Dividends vs. Capital Gains for Spending Needs?

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Longtermgrowth
Posts: 571
Joined: Thu Nov 26, 2015 1:59 pm

Re: Dividends vs. Capital Gains for Spending Needs?

Post by Longtermgrowth » Thu Oct 19, 2017 2:57 pm

snarlyjack, I was actually thinking only about future qualified dividend income percentage between TSM vs the 500. If TSM continues with low 90% QDI, and the 500 has 100% QDI, there's some in federal taxes owed even in low tax brackets holding TSM.

katon
Posts: 72
Joined: Thu Jul 14, 2016 2:59 am

Re: Dividends vs. Capital Gains for Spending Needs?

Post by katon » Sun Jan 14, 2018 8:19 am

snarlyjack wrote:
Thu Oct 05, 2017 4:08 pm
Since were posting articles & giving opinions.
I would like to post mine.

I love freedom, I love passive income, I love my time...

The question is, how can I achieve my goals without selling
off my portfolio? Remember I' am a young guy 23 years old.
I need my portfolio to last until age 100. That's 77 more years.
I have no intention of selling off my portfolio. If anything it
needs to be a lot larger. That's what I' am working on.

Enjoy this article & see if you can relate.

http://www.dividendmantra.com/2011/05/why-dividends/
I am 32 years old. From Israel.
Building portfolio and try not to sell shares. Only focused on dividends.

snarlyjack
Posts: 780
Joined: Fri Aug 28, 2015 12:44 pm
Location: Montana

Re: Dividends vs. Capital Gains for Spending Needs?

Post by snarlyjack » Sun Jan 14, 2018 11:28 am

Katon,

Welcome to Bogleheads...from Israel.

Their is a thread running now that might help you.

Enjoy...

viewtopic.php?f=10&t=237611

katon
Posts: 72
Joined: Thu Jul 14, 2016 2:59 am

Re: Dividends vs. Capital Gains for Spending Needs?

Post by katon » Sun Jan 14, 2018 12:04 pm

snarlyjack wrote:
Sun Jan 14, 2018 11:28 am
Katon,

Welcome to Bogleheads...from Israel.

Their is a thread running now that might help you.

Enjoy...

viewtopic.php?f=10&t=237611
thanks
are you also from Israel?

ralph124cf
Posts: 2072
Joined: Tue Apr 01, 2014 11:41 am

Re: Dividends vs. Capital Gains for Spending Needs?

Post by ralph124cf » Sun Jan 14, 2018 12:07 pm

snarlyjack wrote:
Thu Oct 05, 2017 4:08 pm
Since were posting articles & giving opinions.
I would like to post mine.

I love freedom, I love passive income, I love my time...

The question is, how can I achieve my goals without selling
off my portfolio? Remember I' am a young guy 23 years old.
I need my portfolio to last until age 100. That's 77 more years.
I have no intention of selling off my portfolio. If anything it
needs to be a lot larger. That's what I' am working on.

Enjoy this article & see if you can relate.

http://www.dividendmantra.com/2011/05/why-dividends/
The article was aimed at somebody relying on a portfolio for current retirement income, not someone in the accumulation stage.

Ralph

katon
Posts: 72
Joined: Thu Jul 14, 2016 2:59 am

Re: Dividends vs. Capital Gains for Spending Needs?

Post by katon » Sun Jan 14, 2018 1:00 pm

ralph124cf wrote:
Sun Jan 14, 2018 12:07 pm
snarlyjack wrote:
Thu Oct 05, 2017 4:08 pm
Since were posting articles & giving opinions.
I would like to post mine.

I love freedom, I love passive income, I love my time...

The question is, how can I achieve my goals without selling
off my portfolio? Remember I' am a young guy 23 years old.
I need my portfolio to last until age 100. That's 77 more years.
I have no intention of selling off my portfolio. If anything it
needs to be a lot larger. That's what I' am working on.

Enjoy this article & see if you can relate.

http://www.dividendmantra.com/2011/05/why-dividends/
The article was aimed at somebody relying on a portfolio for current retirement income, not someone in the accumulation stage.

Ralph
I am interested in using part of the income before the retirement... i think there are lot of people like in my situation.

dbr
Posts: 27497
Joined: Sun Mar 04, 2007 9:50 am

Re: Dividends vs. Capital Gains for Spending Needs?

Post by dbr » Sun Jan 14, 2018 1:08 pm

After five pages are we still not clear that dividends and personal income are not the same thing? How is it possible that this discussion can even exist?

Yes, I know there is a whole literature in behavioral finance about the dividend stocks puzzle.

