9-year fixed income plan

[levindb]

Net AFTER taxes

As mentioned before, taxes will have an impact on your net cash. If you can keep your AGI in the 12% bracket, your CG tax will be 0%. If you can keep your Muni Bonds in your After Tax accounts, you will also avoid Federal and some state taxes. Your AA does not change, but deciding which items are on in your After Tax accounts has its benefits...and it allows for Tax Loss Harvesting as well.

 

[Ready-4-ER-at-14]

I believe you can also buy short term annuities that pay out x dollars a year for y years and then terminate.

No idea if they are cost effective for you, just mentioning another asset class that sometimes works for special cases and certain types of people.

 

[ERD50]

I pretty sure I never mentioned HYD since I have never used it. Don’t quote me when it’s simply not true.

Which is why I asked (you mentioned HYD in another thread on income investing). Now that you mentioned ARTFX, I'll take a look at that one.

-ERD50

 

[ERD50]

I think there is a place for high yield for a small portion of your fixed income. You get paid for the risk with higher yields. I use a fund for high yield because there are individuals incented to find the best risk adjusted returns at these funds. The fund I use is up almost 9% YTD with about a 6% yield and a 2.6 year duration. I have about 4% of my fixed income pool in it.

Well, I asked because I'm curious if this fund is able to provide some alpha over a blend. When I've looked at the Hi-Yield funds in the past, they did not. That doesn't mean it can't happen, but I would be surprised.

I guess you don't want to share the ticker?

-ERD50

...The symbol is ARTFX

OK, so I looked at ARTFX. Unfortunately, the history only goes back to 2014, so we can't see how it performed during the 2000 and 2008 periods. But even over this short period, it performed very similarly to a 40/60 blend.

http://bit.ly/2KXAZW0 << short link to portfolio visualizer

http://bit.ly/2KWoWIN << added Wellesley; same story

There are a lot of ways to skin a cat. Don't let a perfect plan get in the way of a good one.

I don't understand what point you are trying to make here. From what I read from Bernstein, and from my own studies, there just isn't any advantage to Hi-Yield over a blend of total Stock and Total Bond fund/ETFs. So why complicate things, add some management risk, and get less control over your income by adding a Hi Yield fund to the mix? Where is the 'good'?

Sorry I stopped subscribing to this thread when it became contentious. ...

At what point did it get contentious? Is looking at the data behind a statement 'contentious'? It's how we learn.

-ERD50

 

[COcheesehead]

OK, so I looked at ARTFX. Unfortunately, the history only goes back to 2014, so we can't see how it performed during the 2000 and 2008 periods. But even over this short period, it performed very similarly to a 40/60 blend.

http://bit.ly/2KXAZW0 << short link to portfolio visualizer

http://bit.ly/2KWoWIN << added Wellesley; same story





I don't understand what point you are trying to make here. From what I read from Bernstein, and from my own studies, there just isn't any advantage to Hi-Yield over a blend of total Stock and Total Bond fund/ETFs. So why complicate things, add some management risk, and get less control over your income by adding a Hi Yield fund to the mix? Where is the 'good'?



At what point did it get contentious? Is looking at the data behind a statement 'contentious'? It's how we learn.

-ERD50

When someone has to be right even though the other party's strategy is equally correct, just different and the first party can't let it go, I stop responding and I will do so here.

 

[ERD50]

When someone has to be right even though the other party's strategy is equally correct, just different and the first party can't let it go, I stop responding and I will do so here.

Why do you make it personal? It's the data that is talking. I listen to data.

"Equally correct"? I don't think so. That fund has a 1% ER, and that has to be overcome in order to be equal, and there is risk in that. Adding a fund and dealing with the divs does add some complexity.

It's not the end of the world, but claiming it is equally correct is just not supported by facts. Facts don't have an expiration date, they don't "let go".

-ERD50

 

[OldShooter]

"equally correct" --- What might that mean?

One meaning, which I subscribe to, is that a "correct" strategy optimizes total return from a portfolio at a level of volatility that is acceptable to the holder(s).

Another meaning, for a different investor, might imply a portfolio that provides a dividend stream that "feels like" a salary.

Another meaning, for yet another investor, might be having nothing on the table at all -- "we've won the game and have stopped playing."

