TSM vs High Dividend Yield if I never choose to sell?

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Captain kangaroo
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TSM vs High Dividend Yield if I never choose to sell?

Post by Captain kangaroo » Sat Dec 09, 2017 5:02 pm

I have I guess what you may call, a phobia, of selling my investments. When I buy something, I plan on holding it essentially until I die and passing it on. This may be good for growing a portfolio, but I also don't believe it will allow me to improve my quality of life with extra funds, if I ever chose to do so.

This brings me to my question. Would it be a better idea for someone like myself to invest in, say, the Vanguard High Dividend Yield Index Fund as a core holding?

From my research, it tracks relatively closely to the S&P 500, and has returns over 8% for the past 10 year period. It is also yielding 2.79% at the time of this.

I am in my late 20's and have 2,000,000 to invest. I have a relatively safe government job that will supply me with a pension when I am older. My logic is to reinvest all dividends/CG for the next 20 or so years until I choose to retire. My thought process behind using the High Yield fund as opposed to the TSM would be that if I ever choose to, I can take the large dividends for a year and use it to buy something I want, or take a vacation, then resume reinvesting them, while the TSM wouldn't give off nearly as big of a dividend. My goal is to not have to draw down the principle in retirement.

When I retire I will just live off my pension, and the dividends, and pass on my entire portfolio when I die.

Still relatively new to investing, opinions on this strategy?

lack_ey
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Re: TSM vs High Dividend Yield if I never choose to sell?

Post by lack_ey » Sat Dec 09, 2017 5:20 pm

You'll end up with slightly lower returns, all else equal, for similar risk, on account of higher dividends resulting in higher taxation.

It doesn't matter outside of taxes the percentage of returns that comes from capital appreciation as opposed to dividends. Any amount of dividends not reinvested is equivalent to selling the same amount of stock, other than for mental accounting gymnastics to justify something potentially down the line to yourself.

But nobody said you have to live life by what an economist (or worse, an internet forum denizen) tells you to do. In some sense the higher the dividend, the more you're allowing yourself under this structure to spend from your assets, the greater flexibility to handle things in the future.

For what it's worth, there are funds, even relatively low-cost equity funds, with higher dividend yields than that. Particularly with international stocks you can get higher yields, as percentage of cash return via buybacks as opposed to dividends is lower, and valuations are also generally lower than in the US at the moment. Some more narrowly focused funds can have higher yields from concentrating more in the higher payers. Then of course there are other structures and investments like preferred stock.

You know, the underlying funds are buying and selling stocks, shifting out of certain stocks at times. If you own the fund you are participating in that behavior, even if you don't sell the fund itself. That's what's actually happening under the hood.

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David Jay
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Re: TSM vs High Dividend Yield if I never choose to sell?

Post by David Jay » Sat Dec 09, 2017 5:27 pm

1. If this is in taxable, taking your gains as dividends is not in your best interest. Capital gains are taxed at a lower rate and are delayed until time-of-sale.

2. TSM is far more diversified so it is likely to perform more consistently across a wide range of economic conditions. TSM has provided about 2% in dividends, so that is $40,000 a year if you turn off "reinvest".

You are in the position ($2,000,000 portfolio in your late 20s) where "anything will work", but I a High Dividend strategy is less than optimal.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

Captain kangaroo
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Re: TSM vs High Dividend Yield if I never choose to sell?

Post by Captain kangaroo » Sat Dec 09, 2017 5:53 pm

Wouldnt my dividends be taxed at 15%? The same as LT capital gains?

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Re: TSM vs High Dividend Yield if I never choose to sell?

Post by Thesaints » Sat Dec 09, 2017 5:57 pm

You can decide how many shares to sell and when down to the cent and to the hour of the day. Dividends are paid in amounts out of your control, only a few days per year.
Yours seems to be an expensive phobia.

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Re: TSM vs High Dividend Yield if I never choose to sell?

Post by jebmke » Sat Dec 09, 2017 6:01 pm

Captain kangaroo wrote:
Sat Dec 09, 2017 5:53 pm
Wouldnt my dividends be taxed at 15%? The same as LT capital gains?
I you play your cards right you won't pay capital gains tax. When the market tanks, you will harvest losses and carry them over. And if you have no losses to carry over you will sell the shares with the highest cost basis so your gain will be less than 100% of the amount you sell.
When you discover that you are riding a dead horse, the best strategy is to dismount.

