Returns on $1MM in ETFs...

[Le Poisson]

If folks with about $1MM in ETFs, I'm curious what your "living wage" is off them. How much are you seeing in dividends, and is it enough to support yourself? This question comes as I look at the level of effort to keep rentals going and wonder if the cash could work harder for me in the market.

With RE's track record of insane growth, I don't see it happening, but I'm willing to accept real-world data proving me wrong. So uh, monthly, how much income do your investments pay you? I am skeptical of the blanket 5%-7% growth comments. I see needing dividends in 'N' dollars per month to support yourself, otherwise how do you not erode your portfolio by drawing down shares?

This post is not inspired by the most recent MMM post, but is related to it.

[erp]

Dividends in ETFs tend to be lower, particularly American ETFs where the tax system (seems to - not an expert) punish dividend issuance relative to stock buybacks. Essentially, a stock buyback reduces the number of outstanding shares but the value of the company remains the same, so it distributes money to shareholders through price appreciation, not dividends. Consequently, dividend payouts are pretty low.

If you want to live off dividends, you'd generally adopt a non-ETF based strategy where you look for value. There's a number of people who have blogs about this in FIRE adjacent spaces, but it's certainly a more conservative approach and tends to get sneered at a little on the forums. Big established blue chips, utility companies, and banks tend to be relatively reliable dividend payers.

I don't have any concrete data for markets broadly, but I do have my personal returns:
Depending on how you measure it, I've made something between 5.4 to 6.6% total return, including dividends and capital appreciation over the last 7 years, so I don't think 5-7% is a crazy assertion based on my experience (this includes the significant pullback over the last 6 months). Dividends & interest alone are between 1 and 2% of that amount. You're correct that the 4% rule includes drawdown of shares, but the theory is that the value of those shares is increasing fast enough that your total amount of company earnings is still going up.

If you're good at RE investing, and you are reliably collecting rents, then your opportunity potential is pretty high. RE is not my preference, but that has a lot more to do with laziness than a belief that ETFs will lead to the highest return. Things like leverage (ie. mortgages) make comparison between equity markets and RE a little tricky, so make sure that you're actually comparing apples to apples when you do any math though.

[bacchi]

No one is getting 5-7% dividends without a lot of risk. The 4% rule requires selling shares.

I use VPW withdrawals (https://www.bogleheads.org/wiki/Variable_percentage_withdrawal), which are currently at 5.4% for my portfolio.

[seattlecyclone]

With RE's track record of insane growth, I don't see it happening, but I'm willing to accept real-world data proving me wrong. So uh, monthly, how much income do your investments pay you? I am skeptical of the blanket 5%-7% growth comments. I see needing dividends in 'N' dollars per month to support yourself, otherwise how do you not erode your portfolio by drawing down shares?

I don't know of anyone getting 5-7% dividends without selling shares. Having the shares appreciate in value, and capturing part of that value by selling them, is part of the plan.

[Financial.Velociraptor]

If folks with about $1MM in ETFs, I'm curious what your "living wage" is off them. How much are you seeing in dividends, and is it enough to support yourself? This question comes as I look at the level of effort to keep rentals going and wonder if the cash could work harder for me in the market.

With RE's track record of insane growth, I don't see it happening, but I'm willing to accept real-world data proving me wrong. So uh, monthly, how much income do your investments pay you? I am skeptical of the blanket 5%-7% growth comments. I see needing dividends in 'N' dollars per month to support yourself, otherwise how do you not erode your portfolio by drawing down shares?

This post is not inspired by the most recent MMM post, but is related to it.

What country are you in?  It has already been mentioned, American shares yield less than European, Australian, and many emerging markets.  Dividend investing has its place and I keep an allocation to Dividend Aristocrats.  Those are companies who have raised their distribution for 25 consecutive years or more.  You can end up with a yield on cost that is quite high over time, similar to a fixed rate mortgage rental property where the rent increases over time.  But the current yield will almost always be lower than 4%.

