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Old 08-28-2015, 09:56 AM   #21
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Thank you for the clarification. I will mostly have qualified dividends. It's just amazing how much money you need to have a decent amount every month.
Like millions but it is pretty reliable, grows faster then inflations and has tax advantages.
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Old 08-28-2015, 10:00 AM   #22
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As mentioned earlier, 1/2 of my expenses come from principal, actually cap gain right now. We are spending a lot more than I first thought at start of retirement, but when I looked at my Quicken screen, about than 1/4 of the expenses are for non-recurrent items such as major home repairs and upgrades, daughter's wedding, etc..., plus some more from discretionary spending. And the time to "rebalance" some of the market gains into those non-recurrent plus discretionary items is during a market boom, not a bust.

We are both 59. If we draw SS at 62, it will be 40% of current expenses. If drawn at 66, it will be 54%, and at 70 it will be 70%. We will play it by ear, and the time to draw depends on the performance of the market. And that assumes we keep on spending like we have been for the last 3 years. And I do not see how. I am not going to change homes, buy a plane, eat or drink more. I look at cars like the Tesla with indifferent eyes. So, we should be able to live on that SS @ 70 by itself, if I take out the non-recurrent and discretionary items.

Looking at this in a very top view like the above is enough for me. No need for fancy spreadsheet.

But I still want more money, to see my portfolio grow though. Hey, I am never shy to admit that I am related to Scrooge.
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Old 08-28-2015, 10:03 AM   #23
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Our portfolio generates about $130K annually in dividends, or about 2.7%. Most of this is qualified dividends, except for a 25% portion that comes in from MLP distributions. We have living expenses of about half that, with no debt, so we typically invest the positive cash flow back into the market. However, we are seeing some spending 'creep' over the last couple of years. I am retired (56yrs), and DW still works part time (mainly for good healthcare). We have a 60/25/15 equity/bond cash ratio, and will keep it that way for the next few years. I have a 'hands off' the principal policy until I reach 65 years of age. I'm waiting until max SS age to draw.
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Old 08-28-2015, 10:08 AM   #24
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Dividends represent about half our income, the rest being my DB pension. Divs are growing at about 8% per year so over time will represent a higher proportion. In Canada these divs are qualified to attract a tax rate of about 20% about the same as cap gains. Current yield about 3.9% of our portfolio which is 100% equity (pension is a FI proxy). Our spending is totally covered by this income but I think we will gradually start to spend some of the accrued cap gains as well. Otherwise my daughter will inherit too much. Aged 65 retired 9 years.
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Old 08-28-2015, 12:00 PM   #25
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Over the past few days in different threads, people have referred to themselves as "Total Return Investors". "...I'm a total return investor, so I don't worry about dividends....."

To me a total return investor's portfolio more or less represents a fairly balanced/allocated portfolio with a mix of equities, some that deliver dividends and bonds. Not something I'd put a label on.

When someone identifies as a TRI, does that just mean that income comes from equity/bond dividends AND sale of equities?
Or is it considered a particular strategy? Aiming for the best of both worlds.
If your portfolio could cover your expenses+ on just dividends would that make you NOT a TRI?

Just trying to get my arms around the label and what the up/downsides might be.
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Old 08-28-2015, 12:24 PM   #26
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I actually don't focus on income at all.... I focus on total return (IRR)... and i don't particularly care what portions of the return is interest, dividends, realized gains or unrealized gains.

If I look at what funds our living expenses it is about 25% from dividends and capital gain distributions from taxable accounts that we take in cash and 75% proceeds from the sale of taxable investments. However, of that 75% probably 80% is basis and 20% are realized gains.

Any dividends and interest on tax-deferred or tax-free accounts is reinvested.
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Old 08-28-2015, 12:27 PM   #27
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Over the past few days in different threads, people have referred to themselves as "Total Return Investors". "...I'm a total return investor, so I don't worry about dividends....."

