The Case for Dividend Stocks in Retirement (article)

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RAchip
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Re: The Case for Dividend Stocks in Retirement (article)

Postby RAchip » Fri May 19, 2017 8:41 pm

"I would not buy High Dividend at this time."

Take a look at the top 10 holdings of vhdyx. MSFT, XOM, JNJ, etc etc etc. 10 of the best companies in the world. This is by no means some risky "high dividend" fund as the name implies.

TropikThunder
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Re: The Case for Dividend Stocks in Retirement (article)

Postby TropikThunder » Fri May 19, 2017 8:48 pm

snarlyjack wrote:My choice is Vanguard High Dividend Yield fund (VHDYX). It pay's
approx. 3% dividends & compares very closely to the TSM &
S & P 500.

Thought exercise: if the yield is the end-all, which fund would you recommend to someone and why:
Vanguard High Dividend Yield (VHDYX), SEC yield 3.05%
Vanguard Intermediate-Term Corporate Bond Index (VICSX), SEC yield 3.23%

gilgamesh
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Re: The Case for Dividend Stocks in Retirement (article)

Postby gilgamesh » Fri May 19, 2017 9:07 pm

willthrill81 wrote:
RAchip wrote:I'm losing track of what the real issue is as raised in this thread. About 420 of the companies in the S&P 500 pay dividends. So you are going to get paid dividends if you are a boglehead. That is just a fact of life. If you can buy an S&P fund and live off of the dividends that seems great to me. But is the question whether its better to automatically reinvest the dividends and then sell shares of your fund when you need money?


The problem is that people think dividends are 'free money', when nothing but could be further from the truth. If the company releases cash to stockholders, the company is now worth less money (the value of the dividend). If they retain the cash, they retain their value. Investors can sell a bit of stock to generate the cash they want when they want it, not when the company decides to issue a dividend.


Not just free money, they think they have special powers in perpetually giving out their desired income without ever touching the principal. Very smart people who understand very complex parts of investing still believe dividends are free money and will continue to give them the same income without ever touching their principal. This belief is almost universal...in fact many reputable websites repeat this fallacy. There has to be an advantage for us who know better to capitalize...I don't know how.

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nedsaid
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Re: The Case for Dividend Stocks in Retirement (article)

Postby nedsaid » Fri May 19, 2017 9:16 pm

RAchip wrote:"I would not buy High Dividend at this time."

Take a look at the top 10 holdings of vhdyx. MSFT, XOM, JNJ, etc etc etc. 10 of the best companies in the world. This is by no means some risky "high dividend" fund as the name implies.


The Vanguard High Dividend Fund is not going to collapse. My concern is that with all of the yield chasing that these type of stocks will underperform the market particularly if interest rates continue to rise. If everyone and his brother have been chasing dividends for nearly nine years now, the answer isn't to chase them even harder. Fortunately, Vanguard is aware of all of this and they aren't going wild over this.

If you look at the Vanguard Total Stock Market Index, you will see all the same stocks represented. What you won't have is a tilt towards dividends, which High Dividend has.
A fool and his money are good for business.

gilgamesh
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Re: The Case for Dividend Stocks in Retirement (article)

Postby gilgamesh » Fri May 19, 2017 9:36 pm

William Bernstein wrote this...

'If you counted on your stock holdings to see you through retirement, you’re likely to be seriously disappointed. Yet, there is a small part of the equity portfolio that can be considered in the funding of retirement: the “safe dividend flow” from stock holdings. Although the value of stocks can fluctuate wildly, their stream of income is much more stable. At no point in the history of the U.S.stock market has its real dividend stream fallen by more than half, even during the Great Depression. During the most recent financial crisis, for example, although stock prices fell by more than 50%, dividends also dropped, but by only 23% from their peak, and only temporarily."

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nedsaid
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Re: The Case for Dividend Stocks in Retirement (article)

Postby nedsaid » Fri May 19, 2017 9:39 pm

gilgamesh wrote:William Bernstein wrote this...

'If you counted on your stock holdings to see you through retirement, you’re likely to be seriously disappointed. Yet, there is a small part of the equity portfolio that can be considered in the funding of retirement: the “safe dividend flow” from stock holdings. Although the value of stocks can fluctuate wildly, their stream of income is much more stable. At no point in the history of the U.S.stock market has its real dividend stream fallen by more than half, even during the Great Depression. During the most recent financial crisis, for example, although stock prices fell by more than 50%, dividends also dropped, but by only 23% from their peak, and only temporarily."


Great comments. Thank you Gilgamesh and thank you Dr. Bernstein.
A fool and his money are good for business.

gilgamesh
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Re: The Case for Dividend Stocks in Retirement (article)

Postby gilgamesh » Fri May 19, 2017 9:46 pm

nedsaid wrote:
gilgamesh wrote:William Bernstein wrote this...

'If you counted on your stock holdings to see you through retirement, you’re likely to be seriously disappointed. Yet, there is a small part of the equity portfolio that can be considered in the funding of retirement: the “safe dividend flow” from stock holdings. Although the value of stocks can fluctuate wildly, their stream of income is much more stable. At no point in the history of the U.S.stock market has its real dividend stream fallen by more than half, even during the Great Depression. During the most recent financial crisis, for example, although stock prices fell by more than 50%, dividends also dropped, but by only 23% from their peak, and only temporarily."


