RAchip wrote: ↑Tue Aug 06, 2019 10:18 am
CyclingDuo makes a convincing argument as to why dividend investing for stable income and capital appreciation is effective. Yet people here continue to fight this. All I can say is that this is a successful strategy employed by people with a lot of money.
I am somewhat agnostic about it all.
To be honest, our dividend portfolio is a portion of our overall portfolio that includes index funds, growth stocks (stocks that pay no dividends), cash, managed funds, bonds, CD's, rental income, and dividend payers/growers via individual stocks. I've written about it before, but due to some inherited dividend stocks (70+ of them) several years ago - I am required to manage them as my spouse did not want to sell the family's divvy payers due to her valid emotional connection and her desire to pass them on to our own children when we are gone, so I backed off and honored her wishes. Not to do so would have been rather stressful on our marriage, so it is what it is. At the same time, the Wiki here at BH regarding a windfall had me step back and accept the "do nothing" for a while suggestion, rather than make quick decisions and changes. That was simply our reality at the time and the process back then involved meeting with several potential AUM firms/advisors - all of whom wanted to make immediate changes by selling everything we had and moving things around which in the end, had us make the decision to DIY it. Plenty of support on these forums and others encouraged me that it could be done. The Wiki on a passively managed DIY index fund made up of individual stocks also helped enlighten me that life was not going to be over due to holding so many individual stocks.
I did talk my spouse into dumping all of the gold/silver related stocks and some MLP's (stuff I didn't really understand at the time) and getting the dividends in taxable cut down to an amount we could absorb without impacting our income taxes too much. It forced me to take a really hard look at what it was she inherited and why the portfolio was designed in the way it was designed by her parents. They had been living off of the dividends and SS for about three decades before they passed. I did sell what I had inherited from my parents and get them into low cost index funds as their smaller pot was all in load funds via their Morgan Stanley broker. I had no qualms doing that.
Meanwhile, everything we invest from our paychecks goes directly into the three fund portfolio in all of our retirement plans. We have made great strides over the past 4 years in increasing the amount of our portfolio that is in passive index funds to where it has grown or will grow to be nearly the same size or larger than that of our dividend and growth stocks portfolio over the next few years by the time we retire. And our dividend and growth individual stock portfolio is also passive (a la the Wiki on passively managing individual stocks).
The other hand I was personally dealt last year, was being laid off which led me to a thorough study of Miller's book, and engage in much back and forth with him as well as others in designing a "What if?" scenario of me not being able to find replacement income and how to best utilize the dividends we did have coming in each quarter. When faced with a potential reality of coming up with enough gap income to make it to SS was not something I would wish upon anyone with one child still in college, but B. Miller's expertise and experience in having faced that himself was comforting and helped me engage in some planning.
Fortunately, after the initial panic of losing a job I had held for 15 years, and me finally settling down a few months later about it all, I was able to find enough replacement income to not have to dig into our dividends or index funds as an income stream as of yet. In spite of that, I did feel the need to investigate, learn and prepare for my reality at the time last year. The dividends have all simply been reinvested since 2016 - to purchase index ETF's in our taxable and using DRIP's ever since to acquire more shares of each position. This could all be turned on for dividend income at some point in the future if needed for replacement income, and certainly in retirement. I'm only 57 and there is no guarantee the current replacement income I have been able to find will continue from now until my early to mid 60's - or whenever it is retirement happens. Having the option of turning on the dividend spigot from that portion of our portfolio is what it is - a potential diversity of income stream that is there if need be.
I completely understand that a dividend is nothing but a return of capital and is only one part of a total return portfolio. The only way we have been able to keep the portion we hold in our taxable account somewhat
tax efficient in the growth stage the past few years is by maxing out three employer plans with our pre-tax deductions, and then cutting back on our expenses. In other words, shifting more money into tax advantaged accounts during our final 5-10 years of working and increasing the amount of passively managed index funds that we own. It is what it is, and as outlined above - 'tis the hand I have been dealt.
I made a graphic last year when I got laid off and entitled it appropriately for how I felt at the time of being terminated and after having read Bruce Miller's book....
Since making that graph a little over a year ago, we will have dumped another $150K into the passive index funds by the end of this year, as my goal is to have the index funds surpass the percentage of the individual stocks in our portfolio over the next few years as we continue our contributions and work towards increasing our odds of honoring the goal of passing on some sort of a family legacy to our children.
Not sure that helps, but just wanting to clarify.