Why when it comes to equities, I'm sticking to funds...

[LOL!]

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Originally Posted by jIMOh ... The goal is 100k-200k of dividend paying stocks yielding me ~$4500/year. The tap out RMDs to top of tax bracket each year to supplement this.

I think you are selling yourself short. You don't need stocks or even dividend funds to get dividends. Your funds will pay out the dividends. Your ETFs will pay out dividends. Even the venerable 'tax-efficient' S&P500 (SPY, VFINX, etc) is paying out 1.5%, VTI/VTMSX 1.7% and EEM 1.3%. Any kind of cash at 5% or more in an emergency fund or 1-2 years of living expenses account will generate thousands of dollars in income.

You have to think about where you will end up when you are around 50 years old like us. We had $19,000 of taxable dividends in 2005 and $26,000 in 2006, so this has become quite a problem for us.

Maybe we should move to a high-income-tax state so we can use tax-free munis?

[Nords]

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Originally Posted by LOL! You have to think about where you will end up when you are around 50 years old like us. We had $19,000 of taxable dividends in 2005 and $26,000 in 2006, so this has become quite a problem for us.

$17K last year here. I hope our "problem" grows faster than inflation!

I'd much rather pay cap gains taxes at 0-5%, but harvesting dividends is a lot easier (and in the long run cheaper) than frequent trading. Considering those pitfalls, paying 15% on dividends is a bunch better than ramping up to 25% income-tax brackets or paying RMDs.

What do the long-term studies say about large-cap value, large-cap dividends, and small-cap value funds?

[jIMOh]

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Originally Posted by Nords What do the long-term studies say about large-cap value, large-cap dividends, and small-cap value funds?

Good discussion.

I understand that 66-75% of the long term S&P 500 performance is from reinvested dividends. The compounding factor of dividends, IMO, is significant.

I don't plan to rely on small cap value to sustain dividends, but at same time diversification does help.

I'd rather rely on 30 companies to pay me $500 each than 15 to pay me $1000 or 5 to pay me $3000.

[FIRE'd@51]

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Originally Posted by Nords Many of us on this board can remember when dividend income was double-taxed and discouraged, so stock buybacks & swashbuckling corporate raiders were the way to unlock the true value of your investments.

Actually, dividends are still subject to double taxation. It's just that they are currently taxed at the favorable LT capital gains rate, so those in the 10% and 15% brackets won't pay any Federal tax on dividends from 2008-2010. After 2010, when the Bush tax cuts sunset, tax rates on dividends will be right back to where they were before (taxed as ordinary income), unless Congress extends the favorable rates. The Dems aren't making any noises that would lead me to believe these rates will be extended.

[wabmester]

Quote:

Originally Posted by LOL! We had $19,000 of taxable dividends in 2005 and $26,000 in 2006, so this has become quite a problem for us. Maybe we should move to a high-income-tax state so we can use tax-free munis?

I take it that you're still working? That's the problem -- quit!

My dividends and interest income are in the 6-figures, and I paid about $5000 in taxes last year. Having very little earned income and lots of deductions helps a bunch.

I wonder what will happen to high-yield stocks if the tax rates on dividends become less favorable. Hmm, that should drop their price and increase their yield. Excellent!

[FIRE'd@51]

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Originally Posted by wab I wonder what will happen to high-yield stocks if the tax rates on dividends become less favorable. Hmm, that should drop their price and increase their yield. Excellent!

Only if you don't own them already!

[clifp]

A bit late to this thread. My portfolio is roughly equally divided among bonds, funds, and individual stocks. Among the funds all but one is an index or ETF. (Any suggestions for international ETF that includes developing countries, and smaller stocks, to replace my managed international fund?)

I own individual stocks for historical reasons and because I believe a portfolio of dividend paying stocks coupled with a strategy of writing covered calls will provide superior risk adjusted returns to index funds individual stocks are more fun. I own 30 individual issues (although 8 are my newly created microcap portfolio and the total of all of them is one normal position ~30K). For me picking individual stocks provides some intellectually stimulation. I also like the individual stocks keep my expense ratios really low 3 basis points including the cost of newsletters. BTW, I'll put a plug in for the Morningstar dividend investor newsletter, not only has its admitedly short track record been good, but the editor Josh Peters does a great job explain the rational for his picks, and unlike the Fool's newsletter he uses a real money portfolio.

My overall portfolio beta is pretty low and so I'll lag the averages by a few points like last year, but since double digit increase are way more than I can spend, I am more concerned with following Buffett's first rule of investing "don't lose money" than in beating the market.

[LOL!]

Quote:

Originally Posted by clifp (Any suggestions for international ETF that includes developing countries, and smaller stocks, to

VEU is the new all-world ex-US etf from Vanguard.

[clifp]

VEU appears to be perfect. Although I am a bit confused about the differences between the Vanguard Total International stock market, and the FTSE all world Ex-US index fund.

[mathjak107]

im not smart enough either to own just the right stock at just the right time in just the right industry and even if i got all of the above correct i still dont know how the market will perceive it and what the competitors are doing.

oh yeah one bad earnings report and it plunges 20%.

did i tell you i looooove my funds

[saluki9]

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Originally Posted by Running_Man I will always prefer individual stocks. I am not concerned about diversification risk, I prefer the risk of owning more stocks when I feel the marktet is cheap and less when I feel it is overpriced. Owning funds inevitably leads to one agreeing they can never know anything about the market other than it will always go up. I do not, can not, will not believe that. If I am going to live the rest of my life on my investments I will assume that responsibility myself. The risk of stocks held is offset by my fixed portion of the portfolio. Market return is a nice number by what is it? The S&P 500, Russell 1000, 20000, 5000? The US total stock market? The world stock market? A global portfolio? The target date portfolio? If one truly understands investments well enough to insure their life savings and future with them, picking individual stocks should be a continual part of the portfolio review. My main goal is to earn a return in excess of inflation by 4% minimum.

