Quote:
Originally Posted by marko
FWIW this is exactly what has happened. Nineteen years ago, when I retired, I started with a $X portfolio. Over that period I've withdrawn that same $X amount exclusively via dividends and CGs, yet my portfolio is now worth $2X from my starting point. ...
Obviously, as often discussed here, there are several other ways to accomplish the same result, but that is how I did it and with what was comfortable and efficient for me: dividends and CGs are distributed and automatically end up in my checking account a few days later.
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But that's the point. It can be done other ways, and more tax efficiently (so
not the same result really, taxes are real).
When you sell some shares for income, you are taxed only on the portion that is a gain (or save taxes if a loss). So if that stock has doubled since you bought it, the typical 15% tax applies only to half the amount of cash you withdrew, so effectively a 7.5% tax. You have 7.5% more money in your pocket. And if some of that year-end distribution is short term gains, you may be paying more than 15%.
How much did you get in income over those 19 years (as a % of the starting portfolio)? If, for example, you invested in BRK (which pays no div, you could have withdrawn an inflation adjusted 5.5% and still more than doubled your portfolio (not adjusting for inflation, which I assume you didn't do either - just comparing the current $ value). And on $1M, you'd have a steady, inflation adjusted 5.5%, which adds up over the years to $1,311,600, which is 31.2% more than the original investment, and it still doubled.
BRK is just a convenient example, as it pays no div, and I don't think it's ever had a year-end distribution. And it actually tracks VTI pretty closely. Not a bad proxy as an example.
https://www.portfoliovisualizer.com/...PlGfWfJOVfNgVD
Click on "Annual Returns" to see the cash flow.
-ERD50
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