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Old 12-21-2013, 09:29 PM   #41
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Well, I'm going to withdraw about 2.8% - 3.0% at the beginning of the year. I usually have some left over at the end of the year to return to the nestegg. I have no idea how much, though!

Although I have spent 2%/year in 2011 and 2012, my spending for 2013 will probably be about 2.4%.
OK - glad to know it's a bit more gradual.
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Old 12-21-2013, 09:31 PM   #42
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Heh, talk is cheap. Whee will see what happens.
Ooops, darn it, I was going to say I thought I might be hearing an echo of a certain famous W2R cheer. But then, I didn't want to jinx anything!!!!!
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Old 12-22-2013, 12:58 AM   #43
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Just re-balanced. Averaged out the spikes, even sold some funds I don't like anymore. Took the froth and bought more positions and even more stocks.

I'll edit and note I'm still in accumulation. Far as bonds, I've doubled up on shorting bonds with ultra shorts. Then again I like going against the grain.

Come on 2014!
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Old 12-22-2013, 06:29 AM   #44
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So for me, this is where everything converges, and a 'dividend portfolio' and an equivalent WR from a 75/25 index becomes a distinction without a difference.

So what if I want to go the index route (which also helps comparisons - maybe one anecdote is from a good/lucky dividend stock picker?)? What is a decent dividend index fund/ETF? There is DVY,

PerfCharts - StockCharts.com - Free Charts

you can stretch that time period out to JAN 1999, and DVY did outperform SPY significantly. But Wellesley outperformed them both.

Wellesley is providing 2.98% in divs, DVY 3.10%. But Wellesley has grown more than DVY - isn't total return all that matters? Why compartmentalize it into divs versus growth? Money is money, a buck is a buck. If I pulled 3% from my portfolio for ten years, and my portfolio is now worth $X, how can it make a wits bit of difference if the 3% I pulled was divs, some selling, or a combination?

This is starting to sound like the 'buckets' rationalization/religion to me.

-ERD50
No not at all I think they are different philosophies even if they may result in very similar withdrawal strategies.

If you went back 30 years ago and asked a young affluent retiree what is your withdrawal rate they would have given you a puzzled look. But if you asked well how much do you plan on spending in a year. He very well might have said I've got 50% of my money in Vanguard Wellesley and 50% in the Wellington fund. I spend as much money as they distribute each year in dividend checks. That would be an income investor in 1983 and 2013.

If you ask an affluent investor in 2013 how much they withdraw from their portfolio. They might also have a 50/50% W&W portfolio, but his answer would mention a percentage of portfolio (either current or initial) discuss rebalancing bands, and if he had been reading these forums some spending guidelines to keep spending down during bear markets. This is a total return investor.

Now you are right if the answer in both cases is 3% than it doesn't matter.
I think it most cases the answer is different.
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Old 12-22-2013, 08:33 AM   #45
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Where I invest (Canada) it is not difficult to get a fairly well diversified portfolio yielding in the 3.5% range. Banks, insurance, telcos, pipes, and utilities all pay in this range. Virtually no cuts in 2008-2009. Dividend ETF's would pay less mostly because of their fees. Seems to me if you can live on your divs, (I know, big if) the chance of ever running out is virtually zero. The fact that my divs have grown by 40% since 2008 make living on them a lot easier.
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Old 12-22-2013, 10:35 AM   #46
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... Seems to me if you can live on your divs, (I know, big if) the chance of ever running out is virtually zero. ...
Seems like magic. How can this be?

Well, I could hold investments that pay little/no divs, and if I took a steady X% of the portfolio, mathematically I would never run out either. But neither portfolio is assured to keep up with inflation, and either might take some big hits in value. I don't see how you can move closer to a 'guarantee' ('virtually zero'), without giving up something. I strongly doubt that we can have any assurance that a dividend based portfolio will provide significantly safer portfolio resiliency than an overall market based portfolio.

Are there any numbers to back this up?


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... Now you are right if the answer in both cases is 3% than it doesn't matter.
I think it most cases the answer is different.
But aren't we talking about something ~ 3%? Are the income investors getting significantly more than that? That why I think it all converges to the same thing.



