Do dividends psychologically make retirement easier even if total return theory says they shouldn’t matter?

[Flyfish1]

Very well stated!!

And, my philosophy exactly. As "inefficient" as my portfolio may be, its performance (~8-10%) is more than adequate. What that so-called inefficiency provides is a steady, worry-free, reliable paycheck during both the up and down markets.

That comfort allows me to be less emotional when making investment decisions.

It's not that "dividend stocks are better in downturns", its that dividends remain the same in downturns. I'm not investing to leave the largest pile behind. I'm investing to maintain my (relatively high) lifestyle regardless of market conditions.

There you go - that is the answer. So, we can now close this thread....

 

[FD1000]

A lot of money is made precisely when investors can think without emotion — neither fear in downturns nor greed in euphoric markets. The real advantage is not that dividends are mathematically superior in every model, but that dependable payers like The Coca-Cola Company, Philip Morris International, and Schwab U.S. Dividend Equity ETF give many investors a steadier psychological base from which to stay rational when markets fall.

If your income continues arriving from businesses that have long records of not cutting distributions, it becomes easier to treat downturns as opportunity rather than threat — to buy when others are fearful instead of selling under pressure. That behavioral advantage may not always appear neatly in risk-adjusted spreadsheets, but in real portfolios, over decades, it often matters more than theory.

Many posts ago I showed how you can generate steady income.
You create a monthly sell order for specific amount on a specific date in about 2 minutes for a fund you like and let it run for years.

 

[COcheesehead]

I just heard a recent study that said total return investors make up only 30% of retirees. It’s another example of different investment styles still yielding financial retirement success. Not everyone seeks to maximize return, but most apparently seek some blend of return, current income and perceived safety.

 

[Montecfo]

The answer to the thread question is:

Yes, for some people they do. But others consider dividend investing (as an overriding investment philosophy) to be a lot of hooey.

And the dividend crowd, for all their charm, can get out over their skis when they try to claim it is really performance and not psychology.

Psychic benefits are benefits. If you are one who needs them, embrace that by all means.

 

[COcheesehead]

Its subtle at times and not so subtle at other times, but there is an undercurrent of “MY investment philosophy is best” on here. We all see it. It fires some folks up, most ignore it and go about what has worked for them.

 

[FD1000]

I never claimed that mine is best; all I want to achieve is for investors to stop thinking that high income has any meaningful significance.
You can achieve both better performance and lower SD/risk.
High income is an illusion. If you start with $1 million and lose 10%, you now have $900K. Why do you feel better if this portfolio pays 1% or 4%?
That lead many to CEFs.
2020 and 2022 were an eye-opener.
2020 chart of PDI (the gold standard) vs SPY,QQQ) shows it. PDI lost more money and didn't recover.

Concentrating on risk/reward led me to great funds over the years.
This is why the ALT thread is important.

 

[Flyfish1]

I just heard a recent study that said total return investors make up only 30% of retirees. It’s another example of different investment styles still yielding financial retirement success. Not everyone seeks to maximize return, but most apparently seek some blend of return, current income and perceived safety.

Interesting - what do the other 70% do? Probably income investors...lol

 

[Onda]

Interesting - what do the other 70% do? Probably income investors...lol

Total return investors often care deeply about dividends because dividends are an important component of total return.

 

[COcheesehead]

Interesting - what do the other 70% do? Probably income investors...lol

30% are total return - higher equity allocation
30% use some variation of buckets, time based investments
20% use an income first strategy - income from all sources the priority
20% use risk adverse/guaranteed income strategies - pensions/SS prioritization

I wrote about it here.

Dr Wade Pfau’s Four Investment Styles

Listened to a podcast on the way back from San Diego today. It was an interview with Dr Wade Pfau, author of 5 editions of the Retirement Planning Book and numerous other financial guides and tools, including an updated investor risk assessment used by many investment houses. He broke down...

www.early-retirement.org

 

[COcheesehead]

I never claimed that mine is best; all I want to achieve is for investors to stop thinking that high income has any meaningful significance.
You can achieve both better performance and lower SD/risk.
High income is an illusion. If you start with $1 million and lose 10%, you now have $900K. Why do you feel better if this portfolio pays 1% or 4%?
That lead many to CEFs.
2020 and 2022 were an eye-opener.
2020 chart of PDI (the gold standard) vs SPY,QQQ) shows it. PDI lost more money and didn't recover.

Concentrating on risk/reward led me to great funds over the years.
This is why the ALT thread is important.

View attachment 63073

My comment wasn’t directed specifically to you, but a comment on the forum in general

 

[Lorenzo]

I’ve said many times that people are free to do whatever they want with their money.

