30/70 asset allocation is the best overall?

[ERD50]

Quote:

Originally Posted by raymondjmillsjr Mix Idv, dvy, vz, so and a few others others ...

Quote:

... My dividend stocks, ETFs are steady eddies ...

Well, I won't include VZ as we would need tons more individual stocks for diversification (and/or VZ is held in one of those funds?). But here is the total return for IDV and DVY plotted against SPY. I fail to see where these 'steady eddies' are performing so well in a downturn - looks to be the opposite to me (edit/add - reset the slider to max if you use the link, it defaults to 200 trading days):

PerfCharts - StockCharts.com - Free Charts

SPY held up better in the downturn, we could have pulled far more from SPY, and still been ahead, with less downside volatility.

Now, what were you saying?

-ERD50

[eta2020]

Quote:

Originally Posted by ERD50 Well, I won't include VZ as we would need tons more individual stocks for diversification (and/or VZ is held in one of those funds?). But here is the total return for IDV and DVY plotted against SPY. I fail to see where these 'steady eddies' are performing so well in a downturn - looks to be the opposite to me: PerfCharts - StockCharts.com - Free Charts SPY held up better in the downturn, we could have pulled far more from SPY, and still been ahead, with less downside volatility. Now, what were you saying? -ERD50

But VIG outperformed SPY in the downturn. Of course it does not yield anything close to 4.5%.

Now personally I am getting close to 4% yield on some of my investment in VIG....the one I bought while ago. And I do not expect that yield to drop down even if market goes down 30%.

[ERD50]

Quote:

Originally Posted by eta2020 But VIG outperformed SPY in the downturn. Of course it does not yield anything close to 4.5%.

Yes, the VIG divs are 2.13% per yahoo - just a hair above SPY.

http://finance.yahoo.com/q?s=vig&ql=0

Hmmm, correlation?

-ERD50

[eta2020]

Quote:

Originally Posted by ERD50 Yes, the VIG divs are 2.13% per yahoo - just a hair above SPY. VIG: Summary for Vanguard Div Appreciation ETF -- Yahoo! Finance Hmmm, correlation? -ERD50

I don't think so. VIG has tilt to High Quality (Wide Moat) stocks.

[Mulligan]

I am just about totally into yield investing (preferred stock dividends). But I am not naive to the fact that its underpinnings to success are still tied to total returns. I love the utility preferreds especially the ones I own that have never missed a preferred dividend payment in 50 years. In about 10 years I will have enough interest income generating in my HSA that it will cover yearly deductibles and if the price of the preferreds went to a penny a share it wouldn't matter to me (yes I know this would not happen if it was paying the dividend).
The relative lack of stock movement is psychologically important to me even in reality it shouldn't matter. One $50 par preferred I own bottomed all the way down to $43 during the 08-09 crisis then bounced pretty quickly back. I am fine with a near guaranteed 6.2% yield.
Different roads leading to nearly the same place, provided you aren't buying junk yield securities or Enron total return stocks.





Sent from my iPad using Tapatalk

[rayinpenn]

Quote:

Originally Posted by RunningBum I can't wait for those details, along with more stories of Freddie, the salt of the earth spreadsheet and toilet whiz, and his wife Alice, hmmm?

If you don't like my examples then I have a simple solution ... Don't read my post . Ps the people are real ... Only the names have been changed..

[haha]

Oh my goodness! There appears to be controversy about this idea!

[rayinpenn]

Dol, xom, DVY, IDV, vz, dol, veipx, t, so, bsac, pid

Controversy Naah I wouldn't want anyone to do anything they are uncomfortable with. Feeling safe with your investment decisions is paramount. I am just offering my thinking ...

[Big_Hitter]

be careful trying to use mathematical models to predict human/market behavior

[ERD50]

Quote:

Originally Posted by raymondjmillsjr Dol, xom, DVY, IDV, vz, dol, veipx, t, so, bsac, pid Controversy Naah I wouldn't want anyone to do anything they are uncomfortable with. Feeling safe with your investment decisions is paramount.

Yes, but we should also be careful about making unfounded claims.