Great comments. Thank you Gilgamesh and thank you Dr. Bernstein.


What if this fallacy is so pervasive even Dr. Bernstein is afflicted? :shock:

Longtermgrowth
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Re: The Case for Dividend Stocks in Retirement (article)

Postby Longtermgrowth » Fri May 19, 2017 9:47 pm

TropikThunder wrote:
snarlyjack wrote:My choice is Vanguard High Dividend Yield fund (VHDYX). It pay's
approx. 3% dividends & compares very closely to the TSM &
S & P 500.

Thought exercise: if the yield is the end-all, which fund would you recommend to someone and why:
Vanguard High Dividend Yield (VHDYX), SEC yield 3.05%
Vanguard Intermediate-Term Corporate Bond Index (VICSX), SEC yield 3.23%


snarlyjack, didn't you decide on switching over to Vanguard Total Stock Market Index last year after posting in a thread where Larry Swedroe was talking about focusing on total return? I seem to remember some of your posts indicating that. By the way, good to see ya around again.

TripikThunder, I think the idea and hope is that the net asset value of VHDYX (if dividends not reinvested), along with it's dividend payments, will keep up with and maybe outpace inflation (while having possible significant cuts in dividend payments in a recession).

The corporate bonds are safer, but good luck with inflation if 100% corporate bonds at snarlyjack's age. If he really loves dividend stocks, it wouldn't be the end of the world to have a few funds like Total Stock Market and VHDYX. I hold Total Stock Market, but it's not my largest US holding.

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nedsaid
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Re: The Case for Dividend Stocks in Retirement (article)

Postby nedsaid » Fri May 19, 2017 9:48 pm

Well if Dr. Bernstein is fooled by the dividend fantasy and so am I, then I am in pretty good company. He is one of the better minds in the investment business. I would rather argue with John Bogle than with Bill Bernstein.
A fool and his money are good for business.

gilgamesh
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Re: The Case for Dividend Stocks in Retirement (article)

Postby gilgamesh » Fri May 19, 2017 9:50 pm

nedsaid wrote:Well if Dr. Bernstein is fooled by the dividend fantasy and so am I, then I am in pretty good company. He is one of the better minds in the investment business. I would rather argue with John Bogle than with Bill Bernstein.


It's not Bogle, but kind of close

"As a result, Vanguard believes that it would be more advantageous for an investor to spend from both the income and principal of the portfolio than to move toward a higher bond allocation, tilt toward high-yield bonds, or tilt toward higher-dividend-paying stocks."

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nedsaid
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Re: The Case for Dividend Stocks in Retirement (article)

Postby nedsaid » Fri May 19, 2017 9:53 pm

gilgamesh wrote:
nedsaid wrote:Well if Dr. Bernstein is fooled by the dividend fantasy and so am I, then I am in pretty good company. He is one of the better minds in the investment business. I would rather argue with John Bogle than with Bill Bernstein.


It's not Bogle, but kind of close

"As a result, Vanguard believes that it would be more advantageous for an investor to spend from both the income and principal of the portfolio than to move toward a higher bond allocation, tilt toward high-yield bonds, or tilt toward higher-dividend-paying stocks."


Bogle does discuss stretching for yield a bit on both the stock and the bond side of the portfolio. It is interesting that Bogle believes that income from investments is important. Never could convince Larry Swedroe of that.
A fool and his money are good for business.

gilgamesh
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Re: The Case for Dividend Stocks in Retirement (article)

Postby gilgamesh » Fri May 19, 2017 9:56 pm

My retirement income strategy closely follows Dr. Bernstein's LMP, except dividends don't play a role on building the floor. Mine came from Michael Zwecher's book.

snarlyjack
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Re: The Case for Dividend Stocks in Retirement (article)

Postby snarlyjack » Fri May 19, 2017 10:09 pm

Longtermgrowth:

Thank you!

This forum is pretty special & it's hard to stay away from.
Yes, I was invested in VHDYX then Larry Swedroe convinced me
into switching into TSM. Then after sleeping on it for awhile I
switched back into VHDYX. I like both funds! But for my purposes
I think VHDYX is a better fit for me.

Once again...thank you for your kindness!

TropikThunder
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Re: The Case for Dividend Stocks in Retirement (article)

Postby TropikThunder » Sat May 20, 2017 12:32 am

Longtermgrowth wrote:
TropikThunder wrote:
snarlyjack wrote:My choice is Vanguard High Dividend Yield fund (VHDYX). It pay's
approx. 3% dividends & compares very closely to the TSM &
S & P 500.

Thought exercise: if the yield is the end-all, which fund would you recommend to someone and why:
Vanguard High Dividend Yield (VHDYX), SEC yield 3.05%
Vanguard Intermediate-Term Corporate Bond Index (VICSX), SEC yield 3.23%


TropikThunder, I think the idea and hope is that the net asset value of VHDYX (if dividends not reinvested), along with it's dividend payments, will keep up with and maybe outpace inflation (while having possible significant cuts in dividend payments in a recession).

