Popular Investment Strategies

[ERD50]

...
- As I was approaching retirement, interest rates were basically 0% and only fools were buying bonds. ...

And yet, those who stuck to an AA even with bond funds did better than SCHD, and history indicates they will be fine over the long run. My data included those 'foolish' bond funds.

If interest rates take a sharp rise, and some here are stuck with their longer term bonds at older lower rates, I won't call them 'fools'. It's a choice that may or may not work out. We shall see.

... - Most of recent growth of the S&P 500 is because of 7 stocks (that appear to me to be grossly over-valued). ...

While I'd prefer to be more diversified, and am a little, since I invest more in VTI than SPY as I go forward. But has it really been all that different in the past? I don't know, but I suspect it will all average out.

OK, VTI not even as bad as I thought, AAPL, MSFT @ ~ 6%, AMZN @ ~ 3% and it goes down to 1% for LLY at #10. Heavily tech weighted, but it is what it is.

SCHD top 10 go from 4.7% down to 3.8%, so if we added them all up, probably not a big difference - but I'll admit, looks like a bit more diversification in those top ten.

Regardless - if that's so bad, why is even the S&P's volatility only slightly greater than SCHD (and easily offset with just a 5% bond addition)? The proof of the pudding is in the eating.

... One clarifying question - does your volatility analysis assume you re-invest dividends?

If you look at the links I provided, yes, dividends are reinvested. To be clear, I used a 3.3% IAWR, so any divs up to 3.3% would be just drawn off as the cash flow for the withdrawal, nothing left to re-invest. But anything above 3.3% would be reinvested.

ERD50 - thanks for the response. I guess a few more thoughts. My view is EVERYONE de-risks their portfolio somehow in retirement. Some use a 3-bucket strategy, some buy annuities, some have a 60/40 allocation, some invest in dividend stocks, etc. But on this website, it's only dividend investors who are treated like "flat earthers". ...

I will stop here, because I see nothing in my response to you that could be interpreted as treating you like a "flat earther". I presented facts, analysis, data. I was respectful. You have not responded in kind (as far as facts/data/analysis).

The bucket strategy has been challenged here, by me and many others. It's just a complicated, poorly defined (when and exactly how and from where do you re-fill the buckets? That ends up being very fuzzy), and round-about way to describe an AA.

Annuities come under a *lot* of analysis, and a *lot* of critique.

60/40, 0/100, 30/70, 70/30, 0/100 have all been discussed and critiqued here.

You perceive you are being treated differently. I don't get it.

-ERD50

 

[ESRwannabe]

Most of my money is in the etf SCHD and a pension.

 

[Chuckanut]

Well, here we go. I know people here HATE dividend investing, but it is a popular investment strategy and one I follow. So bring on the rage posts.

HATE is a strong word. Too strong.

Let’s just say I don’t see the point of it. And I think some newbies believe the dividends are safer than they are in reality. But, it works for many people while letting them sleep soundly at night. Who am I to argue with that?

 

[target2019]

Most of my money is in the etf SCHD and a pension.

That sounds reasonable to me.

 

[Koolau]

HATE is a strong word. Too strong.

Let’s just say I don’t see the point of it. And I think some newbies believe the dividends are safer than they are in reality. But, it works for many people while letting them sleep soundly at night. Who am I to argue with that?

Yeah, I just don't get "dividend investment." Total return makes a lot more sense to me, but I have no hate for anyone who disagrees with me on the subject. I would agree that high dividends are "nice" to have. But total growth takes in a lot of other factors, all of which make up your total net worth in equities.

Back when I was young and stupid (you know, in my 50s ) I kept a bunch of my old Megacorp stock BECAUSE it was paying a nice dividend on a % of price basis. As the stock took off, the % dividend dropped and I considered selling (and did sell some.) Now that stock has exploded in value and the stock I kept is worth (literally) a million dollars. The % dividend vs price is now a pittance. I need to sell some of that stock now because it's too much of my portfolio BUT not because the % dividend has dropped (the dividend HAS gone up consistently, but numerically, not by much.)

If anyone has found a way to make their ER w*rk using a dividend method, then more power to you. I prefer total value using index investing (my large Megacorp stock value to the contrary.)

 

[aja8888]

People

Yeah, I just don't get "dividend investment." Total return makes a lot more sense to me, but I have no hate for anyone who disagrees with me on the subject. I would agree that high dividends are "nice" to have. But total growth takes in a lot of other factors, all of which make up your total net worth in equities.

Back when I was young and stupid (you know, in my 50s ) I kept a bunch of my old Megacorp stock BECAUSE it was paying a nice dividend on a % of price basis. As the stock took off, the % dividend dropped and I considered selling (and did sell some.) Now that stock has exploded in value and the stock I kept is worth (literally) a million dollars. The % dividend vs price is now a pittance. I need to sell some of that stock now because it's too much of my portfolio BUT not because the % dividend has dropped (the dividend HAS gone up consistently, but numerically, not by much.)

