Vanguard advisor on dividends

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avalpert
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Re: Vanguard advisor on dividends

Post by avalpert »

nedsaid wrote: Fri Sep 15, 2017 3:25 pm
avalpert wrote: Thu Sep 14, 2017 2:57 pm
You don't need capital gains to come on a predictable basis in order to withdraw a consistent amount from your portfolio - that is what all the safe withdrawal research is really about. You sell stocks when you need to use the capital - you shouldn't really care whether it is a bottom or a top.
Really? I mean really? Wouldn't you at least take your withdrawals from bonds when stocks are down?
If I am rebalancing through withdrawals possibly - but in general you shouldn't anchor on where they are relatively to where they were.
I have big doubts about any approach that has you selling stocks at the bottom. Can't think of many quicker ways to destroy a portfolio.
If stocks drop by 50%, wouldn't that affect your safe withdrawal calculation on the remaining portfolio?
That is what the safe withdrawal studies are all about - and while the specific limits vary a bit whether you use historical data or various monte carlo simulations they all show that there is a withdrawal rate that you should expect to survive just fine for decades - including actual 50% drops. Ignoring that it hasn't actually destroyed portfolios historically doesn't seem to lead you to good decisions. So the short answer is no, it wouldn't affect your safe withdrawal calculations (that doesn't mean you won't feel poorer and thus feel the need to spend less, but rationally the evidence tells us you don't need to).
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spdoublebass
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Re: Vanguard advisor on dividends

Post by spdoublebass »

Artsdoctor wrote: Fri Sep 15, 2017 2:17 pm
Yes! Sticking to a plan is important. The trick is finding a plan that you won't regret.

A couple of thoughts. You're 23 years old. What this means is that you don't have decades of investing experience so you're going to have to read a bit of history and learn from people who have had a bit more experience.
Artsdoctor thanks for this info. However, I'm 34. I think my question was interpreted differently by a few people.

I was just wondering about Mr. Bogle's quote. I guess I should have said, who is he talking to? Who is he saying "if you want to add a slice..." to?

For simplicity purposes....let's just keep this as basic as possible. If you are a 3 fund investor, with 20% of equities in International.... let's say this is who I'm talking about.
Say this person is in retirement, is this who Bogle is addressing?
Or is Bogle addressing someone who is just starting out?

My question on implementation wasn't HOW to do it, but when and why.

I don't personally see the need to add any high dividend stock, BUT I am not some genius, so I asked who Bogle is talking to. That's what I was interested in.

Because people usually stick to a plan, and have been, is why I think this quote makes people uneasy. It goes against what they have been doing.

Maybe I'm wrong though I don't know. Thanks again for all the links and info. Although I'm not 23, I think I'm about 12 in investing knowledge :shock: Haha.
I'm trying to think, but nothing happens
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Artsdoctor
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Re: Vanguard advisor on dividends

Post by Artsdoctor »

^ Cut and paste can lead to unintended consequence. My post was actually aimed more at snarlyjack. Sorry for the confusion.
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Artsdoctor
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Re: Vanguard advisor on dividends

Post by Artsdoctor »

Doublebass,

Most here think a great deal about Jack Bogle. He's been one of the most positive and influential leaders in investing.

However, your questions are ones that we all wrestle with from time to time. He doesn't like international investing much, he really likes corporate bonds, he likes the "age in bonds" phenomenon, he asks us to factor in social security to our asset allocation (somehow), and all of these things are debated without any resolution. Certainly his philosophy differs from what you're going to read and hear from Vanguard right now (he would DEFINITELY scream about a 40% international equity allocation and a 30% international fixed income allocation that Vanguard's LifeStrategy funds currently adhere to).

At the end of the day, listen to what he has to say and see if it applies to your investing needs. It may not.
dbr
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Re: Vanguard advisor on dividends

Post by dbr »

spdoublebass wrote: Fri Sep 15, 2017 3:56 pm
Artsdoctor thanks for this info. However, I'm 34. I think my question was interpreted differently by a few people.

I was just wondering about Mr. Bogle's quote. I guess I should have said, who is he talking to? Who is he saying "if you want to add a slice..." to?