The corporate bonds are safer, but good luck with inflation if 100% corporate bonds at snarlyjack's age. If he really loves dividend stocks, it wouldn't be the end of the world to have a few funds like Total Stock Market and VHDYX. I hold Total Stock Market, but it's not my largest US holding.

Oh I totally agree. I was just making a mild reductio ad absurdum argument against over-emphasizing dividends vs total return.

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Re: The Case for Dividend Stocks in Retirement (article)

Postby Bfwolf » Sat May 20, 2017 1:29 am

snarlyjack wrote:Keep in mind that I'm a young guy (23 years old).
My Mom died (my parents divorced years ago) & I
inherited quite a bit of money through life insurance.

That said...

In my mind what a young person like me wants to build is
a pyramid. Wide & high. I can do that with a good dividend paying
fund. My choice is Vanguard High Dividend Yield fund (VHDYX). It pay's
approx. 3% dividends & compares very closely to the TSM &
S & P 500. The 420 stocks are huge dividend paying companies.
You guys would call it a value play (tilt to dividends & value).

Why you might ask...Before my Mom died I promised her I would
never touch the principal but I could spend the dividends if needed.
Age 100 - age 23 = 77 years... I could sit on this thing & let it
compound out for 77 more years. (it's already been invested for
over 1 year).

If you look at the "Janitor Next Door" he had 8 million dollars.
8 million x 3% dividend = $240,000. per year in dividends without
ever touching the principal. I can live a nice life on that.
But what about taxes? I don't care...I'll pay my fair share &
get on with life. I think I can be like the "Janitor Next Door"...

That why I prefer this particular strategy, for me it all makes
sense in my mind. 100% in VHDYX with some cd's...

Thank you everyone...I enjoyed giving you my reasons.
Please be easy on me :)


As pointed out by TropikThunder, all you've decided implicitly with your mutual fund selection is that a 3% withdrawal rate is OK. Whether you do it the way you are doing it or by just owning Vanguard Total Stock Market Index with a 2% dividend yield and then withdrawing an additional 1% by selling shares, you'll end up in the same place as long as the total returns are the same. Except that with the dividend fund you've chosen to have a value tilt (do you really want one?) and are not quite as diversified compared to the Total Stock Market index fund, which will have a modest bearing on your total returns.

Don't fall for the magic of dividends. I'm sure your Mom was a lovely lady, but the "don't touch the principal" advice is silly if it just leads you to purchase a high dividend mutual fund.

SGM
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Re: The Case for Dividend Stocks in Retirement (article)

Postby SGM » Sun May 21, 2017 4:19 pm

For those who don't reach for yield, taking out only dividends can prevent people who may have some difficulty controlling their spending in retirement from running out of money. This is not the most rational way of investing as, taxes aside, there is no difference between your assets going up $1000 in value vs. receiving a dividend of $1000. However it may help many to not overspend. There is no magic in dividends.

Some may end up not spending their last dime before going to the grave, but it may not be their goal. I have run into more people with children who would like to leave a legacy than those who don't care about a legacy.

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nedsaid
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Re: The Case for Dividend Stocks in Retirement (article)

Postby nedsaid » Sun May 21, 2017 9:23 pm

SGM wrote:For those who don't reach for yield, taking out only dividends can prevent people who may have some difficulty controlling their spending in retirement from running out of money. This is not the most rational way of investing as, taxes aside, there is no difference between your assets going up $1000 in value vs. receiving a dividend of $1000. However it may help many to not overspend. There is no magic in dividends.

Some may end up not spending their last dime before going to the grave, but it may not be their goal. I have run into more people with children who would like to leave a legacy than those who don't care about a legacy.


Regardless of what Larry Swedroe and others have said about dividends, I am still concerned about income generated by my retirement accounts. If I could, I would live off of Social Security, Pensions, and the income generated by my investments. Problem is, my yield is probably a bit over 2% from my retirement accounts and that just won't be enough. I am probably going to need to harvest capital gains as well as my portfolio will likely not be large enough for a 2% withdrawal rate. My best guess is that I will need a 3.5% to 4.0% withdrawal rate from my portfolio in retirement. It also will depend upon how much, if any, of my portfolio that I would annuitize in retirement. It also depends upon when I get to, or have to, retire.

Pretty much, for many of us, portfolio size will require us to use a Total Return approach as opposed to living off of interest and dividends approach. Many of us will not have portfolios large enough for a relatively low withdrawal rate. Very low interest rates also complicate withdrawal strategies. The lower the interest rates, the more we will have to rely upon capital gains.

So I am dragged kicking and screaming into a Total Return approach whether I like it or not. So my preference for dividends is pretty much an academic discussion for me now.
A fool and his money are good for business.

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nedsaid
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Re: The Case for Dividend Stocks in Retirement (article)

Postby nedsaid » Sun May 21, 2017 9:45 pm

I feel a bit more free to express my preference for dividends as Larry Swedroe no longer posts here. It is sort of like when the cat is away, the mice will play!
A fool and his money are good for business.

snarlyjack
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Re: The Case for Dividend Stocks in Retirement (article)

Postby snarlyjack » Sun May 21, 2017 9:56 pm

Nedsaid,

You have helped me in the past...let's see if I can help you.

The world is yours!

