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Doctor Rhythm
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Re: My four plan vanguard portfolio !

Post by Doctor Rhythm »

anaelmasri wrote: Fri Sep 18, 2020 12:40 am
Doctor Rhythm wrote: Wed Sep 16, 2020 6:56 pm
anaelmasri wrote: Tue Sep 15, 2020 3:49 am I think a four divide portfolio of etfs makes sense to start then add individual stocks to my ira or brokerage account for LONG TERM ...
Picking individual stocks as a part of your investment strategy is generally discouraged here. If you’re wealthy enough to have “play money” that can be lost without financial consequences and enjoy the excitement of volatility, you could dabble in it. It’s not a part of a strategy in that case; it’s just an often expensive, though occasionally profitable, hobby. Stick with broad index funds for strategy.
I read about bogle recommending at most 5% in stocks if feasible so I am thinking why not?
also it is amazing to me how many people oppose before voo and vti , which I get the overlap, but I have seen alot of portfolios that have both. and if i had a vfiax in one retirement account and vtsax in another then wouldnt that overlap either way/? but still generate profits seperately?
Image
I think I may have already advised this in another thread you started, but don’t make things complicated - especially if you’re new to investing and don’t know what you’re doing. BTW, the pie chart portfolio you show is heavily tilted towards smaller companies - you’ve overweighted them by over 100%. In contrast, your earlier proposed VOO+VTI portfolio overweights large companies. What’s your actual long term strategy?
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anaelmasri
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Re: My four plan vanguard portfolio !

Post by anaelmasri »

Doctor Rhythm wrote: Fri Sep 18, 2020 12:27 pm
anaelmasri wrote: Fri Sep 18, 2020 12:40 am
Doctor Rhythm wrote: Wed Sep 16, 2020 6:56 pm
anaelmasri wrote: Tue Sep 15, 2020 3:49 am I think a four divide portfolio of etfs makes sense to start then add individual stocks to my ira or brokerage account for LONG TERM ...
Picking individual stocks as a part of your investment strategy is generally discouraged here. If you’re wealthy enough to have “play money” that can be lost without financial consequences and enjoy the excitement of volatility, you could dabble in it. It’s not a part of a strategy in that case; it’s just an often expensive, though occasionally profitable, hobby. Stick with broad index funds for strategy.
I read about bogle recommending at most 5% in stocks if feasible so I am thinking why not?
also it is amazing to me how many people oppose before voo and vti , which I get the overlap, but I have seen alot of portfolios that have both. and if i had a vfiax in one retirement account and vtsax in another then wouldnt that overlap either way/? but still generate profits seperately?
Image
I think I may have already advised this in another thread you started, but don’t make things complicated - especially if you’re new to investing and don’t know what you’re doing. BTW, the pie chart portfolio you show is heavily tilted towards smaller companies - you’ve overweighted them by over 100%. In contrast, your earlier proposed VOO+VTI portfolio overweights large companies. What’s your actual long term strategy?
Well by that definition when it’s a vt and vgt with under 30 percent overlap is that a bad structure to have ? I am about the three core portfolio but want one more etf but not matter what you try to diversify there will be some overlapping
Doctor Rhythm
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Re: My four plan vanguard portfolio !

Post by Doctor Rhythm »

Adding VGT to VTI reduces diversification.
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Re: My four plan vanguard portfolio !

Post by snailderby »

anaelmasri wrote: Sun Sep 20, 2020 5:01 amI am about the three core portfolio but want one more etf but not matter what you try to diversify there will be some overlapping
Why do you want to add one more ETF? VTI + VXUS together already cover most of the investable global stock market.

The three-fund portfolio is not the only way to go. But if your goal is to increase diversification, you would be better off adding treasury bonds (and possibly small-cap value stocks, TIPS, gold, or commodities, depending on who you talk to on this forum), rather than overweighting the same large tech companies that already make up a significant portion of VTI. That would spread out your bets, so to speak, rather than betting most of your money on the same companies.

More funds ≠ more diversification.
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Re: My four plan vanguard portfolio !

Post by anaelmasri »

snailderby wrote: Mon Sep 21, 2020 8:51 am
anaelmasri wrote: Sun Sep 20, 2020 5:01 amI am about the three core portfolio but want one more etf but not matter what you try to diversify there will be some overlapping
Why do you want to add one more ETF? VTI + VXUS together already cover most of the investable global stock market.

The three-fund portfolio is not the only way to go. But if your goal is to increase diversification, you would be better off adding treasury bonds (and possibly small-cap value stocks, TIPS, gold, or commodities, depending on who you talk to on this forum), rather than overweighting the same large tech companies that already make up a significant portion of VTI. That would spread out your bets, so to speak, rather than betting most of your money on the same companies.

More funds ≠ more diversification.
how about high dividend individual stocks like a KO or JNJ to buy and hold with VTI VXUS and small percentage of bonds - better than a VYM for example? to build dividends with time?
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Re: My four plan vanguard portfolio !

Post by KingRiggs »

SIMPLICITY :sharebeer
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jibantik
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Re: My four plan vanguard portfolio !

Post by jibantik »

Your plan is too complicated and arbitrary. Just invest market weight and be done. Trust me, you cannot predict anything with accuracy enough where 5% between any various funds is a decision you need to make.
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Re: My four plan vanguard portfolio !

Post by snailderby »

anaelmasri wrote: Tue Sep 22, 2020 2:43 am how about high dividend individual stocks like a KO or JNJ to buy and hold with VTI VXUS and small percentage of bonds - better than a VYM for example? to build dividends with time?
Again, what's your goal? Maximum diversification? Dividends? Something else?

On dividend investing, see viewtopic.php?t=274340 and viewtopic.php?t=296292.
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Re: My four plan vanguard portfolio !

