The Mystery of Dividend Preference

The up coming discussion mentioned at the end with Big Ern on the topic should be a cracker.

 

Is the SANF caused by the risk of a required sell down when the market is at its lowest. Can't this be mitigated with a cash buffer?

 

You’re undervaluing your contribution @Nodrog. Without these thousands of posts by you and others, that sentence could never have formed in my mind. It’s as though I’ve absorbed the collective wisdom on display here.

I’m thankful for the continual, good-spirited bouncing off of facts, opinions and personal experience that we see here. Any committed reader of these threads should be able to take away enough material to work out their own successful investing approach. It’s fascinating to watch how simple strategies could be discussed from so many angles, and the ever young LIC and ETF threads are just mind boggling. Hats off to all.

 

Agree!

Ok, things like the huge long Peter Thornhill or LICs thread I cannot be bothered reading (can feel like hard work) but I do love the mindset threads on shares and shares vs property and the “can you keep drawing down 4%” (it’s about what happens the first few years after retiring).

I don’t read all posts on share market investing and sometimes threads end up with lots of posts written in a short space of time (so it’s hard to keep up) but it’s great to delve into when I do.

I have to say, most recently I got into NDQ, it’s balancing against my direct Australian shares and the LICs that just continually pay dividends.

I love how there’s many great posters on share market investing, and it’s written very civilly. Even when there’s differences of opinion I feel there’s heaps of respect shown to others for their opposing points of views. Everything is food for thought for all readers

 

Ive been reading and listening religiously to choosefi, JL Collins as well as big ern of late and although us centric fully believe having the flexibility of a large cash buffer will help SANF and help prolong retirement albeit with slighly lower returns.

Sure by holding 2 to 3 years cash you miss out on marktlet gains when everything is going gangbusters but it will also guarantee you wont need to sell shares during market mayhems.
It might seem foolish holding large sums of cash when every tom dick and harry is making money on the market but it will be a wise move if markets slide. So i guess its a balancing act of finding missing out on gains v comfort of security in a downturn. Everyone says on these forums "oh i will buy up big when eveything crashes" but will they really, especially when jobs and livelihoods are on the line and family security etc etc....

I think i read a comment on choose fi a poster who retired in 2006 b4 the GFC with 60/40 equities bond split and had excess savings 2 to 3 years living expenses and during the bottom didnt need to draw down the portfolio but instead cut his spending back abit and sold bonds and bought more stocks at the bargain basement prices and rode out the storm! He also mentioned he loses around .5% returns for every 10% invested in bonds. I guess you cant do that with 100% equities exposure, where you have no choice but to draw down at the wrong time which would severly deplete the portfolio.

 

I

It’s a beautiful thing, respectful and thoughtful debate. Without the respect and thoughtfulness it becomes, well, Reddit or Twitter. Ha!

 

You're 67? Phew, you don't look it. Nice uniform too.

 

The total opposite of the intention of my posts. Damn.

As to the issue of the title of this thread, there is no mystery. I prefer them pure and simple as I am.

And speaking of which thanks STW for the nice kick along today. Certainly will cover the cost of the accommodation and petrol plus more.

 

This why it is a mystery, why some people accept and get excited by such poor performance. STW rose .08 % to-day, it is still only about a 1% gain on a share bought 5 years ago. I have had a normal day 2% up since this morning and 5% up on funds invested over the last 5 years. NEA which I suggested to KY a few days ago to buy pronto is up 7% to-day up 50% on buy price, APX up 4.8% also 50% up on buy price, One I suggested recently MP1 up 4.6% and 20% in a few weeks.

 

STW distribution today.

Do you also recommend when to sell as well? Do you mind sharing how you come to make decision on which to buy and sell? Is there a method that can be replicated?

 

To Be Honest @Fargo

For me, many will recommend a share or two, or talk about past performance on their portfolio, few are willing to put their balls on the line and make their calls prior , those that do, have much respect

 

Part Two is now available.

122R | Learn More About Dividend Investing ChooseFI

 

I have looked at a heap of data and I have adopted minimal (1%) cash allocation and no emergency fund.

One portfolio, No buckets or segregations. I invest surplus as quick as I can and draw what I need when I need it using cashflows to help keep desired allocations.

My thinking aligns pretty much with this:
066 | The Emergency Fund...Is it a Bad Idea? | Big ERN The Reveal ChooseFI

and this:
How crazy is it to invest an emergency fund in stocks?

 

Why are you happy about 5% over 5 years? I invested in VAS on December 11 2018 and I'm up 14% since then.

Just curious @Fargo have you ever made a trade that lost money or was not an out of the world huge winner?

 

Not to worry with the way Fargo is going you will soon see him on BRW rich list and then on Forbes richest person putting Buffett record to dust.

Our own Fargo from Property Chat soon to be rich and famous. Let’s celebrate and have a drink or two this weekend.


Cheers
Oracle

 

Did someone mention drinks.

 

Listened to that episode.

Big Ern seems to agree that dividend investing could be adopted as a strategy by people nearing retirement or retirees. This is mainly because, he is forced to admit, a dividend strategy suffers less draw-down and volatility even in the USA, where dividends don't even enjoy the favourable aussie treatment. Big Ern also mention that he might start dabbling in a dividend growth strategy himself on the side. Am I understanding this correctly?

I understand the merit of a capital gain only strategy, which can be easily practiced in super or in Europe with accumulation only ETFs (similar to DSSP programs where dividends are not paid out but just grow the NAV per share). There, the benefit is greater the longer the capital is left compounding which, to make a meaningful difference, should be invested for 15-20 year or more.

However, I consider myself and most other FIRE people (with 5-10year max to FIRE) as "nearing retirement" as mentioned above so I can't fully appreciate the benefits of going for a CG only strategy.

 

I’m sure some here think the likes of us oldies including I, @SatayKing and @truong are too silly to understand the technical arguments against investing for dividends. I personally read most of this stuff but it’s inconsequential to me.

There’s no mystery about it. The vast majority of investing success comes back to behavioural factors.

Drawing down capital might seem ideal / optimal but the problem is it focuses the investor’s attention fully on one of the worst enemies of investors being CAPITAL VOLATILITY. That in your face sometimes violent change in the capital value of one’s holdings. And that can be a very frightening ride at times and why many struggle to stay the course.

For me as usual success lies not with optimal performance but optimal behaviour.

I could give a heap of examples of the wonders of living off dividends but to keep this brief here’s a comment from @truong recently:

 

I could not agree more @Nodrog.

 

You’ve run the same “some think us too silly” line a couple of weeks in a row now.....nobody thinks that . I am not sure what that is about...The dividends vs selling capital thing doesn’t have to be all one or the other.

One thing that we need to do soon however is an in depth dig in to the US qualified / vs unqualified dividends - my take is that US tax treatment of divs may not be as bad as we assume. To be continued