Golden sunsets
Thinks s/he gets paid by the post
- Joined
- Jun 3, 2013
- Messages
- 2,524
Thanks for all the responses.
Total return got me to ER... "and I'm dancing with the girl that brung me".
I have no problem if we have a year and I end up spending "principal" because I saved it to spend it once I retired, so it seems silly that principal is so sacrosanct.
Total return got me to ER... "and I'm dancing with the girl that brung me".
I have no problem if we have a year and I end up spending "principal" because I saved it to spend it once I retired, so it seems silly that principal is so sacrosanct.
Total return got me to ER...
Could you expand on this? I understand I may take a capital gains tax hit on selling investments, but they should be LT gains which would be taxed at the same rate as qualified dividends. And I can probably choose which shares to sell which may allow me to harvest a loss, take a lesser gain, or maybe take a larger gain if I still have room to take 0% tax in the 15% bracket. I will usually come nowhere close to having all of my sales be taxable income.The primary reason to alter a total return approach would be for tax reasons.
Could you expand on this? I understand I may take a capital gains tax hit on selling investments, but they should be LT gains which would be taxed at the same rate as qualified dividends. And I can probably choose which shares to sell which may allow me to harvest a loss, take a lesser gain, or maybe take a larger gain if I still have room to take 0% tax in the 15% bracket. I will usually come nowhere close to having all of my sales be taxable income.
What might I be missing that you were thinking of?
What does that mean, exactly? To me, the distinction between these two strategies is only meaningful for retirees. But maybe I'm missing something.
With January being my traditional annual withdrawal month (i.e. the spending money bucket needs replenishment), I'm just glad that I set aside dividends instead of having to sell anything in the current market.
But that's just me.
But this isn't the big, bad bugga-boo that people make it out to be.
Peel that onion back, just a tiny bit...
A) An investor probably gets ~ 2% from divs to begin with? So no selling there.
B) A conservative investor (one afraid of selling at market dips) probably has a WR of < 4%, but let's go with that.
C) That conservative investor probably has at least 25% in non-equity investments. In a falling market, rebalancing would have you selling from the non-equity side.
D) Even at 4% WR, only 2% would need to be sold. So there is no forced selling of equities for over a decade (round numbers). And even if there was, is selling 2% at a non-optimum time a deal breaker? Heck, a conservative 50/50 portfolio would have ~ 15% dip if the market dipped 30%. In comparison, a 2% withdraw is a pretty small effect.
E) People tend to look at these dips from the peaks, and get all excited. But your non-equity side probably didn't experience the peak like the market did - so it's a false comparison. They didn't fall, because they never rose. So maybe selling on a dip is still 'selling high', in relative terms?
Maybe next week I'll start a thread about whether our fear of volatility isn't completly irrational. It is the long term gain that matters - are the dips really hurting us, or is the desire to avoid dips hurting us more?
-ERD50
A total return investor does not necessarily reinvest dividends. I sure don't. All total return means to me is that I focus on getting the best overall return on my money rather than focusing on getting a high dividend yield to live off of. For income I use a combination of dividends (which I don't reinvest), distributions (also not reinvested), interest, and sale of assets if needed. I've got plenty in the bucket right now and have not had to sell any shares in this downturn.My point was a little more simple:
This being January, I'd guess a lot of folks replenish their spending bucket at this time (I do). My annual expenses are almost exclusively covered by dividends and SS.
If as a total return investor, one's only option is to sell equities (which had had the dividends reinvested) to refill the bucket, this would not be a good time to do so.
My comment was to correct your misconception or misrepresentation that total return people reinvest everything and our only recourse is to sell assets to get money to live on. Some may do that, but from another recent thread I know many do not. There are many valid and sound reasons for having a dividend strategy to generate your income, but thinking that you otherwise have to reinvest and subsequently sell is not one of them.
I love that so many of us have different individual approaches to the distribution phase. There is more than one way to skin a cat, as the saying goes. It's fascinating reading, and every time I read a thread like this I check and think about my own strategies which is a good exercise, too.
I agree! I read and consider most posts here on any number of financial strategies. Most of the time I decide my own strategy still holds, but I have changed or softened my stance on a few things. Often I post my own position, not to declare mine as the correct one for everyone, but to see if others can find flaws that make me consider changing.I love that so many of us have different individual approaches to the distribution phase. There is more than one way to skin a cat, as the saying goes. It's fascinating reading, and every time I read a thread like this I check and think about my own strategies which is a good exercise, too.