Cash is King
Posts: 49
Joined: Sun Dec 10, 2017 9:04 am

Re: Dividends vs. Capital Gains for Spending Needs?

Post by Cash is King » Sun Jan 14, 2018 2:36 pm

All,
I suggest the dividend naysayers read the following:https://www.joshuakennon.com/5-theories ... ock-market. Please read his 4th stock market theory several times as it applicable to many on this board.

Pdub
Posts: 65
Joined: Sat Oct 21, 2017 6:10 am

Re: Dividends vs. Capital Gains for Spending Needs?

Post by Pdub » Sun Jan 14, 2018 4:38 pm

Hi, I will be making my way through this giant thread, but am hoping to get one quick question answered. I have searched through multiple other threads and have not seen it or have missed it...

Here are some things I understand about dividends...

It is not free money.
It is paid out to you on the company's time schedule not yours.
It comes directly out of the stock price of the company.
It can cause issues to companies as they try to keep up with dividend payments during down turns.
It may not be wise to hold high dividend stocks/funds in a taxable account.

Here is what I dont understand..

If I have enough stocks/funds that pay dividends, and I can survive on those dividends and other income streams without selling shares..wouldnt that allow me to preserve my capital and maintain a steady source of income?

As I sell shares under a "total return" approach, don't I slowly reduce my base of shares decreasing my source of income?

I understand that no one can guarantee that dividends will remain the same, and that one should view their holdings as a pool of money as opposed to a number of shares..but isnt the greater the number of shares the better (bankrupt companies not withstanding)?

Thank you

snarlyjack
Posts: 780
Joined: Fri Aug 28, 2015 12:44 pm
Location: Montana

Re: Dividends vs. Capital Gains for Spending Needs?

Post by snarlyjack » Sun Jan 14, 2018 10:40 pm

Pdub,

Welcome to Bogleheads & nice meeting you.

This is how I understand your question.

If you have a large enough portfolio where you can live off
your portfolio (dividends & interest) that's the way to go.

If your portfolio isn't quite as large, where you don't have enough
to live off dividends & interest then the other way of getting income
out of your portfolio is through the 4% (Trinity) guidelines.

It all comes down to portfolio size. Their are other considerations
such as do you have a pension or mortgage debt. All in all, the larger
the portfolio the better.

If you study the "secret millionaires" they have huge portfolio's that
took decades to build. They had a vision (crystalized their goals)
and built their portfolio's...

dbr
Posts: 27497
Joined: Sun Mar 04, 2007 9:50 am

Re: Dividends vs. Capital Gains for Spending Needs?

Post by dbr » Sun Jan 14, 2018 10:52 pm

Pdub wrote:
Sun Jan 14, 2018 4:38 pm

If I have enough stocks/funds that pay dividends, and I can survive on those dividends and other income streams without selling shares..wouldnt that allow me to preserve my capital and maintain a steady source of income?

No, not if the price of those shares declines, or merely fails to increase as needed. Your wealth is not measured in shares owned; it is measured in number of shares multiplied by the price of a share. Whether or not the income is steady depends on how steady the dividend paid per share is. Dividend payouts change, increasing or decreasing in dollars paid per share. Sometime the dividend payment ceases altogether.


As I sell shares under a "total return" approach, don't I slowly reduce my base of shares decreasing my source of income?

"Total return" is not an approach. The idea refers to doing the math of keeping track of what your investments do in a complete and self consistent manner that allows you to see what your wealth is and how much it is changing as the market delivers return and you take withdrawals. "Dividend investing" is an approach in that it is a method to determine what your withdrawals might be and possibly also a method to pick investments. If you use a dividend investing approach you still have to do a correct calculation of the outcome to know what is going to happen. If you don't use a "dividend" approach, how much to withdraw and what investments to pick still remains to be determined. Once you keep track of things correctly it becomes possible try to figure out those other things. Whether or not picking investments on dividend criteria is a good idea would be one thing remaining to be determined. The answer mostly seems to be that there isn't much there.

A decreasing number of shares does not mean decreasing wealth if the amount withdrawn is less than the total gain. It is also a question of whether or not one intends to maintain/increase one's wealth. A lot of people save money during working years in order to spend it during retirement. If you want to maintain your wealth and also take income from it, you have to be very wealthy or content to take a minimum in income.


I understand that no one can guarantee that dividends will remain the same, and that one should view their holdings as a pool of money as opposed to a number of shares..but isnt the greater the number of shares the better (bankrupt companies not withstanding)?

