Depends on the withdrawal method.So, for example, for a 40-year-old, what would you be comfortable with?
While 4% SWR for a 65-year-old is a known rule of thumb, I am curious how it gets affected by time. So, for example, for a 40-year-old, what would you be comfortable with?
I retired just before my 40th birthday and looked at 50 year portfolio survival.
I also went one step further and decided not to inflation adjust withdrawals, but to limit them to a fixed % of the portfolio any given year, so that if the portfolio dropped, so would my withdrawals.
Anything lower than 3% is the "wrong portfolio" IMO
Maybe.
Although a lot of those dividend investors who overweighted financials in search of yield got smoked.
Dividends do not necessarily make a portfolio less risky.
As an investor, its easier to manage the payout of the portfolio than it is to manage the performance of the entire asset allocation.
Yes it would be nice to have the higher value (more options present themselves), but my point is focus on the payout, and manage risk by managing payout, not by traditional asset allocation models.
Not necessarily. It could be that the AA is right but the person is very conservative with respect to what they are comfortable withdrawing.Anything lower than 3% is the "wrong portfolio" IMO
Which is exactly what would have led you to solid financials paying out tasty dividends, only to be whacked severely.
Which is exactly what would have led you to solid financials paying out tasty dividends, only to be whacked severely.
For what it is worth, I ran a morningstar x-ray on my traditional asset allocation portfolio that is heavy on the international, small, and value tilts. 2.27% dividend yield with a 0.27% expense ratio. So if one could get similar market exposure by picking a sampling of representative stocks (instead of paying for ETF or mutual fund management), they could get 2.5% div yield without focusing solely on heavy div payers.
2.25% div yield will fund 70% of a 3.2% SWR. Only requires a small nibble on principal each year. Or an allocation to higher yielding fixed income that provides more yield.
If I owned a $100 stock which was paying me $3 (3% dividend) that is low relative to the portfolio's mentioned (if you average 3%, there are higher paying stocks in portfolio). If the stock price was cut 70% (to $30) and the dividend was cut to something lower (like $.50) I am still getting a payout.
Maybe.
Although a lot of those dividend investors who overweighted financials in search of yield got smoked.
Even worse, if you're doing this with mutual funds or ETFs instead of individual stocks then it's a permanent loss when the index is "restructured".So you lost $70 and had your payout cut to $0.50. You still need the $3 in payout to set you right back to where you were. Do you eat the $2.50 loss in income, or do you sell the $30 you have left and put it into $30 of something else that yields $1? Either way, $70 of your principal value is GONE!!
The "good" news is that in late 2008 I was able to buy shares at a 5.9% trailing yield. For whatever that turned out to be worth in the future...
Depends on the stock. The Canadian banks got through the financial crisis pretty much unscathed and none of the Canadian banks cut their dividends .
I see dividends as a means to an end, not a way to reduce risk. They change the risk into something more manageable.
If I have 1,000,000 shares paying me $.03 each, I am judging the shares on the payout only (do I get my $30k or not). Whether those 1 M shares are worth $5 M or 3 M is not how I measure my portfolio. The focus is on making sure the portfolio generates the income needed (30k in this example) and if one stock raises payout from $.03 to .04, that makes up for 1-2-3 other stocks dropping payout from .03 to .02. .01 or 0.
As an investor, its easier to manage the payout of the portfolio than it is to manage the performance of the entire asset allocation.
Yes it would be nice to have the higher value (more options present themselves), but my point is focus on the payout, and manage risk by managing payout, not by traditional asset allocation models.