Indeed you have in the past. But my comment was specifically in response to your assertion: "Psychology and feelings should not be used for investment decisions." (emphasis mine). The phrase "should not" means you are telling them what (not) to do. That is inconsistent with your previous statements that people are free to do whatever they want with their money. Words are everything.

But here, we’re talking about maximizing outcomes based on risk and reward.

What if someone who is free to do whatever they want decides that maximizing the outcome based on risk and reward is only one factor in their decision what to do with their money, and another factor that they want to give some weight involves touchy-feely psychology that is hard to articulate let alone quantify? People should indeed feel free to do whatever they want with their money, and who are we to tell them they are not giving enough weight to risk versus reward in their decision?

I could live off CDs for the rest of my life and say it brings me peace of mind—but that doesn’t mean it’s the most effective strategy.
The goal here is to, not just settle for what feels comfortable.

I doubt that many, if any, people simply settle for what feels comfortable. Rather, I suspect most people who take their feelings into account use their feelings as one factor among several on which they base decisions.

We’re probably going to add another 15 pages to this discussion, and still no one will provide data-based evidence showing that dividend investing is superior on a risk-adjusted basis.

As I understand the topic of this thread, the OP was not necessarily suggesting that dividend investing is superior but rather that, if we presume it is on equal footing with a total-return strategy, whether the difference in people's preferences for one or the other comes down to psychology--feelings?

 

[TickTock]

I'm not investing to leave the largest pile behind. I'm investing to maintain my (relatively high) lifestyle regardless of market conditions.

^ ^ ^ ^ ^
This.

The way a problem is framed drives the solution(s).

 

[COcheesehead]

^ ^ ^ ^ ^
This.

The way a problem is framed drives the solution(s).

Yep, goal based investing.

 

[olyveoil]

The answer to the thread question is:

Yes, for some people they do. But others consider dividend investing (as an overriding investment philosophy) to be a lot of hooey.

And the dividend crowd, for all their charm, can get out over their skis when they try to claim it is really performance and not psychology.

Psychic benefits are benefits. If you are one who needs them, embrace that by all means.

The condescension here is thick enough for you to wallow in.

 

[Montecfo]

The condescension here is thick enough for you to wallow in.

Sure. but those folks don't bother me really. I forgive them.

Having a good discussion is worth it.

 

[olyveoil]

Sure. but those folks don't bother me really. I forgive them.

Having a good discussion is worth it.

Fun to watch condescension be piled on top of condescension. It's mountainous....you could hike to the top of it to look down all all those you deem inferior.

 

[Montecfo]

Fun to watch condescension be piled on top of condescension. It's mountainous....you could hike to the top of it to look down all all those you deem inferior.

Feel free to take exception to whatever you wish. But I think you may have taken my post(s) a little more seriously than intended.

If we can't talk about investing and also have a little fun (as you are) then what's the point?

 

[FD1000]

For years, I’ve made it a habit to question everything I hear about investing. If I can’t verify a claim with data, I assume either it’s incorrect or I’m missing something. And if I’m missing something, I ask for proof. Ultimately, I evaluate everything through the lens of risk-adjusted performance.

Income is just another example.
Can anyone prove that focusing on income leads to better performance or lower standard deviation? Not really.
If you want steady income, you can create it yourself by selling shares from a variety of funds. Selling shares is not inherently worse than receiving dividends. If you look for convenience, you can do it by setting up a monthly order to run for years.
Conclusion: An income-focused approach isn’t superior when you look at risk, performance, convenience, or even behavioral factors.

Here’s another point that often gets overlooked:
A typical retiree should separate stock and bond allocations. Personally, I’ve always reinvested all distributions and only sold when I needed cash—on my own terms.
For example, if your stock funds drop 10%, you can draw from your bond funds to cover expenses instead of selling stocks at a loss.
In other words, you sell from the asset class that has performed best, while maintaining your long-term risk and volatility targets.

Instead of blindly following ideas without solid evidence, I’ve always focused on improving my portfolio’s risk-adjusted returns. The goal is simple:
How can I increase performance without increasing risk?
The best strategies (using funds) are those that improve returns while actually reducing volatility. It's amazing how easy it is, and most don't do it.
Hint: most of the funds I found and used were not ALT funds. During 2000-10 = SGIIX,OAKBX,FAIRX. Allocation=PRWCX. BondsIMIX until 2018. HOSIX, IOFIX in their glory days.

 

[Flyfish1]

For years, I’ve made it a habit to question everything I hear about investing. If I can’t verify a claim with data, I assume either it’s incorrect or I’m missing something. And if I’m missing something, I ask for proof. Ultimately, I evaluate everything through the lens of risk-adjusted performance.

