What Do You Need To Do Before The Next Market Meltdown? [View article]
"If all your holdings drop 20% in price then the size of your portfolio will have dropped 20%, even if every holdings was bought at prices 50% lower. At the end of the day, it is the size of your portfolio that determines its ability to sustain withdrawals in retirement." - disallusioned
This claim is only true if the source of your withdrawals is from selling shares. If your income is the result of dividend payments, then the share price doesn't come into play.
For example: If I bought 30,000 shares of MO at $26 per share over the years, it would generate 30,000 x $1.76 = $52,800 annually at the current price of ~$35.
If MO drops back down to $20 per share (a net loss of 23% on my original cost), my annual dividend income is STILL 30,000 x $1.76 = $52,800.
So long as MO doesn't not reduce the dividend per share I can withdrawal $52,800 per year from my account, regardless of the share price. If MO continues to raise the dividend as it has for a great many years, then I can withdrawal even MORE money each year from now until either MO reduces the dividend, or until I pass away (at which point someone else will get those dividends).
When your portfolio income is comprised solely of dividend income, the price of your shares does not impact the ability to generate income. Period.
Why do some people have such a difficult time understanding that simple concept? Seeing it repeatedly makes me wonder if there are some who are purposefully obtuse in order to throw stones.
5 Myths About Dividend Growth Investing [View article]
"The question is simple, was your strategy either unique or optimal. You have to compare it with other alternatives to determine if it was. ... That is what factor analysis shows you. ... if you earn say 8% a year and another strategy with same or less risk earns 10%, while you think you did well, you were not well rewarded for the risks you took and you should have had higher returns, and would have with a more optimal strategy" - Larry Swedroe
What if the ACTUAL DGI strategy generates nearly 3x the return for almost 40% less risk, as my example above demonstrates?
The plain and simple fact that the Top 10 stocks in the VIG ETF far outperform the ETF as a whole (more return with less risk) goes a long way toward showing that the claims Larry is making in his articles don't jive with reality. At some point adding another 123 stocks reduces the return without any lowering of risk (or worse, with an increase in risk).
5 Myths About Dividend Growth Investing [View article]
"On the calculator, how did you aggregate the 10 stocks into a single portfolio?" - DVK
The website's tool allows you to put in up to 12 stocks for a portfolio and then generates the returns based on equally weighted positions with reinvested dividends. That's as much detail as I've been able to glean from the website.
Even if the implementation isn't exactly what a DGI'er would do, it is at least a consistent treatment for any group of stocks entered, so the methodology can be compared between two different set of holdings (or ETFs, or indices).
5 Myths About Dividend Growth Investing [View article]
For the record, the VIG ETF holds over 133 stocks, which produced a 47.7% Total Return (6.18% CAGR) in ~6.5 years with 14.3% volatility.
The Top 10 of those holdings returned 106.2% Total Return (11.78% CAGR) with 11.7% volatility in the same interval.
What benefit do the ETF's additional 123 stocks provide exactly? The numbers seem to indicate that the added diversification of those 123 stocks lowered my CAGR from 11.78% to 6.18% and increased my volatility from 11.7% to 14.3%. I would have to guess that the expenses are much higher for holding those 123 stocks too.
Can Larry actually believe that VIG represents a true DGI approach now that he knows this information? If so, I pity his clients.
5 Myths About Dividend Growth Investing [View article]
Interestingly enough, examining the performance of the top 10 holdings of VIG shows that those specific stocks outperformed the VIG ETF if held individually:
5 Myths About Dividend Growth Investing [View article]
The fallacy applied by Larry in his first linked article is that he claims "High Dividend" and "Fast Growing Dividend" strategies are sub-optimal, then he substitutes ETFs to represent those categories and proceeds to show how those substitute ETFs are not much better than the S&P 500 as a whole.
First, we already know that dividend based ETFs do a poor job of replicating a well thought out DGI strategy. DVK wrote an article or two on that topic.
Second, one can easily demonstrate that Larry's article draws bogus conclusions here:
An actual DGI portfolio of individually selected quality DGI stocks generated nearly 3x the Total Return with almost 40% less volatility.
Pick your own 10 stock DGI portfolio and give it a go. See if you can beat Larry's strawman ETF performance over the same interval.
Given the demonstrable outperformance of DGI stocks over the ETFs and the market index in general, I'd say Larry's claims are mostly hot air and should be given minimal consideration with that fact in mind.
Q.E.D.