I would assume Mr. Bogle was addressing the comment about higher yielding bonds or shifting to dividend stocks to retirees who depend on withdrawals from their portfolio, who have been relying on taking that withdrawal in dividends, and who now find themselves short on income. In that context the suggestion is perhaps rather ok, especially as Mr. Bogle historically warns against taking too much risk. This advice has nothing to do with 34 year old people looking at 30 years of saving and investing. The comments are also difficult to parse as we don't know exactly what was said to whom about what in the context of which discussion when.

For simplicity purposes....let's just keep this as basic as possible. If you are a 3 fund investor, with 20% of equities in International.... let's say this is who I'm talking about.
Say this person is in retirement, is this who Bogle is addressing?
Or is Bogle addressing someone who is just starting out?

We can't tell who he is really addressing as we don't have the context. It could be for anyone with a three fund portfolio because he has also taken exception with the index used by the total bond fund as not being representative enough of corporate bonds. I am not sure the argument for that is clear at all. I doubt he is suggestion the use of total stock market in the three fund portfolio should be modified by a concentration into dividend paying stocks. Mr. Bogle has been adamant that TSM is what you should use in stocks and thinks factor investing is not a recommended strategy.


My question on implementation wasn't HOW to do it, but when and why.

I think you are a victim of taking these somewhat ambiguous, sometimes contradictory, usually incomplete sound bite quotes and snippets from Mr. Bogle too seriously. A better approach is to understand the basics of risk and return in the behavior of portfolios, the benefits of diversified low cost index fund investing, the virtue of sticking to a plan being more important than the plan in detail, recognizing that the worst enemy of a good plan is a better plan, and worst of all, falling victim of self doubt. Probably all of those are Bogleisms as well.

I don't personally see the need to add any high dividend stock, BUT I am not some genius, so I asked who Bogle is talking to. That's what I was interested in.

Because people usually stick to a plan, and have been, is why I think this quote makes people uneasy. It goes against what they have been doing.

Maybe I'm wrong though I don't know. Thanks again for all the links and info. Although I'm not 23, I think I'm about 12 in investing knowledge :shock: Haha.

PS There is plenty of noise drifting around on this forum as well. A lot of it is digging into nuances and people entertaining themselves with academic debates. Some of it is the constant siren song of "the best" and of "should I?" There can be plenty of pitfalls and dangers for those who haven't yet sorted out their thinking about investing.
snarlyjack
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Re: Vanguard advisor on dividends

Post by snarlyjack »

Artsdoctor,

Thank you for your post, it was excellent advice,
(and well taken).

Before I found Bogleheads I was studying investing.
I studied Ronald Read (The Janitor Next Door) (My favorite),
Warren Buffett & Kevin O'Leary. All 3 of these people are
dividend investors. Something clicked in my brain & I
understand what they are doing & why.

Then I found Bogleheads and Jack Bogle & index funds.
I thought to myself what a perfect mix of investments.
Low cost index funds with a dividend approach to the markets.

Believe it or not, both approaches to the market are very similar.
Index funds, buy & hold, long term investing, low cost, don't trade,
buy the haystack (index), don't peak at your statements, etc. I really
don't look at value stocks, growth stocks or factors. I look at dividends.
Dividends are paid by both value & growth stocks. I do really like
quality stocks (a factor). It all kind of mixes together. I feel 100%
comfortable with the dividend approach.

Here is a clip from my favorite investor. He is very motivational to me.
Enjoy... and thank you once again.

https://www.cnbc.com/2015/02/09/heres-h ... rtune.html
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nedsaid
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Re: Vanguard advisor on dividends

Post by nedsaid »