Another (I'll stop after this one) might be to pay an AUM fee and to never again worry about the portfolio.

A lot of our debates here, IMO, are among people for whom "correct" means different things.

ERD50's posts IMO usually reflect the "optimize total return" sort of correctness. If that's your camp, then IMO data is definitely your friend. It is not a matter of taste, like choosing coffee over tea. It is a hunt and debate about data on which to make decisions.

 

[SilentWalker]

I believe you can also buy short term annuities that pay out x dollars a year for y years and then terminate.

No idea if they are cost effective for you, just mentioning another asset class that sometimes works for special cases and certain types of people.

Yes, good point. I entered some figures in the immediateannuities.com calculator and looks like a 10 Year Period Certain option would yield 2.35% right now. Not really a notable option.

 

[ERD50]

The attraction is the same as the attraction of Dividend Growth Investing. You get a monthly check with no effort on your part, ... .

I can get a monthly check for a conventional portfolio with a one-time effort on my part by just putting in an automatic redemption order, so I don't see much benefit to skewing my portfolio to dividend payers.

Agreed, I guess if one feels that skewing their portfolio to dividend payers is 'worth it' for that some percieved slightly lower effort (is it lower effort after picking/evaluating dividend paying funds or stocks?), then they have their answer. I don't see it.

... and it feels like free money.

You lost me there. I can't imagine how it can feel like free money to anyone, they have to have (non-free) principal working to produce dividends (and/or growth).

I might think of my CC rewards as 'free money'. I use the CC on things I was going to buy anyhow, I shop for the best price, and then I get 2-3-4% in rewards.


Regardless, when I pay my bills, they want real money, not 'feelings'.

-ERD50

 

[OldShooter]

... I can't imagine how it can feel like free money to anyone ...

Exactly. That doesn't mean that it doesn't feel like free money to somone, just that you don't understand why it would.

You make my point for me: Your (and my) approach is to optimize total return by gathering, analyzing, and acting on hard data. Not everyone buys into that approach.

Really, the only people I have trouble with are those who claim some trading, timing, or stock-picking approach as "correct" for optimizing total return but have no data to support the assertion.

 

[rayvt]

The attraction is the same as the attraction of Dividend Growth Investing. You get a monthly check with no effort on your part, ... .... and it feels like free money.

You lost me there. I can't imagine how it can feel like free money to anyone

If you can't imagine it, then you've not spent any time on SeekingAlpha where they go on (and on and on and on...) about Dividend Growth Investing. Because clearly those people feel like dividends are free money.

They are wrong, of course, but that's what they believe & feel.

You lost me there. I can't imagine how it can feel like free money to anyone, they have to have (non-free) principal working to produce dividends (and/or growth).

Regardless, when I pay my bills, they want real money
-ERD50

Correct. The point they keep bringing up is that you cannot pay your bill with unrealized capital gains, or with money that you don't have unless you sell some shares. But you have to take an action to convert shares to cash. But you don't have to take any action when the company pays you a dividend and the money just shows up in your account while you sleep. Hence: it feels to free money (to them).

They have to have (non-free) principal working to produce dividends (and/or growth).

To them, the money they have in a stock is a sunk cost. Many of them explicitly say that they do not care about growth because they never plan to sell any shares ever.

For exampe, read this article https://seekingalpha.com/article/4234831-long-and-t-pays-100000-per-year-dividends (How Long Until AT&T Pays Me $100,000 Per Year In Dividends?)
Deluded thinking, but there it is.

 

[Mr._Graybeard]

As an example, I plugged HYD (mentioned by COcheesehead in another thread) into Portfolio analyzer. I iteratively plugged in an AA for VTI and BND until the total return matched as close as I could get it. Turns out a conservative 28/72 (portfolio 1) slightly outperformed HYD (portfolio 2), with significantly less volatility.

http://bit.ly/2N7RMrv << short link to Portfolio Analyzer

I don't see the attraction. Was there another ticker we should analyze?

-ERD50

Try PIMIX

 

[youbet]

As an example, I plugged HYD
http://bit.ly/2N7RMrv << short link to Portfolio Analyzer


-ERD50

You claim to always "go by the numbers" and use quantitative analysis for each and every one of your decisions. I'm having trouble understanding why you would be comparing BND (taxable) with HYD (municipal) without considering tax ramifications. What numbers told you to do it this way? Thanks.