Post by anaelmasri »

I am not trying to predict nor beat the market. By default investing in VTI and VXUS makes it seem pointless to invest in anything else cause everything will overlap to some degree. now I want to add BND small percentage given my age bracket and maybe some other indvidual stocks in HEALTH or CONSUMER INDUSTRY or TELECOMMUNICATION to diversify - yet everything I read makes me feel its pointless to bother investing beyond VTI and VXUS together.
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High Dividend for diversification

Post by anaelmasri »

[Thread merged into here, see below. --admin LadyGeek]

what is a good portfolio of dividend assets that one can start buying shares in at a young age and build it over the course of 30 years without having to sell or substitute with time? like a solid 10 to 15 stocks or etfs or whatever to hold on to and keep DCA and DRIP approach to so that when one hits retirement they can just live off those dividends? talking- LONG TERM in addition to VTI and VXUS and small BND for example (total stock market and total International ). would going with a VYM better than lets say a reputable long term dividend company a KO? I know the risk is higher with a singular stock.

would it be more effective for more income to hold high dividend individual stocks vs high dividend etfs long term? would love to know your experience.
000
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Re: High Dividend for diversification

Post by 000 »

There is no evidence to suggest high dividend strategies have higher total return than the total market.

Consider this: if a business pays out a dividend, the business is now worth less (because they literally have less money) and the share price goes down by the amount of the dividend paid. To observe this, go look at some high dividend stocks and what usually happens on their ex-dividend dates. Of course other factors could move the share price too on the same day.

What matters is total return. Other than in rare situations, selling shares to get capital gains for income is not worse than receiving a dividend. Moreover, dividends create a taxable event. If one doesn't need the dividend income while accumulating, that may be a hassle (although not so bad as some claim).
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Re: My four plan vanguard portfolio !

Post by sycamore »

anaelmasri wrote: Tue Sep 22, 2020 6:24 pm I am not trying to predict nor beat the market. By default investing in VTI and VXUS makes it seem pointless to invest in anything else cause everything will overlap to some degree. now I want to add BND small percentage given my age bracket and maybe some other indvidual stocks in HEALTH or CONSUMER INDUSTRY or TELECOMMUNICATION to diversify - yet everything I read makes me feel its pointless to bother investing beyond VTI and VXUS together.
Sticking to Total Stock Market (for US and Intl) is a very good idea for the stock part of your portfolio.

It's not surprising you're hearing it's pointless to do otherwise -- consider one of the points from the Bogleheads' Investment Philosophy: Invest with simplicity.

Adding more funds or individual stocks makes your investing life more complex - sometimes you'll wonder if you have enough in that fund, at other times you'll think there's not enough. Or maybe you want to get rid of that Health sector fund because it's performed terribly compared to some other sector. You'll be in a perpetual guessing game, leaving you exposed to behavioral mistakes like overreacting to a bear market or trying to time the market.

That said, not everyone here thinks it's pointless to invest outside of VTI and VXUS. For example, fans of "factor investing" feel that it can provide exposure to different kinds of risk (not just "beta" and not just measured by volatility) and/or allows for a portfolio with less exposure to stocks but similar "expected return." But even the factor fans here will discourage anyone from trying it if you don't understand factor investing or can't stick with it for a potentially LONG period of time (decades).

And of course there are the "play money" folks who will take 1 or 2% of their portfolio (typically no more than 5%) and invest in individual stocks or sector funds or the like. As long as you know in a downturn those investments could lose more than Total Stock Market.

Personally I encourage to stick with a simple plan like the 3-funder before even considering a new fund. You should be able to clearly explain why such a fund is needed, how the fund solves the problem, what the pros & cons are, how the fund fits into you IPS, etc. before buying a new fund.
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Re: High Dividend for diversification

Post by Sandtrap »

Search the forum archives (upper right corner) for threads and discussions about:
"High Dividend Funds"
"Dividend Aristocrats"
"Total Returns vs. . . ."

j :happy
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Re: High Dividend for diversification

Post by willthrill81 »

000 wrote: Tue Sep 22, 2020 6:33 pm There is no evidence to suggest high dividend strategies have higher total return than the total market.

Consider this: if a business pays out a dividend, the business is now worth less (because they literally have less money) and the share price goes down by the amount of the dividend paid. To observe this, go look at some high dividend stocks and what usually happens on their ex-dividend dates. Of course other factors could move the share price too on the same day.

What matters is total return. Other than in rare situations, selling shares to get capital gains for income is not worse than receiving a dividend. Moreover, dividends create a taxable event. If one doesn't need the dividend income while accumulating, that may be a hassle (although not so bad as some claim).
Correct. :thumbsup
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Re: High Dividend for diversification

Post by tibbitts »

anaelmasri wrote: Tue Sep 22, 2020 6:27 pm what is a good portfolio of dividend assets that one can start buying shares in at a young age and build it over the course of 30 years without having to sell or substitute with time? like a solid 10 to 15 stocks or etfs or whatever to hold on to and keep DCA and DRIP approach to so that when one hits retirement they can just live off those dividends? talking- LONG TERM in addition to VTI and VXUS and small BND for example (total stock market and total International ). would going with a VYM better than lets say a reputable long term dividend company a KO? I know the risk is higher with a singular stock.

would it be more effective for more income to hold high dividend individual stocks vs high dividend etfs long term? would love to know your experience.
You apparently don't realize how much any selection of 10 or 15 "solid" stocks is likely to change over a period of 30+ years. But you're also misguided regarding the value of a dividend strategy. You aren't even seeking a somewhat hybrid strategy like dividend growth; you're specifying pure high-dividend.
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Re: High Dividend for diversification

Post by ChinchillaWhiplash »

You are definitely better off buying a fund over individual stocks for overall safety. VYM is a good Dividend fund with low ER and a diverse set of holdings. Basically about the same as a value fund. Overall returns have been a little lower than total stock market fund so far, but who knows what the future will bring :confused
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Re: High Dividend for diversification

Post by MotoTrojan »

You’d be better off diversifying with small-value. Add some VBR and hold forever.
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Re: High Dividend for diversification

Post by flaccidsteele »

000 wrote: Tue Sep 22, 2020 6:33 pm There is no evidence to suggest high dividend strategies have higher total return than the total market.

