5% is straightforward

[JWR1945a]

Reaching a 5% continuing withdrawal rate is straightforward. The key is to focus on dividends instead of total return. Never sell any shares.

Here are a couple of articles. [You can do even better.]

Dividend Blend Rule of Thumb
Dividend Blend Rule of Thumb


August 29, 2007 Letters to the Editor
August 29, 2007 Letters to the Editor

“With a 30%-70% allocation favoring the high yielding preferred stock, the combination allows you to withdraw 5.1% of the original balance (plus inflation) indefinitely.”


Have fun.

John Walter Russell

 

[brewer12345]

Go away, h0suc v. 1.1.

 

[haha]

Go away, h0suc v. 1.1.

Oh be nice Brew, I like to read this stuff.

Ha

 

[clifp]

Reading the stuff is fine following the advice can be hazardous to your financial health.

 

[DRiP Guy]

If I am ever interested in watching the workings of disordered thinking, leading to unsupportable modeling, that is so horrible that back-testing it against it's own dataset won't even work unless I use "Eyeball estimates", then I'll go to the JWR cockeyed house of confusion website. Until then, thanks for the links, the madcap menu system, etc.

I must admit, it's worth a one-time visit to the site just to try to figure out what the crazy cobweb logic of that site must look like when reduced to a flowchart...

 

[DRiP Guy]

I thought I would do a photo-chop user's guide of the JWR menu-system -- one that had quality in keeping with the content and thinking of the subject site:

 

[DRiP Guy]

And to show what a really actually nice and helpful guy I am:

 

[Culture]

This closes the deal for me. I retiring at a SWR of 5.1%. No reason to wait any longer.

 

[DRiP Guy]

This closes the deal for me. I retiring at a SWR of 5.1%. No reason to wait any longer.

he he he

 

[CybrMike]

Might not be as bad if it wasn't your first post.

Reaching a 5% continuing withdrawal rate is straightforward. The key is to focus on dividends instead of total return. Never sell any shares.

Here are a couple of articles. [You can do even better.]

Dividend Blend Rule of Thumb
Dividend Blend Rule of Thumb


August 29, 2007 Letters to the Editor
August 29, 2007 Letters to the Editor

“With a 30%-70% allocation favoring the high yielding preferred stock, the combination allows you to withdraw 5.1% of the original balance (plus inflation) indefinitely.”


Have fun.

John Walter Russell

 

[haha]

Might not be as bad if it wasn't your first post.

It's not his first post. He has been around for years, on this and other boards.

Anyway, what is wrong with his idea? I also favor an income oriented approach, and unlike some of you I have been living off a portfolio managed in this way for over 20 years. We'll see how well I do post divorce, but I think the odds favor an approach that while it welcomes portfolio gains, provides much of what is needed by virtue of recurring cash payments to the retired security holder. I am confident enough that although I am 66 I don’t draw social security yet.

I would love to be massively overfunded, so I could do fine with 2% dividend payers, but I am not, so I must be more inventive. Still, it's a long way from a hope and a prayer, which is what the "total return" approach is.

I will always want some issues chosen for their potential gain. So some may have no current yield. Then I must pick some others with higher than average yield to make up the gap. My overall portfolio average yield is a little over 3%.

By the way, I believe we woud be likely to learn more if people were to critique the arguments rather than attack the presenter.

Ha

 

[twaddle]

He says you can withdraw 5% if you have 50/50 split between 6-8% yielding bonds and 3-4% yielding stocks with dividends growing 10%/year.

OK.

Where do I find bonds with that yield with no default risk, and where do I find stocks that will consistently grow dividends 3% faster than GDP growth?

AFAIK, long-term growth rates for both dividends and earnings has been in the 6% range.

 

[Nords]

Anyway, what is wrong with his idea? I also favor an income oriented approach, and unlike some of you I have been living off a portfolio managed in this way for over 20 years.

Nothing's wrong with his idea but he's notorious for unrealistic assumptions, data mining, and magic black-box formulae to arrive at an answer. In this case the answer doesn't happen to be too far from the conventional wisdom and, like blind squirrels & acorns, it might work out just fine. Except for 50-60 year periods and maybe 1966-82...

By the way, I believe we woud be likely to learn more if people were to critique the arguments rather than attack the presenter.