Owning index funds means agreeing that you aren't smart enough to outguess the tens of thousands of highly paid and well educated analysts who are trying to do the same thing as you are. I make my living analyzing the market and investing other people's life savings. Individual stocks will never be part of our portfolio review process. (nor mine)

If you really believe you have the ability to outsmart them, then please have at it. The data suggests otherwise.

[al_bundy]

is it still true that most money managers fail to beat their respective indexes and the SP500 over the long term? how many money managers outside of hedge funds and other only open to the wealthy funds have beat the SP500 over a 10, 20 or 30 year period?

[lswswein]

Quote:

Originally Posted by clifp VEU appears to be perfect. Although I am a bit confused about the differences between the Vanguard Total International stock market, and the FTSE all world Ex-US index fund.

Canada is the difference; Vanguard Total International stock market owns Vang Europe, Van Pacific and Vang EM. None of them had Canada - the FTSE ex-us solves that problem; Also with the Total Intl because you won funds instead of stocks directly, you could not take the foreign credit which you can with FTSE ex-us bbecause it owns the stocks not the funds;
Basically FTSE ex-US is better for a couple of reasons, but not too different because Canada is only about 5% of the total portfolio anyway

-h

[Running_Man]

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Originally Posted by saluki9 Owning index funds means agreeing that you aren't smart enough to outguess the tens of thousands of highly paid and well educated analysts who are trying to do the same thing as you are. I make my living analyzing the market and investing other people's life savings. Individual stocks will never be part of our portfolio review process. (nor mine) If you really believe you have the ability to outsmart them, then please have at it. The data suggests otherwise.

What are these classes for individual stock selection at our hallowed institutions of which you speak? Most acedemia believe that individual stocks cannot be picked so by process most well-educated analysts will believe the same, just as you do. Most seasoned analysts are concerned about risk management in their careers and their portfolios not stock selection. If you do not believe you can not pick good stock selections that beat the market then you surely will not.

I believe I have many advantages over an analyst. I do not have to worry about being replaced or outsourced for my job and as such do not need to overreach on my research. I can hold a stock for any period I feel fit, I am not depending on any cash flow outside my control. I do not even need to hold any stocks whatsoever if I feel it is a poor time to do so.

I do not have to worry about being called by a client second guessing my every move. I can look at a stock and review the company and parameters with a view towards the next 10 years and see what I think will happen over the next 10 years. Most of those "well -educated" analysts think long term is an excess of 6 months.

Yes I do believe I can outperform most indexes and I will have at it thank you. This ability is there for anyone who wants to put in the effort to do so, and it does take effort. Rewards in life are usually in preportion to effort taken and goals set that you are working towards.

[saluki9]

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Originally Posted by Running_Man Yes I do believe I can outperform most indexes and I will have at it thank you. This ability is there for anyone who wants to put in the effort to do so, and it does take effort. Rewards in life are usually in preportion to effort taken and goals set that you are working towards.

Except in investing where most professionals don't beat their index.

I know many fund managers and sadly, most are arrogant just like you and feel that they are "the one" who is smarter, better looking, quicker, more patient, you name it. They actually believe that this will be the year when they clobber the index. The sad part is that by the simple rules of math they can't all be right.

Nobody is stopping you from stockpicking. As a matter of fact, as an indexer I appreciate people like you because you keep markets mostly efficient. So from me to you, thank you!

BTW: If you actually believe what you're saying (I can't believe you really do) you should go raise some money and start a fund.

[Mysto]

My only problem with individual stocks is the arguments for it usually sounds more like religion and less like science. I don't mind if someone wants to try it but don't try to convert me - I'm playing with the "house" the odds are better. The data says that the index funds will provide a pretty constant result in the long haul and I'm very happy with that.

[renferme]

I can buy the argument about Funds over Stocks, but,
who likes paying taxes on dividends and capital gains for fund shares that they are just holding ?
Every year, I have to pay taxes on my D&C funds that I'm just holding on to.
With stocks, you don't pay capital gains until you sell and you have the dividend money in hand (unless reinvested), so you have the money to pay the tax.

[samclem]

You can invest in tax efficent funds that will minimize the cap gains they produce. Distributions--have them deposited in a MM fund and use them to pay your taxes at the end of the year, and also to rebalance. That's what I do.

[renferme]

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Originally Posted by samclem You can invest in tax efficent funds that will minimize the cap gains they produce. Distributions--have them deposited in a MM fund and use them to pay your taxes at the end of the year, and also to rebalance. That's what I do.

No I won't move my D&C funds to another family. And no, I reinvest the distributions. Withdrawals are done using the MM fund in my Vanguard IRA.
I just don't understand why the Feds require that you pay cap. gains when you've actually not been given the money - it resides in the MF acct. Why not just pay taxes upon withdrawal ? In any case, it's a tax preparation nightmare every year, even if invested in tax efficient funds.

[FIRE'd@51]

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Originally Posted by bennevis In any case, it's a tax preparation nightmare every year, even if invested in tax efficient funds.

This is why I hold mutual funds (other than MMF's) only in IRA's. I hold individual stocks in taxable accounts. This way I have maximum flexibility with respect to realizing capital gains and losses, and don't have to fool with mutual fund basis problems.