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  • 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
  • Year-End Review Of Dividend Growth Investing Vs Total Return Investing [View instapost]
    "These projections are just based on the fact that the existing YOC metric can only grow about 10% per year from here." - FinancialDave

    What exactly do you base that 'Fact' on? The portfolio's current yield is 3.8%. That means he will be adding 3.8% more in shares, which should boost his dividends by roughly $112 / year (3.8% of $2,970, assuming reinvestment at current weighting).

    So in order for your 'Fact' to be true, the current stocks' dividend increases must remain below 6.2% on average.

    Yet the counter-fact is that the weighted DG rate for DVK's stocks in 2014 was ~7.25%.

    Given the above assumptions DVK's dollars received should grow at ~7.25% + ~3.8% = ~11.05%

    As shown below, DVK needs to achieve 12.03% income growth to meet his goal. He can easily add the extra 1% by reinvesting in the higher yielding stocks rather than by their current weighting.

    === Figuring Work ===

    DVK's 2014 dividend income was: $2,970.
    DVK's 2018 dividend goal is: $4,678.

    DVK has 4 years of dividend growth to make that happen.

    The CAGR of his dividend stream required to reach his goal is:

    ($4678 / $2970) ^ 0.25 = 1.1203

    That's a 12.03% annual growth in dollars received as a result of both individual companies raising their dividends AND the added dividends which result from additional shares purchased with dividends received.

    From 2009 to 2014 DVK's CAGR for dollars received has been:

    ($2970 / $1568) ^ (1/5) = 1.1363 or 13.63% annually.

    If DVK can continue to compound at his historical CAGR of 13.63% his 2018 calendar year (CY) income should be in the neighbourhood of:

    $2970 * 1.1363 ^ 4 = $4,950.90

    which exceeds his goal of a 10% YOC in 10 years by 5+%

    Here is a CY by CY list of income levels (in $) that DVK's portfolio needs to achieve to meet his goal (compounding dollar growth at 12.03% annually from 2014's total):

    2015 ___ $3,327.29
    2016 ___ $3,727.57
    2017 ___ $4,175.98
    2018 ___ $4,678.35

    === End Figuring Work ===

    DVK's current 2015 projection is for $3,097, but that doesn't include any dividend increases for each company, nor does it include the income from any additional share from reinvested dividends through this year.

    I'd suggest waiting to see what happens rather than claim DVK should throw in the towel. In January he added 30 shares of AT&T to the portfolio, which will boost the annual income level by $56 per year, before any dividend increases it might have.

    There's still a long way to go and his portfolio's track record has exceeded the required annual performance necessary to reach his goal for over 6 years now.

    Reaching his goal isn't guaranteed, but it's probably the proper way to bet.
    Feb 22, 2015. 02:58 PM | Likes Like |Link to Comment
  • Ready To Retire? Do It With A Dividend Growth Portfolio [View article]
    "DVK is right, it can work in smaller accounts for individuals, my evaluations are handicapped by my own fees and need more scale to be a value to clients." - Doug Meeks

    How refreshing!! A money manager that takes his clients' interest into account BEFORE taking their money.

    I'll go out on a limb and guess that Doug has a very loyal set of clients.
    Feb 22, 2015. 01:23 PM | 6 Likes Like |Link to Comment
  • Ready To Retire? Do It With A Dividend Growth Portfolio [View article]
    "The question was about using dividend ETFs for DGI. What I think troll was saying is, most ETFs hit you on yield (they scrape their fees off their distributions), and many of them also have spotty records on dividend growth. But they are in the same ballpark as DG investing (sort of), so for someone not interested in buying individual stocks, they can stand in." - DVK

    As someone mentioned in an earlier comment, anyone can build their own "ETF" by using the Motif approach:

    You can add up to 30 different individual stocks and buy them as a block (sort of like an ETF) for a single commission of $9.95. You can choose to rebalance annually or not (rebalancing is a single fee of $9.95).

    I haven't used Motif myself, but I set up one of my own 'funds' there based on stocks I selected using a DGI approach. That Motif was built by selecting Dividend Challengers (from David Fish CCC) with a yield of 3+%, DG of 7+%, and Beta 1-.

    The equally weighted stocks I included were:


    Starting date was 8/18/2013

    That Motif was up 17% in the past year and it yields 4.3%. SPY is up about 14.5% and yields 1.8% for a comparison.

    Since creation the Motif is up ~32% vs. SP500's ~23%.

    I don't use Motif as I already have a large enough portfolio to buy 20+ positions in sufficient size to make the commissions small as a percentage. But for someone who is just starting out with small dollar amounts to invest using Motif might be a good way to spread small investments out over a basket of DGI holdings until it grows big enough to buy the individual stocks (say ~$50,000 ballpark).

    I think Motif might provide a good middle ground. You get a diversified DGI portfolio with only small commissions and no fees. The downside is it makes changing individual securities out a bit more challenging. Still if one sticks to high quality, core DG stocks, there shouldn't be much need to change them. For someone saving $500 per month a good DG Motif should reach a value where you can switch to individual stocks in 5 to 7 years.
    Feb 22, 2015. 01:08 PM | 1 Like Like |Link to Comment
  • The Bond Market Has Reached Tulip Bubble Proportions [View article]
    "45 bps for 2 years is ok if the market expects only one rate hike sometimes later and no more hike thereafter." - JoeNextDoor

    A 0.45% yield, when official inflation is running at 1.6% (actual inflation likely much higher), means your money is losing purchasing power for those two years.

    Might as well buy a beaten down tangible asset like oil, gold, or silver where you have a chance of maintaining or increasing your purchasing power going forward rather than lock in a guaranteed loss, IMHO.
    Feb 2, 2015. 08:31 AM | Likes Like |Link to Comment