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I think there are two separate issues. Are my securities well chosen and very unlikely to lose me a lot of money? And second, do I need to sell some securities for living expenses?

...

I prefer to be able to answer yes to question #1, and no to question #2. This creates very comfortable posture, and one that I would prefer to always have.

I've been living from capital for many years, and I know what feels good to me. Someone with a study in his pocket is very unlikely to change my mind.

Ha
That's fine, but you are sort of loading the question, IMO. Sure, if you assume that you can find securities that are 'very unlikely to lose a lot of money', and those same securities can provide reasonable inflation adjusted divs, then that's great. But that's a lot of ifs. And you may be confident that you can pick securities with those qualities, but I'm not confident I can do it for myself.

I do think the portfolio balance is important - not just the income it provides. What if an emergency arises? The portfolio balance could be very important.

So if a chosen portfolio can provide inflation adjusted income, and the balance keeps up with inflation, then that is a great portfolio. But it would be great by any measure, income or total return. I still don't get the distinction.

-ERD50
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Old 12-22-2013, 11:43 AM   #47
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Where I invest (Canada) it is not difficult to get a fairly well diversified portfolio yielding in the 3.5% range. Banks, insurance, telcos, pipes, and utilities all pay in this range. Virtually no cuts in 2008-2009. Dividend ETF's would pay less mostly because of their fees. Seems to me if you can live on your divs, (I know, big if) the chance of ever running out is virtually zero. The fact that my divs have grown by 40% since 2008 make living on them a lot easier.
But still, this is letting the desired income, 3.5% or 3% or 4%, drive the investment strategy. And it seems like generating 4%+ income in particular might really drive a portfolio away from an optimum total return.

I've always thought of dividend investing as an old tried and true method that has worked reasonably well for many over many years. Total return investing is the modern upstart, with less of a track record but more promise.
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Old 12-23-2013, 09:38 AM   #48
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@ERD. Not aware of any data that proves my assertion. Dividend paying equities just seem less risky to me than the market as a whole. it would be really interesting if Firecalc could in some way use a less general definition of equities. Virtually no div cuts during 2008-2009 for my portfolio. Seems like a pretty good test to me but obviously no guarantee of future returns. Divs represent about 50% of our total income and these are up substantially since retirement. Every div increase adds further cushion.
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Old 12-23-2013, 09:55 AM   #49
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@ERD. Not aware of any data that proves my assertion. Dividend paying equities just seem less risky to me than the market as a whole. it would be really interesting if Firecalc could in some way use a less general definition of equities. Virtually no div cuts during 2008-2009 for my portfolio. Seems like a pretty good test to me but obviously no guarantee of future returns. Divs represent about 50% of our total income and these are up substantially since retirement. Every div increase adds further cushion.
But there are dividend based funds/ETFs. I think those would make a better comparison to a 'couch potato' style investment. How have those done versus 'couch potato'?

Logic tells me that if one group of equities was consistently better than another, money would flow into those, driving prices up an equalizing everything. Fund managers would only buy these stocks, and we'd all share in the wealth until it was arb'd out.

You might get there with individual picks, but that is hard to duplicate.

-ERD50
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Old 12-23-2013, 12:23 PM   #50
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But there are dividend based funds/ETFs. I think those would make a better comparison to a 'couch potato' style investment. How have those done versus 'couch potato'?

Logic tells me that if one group of equities was consistently better than another, money would flow into those, driving prices up an equalizing everything. Fund managers would only buy these stocks, and we'd all share in the wealth until it was arb'd out.

You might get there with individual picks, but that is hard to duplicate.

-ERD50
Yes, I tend to agree with you. All the more surprising that my portfolio has outperformed to such a degree. Maybe I am due for a big decline.
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Old 12-23-2013, 12:33 PM   #51
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But there are dividend based funds/ETFs. I think those would make a better comparison to a 'couch potato' style investment. How have those done versus 'couch potato'?

Logic tells me that if one group of equities was consistently better than another, money would flow into those, driving prices up an equalizing everything. Fund managers would only buy these stocks, and we'd all share in the wealth until it was arb'd out.

You might get there with individual picks, but that is hard to duplicate.

