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  • Dividend Achievers Top 20 Hits The Mark, Again [View article]
    "Consider that you can purchase the Dividend Achievers Index for 10 (.10%) basis points, meaning a cost on a $50,000 holding of $50. It may only become more cost effective to purchase the individual holdings on equity portfolios of $200k or more." - Dale

    You can achieve better cost effectiveness with index skimming via the use of the Motif platform to create your own personal mini-ETF:

    Anyone can set up their own Motif consisting of your equally weighted Top 20 stocks and buy it for a $10 commission. That means you can match the cost effectiveness of VIG with an investment of as little as $10,000 in a Motif. It's certainly worth considering for the investor who is just getting started and has yet to build up a sizeable nest egg.

    I would also point out that it is a one time cost for Motif and an annual cost for VIG. The longer you hold your individual stocks or a Motif, the larger the savings vs. VIG.

    Thanks for posting your investigations Dale. Index Skimming is an obvious evolution of Indexing for the individual investor. Returns will most likely be similar but the costs can be reduced, which will generate out-performance over longer time frames.
    Mar 28, 2015. 12:26 PM | 2 Likes Like |Link to Comment
  • Bogle's Views On Retirement Income [View article]
    "With billions of dollars being lost yearly -- the answer is not to stop SS -- but to STOP the fraud." - misscbd

    The problem is that any program set up to stop the fraud would likely cost more than $5.9 Billion annually and only stop half the fraudulent payments while likely making a lot more people who _should_ get payments be 'shut off' due to bureaucratic error in processing the necessary paperwork.

    In the end it would cost more than it does now, in all likelihood.
    Mar 16, 2015. 07:11 PM | Likes Like |Link to Comment
  • Bogle's Views On Retirement Income [View article]
    "in any bureaucratic organization there will be two kinds of people: those who work to further the actual goals of the organization, and those who work for the organization itself." - Kiisu

    In addition, even those who 'work hard' are hobbled by bureaucratic rules which require nonsensical waste at the expense of the taxpayer. Most of those dedicated, hard working bureaucrats will acknowledge that as a fact, in many aspects of their work.

    One prime example I am personally aware of is the way the federal government's contracts are overseen. When a contract is awarded, a Statement of Work (SOW) is agreed to and then the cost and schedule are negotiated. Once agreed to, it is a government Program Manager's (PM) job to periodically verify the contractor is meeting the original plan.

    Believe it or not, if a contractor completes ALL the work required in the SOW and there is still money left over, the government's rules consider that to be a very bad thing (unlike the private sector where repeatedly getting the job done under budget is a great way to be promoted).

    The more a government program's actual execution deviates from the initial plan, the more harshly it reflects on the PM. It reflects poorly on the PM's future evaluations too, so even though a good PM _knows_ that his program might achieve the program's objectives at a cost below the originally negotiated price, he also _knows_ that he will be 'punished' for allowing it to happen.

    Ergo, most PMs 'manage' their programs to spend all the money available, regardless of whether some of it is wasted in the process or not.

    In addition, any money allocated for supplies or maintenance is ALWAYS spent, even if the things it is spend on are not necessary. If it is not spent and is instead returned then the amount allocated for the foll.owing year is usually reduced (obviously they didn't need it all last year).

    The one thing you can count on any bureaucrat to fight tooth and nail is a reduction in their annual budget. The amount of budget under their control is the primary measure of their importance and capability. Whether that money is used effectively or is wasted is truly of secondary importance.

    It is a real pity that even ethical, honest, hard working bureaucrats will be forced into wasting resources in order to get ahead in their career, but that's the system which has evolved over time. Based on the rules in place, saving the taxpayer money is not viewed as a good thing.

    The system is broken and is unlikely to be fixed any time soon. It would mean a complete change in the way things are done so that an efficient use of tax dollars is rewarded instead of punished. And that's contradictory to the career development goal of controlling a bigger budget.

    Even going so far as replacing the bureaucrats won't change the system. New bureaucrats will simply result in a higher percentage of contracts where the original cost and/or schedule are overrun since they won't know the most 'efficient' way to work within the system.
    Mar 16, 2015. 06:42 PM | 2 Likes Like |Link to Comment
  • Bogle's Views On Retirement Income [View article]
    "Too many here simply hate all that is government, refusing to see any benefits provided, and accepting all the theoretical Libertarian think-tank scenarios how the private market can do it all better in every respect without infringing on the holy grail of freedom. This is confirmation bias at its worst, and leads to extremism in thought that is unhealthy for individuals and a free society. This argument equally applies to all other extremist positions, left, right, or any other corner or edge of belief certainty." - AlanInTempe

    Are you saying that nothing helps promote a free society more than requiring everyone to conform in thoughts and deeds within some 'acceptable' set of bounds?