avalpert wrote: Fri Sep 15, 2017 3:52 pm
nedsaid wrote: Fri Sep 15, 2017 3:25 pm
avalpert wrote: Thu Sep 14, 2017 2:57 pm
You don't need capital gains to come on a predictable basis in order to withdraw a consistent amount from your portfolio - that is what all the safe withdrawal research is really about. You sell stocks when you need to use the capital - you shouldn't really care whether it is a bottom or a top.
Really? I mean really? Wouldn't you at least take your withdrawals from bonds when stocks are down?
If I am rebalancing through withdrawals possibly - but in general you shouldn't anchor on where they are relatively to where they were.
I have big doubts about any approach that has you selling stocks at the bottom. Can't think of many quicker ways to destroy a portfolio.
If stocks drop by 50%, wouldn't that affect your safe withdrawal calculation on the remaining portfolio?
That is what the safe withdrawal studies are all about - and while the specific limits vary a bit whether you use historical data or various monte carlo simulations they all show that there is a withdrawal rate that you should expect to survive just fine for decades - including actual 50% drops. Ignoring that it hasn't actually destroyed portfolios historically doesn't seem to lead you to good decisions. So the short answer is no, it wouldn't affect your safe withdrawal calculations (that doesn't mean you won't feel poorer and thus feel the need to spend less, but rationally the evidence tells us you don't need to).
Man, I don't know. It seems that common sense would dictate that retirees would adjust their spending patterns based upon their current situation. It seems to me that fixed withdrawal rates regardless of market conditions just smacks of another type of anchoring, that is anchoring your spending level according to calculations made when conditions were far different. Academic studies, Monte Carlo simulations, calculated withdrawal rates are meant to be guidelines, not an immutable, infallible strategy that is to be followed at all costs once calculated and determined. Financial plans are designed with course corrections in mind. It just smacks too much of "Damn the torpedoes, Full Steam ahead." It seems foolish to just keep spending just because some prior calculation said you were "safe." It is seems utter folly not to re-evaluate your situation as retirement progresses.
A fool and his money are good for business.
avalpert
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Re: Vanguard advisor on dividends

Post by avalpert »

nedsaid wrote: Sat Sep 16, 2017 12:45 pm Academic studies, Monte Carlo simulations, calculated withdrawal rates are meant to be guidelines, not an immutable, infallible strategy that is to be followed at all costs once calculated and determined.
I absolutely agree, at the same time though I think they can provide reassurance that you don't need to panic with every dip (or pop expensive champagne with every move up). While I wouldn't want to idolize the output of models, when it comes to evaluating financial risks common sense is rarely very sensible. Getting back to where this started, the lack of consistency in when capital gains show up shouldn't dissuade one from spending their capital and the apparent predictability of dividends shouldn't be used as a reason to limit spending to just those.
Financial plans are designed with course corrections in mind. It just smacks too much of "Damn the torpedoes, Full Steam ahead." It seems foolish to just keep spending just because some prior calculation said you were "safe." It is seems utter folly not to re-evaluate your situation as retirement progresses.
There is a big gap between being willing to correct and correcting every time the market zigs of zags. I think the foolish thing is to abandon the models (which have worked well for a century) just because you happen to be facing a downward market (at least one that is within the experience of our recent past). You shouldn't be afraid to re-evaluate, and it would be great if you set out up front what conditions would cause you to do so - but don't confuse re-evalauting with abandoning the strategy with every turn, nobody said it would be a straight line.
snarlyjack
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Re: Vanguard advisor on dividends

Post by snarlyjack »

Here is another article on Ronald Read (The Janitor Next Door).
It also mentions Jack Bogle & Jeremy Siegel.

Enjoy this article...

https://www.joshuakennon.com/janitor-ro ... t-fortune/
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nedsaid
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Re: Vanguard advisor on dividends

Post by nedsaid »

