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Old 08-22-2011, 05:01 PM   #61
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I can tell you exactly what will happen: They will go down, and up, and down, and up, and down, and up...
In what time frame?
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Old 08-22-2011, 05:04 PM   #62
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In what time frame?
The near, intermediate and distant future.
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Old 08-22-2011, 05:08 PM   #63
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The near, intermediate and distant future.
lol
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Old 08-22-2011, 05:37 PM   #64
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correct across the board except on one point.

if you need the money to live on than its just the opposite of what you said.
the dividends are re-invested to provide future growth so you have money growing at the max for conversion later in the future into cash and bonds for living on.

the income stream for eating today typically will come from safe money and bonds...

when ever markets are higher you can sell off some equities to keep cash and bond buckets primed and full.

once they are full again let the stock bucket continue to grow again with dividends reinvested for refilling your spending buckets again when needed .


as i said current spending then would not be effected by cuts and suspensions.....
My we really disagree.
One of the dirty secrets of FIRECalc, Trinity studies, and virtually every study of the withdrawal stage, is they make an assumption that every year at New Years Eve at 3:59 PM EST, the early retiree totals up his assets, and sells the appropriate amount of stocks/bonds to rebalance plus next years withdrawal+ inflation adjustments and lives off those fund for the next year.

The reality is that I have yet to "meet" any actual retiree who does this or in fact anything close. From my dozen years reading boards like this the actual behavior of real early retiree is significantly different than the theoretical behavior of the study retirees.
  1. Most retirees here have additional steady sources of income, pension, SS, rents, or annuities. For many their basic needs are covered by the income stream, and in most cases there is some inflation protection.
  2. Transfers to living expense happen on monthly or quarterly basis rather than annually
  3. AA rebalancing rather than being done on a fixed annual schedule is done on an ad hoc basis, e.g. I rebalance when my AA is off by more than to 5 or 10%. In fact there is a form of dirty market timing going on. (I welcome folks who have strict rules on rebalancing that they've followed for the last 5 years to tell me I am wrong)
  4. Inflation adjustments are squishy. People are comfortable spending an increase in their pension or SS check. They are also ok with adjusting for inflation when their portfolio values have increased, not so much when the market is down. For example I doubt any portfolio-only retiree increased their spending by 2.85 or 3%% from 2000 to 2001 after the NASDAQ collapse. I certainly didn't.
In effect what a dividend income stream does for me is replace #1 for those of us who don't have additional income streams. It is also replace the anxiety of having to pick an annual or quarterly date to sell. Plus for me it completely eliminates worrying about inflation adjustment, if my dividends and interest went up I can spend more if they didn't I don't. I still have a CD ladder and some bonds, but the CD ladder is 1/2 years spending per year for the next 5 years.

One of the underlying assumptions of your approach is that you can do a good job timing the market and refill the bond and cash bucket when the market is "higher". Can you give me a S&P price that would qualify as higher?

A second assumption that you make is your money in cash is safer than dividend income. This really depends on your definition of safety, which I assume for you means nominal dollars. My definition of safety is having the ability to the purchase the same amount of goods and services after tax. (i.e. real after tax dollars) So while you look at my dividend income portfolio and think this poor guy is screwed if we have another financial crisis and his dividends get slashed, I look at your 15 years of cash bucket, immediate annuity, and fixed income at today historically low rates, and think this poor guy is screwed if we get high inflation.

Let's hope both of us are wrong.
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Old 08-22-2011, 05:41 PM   #65
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screwed? not at all .the almost 40- 50% allocation in the equities bucket makes that system just fine. that bucket can contain stocks,reits,gold ,commodities etc.

all that system does is make sure you can get through the valleys of about 15 years hopefully never selling at a loss. rebalancing is by years of money left not just performance.

the safe money is for spending in the near term, it may be a little more than most retirees keep but the stock allocation may be higher than retirees tend to keep as well.

the bonds and fixed income allocations are for medium term spending.

it all shakes out fine. the only thing i wont do is put dividends in my safe money. those dividends are reinvested and untouched until called upon years down the road.