    Seems sort of contradictory, but that's just me.

    The question is, who get to set those bounds and enforce them (selectively, if at all)?

    Is our country better off because bankers and politicians can conspire to break the law with impunity, stealing millions in bailouts from taxpayers while Joe Sixpack has his life ruined over the malicious escalation of a petty charge into an arrest warrant and endless probation due to an inability to afford the cost of a fine, a lawyer, court costs, and/or any penalties that follow?

    As George Washington noted, "Government is not reason, it is not eloquence,—it is force! Like fire, it is a dangerous servant, and a fearful master; never for a moment should it be left to irresponsible action."

    If we're not careful we'll conform our nation to a place where the poorhouse looks like a luxury resort, IMHO.
    Mar 11, 2015. 08:20 PM | 3 Likes Like |Link to Comment
  • Bogle's Views On Retirement Income [View article]
    "Then, find an insurance company that will sell you an annuity that will pay you $2550 for life, with survivor benefits, and inflation adjusted. Compare the cost of that annuity with the balance in your simulated account. If the annuity costs more than what you would have in your account, then SS is a GOOD deal for you (even if you don't want it!). If the annuity costs less, then SS is not a good deal." - AlanInTempe

    This is something of a strawman because there are other ways to provide the $2,550/month, inflation adjusted cash flow than by using an annuity.

    A $1,000,000 portfolio of diversified DGI stocks yielding 4% and DG of 5% to 6% would initially yield $3,333 / month and grow that income stream faster than recent rates of inflation. In addition, when the 'insured' passes on the entire portfolio will be bequeathed to his heirs while the annuity owner's heirs get nothing.

    "However, subtract a fair amount for continuing deductions for life insurance and disability insurance (fair market price for insurance equivalent to what is part of your SS benefits)." - AlanInTempe

    A 20 year term life insurance with a $1 Million benefit for a healthy 40 year old costs about $56/month. For a 20 year old it costs $37/month. So let's take an average of $47/month to buy back to back $1 Million dollar policies to cover a worker from age 20 to 60.

    I'm not much on disability insurance, but let's just say it also costs as much as the life insurance at $47 / month. That's $94 / month total.

    So for a household earning an income of $40,000 the monthly FICA taxes would be 0.153 * $40,000 / 12 = $540. $94 is 18.4% of the FICA tax paid, so adjusting the initial $40,000 income down by 18.4% leaves $32,640.

    Starting with a $32,640 income and increasing it by 1.5% annually over a span of 30 years and investing the 15.3% FICA tax amount at a CAGR of 9.9% (SP500 equivalent) produces a final sum of more than $1,000,000.

    As noted above, a $1,000,000 portfolio of DGI yielding 4% produces $3,333 / month, far exceeding the SS benefit for that income stream, and does so at age 50, ten years before the second life insurance policy expires.

    Working until age 60 would generate a portfolio value in excess of $2.7 million and a monthly 4% income exceeding $9,000.

    That leaves a lot of room for a higher cost of life and disability insurance while still producing a much higher, inflation adjusted income at retirement AND a nice nest egg to leave to the kids.

    Social Security doesn't come close.
    Mar 11, 2015. 12:20 AM | 3 Likes Like |Link to Comment
  • Kinder Morgan sells first euro bonds [View news story]
    "Makes no sense. The world is littered with financial disasters created when companies borrow in foreign currencies to fund domestic assets, only to get wiped out when exchange rates jolt." - Gene Jaquet

    They can hedge the Euro/$ in forex markets to mitigate that potential risk.
    Mar 10, 2015. 08:23 AM | 2 Likes Like |Link to Comment
  • A Dividend Growth Portfolio Is Not Replaced By VIG [View instapost]
    Thanks for the article Doug.

    It is a constant source of amazement for me to repeatedly hear the same rationalizations for using a cap-weighted ETF instead of holding the individual issues of the top ~50% in holdings.

