Reading "Get Rich with dividends" and let me say...

[target2019]

This quote just isn't true. People worry about different things and get emotional about different investing scenarios. Sometime people can sleep better at night with a certain strategy that the math may not agree with. That's due to their worry.

+1

 

[ERD50]

Originally Posted by ERD50 View Post
The div sector does not provide any relief from worry

This quote just isn't true. People worry about different things and get emotional about different investing scenarios. Sometime people can sleep better at night with a certain strategy that the math may not agree with. That's due to their worry.

OK, if you want to parse it to that degree, allow me to re-state it:


There is no basis for the div sector to provide any relief from worry. Just as there is no basis for the existence of unicorns. I fail to see how a belief in either will help anyone in their journey through their mortal existence (just trying for that "prose thing" with that last phrase ). But I guess they are free to believe whatever they want, and I am free to challenge their beliefs and expose the truth for others.

-ERD50

 

[brokrken]

There is no basis for the div sector to provide any relief from worry. Just as there is no basis for the existence of unicorns. I fail to see how a belief in either will help anyone in their journey through their mortal existence (just trying for that "prose thing" with that last phrase ). But I guess they are free to believe whatever they want, and I am free to challenge their beliefs and expose the truth for others.

-ERD50

When a loved one dies, there is no reason to cry, as crying will not bring them back. We are emotional beings and will show emotion that there is no rational reason for.

 

[ERD50]

When a loved one dies, there is no reason to cry, as crying will not bring them back. We are emotional beings and will show emotion that there is no rational reason for.

That comparison is so far afield from the issue, I won't waste time/effort in formulating a reply.

But to the emotional issue in general, sure. But my point is, if that emotion is based on false information, isn't it best to learn the facts? Maybe that will sooth the emotions.? Might even turn them on their head.

People have said they feel better with div payers, because they claim they hold their value better in a downturn, because people value that div cash flow. But there is no evidence of that. So why let your emotions, and financial decisions be affected by false information?

I doubt that people feel "emotional" about a stock, just because it pays dividends. An exception might be a stock that has been inherited, but that could be a non-div payer as well. I don't think it makes sense, but I don't doubt that there is an emotional component to it for some people.

-ERD50

 

[OldShooter]

... I doubt that people feel "emotional" about a stock ...

Oh, demonstrably untrue. The security-from-dividends thing is probably from the loss aversion that evolution has programmed into us. Read Jason Zweig's "Your Money & Your Brain" as an introduction to our pre-programmed emotions in an investing context. From there, Thaler's "Misbehaving" and Kahneman's "Thinking Fast and Slow."

 

[ERD50]

Oh, demonstrably untrue. The security-from-dividends thing is probably from the loss aversion that evolution has programmed into us. Read Jason Zweig's "Your Money & Your Brain" as an introduction to our pre-programmed emotions in an investing context. From there, Thaler's "Misbehaving" and Kahneman's "Thinking Fast and Slow."

You clipped off the pertinent point of my sentence: "just because it pays dividends".

Sure, people get emotional about financial matters. But I still doubt that people feel "emotional" about a stock, just because it pays dividends.

They might feel emotional about the things they associate with dividend paying stocks that aren't so (perceived safety), but I think that's a little different.

-ERD50

 

[aja8888]

You clipped off the pertinent point of my sentence: "just because it pays dividends".

Sure, people get emotional about financial matters. But I still doubt that people feel "emotional" about a stock, just because it pays dividends.

They might feel emotional about the things they associate with dividend paying stocks that aren't so (perceived safety), but I think that's a little different.

-ERD50

I'll bet most people will feel emotional once their stock stops paying dividends!

 

[brokrken]

I don't doubt that there is an emotional component to it for some people.

-ERD50

This is my only point. People are built differently. For instance, I have a knack for not getting stressed or anxious about things that I can't control or change. This is rational to me. However, I understand there are people that deal with anxiety and stress and no matter how much you try to convince them that the anxiety isn't helping the situation, they can't not feel it. I think investing can be the same. Some people will feel safer in certain strategies for any number of reasons (It's what they feel, read, was told by their grandfather, whatever) and no amount of data will change the way they feel about it or their decisions surrounding it. You or I may be able to set aside the emotion, but not everyone can.

 

[jimbee]

Sounds like behavioral economics. https://en.wikipedia.org/wiki/Behavioral_economics

 

[pb4uski]

This is my only point....

WADR, you're picking nits.

The way I see it if a "dividend portfolio" gives someone significantly more comfort or peace of mind than a conventional diversified stock portfolio then they don't understand stocks... but if it makes them feel better by all means go for it.

 

[OldShooter]

WADR, you're picking nits.