If anyone has found a way to make their ER w*rk using a dividend method, then more power to you. I prefer total value using index investing (my large Megacorp stock value to the contrary.)

People who invest for dividends generally do so for steady income. Lots of retirees do this, especially if they hold bonds. Total return for them is not of interest.

One here that does that is Scrabbler1 who is in NYC.

 

[I am He]

That's interesting. I might have thought that a dividend focus might be in lieu of a portion of bonds (I believe Malkiel mentioned during the ultra low interest phase).

 

[Al18]

SCHD is popular because it offers dividends plus growth. Over the long term, it has performed better than NOBL dividend aristocrat fund.

 

[TickTock]

That's interesting. I might have thought that a dividend focus might be in lieu of a portion of bonds (I believe Malkiel mentioned during the ultra low interest phase).

Your memory is good. From the 2023 50th anniversary edition of A Random Walk Down Wall Street - p.320, Exercise 7A: Use bond substitutes for part of the aggregate bond portfolio during eras of financial repression (in this context, financial repression means keeping interest rates artificially low). During such times, Malkiel recommends substituting an equity dividend strategy for some of the bond portfolio (emphasis mine).

I understand the sleep-well factor in having more certainty on future income. Still, I go with a total return strategy.

 

[aja8888]

Hmmm. Total Return Strategy is a term I looked up and came up with several definitions, mostly involving complicated and diverse portfolios. So when you say you invest in that fashion, just what are you saying?

 

[Chuckanut]

Now that stock has exploded in value and the stock I kept is worth (literally) a million dollars.

The next BBQ and beer bust is hosted by Koolau.

 

[audreyh1]

Hmmm. Total Return Strategy is a term I looked up and came up with several definitions, mostly involving complicated and diverse portfolios. So when you say you invest in that fashion, just what are you saying?

It’s not complex. Total return strategy is simply that you ignore dividends and interest and look at the total return which is the change in portfolio value which includes any dividends and interest received.

This is what I do. I don’t care about the yield of any underlying asset. I just look at the total return.

Maybe another way to say it is that you are not looking for some income stream generated by the securities in your portfolio. You don’t care at all whether you sell some shares to meet your withdrawal needs.

FWIW all the modeling FIREcalc does for determining a safe withdrawal rate is based on the Total Return concept.

 

[aja8888]

It’s not complex. Total return strategy is simply that you ignore dividends and interest and look at the total return which is the change in portfolio value which includes any dividends and interest received.

This is what I do. I don’t care about the yield of any underlying asset. I just look at the total return.

Maybe another way to say it is that you are not looking for some income stream generated by the securities in your portfolio. You don’t care at all whether you sell some shares to meet your withdrawal needs.

FWIW all the modeling FIREcalc does for determining a safe withdrawal rate is based on the Total Return concept.

I was looking at the definition with respect to the construction of the portfolio and several different approaches were used. Some included a slice of Treasury bills, some gold, some a mix of mutual funds and ETF's etc. The construction details lead me to believe a Total Return Portfolio can be constructed with any mix of assets.

Based on what I was researching, the end event is how you put a total value on the performance of all the assets as a group, whatever you choose the group to be.

So, given the above, if I just ignore the performance "details" of the "parts" and only look at the end result of the whole portfolio performance, I then have a Total Return Portfolio. It's just how you measure total performance and not a strategy, per SE.

 

[Texas Proud]

Hmmm. Total Return Strategy is a term I looked up and came up with several definitions, mostly involving complicated and diverse portfolios. So when you say you invest in that fashion, just what are you saying?

Total Return is not a strategy like the couch potato or others with a name where they tell you WHAT to purchase... it is how you think about your portfolio...

It is investing to grow your money in whatever way you want too but are not concerned with dividends and interest...

As an example... you invest $10,000 in a CD that pays 5%... at the end of the year you have your $10,000 principal and interest of $500... so you can spend that $500...

But total return invest in a total market fund or ETF... and the year it goes up 20%... and the end of the year you have $12,000 but no interest or dividends... so no money to spend... well, until you sell part of you holding and then you have money to spend...

So, which is 'better'? I pick the total return.... others pick the dividend/interest method (which BTW also does not tell you where to invest your money)...

 

[motley]

Do you use one of these strategies? Or do you use other well-known investment strategies?

No. But to each their own. Certainly there are worse strategies than a simple index fund profile.

 

[motley]

But it will over time. That’s why you buy a target date fund. Buying a target date fund is not avoiding bond funds, it's embracing bond funds and an increasing allocation to them over time. Read the prospectus.

IMHO the idea of target funds is good, but the reality of them suck, or at least did the last time I looked at them. Weakish returns. They also gravitate far too quickly to bonds.

 

[Koolau]

It’s not complex. Total return strategy is simply that you ignore dividends and interest and look at the total return which is the change in portfolio value which includes any dividends and interest received.

This is what I do. I don’t care about the yield of any underlying asset. I just look at the total return.

Maybe another way to say it is that you are not looking for some income stream generated by the securities in your portfolio. You don’t care at all whether you sell some shares to meet your withdrawal needs.

