Pimp my ride!

Art said:
"Plan Ahead" mode should be used in all retirement planning calculations. Why? Because, prior to 1990, the average dividend yield was about 4.5%. Nowadays its around 2%. If you use the "Look Back" mode you would be building-in unrealistic return rates for your retirement planning."

"There are a number of academic studies that use the historic dividends (total return) to come up with estimates of future sustainable withdrawal rates. As prudent advisors and/or investors, you should avoid such traps and ignore those findings.  Dividends cannot go back to their historic levels unless markets lose more than half of their value or companies double or triple their dividends in a hurry. In the meantime, be conservative and use the prevailing dividend rates, not historic ones. Remember, you are ultimately responsible and not some academic researcher."
Art, have you been inhaling from the House of *****?

(EDIT: That row of asterisks decodes to h-o-c-u-s.)
 
No, Nords- wasn't in that thread nor do I want to be- reading it was bad enough.

My question has to do with your opinion of the point made that pre-1990 dividends were 4.5% and post 1990 dividends are 2%.

If you don't know/don't have an opinion- that be cool with me.
 
Art - I can get a 3% yield from several funds that load up on stocks I dont mind owning at all, very low risk. Not up to the 4.5% yields of yesteryear, but good. Since these stocks have also been appreciating at a nice pace along with that 3% yield, that makes them good. In down markets, I still get the 3%. In up markets, 3%+. Sideways markets, 3%.

In the few times growth outdoes value/dividend stocks (like the late 90's) its usually something unhealthy going on and it abruptly ends at a time thats not easy to predict.

In the meanwhile, 3%...3%....3%...
 
H#*!s smokus!

After Firecalc and ORP - run ennumerable times - time to get off the pot.

Ding, ding, ding - and the winner is:

DA NORWEGIAN WIDOW!

Yep after record date this quarter - gonna get Vanguard to autodeposit divd/interest to checking. At least until 70 1/2 and they make me an 'offer I can't refuse.'

Big surprise - huh?
 
So for the forseeable future, UncleMick, cash is king?
 
Er ah - 3.056% - approximately -  although I could figure a little closer - but I'm trying to leave my left handed, INTJ, engineer, Leo past behind.

I sometimes have a tendency to over calculate.

I have to remember - in the real world - handgrenades are nicely effective in the right circumstances.

And I will try to lighten up - and spend the money.
 
charlie said:
TH, take a look at DVY (iShares Dow Jones Select Dividend Index).
This fund pays about 3.0% currently, has a ER = .40% with 2%
turnover. It is classified as a mid-cap value fund with avg cap of 4.5B.
It's P/E is 14.1 and P/B is 1.79.

I am thinking that it might be a good holding for part of your taxable
account because of the low tax rate on dividends and the low turnover.

I have not bought this yet myself but have been thinking about it.
I believe Ben has some and maybe Nords if I remember correctly. It
looks to me as if DVY could give Windsor II a good run for the money.
The only thing I don't like is that it is pretty concentrated in financials
(39%) and utilities (21%) ....... but thats where the dividends are.
It's an ETF that unclemick should love.

I know you don't like I-bonds but they are tax free if used for
education. You need to hold them in your name, however.... not
Gabe's. This would give you the option of using them for his
education or not depending on how the future unfolds.

Cheers,

Charlie

Charlie - not familiar with that particular etf but it smells an awful lot like the equity income fund I mentioned above...3% yield, low PE, large cap value.

I considered ibonds for myself and for my neighbors kids college fund. Problem is they just dont make enough. At 1% plus fake inflation, college costs will easily outpace them. My IRA is loaded with reits, small cap value, healthcare and the like...I'll be 59+ when gabes college age comes around. Hopefully those equity rockets will keep up with college care. Thats the way I think i'm going to go with that part. I recommended the TIAA-CREF 529 plan to my neighbor, the 'aggressive equity' option. He's put nothing aside yet and his two boys are under 5. With several other kids in the same age range in the immediate family, he'll use it.

