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Old 02-17-2014, 11:27 AM   #41
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...(snip)...
Anyway, I do wonder if this whole style of investing will blow up and eventually become a nightmare. But, of course, I don't know what might cause that nightmare to happen. However, if it does happen, I'll regret not being 60-70% in bonds.
I know my own psychology in down markets and have expressly designed my investing around it. It's a very personal issue. BTW, I have 65% equities right now.

For others my only good general advise is to deal with regret issues before they can happen. Generally the mistakes are made in up markets. So for remembering down markets, you look at how you felt maybe in February 2009. Then multiply that by a factor like 200% to take into account really really bad markets like the 1930's.

Bernstein's recent treatise on stocks/bonds (only $5) is a really good read too: Amazon.com: Deep Risk: How History Informs Portfolio Design (Investing for Adults) eBook: William Bernstein: Kindle Store
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Old 02-17-2014, 12:12 PM   #42
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I own about 20 dividend stocks in lieu of owning any bonds or bond funds. In today's environment, I believe bonds are much higher risk in relation to their return than dividend stocks. I do select stocks with low P/E ratios compared to the market, though some have risen over time. Most are in taxable accounts, so I hesitate to sell them.
My favorite dividend stock over the past 5 years has been Main Street Capital (MAIN) which performed better than the S&P 500 during the crisis and has recovered much better, all while paying a generous dividend around 6%. I also have Realty Income (O), with the balance being blue chip type stocks such as BMY, XOM, DUK, JNJ, KMB, etc. I don't own any of the standard financial stocks, but a stock like MAIN is a business development company that invests in established small companies seeking alternative financing rather than a bank. To me, their performance coming out of the financial crisis says it all.
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Old 02-17-2014, 12:14 PM   #43
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I don't think anyone is going to be able to convince you that you're taking on a lot of risk. You seem willing to admit that large cap value funds are risky and can decline severely in a stock market crash, but somehow you also believe that your holding the same sort of stocks individually makes you immune from the same type of losses. Apparently the theory is that your reading of the stock market is so vastly superior to everybody else's that you will be able to identify the stocks that are headed down and sell them in a timely manner.

I would characterize this attitude as unrealistically optimistic, but it's your money and you can certainly invest it anyway that you think will produce the biggest profit for the lowest risk.
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Well, what does this sound like:

I know that there are mutual funds that concentrate on dividends. I was once in one—DVY. I watched it crash and burn. I remember thinking as it was crashing (and burning): “Why are they still holding all those financial-type companies?” I also remember thinking, “Well, duck, they surely know better than you.” They didn’t.

-ERD50
Erd50, let's try this again.

I said that I thought they surely knew better than I did. But, I had the nagging idea that holding on to the financial stocks was not wise. I still l think I was right. Anyhow, it was a thought. I never said I was vastly superior or immune (never said it or even thought it). However, all this was a catalyst to do something myself (I may have chosen the wrong thing to do).

However, I'm not a do-it-yourselfer. You seem to be a diy guy (from what I gather). Now, I'm not sure what your motives are for doing things yourself. Maybe you feel you can do things better or more inexpensively (or both) than an expert in a specific field. Maybe you just enjoy the process of diy. Maybe you see other ways of doing something that you feel suits your needs better. And, maybe I've completely missed your motives. But, I wouldn't think your wanting to do things yourself would be driven by arrogance. Me either.

So, here I am asking, just what did I ask?--it's been awhile, something about risk of "safe" dividend stocks vs. risk of bonds funds. I stated that I thought I knew something that the DVY managers didn't or couldn't take into account. Maybe the word "knew" was loaded and a better word could be used. "Noticed" or "observed" might have been better words.

Anyhow, I decided to be a diy guy re: this one portion of a portion of my portfolio. I gave some reasons regarding my motives and thinking.

+++
I've included two quotes from two different posts in this reply and I'm curious to see how this is going to look. Wish me luck.
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Old 02-17-2014, 12:31 PM   #44
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DVY is an index tracker. There is no smart manager running it.

