Income Vs growth investment

[Mark2024]

Since early 2010s, I have been heavily investing in the income generating stocks and EFTs. Two of the better performance ones are ABBV and MO. With dividends reinvested, they are all around 450% ROI. My portfolio is generating at least $80k a year on dividends and interests.

DW, on the other hand, has been focusing on tech stock for growth. While some her investments have significant losses, her Apple stocks have given over 900% ROI.

I guess our story supports the idea of diversified investment works the best. Our total portfolio has gained in past 12 months more than 4X of my low 6 figure salary. Couple more years like this, I would pull the trigger.

Are you more on growth or income now?

 

[Qs Laptop]

Sounds like you are doing great. Congratulations. Yes, diversification is a necessary strategy.

My only caveat would be don't chase dividends at the expense of growth. ABBV has been both a growth stock and it pays a good dividend. MO had been more volatile. You've earned your dividends but went sideways on the growth side.

A lot of people like dividend paying stocks like ATT, JNJ, VZ, KMB, etc. which pay good dividends but they lose out on growth. It doesn't do an investor much good to make 6% in annual dividends if the stock is losing 6% (or more) in share price every year.

 

[TheWizard]

Total Return is really the proper metric to use.
And many of us prefer the simplicity of Index funds compared to individual stocks...

 

[Montecfo]

Both, of course. Growthy investments in Roths, dividend paying stocks in taxable account, where I also own ABBV.

With equities I do not shoot for "income" per se. I think that is a bad plan. More total return.

 

[Chuckanut]

I’ve definitely earned more through growth than through income investments. In fact, I’ve earned so much more that now in my spending stage I can reduce my growth allocation and buy more income investments.

I still have a good chunk of growth investments just in case I live another 20 years or more, like a few of my ancestors did.

 

[VanWinkle]

Still growth as not drawing from stash yet.

 

[Alex The Great]

Total return is a primary target for me. But I admit some stocks I own does not have a great record of total return, KO for example. I do have ~50% in stocks, which include both value stocks and growth stocks. Also I do have bond fund and CD ladder. Similar to yours, my entire portfolio generates around $80K annually in dividends and interest.

 

[OldShooter]

Total Return is really the proper metric to use.
And many of us prefer the simplicity of Index funds compared to individual stocks...

This.

Reading this thread I realized that I have absolutely no idea what the portfolio generates in dividends. Everything is reinvested and when we need some cash we just sell little bits of equities or bonds depending on how the AA has drifted since we last looked. At this point, everything is in IRAs so no tax considerations to worry about.

Once received, dividends and interest are just fungible money. The source of the money is irrelevant to our spending or investing needs going forward.

 

[Mark2024]

To me, not losing what we have had is the #1 goal. And the portfolio could generate cash flow to fund living expenses is the icing on the cake. The growth would be nice but high growth = high risk.

With that thinking, I have actually shifted a significant portion to CDs, high yield money market funds, and Index pegged annuities. These annuities are capped at around 9% of upside and 0 down side for 6 years.

As of today, our interests, dividends, pensions and projected SS are more than my W-2 salary. However, I am not sure if the 5%+ interest rate will last long. May have to w*rk a couple more years.

 

[Koolau]

To me, not losing what we have had is the #1 goal. And the portfolio could generate cash flow to fund living expenses is the icing on the cake. The growth would be nice but high growth = high risk.

With that thinking, I have actually shifted a significant portion to CDs, high yield money market funds, and Index pegged annuities. These annuities are capped at around 9% of upside and 0 down side for 6 years.

As of today, our interests, dividends, pensions and projected SS are more than my W-2 salary. However, I am not sure if the 5%+ interest rate will last long. May have to w*rk a couple more years.

Yes, sleeping at night is as important as growth (maybe more so.) If that means a little longer time to FIRE, it will likely be worth it. Best luck going forward.

 

[TheWizard]

To me, not losing what we have had is the #1 goal...

That's a curious statement given that you own at least a few individual stocks, which are typically more risky than stock index funds.

Risk tolerance is definitely an individual thing, and the usual way of dealing with it is to find an AA you are comfortable with, maybe 40% stock funds and 60% low risk CDs, Treasuries, etc.

But stock funds fluctuate in value every trading day, generally with a long-term upward trend. So what happens when a stock index fund loses 3% of its value in one day?
Is that a "loss" in the context of your quote above?
Or is it just stock funds behaving as usual?

 

[MichaelB]

<mod note> Just a reminder that the active investing forum is not the place to discuss passive vs active or to challenge the OP’s investment approach.

 

[Exchme]

With that thinking, I have actually shifted a significant portion to CDs, high yield money market funds, and Index pegged annuities. These annuities are capped at around 9% of upside and 0 down side for 6 years.

Ok, so we are not to criticize, but with regards to indexed annuities, I suggest that OP investigate further before buying more of those. They are generally only favorable to the insurance company. A good resource is to post the exact policy information on Bogleheads.org and ask for thoughts. There are some professional annuity analysts there (poster "Stinky" comes to mind) that will offer insights that the amateur would miss.

For instance, these days you may find that the 9% cap is not annual, it may actually be a 0.75% monthly cap, which is not nearly as attractive since it's very common that market gains occur quickly when news hits and then markets go sideways for long stretches. So the market could go up substantially and you wouldn't get very much at all.

 

[TheWizard]

Ok, so we are not to criticize, but with regards to indexed annuities, I suggest that OP investigate further before buying more of those. They are generally only favorable to the insurance company. A good resource is to post the exact policy information on Bogleheads.org and ask for thoughts. There are some professional annuity analysts there (poster "Stinky" comes to mind) that will offer insights that the amateur would miss.