Consider this: if a business pays out a dividend, the business is now worth less (because they literally have less money) and the share price goes down by the amount of the dividend paid. To observe this, go look at some high dividend stocks and what usually happens on their ex-dividend dates. Of course other factors could move the share price too on the same day.

What matters is total return. Other than in rare situations, selling shares to get capital gains for income is not worse than receiving a dividend. Moreover, dividends create a taxable event. If one doesn't need the dividend income while accumulating, that may be a hassle (although not so bad as some claim).
+1 ^this
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Re: My four plan vanguard portfolio !

Post by bertilak »

Lou354 wrote: Tue Sep 15, 2020 7:35 am There’s not much difference in performance between S&P 500 and Total US market. So I wouldn’t bother with both, except perhaps as a partner if you want to do tax-loss harvesting at some point in the future.
And in that case you would be holding only one or the other at any point in time.

TSM and S&P500 are excellent TLH swapping partners. But you can't swap if you hold both!
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Re: High Dividend for diversification

Post by patrick013 »

willthrill81 wrote: Tue Sep 22, 2020 8:38 pm
000 wrote: Tue Sep 22, 2020 6:33 pm
There is no evidence to suggest high dividend strategies have higher total return than the total market.


Correct. :thumbsup


viewtopic.php?p=4869335#p4869335

Oh yes there is. I always have a 10-20% tilt for a
dividend index especially when the economy recovers
a bit.
age in bonds, buy-and-hold, 10 year business cycle
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Re: High Dividend for diversification

Post by snailderby »

anaelmasri, I'm still unclear what your goal is.

Is it dividend income? In your other thread, you suggested "buying high dividend individual stocks like a KO or JNJ ... to build dividends with time." Similarly, in this thread, you ask about buying "a solid 10 to 15 stocks or etfs or whatever to hold on to and keep DCA and DRIP approach to so that when one hits retirement they can just live off those dividends." If your goal is dividend income, my recommendation would be to focus on total return rather than of dividends for the reasons explained by 000 above, as well as the reasons explained by Ben Felix in these videos: https://youtu.be/f5j9v9dfinQ and https://youtu.be/9j6DInAMMaM.

Or is your goal maximum diversification? In your other thread, you said "owning a portfolio focusing on blue chips as well as tech adds more to the pile." Yet you say you are "not trying to predict nor beat the market," and you said you were thinking of adding "some other indvidual stocks in HEALTH or CONSUMER INDUSTRY or TELECOMMUNICATION to diversify." If your goal is maximum diversification, I would start with a portfolio consisting of U.S. and international stocks and high-quality bonds and maybe, just maybe, add gold, commodities, TIPS, and/or small-cap value stocks if you believe in the purported diversification touted by proponents of these alternative asset classes, but only if you know what you're doing. An argument could be made that a portfolio like the Permanent Portfolio or the All-Weather Portfolio is more diversified than the Three-Fund Portfolio. But overweighting blue chip or tech stocks or investing in individual stocks is not a good way to diversify your portfolio. On the contrary, doing this will increase your concentration risk.
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Re: High Dividend for diversification

Post by CyclingDuo »

anaelmasri wrote: Tue Sep 22, 2020 6:27 pm what is a good portfolio of dividend assets that one can start buying shares in at a young age and build it over the course of 30 years without having to sell or substitute with time? like a solid 10 to 15 stocks or etfs or whatever to hold on to and keep DCA and DRIP approach to so that when one hits retirement they can just live off those dividends? talking- LONG TERM in addition to VTI and VXUS and small BND for example (total stock market and total International ). would going with a VYM better than lets say a reputable long term dividend company a KO? I know the risk is higher with a singular stock.

would it be more effective for more income to hold high dividend individual stocks vs high dividend etfs long term? would love to know your experience.
Depends on if the investments are held in tax deferred, taxable, or Roth. In tax deferred, the money comes out as ordinary income and is taxed at that rate. In a Roth, the original money going into it has already been taxed at your individual rate, so it's a primo spot for dividend income as you will not be taxed on the dividends or withdrawals. A Roth is also an excellent place to house any investments in REITs or real estate stocks due to the tax treatment of those dividends if held in a taxable account. In taxable, you would want to hold only qualified dividends which then, under the current tax code, would lead to you using tax strategies to keep that dividend income in the accumulation years to the point that your taxable income is not so high that you end up paying taxes on the dividends. It's the same rate as long term capital gains when your taxable income is low enough as you would pay $0 on both. At the next tax level, the tax drag of dividends in a taxable account kick in and are the same as long term capital gains - 15%. Whether you reinvest the dividend or not, you still owe taxes on the dividends in a taxable account without using the tax mitigation strategies of keeping taxable income low enough to pay 0% on the dividends (maxing out pre-tax retirement plans, standard deduction, etc... help accomplish that for those that are in the "sweet spot" of household income and household expenses).

Either way, you are talking about a total return strategy. Taking the dividend out is removing capital from your investment if you do not reinvest it. Selling shares of a stock, an ETF or mutual fund is, in effect, creating your own "dividend" at your point of choosing. Share price appreciation and dividends being reinvested or not all contribute to total return.

What you are mentioning is somewhat of what I call a "hybrid" approach of using index funds and individual stocks or ETF's that pay dividends. If you want to build up a portfolio during the accumulation years that supports an X% SWR (safe withdrawal rate) in retirement, either strategy can work. In essence, we all have a "hybrid" portfolio because the index funds do pay dividends and we have to deal with them (take them, or reinvest them).

With VTI and VXUS, you are already receiving all the dividends the market pays, it's just not concentrated in a tilt towards dividends.

Would 10-15 stocks provide the tilt and diversity needed to make it worthwhile? Read the Wiki page here and pay attention to the number of stocks needed in the studies to match the index return, costs, taxation, etc...:

https://www.bogleheads.org/wiki/Passive ... 20incurred.