avalpert wrote: Sat Sep 16, 2017 3:43 pm
nedsaid wrote: Sat Sep 16, 2017 12:45 pm Academic studies, Monte Carlo simulations, calculated withdrawal rates are meant to be guidelines, not an immutable, infallible strategy that is to be followed at all costs once calculated and determined.
I absolutely agree, at the same time though I think they can provide reassurance that you don't need to panic with every dip (or pop expensive champagne with every move up). While I wouldn't want to idolize the output of models, when it comes to evaluating financial risks common sense is rarely very sensible. Getting back to where this started, the lack of consistency in when capital gains show up shouldn't dissuade one from spending their capital and the apparent predictability of dividends shouldn't be used as a reason to limit spending to just those.
Financial plans are designed with course corrections in mind. It just smacks too much of "Damn the torpedoes, Full Steam ahead." It seems foolish to just keep spending just because some prior calculation said you were "safe." It is seems utter folly not to re-evaluate your situation as retirement progresses.
There is a big gap between being willing to correct and correcting every time the market zigs of zags. I think the foolish thing is to abandon the models (which have worked well for a century) just because you happen to be facing a downward market (at least one that is within the experience of our recent past). You shouldn't be afraid to re-evaluate, and it would be great if you set out up front what conditions would cause you to do so - but don't confuse re-evalauting with abandoning the strategy with every turn, nobody said it would be a straight line.
Well, there is a balance in there somewhere. I don't suggest a wholesale abandonment of a strategy every time there is a wiggle or a squiggle in the market. What I am saying is that a retiree needs to allow for some flexibility in response to changing conditions, which might be a big move in the markets or a change in personal circumstances like health. It is sort of like my formerly relaxed attitude towards rebalancing, you rebalance when you need to and not on a predetermined schedule. There is a withdrawal strategy that says to take your withdrawals from stocks when stocks are doing well and to take your withdrawals from bonds when stocks are doing poorly. I am also thinking of Taylor Larimore and how he and his wife Pat would adjust their spending. Pretty much, I think people should consider a combination of the two approaches.
A fool and his money are good for business.
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Uncle Pennybags
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Re: Vanguard advisor on dividends

Post by Uncle Pennybags »

snarlyjack wrote: Sat Sep 16, 2017 4:28 pm Here is another article on Ronald Read (The Janitor Next Door).
It also mentions Jack Bogle & Jeremy Siegel.

Enjoy this article...

https://www.joshuakennon.com/janitor-ro ... t-fortune/
That's how we invested back in the day before index funds and low cost paperless brokers. Make your own index with representative stocks using the dividend reinvestment plan to buy shares.
Wakefield1
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Re: Vanguard advisor on dividends

Post by Wakefield1 »

In my earliest days as a stock owner I used dividend reinvestment plans,but someone changed my mind about that,the 800 lb. gorilla in the room is specific stock risk. The DRIP plans tend to get you more overweight in a few stocks.
If I keep the stocks,(some would tell me to sell them and replace them with,say,Total Stock Market),at least the dividends get used for something else such as adding to the potential downpayment on a house fund or buying shares of a diversified mutual fund.
I still have one pet stock that is on DRIP,it is probably only < 2% of what I have in mutual funds. Iconic American company but it hasn't done much but tread water in the last 10 years,I think one of its founders shot movie footage for Walt Disney's True Life Adventure Nature features. I should divert that dividend into my credit union direct deposit.
My belief is that dividend (and other distributions) reinvestment into a diverse mutual fund does not have the same characteristic disadvantages as reinvestment into a specific stock that is already more than a few percent of your holdings.
jebmke
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Re: Vanguard advisor on dividends

Post by jebmke »

Wakefield1 wrote: Thu Sep 28, 2017 5:26 pm In my earliest days as a stock owner I used dividend reinvestment plans,but someone changed my mind about that,the 800 lb. gorilla in the room is specific stock risk. The DRIP plans tend to get you more overweight in a few stocks
I volunteer as a tax preparer for TaxAide. DRIP plans have been a nightmare for many of my clients. In addition to the concentration, the record keeping is often extremely poor. As a result, they sometimes have a very incomplete picture of the basis. Inevitably this means that some capital gains get overstated on their return. We try to recreate a basis from public information but sometimes the share purchases go so far back there is nothing to work with.
When you discover that you are riding a dead horse, the best strategy is to dismount.
Wakefield1
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Re: Vanguard advisor on dividends

Post by Wakefield1 »

jebmke wrote: Thu Sep 28, 2017 5:33 pm
Wakefield1 wrote: Thu Sep 28, 2017 5:26 pm In my earliest days as a stock owner I used dividend reinvestment plans,but someone changed my mind about that,the 800 lb. gorilla in the room is specific stock risk. The DRIP plans tend to get you more overweight in a few stocks
I volunteer as a tax preparer for TaxAide. DRIP plans have been a nightmare for many of my clients. In addition to the concentration, the record keeping is often extremely poor. As a result, they sometimes have a very incomplete picture of the basis. Inevitably this means that some capital gains get overstated on their return. We try to recreate a basis from public information but sometimes the share purchases go so far back there is nothing to work with.
Yes,unfortunately those reams of mail tend to get lost. The DRIP is best avoided.
snarlyjack
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Re: Vanguard advisor on dividends

Post by snarlyjack »

I don't "drip into individual stocks" but I do reinvest my
index dividends. I hope Vanguard keeps really good
track of my account because I plan on never selling.