    FWIW, I did some back of the envelope figgerin' and came up with a performance estimate for an equal weighting of the top 10 current VIG holdings since VIG inception on 5/2/2006 (just under 9 years ago):

    VIG: CAGR = 7.7% ....... Current Yield = 2.01%
    T10: CAGR = 9.6% ....... Current Yield = 2.54%

    All dividends DRIP'ed into same stock over that span. Values estimated using

    The current VIG top 10, in order, are:

    (represents 35.5% of VIG dollar allocation)

    Why someone wouldn't just build an equal weighted Motif using the top 10 to 30 stocks from VIG and use that instead is beyond me.

    FWIW, the top 30 holdings make up 66.8% of the money allocation in VIG. The remaining 133 holdings account for only 33.2%.
    Mar 8, 2015. 04:10 PM | 1 Like Like |Link to Comment
  • Bogle's Views On Retirement Income [View article]
    "My earlier questions remain. Is this bad system better or worse than the obvious alternatives of pure welfare or expanded poverty?" - AlanInTempe

    Strangely our country grew from an upstart backwater to the dominant economy on the planet in about 125 years under your hyperbolic system of "expanded poverty". And, like it or not, a truly improving economy is one of the most efficient means of improving the lot of those at the lower end of the economic scale (ie. make the pie bigger).

    Sadly, since the 1980s our country's debt has been growing much faster than the economy. The debt has been growing @ 9.4% CAGR since 1982 ($1.0 T to $18.0+ T), GDP growing @ 5.4% CAGR since 1982 ($3.3 T to $17.7+ T). The poverty rate has ranged from 11% to 15% over that span, rising and falling with the economy itself.

    Our country has been borrowing its way to prosperity, which is not sustainable over the long run. As AgAuMoney points out, the math doesn't work.

    As for Social Security, the 2014 Trustee's Report shows the current 75 year unfunded present value of OASI and DI at -$13.3 Trillion.

    (Table IV.B5, Page 76 of 259)

    Which is an accountant's way of saying that SSA needs to add an extra $13.3 Trillion to the trust fund TODAY in order to cover all the anticipated distributions for the next 75 years. That's an amount equal to more than 72% of US GDP needed NOW, in cash. Oh, and in case you were wondering, we all have to continue paying those FICA taxes too or that $13.3 Trillion number would be a lot higher.

    So in the name of compassion for the needy, let's all just cut a check for $42,000 per capita (ie. for each man, woman, and child) and send it in to the SSA tomorrow. Then we can all sleep at night knowing we made things right.

    If anyone objects, we can always pass a law to MAKE them pay up, right?
    Mar 8, 2015. 03:12 PM | 3 Likes Like |Link to Comment
  • Bogle's Views On Retirement Income [View article]
    "They completely prove my point about the need to sustain SS in America. I'm referring to:
    Some Social Security Administration’s statistics:
    • The average annual Social Security income received by women 65 years and older is $12,520." - misscbd

    Not to belabour the point, but one could just as easily use this as a reason for eliminating the incredibly inefficient Social Security program.


    For a person retiring in 2015, who has worked since 1980 at a job paying an income at the 20th percentile of households (ie. 80% of households make more than this) the total amount of Social Security Tax paid by the household and employer(s) is around $77,000. This does not include the tax for medicare.

    If those taxes were instead invested in an index fund (SP500) they would have compounded at nearly 10% CAGR over those 35 years and would be worth nearly $490,000 today. At a 4% yield they would provide a monthly income exceeding $1,600 for an annual income over $19,000, which handily beats the $12,520 provided by Social Security, as noted above.

    As we DGI types are aware, the $19,000 annual income could easily be growing in excess of inflation if invested in high quality DG stocks, and in fact would be a much larger initial value if invested in well chosen DGI stocks from the start (many of whose CAGRs have averaged above 12% over that span).

    The Social Security program would be in a much better place if the taxes collected were put into an individual IRA-type account and invested tax-free over the career of the worker. The account's income could then be used to help fund their retirement years.

    Then, after death, 25% of the amount remaining could be 'contributed' (call it a tax) to a similar government investment fund whose income (limited to 4% of total value annually) could be used for those who wind up with little or no savings on which to live.

    The remaining money would go to the worker's heirs tax free, but only to be used in their own retirement funds. That way the accumulated retirement savings fund and its earnings would be repeatedly taxed from generation to generation, thus contributing to aid the disadvantaged, while still assisting the worker and his heirs to generate a sufficient retirement income.

    Under that sort of plan, the current Social Security Trust fund would have actual assets (not just government IOUs) throwing off actual income earned from productive activities. After 80 years of 25% posthumous 'contributions' there would probably be more than enough for a 'disadvantaged' someone to live on those safety net distributions alone.