"
The investment seeks to track the investment results of an index composed of relatively high dividend paying U.S. equities. The fund generally invests at least 90% of its assets in securities of the underlying index and in depositary receipts representing securities of the underlying index. It seeks to track the investment results of the Dow Jones U.S. Select Dividend Index (the "underlying index"), which measures the performance of a selected group of equity securities issued by companies that have provided relatively high dividend yields on a consistent basis over time."
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Old 02-17-2014, 12:39 PM   #45
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This was a darn good idea in 2008 - now not so much. What is it about buy low, sell high you don't understand?
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Old 02-17-2014, 12:58 PM   #46
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I stated that I thought I knew something that the DVY managers didn't or couldn't take into account. Maybe the word "knew" was loaded and a better word could be used. "Noticed" or "observed" might have been better words.
I am certainly willing to believe that your intent was more innocuous than how you came across. Written language is notoriously bad at conveying emotions, and I guess we just have to ascribe your earlier post to the limitations of the medium.

I really think, though, that you've already gotten the answer to your original question. Lsbcal, for example, posted the chart of VHDYX vs. VTSMX vs. VBTLX. The two stock funds tracked each other closely when the stock market crashed in 2008, whereas the bond fund was steady as a rock. Relying on dividend producing blue chip stocks instead of bonds is almost certainly not going to allow you to avoid this kind of potential for crazy price fluctuations in the future. If you need to avoid the volatility, you really should stick with bonds.

You have cited one example where you may very well have outguessed the broad market indexes and come out ahead. Can you do this sort of market timing consistently and successfully? I doubt it, but if you want to try you certainly don't need my input or approval to buy a basket of high dividend producers and monitor them for reasons to sell. As I said before, I wish you well and hopefully your investments will generate a nice profit.
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Old 02-17-2014, 01:09 PM   #47
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No doubt (IMHO) a diversified fund lowers risk of reduced dividend flow and loss of principle.
I'm not sure what unnerves me more - the possibility of loss of principle, or loss of principal. As someone who has a somewhat flexible stance on some issues, I'll pick the latter.

Now where is that Handy Forum Words thread when you need it..........
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Old 02-17-2014, 01:40 PM   #48
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I am old, too.

In my portfolio I have a few dividend stocks, a few balanced and equity funds and ETFs, some CDs and some cash. The dividend stocks I have are like me going gambling, which is not a regular pastime. This represents about 10% of my portfolio. They include:

AT&T
MO
SO
EPD (an MLP that pays $$/Unit, not dividends).

I had others, but sold them last year. I have the dividends reinvested (DRIPS).

I enjoy following companies and trying to find winners. That's why I buy certain individual stocks.
How come you sold some of your stocks last year? I wonder if I bought them.
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Old 02-17-2014, 01:53 PM   #49
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Of all the awful news from back then, the item that most struck home to me was the failure of Washington Mutual, which Wikipedia says happened on September 25, 2008. I would have guessed it happened a little earlier, but most likely that's because rumors of its imminent failure were already circling.

There were two reasons this news made an impression on me. It was the first time in my life that a financial institution failed in which I personally had an account. I had a credit card with them, which at the time was maxed out in a 0% loan.

That by itself would have been good reason for me to sit up and take notice, but even more striking was the peculiar incentive WaMu gave me to take the 0% loan in the first place. As I recall, they gave me the entire 1% credit card cash back on the loan. So here we have an example, absolutely unique in my experience, of a financial institution paying ME to borrow money from THEM. Even with my limited knowledge of how banks make money, this struck me as a rather counter-productive way for WaMu to turn a profit.

So my personal awareness of the huge magnitude of the crisis didn't happen until right around the time it became obvious to everybody else as well. I think this is a fairly inevitable byproduct of me being a buy-and-hold, ignore the financial noise type of investor. On rare occasions "noise" escalates to "news that you really should pay attention to". 2008 was one of those times.

If I had correctly identified the scope of the crisis in a more timely fashion, I would have done only minor things differently. Mostly I would have held off doing any rebalancing in the summer of 2008 and waited until the height of the crisis in October. In perfect 20/20 hindsight, I should have sold all my stocks in late 2007, but there is no chance at all I would have done that. I was in the process of building up my stock holdings from a floor of 15% and would have looked forward to the crash as a great buying opportunity.
Wait a minute, it sounds as if you had the same thoughts/feelings/intuition I had. By the way, I did not play it correctly either. I paid attention to the news, I just didn't know what to do about it.