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Re: TSM vs High Dividend Yield if I never choose to sell?

Post by David Jay » Sat Dec 09, 2017 6:19 pm

Captain kangaroo wrote:
Sat Dec 09, 2017 5:53 pm
Wouldnt my dividends be taxed at 15%? The same as LT capital gains?
[edited] [Unqualified] dividends are taxed at your current marginal rate. Capital gains [and qualified dividends] receive special treatment.

Additionally, you are taxed on dividends when they are distributed, whether or not you select the "reinvest" option.
Last edited by David Jay on Sat Dec 09, 2017 9:13 pm, edited 1 time in total.
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Re: TSM vs High Dividend Yield if I never choose to sell?

Post by billfromct » Sat Dec 09, 2017 6:36 pm

Qualified dividends (most U.S. company normal dividends) & LTCGs are taxed at the same Federal tax rate, 15% if you are in the 25% Federal tax bracket; 0% if you are in a 10% or 15% Federal tax bracket.

The advantage of the TSM fund is that if you do keep the TSM fund until you die, your heirs will get the cost basis bump up. Of course you will pay tax on any qualified dividends distributed from the TSM fund while you are alive just like any high yield dividend fund.

bill

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Re: TSM vs High Dividend Yield if I never choose to sell?

Post by patrick013 » Sat Dec 09, 2017 7:46 pm

Captain kangaroo wrote:
Sat Dec 09, 2017 5:02 pm

This brings me to my question. Would it be a better idea for someone like myself to invest in, say, the Vanguard High Dividend Yield Index Fund as a core holding?

From my research, it tracks relatively closely to the S&P 500, and has returns over 8% for the past 10 year period. It is also yielding 2.79% at the time of this.
The dividend selections that stir all the controversy are yield weighted
or equal weighted fund selections. As a tilt they are a respectable factor as
well as all the other tilts IMO. Hard to find a low cost yield weighted fund.
If you find one let use know.

Even after you subtract taxes over many years those funds can and do
beat the market portfolio.
age in bonds, buy-and-hold, 10 year business cycle

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Re: TSM vs High Dividend Yield if I never choose to sell?

Post by grabiner » Sat Dec 09, 2017 8:30 pm

The extra tax cost of a high-dividend fund is greater if you never sell than if you do sell. In funds which pay high dividends, the share price grows more slowly because more of the return is paid to you in a dividend. If you sell, you will pay tax on the return either way; receiving it as a dividend costs more because you paid the tax earlier and had less time for the gains to grow. If you don't sell, you never pay tax on the increased share price, only on the dividend, so the full tax on the dividend is a loss.
David Grabiner

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Re: TSM vs High Dividend Yield if I never choose to sell?

Post by venkman » Sat Dec 09, 2017 9:04 pm

Instead of putting everything into stock funds, maybe allocate some of your retirement money to start a long-term ladder of individual bonds/TIPS (maybe even zeroes) that starts to mature at the same time you anticipate retiring. When the time comes, you won't have to sell anything; you'll just automatically be given some money. If you don't need it right away, you can reinvest it; or hang on to it in cash for when you do need it.

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Re: TSM vs High Dividend Yield if I never choose to sell?

Post by snarlyjack » Sat Dec 09, 2017 9:08 pm

Captain Kangaroo,

Hello & nice meeting you.

If I were you (knowing what I know) this is exactly what I would do.

I would invest the whole $2 Million into the Vanguard Balanced Fund 60% stocks/40% bonds
& not worry about it for the rest of my life... then pass it on to the next generation.

Reasons:

1). At age 62 when you retire you'll have $17 Million invested very conservatively.
2). The ER (expense ratio) of the balanced fund is .07 (super low).
3). You'll still have dividends & interest paid quarterly that you could use in a emergency.
4). It's a sleep well at night fund that Jack Bogle really likes (so do I & other's).
5). I used 7% growth for 32 years, investing 2 Million, no addition funds = $17 Million.