If  you want to invest in American companies AND live off dividends, you realistically need to make a few adjustments from the Boglehead index and hold model.  Four percent yield from equity on American shares usually indicates higher risk and/or lower company growth. You can for example, find a lot of public utilities that reliably pay 4-7% and have for many decades, but are growing revenue by less than 1.5% a year.   There are a lot of actively managed Closed End Funds (CEFs) that use up to 35% leverage and focus on yield.  I'm leary of the ones invested in equity, and more comfortable with the bond and preferred shares funds.  The ones that pay  more than 10% are usually "yield traps".  Look for ones with at least 10 years history without loss of NAV.  You can search that universe here: https://www.cefconnect.com/closed-end-funds-screener.  You will also want a strong allocation to Preferred Shares.  Like high yield american equity, you are by definition looking at low (and usually NO) growth with preferreds.  But reliable 5-7% payers abound, although you take on a high allocation to banking, finance, and insurance.   If you are using the 4% rule and dripping the rest, you stay well ahead of any plausible US inflation scenario.  Finally, there are three categories of equity that are tax advantaged in the US so long as they pay out 90% of cash profits as distributions.  These tend to have much higher yields than other sectors (but again, you give up growth).  These are Real Estate Investment Trusts (REITs) [That is a category that deserves its own topic and maybe its own entire board (and you are already arguably over allocated to real estate)], Business Development Companies (BDCs) [this is basically the "shadow banking" industry for borrowers too small to float a bond and too big for regional bank financing], and Master Limited Partnerships (MLPs) [Limited to finance and resource sectors by law and also create K-1 hassles at tax time as they do not pay 1099 distributions).  REIT, BDC, and MLP all come in both low yield/growth oriented, and high yield/low growth flavors.

I'll note that all five of the options I have laid out for producing a cash yield greater than 4% from American shares, are (if done right) super conservative investments.  You should expect to under perform the SPY index over long periods of time, or someone who is invested for growth and selling 4% of their shares annually, but with lower volatility. 

One more thing, it isn't currently a high yield area but at normal historic interest rates in the US, single premium insurance annuities (SPIA) will yield much better than 4% with essentially no risk.  These even come in tIRA and RMD compliant versions.  If the fed funds rate gets back to 5%, you can do well by plopping a large slug of cash down as a loan to an insurance company.  You give up liquidity as it is defined by contract how much you can withdraw per year if you want to spend principal.  Also, lifetime agreements are now hard to find and seven year term agreements are more commonplace with the option to continue past the term at a much lower guaranteed interest rate.

[wageslave23]

If folks with about $1MM in ETFs, I'm curious what your "living wage" is off them. How much are you seeing in dividends, and is it enough to support yourself? This question comes as I look at the level of effort to keep rentals going and wonder if the cash could work harder for me in the market.

With RE's track record of insane growth, I don't see it happening, but I'm willing to accept real-world data proving me wrong. So uh, monthly, how much income do your investments pay you? I am skeptical of the blanket 5%-7% growth comments. I see needing dividends in 'N' dollars per month to support yourself, otherwise how do you not erode your portfolio by drawing down shares?

This post is not inspired by the most recent MMM post, but is related to it.

You have that many posts here on the forum and you don't understand how stocks increase in value?!  I would recommend a basic Economics 101 class.

[MustacheAndaHalf]

If folks with about $1MM in ETFs, I'm curious what your "living wage" is off them. How much are you seeing in dividends, and is it enough to support yourself? This question comes as I look at the level of effort to keep rentals going and wonder if the cash could work harder for me in the market.

With RE's track record of insane growth, I don't see it happening, but I'm willing to accept real-world data proving me wrong. So uh, monthly, how much income do your investments pay you? I am skeptical of the blanket 5%-7% growth comments. I see needing dividends in 'N' dollars per month to support yourself, otherwise how do you not erode your portfolio by drawing down shares?

This post is not inspired by the most recent MMM post, but is related to it.

You have that many posts here on the forum and you don't understand how stocks increase in value?!  I would recommend a basic Economics 101 class.

As opposed to passing along Elon Musk's views as if he's a stock market expert?

Elon says that a recession is imminent so if you think he is a good stock market prognosticators, you better sell.

[MustacheAndaHalf]

... I'm willing to accept real-world data proving me wrong. So uh, monthly, how much income do your investments pay you? I am skeptical of the blanket 5%-7% growth comments. I see needing dividends in 'N' dollars per month to support yourself, otherwise how do you not erode your portfolio by drawing down shares?