Yes, but this JWR has been cheek-by-jowl with H0cus for so long that, until we checked IP addresses, we actually thought they were the same poster. He burned through his goodwill and the strength of his arguments long ago and there's no credibility remaining. I'd rather read Gummy Stuff.

We'll see how well I do post divorce...

I haven't read every thread but I haven't seen you mention divorce before. I'm sorry that it's come to this.

 

[haha]

Where do I find bonds with that yield with no default risk, and where do I find stocks that will consistently grow dividends 3% faster than GDP growth?

I believe an enterprising investor can likely find the stocks. The bonds I doubt. I woudn't try anyway. For me bonds are mostly a parking place, and a source of dry powder.

I admit that 5% is an aggressive goal; still we might remember that the same difficult arithmetic faces total return investors, they just don't realize it yet.

Ha

 

[twaddle]

I believe an enterprising investor can likely find the stocks.

Enterprising? That doesn't seem like a good fit for retired folk.

I try to guess which sectors will grow faster than GDP, but it's still a guess.

Another problem I see with this strategy is taxes. The withdrawal rate implicitly includes taxes. This means you generally want to minimize taxes to ensure safety. A 50/50 mix of high yield bonds and high yield stocks, in which the "excess" interest and dividends are supposed to be reinvested, seems like close to worst-case tax inefficiency.

 

[haha]

Another problem I see with this strategy is taxes. The withdrawal rate implicitly includes taxes. This means you generally want to minimize taxes to ensure safety. A 50/50 mix of high yield bonds and high yield stocks, in which the "excess" interest and dividends are supposed to be reinvested, seems like close to worst-case tax inefficiency.

This is likely true, and I would not approach it in this exact way. The most tax efficient way is probably the total return approach of regular planned sales. However, it exposes you to some bad mojo in a prolonged market downturn, which does not necessary equate to a prolonged bad business environment.

I think some excess generated is worth paying the tax on, because it provides liquidity for enterprising re-investment. I possibly have paid more taxes than some, but I have never paid a tax on a loss.

Good to see your specific concerns about this strategy.

Ha

 

[Hamlet]

I don't think bonds were a part of the plan. He's suggesting high yield investments, REITs and MLPs come to mind. I would probably add some bank stocks in the current environment.

I don't think its a bad plan. One drawback is that you have to build a portfolio out of fairly limited choices. You probably are going to have to be weighted heavily in a few sectors.

I think at some point you will need to choose between yield and diversification.

He says you can withdraw 5% if you have 50/50 split between 6-8% yielding bonds and 3-4% yielding stocks with dividends growing 10%/year.

OK.

Where do I find bonds with that yield with no default risk, and where do I find stocks that will consistently grow dividends 3% faster than GDP growth?

AFAIK, long-term growth rates for both dividends and earnings has been in the 6% range.

 

[twaddle]

I don't think bonds were a part of the plan. He's suggesting high yield investments, REITs and MLPs come to mind. I would probably add some bank stocks in the current environment.

The second link gives some context. He talks about preferreds, which I view as callable bonds with more BK risk. REITs might be better, but there are few with that kind of yield.

MLPs seem like the best fit, but you get both stock-like risk with the business cycle and bond-like risk with changes in interest rates.

No free lunch. If you reach for yield, you're increasing your exposure to risk.

If a retiree is willing to take on that much risk, why not just load up on ScV and increase your SWR based on expected returns of 14% or so? I think there's a thread here somewhere that suggests one could increase their SWR to something like 5-7% based on such a strategy.

If he presented some evidence that risk-adjusted returns should be better than more traditional approaches, that would be interesting to see. But I believe the academic consensus is that selecting high-yield stocks is nothing more than a poor way of gaining a value tilt.

 

[brewer12345]

By the way, I believe we woud be likely to learn more if people were to critique the arguments rather than attack the presenter.

Ha

In 99.999% of cases, fine. In this case, I think an immediate permanent ban from the forum is indicated. If it isn't done, either the puff of marsh gas sugesting this srategem will wreck the board, or several posters (myself included) will post nothing else but direct confrontations with the creature that crawled out of *****'s swamp.