 

[ERD50]

You claim to always "go by the numbers" and use quantitative analysis for each and every one of your decisions. I'm having trouble understanding why you would be comparing BND (taxable) with HYD (municipal) without considering tax ramifications. What numbers told you to do it this way? Thanks.

What's the old expression, "never attribute to malice that which is adequately explained by stupidity!" (not that you were accusing me of 'malice')

I had done a quick search for bond funds that COcheesehead had mentioned, and that was the first I came across. Later, I did notice it was a municipal bond, so not a valid comparison. By then, the conversation had moved on, so I just went with the more recent tickers provided.

Try PIMIX

How about you try it, I provided the link!

Well, OK, PIMX has a short history (April 2007), but looks really good over that time frame. It pretty much matched the Total Market in performance (100/0 AA), with lower volatility. Impressive!

But, would you have selected it in April 2007? Out of all the other funds? And in the past 5 years, its performance is more like a 30/70 AA, though with lower std dev, so still looking good in that regard.

-ERD50

 

[Mr._Graybeard]

Well, OK, PIMX has a short history (April 2007), but looks really good over that time frame. It pretty much matched the Total Market in performance (100/0 AA), with lower volatility. Impressive!

But, would you have selected it in April 2007? Out of all the other funds? And in the past 5 years, its performance is more like a 30/70 AA, though with lower std dev, so still looking good in that regard.

-ERD50

I would never buy a brand-new mutual fund. I did dip into the retail version, PONDX, for the first time in 2012.

 

[youbet]

I had done a quick search for bond funds that COcheesehead had mentioned, and that was the first I came across. Later, I did notice it was a municipal bond, so not a valid comparison. By then, the conversation had moved on, so I just went with the more recent tickers provided.

So, you always "go by the numbers" and use quantitative analysis but sometimes you use sucky inputs? I guess I can get that........

 

[ERD50]

So, you always "go by the numbers" and use quantitative analysis but sometimes you use sucky inputs? I guess I can get that........

Yep, that was garbage in garbage out. A pure mistake on my part. But I would have caught it before I made any decision on it, so no big deal. Part of any serious analysis is checking the numbers from different angles.

-ERD50

 

[youbet]

Part of any serious analysis is checking the numbers from different angles.

-ERD50

And part of any honest forum discussion is going back and mentioning errors once you discover them and not just letting them ride.

Oh well, a learning experience for us all.

 

[pb4uski]

....The point they keep bringing up is that you cannot pay your bill with unrealized capital gains, or with money that you don't have unless you sell some shares. But you have to take an action to convert shares to cash. But you don't have to take any action when the company pays you a dividend and the money just shows up in your account while you sleep. Hence: it feels to free money (to them)....

Nonsense. Money is fungible. Let's say that we have two investments, one pays $6k a year in dividends and the other pays no dividends... but the total return is identical. I could take the no dividend payer and set up a automatic withdrawal to mimic the $6k a year of dividends paid by the dividend payer in one action.

 

[rayvt]

Nonsense. Money is fungible. Let's say that we have two investments, one pays $6k a year in dividends and the other pays no dividends... but the total return is identical. I could take the no dividend payer and set up a automatic withdrawal to mimic the $6k a year of dividends paid by the dividend payer in one action.

Indeed.
[*]
There are a number of counter-arguers in the SeekingAlpha articles comments that make this same point.

To no avail.

Welcome to the world of, as Scott Adams says, "persuasion in a world where facts don't matter."


---------------------------------
[*] Actually, it's worse than that.
I once created a 32-year spreadsheet of the daily prices & dividends for the top half-dozen favorite DGI stocks to look at various things.

The first was to look at the overall price action on the ex-dividend day, with an initial investment of 100 (split-adjusted) shares per stock. On average, the price drop was very close to the dividend amount. As theory predicts. But not always. They focus on the times when the price didn't drop and ignore the times it did. Over all these stocks and all that time, the total dividends were $23,399 and the total ex-div price drop was $27,700.