I might use the dividends someday (not reinvest) but I
see no reason for me to sell shares.
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Uncle Pennybags
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Re: Vanguard advisor on dividends

Post by Uncle Pennybags »

snarlyjack wrote: Thu Sep 28, 2017 7:44 pm I don't "drip into individual stocks" but I do reinvest my
index dividends. I hope Vanguard keeps really good
track of my account because I plan on never selling.
If it's a taxable account you pay tax every year on the dividends. A few years ago dividends were treated like long term capital gains but now they are treated like ordinary income. I can see where dividends are not as useful as they once were.
RAchip
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Re: Vanguard advisor on dividends

Post by RAchip »

"A few years ago dividends were treated like long term capital gains but now they are treated like ordinary income."

Are you sure about that?
jebmke
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Re: Vanguard advisor on dividends

Post by jebmke »

Uncle Pennybags wrote: Fri Sep 29, 2017 9:50 am
snarlyjack wrote: Thu Sep 28, 2017 7:44 pm I don't "drip into individual stocks" but I do reinvest my
index dividends. I hope Vanguard keeps really good
track of my account because I plan on never selling.
If it's a taxable account you pay tax every year on the dividends. A few years ago dividends were treated like long term capital gains but now they are treated like ordinary income. I can see where dividends are not as useful as they once were.
Qualified dividends are treated like long term capital gain.
When you discover that you are riding a dead horse, the best strategy is to dismount.
avalpert
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Re: Vanguard advisor on dividends

Post by avalpert »

RAchip wrote: Fri Sep 29, 2017 11:07 am "A few years ago dividends were treated like long term capital gains but now they are treated like ordinary income."

Are you sure about that?
It's the reverse. For most of the 20th century dividends were treated as ordinary income, in 2003 that was changed so some dividends are now treated like capital gains.
Dandy
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Re: Vanguard advisor on dividends

Post by Dandy »

Seems as if there are at least 3 arguments against dividends:
1. The investor can't decide when to take money the dividend is paid whether or not the investor wants it. Usually, because of tax implications. Not an issue in a tax advantaged account.
2. The company paying the dividend would be better off (and so would the investor) if the money set aside to pay dividends was used to invest in the company, acquire other companies etc. Essentially, dividends stunt the company's potential growth and the growth of its stock. Of course not all companies acquired pan out and having a large cash war chest might cause a company to overpay for the acquisition either because they have the money so don't bargain as well as they should or the company being acquired knows they have the money and can drive a better bargain.
3. The company can buy back its stock and drive the stock higher which benefits the investor without causing current tax issues. Of course that depends on the company actually uses the money to buyback stock and actually reduces the number of shares outstanding. If they buyback shares and then use them to fund stock options/awards for their employees then you are betting that the stock incentive not the reduced number of shares will drive up the stock. Of course even if they reduce the number of shares outstanding the company stock can still decline for a variety of performance related factors. Companies that announce buybacks should not discuss the dollar goal of the buyback but the "permanent" reduction in outstanding shares goal.

The potential for better stock price exists when any of the above occurs. But, it isn't a sure thing. Dividends can have their problems as far as taxes or limiting future growth/stock price but they are a "bird in hand" unless the company reduces or stops the dividend. Companies usually do not want to do that.
snarlyjack
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Re: Vanguard advisor on dividends

Post by snarlyjack »

Here is a new article that I thought was pretty interesting.
(Published September 2017).

Please keep in mind that I also own LifeStrategy Fund.
(I really like Taylors 3 fund portfolio) (100% Roth IRA).