If you understand the two points you say you understand, then where would you get the idea the number of shares matters?

Thank you

Pdub
Posts: 65
Joined: Sat Oct 21, 2017 6:10 am

Re: Dividends vs. Capital Gains for Spending Needs?

Post by Pdub » Mon Jan 15, 2018 6:50 am

snarlyjack wrote:
Sun Jan 14, 2018 10:40 pm
Pdub,

Welcome to Bogleheads & nice meeting you.

This is how I understand your question.

If you have a large enough portfolio where you can live off
your portfolio (dividends & interest) that's the way to go.

If your portfolio isn't quite as large, where you don't have enough
to live off dividends & interest then the other way of getting income
out of your portfolio is through the 4% (Trinity) guidelines.

It all comes down to portfolio size. Their are other considerations
such as do you have a pension or mortgage debt. All in all, the larger
the portfolio the better.

If you study the "secret millionaires" they have huge portfolio's that
took decades to build. They had a vision (crystalized their goals)
and built their portfolio's...
Thank you. That is largely where my thinking seems to be. If you are near retirement, in need of income, and can stay in a low tax bracket, having a large portfolio of dividends in a taxable is not too much of an issue.

When accumulating the portfolio the dividends in the taxable create a drag, limiting your total return and growth.

However by the time you have amassed your portfolio via a tax efficient indexing strategy, switching it all to dividends near retirement would be a big tax hit.

Pdub
Posts: 65
Joined: Sat Oct 21, 2017 6:10 am

Re: Dividends vs. Capital Gains for Spending Needs?

Post by Pdub » Mon Jan 15, 2018 7:03 am

dbr wrote:
Sun Jan 14, 2018 10:52 pm
Pdub wrote:
Sun Jan 14, 2018 4:38 pm

If I have enough stocks/funds that pay dividends, and I can survive on those dividends and other income streams without selling shares..wouldnt that allow me to preserve my capital and maintain a steady source of income?

No, not if the price of those shares declines, or merely fails to increase as needed. Your wealth is not measured in shares owned; it is measured in number of shares multiplied by the price of a share. Whether or not the income is steady depends on how steady the dividend paid per share is. Dividend payouts change, increasing or decreasing in dollars paid per share. Sometime the dividend payment ceases altogether.


As I sell shares under a "total return" approach, don't I slowly reduce my base of shares decreasing my source of income?

"Total return" is not an approach. The idea refers to doing the math of keeping track of what your investments do in a complete and self consistent manner that allows you to see what your wealth is and how much it is changing as the market delivers return and you take withdrawals. "Dividend investing" is an approach in that it is a method to determine what your withdrawals might be and possibly also a method to pick investments. If you use a dividend investing approach you still have to do a correct calculation of the outcome to know what is going to happen. If you don't use a "dividend" approach, how much to withdraw and what investments to pick still remains to be determined. Once you keep track of things correctly it becomes possible try to figure out those other things. Whether or not picking investments on dividend criteria is a good idea would be one thing remaining to be determined. The answer mostly seems to be that there isn't much there.

A decreasing number of shares does not mean decreasing wealth if the amount withdrawn is less than the total gain. It is also a question of whether or not one intends to maintain/increase one's wealth. A lot of people save money during working years in order to spend it during retirement. If you want to maintain your wealth and also take income from it, you have to be very wealthy or content to take a minimum in income.


I understand that no one can guarantee that dividends will remain the same, and that one should view their holdings as a pool of money as opposed to a number of shares..but isnt the greater the number of shares the better (bankrupt companies not withstanding)?

If you understand the two points you say you understand, then where would you get the idea the number of shares matters?

Thank you
Thanks dbr, I always appreciate your posts.

It makes sense, and thanks for pointing out, that the share price needs to recover in order for holding the dividend stock/fund to be of any benefit. But I guess that would be the expectation if one were to choose a dividend paying route. Just like the expectation in general is that the market is efficient and will continue to grow.

I guess the two things that are harder for me to wrap my head around are the following:

1. Behavioral and psychologically I spend so much effort building up my wealth, that I don't want to use it. I know that is completely counterintuitive to the reason of building it.

2. That the market can only grow so much.(?) As I sell shares the importance of the market growth becomes higher and higher in order to keep up with the math of shares x price per share, as shares go down.

That being said I have fashioned my portfolio as a 3 fund portfolio across several accounts and have been happy. I still have about half of my portfolio invested in various individual dividend aristocrat stocks that I have yet to change into my 3 funder (in a taxable so I am moving slower here), but will do so, as I want to increase my overall growth and efficiency.

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