    FWIW, my own FICA contributions (including employer's) if invested in Vanguard's SP500 fund since 1980 would currently be worth $1.3 million and could be throwing off 38% more income NOW (at 4%) than my age 70 estimated Social Security benefit will 16.6 years in the future (I will turn 54 in May). My 401k and IRA savings would add to those amounts. Combined, those pools alone (SS / 401k / IRA), at a 4% yield would throw off an income nearly equal to my current salary TODAY, which would greatly exceed the best projected SS income I might receive.

    The fact that the current implementation of Social Security has left a large number of people with minimal income is not a very good reason to argue that it should (must?) continue as it is currently implemented. There are much better alternatives available which would be far more tenable over the long run.
    Mar 7, 2015. 12:06 PM | 3 Likes Like |Link to Comment
  • As Altria Keeps Rising, So Does The Temptation To Sell [View article]
    MO was the first DGI stock I bought back in February 2011 at $24.10. I bought a very oversized position back then and over time have trimmed it down to a roughly double sized position, which I have no intention of selling.

    The trimming I did in the past wound up funding the purchases of a couple great stocks with higher income levels than the MO I sold, so I can understand how and why you might do the same. I bought the extra shares to start with that idea in mind.

    I'd suggest you strongly consider only trimming your MO position and not selling it outright though. When MO increases the dividend this coming summer (knock on wood) my YOC is likely to go above 9%. Did I mention that only took ~4.5 years?

    Keeping some is almost a no-brainer, IMHO.
    Mar 3, 2015. 07:24 PM | 4 Likes Like |Link to Comment
  • When Can The Fed Abandon Its Zero Bound Interest Rate Policy [View article]
    "Thus, the only difference between the Fed's monetizing and not monetizing lies in whether a private lender's purchasing power is sidelined so that he can collect interest from the Treasury." - Lawrence J. Kramer

    In addition, when the FED (or any bank for that matter) monetizes new Treasury debt the purchasing power of every dollar in circulation is decreased proportionally going forward (ie. inflation). Some might argue that is an important difference as well.

    At some point additional borrowing and spending by the government ceases to add to meaningful economic output, but it does provide misleading economic 'growth', and add to the total debt.

    2010 GDP = $14.958 T
    2014 GDP = $17.701 T

    GDP growth (2010 - 2014) = $2.743 T
    FED monitizing (2010 - 2014) = $1.695 T (FED increase in Treasury holdings)

    FED monetizing as fraction of GDP growth = 61.8%

    And $104.5 Million of that borrowing paid to build an unused airport and unused harbor in Akutan, Alaska:

    I'm sure that 'investment' is really going to pay off over the long run.

    Not to worry though, the US Government also spends about $0.58 Million annually subsidizing service between that airport and another one at Dutch Harbor (the only service Akutan airport supports). There were 1,200 total passengers served at Akutan in 2013 ($483/passenger annual federal subsidy).

    So long as the government continues to borrow and spend money the FED will, over time, continue to fund it by monetizing. Until that reverses, the FED won't think about seriously upping rates because that's the only way they can keep the wheels from coming off.
    Mar 1, 2015. 04:43 PM | Likes Like |Link to Comment
  • When Can The Fed Abandon Its Zero Bound Interest Rate Policy [View article]
    "The spending is a stimulus. Taxes offsetting that stimulus would be a brake, and borrowing in lieu of taxes is a less powerful brake, but a brake nonetheless (because it removes money from the economy)." - Lawrence J. Kramer

    Borrowing is only a potential brake at some point in the future, when the loan needs to be repaid out of productive efforts. If the loan is used for highly productive purposes, then modest increases in rates won't dampen economic activity, though it might reduce future profitability of the borrower a bit.

    If the loan is used for a very productive purpose (say a business with net profit margins exceeding 10%), then it is not a brake. The cost of repaying of the loan is covered by the higher profit levels. Even a variable rate loan can be covered when interest rates reset to a 'more normal' level of 5% on the US 30 year bond (vs. 2.25% today).

    If the loan is used for a marginally profitable business (say a business with net profit margins below 3%), then it will be a modest brake until it is paid off or the business runs out of money and defaults. The loan in this case buys the business time to improve profitability, or extend the use of limited initial capital. Of course if variable rates go back to 'more normal' levels over 5% then the business is really in trouble and the likelihood of default increases dramatically.

