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Old 07-02-2013, 01:02 PM   #21
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If I am only 25 (almost 26), should I put my dividend stocks into a Roth IRA or a regular investment account?
That depends almost completely on your tax situation. As a very general rule high dividend income shares should be placed in the retirement account to avoid paying income tax rates on nonqualified dividends and paying any immediate taxes on qualified dividends. However, if you keep your taxable income, including long-term capital gains and all dividends, within the 15% tax bracket, then qualified dividends are tax free and nonqualified dividends are only taxed at 15%. And the 10% tax bracket would bring that down a little farther. That comes close to eliminating tax considerations from the equation, or even reversing the normally favored location.
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Old 07-02-2013, 01:52 PM   #22
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It seems like a great long term stock to buy.
That is an excellent reason not to buy it.
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Old 07-02-2013, 02:57 PM   #23
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Easier yes.
Cheaper not at all.

If we look at say the VIG Vanguard Dividend Appreciation ETF, it has an expense ratio of .1%. According to M* , it has 146 stocks, the top 20 holding account for 63% of the value. The annual turnover is 15%.

Simply replicating it would cost you $730 at $5/trade for a one time cost. (Actually lots of place provide free trading for new accounts0. Then it would cost ~$220 a year. But a much simpler approach would be the purchase top 20 holding and then every fourth holding leaving you with 50 stocks and one time cost of $250 and annual cost of $70. You'd also have much more flexibility for tax selling.

In contrast if you have a $1 million portfolio and have 50% invested in VIG, your annual expenses are $500 a year and you have much less flexibility for tax selling
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Old 07-02-2013, 08:08 PM   #24
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If you care about tracking the index, how do you handle liquidity events like rebalancing (either selling/buying) without having a huge number of transactions?
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Old 07-02-2013, 11:49 PM   #25
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If you care about tracking the index, how do you handle liquidity events like rebalancing (either selling/buying) without having a huge number of transactions?
The turnover rate for VIG is 15% on a portfolio of 146 stocks that means you sell 22 stocks (although they probably is a merger or two in the mix) each year and buy 22. For a total of 44 transactions not a huge number. If you want to cut down the transaction down further buy the top 20 and randomly select 30 to 40 of the remaining 126.

There is virtually no data that suggests that cap weight index perform better than any other type of scheme like equal weight, so I wouldn't sweat trying to perfectly replicate the index.
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Old 07-04-2013, 11:22 AM   #26
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Actually I didn't mean dealing with turnover in the index but rather having to deal with a lump sum investment or sale. E.g., my "fund" is up 30% and hits rebalancing bands so I need to sell stuff off. This would be another batch of transactions with number dependent on how closely you want your sample to replicate the index (could be more than dealing with turnover).

I'm most worried about replicating the index (having enough stocks) for classes like small caps where much of the gains are attributed to a small number of companies.
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Old 07-04-2013, 08:54 PM   #27
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Actually I didn't mean dealing with turnover in the index but rather having to deal with a lump sum investment or sale. E.g., my "fund" is up 30% and hits rebalancing bands so I need to sell stuff off. This would be another batch of transactions with number dependent on how closely you want your sample to replicate the index (could be more than dealing with turnover).

I'm most worried about replicating the index (having enough stocks) for classes like small caps where much of the gains are attributed to a small number of companies.
Well I hadn't considered rebalancing at macro level. I guess the easiest way would be to decrease or increase the number of holdings. So if you were currently holding 70 of 146 stocks and 10 of those were replaced in the index,and you were currently overweight you sell all 10 but only buy 7 of the replacements.

To be honest in most cases I think replicating an index is more trouble than its worth. But some specialized ETF have a fairly small portfolio and have a fairly high expense ratio. Often when I look I find I own ~1/2 of the top 25 holding so rather than just buying the ETF I'll just a buy a few more of the missing holdings

I think 100 to 200 stocks is the upper limit when makes sense. So a small cap fund wouldn't be a candidate.

I got interested in the subject because there was a guy, on MrMustache who was in Germany, he had no access to cheap index fund (greater than 1% ER). But he could buy stocks for $4 a shot, he had $500K so buying the top 100 S&P stocks and 25 out of each 101-200, 201-300 next etc was going to cost less than a $1k a considerable savings for the $6K a year in annual expenses.
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Old 07-05-2013, 08:08 AM   #28
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If I am only 25 (almost 26), should I put my dividend stocks into a Roth IRA or a regular investment account?

I have been buying mainly Ecotality(ECTY) with what money I can spare a month in my regular investment account.

I like ECTY because with the success of Tesla Motors(TSLA) and the other car companies all working towards producing more EVs.

It seems like a great long term stock to buy.


So for a nice monthly dividend I have been looking at Armour REIT (ARR).
Don't do this, man. With your time horizon, the discipline of saving itself will make you FI. Don't screw it up with weird "story" stocks. Most "story" stocks have a sad ending. Just buy the index.
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Old 07-05-2013, 09:49 PM   #29
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I got interested in the subject because there was a guy, on MrMustache who was in Germany, he had no access to cheap index fund (greater than 1% ER). But he could buy stocks for $4 a shot, he had $500K so buying the top 100 S&P stocks and 25 out of each 101-200, 201-300 next etc was going to cost less than a $1k a considerable savings for the $6K a year in annual expenses.
At 1% I'd be tempted to make my own index fund too. That's a terrible expense ratio. I wonder why he doesn't just buy an ETF?
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Old 07-06-2013, 12:20 PM   #30
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1% is far too much, buying shares to represent index better, downside is work and tracking, ETF index is by far the best for risk/reward and work.
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Hey Eladio!!!!!
Old 08-11-2013, 02:47 PM   #31
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Hey Eladio!!!!!

Hey Eladio--

I've been following your thread and your portfolio for some time and it has been over a month since you posted your July material. Any chance of you posting anytime soon? I really enjoy looking at what you are doing. prof12
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Old 08-13-2013, 02:59 PM   #32
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bought POT....any thoughts? I live in California.
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Old 08-13-2013, 07:04 PM   #33
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bought POT....any thoughts? I live in California.
I've been watching them for a couple years. I could never figure out the market/how the business worked. After this big dip I might do a little bottom feeding with my fun money......if my DW let's me.
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