(DGI is shown to outperform, contrary to Larry's misleading claims)
To Sell Or Not To Sell - That Is The Question [View article]
I love the literary reference Eddie. Well done. I can't help but add the finishing touches... :-) Maybe there's another article in there somewhere:
'Tis a consummation Devoutly to be wished. To hold, to DRIP, To DRIP, perchance to Grow; Aye, there's the rub, For in that growth of income, what insults may come, When we have shuffled off this mortal coil, Must give us pause. There's the respect That makes Calamity of not selling 4% in retirement: For who would bear the Whips and Scorns of MPT'ers, ... That patient merit of the unworthy DGI'er takes, When he himself might his nestegg accomodate
The Market Is Advancing: Is It Time To Sell? [View article]
"I too bought NSC last fall and have seen a big gain. But as my objective is income stream, I hang tight" - OntheRock
For a faster growth, more cyclical DGI stock I occasionally sell off part of a big rally and use the proceeds to buy shares of a higher yielding, lower growth DGI stock. Usually a more defensive one. This increases current income a little yet leaves me with a partial position on a fast grower to help boost the income stream in the future. I did this when my NUE ran up 50% in a few months. Used those proceeds to pick up some AFL and diversify.
Mix-n-match, a little bit of everything, kitchen sink, rebalancing, whatever. As long as everything works together and strengthens the income stream in some fashion it's all good. Failure to take advantage of non-core cyclical stock price gains can sometimes be a missed opportunity though.
"More importantly to me is their tracking my cost basis. I haven't seen any errors yet" - chowder
I use TD Ameritrade myself and my account basis for the spin-off of ABBV from ABT is showing the full initial value for both spin-off stocks, which is obviously incorrect. I haven't contacted them about it yet. I'm kind of curious to see if they correct it eventually, and when. No biggie as I will probably sell both at once if/when the time comes.
J. M. Smucker Doubled Over Last 5 Years [View article]
Thanks for the review of SJM Norman. Your table shows that even in tumultuous times a quality company will perform well, even if you have to "pay up" to get an initial position.
Is The 4% Rule Becoming The 3% Rule? [View article]
First: The inclusion of an 8.3% cash balance in the 7Twelve model must really weigh down investment returns over long time frames. An additional 8.3% in TIPS doesn't help very much either. Between them you would have 1/6 of your entire portfolio returning an average of ~1.2% annually. Wow! That could only be good in a tanking market.
At first glance I can't say I'd be much of a fan of that methodology. It appears to be a "watered-down" MPT approach, which, while possible, isn't very desireable.
Second: The "fee of 1.0% as a proxy for the asset management fees" goes a long way toward explaining why the initial safe withdrawal is closer to 3% than 4%. If the 'fee' is allowed to go into the retiree's pocket instead of the asset manager's pocket then the assets will probably last longer more often.
Transitioning To A Dividend Growth Portfolio [View article]
Congratulations on the publishing of your first article Inzkeeper. I am always glad to see another person work through the many potential choices for their investments and end up gravitating to DGI. You join several before you (myself included) and I will be certain to keep an eye open for any future articles you share.
Some stocks to consider are INTC, TGH, KMI, and LNCO. All solid and well run companies to begin digging into.
What Do You Need To Do Before The Next Market Meltdown? [View article]
What I imagine Chowder is thinking after reading this ...
"But how can I see the screen after I tape my sheets of paper on the computer?"
FWIW, I think Chowder would find spreadsheets incredibly useful. They're a wonderful tool for 'what-if-ing'.
Here's a basic spreadsheet tutorial Chowder can peruse whilst partaking in his next cold one:
http://sunburst.usd.edu~bwjames/tut/excel/3.html
What Do You Need To Do Before The Next Market Meltdown? [View article]
This claim is only true if the source of your withdrawals is from selling shares. If your income is the result of dividend payments, then the share price doesn't come into play.
For example: If I bought 30,000 shares of MO at $26 per share over the years, it would generate 30,000 x $1.76 = $52,800 annually at the current price of ~$35.
If MO drops back down to $20 per share (a net loss of 23% on my original cost), my annual dividend income is STILL 30,000 x $1.76 = $52,800.
So long as MO doesn't not reduce the dividend per share I can withdrawal $52,800 per year from my account, regardless of the share price. If MO continues to raise the dividend as it has for a great many years, then I can withdrawal even MORE money each year from now until either MO reduces the dividend, or until I pass away (at which point someone else will get those dividends).
When your portfolio income is comprised solely of dividend income, the price of your shares does not impact the ability to generate income. Period.
Why do some people have such a difficult time understanding that simple concept? Seeing it repeatedly makes me wonder if there are some who are purposefully obtuse in order to throw stones.
5 Myths About Dividend Growth Investing [View article]
What if the ACTUAL DGI strategy generates nearly 3x the return for almost 40% less risk, as my example above demonstrates?
The plain and simple fact that the Top 10 stocks in the VIG ETF far outperform the ETF as a whole (more return with less risk) goes a long way toward showing that the claims Larry is making in his articles don't jive with reality. At some point adding another 123 stocks reduces the return without any lowering of risk (or worse, with an increase in risk).
5 Myths About Dividend Growth Investing [View article]
The website's tool allows you to put in up to 12 stocks for a portfolio and then generates the returns based on equally weighted positions with reinvested dividends. That's as much detail as I've been able to glean from the website.
