advisor was saying the goal is for income for him. Is the advisor ok, or full of it? I am hoping we can have a discussion like real people here. I don't have any friends who know anything about this stuff and neither do I. You are my friends, you're stuck with me lol. I can't dive in with an encyclopedia of detailed information- I'm just hoping for some general, non-specific, unscientific comments if possible and of course THANKS !!!

livesoft
Posts: 68112
Joined: Thu Mar 01, 2007 8:00 pm

Re: Is this a real strategy?

Post by livesoft » Thu Aug 29, 2019 12:24 pm

He got you because GE cut its dividend drastically, didn't it?

The advisor is clearly full of it.
Wiki This signature message sponsored by sscritic: Learn to fish.

magicrat
Posts: 762
Joined: Sat Nov 29, 2014 7:04 pm

Re: Is this a real strategy?

Post by magicrat » Thu Aug 29, 2019 12:43 pm

A strategy can be both real and bad at the same time.

orsocorso
Posts: 16
Joined: Mon Jun 10, 2019 11:17 am

Re: Is this a real strategy?

Post by orsocorso » Thu Aug 29, 2019 12:49 pm

DecoyDave wrote:
Thu Aug 29, 2019 12:20 pm
Vague question, and vague answers are fine! My dad's small portfolio is managed by a financial advisor. I looked at his statement and saw that he earned a whopping 5% the first half of 2019, while S & P or total stock market index had earned roughly 18%. He's in almost 100% equities. 6 or 7 individual stocks, and 1 mutual fund (like an American Funds front-load fund with a tiny amount of bonds in it). So we went and met the guy and I asked him, for example, why he had my dad in GE stock and held onto it while it dove 40%+ over a two-year period. His answer was that he held onto it because it was still yielding dividends. This one kind of stumped me (I didn't do real good in school lol). Is that a thing? Do some of the stocks from large, established corporations continue to pay out dividends while the stock is plummeting? Is it wise to hold on for that reason ever? My dad is retired, and the advisor was saying the goal is for income for him. Is the advisor ok, or full of it? I am hoping we can have a discussion like real people here. I don't have any friends who know anything about this stuff and neither do I. You are my friends, you're stuck with me lol. I can't dive in with an encyclopedia of detailed information- I'm just hoping for some general, non-specific, unscientific comments if possible and of course THANKS !!!
Financial adviser needs to be fired. You dad is blessed to have you look over his portfolio.

GrowthSeeker
Posts: 673
Joined: Tue May 15, 2018 10:14 pm

Re: Is this a real strategy?

Post by GrowthSeeker » Thu Aug 29, 2019 12:53 pm

I think your best strategy is to convince your dad that the advisor is a loser by looking at the numbers, just like you have already done.
You could find the account balance on 12/31 for the last N years, then do the same for the S&P500. This is a "fair" comparison since he is 100% stock. Right now you have a 7 or 8 month plot. But do the above and you'll have a multi-year plot. That should be pretty definitive.

Then "run" by having him open an account elsewhere and have them "pull" the account to them: no need to ever talk to the advisor again.

A drawn out discussion with the advisor is a fool's errand: his entire career is based on dealing with "objections" as a salesman.

Another thought: if your dad's account has been in exactly the same stocks and funds for a long time, you can feed this into Portfolio Visualizer where it is super easy to compare with the S&P500. Not only that, but the PV result for his account will probably be 1% per year better than his own account due to the fees. Maybe more.

Summary: graphical, visual persuasion is likely to be more effective than a battle of words with the salesman.
Just because you're paranoid doesn't mean they're NOT out to get you.

delamer
Posts: 9057
Joined: Tue Feb 08, 2011 6:13 pm

Re: Is this a real strategy?

Post by delamer » Thu Aug 29, 2019 1:02 pm

It is common for advisors handling retirees’ portfolios to load them with dividend-paying stocks.

Many retirees are uncomfortable selling shares to provide income, so the advisors try to provide income through dividends.

Most of the posters on this forum disagree with this approach. We prefer a total return approach, which maximizes dividends and interest and appreciation for the level of risk the retiree is comfortable taking. With a total return portfolio, the retiree spends earnings and also sells shares as need to provide income. As long as withdrawals are limited to a safe withdrawal rate, the portfolio will survive.