I don't know where you live or your retirement cost's.
However, I live in Western Montana between Glacier National Park
& Yellowstone National Park. What I do know is you can get some
pretty nice houses here for a fraction of the cost in a major
metropolitan area. And it's totality beautiful here!

The crime rate is very low, the quality of life, imho is much better.
Lot's to offer & very few drawbacks. I think a person can move to a
low cost of living area in the USA & have a great life pretty inexpensively.

Just a thought for you...thanks for all your help! It's been much appreciated!

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nedsaid
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Re: The Case for Dividend Stocks in Retirement (article)

Postby nedsaid » Sun May 21, 2017 10:23 pm

snarlyjack wrote:Nedsaid,

You have helped me in the past...let's see if I can help you.

The world is yours!

I don't know where you live or your retirement cost's.
However, I live in Western Montana between Glacier National Park
& Yellowstone National Park. What I do know is you can get some
pretty nice houses here for a fraction of the cost in a major
metropolitan area. And it's totality beautiful here!

The crime rate is very low, the quality of life, imho is much better.
Lot's to offer & very few drawbacks. I think a person can move to a
low cost of living area in the USA & have a great life pretty inexpensively.

Just a thought for you...thanks for all your help! It's been much appreciated!


This reminded me of a Sunday school class that I attended a couple of months ago. A long term missionary indicated that a couple of Jesus' disciples were actually fairly prosperous fisherman based upon archaeological evidence in the ruins of Capernaum. It also seems that Jesus' ministry was based there. The missionary further explained that taxes were lower in Capernaum than on the other side of the Lake of Galilee and thus had a more favorable business climate. It is likely that those disciples moved their businesses there because of the lower taxes. I wanted to blurt out that Jesus moved his ministry across the river from Portland to Vancouver but I held my tongue. (If you live in my area, you will appreciate my comment).

No wonder why Republicans and Sinners were so despised in that ancient culture. Were it not for a tax cut, history, indeed Biblical history could have been much different! :wink: We might never have heard of Peter.
A fool and his money are good for business.

Longtermgrowth
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Re: The Case for Dividend Stocks in Retirement (article)

Postby Longtermgrowth » Sun May 21, 2017 11:33 pm

snarlyjack wrote:Longtermgrowth:

Thank you!

This forum is pretty special & it's hard to stay away from.
Yes, I was invested in VHDYX then Larry Swedroe convinced me
into switching into TSM. Then after sleeping on it for awhile I
switched back into VHDYX. I like both funds! But for my purposes
I think VHDYX is a better fit for me.

Once again...thank you for your kindness!


Hope you managed to switch in a way that didn't incur too much of a tax hit. I really like that fund too, but also went with TSM (among others) viewing it as giving the overall portfolio more possible growth. Went with some small value funds after reading a lot of Larry Swedroe's posts, including some international funds. I'm in a bit of an odd situation in that the blended yield of my portfolio meets expenses, with the fixed income (which I have way too high percentage of) covering a lot of expenses. Lost one parent at a very early age, and the other just recently. We all know our parents have our backs no matter what, but once they're gone we're on our own and it can be scary at an early age. My condolences on the loss of your Mom and wishing you all the best.

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Re: The Case for Dividend Stocks in Retirement (article)

Postby TJSI » Mon May 22, 2017 12:04 am

Nedsaid,

I would not worry about what the reclusive "cat" might say. Mr. Bogle would back you up. Much to the annoyance of the anti-dividend crowd he has spoken about the need to focus on secure income in retirement and the desirability of dividends over capital gains. SS, pensions, interest, and dividends are a great plan for secure income in retirement.

TJSI

snarlyjack
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Re: The Case for Dividend Stocks in Retirement (article)

Postby snarlyjack » Mon May 22, 2017 6:39 am

Longtermgrowth,

I think you hit the "nail on the head".

With both parents gone (it's sad). I know in a emergency
that I can use a credit card & be able to pay it off on
the next dividend payment. Not that I'm planning on
that happening but in life you never know. I know I'm
on my own & having a back up plan is always good.
(I have a back up plan for the back up plan) how crazy
is that...

sj

SGM
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Re: The Case for Dividend Stocks in Retirement (article)

Postby SGM » Mon May 22, 2017 7:35 am

Nedsaid,

Are you thinking about SPIAs after age 70 or 75 or maybe a ladder of them? 5.5 or 6.5% payout may lower the pressure on the rest of your portfolio.

As an aside:
I am going to purchase the following which explores rational vs. "normal" investor's behavior. From reviewing a few chapter segments it appears to argue for not doing the absolute "rational" maneuvers.

Finance for Normal People: How Investors and Markets Behave by Meir Statman

Stryker
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Re: The Case for Dividend Stocks in Retirement (article)

Postby Stryker » Mon May 22, 2017 8:02 am

A generation that grows up drinking only frozen orange juice will forget that any other form of OJ exists; a generation that grows up thinking dividends and yields don't matter are like those OJ drinkers.

Peter L. Bernstein 2005

Dividends and the Frozen Orange Juice Syndrome

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Re: The Case for Dividend Stocks in Retirement (article)

Postby willthrill81 » Mon May 22, 2017 10:24 am

Stryker wrote:A generation that grows up drinking only frozen orange juice will forget that any other form of OJ exists; a generation that grows up thinking dividends and yields don't matter are like those OJ drinkers.