Use this calculator with your numbers. Use age 100 - (your age/29) = 71 years.
Let me know your portfolio numbers at age 100. No need to get aggressive.
(I get $244 Million at age 100. Use a conservative balanced fund & relax/be smart).

https://www.investor.gov/additional-res ... calculator

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Re: TSM vs High Dividend Yield if I never choose to sell?

Post by patrick013 » Sat Dec 09, 2017 10:08 pm

grabiner wrote:
Sat Dec 09, 2017 8:30 pm
The extra tax cost of a high-dividend fund is greater if you never sell than if you do sell. In funds which pay high dividends, the share price grows more slowly because more of the return is paid to you in a dividend. If you sell, you will pay tax on the return either way; receiving it as a dividend costs more because you paid the tax earlier and had less time for the gains to grow. If you don't sell, you never pay tax on the increased share price, only on the dividend, so the full tax on the dividend is a loss.
But the gross return amply covers the taxes and the net return after
taxes exceeds the net return after taxes of say a 500 fund. This
adds up in the total return column.
age in bonds, buy-and-hold, 10 year business cycle

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Re: TSM vs High Dividend Yield if I never choose to sell?

Post by triceratop » Sat Dec 09, 2017 10:48 pm

patrick013 wrote:
Sat Dec 09, 2017 10:08 pm
grabiner wrote:
Sat Dec 09, 2017 8:30 pm
The extra tax cost of a high-dividend fund is greater if you never sell than if you do sell. In funds which pay high dividends, the share price grows more slowly because more of the return is paid to you in a dividend. If you sell, you will pay tax on the return either way; receiving it as a dividend costs more because you paid the tax earlier and had less time for the gains to grow. If you don't sell, you never pay tax on the increased share price, only on the dividend, so the full tax on the dividend is a loss.
But the gross return amply covers the taxes and the net return after
taxes exceeds the net return after taxes of say a 500 fund. This
adds up in the total return column.
[citation needed] :confused
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: TSM vs High Dividend Yield if I never choose to sell?

Post by grabiner » Sat Dec 09, 2017 11:06 pm

patrick013 wrote:
Sat Dec 09, 2017 10:08 pm
grabiner wrote:
Sat Dec 09, 2017 8:30 pm
The extra tax cost of a high-dividend fund is greater if you never sell than if you do sell. In funds which pay high dividends, the share price grows more slowly because more of the return is paid to you in a dividend. If you sell, you will pay tax on the return either way; receiving it as a dividend costs more because you paid the tax earlier and had less time for the gains to grow. If you don't sell, you never pay tax on the increased share price, only on the dividend, so the full tax on the dividend is a loss.
But the gross return amply covers the taxes and the net return after
taxes exceeds the net return after taxes of say a 500 fund. This
adds up in the total return column.
Past performance is not an indication of future results.

And I don't see the effect here. Vanguard High Dividend Yield Index has tracked the S&P 500 very well since inception; it doesn't tend to outperform or underperform when value outperforms growth.

Price/Earnings or Price/Book are more common ways to choose value stocks than Price/Dividend. In addition, they tend to be less expensive. Thus, if you want exposure to value, it makes more sense to use Value Index (and Small-Cap Value Index for your small-caps). For even more value exposure, you can use ETFs with stronger value tilts, which tend to have lower yields; RZV (Guggenheim S&P 600 Pure Value) has such a low yield that the tax savings in a taxable account cover the expense difference over Vanguard Small-Cap Value Index.

I do believe in the value effect; I have Value Index and Small-Cap Value Index in my Roth IRA, and RZV in my HSA.
David Grabiner

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Re: TSM vs High Dividend Yield if I never choose to sell?

Post by AlohaJoe » Sat Dec 09, 2017 11:21 pm

Captain kangaroo wrote:
Sat Dec 09, 2017 5:02 pm
while the TSM wouldn't give off nearly as big of a dividend.
This isn't true.

Rather, it may or may not be true but you haven't done any work to see whether it is.

High Dividend Yield may have a higher yield but that doesn't mean it has a higher dividend. The dividend is the result of the yield times the portfolio size.

Here's a simplified example to make the point.