For instance, these days you may find that the 9% cap is not annual, it may actually be a 0.75% monthly cap, which is not nearly as attractive since it's very common that market gains occur quickly when news hits and then markets go sideways for long stretches. So the market could go up substantially and you wouldn't get very much at all.

I agree that indexed annuities often aren't a great investment.

In my case, one of my single premium lifetime payout annuities with TIAA is based on CREF Stock, which is close to being an index fund.
My income is adjusted monthly with no caps on either the upside or downside; payouts are subject to a 4% annualized Assumed Investment Return.

Since 2013, my monthly payout has increased significantly, so I'm happy with that...

 

[MarieIG]

I am a fan of diversification but I have been a bit too light on growth. So, I am value, income, then growth. I do have individual holdings but are currently trying to up the percentage of ETFs for some broader exposure.

 

[ziggy29]

I personally overweight growth on the large cap side and value on the small cap side. Beyond that, I'm more into total return when it comes to stocks. Since LTCG and dividends are treated the same way for tax purposes, it doesn't matter all that much whether growth comes from dividends or capital appreciation where taxable accounts are concerned -- as long as you aren't selling anything you've held for less than a year.

 

[Diogenes]

Completely agnostic on "value" vs. "growth", or the related ideas of dividend-payout vs. internal reinvestment by the company, presumably to generate more growth. I am not persuaded that either of the two concepts offers long-term advantage. Neither do I observe lower volatility among "dividend aristocrats" vs. more growth-oriented stocks, with low or zero dividends. It's entirely a wash.

However, dividend distributions in a taxable account are scabrously painful! They generate taxable income, which means...

1. One crashes-out of ACA subsidy eligibility.
2. Large annual tax bill, to be paid out of pocket (unless one wishes to withdraw from the portfolio, just to cover the tax bill!).
3. High effective margin tax rate on any W2 or 1099 earnings, because of those earnings were zero, the tax-bill on the dividends would be a lot less.

Proverbially, the tax-tail shouldn't wag the investment-dog, but as our portfolios grow larger, relative to our incomes, the tax-tail starts wagging itself, so to speak.

 

[Al18]

LTCG, including qualified dividends, is not taxed if your are married and your taxable income is less than $94,051.

 

[Dash man]

We have a mix of individual stocks and ETFs, with all paying dividends and most growing their dividends each year by 5-15%. You don’t have to buy a high dividend stock, but buy stocks that raise them nicely each year. LOW, LLY, AVGO, MSFT, AAPL, HD, COR, V and ADP are all stocks that grow dividends and their stock prices very well.
ETFs like SCHD, DGRO, VYM are good dividend ETFs. You can add some juice with SPYI, JEPQ and JAAA.
We’re up to $166k/yr in dividends alone.

 

[Diogenes]

LTCG, including qualified dividends, is not taxed if your are married and your taxable income is less than $94,051.

That's why the question is so situational. A single-filer in a fat-FIRE situation might blow through the taxable dividend threshold several times over. Why? Because to retire early generally means putting large sums annually into the market, fairly early in life... and we recall that 20-30 years ago, the IRA and 401K limits were... low. So, our hero, retiring sometime around now, who was probably born in the late 1960s or early 1970s, might have n-$M in a taxable account... which generates a hefty tax liability, even if withdrawals are magically zero (say because of really frugal living + a small W2 or a defined benefit pension).

The traditional retirement literature hawks 25X or 33X or something like that, for ratio of portfolio size to annual expenses. Did I get that correctly? Those are the numbers that I usually see. Well, suppose that somebody is sitting on 100X or 200X? Consequently, taxes on dividends may be larger than one's other annual expenses put together! Then what? One could still say, that the tax-tail shouldn't wag the investment-dog, but it becomes an awfully small dog, with a huge tail!

 

[wannabefire]

That's why the question is so situational. A single-filer in a fat-FIRE situation might blow through the taxable dividend threshold several times over. Why? Because to retire early generally means putting large sums annually into the market, fairly early in life... and we recall that 20-30 years ago, the IRA and 401K limits were... low. So, our hero, retiring sometime around now, who was probably born in the late 1960s or early 1970s, might have n-$M in a taxable account... which generates a hefty tax liability, even if withdrawals are magically zero (say because of really frugal living + a small W2 or a defined benefit pension).

The traditional retirement literature hawks 25X or 33X or something like that, for ratio of portfolio size to annual expenses. Did I get that correctly? Those are the numbers that I usually see. Well, suppose that somebody is sitting on 100X or 200X? Consequently, taxes on dividends may be larger than one's other annual expenses put together! Then what? One could still say, that the tax-tail shouldn't wag the investment-dog, but it becomes an awfully small dog, with a huge tail!

100-200x - Big tail!!

 

[target2019]

Since early 2010s, I have been heavily investing in the income generating stocks and EFTs. Two of the better performance ones are ABBV and MO. With dividends reinvested, they are all around 450% ROI. My portfolio is generating at least $80k a year on dividends and interests.

DW, on the other hand, has been focusing on tech stock for growth. While some her investments have significant losses, her Apple stocks have given over 900% ROI.

I guess our story supports the idea of diversified investment works the best. Our total portfolio has gained in past 12 months more than 4X of my low 6 figure salary. Couple more years like this, I would pull the trigger.

Are you more on growth or income now?

We also use some growth (SCHG) and income (SCHD) depending on the account and need.

But overall we probably are a bit more growth since that's what VTI etc, happen to be.

We spend more time holding the entire equity allocation to 65-70% in retirement.

It is in the final analysis what you choose it (the portfolio) to be.