Peter L. Bernstein 2005

Dividends and the Frozen Orange Juice Syndrome


Of course dividends and yields matter. They matter just as much as capital gains do. At the end of the day, they're all square (except from a tax perspective; dividends are not necessarily great then).
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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nedsaid
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Re: The Case for Dividend Stocks in Retirement (article)

Postby nedsaid » Mon May 22, 2017 11:22 am

TJSI wrote:Nedsaid,

I would not worry about what the reclusive "cat" might say. Mr. Bogle would back you up. Much to the annoyance of the anti-dividend crowd he has spoken about the need to focus on secure income in retirement and the desirability of dividends over capital gains. SS, pensions, interest, and dividends are a great plan for secure income in retirement.

TJSI


Thanks for your comments. Yes, I kept bringing up Bogle and his comments about income in retirement. If dividends are so irrelevant, why does Bogle keep talking about them? I also have a hard time believing that Jeremy Siegel is an idiot.
A fool and his money are good for business.

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Re: The Case for Dividend Stocks in Retirement (article)

Postby nedsaid » Mon May 22, 2017 11:26 am

SGM wrote:Nedsaid,

Are you thinking about SPIAs after age 70 or 75 or maybe a ladder of them? 5.5 or 6.5% payout may lower the pressure on the rest of your portfolio.

As an aside:
I am going to purchase the following which explores rational vs. "normal" investor's behavior. From reviewing a few chapter segments it appears to argue for not doing the absolute "rational" maneuvers.

Finance for Normal People: How Investors and Markets Behave by Meir Statman


Absolutely, I think SPIAs (Single Premium Immediate Annuities) should be considered by retirees and yes, SPIAs can take pressure off the remaining portfolio. The research says that annuitizing a portion of your portfolio reduces the risk of exhausting the portfolio in retirement. I think of them as a tool in the toolbox. Not sure if I will do this myself in retirement but I am thinking hard about it.
A fool and his money are good for business.

Stryker
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Re: The Case for Dividend Stocks in Retirement (article)

Postby Stryker » Mon May 22, 2017 1:07 pm

We're doing close to 50/50 in retirement. Half in a Global portfolio of index funds/ETF's and the other half in individual dividend growth stocks. We're lucky in that we can live off our pensions with a little extra at the end of the year. The dividends received get re-invested into more dividend stocks, while we in turn also re-invest into the indexes and just let compounding take care of itself.

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Re: The Case for Dividend Stocks in Retirement (article)

Postby TropikThunder » Mon May 22, 2017 7:15 pm

Stryker wrote:We're doing close to 50/50 in retirement. Half in a Global portfolio of index funds/ETF's and the other half in individual dividend growth stocks. We're lucky in that we can live off our pensions with a little extra at the end of the year. The dividends received get re-invested into more dividend stocks, while we in turn also re-invest into the indexes and just let compounding take care of itself.

So in other words, you invest in a set of dividend stocks .... in order to get their Total Return. I thought the Holy Grail of dividends was that you could spend them without touching the principal. Why focus half your portfolio on dividend growth if you're just going to reinvest them? Hopefully they're in tax-advantaged accounts at least.

snarlyjack
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Re: The Case for Dividend Stocks in Retirement (article)

Postby snarlyjack » Mon May 22, 2017 9:46 pm

Here is a interesting article.

"Jack Bogle view on dividend investing"

Enjoy...

http://budgeting.thenest.com/john-bogle ... 31862.html

SGM
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Re: The Case for Dividend Stocks in Retirement (article)

Postby SGM » Tue May 23, 2017 2:30 am

nedsaid wrote:
SGM wrote:Nedsaid,

Are you thinking about SPIAs after age 70 or 75 or maybe a ladder of them? 5.5 or 6.5% payout may lower the pressure on the rest of your portfolio.

As an aside:
I am going to purchase the following which explores rational vs. "normal" investor's behavior. From reviewing a few chapter segments it appears to argue for not doing the absolute "rational" maneuvers.

Finance for Normal People: How Investors and Markets Behave by Meir Statman


Absolutely, I think SPIAs (Single Premium Immediate Annuities) should be considered by retirees and yes, SPIAs can take pressure off the remaining portfolio. The research says that annuitizing a portion of your portfolio reduces the risk of exhausting the portfolio in retirement. I think of them as a tool in the toolbox. Not sure if I will do this myself in retirement but I am thinking hard about it.


Mike Piper has an interesting blog this week on how having guaranteed income increases spending from a portfolio. He reviews a more technical article from a Morningstar contributor. Guaranteed income includes SS, pension and annuities. Most who have insufficient guaranteed income tend to feel less safe about their portfolios and take out on average 2% from their portfolios. This argues for more SPIAs. I always check in on Mike's website at least on Mondays. Sorry if I am repeating some things you already know. Writing in these threads helps me clarify my own thinking. I have learned a lot here from you and others. Thanks.

