Dividend stocks vs Growth stocks

[davidsawallisch]

I know they often go hand in hand but I have a pool of index funds and I just wanted to get some ideas or opinions on how to allocate I'm 26 and just started my journey. Prior years I spent everything I earned then I met a girl who changed my life she encouraged me to save and went from 0 dollars in savings to 25k in 9 months I have close to a 75% saving rate and we live frugal. Only 10k is invested the other 15k we having in a money market for easy access if needed. But I have done a lot of reading and searching and have a few accounts with vanguard, Fundrise, and worthy.... my vanguard though has total market index... s&p500... growth stocks.... and a dividend fund.... with worthy being my bond market I currently have 10%in worth and 10% in fundrise and the other 80% divided between the whole market the 500 the growth and the dividend.... but in recent months the market has pushed the three account to forward a lot almost 9% while the dividend barely broke 2% am I wasting my time in the dividend market?

Thanks in advance guys.

 

[OldShooter]

You are wasting your time trying to pick sectors. Just buy everything. Our choice is VTWAX.

 

[davidsawallisch]

You are wasting your time trying to pick sectors. Just buy everything. Our choice is VTWAX.

What advantage is there to the world market vs the US total stock market? I just glanced t performance records and the US market out does the world market every year for the past 10 years. Is it just to be more diversified?

 

[njhowie]

What advantage is there to the world market vs the US total stock market? I just glanced t performance records and the US market out does the world market every year for the past 10 years. Is it just to be more diversified?

Correct. If you own the world vs. US alone you are going to be even more diversified and thus your volatility should be lower. However, with that, you'll likely get lower performance.

Personally, I only invest in US markets as there are protections for US investors which do not exist in foreign markets. Though the SEC provides little oversight, it is there, the US markets do have regulations, and are more legit compared to foreign and especially emerging markets.

As far as performance, "Past performance is not a guarantee of future returns".

 

[skipro33]

At your age, for long term, I'd put at least 70% in a index fund like S&P500 Index and Dow Index fund. The rest 50/50 international and whole bond fund and balance every 6 months.

I'd also leverage today's interest rates with a home I was also going to be living in. No use throwing money away on rent. I'd have a used and paid-for car and learn how to maintain it. Learn to cook and dine out with not more than 10% of the monthly budget for groceries. Create small savings accounts for specific things like Christmas fund, home improvement/maintenance fund, etc. until you got a handle on what annual expenses you might come across are going to cost.

Once in a home, I'd focus on energy efficiency and upgrade windows, insulation, roof, etc to keep energy costs down. In my opinion, energy costs are going to grow much quicker than other costs of home ownership.

Keep a squeaky clean credit report. Shoot for at least a 800 credit score by figuring out how to control credit card use and short term loans like auto.

Then sit back, enjoy the rest of your income with smart choices and with someone who has the same fiduciary discipline you have. By the time you are 50, you'll be wondering how to spend all that loot you've accumulated.

If thinking about self employment, strongly consider retail, especially a franchise. I had a Radio Shack franchise I was able to expand into car stereo installation, then other aspects of car modifications; window tint and such. Sell the business within 10 years, 5 if it's hot, and repeat. It's fairly easy to start and grow a business, hard to keep it from collapsing on itself in the long run. Stay away from business partners. They never seem to have your interests at heart and can get you wound up in trouble with the law.

 

[davidsawallisch]

At your age, for long term, I'd put at least 70% in a index fund like S&P500 Index and Dow Index fund. The rest 50/50 international and whole bond fund and balance every 6 months.

I'd also leverage today's interest rates with a home I was also going to be living in. No use throwing money away on rent. I'd have a used and paid-for car and learn how to maintain it. Learn to cook and dine out with not more than 10% of the monthly budget for groceries. Create small savings accounts for specific things like Christmas fund, home improvement/maintenance fund, etc. until you got a handle on what annual expenses you might come across are going to cost.

Once in a home, I'd focus on energy efficiency and upgrade windows, insulation, roof, etc to keep energy costs down. In my opinion, energy costs are going to grow much quicker than other costs of home ownership.

Keep a squeaky clean credit report. Shoot for at least a 800 credit score by figuring out how to control credit card use and short term loans like auto.

Then sit back, enjoy the rest of your income with smart choices and with someone who has the same fiduciary discipline you have. By the time you are 50, you'll be wondering how to spend all that loot you've accumulated.

If thinking about self employment, strongly consider retail, especially a franchise. I had a Radio Shack franchise I was able to expand into car stereo installation, then other aspects of car modifications; window tint and such. Sell the business within 10 years, 5 if it's hot, and repeat. It's fairly easy to start and grow a business, hard to keep it from collapsing on itself in the long run. Stay away from business partners. They never seem to have your interests at heart and can get you wound up in trouble with the law.

Wow thanks love the advice. The house and car part I'll skip on because I live abroad and my company provides a house and owning a car would just be trouble I use public transportation and my two legs to get places. But you right if the interest rates are low I should take advantage would it be wise to buy a rental property?