the 2000's have been very unkind to new retirees. back to back recessions have caught many severly under stocked in safe money. that safe money is there for paying bills now and over the next few years. it has to be there in full ,under no un-certain terms. while purchasing power may fluctuate so will rates .

markets that went pretty much no where and interest rates at or near zero had many living through the failure rate firecalc and other planners talk about .

many folks had enough cash and bonds to only get through a portion of those years without selling at a loss and quite a few at this point are 1/2 broke from spending down their equities over the last 12 years.

the people all my points were addressed to above were those that went chasing yield. rather than have extra years cash and bonds and low and no interest they chose to load up on dividend paying stocks as a proxy.

well with two back to back recessions many saw that income stream fail early on and they had to sell off that goose laying those golden eggs right into down markets..

it was poor planning that put their retirement in the failed retirement graveyard ,not the markets. everything in a well designed plan has a use and function. its when you start to use something intended for another time frame in place of what should be used that troubles start all to easy..
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Old 08-22-2011, 05:59 PM   #66
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Down to roughly 10% dividends(from a few good stocks), 20% from an inherited IRA, 30% cap gains(still eliminating a few pesky DRIP plans) and 40% SS and pension - handgrenade wise looking at 2010 tax return.

Still like psst Wellesley and DRIP dividends cause that was my thinking not being aware of the '4% rule" back in the 1970's, 80's and 90's. So I started ER in the 90's with a heavy dividend stream component.

Time ticks on - so sneaking up on the RMD offer I can't refuse and also getting lazy I'm tending more toward lifecycle funds.

heh heh heh - no scientific basis for my mixture of investments - just getting older and lazier.

Still roughly 60/40 stocks/bonds. And I varied/aka cutback withdrawals periodically as required during the last decade. And yes took some(maybe 20% of total div stream) div cuts - BAC, Sun Trust, Citigroup for example.
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Old 08-22-2011, 06:04 PM   #67
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screwed? not at all .the almost 40- 50% allocation in the equities bucket makes that system just fine. that bucket can contain stocks,reits,gold ,commodities etc.
Is there an explanation of the 'bucket' system mentioned above by Mathjak107? I am referring to an article or book about it.
It seems like a system that might work for me, but I need to understand it first.
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Old 08-22-2011, 06:07 PM   #68
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quite a few. i actually like the ray lucia way but there are many ohers..

Ready


heres a nice discussion of other ideas

Details of your buckets
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Old 08-22-2011, 06:08 PM   #69
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Here's a link to a buckets article: Details of your buckets
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Old 08-22-2011, 06:10 PM   #70
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beat ya to it ha ha ha ha
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Old 08-22-2011, 06:11 PM   #71
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I buy dividend paying stocks the same way I buy rental property and bonds. I buy them with a maturity date.

Just as I don't call my realtor to ask the value of my houses every month, I don't really care about the value of my stocks each month. I do, however make sure those rental checks keep rolling in. Last I checked, my rental income was quite a bit higher than when I first purchased the properties several years ago. Same for my dividends (my effective yield on some of them would make you blush).

As to the value of my stocks and my properties...I'm told that some folks that bought a few years/months ago couldn't sell them for what they paid for them. Guess I'm lucky in that I don't plan on flipping my rentals or my stocks any time soon. I hope those folks didn't think flipping investments was the way to go.

A lot of folks think retirement is about total return. However, some folks think it is about total income. I think we all know rich widows with tons of money in the bank that go around pinching pennies because their CD income is getting destroyed (don't waste your breath trying to convince them they got money...you'll quickly find out that it ain't about money, it's about income).
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Old 08-22-2011, 06:17 PM   #72
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There is a book called Buckets of Money by Ray Lucia, find the first edition - probably in your local library. Ignore the author's bs about non-traded real estate but the essence is that you have three buckets: one for income you need in the short term (5 to 7 years.. in our case MRDs) so it would contain cash equivalents, an intermediate term bucket for the 5 to 10 year period from which you fill bucket 1, the balance for long term investments that you don't plan on touching for 10 years (growth stocks).