SPDR S&P 500 ETF Trust (ticker "SPY") has been around for 3 decades, averaging 9.6%/year since Jan 1993.  So performance is not the 6% of which you are skeptical, but over 9%/year for 30 years.
https://www.ssga.com/us/en/individual/etfs/funds/spdr-sp-500-etf-trust-spy

My suggestion is to take stock market performance, and weigh it against the performance of your real estate properties/investments.  If you're beating the market, how much time do you spend a year achieving that return?  And if your real estate returns are lower than 9%/year, switching saves you all that time and gives you a higher return.

[FrugalToque]

If folks with about $1MM in ETFs, I'm curious what your "living wage" is off them. How much are you seeing in dividends, and is it enough to support yourself? This question comes as I look at the level of effort to keep rentals going and wonder if the cash could work harder for me in the market.

With RE's track record of insane growth, I don't see it happening, but I'm willing to accept real-world data proving me wrong. So uh, monthly, how much income do your investments pay you? I am skeptical of the blanket 5%-7% growth comments. I see needing dividends in 'N' dollars per month to support yourself, otherwise how do you not erode your portfolio by drawing down shares?

This post is not inspired by the most recent MMM post, but is related to it.

You have that many posts here on the forum and you don't understand how stocks increase in value?!  I would recommend a basic Economics 101 class.

I think what we're asking for here is the practical experiences of forum members.
i.e. when you use your ETF investments to fund your retirement living expenses, how much is
a) neatly withdrawn via dividends or
b) with slightly more complexity, withdrawn by selling shares.

A very sensible question, tbh.

Toque.

[Dicey]

If folks with about $1MM in ETFs, I'm curious what your "living wage" is off them. How much are you seeing in dividends, and is it enough to support yourself? This question comes as I look at the level of effort to keep rentals going and wonder if the cash could work harder for me in the market.

With RE's track record of insane growth, I don't see it happening, but I'm willing to accept real-world data proving me wrong. So uh, monthly, how much income do your investments pay you? I am skeptical of the blanket 5%-7% growth comments. I see needing dividends in 'N' dollars per month to support yourself, otherwise how do you not erode your portfolio by drawing down shares?

This post is not inspired by the most recent MMM post, but is related to it.

You have that many posts here on the forum and you don't understand how stocks increase in value?!  I would recommend a basic Economics 101 class.

How is your comment helpful? I have lots of posts, too, and there's plenty I don't know. That doesn't mean I can't be helpful to others, based on what I do.  FWIW, I took Economics 101 long before ETFs existed. I read Fishy's post with interest, hoping to learn something new.

[wageslave23]

If folks with about $1MM in ETFs, I'm curious what your "living wage" is off them. How much are you seeing in dividends, and is it enough to support yourself? This question comes as I look at the level of effort to keep rentals going and wonder if the cash could work harder for me in the market.

With RE's track record of insane growth, I don't see it happening, but I'm willing to accept real-world data proving me wrong. So uh, monthly, how much income do your investments pay you? I am skeptical of the blanket 5%-7% growth comments. I see needing dividends in 'N' dollars per month to support yourself, otherwise how do you not erode your portfolio by drawing down shares?

This post is not inspired by the most recent MMM post, but is related to it.

You have that many posts here on the forum and you don't understand how stocks increase in value?!  I would recommend a basic Economics 101 class.

As opposed to passing along Elon Musk's views as if he's a stock market expert?

Elon says that a recession is imminent so if you think he is a good stock market prognosticators, you better sell.

I said *if*. I personally do not believe Elon or anyone else knows sh*t about what will happen. Certainly not Elon.

[park10]

If folks with about $1MM in ETFs, I'm curious what your "living wage" is off them. How much are you seeing in dividends, and is it enough to support yourself? This question comes as I look at the level of effort to keep rentals going and wonder if the cash could work harder for me in the market.

--------
OP, very valid question. To generate income from investments you have at least 2 pathways:-
1. Use options to generate income from premiums: Simple to Little More complex: Simple being Covered Calls - allow assignment, little more complex could be Covered calls with Continuous Forward Roll to Not have shares assigned. More elegant would be use of Covered Strangles:- Sell cov call and also a Put. you get 2 premiums. you cannot be wrong on both sides. Roll the ITM option if necessary just like earlier. Tax consequences of forward roll need to understood and managed. Need to convert your investments to liquid ETFs like $SPY or $QQQ or $IWM. No Vanguard. After some learning and practice you will wonder why you didnt always do it..