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Re: The Case for Dividend Stocks in Retirement (article)

Postby Stryker » Tue May 23, 2017 4:47 am

TropikThunder wrote:
Stryker wrote:We're doing close to 50/50 in retirement. Half in a Global portfolio of index funds/ETF's and the other half in individual dividend growth stocks. We're lucky in that we can live off our pensions with a little extra at the end of the year. The dividends received get re-invested into more dividend stocks, while we in turn also re-invest into the indexes and just let compounding take care of itself.

So in other words, you invest in a set of dividend stocks .... in order to get their Total Return. I thought the Holy Grail of dividends was that you could spend them without touching the principal. Why focus half your portfolio on dividend growth if you're just going to reinvest them? Hopefully they're in tax-advantaged accounts at least.


I don't know what the Holy Grail is you're on about, but we have enough that we don't have to either sell equities or spend the dividends yet in retirement. Both of us came from lower middle class families, but we are able to live within our means, and have spent a lifetime not being big spenders. For at least a quarter of a century I did without a car and just used public transit. Now we just have a small econo-car. My wife and I bought our present small house seventeen year ago when we were around 50 years of age. Most of the money we had was sunk into the house. Paid off the small mortgage in two and a half years.

As for the taxes, it's more tax advantageous for us to invest our Canadian dividend growth stocks in a non-registered account. I didn't have a great paying job and neither did my wife but we saved what we could. I've been investing in the stock market since the early 80's so I'm not exactly a newbie to this. How we invest now works just fine for us, and I wouldn't have it any other way.
Last edited by Stryker on Tue May 23, 2017 6:59 am, edited 1 time in total.

snarlyjack
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Re: The Case for Dividend Stocks in Retirement (article)

Postby snarlyjack » Tue May 23, 2017 6:00 am

Jack Bogle on,

"The Importance Of Investment Income"
Another good article by Jack Bogle.

Enjoy.

http://www.etf.com/publications/journal ... ncome.html

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nedsaid
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Re: The Case for Dividend Stocks in Retirement (article)

Postby nedsaid » Tue May 23, 2017 9:48 am

SGM wrote:
Mike Piper has an interesting blog this week on how having guaranteed income increases spending from a portfolio. He reviews a more technical article from a Morningstar contributor. Guaranteed income includes SS, pension and annuities. Most who have insufficient guaranteed income tend to feel less safe about their portfolios and take out on average 2% from their portfolios. This argues for more SPIAs. I always check in on Mike's website at least on Mondays. Sorry if I am repeating some things you already know. Writing in these threads helps me clarify my own thinking. I have learned a lot here from you and others. Thanks.


Don't be afraid to "think aloud" here. I do it all the time. I will also float ideas even if my reasoning behind them is not fully developed. So I have had a similar experience to yours here at Bogleheads.

Not aware of Mike Piper's blog and he has a good point. It makes sense that if your needs are met by guaranteed income that you would feel more comfortable withdrawing from your portfolio for wants. I think portfolio size is a factor in deciding whether or not to annuitize in the first place and also a factor in deciding how much to annuitize. If a sustainable withdrawal rate of 3-4% from a portfolio is not enough to meet a retiree's needs, it would make sense to stretch that withdrawal rate by using annuities which can get you to 5-7%. For example, someone with a smaller portfolio and less income from Social Security and pensions than needed to meet basic expenses might just annuitize their entire portfolio. It seems from my reading that if you picked an annuity with inflation protection, you get to about a 4% rate anyway.
A fool and his money are good for business.

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jazman12
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Re: The Case for Dividend Stocks in Retirement (article)

Postby jazman12 » Tue May 23, 2017 11:06 am

:wink:
snarlyjack wrote:Here is what my favorite investor did.

http://www.cnbc.com/2015/02/09/heres-ho ... rtune.html

live below your means!!

gilgamesh
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Re: The Case for Dividend Stocks in Retirement (article)

Postby gilgamesh » Tue May 23, 2017 1:52 pm

SGM wrote:
nedsaid wrote:
SGM wrote:Nedsaid,

Are you thinking about SPIAs after age 70 or 75 or maybe a ladder of them? 5.5 or 6.5% payout may lower the pressure on the rest of your portfolio.

As an aside:
I am going to purchase the following which explores rational vs. "normal" investor's behavior. From reviewing a few chapter segments it appears to argue for not doing the absolute "rational" maneuvers.

Finance for Normal People: How Investors and Markets Behave by Meir Statman


Absolutely, I think SPIAs (Single Premium Immediate Annuities) should be considered by retirees and yes, SPIAs can take pressure off the remaining portfolio. The research says that annuitizing a portion of your portfolio reduces the risk of exhausting the portfolio in retirement. I think of them as a tool in the toolbox. Not sure if I will do this myself in retirement but I am thinking hard about it.


Mike Piper has an interesting blog this week on how having guaranteed income increases spending from a portfolio. He reviews a more technical article from a Morningstar contributor. Guaranteed income includes SS, pension and annuities. Most who have insufficient guaranteed income tend to feel less safe about their portfolios and take out on average 2% from their portfolios. This argues for more SPIAs. I always check in on Mike's website at least on Mondays. Sorry if I am repeating some things you already know. Writing in these threads helps me clarify my own thinking. I have learned a lot here from you and others. Thanks.