Since 'Freddie' is so good at spreadsheets, perhaps he could put one together that shows a simple diversified 'couch potato' style portfolio that would be based on dividend payers (50/50 DVY/IDV?) versus a 70/30 SPY/BND. Take the divs from DVY/IDV, compare to taking the divs from SPY/BND, plus selling anything required to make up any difference (couple re-balancing into the selling).

But a picture is worth a thousand cells, so :

PerfCharts - StockCharts.com - Free Charts

I think that chart shows (again, stretch the time bar out) that BND would add further stability to the already more stable SPY, and their total returns are both higher as well. They would all be affected by not reinvesting the dividends, but that's a big real return to make up, and it would not take much selling to match the yield of a combo DVY/IDV.

If you can show numbers that back up your claims, then please do. I'd be very interested. Maybe I've got something wrong (hard to see how though). Most of us are here to learn, so enlighten us on this point. Words and stories aren't really doing it.

-ERD50

[eta2020]

Quote:

Originally Posted by raymondjmillsjr Dol, xom, DVY, IDV, vz, dol, veipx, t, so, bsac, pid Controversy Naah I wouldn't want anyone to do anything they are uncomfortable with. Feeling safe with your investment decisions is paramount. I am just offering my thinking ...

You are chasing high dividend....... From my experience it is dangerous to do.

My portfolio would be more like S&P 500 Index, Midcap Index, Small Cap Index, VXUS, VGK, VPL, VWO, SCHD, VIG, KO, GE, PG, MO, PM..... something along those lines

[clifp]

Quote:

Originally Posted by eta2020 IDV has about 100 holdings. That is what I call not diversified. This is example of diversified equity portfolio: 35% VTI, 35% VXUS, 10% VWO, 10% VIG, 10% SCHD. It has about 10000+ holdings. And it will yield about 2.1-2.3%. Loading up on high yielding equities is not recipe for dividend growth. And notice ETFs like VIG did not have any dividend yield drop over 2008-2009 because it is collections of high quality companies. Some high yielding equities disappeared in those years. BTW VZ that you mentioned has on inflation adjusted bases close to 0% dividend growth.

Actually 100 stocks provides plenty of diversity. 30 used to be the viewed as sufficient. The additional alpha that is generated from owning 10,000 stocks vs 100 is measured in basis points not percentages.

The question is are IDVs 100 well diversified. Looking at Morningstar and the top 25 holdings and sector analysis nothing seems to be too far out of whack. It's got banking, conglomerates, insurance, industrial, mining, oil, real estate, tech, and utilities, across a variety of countries. It is heavily weight for value stocks, and underweight Japan, and Europe and has practically no growth stocks.

I certainly wouldn't stick all my money in it but as substitute for something like VXUS, it seems to me that its fine. Although .5% ER is more than I'd want to pay Essentially you are making a bet that international value stocks will out perform growth stocks. While I certainly don't have a clue if they will, history say that in a down market while the dividend might be cut, it will drop far less than the stock value.

[target2019]

Quote:

Originally Posted by raymondjmillsjr Dol, xom, DVY, IDV, vz, dol, veipx, t, so, bsac, pid Controversy Naah I wouldn't want anyone to do anything they are uncomfortable with. Feeling safe with your investment decisions is paramount. I am just offering my thinking ...

Thank you for posting that. I am watching a port that includes VZ, T, SO and others. XOM is on the batting deck...

[eta2020]

Quote:

Originally Posted by clifp Actually 100 stocks provides plenty of diversity. 30 used to be the viewed as sufficient. The additional alpha that is generated from owning 10,000 stocks vs 100 is measured in basis points not percentages.

That is True if you are Warren Buffet.

[MichaelB]

Quote:

Originally Posted by audreyh1 I think DVY did experience a significant drop in dividend payout and took several years to recover.

This is what I thought as well. The posit is that the dividend stream is in some way safer, and also holds value with inflation. For the two recommended ETFs, DVY and IDV, do you have any idea how much they declined, and how long it took the quarterly dividend to catch up, in inflation adjusted terms, to their pre-recession high?