The second was a comparison of what-if once a year you sold 2 shares if the stock price was double the initial investment.
For JNJ, that total realized return (dividends + sells) came to $4,307. Versus the total buy-and-hold dividend payout of $3,038. Almost half again as much total return.

They won't hear of it though. Because ... a world where facts don't matter.

 

[levindb]

I am confused...

If I own 100 shares each of two stocks in tax deferred accounts:

ABC pays 3% dividend each year, no growth
XYZ grows 3% each year, but no dividends

During accumulation phase, ABC dividends are reinvested and both stocks have similar value over N years because of compounding their returns.

However, in decumulation years where I spend those returns:

ABC provides a constant 3% payment each year...and I am happy.

XYZ requires me to sell 3 shares the first year to have money to spend, and then growth will be based on just 97 shares, reducing my future annual income by 3%...and this will continue to diminish each year...and I am NOT happy

 

[pb4uski]

^^^^^^ NO!

It doesn't work that way. Let's say that there is no appreciation or depreciation to make it easier to think about. You start out the year with 1000 shares worth $10 each or $10,000.

The dividend payer pays a 3%/$300 dividend in December... the price per share declines from $10 to $9.70 when the dividend is paid... at the end of the year you have 1000 shares at $9.70 each or $9,700.

For the non-dividend payer you sell 30 shares at $10 to raise $300 in cash... at the end of the year you have 970 shares at $10/share... or $9,700.

IOW if you believe that there is no difference in accumulation phase then there is also no difference in decumulation phase because the math is the same... just some numbers are negative.

Same thing if you include 10% share value growth and then pay the dividend.

Dividend payer owns 1000 shares at $11 before the dividend and then receives a $330 dividend and the share price declines to $10.67 [$11 * (1-3%)] for total of $10,670 ex-dividend.

Non-dividend payer is 1000 shares at $11 and then sells 30 shares at $11 to raise $330 in cash... leaving 970 shares at $11/share or $10,670.

 

[ERD50]

Originally Posted by ERD50 View Post
Part of any serious analysis is checking the numbers from different angles.

-ERD50

And part of any honest forum discussion is going back and mentioning errors once you discover them and not just letting them ride.

Oh well, a learning experience for us all.

Well, to the best of my recollection, by the time I realized my error, the editing window was passed, and since I didn't see any follow up discussion on that data, I guess I just wasn't triggered enough to think it was worth a follow up post, or to bother a moderator with a request to update the post for me, or maybe I just got distracted, I don't know.

OK, looking back at the thread, I see that when HYD was questioned, COcheesehead had mentioned a specific fund to compare (ARTFX), so I focused on that, and HYD dropped from my mind, and the discussion.

At any rate, once the data was questioned, I owned up to the mistake. I don't see any issue of "honesty" here.

Originally Posted by youbet View Post
So, you always "go by the numbers" and use quantitative analysis but sometimes you use sucky inputs? I guess I can get that........

I think most people are aware that 'going by the numbers' and 'using quantitative analysis' doesn't preclude simply making a mistake. And that's the beauty and power of a forum like this. Had I gone further with that example, and not noticed my mistake, it is good that someone else might catch it, and save me from myself.

-ERD50

 

[pb4uski]

.... At any rate, once the data was questioned, I owned up to the mistake. I don't see any issue of "honesty" here. ...

+1

 

[levindb]

^^^^^^ NO!

It doesn't work that way. Let's say that there is no appreciation or depreciation to make it easier to think about. You start out the year with 1000 shares worth $10 each or $10,000.

The dividend payer pays a 3%/$300 dividend in December... the price per share declines from $10 to $9.70 when the dividend is paid... at the end of the year you have 1000 shares at $9.70 each or $9,700.

For the non-dividend payer you sell 30 shares at $10 to raise $300 in cash... at the end of the year you have 970 shares at $10/share... or $9,700.

I am sorry, but your logic is very different from my experiences. The dividends are paid from profits, and the company decides how much that dividend will be. The ex-dividend price is a reflection of restrictions when buying the stock just before the dividend is paid...the ex-dividend pricing disappears after the dividend is paid. Net, the stock price does not remain ex-dividend as you have suggested.

While dividends are paid from profits. The company does not determine stock price, stock price is determined by the market, and normally paying a dividend is a positive influence on stock price, not the negative influence that you are suggesting.