Bum - the only way gabes getting a brother is if some sort of severe brain damage strikes me. The first time I was left in charge of him for 72 hours straight my brain told my body to stop producing testosterone, and I believe my sperm count went negative. Not to mention at our age, the odds of getting pregnant ONCE is about 1 in 10 over a year long period. DW's lady doctor said it was very very unlikely to happen at all the first time. A repeat? (shiver) I had a nightmare that we had a second baby right now (a neat trick, that 4 month pregnancy). Woke up with the sweats ;)

Yes, I want to gear to low taxation. If its a matter of making 10% and paying 33% taxes or making 7% and paying 5 or 10%, I'll take the latter. I'll even take a small downside hit to avoid paying a tax dollar if possible. I'm not at all impressed with what the government does with my money, so I'd rather not give them any of it, even if I come out on the downside a little.

Anyone with an opinion on using vanguards high yield as my nearly sole bond holding in the 25-30% range? I dont see a lot of risk in the next 5 years from defaults. Its been a risk free ~7% for the last 3-5 years.
 
Art said:
I like it- which funds are these?

Vanguards equity income fund paying 2.77% (admiral shares) is my current target...charlies recommended etf is another good one.
 
Bought the SO some Vg High Yield several years back - now maybe 2% of combined portfolio's. Bumped up her cash flow a tad and still kept her is the low tax bracket. Plan to hold forever.

With the duration and swings in high yield with interest changes - you have to prepare your brain for it's anticipated behavior under various conditions. Never to be tapped in an emergency and willing to take a lot of variation in NAV are keys here. Right guessing on interest rate direction would also be nice but not manditory.

30 - 35% is too rich for my blood - but if you can stay the course - Vanguard is probably one of the best - I'd be more worried about default risk with somebody else.

Oh yeah - I believe I owned some Equiry Income way back when they first came out - in my er ah multi asset days - when I also owned - psst Wellesley.
 
I think Vanguard's Windsor II is a better large cap value fund than
either Equity Income or Dividend Growth. It has a better 1, 3, 5 or
10 year total return. I even like it better than DVY for my IRA.

IMHO, not TH, you may be chasing yield a little too much by committing
all your bond allocation to High Yield. I think GNMA is a safer long
term play. You also might consider Vanguard's Intermediate Term
Bond Index, which has a better return than any other of Vanguard's
intermediate term bond funds. In any case, diversify your bond
holdings just as you do your stock funds.

My $.02 for what it's worth.

Cheers,

Charlie
 
Good advice Charlie...I'm pushing buttons here and seeing who calls bullpuckey. I sort of planned to keep some of my muni and gnma funds through the change, but if nobody thought a 30% high yield bucket was a bad idea, I'd have considered it.

I'll look at windsor II. Doesnt hurt that most of the vanguard brass hold windsor and windsor ii in large amounts...
 
I think 30% high yeild is a bad idea. I'm about the same age as you and am in a similiar tax situation. I'm sitting at about 55% stocks right now. Most of the remainder is in ST corp fund, and intermediate munis (then some CDs, REIT, and cash). THe purpose of the bonds is to reduce risk and volatility in my stock holdings. Around 2000 my allocation was even more conservative. Saved my ER in 00-02. My understanding is that the High Yeild fund is more correlated with stocks performance. That's not what I want. I'd go with the intermediate index and Cali Muni (just enough to keep you under 25%). Adding High Yeild may be similiar to increasing your stock allocation. It would be interesting to look at the difference (growth, volatility) in adding more stock vs. HY.
 
Now heres another question. Do I stick with large cap value or slice to mid cap value? I have a bunch of small cap value in my IRA thats being fed with the dividends from my REIT fund.