The way I see it if a "dividend portfolio" gives someone significantly more comfort or peace of mind than a conventional diversified stock portfolio then they don't understand stocks... but if it makes them feel better by all means go for it.

+1 I think that assesses the situation pretty well. Either they don't understand or they don't care. But it's their choice.

On the behavioral finance track, I can see that risk aversion might cause a person to feel more comfortable with a perceived-steady stream of dividends rather than feeling totally at the mercy of the market. Lots of ways to logically attack that, of course, but so what?

 

[hanginthere]

Dividends

First a quick rant, follow Ramseys advice and i"ll guarantee you want wind up a millionaire. I own a portfolio of dividend paying stock about six. I know about 10-13 is the most anyone can really manage but there's not much cheap enough right now. They are the bluest of the blue and pay well but fortunately I can let the dividends acumulate and draw from SS and a bond fund plus I also buy well paying semi-junk bond that are under priced. But you really have to know what your doing here. Actually my stocks are only about 25% of my portfolio. Also I agree like most of the contributors that for most folks a minimum accumulated withdrawal approach is best. I'm a big fan of the late Harry Browne whose books I read from the time I was just starting out. He showed that as long as we have a fiat money system its suicide not to have some precious metals as a portion of your portfolio. I try to maintain about 30-30-30-10 stocks, bonds, cash, and metals in that order. Even if 3 out of four are down one will usually be up and maintain your performance. If you want to withdraw 3% just adjust your % yearly of each yearly. Hope this helps.

 

[Markola]

First a quick rant, follow Ramseys advice and i"ll guarantee you want wind up a millionaire. I own a portfolio of dividend paying stock about six. I know about 10-13 is the most anyone can really manage but there's not much cheap enough right now. They are the bluest of the blue and pay well but fortunately I can let the dividends acumulate and draw from SS and a bond fund plus I also buy well paying semi-junk bond that are under priced. But you really have to know what your doing here. Actually my stocks are only about 25% of my portfolio. Also I agree like most of the contributors that for most folks a minimum accumulated withdrawal approach is best. I'm a big fan of the late Harry Browne whose books I read from the time I was just starting out. He showed that as long as we have a fiat money system its suicide not to have some precious metals as a portion of your portfolio. I try to maintain about 30-30-30-10 stocks, bonds, cash, and metals in that order. Even if 3 out of four are down one will usually be up and maintain your performance. If you want to withdraw 3% just adjust your % yearly of each yearly. Hope this helps.

Dave Ramsay inspired me to get out of debt, so he’s prominent in my personal finance writers pantheon, and there’s nothing wrong with your Harry Browne portfolio if it suits your needs and lets you sleep. I don’t recall Ramsay advocating dividend stocks, however. I recall him advocating “growth stock mutual funds”, which he projected to return 12%/year, and taking a lot of heat for it.

 

[target2019]

Hanginthere, congratulations on your success with dividend investing.

 

[hanginthere]

Actually he does offer a lot of good advice for folks in debt since he went through bankruptcy himself but he presupposes to be a great investment adviser. For one he advise to buy loaded MFs which almost never outperform a no load fund so I suspect the load companies are one of his sponsors. Also he hates precious metal investments which are basically insurance for the rest of your portfolio. The investment companies always told us we would avg 10% yearly over 40 years but 6% is typical today regardless of your investment strategy.

 

[OldShooter]

... I have way more than 6 stocks.

Good. The low end of what I have seen recommended as adequate diversification is 60 individual stocks spread across a good range of sectors. I think 100 is a more typically recommended number.

IMO adequate diversification in a portfolio of individual stocks is virtually impossible for most retail investors.


Edit: Oops. I was reading an earlier page of the thread without realizing it and responded to a post. That's why this comment seems to come out of the blue. Because it did.

 

[JJpop]

I will say what the others are too diplomatic to say: "Living off dividends" is an antiquated notion held mostly by naive investors. It may have been suitable to Dickens characters, but probably not to you.

There are better ways to go about what you want to accomplish. Read and learn.[/QUOTE

Diplomats cannot go into a situation thinking they alone have all the answers and everyone else is naive. You are no diplomat. It is apparent the OP is not the only one who has a bit of learning to do.
Maybe a more diplomatic answer would be 6 stocks is way too small a number.
One can live off of dividends but they are no free lunch.

Even the esteemed Burton Malkiel was talking about using high quality blue chip stocks as a bond substitute in today’s low interest environment. While he is almost old enough to be a Dickens character he is definitely not naive.

