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Buy-n-Holder Considers Heresy
Old 01-30-2008, 05:19 PM   #1
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Buy-n-Holder Considers Heresy

I am a devout buy-n-hold, asset allocation, rebalance, low cost, diversification investor.

Here a heresy I've been casually kicking around:

Some kind of dividend strategy that produces 4% of the starting portfolio and increases by 3% per year, while also (over long time periods) maintaining a constant real capital amount. This may become easier if the stock market continues to drop and/or dividends come back into vogue. One possibility here is Wellesley or a high-dividend fund. Another possibility is a fund that sell covered calls (although I'm worried about the capital worth). The idea here is to generate living income through the dividends while not having to sell capital assests during a market downturn.

Thoughts?
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Old 01-30-2008, 05:23 PM   #2
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Works great for me.
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Old 01-30-2008, 05:31 PM   #3
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FWIW: Asset Allocation with rebalancing is NOT buy-and-hold investing. Rebalancing involves selling some assets high and buying other assets low.

Investing for dividends - that actually IS a buy-and-hold investing strategy as you don't sell any of the underlying assets. It's just that you aren't reinvesting dividends.

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Old 01-30-2008, 05:47 PM   #4
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Quote:
Originally Posted by TickTock View Post
I am a devout buy-n-hold, asset allocation, rebalance, low cost, diversification investor.

Here a heresy I've been casually kicking around:

Some kind of dividend strategy that produces 4% of the starting portfolio and increases by 3% per year, while also (over long time periods) maintaining a constant real capital amount. This may become easier if the stock market continues to drop and/or dividends come back into vogue. One possibility here is Wellesley or a high-dividend fund. Another possibility is a fund that sell covered calls (although I'm worried about the capital worth). The idea here is to generate living income through the dividends while not having to sell capital assests during a market downturn.

Thoughts?
Nothing wrong with Wellesley that I know of. My plan is somewhat similar. I'll have enough from Wellesley dividends and various fixed income to live, and I'll have index funds to let my nestegg grow (mainly VTSMX Total Stock Market Index, and VFWIX, FTSE All-World Ex-US Index).

I won't have to sell the index funds during a market downturn, and during market upturns they'll soar (and I can buy more Wellesley with the excess if I want to). Hope it works.

I will continue to monitor my asset allocation and rebalance as necessary. During market downturns I will try to buy new index funds in order to complete my rebalancing, and hang on to the Wellesley.
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Old 01-30-2008, 06:00 PM   #5
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audreyh1,

Good point! I'll start referring to myself as an asset allocation investor and drop the B&H.


CFB,

Any strategy is going to do well for someone. Where's the theory, the research, the historical results? Details, man, I need details!!!
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Old 01-30-2008, 06:18 PM   #6
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Plenty, but its all backwards looking and a lot of the factors may not work going forward.

But as UM says..."agile, mobile, hostile" usually works out fine when evenly applied.

Maybe you spread the peanut butter around a little bit. Chunk of Wellesley, chunk of target retirement income, chunk of lifestrategy income, chunk of managed payout 3%, little of this, little of that...
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Old 01-30-2008, 07:08 PM   #7
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This is what I did, using individual stocks - a combination of top quality REITs
and large-caps. When I retired in 2006, my starting overall dividend yield was
about 3.5%, with an expected growth rate around 7% or so. So far everything
is going smoothly - earnings and dividends have been increasing as expected.
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