To me a total return investor's portfolio more or less represents a fairly balanced/allocated portfolio with a mix of equities, some that deliver dividends and bonds. Not something I'd put a label on.

When someone identifies as a TRI, does that just mean that income comes from equity/bond dividends AND sale of equities?
Or is it considered a particular strategy? Aiming for the best of both worlds.
If your portfolio could cover your expenses+ on just dividends would that make you NOT a TRI?

Just trying to get my arms around the label and what the up/downsides might be.
It is a little confusing. Here is a stab at it. Total return is simply a portfolio's divs plus any cap gains. It is really the only useful return metric. When someone says they are a total return investor they simply mean they buy equities based on expected total return. They aren't particularly concerned whether it is from divs or cap gains.
On the other hand people who describe themselves as dividend investors usually are concerned about the co's div yield and div growth rate. They are more concerned about getting a reasonable cash flow from their portfolio. This doesn't necessarily mean these divs are their only source of income or that they get enough divs to live on. They may not even be retired yet and reinvest the divs. It's really just a description of their investing emphasis. Even div investors should measure their success based on total returns as it is the best all inclusive measurement.
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Old 08-28-2015, 12:30 PM   #28
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I reinvest all dividends and don't use them for retirement income. The amount was $40k
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Old 08-28-2015, 12:47 PM   #29
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Even the SPX generates a 2% dividend, so it's kind of hard to get away from them completely when talking about total return. There is a very lively debate over at bogleheads about this topic, and some who consider themselves to be 'total return' investors there swear off any dividend strategy. Unfortunately people tend to get polarized on the matter, when there is almost always a dividend component to total return.
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Old 08-28-2015, 12:53 PM   #30
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It is a little confusing. Here is a stab at it. Total return is simply a portfolio's divs plus any cap gains. It is really the only useful return metric. When someone says they are a total return investor they simply mean they buy equities based on expected total return. They aren't particularly concerned whether it is from divs or cap gains.
On the other hand people who describe themselves as dividend investors usually are concerned about the co's div yield and div growth rate. They are more concerned about getting a reasonable cash flow from their portfolio. This doesn't necessarily mean these divs are their only source of income or that they get enough divs to live on. They may not even be retired yet and reinvest the divs. It's really just a description of their investing emphasis. Even div investors should measure their success based on total returns as it is the best all inclusive measurement.
Ok. Thanks.
One more: you say "Total return is simply a portfolio's divs plus any cap gains." I would assume you also mean organic NAV appreciation as well. Yes?
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Old 08-28-2015, 12:56 PM   #31
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... When someone says they are a total return investor they simply mean they buy equities based on expected total return. They aren't particularly concerned whether it is from divs or cap gains...
+1

I have a mixed bag of dividend stocks, some middle-of-the-road stocks, and also some growth stocks if their PEG is not too outrageous. I have on occasions bought distressed stocks that have negative earnings let alone dividends, but I expect them to recover and give me some cap gains.

If your portfolio dividend yield is something like 3 or 4%, a lot higher than the S&P which is currently around 2.1%, then I would say you are a dividend investor. For example, the utility sector is currently paying around 3.5%. Some REIT ETFs pay close to 4%.
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Old 08-28-2015, 01:27 PM   #32
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Spectrum

I agree with NW above. I think of it as a spectrum.

If you are biased to the "dividend" side, you have designed your portfolio to generate income levels and yields well above the return of the market in general. If you have biased to generate capital growth, you are likely forsaking income for the superior growth opportunity that might be afforded.

Obviously you can fall between, segment your money, or switch gears at any time.