Even if the implementation isn't exactly what a DGI'er would do, it is at least a consistent treatment for any group of stocks entered, so the methodology can be compared between two different set of holdings (or ETFs, or indices).
5 Myths About Dividend Growth Investing [View article]
The Top 10 of those holdings returned 106.2% Total Return (11.78% CAGR) with 11.7% volatility in the same interval.
What benefit do the ETF's additional 123 stocks provide exactly? The numbers seem to indicate that the added diversification of those 123 stocks lowered my CAGR from 11.78% to 6.18% and increased my volatility from 11.7% to 14.3%. I would have to guess that the expenses are much higher for holding those 123 stocks too.
Can Larry actually believe that VIG represents a true DGI approach now that he knows this information? If so, I pity his clients.
5 Myths About Dividend Growth Investing [View article]
VIG Top 10 Holdings
(WMT, KO, PG, PEP, CVX, IBM, XOM, UTX, MCD, MMM):
106.2% Total Return with 11.7% volatility
So even buying the 10 largest holdings in the VIG ETF winds up being superior to holding the ETF itself, by a large margin.
Wow!! What does that say about the 'dangers' of stockpicking, or using ETFs as a substitute for DGI performance?
5 Myths About Dividend Growth Investing [View article]
First, we already know that dividend based ETFs do a poor job of replicating a well thought out DGI strategy. DVK wrote an article or two on that topic.
Second, one can easily demonstrate that Larry's article draws bogus conclusions here:
http://bit.ly/vMqV4T
Performance over the May 2006 to present period shows
S&P 500: 32.8% Total Return with 16.8% volatility
SDY: 41.6% Total Return with 17.1% volatility
VIG: 47.7% Total Return with 14.3% volatility
Basket of 10 quality DGI stocks
(MO, JNJ, KO, CL, CLX, PG, MCD, HRL, CVX, D):
126.1% Total Return with 10.9% volatility
An actual DGI portfolio of individually selected quality DGI stocks generated nearly 3x the Total Return with almost 40% less volatility.
Pick your own 10 stock DGI portfolio and give it a go. See if you can beat Larry's strawman ETF performance over the same interval.
Given the demonstrable outperformance of DGI stocks over the ETFs and the market index in general, I'd say Larry's claims are mostly hot air and should be given minimal consideration with that fact in mind.
Q.E.D.
(DGI is shown to outperform, contrary to Larry's misleading claims)
To Sell Or Not To Sell - That Is The Question [View article]
'Tis a consummation
Devoutly to be wished. To hold, to DRIP,
To DRIP, perchance to Grow; Aye, there's the rub,
For in that growth of income, what insults may come,
When we have shuffled off this mortal coil,
Must give us pause. There's the respect
That makes Calamity of not selling 4% in retirement:
For who would bear the Whips and Scorns of MPT'ers, ...
That patient merit of the unworthy DGI'er takes,
When he himself might his nestegg accomodate
The Market Is Advancing: Is It Time To Sell? [View article]
For a faster growth, more cyclical DGI stock I occasionally sell off part of a big rally and use the proceeds to buy shares of a higher yielding, lower growth DGI stock. Usually a more defensive one. This increases current income a little yet leaves me with a partial position on a fast grower to help boost the income stream in the future. I did this when my NUE ran up 50% in a few months. Used those proceeds to pick up some AFL and diversify.
Mix-n-match, a little bit of everything, kitchen sink, rebalancing, whatever. As long as everything works together and strengthens the income stream in some fashion it's all good. Failure to take advantage of non-core cyclical stock price gains can sometimes be a missed opportunity though.
Dividend Reinvestment - Yes Or No? [View instapost]
I use TD Ameritrade myself and my account basis for the spin-off of ABBV from ABT is showing the full initial value for both spin-off stocks, which is obviously incorrect. I haven't contacted them about it yet. I'm kind of curious to see if they correct it eventually, and when. No biggie as I will probably sell both at once if/when the time comes.
Dividend Champions Smackdown XXXVI [View article]
Thanks for confirming my prior choices and providing a short list of new ideas.
I LOVE Smackdowns!
J. M. Smucker Doubled Over Last 5 Years [View article]
It's a good lesson to learn.
Is The 4% Rule Becoming The 3% Rule? [View article]
At first glance I can't say I'd be much of a fan of that methodology. It appears to be a "watered-down" MPT approach, which, while possible, isn't very desireable.
Second: The "fee of 1.0% as a proxy for the asset management fees" goes a long way toward explaining why the initial safe withdrawal is closer to 3% than 4%. If the 'fee' is allowed to go into the retiree's pocket instead of the asset manager's pocket then the assets will probably last longer more often.
Transitioning To A Dividend Growth Portfolio [View article]
Some stocks to consider are INTC, TGH, KMI, and LNCO. All solid and well run companies to begin digging into.
It's Gut Check Time For Gold And Silver [View article]