Life moves quickly. Already this year we have seen uprisings, natural and man made disasters, Tax season has come and gone and the Royal Wedding is everywhere and will soon be gone. How many of our New Year's resolutions are still intact? The tyranny of the urgent may tempt us to delay until disaster strikes and the cost to repair, dwarfs the cost to prevent.
Many working people put off their retirement investing -- just one more year until it has becomes a "hair on fire" problem.
The problem is that we can easily be overwhelmed and shut down. The way to solve this is to focus on what works in the long term -- that is what long term investing is all about -- and allow that to filter out what may work in the short term but won't stand the test of time.
We continue to examine different portfolios to see what we can learn and use to further our investment portfolios.
Miriam Reimer of TheStreet.com writes that the dividend universe has been out of favor for most retail investors in the last few years, according to Lawrence Glazer, managing partner with Mayflower Advisors. The pendulum, however, has turned back toward the investment strategy lately as market watchers hedge against inflation and look for rising income streams.
To capture a proxy for domestic dividend-paying stocks, Glazer suggested considering ETFs like the iShares Dow Jones Select Dividend or SPDR S&P Dividend (SDY), and for international dividend payers, the iShares Dow Jones International Select Dividend Index Fund (IDV). The latter boasts a higher yield, he said, and "speaks to the idea of getting paid to go outside the U.S. and take on a little more risk." For a long-term sustainable dividend income, Glazer advised to look at an ETF like the Vanguard Dividend Appreciation (VIG). Its yield is only around 2%, but "investors need to think about total return and appreciation potential," Glazer said.
| Fund in this portfolio | Price | Percentage |
|---|---|---|
| Hewlett Packard HPQ | 40.89 | 6.22% |
| Fifth Third Bancorp SLW | 41.7 | 19.99% |
| Oracle ORCL | 34.11 | 10.60% |
| Fifth Third Bancorp FITB | 13.32 | 8.86% |
| Qualcomm QCOM | 55.27 | 10.96% |
| Walmart WMT | 53.69 | 8.33% |
| Staples SPLS | 20.67 | 7.28% |
| Bank NY Mellon BK | 28.54 | 7.46% |
| Gold Corp GG | 54.93 | 11.37% |
| Proctor and Gamble PG | 63.72 | 8.93% |
We compare this with a portfolio of dividend ETF's
| Asset Class | Ticker | Name |
|---|---|---|
| LARGE BLEND | VIG | Vanguard Dividend Appreciation ETF |
| LARGE VALUE | DVY | iShares Dow Jones Select Dividend Index |
| LARGE VALUE | SDY | SPDR S&P Dividend |
| MID-CAP VALUE | PEY | PowerShares HighYield Dividend Achievers |
| MISCELLANEOUS SECTOR | PFF | iShares S&P U.S. Preferred Stock Index |
| Foreign Large Value | PID | PowerShares Intl Dividend Achievers |
| Foreign Large Value | IDV | iShares Dow Jones Intl Select Div Idx |
| REAL ESTATE | IYR | iShares Dow Jones US Real Estate |
| REAL ESTATE | ICF | iShares Cohen & Steers Realty Majors |
| Global Real Estate | RWX | SPDR DJ Wilshire Intl Real Estate |
| High Yield Bond | HYG | iShares iBoxx $ High Yield Corporate Bd |
| Long-Term Bond | LQD | iShares iBoxx $ Invest Grade Corp Bond |
| Long-Term Bond | VCLT | Vanguard Long-Term Corp Bond Idx ETF |
| Intermediate-Term Bond | CIU | iShares Barclays Intermediate Credit Bd |
| Intermediate-Term Bond | CORP | PIMCO Investment Grade Corp Bd Index ETF |
| Short-Term Bond | CSJ | iShares Barclays 1-3 Year Credit Bond |
| Short-Term Bond | VCSH | Vanguard Short-Term Corp Bd Idx ETF |
| Intermediate Government | IEI | iShares Barclays 3-7 Year Treasury Bond |
| LONG GOVERNMENT | IEF | iShares Barclays 7-10 Year Treasury |
| SHORT GOVERNMENT | SHY | iShares Barclays 1-3 Year Treasury Bond |
| LONG GOVERNMENT | TLT | iShares Barclays 20+ Year Treas Bond |
| Inflation-Protected Bond | TIP | iShares Barclays TIPS Bond |
| Intermediate-Term Bond | MBB | iShares Barclays MBS Bond |
| Muni National Long | MUB | iShares S&P National Municipal Bond |
| Muni National Short | SHM | SPDR Lehman Short Term Municipal Bond |
| WORLD BOND | BWX | SPDR Lehman Intl Treasury Bond |
| Emerging Markets Bond | EMB | iShares JPMorgan USD Emerg Markets Bond |
| Emerging Markets Bond | PCY | PowerShares Emerging Mkts Sovereign Debt |
| LARGE VALUE | VYM | Vanguard High Dividend Yield Indx ETF |
| DIVERSIFIED EMERGING MKTS | EEM | iShares MSCI Emerging Markets Index |
| LARGE VALUE | FVD | First Trust Value Line Dividend Index |
| WORLD BOND | WIP | SPDR DB Intl Govt Infl-Protected Bond |
| REAL ESTATE | VNQ | Vanguard REIT Index ETF |
| DIVERSIFIED EMERGING MKTS | VWO | Vanguard Emerging Markets Stock ETF |
The comparison is
Dividend Stocks Increasing Payouts -- Total of $10K invested equally in each stock
Retirement Income ETFs Tactical Asset Allocation Moderate -- Above funds using TAA (40% fixed income, 30% for each of the top two asset classes)
Retirement Income ETFs Strategic Asset Allocation Moderate -- Above funds using SAA (40% fixed income, 12% for each of the five asset classes -- funds selected based on price momentum)
| Portfolio/Fund Name | 1Yr AR | 1Yr Sharpe | 3Yr AR | 3Yr Sharpe | 5Yr AR | 5Yr Sharpe |
|---|---|---|---|---|---|---|
| The Street`s 10 Dividend Stocks | 19% | 99% | 5% | 15% | 4% | 8% |
| Retirement Income ETFs Strategic Asset Allocation Moderate | 11% | 84% | 3% | 17% | 5% | 24% |
| Retirement Income ETFs Tactical Asset Allocation Moderate | 6% | 51% | 9% | 73% | 10% | 64% |
Full Data
Three Month Chart (Click to enlarge) One Year Chart (Click to enlarge)
Three Year Chart (Click to enlarge)
Five Year Chart (Click to enlarge)
The dividend stocks underperform the more diversified portfolio -- which is what we would expect as the companies picked are not ones on a rapid growth path. Rather, they are well established companies that will continue to deliver consistent dividends.
It seems more effective to pick a diversified portfolio of dividend ETFs and benefit from broader diversification. If there is a desire to speculate a little more with some stocks, perhaps it would be better to look for the high fliers with the risk that you might win big or lose it all.
We will keep looking to see if there are better choices of stocks that give better risk adjusted returns.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Disclaimer: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.