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Re: High Dividend for diversification

Post by mega317 »

https://www.bogleheads.org/forum/viewtopic.php?t=6212
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Re: High Dividend for diversification

Post by Jack FFR1846 »

I view dividend stocks (and funds) as forced sale vehicles. Every time you get a dividend (in a taxable account), you'll have to pay tax on it, whether you take it as cash, re-invest it or use it to buy another stock or fund. You have no choice. You're taking that dividend and you're paying tax.

On the other end, say you own a non-dividend paying stock. The most note worthy might be Berkshire Hathaway. They don't pay dividends. So when the end of the year and tax time comes, unless you actively decided to sell (and take cap gains....with potentially lower LTCG tax), then you owe zero. You have control. You can be sure you don't sell any short term stock if you do decide to sell, which costs less in the tax you pay.

And I'd say that high dividend and diversification have as much in common as a share of IBM and a fish bowl.
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Re: High Dividend for diversification

Post by CyclingDuo »

I need to up my entertainment game, as I missed posting in at least three of those threads. :beer
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Re: High Dividend for diversification

Post by CyclingDuo »

Jack FFR1846 wrote: Wed Sep 23, 2020 9:35 am I view dividend stocks (and funds) as forced sale vehicles. Every time you get a dividend (in a taxable account), you'll have to pay tax on it, whether you take it as cash, re-invest it or use it to buy another stock or fund. You have no choice. You're taking that dividend and you're paying tax.

On the other end, say you own a non-dividend paying stock. The most note worthy might be Berkshire Hathaway. They don't pay dividends. So when the end of the year and tax time comes, unless you actively decided to sell (and take cap gains....with potentially lower LTCG tax), then you owe zero. You have control. You can be sure you don't sell any short term stock if you do decide to sell, which costs less in the tax you pay.

And I'd say that high dividend and diversification have as much in common as a share of IBM and a fish bowl.
The bolded part simply is not true.

Jack - there is one thing that needs to be pointed out.

There are many folks here on Bogleheads and in other message forums that are in the "sweet spot" of household income and household expenses that can use the tax code to mitigate their taxable income and pay $0 on qualified dividend income in a taxable account. Pre-tax deductions into retirement accounts and the standard deduction being the most commonly used methods to lower one's taxable income so that qualified dividends (or long term capital gains) in a taxable account receive the favorable tax treatment of $0.

For a MJF, that means if they can get their taxable income (after standard deduction and pre-tax 401k/403b/457b, etc... deductions) to $80,000 or below - they owe $0 on qualified dividends in a taxable account.

For a Single filer, taxable income has to be $40,000 or less.

https://www.nerdwallet.com/blog/taxes/d ... tax%20rate.

That sweet spot for either a dual income or MFJ household fits a lot of people's descriptions. DW and I have three pre-tax plans we can max out + the catch up contributions since we are in the 50+ age category. That's $26K into each. Standard deduction is $24,800 in 2020 for us. Our household annual expenses with the remaining take home pay (net income) is enough to cover our expenses.

This "sweet spot" is continually overlooked in these threads with statements such as your bolded statement.

Just sayin'....

CyclingDuo
Last edited by CyclingDuo on Wed Sep 23, 2020 9:57 am, edited 1 time in total.
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Re: High Dividend for diversification

Post by dbr »

anaelmasri wrote: Tue Sep 22, 2020 6:27 pm
would it be more effective for more income to hold high dividend individual stocks vs high dividend etfs long term? would love to know your experience.
Please do not be confused that the only way* to withdraw and spend from your savings (investments) is to arrange your holdings for a dividend or interest check to be paid out and mailed to you (or electronically deposited somewhere). This is a fundamental error in basic cash management. If you want constant monthly payments from your investments, most brokers have plans that provide that for you.

A better process for most people in retirement is to collect and spend whatever dividends or interest are paid and then sell shares and withdraw the proceeds from either taxable or tax protected holdings as needed. If the dividends come to too much, then the excess is reinvested. It may be helpful to attend to tax costs in how all this is managed. When you get to the point of taking RMDs from tax protected accounts you might sell things and take the cash or have assets transferred in kind. It doesn't make a lot of sense to accumulate dividends in a 401k or IRA to withdraw as the RMD.

As far as diversification, your idea really amounts to concentrating your holdings rather than exactly diversifying anything. It is likely that choosing that particular concentration is partially equivalent to tilting to value stocks. If you want that it is probably more effective to do it by taking that tilt directly.

*Taking dividend or interest payments as a way to withdraw money is also a way to do this. If it is convenient for you and does not have an avoidable extra tax cost, then you can do that. (You can also do that if it does have extra taxes and you don't care.) Such things are not anything special but just how anyone in particular wants to arrange their affairs.
Last edited by dbr on Wed Sep 23, 2020 9:59 am, edited 1 time in total.
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Re: High Dividend for diversification

Post by tibbitts »

patrick013 wrote: Wed Sep 23, 2020 8:41 am
willthrill81 wrote: Tue Sep 22, 2020 8:38 pm
000 wrote: Tue Sep 22, 2020 6:33 pm
There is no evidence to suggest high dividend strategies have higher total return than the total market.


Correct. :thumbsup


viewtopic.php?p=4869335#p4869335

Oh yes there is. I always have a 10-20% tilt for a
dividend index especially when the economy recovers
a bit.
I glanced at that thread but am not seeing your point - could you give a hint as to what evidence you're pointing to?

How do you define "when the economy recovers a bit"?
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Re: High Dividend for diversification

Post by nisiprius »

According to the Boglehead ideas, which I personally believe in:

1) Since you can't pick stocks, period, you can't pick dividend stocks either. It's not as if it were difficult to identify the best stocks, but easy to identify the best of the dividend stocks. Therefore, there is no advantage in picking a portfolio of 10-15 dividend stocks, rather than a dividend-stock-oriented index fund like VHYAX. A portfolio of 10-15 dividend stocks is just adding some extra "manager risk."