 

[REWahoo]

To those of you who haven't been around the forum for an extended period of time and may not be aware of it, JWR1946 is closely allied to a world-class troll. Responding to his posts can be hazardous to your mental health.

IMHO

 

[2B]

In the greater world of "safe withdrawl rate" literature, 5.1% isn't all that aggressive. Guyton has a 6.2% plan but, of course, withdrawls can drop dramatically with a Guyton plan.

The problem I saw with the article was it was too dependent on a specific investment style. You buy those great dividend stocks and they keep increasing the dividends to meet your higher spending needs. That will work great until it doesn't and then there will be the proverbial "great awakening."

I could create an even greater withdrawl by recommending Canadian oil trusts. They pay in the 12 to 15% range and will be increasing their dividends as the price of energy continues to go up. We all know that oil will never drop in price for the next 50 years so our retirements are well covered with a 10% or higher SWR.

 

[maddythebeagle]

To those of you who haven't been around the forum for an extended period of time and may not be aware of it, JWR1946 is closely allied to a world-class troll. Responding to his posts can be hazardous to your mental health.

IMHO

I believe that intercst's board refers to them as the "Troll Brothers".......

Retire Early Home Page - Index

 

[ashtondav]

I see nothing wrong with a dividend strategy.

Here in the UK where our main stock index yields nearly 3.4% its easy to pick a very diversified portfolio of stocks yielding over 4%. It would contain a good mix of oils, pharmas, telcos, banks, oils, industrials and consumer goods.

Its a popular strategy here as there is no extra tax to pay on dividends until your annual income is about $80,000 (£40,000). So a 4% yield on a $1,000,000 portfolio delivers $40,000 with no more tax to pay.

On the UK based Motley Fool boards we spend more time discussing high dividend strategies than any other. Probably because our stockmarket delivered less than the steller performance of the 20th century Dow.

My own strategy is:

1. My pension plus the dividends from my portfolio meet my (comfortable) living expenses.

2. I hold some index linked bonds, some of which i sell if the dividends do not go up in line with earnings.

3. I hold an international mix of equity funds. I treat this as my bonus pool. If they increase in value from the previous year I sell 4%. If the portfolio decreases, I don't get a bonus.

Worked for me over the last 7 years. Maybe not in America, though, eh?

 

[DRiP Guy]

... what is wrong with his idea?

...it's a long way from a hope and a prayer, which is what the "total return" approach is.

... I believe we would be likely to learn more if people were to critique the arguments rather than attack the presenter.[

Fair enough, on points one and three quoted above, with a minor note that on point two, you do what you seem to want to properly caution us ALL against -- the use of emotional terms (hope and prayer) and dismissal of a whole regime of thinking with a single arm wave; rather than using objective financial terms and arguing from comparison and fact.

I do admit to being captive to my own past history, and yes, admitted biases, relative to this particular source, but I will grimly attempt to reign in my own emotional response to knowing exactly where this is coming from and the techniques behind it, to just comment on particulars, IF I decide to comment at all beyond this one reply.

So, to be clear: I readily admit that there is nothing inherently bad in the idea of trying to manage AA to reduce SD and preserve alpha sufficiently that a backtested historical sequence could look to support 5.1% SWR going forward (assuming things remain much the same as they are today).

I would just caution: "Consider the source", preferably in their own words, and leave it at that:

SeWeR Research Group
SeWeR Research Group :: View topic - Risen From The Ashes

And:
SeWeR Research Group :: View topic - Not Enough Censorship

 

[haha]

I see nothing wrong with a dividend strategy.

Here in the UK where our main stock index yields nearly 3.4% its easy to pick a very diversified portfolio of stocks yielding over 4%. It would contain a good mix of oils, pharmas, telcos, banks, oils, industrials and consumer goods.

This sounds quite promising. Could you suggest where to look? Or post some interesting candidates? Most of these we should be able to buy in US, either as ADRs or as ordinaries in the pink sheets. I have owned Diageo since it was known as Guiness, at the time of the United Distillers merger. Lately it has gotten expensive, but most of these years it has been a high paying but steadily growing dividend payer.

My own strategy is:

2. I hold some index linked bonds, some of which i sell if the dividends do not go up in line with earnings.

What are index linked bonds? Is this inflation indexed bonds, or some sort of structured product?

Thanks, Ha