TIPS ladder with SPIA is probably better. I agree completely on its effect though...just put yourself through a market crash in retirement , will you be more comfortable if your future income is guaranteed? I would.

Bfwolf
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Re: The Case for Dividend Stocks in Retirement (article)

Postby Bfwolf » Wed May 24, 2017 7:56 pm

Stryker wrote:
TropikThunder wrote:
Stryker wrote:We're doing close to 50/50 in retirement. Half in a Global portfolio of index funds/ETF's and the other half in individual dividend growth stocks. We're lucky in that we can live off our pensions with a little extra at the end of the year. The dividends received get re-invested into more dividend stocks, while we in turn also re-invest into the indexes and just let compounding take care of itself.

So in other words, you invest in a set of dividend stocks .... in order to get their Total Return. I thought the Holy Grail of dividends was that you could spend them without touching the principal. Why focus half your portfolio on dividend growth if you're just going to reinvest them? Hopefully they're in tax-advantaged accounts at least.


I don't know what the Holy Grail is you're on about, but we have enough that we don't have to either sell equities or spend the dividends yet in retirement. Both of us came from lower middle class families, but we are able to live within our means, and have spent a lifetime not being big spenders. For at least a quarter of a century I did without a car and just used public transit. Now we just have a small econo-car. My wife and I bought our present small house seventeen year ago when we were around 50 years of age. Most of the money we had was sunk into the house. Paid off the small mortgage in two and a half years.

As for the taxes, it's more tax advantageous for us to invest our Canadian dividend growth stocks in a non-registered account. I didn't have a great paying job and neither did my wife but we saved what we could. I've been investing in the stock market since the early 80's so I'm not exactly a newbie to this. How we invest now works just fine for us, and I wouldn't have it any other way.


I recognize that you are not really interested in other opinions/ways of thinking about it, but thought I'd try to clarify what TropikThunder is "on about."

The discussion that has permeated this thread has primarily been:

Dividend Lovers: High dividend mutual funds are great because they pay a higher yield and there's more money to spend without touching the principal.

Total Return Lovers: If the total return of high dividend mutual funds and total market mutual funds is the same, owning a high dividend mutual fund is essentially equivalent to owning a total market fund and selling shares quarterly to make up the difference in yield. And the total market fund gets you superior diversification and doesn't have (perhaps unintentional) weighting toward value stocks.

Dividend Lovers: OK but I really feel better just spending the dividends so if I can get a 3% yield from a high dividend mutual fund that's better for me than getting a 2% yield from a total market fund.

But in your case, you're not even spending the 3% (or whatever it is) you're getting from your high dividend mutual fund. You're spending 2% (perhaps) and then reinvesting the other 1%. In which case, why not just get the total market fund with the 2% yield, so that you don't have to reinvest excess dividends and enjoy the additional diversification/lack of overweighting to value that the total market fund provides?

snarlyjack
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Re: The Case for Dividend Stocks in Retirement (article)

Postby snarlyjack » Wed May 24, 2017 8:25 pm

Bfwolf,

I'll tell you how I look at it. (Now I might be wrong
& if I'm wrong I'm sure someone will correct me...).

I look at dividends using the compounding effect.
For example, in my mind dividends are like the afterburner
of a fighter jet. The afterburner's of a fighter jet help
the jet gain altitude & speed quickly.

Another example, dividends help build a pyramid
wide & high. The number of shares make the pyramid
wide & share price help build the pyramid high.

In other words the more shares the better. I dollar cost
average each month (12 times a year) but I also reinvest
my dividends (4 times a year) for a total of 16 "buy's per year".
What this does is help me gather more shares in the accumulation
stage. Building the pyramid quicker or gaining altitude faster
in the fighter jet.

That's in the accumulation stage. Hopefully, in the retirement stage
I'll have enough dividend income to support me without ever having to
slowly liquidate my portfolio. I would someday like to pass down my
portfolio to my wife/children/charity.

The TSM or S & P 500 funds do perform a bit better but not by much.
By no means are they blowing VHDYX out of the water. That's my
current thoughts...

Thanks...be easy on me! I'm a very young guy, only 23 years old
with years & years ahead of me (knock on wood).

TropikThunder
Posts: 462
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Re: The Case for Dividend Stocks in Retirement (article)

Postby TropikThunder » Wed May 24, 2017 10:09 pm

Bfwolf wrote:I recognize that you are not really interested in other opinions/ways of thinking about it, but thought I'd try to clarify what TropikThunder is "on about."

The discussion that has permeated this thread has primarily been:

Dividend Lovers: High dividend mutual funds are great because they pay a higher yield and there's more money to spend without touching the principal.

Total Return Lovers: If the total return of high dividend mutual funds and total market mutual funds is the same, owning a high dividend mutual fund is essentially equivalent to owning a total market fund and selling shares quarterly to make up the difference in yield. And the total market fund gets you superior diversification and doesn't have (perhaps unintentional) weighting toward value stocks.

Dividend Lovers: OK but I really feel better just spending the dividends so if I can get a 3% yield from a high dividend mutual fund that's better for me than getting a 2% yield from a total market fund.