Portfolio A has $10,000,000 and a dividend yield of 1% meaning you get a dividend of $100,000.

Portfolio B has $1,000,000 and a dividend yield of 5% meaning you only get a dividend of $50,000.

Since you're talking about dividends from a portfolio 20-40 years in the future you have to take into account the actual after-tax growth rates to know which one will actually give you a bigger dividend.

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Re: TSM vs High Dividend Yield if I never choose to sell?

Post by whodidntante » Sat Dec 09, 2017 11:35 pm

You're not the only one who has hangups about selling their investments, but preferring dividends as a forced distribution so you never have to push the sell button is irrational. It would be better to face that irrational behavior and hopefully to conquer it.

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Re: TSM vs High Dividend Yield if I never choose to sell?

Post by gilgamesh » Sat Dec 09, 2017 11:40 pm

Delete
Last edited by gilgamesh on Sun Dec 10, 2017 8:17 am, edited 1 time in total.

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Re: TSM vs High Dividend Yield if I never choose to sell?

Post by Wakefield1 » Sat Dec 09, 2017 11:41 pm

grabiner wrote:
Sat Dec 09, 2017 8:30 pm
The extra tax cost of a high-dividend fund is greater if you never sell than if you do sell. In funds which pay high dividends, the share price grows more slowly because more of the return is paid to you in a dividend. If you sell, you will pay tax on the return either way; receiving it as a dividend costs more because you paid the tax earlier and had less time for the gains to grow. If you don't sell, you never pay tax on the increased share price, only on the dividend, so the full tax on the dividend is a loss.
If the O.P. had access to a tax deferred space in a TSP or 457 account would that be better for him to put his contributions into using his favorite higher dividend funds? (With dividends reinvested into more shares of the fund paying them)

should such funds as Total Stock Market and Small CAP Value Index be considered "medium dividend funds"? (Can't remember whether Small CAP Value Index distributed much capital gains last year)-which would have some of the same effect in a taxable account as dividends
Last edited by Wakefield1 on Sat Dec 09, 2017 11:47 pm, edited 1 time in total.

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Re: TSM vs High Dividend Yield if I never choose to sell?

Post by grabiner » Sat Dec 09, 2017 11:45 pm

Wakefield1 wrote:
Sat Dec 09, 2017 11:41 pm
grabiner wrote:
Sat Dec 09, 2017 8:30 pm
The extra tax cost of a high-dividend fund is greater if you never sell than if you do sell. In funds which pay high dividends, the share price grows more slowly because more of the return is paid to you in a dividend. If you sell, you will pay tax on the return either way; receiving it as a dividend costs more because you paid the tax earlier and had less time for the gains to grow. If you don't sell, you never pay tax on the increased share price, only on the dividend, so the full tax on the dividend is a loss.
If the O.P. had access to a tax deferred space in a TSP or 457 account would that be better for him to put his contributions into using his favorite higher dividend funds? (With dividends reinvested into more shares of the fund paying them)
Yes. The less tax-efficient fund should be in the tax-favored account, since all funds have the same tax cost there.

The TSP doesn't have a value fund, though, and it's usually best to hold your bonds there because of the G fund. An IRA would be a natural place to put a high-dividend fund.
David Grabiner

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Re: TSM vs High Dividend Yield if I never choose to sell?

Post by Wakefield1 » Sat Dec 09, 2017 11:52 pm

At least the IRAs now allow more than the $2000. per year :| that I was limited to most of the time that I could contribute to them. O.P. might be subject to a high income provision as to/against contributing to (deductible) IRA?
(perhaps O.P. could review the information about Roth conversions of non-deductible IRA contributions (so called "backdoor")
I guess if O.P. is reluctant to sell,if some of the investment is in tax deferred he eventually must confront the "Required Minimum Distributions"-but would he feel compelled to reinvest the proceeds of RMD into the same things in taxable accounts?

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Re: TSM vs High Dividend Yield if I never choose to sell?

Post by aj76er » Sun Dec 10, 2017 2:31 am

You could look into Vanguard's Dividend Growth Fund. Looks like the mutual fund may be closed to new investors, but the ETF (VIG) should still be available.