The concept is managing risk. Overlaying this would be your asset allocation.
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Old 08-22-2011, 06:18 PM   #73
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the biggest risk as retirees we have is not as much the risk of our overall returns but rather the biggest risk is the order those gains and losses come in.
its those orders that really determine if our retirements will fail.

anything we can do to smooth out those valleys when we happen or to avoid them increases our survival greatly.

since as it stands right now there has never been a 15 year period where at least at some point equities were higher so you can refill . hense thats why the 2 buckets of 7 years each in my plan.

one of the things im looking into is working in maybe 20% of an immeadiate annuity to smooth those valleys out even more when things are down.

i want to introduce other elements to diversify other than market risk and rate risk. i want to add dead bodies into my mix.

in the old days if we fell 15% in equities at the normal 6-7% interest levels you were whole again in 2 years .well today thats not going to happen.

im looking at alternatives for pensionizing a slight income stream to lessen any selling i may have to do if rates stay down and markets dont pick up for long periods of time.

'
its all a work in progress.
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Old 08-22-2011, 06:20 PM   #74
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I buy dividend paying stocks the same way I buy rental property and bonds. I buy them with a maturity date.

Just as I don't call my realtor to ask the value of my houses every month, I don't really care about the value of my stocks each month. I do, however make sure those rental checks keep rolling in. Last I checked, my rental income was quite a bit higher than when I first purchased the properties several years ago. Same for my dividends (my effective yield on some of them would make you blush).

As to the value of my stocks and my properties...I'm told that some folks that bought a few years/months ago couldn't sell them for what they paid for them. Guess I'm lucky in that I don't plan on flipping my rentals or my stocks any time soon. I hope those folks didn't think flipping investments was the way to go.

A lot of folks think retirement is about total return. However, some folks think it is about total income. I think we all know rich widows with tons of money in the bank that go around pinching pennies because their CD income is getting destroyed (don't waste your breath trying to convince them they got money...you'll quickly find out that it ain't about money, it's about income).

well you watch the income, ill watch my total return from both. a falling share price on a dividend payer isnt any better than a falling non dividend payer. especially if they fall the exact same amount in total return.
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Old 08-22-2011, 06:20 PM   #75
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A lot of folks think retirement is about total return. However, some folks think it is about total income. I think we all know rich widows with tons of money in the bank that go around pinching pennies because their CD income is getting destroyed (don't waste your breath trying to convince them they got money...you'll quickly find out that it ain't about money, it's about income).
This is so true. There is one world of books, gurus and websites, another of actual living people with their own sets of needs and preferences..

Ha
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Old 08-22-2011, 06:47 PM   #76
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well you watch the income, ill watch my total return from both. a falling share price on a dividend payer isnt any better than a falling non dividend payer. especially if they fall the exact same amount in total return.
Your math may be correct, but we all know a lot of this stuff ain't always about math. Otherwise, we'd all have 100% of our money in the stuff that has averaged double digit returns over the past 100+ years (stocks).

Anyway, I think folks do need to be careful about jumping on the dividend bandwagon. Wasn't too long ago that folks wouldn't be caught dead with anything but those "new" economy stocks. Some fools even wrote stuff about Warren Buffet being left behind. And dividend paying stocks can go down in value and they can stop paying.

Here's one (there are many, many more...just Google stock aristocrats)
Chevron
Late 1990s it was trading in the $30s & $40s and paying just over $1 per year in dividends. Today it goes for $90+ a share and it's paying over $3 per share in dividends. That's an effective yield of about 10% if you didn't reinvest (heaven forbid you reinvested and compunded those suckers. You'd still be getting $3 per share, but your # of shares would have grown and the fact that the price per share more than doubled is almost too good to believe )

And as far as income goes, there is some interesting stuff out there about reverse dollar cost averaging and sequence of returns when it comes to generating income.

