Wealth creation is pretty simple really.

Just depends who is replying really....
For us RE is financial wealth creation exercise whereas stocks are financial income creation exercise.
I like property and finances but I love people more! Strong word for me to love property?

So just quickly it is quite simple (not easy) and can be applied to any asset class or business or hobby:
- Spend less than you earn
- Invest some money you saved
- Repeat investing over time
It helps if investments create various sources of incomes too!

In terms of RE (not easy):
- be clear and specific what you wish to achieve and how (in $ terms and investing strategy)
- grow your asset base as large as you feel comfortable with leverage
- repeat when finances and market forces permit eliminating all that noise, or those 'x' factors
- have buffers in place, pull out equity or titles when you can
- have an exit plan

 

I call this irrational human behaviour, how do you capture that in investment equation?

 

You can't. That's why a good, robust and practical wealth creation plan needs to be created on an individual investor basis, taking into account the individual's financial capacity, skillset, psychological risk tolerances and goals.

 

No sadly.... damn...

 

Agree, this would apply to any investment IMHO.
Most try yet human behaviour is just irrational and emotional, hence the high volatility in stocks. I actually like that in RE in particular in residential RE, where most OO would not sell (as where would they go to have roof over their heads, where would they go to sleep?), hence we have lower volatility. Most say that's a negative whereas to me that's a positive, would I want most properties on the market at same time (ouch - NO!).

 

It's just a psychological risk tolerance difference you're mentioning.

I have friends who are perfectly comfortable with the stockmarket volatility while greatly leveraged in some instances. I prefer keeping a large part of my assets in RE with some low to moderate leverage in stocks. We all gotta find what gels with our personalities.

But just looking at cold calculations of A performing similar to B, and assuming you can take either path and do well, isn't reality imho.

 

Can't speak for Whittaker's one, but I've never found one of those calculators claiming stocks and property deliver similar returns that accounts for holding costs, renovation costs, depreciation, etc of property.

Looking simply at buy and sell prices over time doesn't give an accurate picture of the return property gives as an investment class. Doing so is, in my opinion, the only reason property (generally speaking across the board) as an investment class appears to give a return comparable with equities.

 

Whittaker was talking index funds in conjuntcion with RE in the early 90s i remember.

 

Dividends don't matter? Say it ain't so . I live off the dividends paid by LICs and shares; they allow me to put food on the table. Dividends come from companies' cash flow, and paid to investors instead of holding onto it (or squandering it on risky ventures).

Shares represent businesses; as a long-term investor, when I buy shares, I become a silent partner in a business, and I appreciate the kick-backs it pays me in the form of dividends. If I choose to do so, I could reinvest the cash in the same business or in any other venture; otherwise I am free to squander it in any way I like. For me, share prices don't matter. That's how I see it.

 

I agree @mistercoffee, this argument has me totally confused. On one hand, the argument goes that being paid dividends is bad for you yet on the other hand receiving ‘natural dividends’ -whatever that may be -is good?
The only investments that seem to be acceptable are broad market index etfs (which i dont mind), but their cash flow can be all over the place. I agree on the concept of “living on less than you earn,” but the irregularity of those dividends could make life challenging when comparing to LIC dividends. Guess i just have to keep working a bit longer.

 

As the saying goes, every dollar not spent is a dollar saved?

 

After years of trying to accumulate as many shares as i can, to live off the future dividends and buying more shares with any dividends or by using DRP, i find that is suggested as the wrong approach! Instead, i should have been selling down my holding (at a time that suits me strategically), so that i have less shares to live off the following year but hopefully the company has increased in value. I can understand the concept of the company retaining those earnings to put them to better use but what about the concept of compounding your returns? Also, whilst the company might increase its value, the price being paid for those sharesis set by the market and share price changes can often not reflect the true value of the company. Its all too theoretical with the made up examples designed only to reflect the argument being put forward.

 

I don't think it's wrong, it is just being communicated that you can look at it in different perspective, say like a distribution instead. Remember no wrong or right way as long as it works for you and has benefited you.

 

For what it’s worth @Ynot my thoughts are the same as @mistercoffee. We too live off the dividends paid by our shares and Lic’s accumulated over the long term. I do not sell these and do still add when there are surplus funds. In recent years we have added ETF’s (because we can) but they will not replace our shares and Lic’s - to us that would be killing the goose that lays the golden egg!

 

Dividends are not a golden egg though. They are simply a forced return of capital. They should not be treated in any other way. The price of an LIC drops when it goes ex-dividend, in the same way if you had sold some of your shares.

There are franking credits, but they are mostly priced in and the benefit is marginal unless you have most of your portfolio in Australian shares... (but the benefit does not outweigh the high concentration risk in that case).

If a company decides that the best use of its capital is for it to be paid out in the form of dividends (due to, for example, lack of opportunities), then so be it. But as an investor you should have no preference for dividends.

If that return of capital happens to match your desired withdrawal rate, OK. If it's more than that, you reinvest the difference. If it's less, you sell some shares.

The number of shares is irrelevant.

There's already a discussion on this here: The Mystery of Dividend Preference

Buffet wisdom on dividends starts on page 19 of his 2012 letter to shareholders: Shareholder Letters

 

9 pages of fierce debate/arguing/ moderator intervention in this thread.

I guess wealth creation isn't so simple.

 

"Investing is simple, but not easy." - Warren Buffet

(the internet told me he said that, I don't know if he actually did)

 

Knock yourself out @mtat i am heading out to lunch to eat some of my dividends now, have a nice day

 

I understand and agree with the concept however, having dividends gives me a sense of ‘some certainty’ and keep me in the game (not selling), so I know I have such bias and buying VAS helps with eliminate some of that bias.

 

Curious Anne would you buy VAS at current price????