See this section as the wiki: https://www.bogleheads.org/wiki/Safe_withdrawal_rates

Kagord
Posts: 97
Joined: Fri Nov 23, 2018 1:28 pm

Re: Is this a real strategy?

Post by Kagord » Thu Aug 29, 2019 1:07 pm

Run history, look for the churn rate, doesn't sound bad in this case. Surprised he didn't say, "Well you do know, GE is just like a well diversified mutual fund".

pkcrafter
Posts: 13598
Joined: Sun Mar 04, 2007 12:19 pm
Location: CA
Contact:

Re: Is this a real strategy?

Post by pkcrafter » Thu Aug 29, 2019 1:10 pm

DecoyDave wrote:
Thu Aug 29, 2019 12:20 pm

He's in almost 100% equities.

That is a concern, but without knowing more we can't be sure. I suggest ( if dad is willing) to post his information, and we can then provide useful information.

viewtopic.php?f=1&t=6212

My dad is retired, and the advisor was saying the goal is for income for him. Is the advisor ok, or full of it? I am hoping we can have a discussion like real people here. I don't have any friends who know anything about this stuff and neither do I. You are my friends, you're stuck with me lol. I can't dive in with an encyclopedia of detailed information- I'm just hoping for some general, non-specific, unscientific comments if possible and of course THANKS !!!

General comments: I don't like the idea of single stocks, but this is what you might expect from someone who needs to give the appearance of doing someting financially impressive.

Dad is paying the advisor, so if he's going to use the safe 4% withdrawal rate, he's actually using a 5% withdrawal rate because the advisor is probably taking at least 1%, plus the high cost of the funds he recommends.

General, non-specific, unscientific comment: Get the asset allocation right, keep it simple, and lowest cost. The more you don't pay for, the more you get.


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

alex_686
Posts: 5097
Joined: Mon Feb 09, 2015 2:39 pm

Re: Is this a real strategy?

Post by alex_686 » Thu Aug 29, 2019 1:11 pm

First, yes, as others have suggested, buying individual dividend paying stocks is a real stratagy. I think it is a poor stratagy but you can find many threads here that support it.

Second, I am going to critique your critique. It is heavily based on hindsight analysis that GE has fallen by 40%. In hindsight this stratagy obviously fails. However rewind the clock by a year and look at it from that perspective. Stocks easily fluxucates by 20% a year while dividends remain constant. And if a stock falls by 20% should you panic and sell it - or load up on more of it now that it is on sale by 20%?

I have a dim view of a dividend stratagy, but I don't have enough info to condem the FAs implantation. You need to differ between skill and luck - or in this case, bad luck.

User avatar
Wiggums
Posts: 1708
Joined: Thu Jan 31, 2019 8:02 am

Re: Is this a real strategy?

Post by Wiggums » Thu Aug 29, 2019 1:29 pm

I’m not a big fan of dividend investing or high AUM fees. I use To hold some individual stock, but I found that I was generating a lot of short term capital gains. For me, I hold the three fund portfolio and I ignore financial TV shows.

dbr
Posts: 30542
Joined: Sun Mar 04, 2007 9:50 am

Re: Is this a real strategy?

Post by dbr » Thu Aug 29, 2019 1:57 pm

Yes, companies can pay out dividends while the stock is plummeting.

The flaw in the strategy is buying an individual stock in the first place. Now, if the stock crashes, you are between a rock and hard place because it is a disaster to sell out at a loss and it is a disaster to hold on for a bigger loss. Holding the stock "because it is paying dividends" is baloney. Investing in order to obtain dividends per se is baloney as a specific strategy because it is not superior or even necessarily helpful to obtain withdrawals by receiving dividends and because stock picking on a dividend criterion is not effective as such.

Topic Author
DecoyDave
Posts: 23
Joined: Sat Jan 05, 2019 3:21 pm

Re: Is this a real strategy?

Post by DecoyDave » Sat Aug 31, 2019 1:25 pm

THANKYOU THANKYOU THANKYOU all so much. THANKS a ton for being thoughtful and understanding- I know so little about this

rossington
Posts: 221
Joined: Fri Jun 07, 2019 2:00 am
Location: Florida

Re: Is this a real strategy?