But in your case, you're not even spending the 3% (or whatever it is) you're getting from your high dividend mutual fund. You're spending 2% (perhaps) and then reinvesting the other 1%. In which case, why not just get the total market fund with the 2% yield, so that you don't have to reinvest excess dividends and enjoy the additional diversification/lack of overweighting to value that the total market fund provides?

Thanks for the clarification. I know this topic can be like arguing politics, and sometimes I just lack the energy to keep debating. :P

TropikThunder
Posts: 462
Joined: Sun Apr 03, 2016 5:41 pm

Re: The Case for Dividend Stocks in Retirement (article)

Postby TropikThunder » Wed May 24, 2017 10:16 pm

snarlyjack wrote:In other words the more shares the better. I dollar cost
average each month (12 times a year) but I also reinvest
my dividends (4 times a year) for a total of 16 "buy's per year".
What this does is help me gather more shares in the accumulation
stage. Building the pyramid quicker or gaining altitude faster
in the fighter jet.

As long as you understand that those shares drop in value once the dividend posts.

Bfwolf
Posts: 1548
Joined: Thu Oct 14, 2010 11:19 am

Re: The Case for Dividend Stocks in Retirement (article)

Postby Bfwolf » Thu May 25, 2017 12:03 am

snarlyjack wrote:Bfwolf,

I'll tell you how I look at it. (Now I might be wrong
& if I'm wrong I'm sure someone will correct me...).

I look at dividends using the compounding effect.
For example, in my mind dividends are like the afterburner
of a fighter jet. The afterburner's of a fighter jet help
the jet gain altitude & speed quickly.

Another example, dividends help build a pyramid
wide & high. The number of shares make the pyramid
wide & share price help build the pyramid high.

In other words the more shares the better. I dollar cost
average each month (12 times a year) but I also reinvest
my dividends (4 times a year) for a total of 16 "buy's per year".
What this does is help me gather more shares in the accumulation
stage. Building the pyramid quicker or gaining altitude faster
in the fighter jet.

That's in the accumulation stage. Hopefully, in the retirement stage
I'll have enough dividend income to support me without ever having to
slowly liquidate my portfolio. I would someday like to pass down my
portfolio to my wife/children/charity.

The TSM or S & P 500 funds do perform a bit better but not by much.
By no means are they blowing VHDYX out of the water. That's my
current thoughts...

Thanks...be easy on me! I'm a very young guy, only 23 years old
with years & years ahead of me (knock on wood).


The fact that you're saving money and able to invest at 23 is great! Few 23 year olds are doing that, and saving is the most important thing, especially early on when your savings rate is what dominates your portfolio growth, not investment returns.

One thing that I think is important to clarify: number of shares doesn't matter. Would you rather have one share of GOOG worth $955 or 3 shares of AAPL at $153 apiece? You'd rather have the Google shares obviously. What matters is total market value. If you own Google and it splits 2 for 1, you have twice as many shares and each share is worth half as much. Are you better off? Of course not.

Now, as TropikThunder said, dividends are paid directly out of stock price. If it's a 1% dividend, the stock price goes down 1% when it's paid. This is a really important concept to understand.

Now let's consider a hypothetical example of Company A, in which you own 100 shares valued at $10 per share. Company A does not pay a dividend. Company A's earnings growth is driving its stock price up 10% every year. Let's see what happens:

Year 0: 100 shares. $10/share. $1,000 market value.
Year 1: 100 shares. $11/share. $1,100 market value.
Year 2: 100 shares. $12.10/share. $1,210 market value.

And so on.

Now let's say instead Company A decides to pay a 3% annual dividend. Because of this, the stock price only goes up 7% per year because the dividend has to come directly out of the stock price growth. You reinvest all the dividends (and let's pretend they aren't taxed). Let's see what happens:

Year 0: 100 shares. $10/share. $1,000 market value.
Year 1: 102.804 shares. $10.70/share. $1,100 market value.
Year 2: 105.686 shares. $11.449/share. $1,210 market value.

So you can see with the dividends being paid, you're accumulating more shares, but not more market value. Therefore, the dividend hasn't helped you at all, and in fact could trigger some unfortunate tax consequences if held in a taxable account.

My advice: ditch the analogies. They're not helping you. Stick with the cold, hard math.

Stryker
Posts: 355
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Location: Canada

Re: The Case for Dividend Stocks in Retirement (article)

Postby Stryker » Thu May 25, 2017 7:32 am

Bfwolf wrote:

But in your case, you're not even spending the 3% (or whatever it is) you're getting from your high dividend mutual fund.


Well, I never said I owned a dividend mutual fund.

Stryker wrote: Half in a Global portfolio of index funds/ETF's and the other half in individual dividend growth stocks.



Stryker wrote:As for the taxes, it's more tax advantageous for us to invest our Canadian dividend growth stocks in a non-registered account.


Bfwolf wrote:

You're spending 2% (perhaps) and then reinvesting the other 1%. In which case, why not just get the total market fund with the 2% yield, so that you don't have to reinvest excess dividends and enjoy the additional diversification/lack of overweighting to value that the total market fund provides?


Required spending comes out of our pensions alone.

Stryker wrote: we have enough that we don't have to either sell equities or spend the dividends yet in retirement.



Still saving, investing and re-investing even in retirement. I never know what we're going to face in the future.


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