How best to structure portfolio?

[davidfin]

I’ve read many posts where the OP writes that they live on distributions, dividends and interest never touching the seed corn. Others write about including harvesting LTCG to support income demands.

I have to believe that these two groups structure their portfolios to either maximize dividends, distributions and interest while the other maximizes around growth since most growth stocks pay either a paltry dividend or none at all.

Which approach is most favored?

Second related question. Do many invest in preferred stock as opposed to bonds?

 

[OldShooter]

... I have to believe that these two groups structure their portfolios to either maximize dividends, distributions and interest while the other maximizes around growth since most growth stocks pay either a paltry dividend or none at all.

Which approach is most favored? ...

Actually I think there are three groups, with DW and I in a group you didn't mention.

We don't care about dividends and do not want to skew our portfolio in order to chase them. (Your #1). But we also see no reason to skew our portfolio away from dividend payers (Your #2). We just buy everything, aka a cap-weighted total market portfolio. That is the most diversified portfolio design.

 

[MichaelB]

I’ve read many posts where the OP writes that they live on distributions, dividends and interest never touching the seed corn. Others write about including harvesting LTCG to support income demands.

I have to believe that these two groups structure their portfolios to either maximize dividends, distributions and interest while the other maximizes around growth since most growth stocks pay either a paltry dividend or none at all.

Which approach is most favored?

I think there’s no favored approach here, both are used. There is another approach that is also popular, which is investing for total return.

Second related question. Do many invest in preferred stock as opposed to bonds?

There’s a lengthy and detailed discussion about preferred issues here https://www.early-retirement.org/fo...-bad-and-the-in-between-2021-a-107188-25.html

 

[SnowballCamper]

I think it depends a lot on how much you have, and how much you spend. With enough "seed corn" it's easy to get enough dividend income. With less, you have to harvest some capital gains. It also depends on how much capital gain you have accumulated over the years. It also depends on your individual risk tolerance, and ability/desire to buy more niche products as opposed to generic index funds... The better question is which approach fits your situation better?

 

[mrfeh]

I’ve read many posts where the OP writes that they live on distributions, dividends and interest never touching the seed corn. Others write about including harvesting LTCG to support income demands.

I have to believe that these two groups structure their portfolios to either maximize dividends, distributions and interest while the other maximizes around growth since most growth stocks pay either a paltry dividend or none at all.

Which approach is most favored?

Second related question. Do many invest in preferred stock as opposed to bonds?

This will be my last comment on the thread, as it will likely turn into another debate about dividends...

There is no point in chasing dividends. The only metric that matters is total return.

And many people don't need to structure their portfolio in order to avoid selling shares. If your expenses are low enough and/or your portfolio is large enough, or you have a pension/SS, the dividend from something like the S&P 500 might be enough to live on.

 

[Midpack]

Total return has been my goal since I started investing in 1987, still is. It’s a happy accident that we’ll have way more “passive” income than we need through dividends and interest once Soc Sec and RMDs kick in over the next 4-5 years. We’ve reduced our equity exposure, AA below, but still after total return with each asset class. If anything I wish I could reduce passive income and increase capital appreciation.

 

[racy]

We want both income and growth. We structured our portfolio for simplicity and diversification. Two balanced mutual funds give us 60% in equities: 30% Total Market (tech dominated), 16% Large Value companies, and 14% Int'l w/ Emerging. The 40% in bonds and cash provide more than enough dividends for spending now that we get SS.

 

[enjoyinglife102]

I don't consider this a debate or that there is only one metric that matters. Each individual has to determine what works for them and thus will allow them to live a good life and be at peace. Since the OP asked for preferred approaches, I use Dividend Funds, Intermediate Bond funds and Cash (30-60-10) to generate income investing any cash over target annually. Meets my needs and most importantly, works very well for me.

 

[Montecfo]

I am a total return investor. To live on just the dividends/interest you will be working longer.

Having said that, last I checked with portfolio growth we were close to living on the dividends alone.

But we do not reach for yield in order to achieve that. In fact my largest position, for example, pays no dividend.