A total market fund, or an S&P, or a dividend growth fund should all experience dividend growth over time. With a growth-oriented fund, like total market, the earnings growth will tend to outperform the dividend growth (i.e. earnings go up faster than dividends), so the overall yield gets smaller. Thus, you should be careful when just looking at yield numbers as it may not show the whole picture.

Personally, I think having a blend of growth and dividends is a good thing; and an S&P achieves that with good quality companies.
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle

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Re: TSM vs High Dividend Yield if I never choose to sell?

Post by dbr » Sun Dec 10, 2017 9:05 am

Captain kangaroo wrote:
Sat Dec 09, 2017 5:02 pm


I am in my late 20's and have 2,000,000 to invest. I have a relatively safe government job that will supply me with a pension when I am older. My logic is to reinvest all dividends/CG for the next 20 or so years until I choose to retire. My thought process behind using the High Yield fund as opposed to the TSM would be that if I ever choose to, I can take the large dividends for a year and use it to buy something I want, or take a vacation, then resume reinvesting them, while the TSM wouldn't give off nearly as big of a dividend. My goal is to not have to draw down the principle in retirement.
The idea that you are somehow ahead by "taking the dividends" and "not drawing down the principal" is a pure misunderstanding of investments and how to use them. Stop thinking that way.

If you want to spend some money from your accumulated wealth there is no difference between cashing a dividend check or selling some shares and withdrawing the money. The difference that does exist between a high dividend fund and a fund paying a more average dividend is that in a taxable account the dividend fund will cost you more in taxes.

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Re: TSM vs High Dividend Yield if I never choose to sell?

Post by Vanguard Fan 1367 » Sun Dec 10, 2017 9:18 am

I think that either TSM or High Dividend Yield ETF or Mutual Fund will work fine. I have owned Vanguard's High Dividend Yield ETF for several years and it has done well for me. I also own the Total Stock Market Fund.

The Vanguard approach I think is far better than going to an advisor, paying the advisor 1 percent assets under management fees, then buying one of the advisor recommend funds which might have a load and might have higher expenses than the .04 % of Vanguard's Admiral Total Stock Market Fund.

So I am glad that you are considering Vanguard.

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Re: TSM vs High Dividend Yield if I never choose to sell?

Post by tibbitts » Sun Dec 10, 2017 9:25 am

Obviously if you want high dividend you want both domestic and international. And arguably high-dividend mid and small(!). Somewhere out there there must be high-dividend micro cap ETF.

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Re: TSM vs High Dividend Yield if I never choose to sell?

Post by patrick013 » Sun Dec 10, 2017 5:31 pm

grabiner wrote:
Sat Dec 09, 2017 11:06 pm
patrick013 wrote:
Sat Dec 09, 2017 10:08 pm
grabiner wrote:
Sat Dec 09, 2017 8:30 pm
The extra tax cost of a high-dividend fund is greater if you never sell than if you do sell. In funds which pay high dividends, the share price grows more slowly because more of the return is paid to you in a dividend. If you sell, you will pay tax on the return either way; receiving it as a dividend costs more because you paid the tax earlier and had less time for the gains to grow. If you don't sell, you never pay tax on the increased share price, only on the dividend, so the full tax on the dividend is a loss.
But the gross return amply covers the taxes and the net return after
taxes exceeds the net return after taxes of say a 500 fund. This
adds up in the total return column.
Past performance is not an indication of future results.

And I don't see the effect here. Vanguard High Dividend Yield Index has tracked the S&P 500 very well since inception; it doesn't tend to outperform or underperform when value outperforms growth.
Vanguard High Dividend Yield Index is not the dividend fund to use if one
wants to beat the 500 after taxes. Need yield or equal weighted. Unfortunately
the funds that do are a bit pricey but not too high.

Fama and French are not the only factor investors around. I think factors
are incomplete without "dividends" being it's own factor. Not value but
dividends. Primarily LC but also for multi-cap dividend selections.
Invesco - Factor Investing is using 6 distinct factors, some
companies even more, and attracting investors.

I more or less would use a general SC index rather than SCV just because of
sporadic returns. The general index has more even returns and is actually
50% value stocks anyway. Each investor decides that.

