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  • Equity Investing Or Index Investing [View article]
    You make a valid point about the extra income. For a better comparison, one must assume the investor takes $1,600 per year out of the index fund to make up the difference in dividend income. With this drain, the index fund would grow to $286K rather than $364K.

    So the two portfolios would generate roughly the same income and capital appreciation over 20 years.
    Dec 2, 2014. 07:18 PM | Likes Like |Link to Comment
  • Equity Investing Or Index Investing [View article]
    "The equity portfolio, while underperforming the S&P 500 in total return generated 55.4% more in income. That's a considerable amount of money that the S&P 500 can't make up for in total return and by selling some shares to make up the difference."

    Using numbers from the article ...

    $70,000 invested in the S&P at 8.6% compounded annually over 20 years would have grown to $364,497. The seven stock DGI portfolio would have grown to $274,201.

    Why would anyone prefer $32K in extra dividend income to $90K in extra unrealized (and untaxed) capital gains?

    Supporting calculations follow ...

    $10,000 in GIS would grow to $47,480 at 8.1% over 20 years
    KO 41,695
    DEO 40,169
    BP 47,480
    SO 37,275
    VZ 31,473
    T 28,629
    Dec 2, 2014. 04:48 PM | 1 Like Like |Link to Comment
  • Why I Just Sold Berkshire Hathaway [View article]
    What if the share price is increasing and you need to sell fewer and fewer shares to produce the same income? The effects of market fluctuations cancel out in the long run.
    Nov 13, 2014. 11:53 AM | 2 Likes Like |Link to Comment
  • Why Did ETFs Become So Popular? Fewer Folks Are Buying The Hold-N-Hope Hype [View article]
    Good points, Bryan.
    Nov 4, 2014. 12:16 PM | Likes Like |Link to Comment
  • Why Did ETFs Become So Popular? Fewer Folks Are Buying The Hold-N-Hope Hype [View article]
    This must be the worst possible 65 year period in history. At least the buy-and-hold investor broke even after inflation and enjoyed some dividend income. What is the alternative? If anyone knows how to move in and out in anticipation of market moves, please reveal your secrets.
    Oct 19, 2014. 12:57 PM | Likes Like |Link to Comment
  • The 4% Rule Examined [View article]
    (1) Index funds are not without dividend yield. The S&P 500 yields about 2%.

    (2) The 4% rule applies to annual withdrawals from retirement savings including accumulated dividends. If the portfolio dividend yield is more than 4%, the rule based investor does not have to touch any "principal."

    (3) The "have your cake and eat it too" idea is central to the DGI approach. But dividend payments come out of shareholder's equity and often limit future price appreciation.  One might say "have half your cake and eat the other half."
    Sep 13, 2014. 12:41 PM | 2 Likes Like |Link to Comment
  • Performance Nonsense: Why Past Performance Is A Poor Indicator And How To Do Better [View article]
    Warren Buffett has instruct his executors to invest most of his wife's inheritance in domestic index funds. I am inclined to follow suit when one of the greatest active managers of all time endorses the passive approach to asset management.
    Sep 7, 2014. 11:09 AM | Likes Like |Link to Comment
  • Dividend-Paying Stocks Are Not 'Bond Equivalents' [View article]
    A dividend payment is a form of profit sharing that produces no net change in shareholder's wealth. Corporate profits create wealth and allow the company to pay dividends but the dividend payment itself does not create wealth and is therefore not "income" in the same sense that bond interest or real estate rents are forms of income.

    Again I raise the question, did MSFT shareholders enjoy a financial windfall when the company paid a $3 special dividend in 2004? I think not. Shareholders simply received a share of the company's retained earnings that, as shareholders, they already owned. The stock price dropped $3 after the dividend was paid for no net change in shareholder's wealth.
    Sep 7, 2014. 10:10 AM | Likes Like |Link to Comment
  • Dividend-Paying Stocks Are Not 'Bond Equivalents' [View article]
    Reducing the stock price is hardly a mere bookkeeping measure. It reflects the real financial impact of a dividend transfer. Again see MSFT in 2004 if you believe dividends don't affect a stock's price. A share of stock is a claim on future earnings and on current assets. When assets are depleted, the stock price declines.

    A Google search on "why dividends don't matter" will find Steve Hassett's views in an SA article from 2011.
    Sep 5, 2014. 12:29 PM | Likes Like |Link to Comment
  • Dividend-Paying Stocks Are Not 'Bond Equivalents' [View article]
    Bond payments and dividend payments come from the same source, the corporate balance sheet. A shareholder is paying himself. A bondholder is not.
    A stock's market price is reduced by the amount of the dividend when the stock goes x-dividend. For example, see Microsoft's price history when it paid a special $3 dividend in 2004. The special dividend did not come out of thin air. It came out of shareholder's equity.
    Dividends produce "income" in the same sense that selling a small number of shares produces income. They both reduce the market value of the stock position in exchange for cash.
    Sep 5, 2014. 10:25 AM | Likes Like |Link to Comment
  • Dividend-Paying Stocks Are Not 'Bond Equivalents' [View article]
    Interest payments from bonds add to the bondholder's wealth, at least in nominal terms. Dividend payments, on the other hand, are merely a cash transfer from the corporate balance sheet to the shareholder. The shareholder loses in equity what he gains in income. Dividends do not add to shareholder's wealth, contrary to what some believe. Only corporate earnings add to shareholder's wealth.
    Sep 4, 2014. 05:06 PM | Likes Like |Link to Comment
  • Mutual Funds? They're So '90s; Let Us Sell You An ETF Instead [View article]
    So all I have to do is find another Warren Buffett or Peter Lynch to run my portfolio?
    Aug 26, 2014. 02:17 PM | Likes Like |Link to Comment
  • Retirement Strategy: The Absurdity Of Believing That Dividends Don't Matter In Retirement [View article]
    Warren Buffett, by never paying dividends and masterfully investing retained earnings, has made a lot of investors very rich over the last 40 years. This is a unique situation but it shows that paying dividends is not always the optimal strategy. WEB's writings on dividends in his annual reports is a must read.
    Aug 12, 2014. 12:15 PM | Likes Like |Link to Comment
  • Silly Rabbit, Dividends Do Matter In Retirement [View article]
    Paying taxes on dividends during the accumulation phase is a huge drag on compound returns. By deferring income taxes Berkshire Hathaway has created numerous great fortunes over the last 30 years. Admittedly few corporations invest their retained earnings as well as Buffett does.
    Jul 21, 2014. 05:25 PM | 4 Likes Like |Link to Comment
  • Paulson, Bloomberg, Steyer: Global warming is risky business [View news story]
    While virtually everyone agrees that human activity is affecting climate, no one knows what the long term consequences (good and bad, by the way) are going to be. And of course, no one has any idea how to meaningfully reduce carbon emissions. Some solar cells here, a carbon tax or two there will make absolutely no difference. Don't fight the inevitable, learn to live with it.
    Jun 24, 2014. 12:09 PM | 4 Likes Like |Link to Comment