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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: tag on July 04, 2017, 02:27:31 PM

Title: vanguard - I'm confused over 1.9% dividends and 4% draw....
Post by: tag on July 04, 2017, 02:27:31 PM
If you are regularly drawing 4%, but the dividend is only paying 1.9%....wouldn't you eventually run out of shares?
What am I missing here. I am confused!



Title: Re: vanguard - I'm confused over 1.9% dividends and 4% draw....
Post by: tag on July 04, 2017, 02:48:40 PM
Ahhhh..... splits.

So when talking about an index fund - I have no idea how often splits happen, but given you own a little piece of nearly every publicly traded company out there...splits are inevitable, right? I have never seen any numbers for averages on that. But it has to be a nice little regular boost.
Title: Re: vanguard - I'm confused over 1.9% dividends and 4% draw....
Post by: MDM on July 04, 2017, 05:22:32 PM
It's not splits.

Note that a stock (or fund) price decreases by exactly the amount of the dividend every time a dividend is issued.  Thus, believe it or not, the dividend amount is irrelevant to the "4% rule".

You take dividends in cash, or reinvest them and sell shares whenever you want cash. 

See
http://www.retailinvestor.org/pdf/Bengen1.pdf,
https://incomeclub.co/wp-content/uploads/2015/04/retirement-savings-choosing-a-withdrawal-rate-that-is-sustainable.pdf,
https://www.bogleheads.org/wiki/Trinity_study_update, and
https://www.bogleheads.org/wiki/Safe_withdrawal_rates
for some reading.
Title: Re: vanguard - I'm confused over 1.9% dividends and 4% draw....
Post by: itchyfeet on July 04, 2017, 10:34:13 PM
The other thing to keep in mind is that the 4% rule doesn't claim capital maintenance for infinity, just that you won't burn through your stash in less than 30 years.