2. Closed End Funds: this is like opening a new world. You can keep it simple by buying equity based that have seldom cut dividends and stick to 7% or less. Here also you can use option based ones. Several names like $CII, $ETY, STK etc... Do not expect much or any price appreciation, only distributions.

3. Invest in a mix of REITs, BDC, and ETN's. some famous names could be $O, $MAIN etc.

@Financial.Velociraptor has outlined this. i had typed my msg before i saw his reply. Anyway, good question.

[wageslave23]

If folks with about $1MM in ETFs, I'm curious what your "living wage" is off them. How much are you seeing in dividends, and is it enough to support yourself? This question comes as I look at the level of effort to keep rentals going and wonder if the cash could work harder for me in the market.

With RE's track record of insane growth, I don't see it happening, but I'm willing to accept real-world data proving me wrong. So uh, monthly, how much income do your investments pay you? I am skeptical of the blanket 5%-7% growth comments. I see needing dividends in 'N' dollars per month to support yourself, otherwise how do you not erode your portfolio by drawing down shares?

This post is not inspired by the most recent MMM post, but is related to it.

You have that many posts here on the forum and you don't understand how stocks increase in value?!  I would recommend a basic Economics 101 class.

I think what we're asking for here is the practical experiences of forum members.
i.e. when you use your ETF investments to fund your retirement living expenses, how much is
a) neatly withdrawn via dividends or
b) with slightly more complexity, withdrawn by selling shares.

A very sensible question, tbh.

Toque.

I got the impression that OP was trying to make a statement disguised as a question as I've seen some other people do here. Hence my snarkiness. If this is a legitimate question OP, I apologize.  VTI has dividends of about 1.5% so the remaining 5.5% average real returns is from price appreciation.  I am still skeptical based on number of posts that OP doesn't understand that 4% safe withdrawal rate is part dividend and part selling stock based on the dividend yield of specific index fund and bonds owned.

[jim555]

VTI dividend is 1.50% and you need 4%, so sell 2.5% of the fund to get to the amount you need.

[Le Poisson]

If folks with about $1MM in ETFs, I'm curious what your "living wage" is off them. How much are you seeing in dividends, and is it enough to support yourself? This question comes as I look at the level of effort to keep rentals going and wonder if the cash could work harder for me in the market.

With RE's track record of insane growth, I don't see it happening, but I'm willing to accept real-world data proving me wrong. So uh, monthly, how much income do your investments pay you? I am skeptical of the blanket 5%-7% growth comments. I see needing dividends in 'N' dollars per month to support yourself, otherwise how do you not erode your portfolio by drawing down shares?

This post is not inspired by the most recent MMM post, but is related to it.

You have that many posts here on the forum and you don't understand how stocks increase in value?!  I would recommend a basic Economics 101 class.

I think what we're asking for here is the practical experiences of forum members.
i.e. when you use your ETF investments to fund your retirement living expenses, how much is
a) neatly withdrawn via dividends or
b) with slightly more complexity, withdrawn by selling shares.

A very sensible question, tbh.

Toque.

Thanks Toque - well said!

[Le Poisson]

FWIW, our model with investing has largely been "set-n-forget" following the Couch Potato strategy. (www.canadiancouchpotato.com) and was discussed with Dan in person at CM*TO, and via email, and we have great confidence in our extremely simple $VAB, $VXC, $VCN portfolio.

However, much of our growth has been from contributions and currently the portfolio isn't showing the sort of growth we see from our rentals.

I equate the capital growth of the rentals to share price increases in the portfolio.
I also equate rents from our tenants in the rentals to dividends in the portfolio.

Accurate or not, in my head, this works. I can live off the rents coming in without touching my capital. It is dependable. It is only interrupted if a vacancy occurrs, and I know I will recoup my losses in the event of a weeks-long vacancy through a rent increase to the incoming tenant. I have faith in the dependability of the rentals on the cashflow side. On the capital side there is a little friction right now, but I am comfortable with it, because I believe that the capital value will bounce back in a couple years if a depression happens, and because our capital increases (Ontario Market) are rid-fucking-iculous. However... Real life comes into play here too, and I am missing too much of my family time to grass cutting/fixing/book keeping/etc. and I'm too cheap to pay a property manager 15-20% to manage the properties (local rates).

