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Old 01-14-2014, 05:49 AM   #21
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...As for index funds I don't recall reading that Peter Lynch or Warren Buffett invested in index funds. They may have, I just don't remember reading about it.
But the difference is that Buffett and Lynch are pros and have large staffs to evaluate their portfolios and investments in companies. TommyOIB isn't.

Zesty's post proves the value of diversification. The growth of $10,000 of T has lagged behind VTSAX for every period (1m, 3m, ytd, 1, 3, 5 years), sometimes quite significantly, except 10 years where is it ahead by a whopping $30.

However, Vanguard Dividend Growth outperformed Total Stock for the 3 and 10 year periods but was behind over 5 years so if you want a dividend tilt to your equities, a diversified fund that tilts towards dividend payers is the way to go IMO.

But you never answered the question of how these winners of the screening process compared over the last 10 years to a broad-based equity index fund.
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Old 01-14-2014, 07:53 AM   #22
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You asked and we shared our views & experience, you're welcome to pursue whatever approach you like and we wish you the best (really). But anyone can run stock screens and those tools have been around for decades, could it really be that easy?
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Old 01-14-2014, 07:57 AM   #23
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... could it really be that easy?
All you have to do is buy the stocks that go up, not the ones that go down. How hard can that be?
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Old 01-14-2014, 09:41 AM   #24
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I'm very surprised to read some of the opinions regarding dividend stocks and index funds. To illustrate to incredible power of a "Dividend Aristocrat" stock, take a look at AT&T, symbol T. You could have bought it in 2011 for $25/share. Today it is $33 per share. Up 32% in just over 2 years. BUT, you'd also be receiving $1.84 per share as a dividend. That's 7.4% on those shares bought at $25. That's steady money coming in or to automatically repurchase more shares. And AT&T has increased their dividend every year since 1985.
As for index funds I don't recall reading that Peter Lynch or Warren Buffett invested in index funds. They may have, I just don't remember reading about it.
You can find a lot of discussion about dividend strategies at morningstar and seekingalpha.com. Most here are comfortable with indexing...

Personally, I see the benefit of having a portion of portfolio in communication stocks at this time. I know someone who holds VZ, T, and CMSA. The dividends held up well in bad times.
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Old 01-14-2014, 10:18 AM   #25
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VTSMX has returned 20% more than T in that timeframe.
It's sort of amusing that OP tried to make the case for high dividend stocks by advocating one that significantly underperformed the market in recent years. It's a good lesson that beating the market entails more than just picking a winner. You also need to pick a winner that's in the upper echelon of winners. That may be possible, but it requires hard work and probably a liitle luck.

I generally stick to index funds. If I were trying to beat the market, I would probably still use index funds, but I would try tilting towards areas that have tended to outperform for long periods. As I recall, there is published research that value tends to outperform growth, and that small cap tends to outperform large cap. Both of those seem to me to be reasonable bets for someone who is searching for market beating investments.
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Old 01-14-2014, 02:52 PM   #26
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But the difference is that Buffett and Lynch are pros and have large staffs to evaluate their portfolios and investments in companies. TommyOIB isn't.
...
Of course of lot of us remember the famous Peter Lynch. I held some of his Magellan fund before I got into index funds. He was a very smart guy. He had the #1 fund, but he bailed on it just before the early big annual gains were about to drop off the 10 year returns.

A lot of the big gains were made when the fund was much smaller, and maybe he just got some lucky years. They don't average in the assets in counting the average returns. Years when the fund is small count the same as when it is huge. Back then there was really not much idea of indexing, people just jumped to the top funds.

At any rate, he got out when he was still #1, wrote a best selling book, and became a stock picking hero, maybe all on just a few years of good luck and risk taking in the beginning.

Buffet is of course different, he buys companies and has a big hand in managing them. He also has access to types and preferred classes of ownership that are not available to us.

My guess is not there are few smart stock pickers, but that there are a awful lot of them. And they are all trying to outsmart each other. They play one against the other, buying and selling from and to each other. And by doing so, they assure us that they cannot beat their peer average, except by accepting more risk in a lucky market. And all that time we are paying them big fees for them to play with our money.

Been down that road before. Thanks, but I will stick with indexing.
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Old 01-14-2014, 04:50 PM   #27
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Purely living on dividend income? Last time I checked, dividend is taxed at regular income rate. Wouldn't that be ineffective if one's yearly RE expense is high?
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Old 01-14-2014, 04:58 PM   #28
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Last time I checked, dividend is taxed at regular income rate.
It appears that it has been a while since you last checked.
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The tax rate on qualified dividends is 0% or 15% (depending on the individual's income tax rate). If the individual has a regular income tax rate of 25% or higher, then the qualified dividend tax rate is 15%. If the individual's income tax rate is less than 25%, then qualified dividends are taxed at the zero percent rate.
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Old 01-14-2014, 04:58 PM   #29
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Purely living on dividend income? Last time I checked, dividend is taxed at regular income rate. Wouldn't that be ineffective if one's yearly RE expense is high?
More bad info,
From Morningstar,
"Dividend and Capital Gains Taxes
For most investors, dividend and long-term capital gains tax rates will remain unchanged from 2013 to 2014. As in the past, investors in the 10% and 15% tax brackets will pay nothing on qualified dividends and long-term capital gains, and those in the 25%, 28%, 33%, and 35% tax brackets will pay a 15% rate on their qualified dividend income and long-term capital gains. Those in the 39.6% tax bracket--in 2014, that's single filers with incomes greater than $406,750 and married couples filing jointly with incomes of more than $457,600--will pay a 20% tax rate on qualified dividends and long-term capital gains."
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Old 01-15-2014, 11:48 AM   #30
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Tommy - what are the expense ratios of all those funds? And do you plan to own all of them, or 1 from each category? It seems awfully complicated and expensive to do this as you've laid out, when there are index funds that charge minimal fees that often beat the managed funds. Have you read about Bogle's Three-Fund Portfolio?

But, as others have noted, you seem to have posted without any real intention to change your thinking, so best of luck to you.
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