[Running_Man]

Quote:

Originally Posted by ERD50 Well, I won't include VZ as we would need tons more individual stocks for diversification (and/or VZ is held in one of those funds?). But here is the total return for IDV and DVY plotted against SPY. I fail to see where these 'steady eddies' are performing so well in a downturn - looks to be the opposite to me (edit/add - reset the slider to max if you use the link, it defaults to 200 trading days): PerfCharts - StockCharts.com - Free Charts SPY held up better in the downturn, we could have pulled far more from SPY, and still been ahead, with less downside volatility. Now, what were you saying? -ERD50

DVY and IDV are not good dividend ETF's as they will load up far too high in one sector and then sell that sector when it hits rock bottom. They are more of a "managed stock fund" than most with mechanical trading rules. I have never liked an "index" fund that can be 50% financials one year and then the next 38% oil stocks.

On the other hand a good comparison to show the impact of dividends would be to use a subset of the S&P 500 index SDOG (and for international I would use IDOG and EDOG) as these are by design across segments of their index and not just buying highest dividends.

In 2014 SDOG outperformed SPY 1.91 percent continuing to over perform for an investing method that uses the same base of stocks as the S&P500 only eliminating poorer dividend payers while maintaining sector diversity. In the following list the first number is the S&P500 Dividend Dog total performance the second is the S&P500 and the third is the over or (under)performance.

12/29/2000
8.11%
-9.10%
17.21%
12/31/2001
18.20%
-11.89%
30.09%
12/31/2002
-15.13%
-22.10%
6.97%
12/31/2003
39.08%
28.68%
10.40%
12/31/2004
17.52%
10.88%
6.64%
12/30/2005
5.45%
4.91%
0.54%
12/31/2006
20.73%
15.79%
4.94%
12/31/2007
3.34%
5.49%
-2.15%
12/31/2008
-33.01%
-37.00%
3.99%
12/31/2009
48.37%
26.46%
21.91%
12/31/2010
20.33%
15.06%
5.27%
12/31/2011
12.34%
2.11%
10.23%
12/31/2012
11.24%
16.00%
-4.77%
12/31/2013
34.99%
32.39%
2.60%
12/31/2014
15.60%
13.69%
1.91%
Those numbers are from this presentation if one would prefer a prettier look at the numbers
http://sdogx.snetglobalindexes.com/p...esentation.pdf

[clifp]

Quote:

Originally Posted by MichaelB This is what I thought as well. The posit is that the dividend stream is in some way safer, and also holds value with inflation. For the two recommended ETFs, DVY and IDV, do you have any idea how much they declined, and how long it took the quarterly dividend to catch up, in inflation adjusted terms, to their pre-recession high?

IDV distributions

2008 2.36
2009 1.06
2010 1.32
2011 1.62
2012 1.63
2013 1.70
2014 1.92

It appears that first 2 quarter of 2008 had an abnormally large distribution perhaps some special dividend from an acquisition or something. The fund started in Q2/2007

DVY
2007 2.36
2008 2.42
2009 1.66
2010 1.70
2011 1.85
2012 2.12
2013 2.19
2014 2.41

So basically last year to get back to pre crash levels. I personally have never been a fan of DVY. I think they sacrifice dividend safety and growth for yield.

On the other hand, somebody like Josh Peters of the Morningstar, took his 100K dividend portfolio from Jan 2005 and by Jan 2008 it was generating $4,714 in income, by March 2009 after dividend cuts, and selling bank stocks the income had dropped to $4,509. (I believe that was the low point) By Jan 2015, the portfolio was generating $6361. Now the portfolio reinvest dividends so not exactly an apples to apples comparison to per share distributions. My income showed a similar modest decrease during that period of around 6%.

[samclem]

Quote:

Originally Posted by clifp Actually 100 stocks provides plenty of diversity. 30 used to be the viewed as sufficient.

As you wrote, it's very important exactly which 100 stocks they are. And, in recent decades, a very meaningful portion of equity returns has come from a relatively small number of "superstar" stocks--if you didn't happen to include the next Microsoft in your 100 stocks, you might very well lag the market average by a considerable amount--more than a few basis points.