I am currently biased to the dividend side of the spectrum and targeting and largely achieving 4% dividend income returns.
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Old 08-28-2015, 02:36 PM   #33
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Here's a pretty good discussion on total return from vanguard:
total return.pdf

It is often taken as a 'one or the other' approach, when in fact total return involves (as mentioned) both growth and income.
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Old 08-28-2015, 02:39 PM   #34
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Ok. Thanks.
One more: you say "Total return is simply a portfolio's divs plus any cap gains." I would assume you also mean organic NAV appreciation as well. Yes?
I'm pretty sure Danmar was using capital gains to mean NAV appreciation as well as reinvesting of any capital gains distributions. Threw me off a little when I initially was thinking only of capital gain distributions, which I hope is not what was intended. Pretty much reinvest everything and then sell as needed.
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Old 08-28-2015, 02:45 PM   #35
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I'm pretty sure Danmar was using capital gains to mean NAV appreciation as well as reinvesting of any capital gains distributions. Threw me off a little when I initially was thinking only of capital gain distributions, which I hope is not what was intended. Pretty much reinvest everything and then sell as needed.
Animorph, thanks! Got it now.
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Old 08-28-2015, 02:49 PM   #36
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Basically, a total return investor is someone that doesn't mind eating their seed corn from time to time...

I prefer income investing because I don't believe the market is efficient nor rational very often. I do believe some people can consistently do better than market cap weighted indexes (Warren Buffet as an example). I also believe the market behaves like a manic depressive and that even pitiful investors like myself can take advantage of crisis (like oil right now).

However, I do think market cap indexes to a descent job when your not willing to put any effort into investing. Which is why I have most of my money in ETFs.

I focus on income because its a safer withdrawal strategy imho.

I started out as a Boglehead 10+ years ago but became disillusioned with it over time. During the last recession you had even the staunchest of Bogleheads panicking, talking about "Plan Bs" and other things...

The way I see it total return requires that share prices are rational when you need to withdraw money. My experience (starting off with the dot com bubble) is that the stock market is filled with non-stop manias, flash crashes, and other nonsense which makes me want to have as little dependence on capital gains as possible.
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Old 08-28-2015, 02:52 PM   #37
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No, he does not mind. Not if the seeds grow bigger and bigger by themselves without sprouting.

He has fewer seeds as time goes by, but why should he mind if his buckets of seeds are overflowing? He does not count the seeds, but gets happy when he measures their total weight.
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Old 08-28-2015, 03:00 PM   #38
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Basically, a total return investor is someone that doesn't mind eating their seed corn from time to time.
Ok, and that personally spooks me,

BUT:

If the investor applies a fairly trustworthy SWR, does it matter once withdrawals begin?

Does it then just become a matter of terminal balance (love that term)?

If the SWR has been calculated to achieve a zero balance at, say age 95, does it matter if the strategy is been total return or income investing?

Or is this about reaching the highest starting point before withdrawals? Or is it more about building a safer cushion?

Sorry to be such a PITA on this one but I seem to have too much time on my hands today.
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Old 08-28-2015, 03:04 PM   #39
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Ok. Thanks.
One more: you say "Total return is simply a portfolio's divs plus any cap gains." I would assume you also mean organic NAV appreciation as well. Yes?
I believe NAV will be reflected in the quoted price so NAV Appreciation is very close to price appreciation? I only buy individual equities so not as familiar with ETF's or MF's
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Old 08-28-2015, 03:04 PM   #40
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Ok, and that personally spooks me,

BUT:

If the investor applies a fairly trustworthy SWR, does it matter once withdrawals begin?

Does it then just become a matter of terminal balance (love that term)?

If the SWR has been calculated to achieve a zero balance at, say age 95, does it matter if the strategy is been total return or income investing?

Or is this about reaching the highest starting point before withdrawals? Or is it more about building a safer cushion?

Sorry to be such a PITA on this one but I seem to have too much time on my hands today.

The lower your withdrawal rate the more you can get away with... You could throw it down a rat hole if you want to withdraw zero. lol

If you go with total stock market, you can probably get away with 1% or 2% withdrawals for as long as the United States doesn't break up. Maybe 1,229 something years like Rome.
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