2) Total return is total return. A dividend stock is just a stock which automatically leaks out some of its return automatically in the form of dividends, in a way which you do not control.

3) In order to get a long time period to look at, I looked at the Vanguard 500 index fund as an example of general stock fund, and the Vanguard Equity-Income Fund as an example of a dividend-oriented stock fund. From 1989 through 2019, they have had a 91% correlation. Dividend stocks would not have not provided much "diversification." They went up and down in a way that closely tracked the whole market.

Image

4) Many ideas about dividend stocks seem to me to come from 1970s-era thinking, when buying or selling stocks was expensive and mutual funds were not so mainstream. Because of the high cost of selling shares, it wasn't practical to say "I need $200/month so I will sell $200 worth of stock every month." The only practical way to get an income stream from stocks was to select dividend stocks. But this is no longer true. You can sell mutual funds in any dollar amount you like, and with the introduction of fractional shares you can even do this with individual stocks.

5) Dividend stocks have behaved a little differently from the market as a whole, just like many ways of selecting parts of the stock market. But enthusiasts wildly exaggerate both the amount and the importance of that difference. Much of the difference can be attributed to the "value factor," i.e. dividend stock investing is just an imprecise way of introducing a value tilt, and if you want a value tilt you are probably better off looking at factor investing and factor-based funds and ETFs.

6) Dividend enthusiasts say a lot of things that aren't really so. For example, it is very often claimed that dividend stocks "provide downside protection." Even when this is true, it is often feeble compared to something simple like having some of your portfolio in bond funds--and, surprisingly often, it is not true. For example, in 2008-2009 the Vanguard High-Dividend Yield ETF (blue) fell a little more than the Total Stock Market ETF:

Image

It's not as if dividend stocks were much worse than the rest. The point is that they were really about the same. Don't get the idea that ten or fifteen individual dividend stocks are somehow going to protect your portfolio against the next crash.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
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Re: High Dividend for diversification

Post by dbr »

Nice description above ^^^

A very important point in all these discussions is to avoid thinking that "bogleheads" diss on dividend stocks. The accurate statement of the assessment is not that there is something wrong with dividend investing but rather that there is nothing special gained by it. It is also concerning if an investment plan is based on missing an understanding of something. Some of the plans one will see are based on misunderstanding and some are just perfectly defensible personal preferences.
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patrick013
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Re: High Dividend for diversification

Post by patrick013 »

tibbitts wrote: Wed Sep 23, 2020 9:58 am
patrick013 wrote: Wed Sep 23, 2020 8:41 am
willthrill81 wrote: Tue Sep 22, 2020 8:38 pm
000 wrote: Tue Sep 22, 2020 6:33 pm
There is no evidence to suggest high dividend strategies have higher total return than the total market.


Correct. :thumbsup


viewtopic.php?p=4869335#p4869335

Oh yes there is. I always have a 10-20% tilt for a
dividend index especially when the economy recovers
a bit.
I glanced at that thread but am not seeing your point - could you give a hint as to what evidence you're pointing to?

How do you define "when the economy recovers a bit"?
Sure, but you have to read the book mentioned in the thread.

COVID has caused EPS to decline although stock prices are optimistic.
When EPS rises after COVID prices will be more stable. Dividends will
also be more stable. Some dividend index prices now are very low, like
SPYD, so a good entry point looks available if you want to gamble on a
dividend index. Your gamble not mine. Check "What Works on Wall Street".
age in bonds, buy-and-hold, 10 year business cycle
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ruralavalon
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Re: High Dividend for diversification

Post by ruralavalon »

anaelmasri wrote: Tue Sep 22, 2020 6:27 pm what is a good portfolio of dividend assets that one can start buying shares in at a young age and build it over the course of 30 years without having to sell or substitute with time? like a solid 10 to 15 stocks or etfs or whatever to hold on to and keep DCA and DRIP approach to so that when one hits retirement they can just live off those dividends? talking- LONG TERM in addition to VTI and VXUS and small BND for example (total stock market and total International ). would going with a VYM better than lets say a reputable long term dividend company a KO? I know the risk is higher with a singular stock.

would it be more effective for more income to hold high dividend individual stocks vs high dividend etfs long term? would love to know your experience.
Funds or ETFs are definitely less risky than individual stocks.

Don't limit yourself to high dividend assets. Limiting yourself to high dividend assets means you are less diversified, not more diversified. Vanguard High Dividend Yield ETF (VYM) holds stocks of just 424 companies, while Vanguard Total Stock Market ETF (VTI) holds stocks of 3525 different companies.

Instead strive for broad diversification (to reduce risk), and a total return approach (for higher overall returns and better income in the end). "Total return" means a combination of share price appreciation plus dividends.

You get broad diversification with funds like Vanguard Total Stock Market ETF (VTI), which can be held for 30 years or more without having to sell or substitute over time.
dbr wrote: Wed Sep 23, 2020 10:19 am Nice description above ^^^

A very important point in all these discussions is to avoid thinking that "bogleheads" diss on dividend stocks. The accurate statement of the assessment is not that there is something wrong with dividend investing but rather that there is nothing special gained by it. It is also concerning if an investment plan is based on missing an understanding of something. Some of the plans one will see are based on misunderstanding and some are just perfectly defensible personal preferences.
+ 1.

There is nothing special gained by a high dividend approach to investing. It just makes your investments more complicated.
Last edited by ruralavalon on Wed Sep 23, 2020 12:41 pm, edited 1 time in total.
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Re: High Dividend for diversification

Post by pkcrafter »

nisiprius wrote: Wed Sep 23, 2020 10:08 am According to the Boglehead ideas, which I personally believe in:

1) Since you can't pick stocks, period, you can't pick dividend stocks either. It's not as if it were difficult to identify the best stocks, but easy to identify the best of the dividend stocks. Therefore, there is no advantage in picking a portfolio of 10-15 dividend stocks, rather than a dividend-stock-oriented index fund like VHYAX. A portfolio of 10-15 dividend stocks is just adding some extra "manager risk."