-ERD50
Can you observe all the stupid behavior in markets and still believe in this? People will do whatever dumb thing they have been convinced is good, and they never learn. (Thank heavens!)

Here's a quote from James Montier, of GMO "Never underestimate the willingness of people to believe the most outlandish things if it suits them".

Ha
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Old 12-23-2013, 02:46 PM   #52
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The market may be efficient, meaning that it reacts instantly to news, but it can be highly irrational in the short term. Short here may be a few months, or even a few years.

How else does one explain the dot-com bubble, and the recent housing bust, let alone numerous past bubbles in history?
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Old 12-23-2013, 03:28 PM   #53
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It helps me to sleep well at night knowing that my dividend stocks have increased their dividend each year for decades. I suppose there may well be a better way to invest but the idea of having an increasing income stream that I can live on and that has demonstrated resilience over many years appeals to me.
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Old 12-23-2013, 03:57 PM   #54
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Where I invest (Canada) it is not difficult to get a fairly well diversified portfolio yielding in the 3.5% range. Banks, insurance, telcos, pipes, and utilities all pay in this range. Virtually no cuts in 2008-2009. Dividend ETF's would pay less mostly because of their fees. Seems to me if you can live on your divs, (I know, big if) the chance of ever running out is virtually zero. The fact that my divs have grown by 40% since 2008 make living on them a lot easier.
Maybe the Canadian financial sector dodged the bullet in 2008-09--but for many countries a portfolio overweighted towards banks, insurance and other high-dividend financial sector stocks (e.g., REITs) would have taken a very big hit. After all, it was companies like Lehman Brothers, Bear Stearns and AIG that were at the center of the storm.

I think this may highlight a key issue with a high-dividend strategy. High dividends are sometimes used as a proxy for identifying value stocks. And while value stocks have often exhibited lower volatility and higher total returns than growth stocks, there are some efficient market proponents who argue the higher returns come with hidden risks. One risk they point to is leverage--value companies tend to rely more heavily on debt financing. While any hidden risks posed by leverage may not show up in your average, run-of-the-mill bear market, a credit crunch, such as occurred in 2008, may bring these risks to the surface as debt-laden companies find it difficult or impossible to refinance. In the 1929-32 Crash--the last time the U.S. experienced a credit crisis like 2008--U.S. value stocks did significantly worse than growth stocks.

I think it's always best to focus first and foremost on managing risk through diversification. A strategy based on maximizing or optimizing dividends could expose you to risks that rarely come to the surface--except in the worst market crashes (the ones accompanied by financial crises).
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Old 12-23-2013, 04:44 PM   #55
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I believe I look at a portfolio differently than many do. I do look at my portfolio from an income perspective, and have spent the last several years from 2009 preparing for my retirement which is looking like this:

$XX,XXX is the same value multiplied by the number in front of it, so if XX,XXX = $99,000 then 6.00$XX,XXX equals $594,000, actual value of $XX,XXX is different.

1.00$XX,XXX per year drawn down for 35 yrs - ladder of 5 year treasuries
1.00$XX,XXX per year in income from 30 year treasuries.
1.00$XX,XXX per year in dividends from stocks.
1.00$XX,XXX per year in non-cola pension (will only spend 1/2 at start)
0.67$XX,XXX per year DW SS
1.33$XX,XXX per year my SS @ 62 (but will prob take @ 70)
--------------------------------------
6.00$XX,XXX per year in retirement pretax available

3.33$XX,XXX per year desired retirement posttax spending

Other Assets:

5.0$XX,XXX Emergency Fund 10 year Treasury Ladder (in formation)
12.0$XX,XXX Home value - no mortgage
13.0$XX,XXX Precious Metals on deposit overseas

In this scenario does the overall value of my portfolio matter? Overall it is a conservative portfolio that will increase in proportion to stocks over time, but as time goes forward that should be acceptable as the reserves and short term treasuries have less time to insure. I have modified Harry Browne's investment ideas to an income perspective. I would sell some stocks and purchase bonds and or 5 year treasuries if the stock dividend income grew much greater than the the bond or treasury income, but the market value of the stocks, bonds in relation is irrelevant to me.

