Another idea to get the spending money we need in retirement

[haha]

Retirees Don't Need Income, They Need Spending Money - Seeking Alpha

There is a recent thread about all kinds of high income (current cash income) investments like BDCs, preferreds, REITs, etc. It got a lot of postive posts.

I look at most of these investments as only good in special situations. Like when something bad has occurred to a sub-class, and they are very cheap. I am not suggesting that this is the right way to look at them, but it has been my way (well, not BDCs!) and it has worked for many years, only one of which years did I have any other income. I now have moderate SS.

The link above essentially gives a more flexible if less catchingly named system similar to buckets. He says you don't need income, what you need is money to spend. Although this sounds like hair splitting, it isn't. It opens up many new avenues. I started investing seriously in 1974, and retired about 10 years later. Something similar to this method has always worked. I use mainly individual stocks rather than mutual funds or indexes or ETFs, unless I want to take a short or intermediate term position in some group which has been body slammed.

I think the method outlined in this article will work much better and with less risk of permanent loss for most of us moderate income people than anything more esoteric.

Ha

 

[Cut-Throat]

Mikey,

If you want a lot of feedback on this method, post it over at Bogelheads. You do know what they'd say, don't you ?

 

[haha]

Mikey,

If you want a lot of feedback on this method, post it over at Bogelheads. You do know what they'd say, don't you ?

Not Bogle, not good!

I don't really need feedback, I just thought it could be useful to people who are hard up enough to be buying things like BDCs.

My experience is that something that is not widely adopted can nevertheless be very effective. For some reason, there is resistance among rank and file investors to being price driven. Index funds are the opposite of value driven- the higher priced something is, the larger position that issue has in the index.

Another interesting thing to me is that this is a subcategory of total return investing, which is what most investors follow. The technique above tries to be an approach that adoes not willingly accept gradual liquidation of the portfolio.

I was presenting this as an alternative to yield stretching, not an an alternative to standard total return Bogle stuff. Boglemania is likely pretty safe, if one is well enough financed relative to his expenses. Anyway, does anyone think that $100 invested in the 10 year treasury @1.72% is likely to be a better investment than, say, PG @3.29, KO @2.7 and JNJ at 3.58%? All of these have been cheaper before, and will certainly be cheaper again, but the same is true of the 10 year note.

BTW- nice to see you back around here!

Ha

 

[Cut-Throat]

Index funds are the opposite of value driven- the higher priced something is, the larger position that issue has in the index.

And yet, they continue to perform !

At this stage of my life, I am only managing the downside.....I can easily live 'high on the hog' with a zero percent return. Not swinging for the fences Mikey....

 

[haha]

And yet, they continue to perform !

At this stage of my life, I am only managing the downside.....I can easily live 'high on the hog' with a zero percent return. Not swinging for the fences Mikey....

True, but you are rich, my man!

 

[MichaelB]

I think the method outlined in this article will work much better and with less risk of permanent loss for most of us moderate income people than anything more esoteric.

Ha

Good link. Add a bit of international equities, which have higher yields, it looks even better.

 

[haha]

Good link. Add a bit of international equities, which have higher yields, it looks even better.

What would be your suggestions here?

Ha

 

[Cut-Throat]

True, but you are rich, my man!

ha ha!.....I guess we're all rich compared to the average African!

 

[MichaelB]

What would be your suggestions here?

Ha

The article suggests the Dow stocks that yield more than the T-10. Add one or two stocks each from Germany, Switzerland, GB, that are top 10 components of the country index or iShare, trade as ADR, and have a dividend higher than the average of the US strategy. Novartis, BP or BT, DT as examples.

I wasa looking at an online calculator for inflation adjusted annuities the other day and noticed that for a married couple age 60 the rate is very close to the S&P yield. At those levels I think the S&P would be a superior choice.

 

[nun]

I thought I was going to read about something new. Surely putting a couple of years income into cash or something with insured principal, or even very short term bonds and then doing some dividend investing isn't anything new.

 

[haha]

I thought I was going to read about something new. Surely putting a couple of years income into cash or something with insured principal, or even very short term bonds and then doing some dividend investing isn't anything new.

Name something that could possibly be new.

 

[rbmrtn]

What would be your suggestions here?

Ha

I recently bought some DWX around 42 for euro dividend exposure.

 

[FIREd]

I am rather surprised that you find this idea noteworthy. From your other posts, I get the idea that you envision a developed world in steep economic decline so it puzzles me that you would support this type of strategy where half the cash flow has to be generated by capital gains. You have also said in recent months that you find stocks to be overvalued based on PE10, where will those needed capital gains come from in the future?

 

[haha]

I am rather surprised that you find this idea noteworthy. From your other posts, I get the idea that you envision a developed world in steep economic decline so it puzzles me that you would support this type of strategy where half the cash flow has to be generated by capital gains. You have also said in recent months that you find stocks to be overvalued based on PE10, where will those needed capital gains come from in the future?

Thanks you for your comment. If I invested in the whole market, your analysis would be correct. But this is not my strategy. Anyway, as I attempted to make clear, I have plenty money coming in for my moderate expenses. These ideas are in contrast to the reaching-for-yield ideas getting popular. As I believe I said in the OP, I am not advocating this, merely pointing to it.

Most of my assets are taxable. I may buy some puts to hedge into later years, as my tax bill should be quite a bit less in 2013, barring large changes in capital gains tax, due to carryover from earlier Roth conversions

I have a holding in MLPs that would be expensive to get rid of tax wise, I am with them until something negative seems to be on the horizon.

Ha

 

[nun]

Name something that could possibly be new.

I suppose I over interpreted "another" in the thread title to mean new.....but are we basically saying

psst.....Vanguard Dividend Growth, or High Yield Dividend or any dividend oriented mutual fund or EFT?

I can see the value of the article if it steers people away from income investments that are more risky and arcane that equities though.

 

[brewer12345]

Name something that could possibly be new.

New, Colorful Monkey Species Discovered - Yahoo! News

 

[Khufu]

I fail to see how being concentrated 88% in 16 Dow stocks represents a reduction of risk from owning higher yielding bonds.

 

[haha]

I agree! Who is the loser who linked to this asinine article?

 

[mathjak107]

that article made no sense from a risk stand point.

 

[MichaelB]

New, Colorful Monkey Species Discovered - Yahoo! News

I thought this was going to link to the rally monkey.

 

[brewer12345]

I agree! Who is the loser who linked to this asinine article?

Assuming you are not talking about my link to something truly novel in the world, c'mon Ha have a thick skin. You know that when heretics like you and I mention something besides either strict asset allocation or bugphuck idiotic yield chasing we are inciting the Inquisition to get a wiggle on. However, I think your approach is interesting because as I understand it you started of very young with an undersized portfolio (compared to what the studies suggest is necessary) and close to 40 years later you are still going strong. Perhaps you were lucky (I am never willing to discount luck, good or bad, in anything I do), but even in that case your story is worth telling.

I know you tend to be a dirty bottom fisher and that you like situations where there is a no-brainer opportunity. What I don't really know is what you do when there are no good opportunities and how you make the decision to get out and preserve capital. Any pearls you would care to cast before the swine would be valued by some of us. And ignore the Dominicans as they heat up the brands and start chanting at you.