I not all gung-ho over factors anyway, like I said some are going 10 different
factor selections, but "dividends" would look good as it's own factor thru F&F
or others. Dividends mean corporate profits to me.

One of my favorite dividend indexes :
S&P 500 Low Volatility High Dividend Index TR - 12.38% 10 year Total Return

Personal computations show a dividend fund returning 1.0% or perhaps 2%
more than a general 500 index has no problem with tax efficiency comparing
resulting returns after tax.
age in bonds, buy-and-hold, 10 year business cycle

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Re: TSM vs High Dividend Yield if I never choose to sell?

Post by patrick013 » Sun Dec 10, 2017 5:35 pm

triceratop wrote:
Sat Dec 09, 2017 10:48 pm
patrick013 wrote:
Sat Dec 09, 2017 10:08 pm

But the gross return amply covers the taxes and the net return after
taxes exceeds the net return after taxes of say a 500 fund. This
adds up in the total return column.
[citation needed] :confused
Just personal computations on a spreadsheet.
age in bonds, buy-and-hold, 10 year business cycle

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Re: TSM vs High Dividend Yield if I never choose to sell?

Post by All Seasons » Sun Dec 10, 2017 5:43 pm

The behavioural benefit of getting dividends is big for some investors. Being able to focus on cash dividends helps many to ignore market fluctuations and stay the course. Dividend focused funds also seem to have more frequent distributions (say, monthly), compared to many total market funds that are quarterly or even semi-annually. This may further help to eliminate investor jitters during downturns.

A dividend-focused portfolio held for the long-haul is better than a market cap portfolio that is bought and sold frequently. Having said that, I'm pretty much all market cap weighted myself.
The market portfolio is always a legitimate portfolio.

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Re: TSM vs High Dividend Yield if I never choose to sell?

Post by triceratop » Sun Dec 10, 2017 6:04 pm

patrick013 wrote:
Sun Dec 10, 2017 5:35 pm
triceratop wrote:
Sat Dec 09, 2017 10:48 pm
patrick013 wrote:
Sat Dec 09, 2017 10:08 pm

But the gross return amply covers the taxes and the net return after
taxes exceeds the net return after taxes of say a 500 fund. This
adds up in the total return column.
[citation needed] :confused
Just personal computations on a spreadsheet.
Yes but my objection is matter-of-factly projecting these into the future. The result is far from assured and is not a matter of personal computations.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: TSM vs High Dividend Yield if I never choose to sell?

Post by patrick013 » Sun Dec 10, 2017 6:54 pm

triceratop wrote:
Sun Dec 10, 2017 6:04 pm
patrick013 wrote:
Sun Dec 10, 2017 5:35 pm
triceratop wrote:
Sat Dec 09, 2017 10:48 pm
patrick013 wrote:
Sat Dec 09, 2017 10:08 pm

But the gross return amply covers the taxes and the net return after
taxes exceeds the net return after taxes of say a 500 fund. This
adds up in the total return column.
[citation needed] :confused
Just personal computations on a spreadsheet.
Yes but my objection is matter-of-factly projecting these into the future. The result is far from assured and is not a matter of personal computations.
Sure, one advisor I read recently advises dividend funds and laddered bonds.
My paraphrase would be seeing that growth may currently be negative after
inflation adjustment and going forward stocks may decline, the dividend card
would produce tangible returns during this period. Companies paying dividends
would be making profits and paying dividends and the best place to invest in
them would be in a dividend index fund. To me it's a tilt that should be positive.
The sustainable growth equation would not be used, rather a dividend payout
for some return during a period of lowering stock prices. Trying to avoid a cap
loss at the same time, unless TLH is part of your plan. Not so much about that.

The studies go back to 1950 and 1960 so the history is there. Just have to
decide for yourself, if the 500 is headed to 3000 or will wilt to somewhat
less during the elusive market correction. Or just buy-and-hold, someone
will bail them out. Don't really know either. :)
age in bonds, buy-and-hold, 10 year business cycle

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Re: TSM vs High Dividend Yield if I never choose to sell?