Post by rossington » Wed Sep 04, 2019 3:01 am

DecoyDave wrote:
Thu Aug 29, 2019 12:20 pm
Vague question, and vague answers are fine! My dad's small portfolio is managed by a financial advisor. I looked at his statement and saw that he earned a whopping 5% the first half of 2019, while S & P or total stock market index had earned roughly 18%. He's in almost 100% equities. 6 or 7 individual stocks, and 1 mutual fund (like an American Funds front-load fund with a tiny amount of bonds in it). So we went and met the guy and I asked him, for example, why he had my dad in GE stock and held onto it while it dove 40%+ over a two-year period. His answer was that he held onto it because it was still yielding dividends. This one kind of stumped me (I didn't do real good in school lol). Is that a thing? Do some of the stocks from large, established corporations continue to pay out dividends while the stock is plummeting? Is it wise to hold on for that reason ever? My dad is retired, and the advisor was saying the goal is for income for him. Is the advisor ok, or full of it? I am hoping we can have a discussion like real people here. I don't have any friends who know anything about this stuff and neither do I. You are my friends, you're stuck with me lol. I can't dive in with an encyclopedia of detailed information- I'm just hoping for some general, non-specific, unscientific comments if possible and of course THANKS !!!
We need you to post Dad's portfolio individual holdings and current valuations for more precise advice from forum.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.

3funder
Posts: 1060
Joined: Sun Oct 15, 2017 9:35 pm

Re: Is this a real strategy?

Post by 3funder » Wed Sep 04, 2019 11:08 am

Alan Greenspan once said something about certain people foolishly thinking they can create a better mousetrap than all those that currently exist. There is no magical mousetrap, and there is no free lunch. The best strategy is to find the appropriate mix of stocks and bonds, make regularly scheduled contributions, and rebalance when the allocation gets noticeably out of whack. Rinse, lather, and repeat.

jrbdmb
Posts: 390
Joined: Tue Oct 06, 2015 4:27 pm

Re: Is this a real strategy?

Post by jrbdmb » Wed Sep 04, 2019 12:25 pm

alex_686 wrote:
Thu Aug 29, 2019 1:11 pm
First, yes, as others have suggested, buying individual dividend paying stocks is a real stratagy. I think it is a poor stratagy but you can find many threads here that support it.

Second, I am going to critique your critique. It is heavily based on hindsight analysis that GE has fallen by 40%. In hindsight this stratagy obviously fails. However rewind the clock by a year and look at it from that perspective. Stocks easily fluxucates by 20% a year while dividends remain constant. And if a stock falls by 20% should you panic and sell it - or load up on more of it now that it is on sale by 20%?

I have a dim view of a dividend stratagy, but I don't have enough info to condem the FAs implantation. You need to differ between skill and luck - or in this case, bad luck.
Dividends remain constant - until they don't. Here is some recent dividend data for GE - note thaey had consistently paid $0.19 to $0.24 a share until recently:

Ex-Dividend Date Payout Amount
2019-06-28 $0.0100
2019-03-08 $0.0100
2018-12-19 $0.0100
2018-09-14 $0.1200
2018-06-15 $0.1200
2018-02-23 $0.1200
2017-12-26 $0.1200
2017-09-15 $0.2400
2017-06-15 $0.2400

Make sure and thank that FA for the 1 cent dividend that GE is now paying your father every quarter.

User avatar
BL
Posts: 9137
Joined: Sun Mar 01, 2009 2:28 pm

Re: Is this a real strategy?

Post by BL » Wed Sep 04, 2019 12:42 pm

It does sound very aggressive for a retired person. However, if he has fixed income (bonds, cash, etc.) elsewhere, it is the total portfolio that should be considered. It doesn't matter where it is, but taxes should be considered.

If he wants an advisor, perhaps consider Vanguard PAS (see V website) at an expense of 0.3% AUM and very low ER funds. They would handle the transfer and set him up in a decent portfolio. Phone contact might be all he needs rather than "shaking hands" that so many want even at great expense.

Agree that following the "Asking Portfolio Questions" topic and posting here could be very helpful in getting opinions with no ulterior profit motive. It would be useful even if you don't post it, to get a good financial picture for you and whoever might help out.