And I'm glad you brought up rebalancing because I have a brokerage account (I maxed out my roth) (no 401k offered by my company) i put the rest in a brokerage account now instead of rebalancing it takes the money i invest every month and buys the needed shares to keep my portfolio in it's right perspective.... is this effective it saves on taxes right?

 

[skipro33]

I'm not a fan of renting, but then I live in California and rent control just getting off the ground here along with all sorts of new renter protection laws. In your case, I'd find another way to invest in real estate; REIT's perhaps, but I know near nothing about them other than they pay in dividends and that might not work in your situation.

Future investments used to rebalance sounds like you end up with the same ratios, so I would say it works.

 

[Bryan Barnfellow]

I also live abroad in a rental apartment and so invest in REITS to capture that asset class currently missing from my overall investments. Would suggest that to the OP in place of direct ownership, which has too much risk and will draw some of your energies away from investing in your career and relationships, and enjoying where you are living/working.

-BB

 

[Red Badger]

Correct.

Personally, I only invest in US markets as there are protections for US investors which do not exist in foreign markets. Though the SEC provides little oversight, it is there, the US markets do have regulations, and are more legit compared to foreign and especially emerging markets.

+1. I do have 10% in an international index fund, but may not hold long term. The rest of my equities are in Fido's total market (US) index fund. Don't chase sectors or regions. Just set and forget. Easy peasy.

 

[DrRoy]

What advantage is there to the world market vs the US total stock market? I just glanced t performance records and the US market out does the world market every year for the past 10 years. Is it just to be more diversified?

I am also rather off total world markets. Try VTSMX, total US market fund, or VTI, the ETF.

 

[racy]

Here's something that I find interesting, Callan's Periodic Table of Investment Returns.
https://www.callan.com/periodic-table/
Note how the various classes of investments perform year to year. A low performer one year may be a top performer the next.

As for re-balancing, check this article: https://www.kitces.com/blog/best-op...y-time-horizons-vs-tolerance-band-thresholds/
It presents data that suggests setting tolerance bands is better than picking a time interval to re-balance.

Good luck!

 

[target2019]

I know they often go hand in hand but I have a pool of index funds and I just wanted to get some ideas or opinions on how to allocate I'm 26 and just started my journey. Prior years I spent everything I earned then I met a girl who changed my life she encouraged me to save and went from 0 dollars in savings to 25k in 9 months I have close to a 75% saving rate and we live frugal. Only 10k is invested the other 15k we having in a money market for easy access if needed. But I have done a lot of reading and searching and have a few accounts with vanguard, Fundrise, and worthy.... my vanguard though has total market index... s&p500... growth stocks.... and a dividend fund.... with worthy being my bond market I currently have 10%in worth and 10% in fundrise and the other 80% divided between the whole market the 500 the growth and the dividend.... but in recent months the market has pushed the three account to forward a lot almost 9% while the dividend barely broke 2% am I wasting my time in the dividend market?

Suggest unwinding all that into a table that others can readily understand.

 

[capjak]

Good Suggestions.

Here is one that you should definitely do:

Join Bogleheads.org https://www.bogleheads.org/forum/index.php

and read their wiki's, ask questions etc...lots of very knowledgeable people there as well as here, but there focus is investing etc....

 

[Markola]

OP, First, congratulations on saving money and achieving such a high savings rate so early! You are officially a unicorn, so get used to being different than virtually everyone you know besides your girlfriend. The ability to delay gratification is a rare quality.

People here are taking many paths to wealth according to their own beliefs, biases, values, mentors and what they read. Some say buy only U.S. stock indexes, other say become a dividend investor or real estate investor, create your own business, etc. etc. The important thing is to pick a strategy that works for you and then maximize it by sticking with it through thick and thin. And there will be some thin times.

Last night we watched the new “Playing With FIRE” documentary on Amazon Prime. You might like it too, because it features numerous people on the path to freedom and succeeding at it..

Keep going and your future self, who will arrive sooner than you can imagine is possible, will thank you heartily!

 

[mrfeh]

You are wasting your time trying to pick sectors. Just buy everything. Our choice is VTWAX.

+1

OP - stop looking at past performance, especially such short time frames. They are meaningless.

Start here: https://www.bogleheads.org/wiki/Bogleheads®_investing_start-up_kit

 

[Markola]

Suggest unwinding all that into a table that others can readily understand.

Agree it could benefit from some simple interpretation. X axis is obviously Time and Y axis is Performance. I like this tool, because it makes a strong case for diversification and shows the disastrous results of chasing past returns.

 

[WhenIsItTime]

Congrat’s on a wise decision many of your peers haven’t figured out yet. The simple concept of compounding is very powerful. The $’s you save today have so much potential!

You are also on right track to assess asset allocation. Beyond that, my opinion is to rely mostly on low cost index funds rather than specific individual investments.

 

[OldShooter]

What advantage is there to the world market vs the US total stock market? I just glanced t performance records and the US market out does the world market every year for the past 10 years. Is it just to be more diversified?

