How Long Will it take to RETIRE on SHARES

What do you define as risky investments and what are you invested in now to pay such a reliable income stream?

 

I should have said riskier rather than risky - every investment has some risk. I see both shares and property as having run a very good course over the last few years, so as I get excess income I direct it in to fixed interest rather than adding more to these riskier classes.

A large part of my current income that I actually spend comes from a defined benefit pension, which is an awesome position to be in, but it actually only represents about a third of the potential income producing capacity of the rest of my investment portfolio, if I were to invest more heavily in shares and property in particular.

As I don't really need this extra income at this time, I can afford to have greater fixed interest holdings and therefore split my portfolio roughly equally between shares, property and fixed interest. I reduce tax on fixed income investments through putting them in my low income earning wife's name or in my name in super. The net effect is that my fixed interest investment return enough after tax to beat inflation, and that's good enough for me in the current investment environment.

 

Hi @HomePage, can you kindly expand on what you mean by fixed interest? For some it's bonds (Gov't and corporate) and for others they consider Term Deposits as same.

Cheers

 

High interest online saver accounts spread across banks to keep under the $250K government guarantee per ADI.

 

Lucky you!

 

$2 Mil in income. Am I reading this correctly?

 

Lol nope. What I meant was topping up the portfolio during a depression type event and coming out the other end with over $2m in equities in tact. I'd have huge income buffers with plenty of upside potential in the years to come. In that scenario I'd classify it as too big to fail. Just me thinking out loud though. Haven't ran the numbers yet.

 

It's not that I have a huge pension, rather that my spending is low (by PC standards) and yet still satisfies all my needs and wants.

 

Yeah im in defined benefit and would love a 45k or so pension at age of 45...8 more years then prey for a VR

 

There's that retire word again!!!

 

Shouldn't you be at work?

 

Shame. I was about to contact Peter T to arrange to have you inducted into the Dividend Investors Hall of Fame.

A big fat dividend focused LIC portfolio and a sh*tload of cash I still think will comfortably see us through a Great Depression type scenario. Other than a modest holding in an International Index ETF as a core and a couple of dividend focused International LICs as Satellites I'm keeping it simple.

When reading all these depressing scenarios one needs to read the fine print. William Bernstein is a brilliant mind but one needs to read widely across his work to gett the full story. Each person's situation is unique. He states that when one's portfolio is around 20 - 30 years of retirement expenses depending on age then this should be taken out of the sharemarket and put into risk free investments. But he also says that if your share portfolio is large enough so that 50% of the dividends prior to a crash meets your retirement needs then leave things as they are. That is provided you can stomach a large fall in the value of your portfolio for a number of years.

 

Not if retiring early it makes sense to me. You can of course make homegrown dividends with growth funds but it's counter-intuitive

On Markets falls, this was an interesting look back at 2009 as per the LA Times, as events actually unfolded

Panicked by the stock market

Even the author capitulated; pretty much a day after the article the market hit its lowest point

 

Haha great article redwing. My favourite part... "This is the time for hysteria".

On income - I think most ppl are suited to collecting dividends as opposed to selling shares. No need to check prices then. Much simpler and more likely to avoid said hysteria!

I prefer dividends since income is then more reliant on profits whereas capital growth is at the whims of sentiment to a certain extent. What's that saying... The market can stay irrational longer than you can stay solvent

 

Although perhaps debatable there is a school of thought that says there is no difference between collecting dividends vs selling shares for income. I still remain in the Dividend camp mostly based on behavioural factors and simplicity for my wife if I'm not around. That is she can just spend what dividends hit the bank account and with her having little interest in investing she's not having to decide what assets to sell!

Also in a Great Depression type market crash dividend stocks on average are highly likely to pay at least around half of their normal dividends. Given that the value of shares can fall up to 90% in such a scenario having to sell shares for income if holding Non-dividend paying stocks could make for an extremely stressful and miserable time.

I personally feel that an investor who has always focused on the "income" from shares has a lot better chance of not selling due to panic in bad times compared to an investor who is fixated on the "value" of shares. For example in the Great Depression the dividend focused investor saw around a 50% drop in income whereas a capital focused investor saw around a 90% drop in value. Don't underestimate the impact of psychologicaly in these matters.

But in the end it really comes down to what each investor feels most comfortable with. From what I've seen it's a waste of time and energy arguing over it as individuals from either camp rarely seem to change their mind. I remain stubbornly in the Dividend camp even though I have read extensively about arguments from both sides over the years.

Old, stupid, stubborn (occasionally grumpy) and proud of it.

 

Lol
Fair enough, I know not to argue with grumpy men, I will come off second best

 

What an article! Just destroying his retirement savings

 

Good post

I think a lot of this comes back to the characteristics of your home market, tax considerations and portfolio size. Portfolio construction will then follow. I'm more in the "pool of capital" school these days and think "dividend investing", as opposed to "investing"is a bit of a beat up generally BUT absolutely do not disregard the valuable behavioral aspects of a dividend focus that you raise.

In reality, these days Oz is a high payout market, so to avoid disappointment following the dividend path/mantra makes sense unless you are going to get your hands dirty in the small caps.

At the end of the day, total shareholder return after tax considerations is what matters.

 

Good post. It will be interesting to see how many buy-hold dividend investors remain so in the next bear market. As the saying goes, everyone is a long term investor in a bull market. I think a good number will turn to focusing on their diminishing portfolio value rather than cash flow! The weak hands that is, not proven stalwarts like @austing

 

Re Dividends here's an excellent article. Lots of other great stuff discussed also:

Episode #28: Larry Swedroe “There is Literally No Logical Reason for Anyone to Have a Preference for Dividends” | Meb Faber Research - Stock Market and Investing Blog