I can tell that you are sharp and you're likely to do just fine. Dividends ain't magic, but they do have a nice way of helping an investor hang in there during some rough times.
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Old 08-22-2011, 07:16 PM   #77
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screwed? not at all .the almost 40- 50% allocation in the equities bucket makes that system just fine. that bucket can contain stocks,reits,gold ,commodities etc.

all that system does is make sure you can get through the valleys of about 15 years hopefully never selling at a loss. rebalancing is by years of money left not just performance.



the 2000's have been very unkind to new retirees. back to back recessions have caught many severly under stocked in safe money. that safe money is there for paying bills now and over the next few years. it has to be there in full ,under no un-certain terms. while purchasing power may fluctuate so will rates .
Trust me as 39 year old class of 1999 retiree with a tech heavy portfolio, with no paycheck and no pension, I am very familiar with challenges of investing over the last twelve years.

I even patted myself on the back, when I did my July 1 valuation, and I realized that wow my net worth hit an all time record high, despite no paycheck and living in an expensive state and investing/blowing 200K in a variety of tech startups, only one of which is likely to make any money. It wasn't until I discovered dividend investing in the early 2000s that I got handle on my retirement. Of course my enthusiasm soon cooled when I realized that inflation had decreased my real net worth by 26+% and instead of being 4% richer I was really 22% poor than when I retired. Most people consider the aughts to be a low inflation decade and many predict the next 10 to 20 year won't be so nice.

So let me ask you a couple of direct questions? How does the bucket strategy handle inflation? And how do you know when to refill the buckets from the 40-50% in stocks? Is there as specific S&P price and percentage gain what is the triggering mechanism that says I am going to sell stocks reinvested dividends and all and stick the money in a bucket?
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Old 08-22-2011, 07:25 PM   #78
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Anyway, I think folks do need to be careful about jumping on the dividend bandwagon. Wasn't too long ago that folks wouldn't be caught dead with anything but those "new" economy stocks. Some fools even wrote stuff about Warren Buffet being left behind. And dividend paying stocks can go down in value and they can stop paying.
For sure the plan is less important than the execution. I run a primarily dividend strategy, but I never reach for "high" dividends. I want reasonable, well covered, growing dividends from businesses with quality financials and at least reasonably defendable moats. The amount of the dividend is less important than the drivers of that dividend, and the good sense of the management.

I also want a shrinking equity capitalization and good and rising management stock ownership, from open market buys, not grants or (worse) options.

I want to be comfortable with the finances and management. Several decades ago it was easy to call companies and often talk to the CFO or CEO. Pretty much out of reach today, but I favor those companies that still have executives that I established direct relationships with. Some issues I owned over and over as time went by.

Ha
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Old 08-22-2011, 07:48 PM   #79
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For sure the plan is less important than the execution. I run a primarily dividend strategy, but I never reach for "high" dividends. I want reasonable, well covered, growing dividends from businesses with quality financials and at least reasonably defendable moats. The amount of the dividend is less important than the drivers of that dividend, and the good sense of the management.

I also want a shrinking equity capitalization and good and rising management stock ownership, from open market buys, not grants or (worse) options.

Ha
That leaves you with very few choices, doesn't it?

I have found fewer than 30 US stocks that meet my own criteria (reasonable, well covered, and growing dividends with quality financials). Once I take valuation into account, the pool of possible candidates is even smaller (currently only 8 stocks out of the 30 are on my buy list).

I understand that some people would rather keep their stock picks private, but I would love to know what's on your list of acceptable stocks right now (acceptable from the long term income investor point of view that is).
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Old 08-22-2011, 08:08 PM   #80
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That leaves you with very few choices, doesn't it?

I have found fewer than 30 US stocks that meet my own criteria (reasonable, well covered, and growing dividends with quality financials). Once I take valuation into account, the pool of possible candidates is even smaller (currently only 8 stocks out of the 30 are on my buy list).

I understand that some people would rather keep their stock picks private, but I would love to know what's on your list of acceptable stocks right now (acceptable from the long term income investor point of view that is).
Here is the M* Dividend Investor buy list. ABT, AEP, T, BBT, GE, HCN, JNJ, PAYX, PG, NS, SE, WR, WFC.

To this list I add INTC, KMI, PFE, MSFT, WMT, RBCAA a small regional bank which actually raised dividends from 2006-2011 and O below 30.
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