This article is for discussion purposes. Enjoy the article.

http://www.dividendgrowthinvestor.com/2 ... .html#more
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nedsaid
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Re: Vanguard advisor on dividends

Post by nedsaid »

dbr wrote: Thu Sep 14, 2017 9:25 am
nedsaid wrote: Wed Sep 13, 2017 8:07 pm In Snarlyjack's defense, John Bogle has talked about increasing the income from a retirement portfolio. He suggested using a slice of a stock portfolio for higher dividend paying stocks and also coupling US Total Bond Market Index with an investment grade Corporate Bond Fund. If income generated by a portfolio was not important, why would Mr. Bogle discuss this?

Also, as I have rather teasingly suggested, why should we be concerned about bond yields? It would seem that bond yields don't matter as you could create your own dividend by selling shares. I know this is borderline silly, but I am trying to make a point. Pretty much I am saying that income from a portfolio does matter. As I get older, I get more interested in income. Most every older person that I know is concerned about income from their investments. I get the sense here that this is an irrational concern. Are these people, Mr. Bogle included, just off their rocker? I don't think so. This might all be psychology at work but this is an issue that is important to a lot of people for whatever reason.
Yes, I think that is another of Mr. Bogle's statements that seems puzzling or even inexplicable. The history of such things is that we never ever really find out what the context of the statement was and what was really meant.

Nedsaid: I have found that Mr. Bogle says surprising things. Mr. "Age in Bonds" discusses "Social Security as a bond." He also has talked about tactical asset allocation when valuations get extreme. As mentioned above, he has talked about reaching for yield a bit. Sometimes, I think Mr. Bogle wouldn't make it in a forum named after him. Mr. Bogle would get criticized for not being enough like himself. It shows that he has a flexible mind and isn't as doctrinaire as people here suppose. But his philosophy has been fairly consistent over his career.

It is possible, by the way, that one can argue for a shift to a riskier higher returning portfolio when bond returns are historically low. But that argument would be one based on consideration of total return with no relationship to income.

Nedsaid: I have done precisely that because bond yields are so darned low. So I am at 67% stocks rather than my target 60%.

A big part of the conversation involving people talking past each other is what it is a person means by income. In my world view a portfolio has return but the word income does not apply. Income is what a person has in their cash flow accounting. The connection to a portfolio is that one can withdraw money from a portfolio to obtain income. How that withdrawal is actually made is irrelevant. The concept of "income from a portfolio" is a non-existent and meaningless concept. This is a different conversation from an accountant talking about income to the portfolio, a very important difference that is part of the confusion.

Nedsaid: When I say "income", I am talking about the cash flow generated by dividends and interest from a portfolio. When I say "total return", I am talking about redeeming shares to create cash in order to live on, or "creating your own dividend."

An important distinction is that if income from a portfolio is a meaningful concept it is also something that is not under control of the investor, being subject to the whims of interest rates and dividend rates. The investor can only control that by making gross manipulations of his assets to try to engineer "income." I don't think that is good investment management.

Nedsaid: Yes, there gets to be a point where the dividend tail can wag the portfolio dog. I like the concept of an income stream from dividends that has a good chance of outpacing inflation. Investors can overdo this, a good example would be loading up on Master Limited Partnerships, many of which are based on energy. Another example would be buying stocks with excessively high dividends which can be in essence return of capital. A friend of mine had a managed account that put some of his portfolio in higher yielding stuff like MLPs, Preferred Stock, and High Dividend Stocks; he noticed a fat yield but decreasing stock prices. Probably the sweet spot for dividend yield in an individual stock portfolio would be 2.5% to 3.0%. Get much over 3.0% and I start getting heartburn.

A person who simply withdraws money by whatever means has independent control of how much income then appears in his cash flow together with control over the fate of his investments. There is lots and lots of analysis regarding how to plan the compromise between withdrawal and portfolio growth. Simply taking dividends means a person is not even looking at the future of the portfolio. This would be irresponsible financial management. The only out is that one is implicitly doing that planning. For example, if withdrawing 2% dividends is the plan, that is safe. In fact it is too safe, but it is safe. If that investor chases dividends to the 3% withdrawal, it is still safe, at least assuming some of the assets are in stocks. It could be an irony that shifting from some bonds to some stocks saves an investor from having too little in stocks, then it might be good. But that is a special case.

Nedsaid: Again, because of portfolio size, I will likely need to harvest capital gains in addition to dividends and interest in order to pay bills. So I will be a total return investor.
A fool and his money are good for business.
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