2) Total return is total return. A dividend stock is just a stock which automatically leaks out some of its return automatically in the form of dividends, in a way which you do not control.

3) In order to get a long time period to look at, I looked at the Vanguard 500 index fund as an example of general stock fund, and the Vanguard Equity-Income Fund as an example of a dividend-oriented stock fund. From 1989 through 2019, they have had a 91% correlation. Dividend stocks would not have not provided much "diversification." They went up and down in a way that closely tracked the whole market.

Image

4) Many ideas about dividend stocks seem to me to come from 1970s-era thinking, when buying or selling stocks was expensive and mutual funds were not so mainstream. Because of the high cost of selling shares, it wasn't practical to say "I need $200/month so I will sell $200 worth of stock every month." The only practical way to get an income stream from stocks was to select dividend stocks. But this is no longer true. You can sell mutual funds in any dollar amount you like, and with the introduction of fractional shares you can even do this with individual stocks.

5) Dividend stocks have behaved a little differently from the market as a whole, just like many ways of selecting parts of the stock market. But enthusiasts wildly exaggerate both the amount and the importance of that difference. Much of the difference can be attributed to the "value factor," i.e. dividend stock investing is just an imprecise way of introducing a value tilt, and if you want a value tilt you are probably better off looking at factor investing and factor-based funds and ETFs.

6) Dividend enthusiasts say a lot of things that aren't really so. For example, it is very often claimed that dividend stocks "provide downside protection." Even when this is true, it is often feeble compared to something simple like having some of your portfolio in bond funds--and, surprisingly often, it is not true. For example, in 2008-2009 the Vanguard High-Dividend Yield ETF (blue) fell a little more than the Total Stock Market ETF:

Image

It's not as if dividend stocks were much worse than the rest. The point is that they were really about the same. Don't get the idea that ten or fifteen individual dividend stocks are somehow going to protect your portfolio against the next crash.
Book it, Danno.

One of your best --- +10

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.
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anaelmasri
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Re: High Dividend for diversification

Post by anaelmasri »

tibbitts wrote: Tue Sep 22, 2020 8:49 pm
anaelmasri wrote: Tue Sep 22, 2020 6:27 pm what is a good portfolio of dividend assets that one can start buying shares in at a young age and build it over the course of 30 years without having to sell or substitute with time? like a solid 10 to 15 stocks or etfs or whatever to hold on to and keep DCA and DRIP approach to so that when one hits retirement they can just live off those dividends? talking- LONG TERM in addition to VTI and VXUS and small BND for example (total stock market and total International ). would going with a VYM better than lets say a reputable long term dividend company a KO? I know the risk is higher with a singular stock.

would it be more effective for more income to hold high dividend individual stocks vs high dividend etfs long term? would love to know your experience.
You apparently don't realize how much any selection of 10 or 15 "solid" stocks is likely to change over a period of 30+ years. But you're also misguided regarding the value of a dividend strategy. You aren't even seeking a somewhat hybrid strategy like dividend growth; you're specifying pure high-dividend.
I think there is a lot of
Judgment in this response with no actual productive response to “correct” ones insight. Thank you
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Re: High Dividend for diversification

Post by anaelmasri »

000 wrote: Tue Sep 22, 2020 6:33 pm There is no evidence to suggest high dividend strategies have higher total return than the total market.

Consider this: if a business pays out a dividend, the business is now worth less (because they literally have less money) and the share price goes down by the amount of the dividend paid. To observe this, go look at some high dividend stocks and what usually happens on their ex-dividend dates. Of course other factors could move the share price too on the same day.

What matters is total return. Other than in rare situations, selling shares to get capital gains for income is not worse than receiving a dividend. Moreover, dividends create a taxable event. If one doesn't need the dividend income while accumulating, that may be a hassle (although not so bad as some claim).
Thanks for the response . I am not attempting to pick a single dividend stock over a VTI. I’m trying to add a JNJ for example to my portfolio and keep building and
Holding for value over time that can later produce dividends while during the time of hold I use the quarterly dividends to reinvest not cash out- that with VTI and VXUS adding another color to the pie. It’s funny cause a lot of my thread questions is based on seeing other people’s portfolio and trying to see others thoughts yet it is seen to be obscene
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Re: High Dividend for diversification

Post by 000 »

anaelmasri wrote: Thu Sep 24, 2020 2:53 am Thanks for the response . I am not attempting to pick a single dividend stock over a VTI. I’m trying to add a JNJ for example to my portfolio and keep building and
Holding for value over time that can later produce dividends while during the time of hold I use the quarterly dividends to reinvest not cash out- that with VTI and VXUS adding another color to the pie. It’s funny cause a lot of my thread questions is based on seeing other people’s portfolio and trying to see others thoughts yet it is seen to be obscene
Ok. Adding high dividend stocks isn't necessarily bad, just not necessarily necessary.

In addition to checking what happens to share prices on ex-dividend days, here is another assignment for you: do a sector comparison of VYM to VTI.

Good luck.
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Re: High Dividend for diversification

Post by KingRiggs »

Great news: by holding VTI, you already own JNJ! Problem solved! :sharebeer
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Re: High Dividend for diversification

Post by ChinchillaWhiplash »

OP, you might want to look at VYMI or other international dividend funds. I think there is some added safety when it comes to this asset class and dividend payers. Basically accounting standards are not as stringent in other countries, but if they are paying dividends, they are more likely to be financially stable (IMO). As for US dividend funds, they might start going up more since a lot of investors are searching for yield to offset the low bond payouts. I don’t think you will be wasting money adding a div fund to your portfolio.
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Re: High Dividend for diversification

Post by patrick013 »

000 wrote: Thu Sep 24, 2020 3:16 am
anaelmasri wrote: Thu Sep 24, 2020 2:53 am Thanks for the response . I am not attempting to pick a single dividend stock over a VTI. I’m trying to add a JNJ for example to my portfolio and keep building and
Holding for value over time that can later produce dividends while during the time of hold I use the quarterly dividends to reinvest not cash out- that with VTI and VXUS adding another color to the pie. It’s funny cause a lot of my thread questions is based on seeing other people’s portfolio and trying to see others thoughts yet it is seen to be obscene
Ok. Adding high dividend stocks isn't necessarily bad, just not necessarily necessary.