I did the highlighting in the above quote which was taken from another thread.
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Old 02-17-2014, 02:10 PM   #50
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I have done well in the last few years with TOT (5.2%) and MO (5.4%). Just don't hold TOT in a tax sheltered account, because the French government takes a 30% cut of the dividends and you'll want to be able to get a credit for that when you file your income taxes.
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Old 02-17-2014, 02:11 PM   #51
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Wait a minute, it sounds as if you had the same thoughts/feelings/intuition I had. By the way, I did not play it correctly either. I paid attention to the news, I just didn't know what to do about it.

I did the highlighting in the above quote which was taken from another thread.
Nope, our "thoughts/feelings/intuition" were exactly the opposite. By the time WaMu folded in late September I was in full-fledged buy mode. I put about $150,000 into stocks between September, 2008 and March 2009. Only the first few purchases took more than a year to show a profit. Unless your intuition was already telling you to sell early in 2008, you get no points from me for wanting to sell during the crash. The buying I did in those six months was by far the most profitable investing I've ever done.

That's why I think the jury's still out on whether you actually would have outguessed the market in 2008, even though you are convinced you could have done better than your mutual fund managers. Sure, maybe you would have sold before the bottom of the crash, but would you have had enough courage to buy back in while the market was still down? Maybe, maybe not. Most people who sell stocks during a crash are relieved to be out of the market and take far too long to buy back in, thereby missing the best bargains.
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Old 02-17-2014, 03:29 PM   #52
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Well we certainly have had this discussion before.

The only areas about dividend stocks that concern me are A. it has become so popular almost trendy the last few years,and B. will I be able to move to a simpler portfolio before senility sets in.

When I first started investing seriously on dividend stocks 10 years ago, it certainly was a recognized but hardly popular investing style. Relying on 5% dividend yields with 5-15% dividend growth is hardly a path to getting rich quickly. The 2008 crash, coupled with crashing of bond yields have tuned dividend stocks into a hot investing style. It is not even Cramer is touting it that bothers me, but that on board like MrMoneyMustache, twenty-something that should be all excited about investing in the latest social media stock that will be a 10 bagger, are buying McDonald for the 3% yield instead. So this makes me think that after 5 years of relative over performance dividends stocks are likely to lag the market. I am also concerned that they will react negatively to higher interest rate.

It also requires more time and energy, and mental acuity to manage a portfolio of individual stocks than 3 or 4 index funds. I just wonder if I'll still be able to do it in 20 or 30 years.
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Old 02-17-2014, 03:34 PM   #53
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I have to commend Redduck for putting himself in the line of fire and listening to a lot of contrary opinion. It's all too easy to get caught up in our cherished opinions letting ego take over. It takes a strong person to be willing to hear other opinions.

I think holding equities is a difficult task for a lot of us here i.e. it is tough to deal with the volatility. So several methodologies that have you stay the course so to speak are likely to be winners in the long run. Some of them are:
1) Buy-hold index funds
2) Buy-hold individual equities, maybe higher dividend types
3) Even market timing where one sticks to the plan and it is well researched (a very rare thing)
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Old 02-17-2014, 04:52 PM   #54
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I'm not sure what unnerves me more - the possibility of loss of principle, or loss of principal. As someone who has a somewhat flexible stance on some issues, I'll pick the latter...
Does it matter?

One is just money. And who says the other one has to be inflexible, particularly when it involves just money and not ethical or moral issues. Let me just quote Groucho Marx.

"Those are my principles. If you don't like them, I have others" -- Groucho Marx
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Old 02-17-2014, 05:10 PM   #55
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I am certainly willing to believe that your intent was more innocuous than how you came across. Written language is notoriously bad at conveying emotions, and I guess we just have to ascribe your earlier post to the limitations of the medium.