Other options might be a single balanced fund (Target Retirement income, Life Strategy ____, Balanced fund, Wellesley, etc.) Then there is the 3-fund portfolio (see the Wiki and there is even a book about it; go to Amazon.com from this site).

If this is a taxable account, make sure you print out the info on basis or unrealized gains on everything. Sometimes that info gets lost and you need it for anything you sell.

deikel
Posts: 866
Joined: Sat Jan 25, 2014 7:13 pm

Re: Is this a real strategy?

Post by deikel » Wed Sep 04, 2019 2:07 pm

Its a combination of truths and BS and that's why its difficult to figure out IMO.

The strategy to invest in dividend yielding stocks is not wrong or bad per se. In fact, usually utilities are used for this strategy and Utilities are currently doing very well - both for their stock prices and their dividends, so much so that they are considered overpriced right now.

Whatever money a company is generating as profits can either be reinvested in some form (and increase stock value) or be send to the owners in forms of dividends. If you want money from that investment, the dividend come to you in cash (if you so choose) or you can sell some shares to achieve the same. Some people treat the number of stocks they hold as the principal and do not want to sell principal so not to reduce their 'nest egg'. so they live of the dividend. Which is fine since they are usually around 2% and well within safe withdrawal range - but its just mental arithmetic really.

Now to the more specifics in your case. If you are after dividends then its still better to get a high dividend stock mutaul or ETF fund so to spread your risk (rather then buying single stock). And in the case of GE, the guy even lied to your face since their dividend dropped with the share price....there is some delay sometimes, but the two do correlate eventually - so clearly he did not care or pay attention to your dads portfolio at all...he is worth exactly nothing in your case and he charges you money for it - I would not be surprised if he took 1% of the portfolio value a year.

Now the question is how to improve from here. The stocks did take a tumble and its up to you to realize the loss or make a transfer in kind to another place and manage the portfolio yourself (or your dads). If this is a brokerage account and the losses of the GE are big enough, it might be worthwhile realizing the losses now, offsetting with other possible gains (lets hope there are some) and if you come out neutral, invest it all in a simple index fund or target fund with some bonds in it to make it a smoother ride in the future (plus save 1% advisor fee a year, every year from now on).

You say its a small portfolio, so maybe its not worth making a big deal out of it, but I would say simplifying it is always worth it.
Everything you read in this post is my personal opinion. If you disagree with this disclaimer, please un-read the text immediately and destroy any copy or remembrance of it.

Mister A
Posts: 125
Joined: Tue Oct 21, 2014 4:17 pm

Re: Is this a real strategy?

Post by Mister A » Wed Sep 04, 2019 2:17 pm

magicrat wrote:
Thu Aug 29, 2019 12:43 pm
A strategy can be both real and bad at the same time.
Quoted for accuracy. This adviser is a boat anchor, as many are.

If you meddle with your father's finances and it goes bad, you'll take the heat, but it might be worth having him set up a meeting with Vanguard to go over what he's doing and offer him an alternative that he can decide on for himself. There are safer ways to get income.

I mean, if he wants dividends and 100% equity he could just buy VIG and never pay an adviser or worry about loads again. 184 juicy dividend stocks for .06%/yr.

Topic Author
DecoyDave
Posts: 23
Joined: Sat Jan 05, 2019 3:21 pm

Re: Is this a real strategy?

Post by DecoyDave » Fri Nov 08, 2019 5:44 pm

Mister A wrote:
Wed Sep 04, 2019 2:17 pm
magicrat wrote:
Thu Aug 29, 2019 12:43 pm
A strategy can be both real and bad at the same time.
Quoted for accuracy. This adviser is a boat anchor, as many are.

If you meddle with your father's finances and it goes bad, you'll take the heat, but it might be worth having him set up a meeting with Vanguard to go over what he's doing and offer him an alternative that he can decide on for himself. There are safer ways to get income.

I mean, if he wants dividends and 100% equity he could just buy VIG and never pay an adviser or worry about loads again. 184 juicy dividend stocks for .06%/yr.
So much great information, and thank you all so much. Mister A: THANKYOU! I didn't know about VIG. I'll look into it- that sounds perfect, if my dad wants to stay in that strategy. THANKYOU!

snailderby
Posts: 339
Joined: Thu Jul 26, 2018 11:30 am

Re: Is this a real strategy?