Charlie - thanks for the info. Looks like 20-25% high yield to 75-80% total bond market was what the guy found optimal. I was very interested in the comment that perhaps in this analysis the hunk of high yield was simply acting as an equity in disguise much like the 20/80 ports (equity/bond) show better than 0/100 ports do. High yields are supposed to have high correlations to equities. That doesnt bother me much, nor does a little volatility. I'm working with up to a 10 year horizon and will keep plenty of cash buffer plus the wifes income between us and the port between now and then, and perhaps a larger cash buffer after she retires...if she even does.
 
Swedroe, Bernstein and the Coffeehouse guy think that midcap is not
necessary.  if you S&D just buy the 4 corners plus international
and REIT. 

Cheers,

Charlie 

Edit:  They substitute "blend" for the "growth" corners to give a value
tilt.
 
I keep my holdings divided between small value and large value.  I don't really see the advantage of holding another size + value fund.  
 
unclemick2 said:
Pssst! - Windsor and Windsor II.

Yeah I looked at them vs the equity income fund. Slightly higher total returns, slightly higher expense ratios, somewhat lower dividends.

Doesnt hurt that bogle and the guys running vanguard own a lot of them though. Of course not selling them and moving to index funds because they dont want to generate taxable events. ;)
 
Hi Art,

The average maturity of the Total Bond Market is 6.9 years with
an average duration of 4.2 years. the High Yield fund has 7.6 years
and 4.4 years respectively.

Cheers,

Charlie
 
Not bad at all. Thanks very much, Charles. Tremendous posts.

Art
 
Ok so heres my plan, after careful review of all the input.

I've more or less decided to drop bonds altogether from my portfolio. I'm going to keep a small bit of HY, a small bit of GNMA, and little dollop of california intermediate munis but those munis are going to be in a lot of danger the minute I find an equity fund with a decent value, possibly after a correction.

I'm just not getting paid enough to keep the bonds. And I dont want to chase yield into the high yield arena. Yet.

My current arrangement. Dont mind the small potato investments, they're probably something I wanted but didnt really need, so to stop wanting them I bought a little and moved on. Unclemicks hormone theory. Numbers were pushed a little lower in % when I added a quarter million in cash from selling my wifes old house.

Taxable

29% Wellesley admiral
10.6% Wellington admiral
10% California IT muni admiral
10% California Tax Ex Money Mkt
5% High yield corp admiral
3.6% Energy
3% Pacific Index
3% Europe Index
1.5% GNMA
1.5% Precious Metals

IRA
10.5% REIT admiral, dividends buy small cap value
3.7% Emerging Market
3% Healthcare
2.7% Small cap value
1.6% International Explorer

%'s are total portfolio, I treat IRA and taxable as a unit.

Proposed new "ride"

39% Equity Income admiral Fund (From Wellesley and Cal MM)
10.6% Windsor II admiral (From Wellington)

Everything else stays the same.

Moves me from a 50/40/10 (%equity/bond/cash) to ~80/16.5/3.5 mix.

We'd have ~ 2 years expenses in cash, plus my wifes pay that more than covers the regular expenses.

Heavy in large cap value US dividend payers, a little light in foreign (I'm ok with that, a lot of the US large cap players are globals), very slim tax profile as most of the money thrown off are qualified stock dividends and tax free bonds.

Should Energy come down a little, I might buy more of that with some of the IT Muni money, and I may pare off some of the REIT and buy more small cap value. If my taxes look good I may also move some of the IT muni to the GNMA to pick up a little more yield.

Cash is currently in nearly expired 11 month cd's paying 3.25%, will be rolled over into 5 year 4.61% cd's next month. I know I can get 5% on a 3 year at penfed, but I'd have to open an account, transfer the money, yada yada...couldnt be bothered for such a small amount...these will be held at my regular credit union with fast solvency, six months interest forfeit if I pull the plug early.

Anyone have a klaxon going off or shaking their head muttering "the fool..."? :)
 
Yes, I hope you didn't do it today.
 
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