 

[Dd852]

There are some discussions on this board guaranteed to set off people firing from entrenched positions! Dividend investment is certainly one that never disappoints. Can’t we all just accept that some people like getting a deposit every quarter and conversely hate selling stocks? You can try to prove them wrong by the math, but math will never win over the emotional component. I don’t consciously try to live off dividends - that was never a goal. But I will admit to being happy that the dividends I get “naturally” (ie without working on a conscious strategy to get them) cover a big chunk of what I need. I understand the joy of seeing the dividends come in. It is a different feeling than saying - ok now I’m going to sell something. Even if logic and math would say otherwise

 

[ERD50]

... Can’t we all just accept that some people like getting a deposit every quarter and conversely hate selling stocks? You can try to prove them wrong by the math, but math will never win over the emotional component. ...

I have no problem with someone who "likes" getting dividends and can live off them. There's no right/wrong to that, no math, and no argument. I do see it as a kind of artificial restriction that makes no sense to me, but to each their own.

But I will always challenge the idea that this is "better" (financially) or "safer" than taking an equivalent withdrawal from a balanced portfolio of broad based index finds. A dividend is effectively the company selling its NAV and distributing it. The idea that you are saved from "selling at lows" just doesn't hold up in practice. If an investor is focusing on div payers (as most do), they have by definition reduced the diversity in their portfolio, and I have seen no evidence that a div-focused portfolio maintains its value better than a Total Market fund/ETF in a downturn.

If someone can live off the divs from a balanced portfolio of broad based index finds, that's all well and good, and a bit of a distinction w/o a difference. That div rate would also be about the same as a conservative SWR. But if divs did drop, why not supplement with some selling (as part of a rebalance)? Why restrict your lifestyle to what some BOD determines for their div rate?

Also, math does not "win" or "lose", like gravity, it just is. Ignore it at your own peril.

-ERD50

 

[target2019]

There are some discussions on this board guaranteed to set off people firing from entrenched positions! Dividend investment is certainly one that never disappoints. Can’t we all just accept that some people like getting a deposit every quarter and conversely hate selling stocks? You can try to prove them wrong by the math, but math will never win over the emotional component. I don’t consciously try to live off dividends - that was never a goal. But I will admit to being happy that the dividends I get “naturally” (ie without working on a conscious strategy to get them) cover a big chunk of what I need. I understand the joy of seeing the dividends come in. It is a different feeling than saying - ok now I’m going to sell something. Even if logic and math would say otherwise

At least one playa I know is happy.

 

[target2019]

BTW, his name is Milburn Pennybags...

 

[ESRwannabe]

A few points.

(1) "Dividend investing" is not a portfolio strategy. It is a withdrawal strategy. Two people can have exactly the same portfolio and one person can choose to only withdraw dividends where as the other chooses to go with the 4% rule or some other withdrawal strategy.

(2) Dividends are determined by the individual companies and are based on better data than the general public has access to. Dividends are based on current data and are adjusted up/down based on current data. Contrast this with a withdrawal strategy like the 4% rule where someone looks at the past (for companies that may no longer even exist) and extrapolates into the future what a safe withdrawal rate is.

(3) The reason why someone would choose a dividend withdrawal strategy is because it is one of the safest, perhaps the safest withdrawal strategy, especially when applied to a very large set of stocks like for example one of the Vanguard total market indexes. In particular I like to use the Vanguard Total World Stock Index etf VT as a core asset.

(4) Almost every stock will eventually pay a dividend because that is how companies distribute profits to shareholders. Complaining that it is not tax efficient will not change this fact. If a company never pays a dividend *ever* then it is no different than owning a piece of art or a collectible. You might as well invest in gold or baseball cards.

 

[Scubamax]

"If a company never pays a dividend *ever* then it is no different than owning a piece of art or a collectible. You might as well invest in gold or baseball cards."

So owning Berkshire Hathaway which has never paid a dividend is in the same class as gold and baseball cards?

 

[pj.mask]

(2) Dividends are determined by the individual companies and are based on better data than the general public has access to. Dividends are based on current data and are adjusted up/down based on current data. Contrast this with a withdrawal strategy like the 4% rule where someone looks at the past (for companies that may no longer even exist) and extrapolates into the future what a safe withdrawal rate is.

World Stock Index etf VT as a core asset.

My experience from seeing internal deliberations is that the cutting dividend is in large part based on how their stock price (near term, or longer term confidence aka ‘company has cut dividend in the past’) will be impacted by the change.

That isn’t the same as ‘is cutting the dividend better for the company’s long term growth or stability’

 

[Rianne]

We've always reinvested our dividends in both taxable and tax deferred accounts. Our AA is balanced. I figure we'll take our taxable dividends at some point, probably when we're 65 in 3 years.