Post by MrPotatoHead » Sun Dec 10, 2017 7:59 pm

I have no real issues with your proposal but will offer a few thoughts.

One, a total stock market index, with Dividends reinvested will grow fairly quickly and likely throw off enough in dividends in a few years to satisfy your desires; then again maybe not. IN any event, I would look at taking those dividend payment and using them to fund your ROTH IRA and that of your spouse (you can do a backdoor ROTH if need be). In this case the two IRA contributions plus your desire to occasionally spend some dividends may make your high yield approach more compelling.

The other thing I would suggest is you strongly consider a firm other than Vanguard since you are starting with 2 million. The reason is at a firm like Fidelity you will get superior customer service and access to a plethora of knowledgeable advisers at no cost to you. Schwab is similar in that regard. I have significant assets at Vanguard and Fidelity and the level of service is like light and day between the two. If you go with Fidelity you might want to look at both ITOT .04% ER and DGRO at .08% ER.

All the best...

Longtermgrowth
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Re: TSM vs High Dividend Yield if I never choose to sell?

Post by Longtermgrowth » Mon Dec 11, 2017 12:28 am

At that age, with so many years to go till retirement and current amount to invest, tax efficiency is important. Diversification is also very important. I would go with total market funds, keeping at least some percentage in total international stocks.

Then, put max contribution in tax advantaged accounts, trying to keep bonds there. Could use dividends from total stock indexes in taxable if needed. These taxable tax efficient funds will probably grow so large over the coming decades, that selling a few shares in retirement won't bother you a bit!

Valuethinker
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Re: TSM vs High Dividend Yield if I never choose to sell?

Post by Valuethinker » Mon Dec 11, 2017 3:43 am

snarlyjack wrote:
Sat Dec 09, 2017 9:08 pm
Captain Kangaroo,

Hello & nice meeting you.

If I were you (knowing what I know) this is exactly what I would do.

I would invest the whole $2 Million into the Vanguard Balanced Fund 60% stocks/40% bonds
& not worry about it for the rest of my life... then pass it on to the next generation.

Reasons:

1). At age 62 when you retire you'll have $17 Million invested very conservatively.
2). The ER (expense ratio) of the balanced fund is .07 (super low).
3). You'll still have dividends & interest paid quarterly that you could use in a emergency.
4). It's a sleep well at night fund that Jack Bogle really likes (so do I & other's).
5). I used 7% growth for 32 years, investing 2 Million, no addition funds = $17 Million.

Use this calculator with your numbers. Use age 100 - (your age/29) = 71 years.
Let me know your portfolio numbers at age 100. No need to get aggressive.
(I get $244 Million at age 100. Use a conservative balanced fund & relax/be smart).

https://www.investor.gov/additional-res ... calculator
Have you included taxes in this calculation?

Taxes has a huge impact.

It's quite unlikely OP will get 7% in a 60/40 portfolio going forward. Bonds are yielding 2.-2.5% pa ad that's a good estimate of long run return. Stocks are likely to get 6-7% pa at best, from where we are now. 5% or lower is certainly possible.

I don't disagree re balanced fund *but* taxable location will be important in this.

Valuethinker
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Re: TSM vs High Dividend Yield if I never choose to sell?

Post by Valuethinker » Mon Dec 11, 2017 3:54 am

Captain kangaroo wrote:
Sat Dec 09, 2017 5:02 pm
I have I guess what you may call, a phobia, of selling my investments. When I buy something, I plan on holding it essentially until I die and passing it on. This may be good for growing a portfolio, but I also don't believe it will allow me to improve my quality of life with extra funds, if I ever chose to do so.

This brings me to my question. Would it be a better idea for someone like myself to invest in, say, the Vanguard High Dividend Yield Index Fund as a core holding?

From my research, it tracks relatively closely to the S&P 500, and has returns over 8% for the past 10 year period. It is also yielding 2.79% at the time of this.

I am in my late 20's and have 2,000,000 to invest. I have a relatively safe government job that will supply me with a pension when I am older. My logic is to reinvest all dividends/CG for the next 20 or so years until I choose to retire. My thought process behind using the High Yield fund as opposed to the TSM would be that if I ever choose to, I can take the large dividends for a year and use it to buy something I want, or take a vacation, then resume reinvesting them, while the TSM wouldn't give off nearly as big of a dividend. My goal is to not have to draw down the principle in retirement.