 

[dmpi]

Foremost if you need reliable dividend income to survive then you need to structure your investments accordingly. If you don't then you do what ever you want. I don't even compute my total return. I just do whats most fun. In the past I went for long-term capital gains primarily and then dividends. But the recent rise in interest rates have made CDs, Bonds, T-bills much more appealing. Schwab has a screen that shows investment income. I just do what I can to try to make those numbers go up.

 

[Markola]

It’s a trade off. One can have growth or income or a blend but one cannot maximize all three at the same time. If one could, that’s what everyone would do. We seek total return.

 

[target2019]

I’ve read many posts where the OP writes that they live on distributions, dividends and interest never touching the seed corn. Others write about including harvesting LTCG to support income demands.

I have to believe that these two groups structure their portfolios to either maximize dividends, distributions and interest while the other maximizes around growth since most growth stocks pay either a paltry dividend or none at all.

Which approach is most favored?

Second related question. Do many invest in preferred stock as opposed to bonds?

What you are experiencing with the two groups is not exhaustive. There are more than two approaches to structuring a portfolio. This page is just the tip of the iceberg, IMO. https://portfolioslab.com/lazy-portfolios

How we take income from one or more accounts is another discussion.

Many of the topics here turn into A and B factions, but think of how many individuals are part of the user base, and haven't posted in one of the discussions.

 

[CRLLS]

So many variables. I never sought to maximize returns or dividends during my growth stage. I also learned that I cannot pick individual stocks. I am about 90% equity funds/etfs and 10% short term cash/bonds We did tap into our retirement funds before SS kicked in. The retirement funds grow currently untouched. Different stages in life/retirement call for different needs & plans.

One of the things I learned here is that money is fungible. Certainly is true during the accumulation stage if not in the withdrawal stage.

 

[ducky911]

For some depending on your level of income and tax situation, you may want to minimize dividends.
My dividends ,mostly from s&p500, can be painful but not so much that I make trades to avoid them.

 

[ERD50]

I am a total return investor. ...

The way I see it, everybody is a total return investor. Some just don't realize it.

Money is fungible, and arithmetic is arithmetic. Total return includes all the money, and that's all that matters (outside of taxes in some cases).

-ERD50

 

[Flyfish1]

Oh good ..a dividend discussion again....lol

We take a blended approach. A pile of money in dividend stocks/funds and a bunch of bonds/bond funds/preferred for income. Another pile in passive index classic buy/hold which I haven't touched yet but will soon. Another pile in cash value life insurance which I will start to draw down on soon. Last pile is in commercial real estate private funds. Personally, I like having different approaches that aren't correlated. I used to have some money in managed futures but the variability in returns was crazy.

 

[Sunset]

We just buy whatever we feel is going to increase in value and not go down over the long term.
No view to maximizing the dividend.
However, many do pay a dividend, some don't pay any dividend.

We also buy Treasuries for interest as our State does not tax that income, saving ~5%. And the Treasuries are also paying so well it's easy to justify it as a counter to stocks daily gyration.

 

[pb4uski]

The way I see it, everybody is a total return investor. Some just don't realize it.



Money is fungible, and arithmetic is arithmetic. Total return includes all the money, and that's all that matters (outside of taxes in some cases).



-ERD50

+2. While I believe total return is the right answer economically for fixed income where one has the ability and intent to hold to maturity I think one can safely ignore market value fluctuations (and I do ignore them).

For equities, whether you receive cash flow from dividends or from selling shares it doesn't much matter IMO since money is fungible. Also, from a tax perspective qualified dividends and LTCG are treated the same.

 

[ERD50]

+2. While I believe total return is the right answer economically for fixed income where one has the ability and intent to hold to maturity I think one can safely ignore market value fluctuations (and I do ignore them).

For equities, whether you receive cash flow from dividends or from selling shares it doesn't much matter IMO since money is fungible. Also, from a tax perspective qualified dividends and LTCG are treated the same.

True, but if you have to sell some equities, the tax is only on the gains which are typically far less than 100% of the cash flow generated from the sale.

With dividends, all the cash flow is taxable at those same rates (which depend on your other income).

-ERD50

 

[AlmostThoreau]

If there were anything magic about dividends, high dividend stocks would outperform. They don't. Total return, as many others have said, is all the matters.