    If the loan is used for consumption (new big screen TV anyone?), then is it a claim on another income source in the future and a true brake on future economic activity in return for current economic activity. Future rate increases only serve to amplify the effect of the future reduction in the economy.

    The last two categories are generally where most of the 'extra' borrowing goes when interest rates are artificially lowered below free market levels, as the FED has done since 2008. This is how economic bubbles form. Cheap credit is used for leveraged speculation (second category) or pure consumerism (borrowing and spending as much as possible so long as monthly payments can be met - third category).

    Unfortunately for the FED, the future is now and the funds borrowed for those last two categories over the past 7 years are having difficulties making payments or are outright defaulting.

    Raising rates will only make things that much worse. The loans have already been made and spent. The only question remaining now is whether the lender must also book a loss for loans which cannot be repaid.

    At some point the system will purge itself of bad loans and those who employed lax lending standards in the past will suffer, or the FED will print so much money that the dollar will lose any meaningful value.
    Mar 1, 2015. 01:24 PM | 1 Like Like |Link to Comment
  • When Can The Fed Abandon Its Zero Bound Interest Rate Policy [View article]
    It is unlikely the FED will raise rates before the bond market forces them to do so.

    There are too many marginal businesses which rely on the zero-bound rates to stay afloat by rolling over current short term debt at little to no cost. When rates do go up (back to 'normal'), those businesses will take larger and larger losses to continue their borrowing, which will eventually put them out of business. You can count the US Government as one example.

    In 2006 the 1 month US Treasury yield ranged between 4.0% and 5.25%. Compare that to today's 1 month yield of 0.17%.

    How many businesses out there are just hanging on at a 0.17% cost of borrowing that would be crushed by a 4.0% cost of borrowing (ie. 20x more expensive to borrow funds necessary to continue operations)?

    The most likely time we will see rates rise significantly is when people with money decide to stop lending at below historic levels of interest. Then market rates will spike just like they did with the PIIGS in January of 2011:

    Until then, anything the FED says is mostly hot air intended to reassure the faithful, sway the undecided, and mislead the prudent.

    The only realistic way the FED can afford to raise rates is when the total US debt starts decreasing significantly, which hasn't happened in the last 50 years:

    Of course that's just my opinion.
    Feb 28, 2015. 10:16 AM | 3 Likes Like |Link to Comment
  • Bogle's Views On Retirement Income [View article]
    "Debt itself is NOT a problem. It is the USE of debt. A distinction lost by many, including most Austrians. Specifically does it ENHANCE the ability to pay it back. If so it's "good", if not it's bad. That simple." - surfgeezer

    I would add to that "within limits". Lots of banks borrowed lots of money denominated in Swiss Francs at interest rates near zero so they could invest in Euro PIIGS bonds at 5+%. The spread they earned was huge, until the Swiss unpegged the Franc and they lost half or more of their equity in the resulting currency revaluation.

    So long as you maintain low levels of leverage AND enhance your ability to pay the debt back, then debt is probably OK. Gotta keep an eye on those leverage levels, because they will bite you hard when you least expect it.
    Feb 25, 2015. 02:55 PM | Likes Like |Link to Comment
  • Dividend Funds With Adaptive Allocation Can Deliver Higher And Safer Returns Than The Dividend Aristocrats [View article]
    The data in your tables doesn't add up.

    If MCD had a CAGR (that's Compound ANNUAL Growth Rate) of 14.31% over an 8.33 year period the total return would have to be:

    1.1431 ^ 8.333 = 304.8%

    Further, based on the total return calculator on, MCD's return from October 1, 2006 to February 1, 2015 is:

    CAGR: 14.42%
    Total Return: 307.5%

    That would beat most of your fund numbers, unless those too are incorrect.

    It would also be beneficial to include the costs of transactions in your fund evaluation. Rebalancing 4 funds each month means you have 4 commissions a month at ~$10 each for a total of $480 per year. That means you are reducing your total return by ~1% annually on a $50,000 portfolio. Over time that adds up. Buying and holding MCD involves only one transaction cost.

    I might also point out that 2006 to 2015 has been one of the biggest bond bull markets on the long end of the yield curve in the past 50 years. Expecting it to continue indefinitely is not wise. TLT will not provide a 'safe' place to park your money (as it did during the period examined) when rates turn back up.

    Your erroneous numbers make your evaluation suspect. You might want to double check them at
    Feb 24, 2015. 08:09 AM | 4 Likes Like |Link to Comment