Post by snailderby » Fri Nov 08, 2019 9:03 pm

DecoyDave wrote:
Thu Aug 29, 2019 12:20 pm
He's in almost 100% equities.
Would your dad be OK with a 50% drop in his portfolio? If not, you might want to help him reconsider his asset allocation.100% equities is a pretty aggressive asset allocation for a retiree. See https://personal.vanguard.com/us/insigh ... ns?lang=en.
DecoyDave wrote:
Thu Aug 29, 2019 12:20 pm
6 or 7 individual stocks...
This is a problem. If your dad has a large portion of his investments in 6 or 7 individual stocks, that exposes him to a lot of single stock risk. What if one of those stocks becomes the next Boeing, or Wells Fargo? A broadly diversified mutual fund or ETF would be better, as long as you can transition to that without incurring significant tax consequences.
DecoyDave wrote:
Thu Aug 29, 2019 12:20 pm
...and 1 mutual fund (like an American Funds front-load fund with a tiny amount of bonds in it).
American Funds is probably one of the better fund companies out there when it comes to actively managed mutual funds. But their front-end loads for certain fund classes can be pretty steep.
DecoyDave wrote:
Thu Aug 29, 2019 12:20 pm
Is that a thing? Do some of the stocks from large, established corporations continue to pay out dividends while the stock is plummeting?
Yes. Like GE. :)
DecoyDave wrote:
Thu Aug 29, 2019 12:20 pm
Is it wise to hold on for that reason ever? My dad is retired, and the advisor was saying the goal is for income for him.
No, that is not a good reason to hold onto GE. You don't need high dividends to generate retirement income. Instead, you can sell shares as necessary to reach much the same result (ignoring taxes).

Dividends are not free money. When a stock pays out a dividend, generally speaking, the price of the stock is reduced by the amount of the dividend. "For example, if a stock trades at $50 per share and pays out a $0.25 quarterly dividend, the stock will be marked down to open at $49.75 per share." https://finance.zacks.com/stock-price-c ... -3571.html. In that sense, a dividend is almost like a forced sale of stock.

GrowthSeeker
Posts: 673
Joined: Tue May 15, 2018 10:14 pm

Re: Is this a real strategy?

Post by GrowthSeeker » Sat Nov 09, 2019 7:20 pm

Suppose there is a basket of a dozen or a few dozen stocks, each paying right now a 4% dividend. And they are all what the advisors like to call "good companies".

In a fantasy world "A", these high dividend paying stocks will continue paying the same dollar amount, no matter where their share price goes. If it drops 50% or grows 10% a year, same dollar amount of dividend. If this were true, then it would make perfect sense to hold those shares forever and collect 4% of today's portfolio value until the end of time. The only problem is, in this fantasy scenario, it doesn't keep up with inflation. But it's not true.

In a fantasy world "B", these high dividend paying stocks will continue paying the same dividend percentage, no matter where their share price goes. It will always pay 4%. So if the market drops 50%, that 4% SWR just became a 2% SWR.

I'm not sure, but I think the advisors and the elderly retirees who believe them tend to think it's like fantasy world "A" when the market drops, but like fantasy world "B" when the market climbs.

Perhaps their reasoning is sound, but their assumptions are bogus.
Just because you're paranoid doesn't mean they're NOT out to get you.

inbox788
Posts: 6575
Joined: Thu Mar 15, 2012 5:24 pm

Re: Is this a real strategy?

Post by inbox788 » Sat Nov 09, 2019 7:40 pm

I don't know, but doesn't seem like a good outcome.

Google Finance show the current Div yield 0.35%, not so good. FWIW, VZ and T are yielding 4 and 5%.

A while back I looked into mREITS like Annaly Capital (NLY) for the nearly double digits yields. Stock has had ups and downs, mostly down now, but Div yield 10.96%, so despite lower stock price (not taking into account taxes on distributions or on capital gains/loss), it's likely in the green. Still, it wasn't or isn't clear to me it's a good strategy so I avoid it unless it's in an index I own and I'm unaware. And if it were, chances are it's in minuscule amounts.

I'm very happy getting 2% plus the recent growth from VTI, not to mention the free diversification lunch.

Post Reply