Income is just another example.
Can anyone prove that focusing on income leads to better performance or lower standard deviation? Not really.
If you want steady income, you can create it yourself by selling shares from a variety of funds. Selling shares is not inherently worse than receiving dividends. If you look for convenience, you can do it by setting up a monthly order to run for years.
Conclusion: An income-focused approach isn’t superior when you look at risk, performance, convenience, or even behavioral factors.

Here’s another point that often gets overlooked:
A typical retiree should separate stock and bond allocations. Personally, I’ve always reinvested all distributions and only sold when I needed cash—on my own terms.
For example, if your stock funds drop 10%, you can draw from your bond funds to cover expenses instead of selling stocks at a loss.
In other words, you sell from the asset class that has performed best, while maintaining your long-term risk and volatility targets.

Instead of blindly following ideas without solid evidence, I’ve always focused on improving my portfolio’s risk-adjusted returns. The goal is simple:
How can I increase performance without increasing risk?
The best strategies (using funds) are those that improve returns while actually reducing volatility. It's amazing how easy it is, and most don't do it.
Hint: most of the funds I found and used were not ALT funds. During 2000-10 = SGIIX,OAKBX,FAIRX. Allocation=PRWCX. BondsIMIX until 2018. HOSIX, IOFIX in their glory days.

Talk about dogmatic...Wow.
I know you are jumping up and down asking people to submit hard data evidence that income investing is better on a risk adjusted basis. To my knowledge there is no such evidence. The original point of this thread was is there a psychological benefit to receiving dividends. The answer is in my mind : Yes. For the several reasons discussed already.

Everyone knows we could simply set up an automated monthly sell order to raise cash. We get it.
I respect your approach, perhaps you could do the same.

 

[olyveoil]

Feel free to take exception to whatever you wish. But I think you may have taken my post(s) a little more seriously than intended.

If we can't talk about investing and also have a little fun (as you are) then what's the point?

I took your posts exactly as you wrote them.

 

[TripleLindy]

Its subtle at times and not so subtle at other times, but there is an undercurrent of “MY investment philosophy is best” on here. We all see it. It fires some folks up, most ignore it and go about what has worked for them.

That kinda describes the overall forum, doesn’t it? The vast majority of posts are strong opinions. Makes it fun!

 

[Montecfo]

I took your posts exactly as you wrote them.

that's a relief then.

 

[COcheesehead]

That kinda describes the overall forum, doesn’t it? The vast majority of posts are strong opinions. Makes it fun!

Fun? Maybe. I wish some posters would realize a lot of roads lead to financial success.

 

[joejetski]

For years, I’ve made it a habit to question everything I hear about investing. If I can’t verify a claim with data, I assume either it’s incorrect or I’m missing something. And if I’m missing something, I ask for proof. Ultimately, I evaluate everything through the lens of risk-adjusted performance.

Income is just another example.
Can anyone prove that focusing on income leads to better performance or lower standard deviation? Not really.
If you want steady income, you can create it yourself by selling shares from a variety of funds. Selling shares is not inherently worse than receiving dividends. If you look for convenience, you can do it by setting up a monthly order to run for years.
Conclusion: An income-focused approach isn’t superior when you look at risk, performance, convenience, or even behavioral factors.

Here’s another point that often gets overlooked:
A typical retiree should separate stock and bond allocations. Personally, I’ve always reinvested all distributions and only sold when I needed cash—on my own terms.
For example, if your stock funds drop 10%, you can draw from your bond funds to cover expenses instead of selling stocks at a loss.
In other words, you sell from the asset class that has performed best, while maintaining your long-term risk and volatility targets.

Instead of blindly following ideas without solid evidence, I’ve always focused on improving my portfolio’s risk-adjusted returns. The goal is simple:
How can I increase performance without increasing risk?
The best strategies (using funds) are those that improve returns while actually reducing volatility. It's amazing how easy it is, and most don't do it.
Hint: most of the funds I found and used were not ALT funds. During 2000-10 = SGIIX,OAKBX,FAIRX. Allocation=PRWCX. BondsIMIX until 2018. HOSIX, IOFIX in their glory days.

Not sure what axe you are trying to grind, but the question posed was does dividend investing make it psychologically easier in retirement? This has 0 to do with performance vs total return, and I haven’t seen anyone hear say that their income strategy is outperforming TR based on SPY and QQQ or whatever. And PDI as the “gold standard” CEF? lol, that is your presumption since you want to attack it. Maybe ADX is a better “gold standard” CEF, given it’s been around since well before the other indices. Not saying it’s better than the indices, but at least you can backtest comparisons for any time interval you like.

 

[Gumby]

..... a lot of roads lead to financial success.

MODERATOR NOTE: Yes, they do. I would also point out that none of us is right all the time or wrong all the time. If we listen to each other rather than sniping at each other, perhaps we can all learn something new.