FWIW all the modeling FIREcalc does for determining a safe withdrawal rate is based on the Total Return concept.

Completely agree with this treatise of "total return."

When I need cash, I sell something - with an eye toward rebalancing at the same time. I don't care whether the underlying investment(s) have increased in value due to juicy dividends or increase in the stock's PE ratio or a legitimate increase in value due to underlying "value" such as increased sales/earnings.

 

[audreyh1]

I was looking at the definition with respect to the construction of the portfolio and several different approaches were used. Some included a slice of Treasury bills, some gold, some a mix of mutual funds and ETF's etc. The construction details lead me to believe a Total Return Portfolio can be constructed with any mix of assets.

Based on what I was researching, the end event is how you put a total value on the performance of all the assets as a group, whatever you choose the group to be.

So, given the above, if I just ignore the performance "details" of the "parts" and only look at the end result of the whole portfolio performance, I then have a Total Return Portfolio. It's just how you measure total performance and not a strategy, per SE.

Yes, it can be any mix of assets.

Total Return does generally use a diversified portfolio usually with a targeted asset allocation, but it can be as simple as X% Total Market Index and 100-X% fixed income fund(s).

The FIREcalc models all use a target asset allocation with annual rebalancing (assuming it’s not 100% equities or 100% bonds or cash). You can even choose specific assets to model - many of them of broadly diversified investments.

I totally ignore the performance details of the parts and couldn’t care less about what the NAV of any component fund is. What matters is the whole.

It’s only a strategy in that you are taking a withdrawal rate approach and managing your portfolio accordingly, rebalancing etc., which usually means selling some shares and buying others. As opposed to creating an income stream and living off of whatever dividends and interest your portfolio generates and not selling any underlying assets.

 

[Flieger]

I have had success with a paid service, allocatesmartly.com. They have optimized portfolios you can follow based on your goals. You can go to their website and check out their service and access their blog for free.

Just checked out their FREE section. Very interesting. I wish it allowed more input to see if it is worth the pay section.

Flieger

 

[ERD50]

Hmmm. Total Return Strategy is a term I looked up and came up with several definitions, mostly involving complicated and diverse portfolios. So when you say you invest in that fashion, just what are you saying?

I don't see Total Return as a 'strategy', it just is. It is the total amount of value now compared to when you purchased the investment. It includes growth and reinvested dividends, because both of those have value.

 

[Exchme]

IMHO the idea of target funds is good, but the reality of them suck, or at least did the last time I looked at them. Weakish returns. They also gravitate far too quickly to bonds.

Agreed. Plus the tax impact - I don't hold bonds in taxable and I don't want the taxes associated with capital gains due to rebalancing that these funds cause as they sell off their stock holdings over time. I believe they also can end up with capital gains distributions each year too.

Also, they aren't flexible. If you wanted to, say, sell some bonds and do something different (spend it, buy CDs, buy an annuity), you can't do it without selling stock too.

Target date funds seem suited to beginners to get them started - they don't have to make decisions they aren't informed about. The resulting choices won't be the best, but they won't be totally crazy.

 

[aja8888]

Yes, it can be any mix of assets.

Total Return does generally use a diversified portfolio usually with a targeted asset allocation, but it can be as simple as X% Total Market Index and 100-X% fixed income fund(s).

The FIREcalc models all use a target asset allocation with annual rebalancing (assuming it’s not 100% equities or 100% bonds or cash). You can even choose specific assets to model - many of them of broadly diversified investments.

I totally ignore the performance details of the parts and couldn’t care less about what the NAV of any component fund is. What matters is the whole.

It’s only a strategy in that you are taking a withdrawal rate approach and managing your portfolio accordingly, rebalancing etc., which usually means selling some shares and buying others. As opposed to creating an income stream and living off of whatever dividends and interest your portfolio generates and not selling any underlying assets.

One of the examples of this strategy I read about used a portfolio with $100 million in treasuries in it as the only asset. LOL!

 

[Koolau]

One of the examples of this strategy I read about used a portfolio with $100 million in treasuries in it as the only asset. LOL!

I think I could live on that. I wouldn't worry too much about strategy at that point.

 

[aja8888]

I think I could live on that. I wouldn't worry too much about strategy at that point.

 

[OldShooter]

... Target date funds seem suited to beginners to get them started - they don't have to make decisions they aren't informed about. The resulting choices won't be the best, but they won't be totally crazy.

I used to blithely recommend target date funds to beginners, including my son, but after looking in more detail I realized that they are all over the map as far as AA The shapes of the curves moving towards retirement are also quite different. This makes it important for potential buyers and any amateur advisors to look inside the can and see what worms might be there. One thing that is seldom mentioned, too, is that a buyer can (in the future as AAs change) move between target date funds to find an AA that they prefer. They can also pick and earlier or later date fund to get a desired degree of aggressiveness or conservatism.

And, ... worms: https://www.reuters.com/article/bus...rs-on-risky-path-to-retirement-idUSKBN1GH1SI/