In addition to checking what happens to share prices on ex-dividend days, here is another assignment for you: do a sector comparison of VYM to VTI.

Good luck.
In the study I previously referenced the 50 index selections were
not cap weighted. I think indexes with 50-100 stocks and either
equal or %yield weighted are capable of beating VTI after tax.

The studies in the book display that. I would be surprised if VYM
beat VTI.
age in bonds, buy-and-hold, 10 year business cycle
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Re: High Dividend for diversification

Post by 000 »

patrick013 wrote: Thu Sep 24, 2020 8:39 am In the study I previously referenced the 50 index selections were
not cap weighted. I think indexes with 50-100 stocks and either
equal or %yield weighted are capable of beating VTI after tax.

The studies in the book display that. I would be surprised if VYM
beat VTI.
The OP can add those stocks and/or indices to the sector comparison. Hint: tilting towards high dividend also introduces a sector tilt.

As for your claim that an equal or div weighted portfolio of high dividend stocks can beat VTI:
1. Do you have an example that someone chose in the past that has done so since?
2. Are you considering that such a weighting may have higher risk?
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Re: High Dividend for diversification

Post by patrick013 »

000 wrote: Thu Sep 24, 2020 8:48 am
patrick013 wrote: Thu Sep 24, 2020 8:39 am In the study I previously referenced the 50 index selections were
not cap weighted. I think indexes with 50-100 stocks and either
equal or %yield weighted are capable of beating VTI after tax.

The studies in the book display that. I would be surprised if VYM
beat VTI.
The OP can add those stocks and/or indices to the sector comparison. Hint: tilting towards high dividend also introduces a sector tilt.

As for your claim that an equal or div weighted portfolio of high dividend stocks can beat VTI:
1. Do you have an example that someone chose in the past that has done so since?
2. Are you considering that such a weighting may have higher risk?
Well you have to read the book. PEY, SPHD, and SPYD are pretty
good indexes. Anything can lose 40% in a market crash. Their
history isn't 40 years, you have to read the book.

Low beta is expected and index replacement every year should
trim any lesser stocks. Yield is usually a sign of profitability
not excessive risk. Audit the research in the book if you like.

:)
age in bonds, buy-and-hold, 10 year business cycle
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Re: High Dividend for diversification

Post by tibbitts »

anaelmasri wrote: Thu Sep 24, 2020 2:48 am
tibbitts wrote: Tue Sep 22, 2020 8:49 pm You apparently don't realize how much any selection of 10 or 15 "solid" stocks is likely to change over a period of 30+ years. But you're also misguided regarding the value of a dividend strategy. You aren't even seeking a somewhat hybrid strategy like dividend growth; you're specifying pure high-dividend.
I think there is a lot of
Judgment in this response with no actual productive response to “correct” ones insight. Thank you
When you post on a forum like Bogleheads you're going to get "judgements" as in opinions, experiences, etc. So you are disputing that a selection of 10 or 15 "solid" dividend payers today might not be "solid" dividend payers (or even dividend payers at all) decades from now? I say that as a former owner of GE stock. You never would have considered GE for one of your "solid" dividend payers to hold for 30-plus years?
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Re: High Dividend for diversification

Post by arcticpineapplecorp. »

patrick013 wrote: Wed Sep 23, 2020 8:41 am
willthrill81 wrote: Tue Sep 22, 2020 8:38 pm
000 wrote: Tue Sep 22, 2020 6:33 pm
There is no evidence to suggest high dividend strategies have higher total return than the total market.


Correct. :thumbsup


viewtopic.php?p=4869335#p4869335

Oh yes there is. I always have a 10-20% tilt for a
dividend index especially when the economy recovers
a bit.
if there is "evidence that high dividend strategies have higher total return than the total market" then why are you only tilting 10%-20%?

why wouldn't you want 100% of your money in a strategy that has a "higher total return than the total market"???

I don't get it.
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
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Re: High Dividend for diversification

Post by dbr »

arcticpineapplecorp. wrote: Thu Sep 24, 2020 10:41 am
patrick013 wrote: Wed Sep 23, 2020 8:41 am
willthrill81 wrote: Tue Sep 22, 2020 8:38 pm
000 wrote: Tue Sep 22, 2020 6:33 pm
There is no evidence to suggest high dividend strategies have higher total return than the total market.


Correct. :thumbsup


viewtopic.php?p=4869335#p4869335

Oh yes there is. I always have a 10-20% tilt for a
dividend index especially when the economy recovers
a bit.
if there is "evidence that high dividend strategies have higher total return than the total market" then why are you only tilting 10%-20%?

why wouldn't you want 100% of your money in a strategy that has a "higher total return than the total market"???

I don't get it.
I don't get it either. But it is like the same issue as how much to tilt to small cap value if you believe in tilting to small cap value. Regarding the latter, by the way, Larry Swedroe made the to me sensible suggestion that one should be 100% SCV in stocks and adjust the volatility by what one holds in bonds. Maybe the same applies here. ---- Or ---- Not.
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patrick013
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Re: High Dividend for diversification

Post by patrick013 »

dbr wrote: Thu Sep 24, 2020 10:52 am
arcticpineapplecorp. wrote: Thu Sep 24, 2020 10:41 am
patrick013 wrote: Wed Sep 23, 2020 8:41 am
willthrill81 wrote: Tue Sep 22, 2020 8:38 pm
000 wrote: Tue Sep 22, 2020 6:33 pm
There is no evidence to suggest high dividend strategies have higher total return than the total market.


Correct. :thumbsup


viewtopic.php?p=4869335#p4869335

Oh yes there is. I always have a 10-20% tilt for a
dividend index especially when the economy recovers
a bit.
if there is "evidence that high dividend strategies have higher total return than the total market" then why are you only tilting 10%-20%?

why wouldn't you want 100% of your money in a strategy that has a "higher total return than the total market"???