Here's a good article from Wm Bernstein. I doubt many of the fundamentals have changed since he wrote it in 2000. From the article:

Quote:

. . .the scatter of returns was quite high, with more than a few [sample portfolios drawn at random from the S&P 500] underperforming "the market" by 5%-10% per annum. The reason is simple: a grossly disproportionate fraction of the total return came from a very few "superstocks" like Dell Computer, which increased in value over 550 times. If you didn’t have one of the half-dozen or so of these in your portfolio, then you badly lagged the market. (The odds of owing one of the 10 superstocks are approximately one in six.) Of course, by owning only 15 stocks you also increase your chances of becoming fabulously rich. But unfortunately, in investing, it is all too often true that the same things that maximize your chances of getting rich also maximize your chances of getting poor. If the O’Neal data are generalizable to stocks, and I believe that they are, then even 100 stocks are not nearly enough to eliminate this very important source of financial risk. So, yes, Virginia, you can eliminate nonsytematic portfolio risk, as defined by Modern Portfolio Theory, with a relatively few stocks. It’s just that nonsystematic risk is only a small part of the puzzle. Fifteen stocks is not enough. Thirty is not enough. Even 200 is not enough. The only way to truly minimize the risks of stock ownership is by owning the whole market.

And, as a bonus, those digesting the article get to see the word "kurtoskewness" in use, which is a treat in itself!

[RunningBum]

Here's a story about a guy, let's call him Frank. He's in his 50s and has been retired for a few years. We don't really know what he's like, because that really doesn't matter when it comes to money, does it? But rest assured he knows the value of a dollar and knows to do an accurate budget, even accounting for home and car repairs he may not be able to handle himself. He's run Firecalc and other tools to verify he's got enough funds to cover himself for many, many years of retirement in just about any economic climate we've ever seen.

Frank wishes he knew how to pick individual stocks or know when to get in or out of the market, but has realized he's not that smart or lucky, so he mostly holds total market index funds, in both international and US stocks and bonds, according to his pre-determined asset allocation. He's very satisfied that he's diversified over not just a large number of holdings in those funds, but they also cover every sector of the market.

Frank cares very, very much about the size of his portfolio, because when it comes down to it, he's going to be spending money so he better always have money to spend. He may run into unforeseen expenses that put a dent in his account, so he'd like to keep the balance as high as possible, while of course, minimizing the risk. Hence, his reliance on index funds and a reasonable AA.

The yield on his investments throws somewhere around 2% a year, which is a bit over half of what he needs. So he has to sell some of his funds to come up with the rest, less so when he becomes eligible for social security and a small pension. But that's ok, he realizes that long term capital gains are every bit as tax advantaged as qualified dividends, plus the basis on his sales are not taxed, just the gains, so he actually pays less in taxes than if his yield was higher. In fact, if he has reason to want to limit income, perhaps to qualify for an ACA subsidy or leave more room to partially convert his tIRA to a Roth IRA, he can do so by selling the shares with the highest basis. Some of them might even be at a loss, which he never hoped for, but might as well take advantage of.

Of course selling those shares reduces his nest egg, but it's ok because his portfolio had a very nice run-up over the last couple of years, so he's still well ahead of where he would've been had he invested in high dividend, slow growth funds. When the market dipped a few years ago, instead of selling stocks at a low price, he sold some of his bond holdings to rebalance his portfolio. His buying days are over so there's no longer a chance to "buy low", but he's got the "sell high" part down pretty well.

Certainly it would be nice to not have to sell any funds at all, but he realizes that if the market goes through a prolonged downturn, any strategy (other than correctly timing events) is likely to have problems. The best thing he can do is to safely build up his funds when the market is good, and hold the course while weathering the downturns.

Nice story, isn't it?

[REWahoo]

Quote:

Originally Posted by RunningBum Here's a story about a guy, let's call him...

I want to play, too.

https://www.youtube.com/watch?v=NwzaxUF0k18