clifp's response to my post #86 -
It seems to me that a true total return investor should ignore dividend all together. .... So you are being inconsistent when you talk about taking the 1.8-2% dividends from the index funds. ...
? I'm not sure where you are coming from on this. I used ~ 2% divs in my examples for a stock fund, because the most common broad market index funds that a "Couch Potato" type investor would use (like SPY) do produce ~ 2% divs. I didn't see it as inconsistent, I was trying to be
realistic.
If you know of a broad market index fund/ETF that pays near zero divs, please share - that could be a good thing in a taxable account.
Now I maybe overstating the case that is is a big difference, but certainly can be a big difference between somebody who reinvest their dividends and sells 1-4 days a year to pay for their expense and dividend investor who doesn't sell stocks on a periodic basis. For instance take last year.
....Now I suppose over many years I guess this would average out. But what if in fact you are a truly an awful market timer and you habitually pick the worse days to sell.
Well that sure was a lot of cherry-picking!
But OK, in the more general case, we do expect (hope?) that our equities rise over the long term. So you have a point, selling some of them off along the way is giving up some of those gains (reverse DCA - good going in, not so good on the exit). But...
All things being equal - this does not seem any different from a div portfolio. The divs payers are essentially 'selling off' their growth in the form of divs, right? If that was not the case, then they would just have a higher total return, and that is a 'no-brainer' decision, divs or no divs.
Simple number example-wise, Stock A & B @ $100 each grow to $200 over 10 years. Stock A pays zero div, so stock price ends @ $200, growing by $10 each year. Stock B pays a 10% div, paying out $10 per year. At the end of 10 years, you pocket $100 in divs and you have $100 in stock. Plus, for the no-div stock, only a portion of the amount you sold off would consist of a capital gain, there would be a tax (and MAGI) advantage in a taxable account.
The only way I can follow your story, is if div stocks outperform a broad index. But that's a construct I would never debate - total return is then higher, so I'd be all over it.
I've been looking at a bunch of div funds/ETFs (some from the article MB posted earlier), and mostly they did well (versus SPY) in the 2000 melt-down (but many were not around that long to compare). But when I look at the recent crash, their volatility looks about in line with SPY, some worse, some better. So if a low-intestinal-fortitude investor is going to sell out at a low, I'm not sure a div fund is going to help them. It might be worse psychologically, if they were expecting to be protected (which they may be thinking based on the 2000 response).
OK, here's some links. For the total return graphs, you need to adjust the timeline bar, it defaults to 200 trading days. Set back to OCT-2007 to MARCH-2009 gets you around the recent peak and following drop. The divs held up somewhat better as a group, but some were worse, some very close. DVY was worse than even the expected volatile QQQ (Nasdaq small cap index)!
PerfCharts - StockCharts.com - Free Charts
Here's another, with symbols that go back to 1999:
PerfCharts - StockCharts.com - Free Charts
Those are busy, mouse over to highlight a single line, and delete some to focus in easier.
Here's a ref list of some div funds etfs I found:
SPY,QQQ,DVY,AMANX,VDAIX,VHDYX,VDIGX,VEIPX,PRDGX,SDY,VIG,PFF,DTD,LBSAX,MMUFX | Stock Prices | Quote Comparison | YAHOO! Finance
Here's an article from Morningstar that suggests a couple of funds that seem to meet the criteria expressed in the OP: lower risk, focused on dividends.
Looking for Dividends and Quality in One Package
Interesting list. Up to the OP of course, but based on the research I did, they don't really smooth volatility as much as one might expect (hope?).
-ERD50