I don't get it.
I don't get it either. But it is like the same issue as how much to tilt to small cap value if you believe in tilting to small cap value. Regarding the latter, by the way, Larry Swedroe made the to me sensible suggestion that one should be 100% SCV in stocks and adjust the volatility by what one holds in bonds. Maybe the same applies here. ---- Or ---- Not.
According to the study in "What Works on Wall Street" you actually could
be 100% ticker SPYD and expect a higher total return in the long term.
Historical info can go stale but that applies to VTI as well.

So reinvest the dividends and withdraw when retired. When growth is higher than
inflation dividends should be stable. Just have to wait and see.

$5.70 buys a copy at eBay of "What Works on Wall Street" BTW.

Anything like SCV or Intl should be a lesser AA if not productive in 8 or 10
years IMO. Same with dividends.
age in bonds, buy-and-hold, 10 year business cycle
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anaelmasri
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Re: High Dividend for diversification

Post by anaelmasri »

000 wrote: Thu Sep 24, 2020 8:48 am
patrick013 wrote: Thu Sep 24, 2020 8:39 am In the study I previously referenced the 50 index selections were
not cap weighted. I think indexes with 50-100 stocks and either
equal or %yield weighted are capable of beating VTI after tax.

The studies in the book display that. I would be surprised if VYM
beat VTI.
The OP can add those stocks and/or indices to the sector comparison. Hint: tilting towards high dividend also introduces a sector tilt.

As for your claim that an equal or div weighted portfolio of high dividend stocks can beat VTI:
1. Do you have an example that someone chose in the past that has done so since?
2. Are you considering that such a weighting may have higher risk?
1- yes in forums and YouTube channels I have seen such , just as those who might have vti grab a bit of voo (which isn’t the general concencus)
2- yes and no- because my top holdings in etf are tech or communications. Dividend stocks thinking food or health related
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anaelmasri
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Re: High Dividend for diversification

Post by anaelmasri »

tibbitts wrote: Thu Sep 24, 2020 10:34 am
anaelmasri wrote: Thu Sep 24, 2020 2:48 am
tibbitts wrote: Tue Sep 22, 2020 8:49 pm You apparently don't realize how much any selection of 10 or 15 "solid" stocks is likely to change over a period of 30+ years. But you're also misguided regarding the value of a dividend strategy. You aren't even seeking a somewhat hybrid strategy like dividend growth; you're specifying pure high-dividend.
I think there is a lot of
Judgment in this response with no actual productive response to “correct” ones insight. Thank you
When you post on a forum like Bogleheads you're going to get "judgements" as in opinions, experiences, etc. So you are disputing that a selection of 10 or 15 "solid" dividend payers today might not be "solid" dividend payers (or even dividend payers at all) decades from now? I say that as a former owner of GE stock. You never would have considered GE for one of your "solid" dividend payers to hold for 30-plus years?
It doesn’t need to be that way- we are all at various experience levels and I want to learn. People will be more sesebtible to listen and indeed understand when people aren’t condescending to their lack of experience

My strategy moving forward is to buy only quality companies usually of the dividend aristocrat types and plan on buying and holding forever. Then I can start using the dividends later on to supplement my retirement. While there are no guarantees that any company may cut or suspend dividends, it’s quite rare in the Aristocrats.
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anaelmasri
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Re: High Dividend for diversification

Post by anaelmasri »

arcticpineapplecorp. wrote: Thu Sep 24, 2020 10:41 am
patrick013 wrote: Wed Sep 23, 2020 8:41 am
willthrill81 wrote: Tue Sep 22, 2020 8:38 pm
000 wrote: Tue Sep 22, 2020 6:33 pm
There is no evidence to suggest high dividend strategies have higher total return than the total market.


Correct. :thumbsup


viewtopic.php?p=4869335#p4869335

Oh yes there is. I always have a 10-20% tilt for a
dividend index especially when the economy recovers
a bit.
if there is "evidence that high dividend strategies have higher total return than the total market" then why are you only tilting 10%-20%?

why wouldn't you want 100% of your money in a strategy that has a "higher total return than the total market"???

I don't get it.
I am not favoring one of the other- I am trying to hold some stocks with my etf broadband variations- what’s not to get ? I never claimed this will be better than having total market I am saying that people also invest in individual stocks and they don’t have to be the type of sector stocks heavily weighted in the total market holdings
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Re: High Dividend for diversification

Post by Jack FFR1846 »

CyclingDuo wrote: Wed Sep 23, 2020 9:54 am
There are many folks here on Bogleheads and in other message forums that are in the "sweet spot" of household income and household expenses that can use the tax code to mitigate their taxable income and pay $0 on qualified dividend income in a taxable account. Pre-tax deductions into retirement accounts and the standard deduction being the most commonly used methods to lower one's taxable income so that qualified dividends (or long term capital gains) in a taxable account receive the favorable tax treatment of $0.
Thanks for pointing that out. I was too focused on my own present situation where any added dividends is taxed both federal and state where my "hold" shares of BRK/b pay none, so I pay nothing now. But indeed, for those who can get into the 0% bracket for LTCG and qualified dividends, dividend paying stocks or funds may be used to take some income without paying tax on it.
Bogle: Smart Beta is stupid
tibbitts
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Re: High Dividend for diversification

Post by tibbitts »

anaelmasri wrote: Thu Sep 24, 2020 12:50 pm My strategy moving forward is to buy only quality companies usually of the dividend aristocrat types and plan on buying and holding forever. Then I can start using the dividends later on to supplement my retirement. While there are no guarantees that any company may cut or suspend dividends, it’s quite rare in the Aristocrats.
Based on the turnover rate of the Dividend Aristocrats, how many of the 10-15 stocks do you think you'll be able to hold for 30 years? Or are you going to hold even if a stock gets booted from the Aristocrats?
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