Yes. If you look at the decade before this one, international won. Re time period, you are wasting your time looking at one-year intervals. Good investors look more at decades, which is entirely appropriate for you at your age. The famous "quilt chart," linked in post #11 illustrates the futility of chasing short-term returns.

Re international, @njhowie and others avoid this sector -- which is about half of the world's market cap. So they have no holdings of companies like Royal Dutch Shell, Nestlé, Anheuser Busch InBev, Volkswagon, Samsung, etc. You get the idea. "Never International" investors also have limited exposure to the two biggest markets in the world, China and India. Together these comprise 36% of the world's population. Anyone who pooh-poohs these countries should brush up on the economic transformations of postwar Germany and postwar Japan.

Risk, sure. Enron, Worldcom, Under Armour, etc. here in the US and many examples overseas as well. But with VTWAX holding 7000 stocks for us, I don't worry about problems with a few of them. That's what diversification is all about. It is also true that the risks of a stock will mostly be reflected in the price, so already accounted for.

Corruption? Well according to Transparency International there are 21 countries that are less corrupt than the United States. Most of the EU, most of Scandinavia, etc. score better. Without doing the analysis I will speculate that these countries stocks also comprise a significant fraction if not a majority of the non-US market cap.

Here is one of our American gurus on the subject: https://famafrench.dimensional.com/videos/home-bias.aspx

 

[target2019]

+1

OP - stop looking at past performance, especially such short time frames. They are meaningless.

Start here: https://www.bogleheads.org/wiki/Bogleheads®_investing_start-up_kit

+1

 

[cooch96]

OP, bravo on starting your path to wealth and doing it smartly. And kudos to the young lady who set you on this path!

I recommend the FIRE reading list. Carl Benjamin’s “4 Pillars”and “Bogleheads’ Guide to Investing” we’re most helpful for me. It took me 4 months of studying before I had a very confident view of what Asset Allocation was correct for me and my wife. You seem pretty sharp, so it’ll likely take you less time and effort.

Cheers!

 

[OldShooter]

OP, bravo on starting your path to wealth and doing it smartly. And kudos to the young lady who set you on this path!

I recommend the FIRE reading list. Carl Benjamin’s “4 Pillars”and “Bogleheads’ Guide to Investing” we’re most helpful for me. It took me 4 months of studying before I had a very confident view of what Asset Allocation was correct for me and my wife. You seem pretty sharp, so it’ll likely take you less time and effort.

Cheers!

Add and recommended first read: "The Coffeehouse Investor" by Bill Schultheis. Appropriate to the season, Bill even gives you a recipe for pumpkin pie.

 

[OldShooter]

I am re-reading Jason Zweig's excellent book, "Your Money and Your Brain," on the neurological aspects of investing and last night ran across an interesting passage on international investing that I had not picked up on previously:

"Brain scans ... at the University of Munster in Germany show that when an investor considers putting money in foreign markets, the amygdala -- one of the brain's fear centers -- kicks in. These findings suggest that keeping our money close to home generates an automatic feeling of comfort, while investing in unfamiliar stocks is inherently frightening. Those responses originate in the biological bedrock of the brain. ... "
​

Maybe that's a major factor in the home country bias that is consistently exhibited all over the world. This may also confirm my speculation that the people most afraid of international investing might be people who have not traveled internationally and, hence, the rest of the world may be perceived as more risky than it really is. For reference, DW and I have been to 40+ countries so that may be a factor in our comfort with VTWAX..

 

[njhowie]

It's not about "being afraid" of international investing at all. It's a conscious decision not to invest outside of the US because other countries do not provide the protections for investors, nor have the base regulations in place which the US does. There is an enormous amount of publicly available information available on US companies, not nearly as much for the bulk of foreign companies. Additionally, when investing outside of the US you are also subject to foreign exchange risk.

I choose not to open myself up to the additional risks of investing outside of the US, again, not out of fear, but out of quite logical reasoning.

 

[pb4uski]

OP, at your age and start of the journey, I would just go 100% equities... even 100% domestic equities like Vanguard Total Stock would be fine and keeps it simple. no need for bonds at your age other than perhaps an emergency fund in an online savings account... mine earns 1.7% but there are others available for ~2%.

Add some international for diversification if you really want to... up to 40% would be fine.

 

[pb4uski]

.... No use throwing money away on rent. ...

DW also thinks this way and I have never seen the logic of it... even if you own you pay mortgage interest, property taxes, insurance, maintenance, etc. Why is money spent on these not as wasted as rent? In both cases you're spending money to be able to use a property.

If you think about it the only thing that isn't thrown away is the principal portion of mortgage payments.

Owning a home is a lifestyle choice... not an investment decision.

We've owned 5 properties and sold 3.... 2 we made good money on because by luck when we held them prices were going up dramatically, the third we sold for about what we had invested and we still own 2... if we sold the 2 after selling costs we would probably be about break-even.