When I retire I will just live off my pension, and the dividends, and pass on my entire portfolio when I die.

Still relatively new to investing, opinions on this strategy?
If you look at the Dividend cover of those stocks then you wouldn't be buying them for dividends. You'd basically get a tax inefficient way of buying into things that have a higher than average chance of going wrong. You'd be better off in the Dividend Achievers fund (I don't recommend that, either, because you should focus on total return and tax efficiency).

Note some of the real steady eddies of the dividend investing game are just not in the US index. Consider tobacco - best dividend grower of the last 30 years, probably-- you've had your stock price back many times over in dividends. But British American Tobacco and Imperial Tobacco are London-listed stocks, not NYSE.

Overseas stocks generally pay higher dividends than US cos. One of the most steady US companies, Berkshire Hathaway (Warren Buffett), which is huge, has never paid a dividend. If you download Buffett's letter to his shareholders on dividends, he explains why.

You would be better to have a globally diversified portfolio, and to have at least some bonds. I would say 20%. The safest investment you could make would be 20% TIPS bonds- -which protect you against inflation (but are more volatile in value, in recent experience, than nominal US Treasuries).

So say:

400k in US Treasury bonds
1.2m in Vanguard Total Stock Market or equivalent tax managed fund
400k in Vanguard World ex US (this could be up to 700k traded off against Vanguard TSM).

snarlyjack
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Re: TSM vs High Dividend Yield if I never choose to sell?

Post by snarlyjack » Mon Dec 11, 2017 9:56 am

Another consideration would be the Life Strategy Funds.

1). Total Stock Market
2). Total International Stock Market
3). Total Bond Fund
4). Total International Bond Fund

Pick your Asset Allocation:
80/20, 60/40, 40/60, 20/80

The 80/20 & 60/40 funds pay a semi-annual dividend.
The 40/60 & 20/80 funds pay a quarterly dividend.
The Balanced Fund 60/40 pays a quarterly dividend.

You could get & mix of funds to get a perfect AA (example 50/50).

I would be looking at the Balanced Fund or the Life Strategy Funds.
Jack Bogle really likes the Balanced Fund (as do others). Some investors
really like the Life Strategy Funds (4 fund portfolio).

The idea would be: Place the money into your fund. Add to it every month.
Have a good life & not worry about it. At your age I would go
80/20 or 60/40. 80/20 is more tax efficient but more volatile but the
60/40 would work also. The 40/60 or 20/80 would be to conservative.
Your not going to be able to drop $2 Million into a IRA or 401K.
Your going to have to live with some taxes.

Stormbringer
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Re: TSM vs High Dividend Yield if I never choose to sell?

Post by Stormbringer » Mon Dec 11, 2017 10:05 am

Captain kangaroo wrote:
Sat Dec 09, 2017 5:02 pm
I am in my late 20's and have 2,000,000 to invest. I have a relatively safe government job that will supply me with a pension when I am older.
With that time horizon and a pension, I would be inclined to put it all in a Warren Buffett 90/10 portfolio so long as you promise to rarely look at your statement as it will be a roller coaster ride.
"Compound interest is the most powerful force in the universe." - Albert Einstein

dbr
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Re: TSM vs High Dividend Yield if I never choose to sell?

Post by dbr » Mon Dec 11, 2017 10:10 am

Stormbringer wrote:
Mon Dec 11, 2017 10:05 am
Captain kangaroo wrote:
Sat Dec 09, 2017 5:02 pm
I am in my late 20's and have 2,000,000 to invest. I have a relatively safe government job that will supply me with a pension when I am older.
With that time horizon and a pension, I would be inclined to put it all in a Warren Buffett 90/10 portfolio so long as you promise to rarely look at your statement as it will be a roller coaster ride.
I agree with the time horizon but I don't agree with the "I have a relatively safe government job." part. A lot of things can happen to a job over a working lifetime. Golden Handcuffs can be the worst kind of prison, and other things can happen as well. Late 20's is awfully young to be that sure of things.

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