Market value fluctuations themselves will have no influence on my plan and I would not sell dividend stocks just because they have been doing well and now is the time to take those types of investments off the table.
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Old 12-23-2013, 05:46 PM   #56
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Can you observe all the stupid behavior in markets and still believe in this? People will do whatever dumb thing they have been convinced is good, and they never learn. (Thank heavens!)

Here's a quote from James Montier, of GMO "Never underestimate the willingness of people to believe the most outlandish things if it suits them".

Ha
As NW-Bound responded - I'm talking about long term, 30 year plus retirements, not some bubble action that comes and goes.

And again, looking at DVY, it didn't seem to act much differently than SPY in the recent roller coasters.

-ERD50
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Old 12-23-2013, 06:21 PM   #57
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As NW-Bound responded - I'm talking about long term, 30 year plus retirements, not some bubble action that comes and goes.

And again, looking at DVY, it didn't seem to act much differently than SPY in the recent roller coasters.

-ERD50
Oh, I am not trying to make a case that dividend stocks are less likely to be pushed around irrationally than other stocks. I think this may be the case in some times of extreme market behavior, but not all. I wouldn't want to argue this point. Bubbles are all unique in details, even if very similar in structure.

All I meant to do is respond to your thought that rational investors would push things back into line. They might, but then again, they may well not. Not one out of 10 individual investors can avoid the panic/euphoria teeter-totter. And professional investors have important career reasons to herd together,even if they know it is counterproductive in terms of returns. Better a mediocre herd investor with a job, than a contrarian one without.

I make no general case for dividend investing. I believe in free choice.

Ha
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Old 12-23-2013, 06:59 PM   #58
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It is very hard to go against the herd. If it is difficult for the individual investor, it is 10X harder for the institutional investors or money managers.

In the 2000 tech bubble, I read about some MF managers, the wiser ones, being tormented because if they did not load up on internet stocks and dotcoms, their constituents got all upset that the fund trailed behind its peers and people started redeeming to move to "greener pastures". Some got leery of the bubble and started to sell to raise cash. Their investors called in to yell at them that the money sent in to the MF was to be 100% invested, and that if the investors wanted to hold cash, they would have kept it in their bank account.

As an individual investor, you are free to act according to your belief, and to sacrifice some gains compared to an index in some years to make it up the next year when the market turns. MF managers have to keep up with the herd every month or quarter when their investors look up their fund performance.
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Old 12-23-2013, 07:59 PM   #59
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....

In this scenario does the overall value of my portfolio matter?

...

I don't know how to comment, it's a rather convoluted way to express it. I tried to decode it and it was taking too much effort for me. It might be easier of things were expressed in multiples of your required income pre-tax. I don't know what to do with a 3.33 multiplier of post tax income requirements.

Bottom line, can you convert your portfolio value (not income streams) into a multiple of your post tax income requirements (minus SS and 1/2 the non-COLA pension)? I'm guessing we will come back to my 'convergence' statement - it won't matter if you look at 'income streams' or WR% regardless of 'income stream'.


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...

All I meant to do is respond to your thought that rational investors would push things back into line. They might, but then again, they may well not. Not one out of 10 individual investors can avoid the panic/euphoria teeter-totter. And professional investors have important career reasons to herd together,even if they know it is counterproductive in terms of returns. Better a mediocre herd investor with a job, than a contrarian one without.

I make no general case for dividend investing. I believe in free choice.

Ha
I don't disagree with any of that. But I still think it evens out over the long haul.

Can a non-herd-follower take advantage of the shorter term irrationality? Maybe, maybe not. I recall, and made notes to this effect, that the market was getting crazy during the tech boom of the 90's. But I would have got out around 1997. Eventually, I'd be right. But I just looked, and the div adjusted value never dropped low enough for me to get back in at/below my hypothetical exit point. I think it's a pretty tricky thing for me to do, and maybe trickier for the pros, so what choice do I have?

-ERD50
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Old 12-23-2013, 11:36 PM   #60
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[QUOTE=Animorph;1393534]But still, this is letting the desired income, 3.5% or 3% or 4%, drive the investment strategy. And it seems like generating 4%+ income in particular might really drive a portfolio away from an optimum total return.

Perhaps, but I created the portfolio first (well before I retired) then matched my spending to the dividends. Not the other way around.
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