I really think, though, that you've already gotten the answer to your original question. Lsbcal, for example, posted the chart of VHDYX vs. VTSMX vs. VBTLX. The two stock funds tracked each other closely when the stock market crashed in 2008, whereas the bond fund was steady as a rock. Relying on dividend producing blue chip stocks instead of bonds is almost certainly not going to allow you to avoid this kind of potential for crazy price fluctuations in the future. If you need to avoid the volatility, you really should stick with bonds.

You have cited one example where you may very well have outguessed the broad market indexes and come out ahead. Can you do this sort of market timing consistently and successfully? I doubt it, but if you want to try you certainly don't need my input or approval to buy a basket of high dividend producers and monitor them for reasons to sell. As I said before, I wish you well and hopefully your investments will generate a nice profit.
Bonds have certainly done well in the last 3 decades. But when (not if) interest rates start rising, they may not be "Steady as a Rock"
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Old 02-17-2014, 05:39 PM   #56
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Bonds have certainly done well in the last 3 decades. But when (not if) interest rates start rising, they may not be "Stead as a Rock"

Not to mention what might happen if China decides to stop buying our debt!
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Old 02-17-2014, 06:10 PM   #57
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Not to mention what might happen if China decides to stop buying our debt!
Don't worry about that, remember we have the Federal Reserve. They can buy it all.
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Old 02-17-2014, 06:25 PM   #58
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<snip>
Anyway, as long as Redduck does not go overboard with dividend stocks, and stays diversified with something like at least 20 stocks, I do not see that his is a high-risk approach. Redduck may not beat professional managers, but then he might.

And then, a retiree needs something to do with all his free time too. What else would Redduck spend his time on? Measuring speaker open-air responses in the backyard by frequency sweeping? Get into cooking and try different French dishes?

I hold many individual stocks, and as I do not trade daily, still have plenty of time to spend on above diversions because it's not the season for RV'ing, nor the time to ride my motorcycle into forest trails. Heh heh heh...
Well, I just came in from the backyard after spending two hours measuring speaker open-air responses by frequency speaking. I would have stayed out longer but I ran out of string. And, NW-B is correct, I have to do something with my free time and I don't think it will be cooking French meals.

One thing I have found to be enjoyable is following dividend stocks. I think that the people who follow dividend stocks really enjoy doing it. I may be wrong about this, but it doesn't seem all that complicated. I imagine, though, that this can be as complicated as one chooses to make it--and that's OK, because I'm sure those people enjoy the process. Small caps, bonds, emerging markets--those seem complicated so I use mutual funds or ETFs.

Darn, it's still light outside, I wish I hadn't run out of string.
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Old 02-17-2014, 06:26 PM   #59
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Don't worry about that, remember we have the Federal Reserve. They can buy it all.
A good read is the book "Code Red." Spoiler alert...there are no good outcomes at this point.
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Old 02-17-2014, 07:16 PM   #60
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Well, I just came in from the backyard after spending two hours measuring speaker open-air responses by frequency speaking. I would have stayed out longer but I ran out of string. And, NW-B is correct, I have to do something with my free time and I don't think it will be cooking French meals.

One thing I have found to be enjoyable is following dividend stocks. I think that the people who follow dividend stocks really enjoy doing it. I may be wrong about this, but it doesn't seem all that complicated. I imagine, though, that this can be as complicated as one chooses to make it--and that's OK, because I'm sure those people enjoy the process. Small caps, bonds, emerging markets--those seem complicated so I use mutual funds or ETFs.

Darn, it's still light outside, I wish I hadn't run out of string.

I bought about 10k of Intel last year just for the dividend which was 4.4% at the time of purchase. I enjoy watching it bounce around and snagging the dividend. I just signed up for a brokerage account from my HSA a few weeks ago. Tired of watching it earn 0.75%. I have about 20k in HSA and contribute the full $3,000 plus each year. My intentions unless I chicken out is to buy 3/4 dividend stocks like ConAgra, Chevron, and something maybe in another area. I will pay out of pocket my medical expenses if I ever have any. I figure even if they all go to zero, I didn't lose the full amount only 69% as I got my 31% instant returns from the yearly tax deductions sitting in the bank.
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