So there is some appeal to converting the equity in the properties into cash and sliding that into our portfolio. The ETFs have consistently hovered in the 4-6% range over the past 10 years or so, but that has been cap growth with our dividends put back in.  Can we see enough in dividends - cash - flowing back from the investments at $1.2MM or so to support our family in a medium COL community, assuming no mortgage or other major debt. That's the heart of the question.

I may just open a case study, but then I'll have folks pile on with comments about how we should retire tomorrow, which is currently not feasible for me without taking divorce court costs and child support into account. Hence the cash flow question as I try to structure a replacement for daily income in a way that palatable to my family.

[wageslave23]

FWIW, our model with investing has largely been "set-n-forget" following the Couch Potato strategy. (www.canadiancouchpotato.com) and was discussed with Dan in person at CM*TO, and via email, and we have great confidence in our extremely simple $VAB, $VXC, $VCN portfolio.

However, much of our growth has been from contributions and currently the portfolio isn't showing the sort of growth we see from our rentals.

I equate the capital growth of the rentals to share price increases in the portfolio.
I also equate rents from our tenants in the rentals to dividends in the portfolio.

Accurate or not, in my head, this works. I can live off the rents coming in without touching my capital. It is dependable. It is only interrupted if a vacancy occurrs, and I know I will recoup my losses in the event of a weeks-long vacancy through a rent increase to the incoming tenant. I have faith in the dependability of the rentals on the cashflow side. On the capital side there is a little friction right now, but I am comfortable with it, because I believe that the capital value will bounce back in a couple years if a depression happens, and because our capital increases (Ontario Market) are rid-fucking-iculous. However... Real life comes into play here too, and I am missing too much of my family time to grass cutting/fixing/book keeping/etc. and I'm too cheap to pay a property manager 15-20% to manage the properties (local rates).

So there is some appeal to converting the equity in the properties into cash and sliding that into our portfolio. The ETFs have consistently hovered in the 4-6% range over the past 10 years or so, but that has been cap growth with our dividends put back in.  Can we see enough in dividends - cash - flowing back from the investments at $1.2MM or so to support our family in a medium COL community, assuming no mortgage or other major debt. That's the heart of the question.

I may just open a case study, but then I'll have folks pile on with comments about how we should retire tomorrow, which is currently not feasible for me without taking divorce court costs and child support into account. Hence the cash flow question as I try to structure a replacement for daily income in a way that palatable to my family.

My apologies. I think I can be of some help since I own several rental properties but have a majority of my networth in stocks.  First of all don't discount the capital gains on stocks, they along with dividends combine to equal the return.  If a company continues losing money, they will eventually have to lower or discontinue their dividends.  Stock appreciation and dividends are linked.  Likewise, realize that property values and rents are also linked.  If your particular area has a Detroit like collapse in home values because jobs leave or for whatever reason people begin moving away, the rental values will follow along shortly. This is based on supply and demand. 

Here is how I weigh the two options:

Real estate:
1. How much equity do I have in the house? Estimated selling price minus selling costs.
2. How much income does it bring in?
3. What are my likely expenses?  property taxes, vacancy (2 months every 4 yrs), mortgage interest, turn costs, long term (roof, kitchen remodel, etc)
4. How much time do I spend working on it, answering texts and phone calls, thinking about it?  And what dollar value do I place on my time?
5. What is the ROI? #2 minus #3 and #4 divided by #1.
6. multiply this number by your tax rate because you mostly have to recognize it as regular income.
7. I don't include expected home value appreciation in my calculations but in my particular area, I don't see much more room for increase.  If you feel differently about your area, feel free to include that in #2.

Stocks:
1. I assume 5% real return to be on the conservive side.
2. 2% of which is dividends, but like I said it makes no difference to me how I get the return.
3. 0% taxes because I plan on being in the 0% capital gains and dividend bracket

Usually rental properties come out ahead in my calculations.  But they are a little more risky.  A renter could destroy an individual house, a particular area could collapse economically, the housing market could collapse as a whole.  Whereas invested in an index fund, your main risk is the stock market collapsing.  It could happen, but a severe sustained collapse of the stock market would probably take housing and rents down with it.

If you are dealing with a high class of renters and a newer home, then rentals aren't too bad.  If you are in an older neighborhood, with a lower class of renters, its going to be a huge headache.  At which point I would rather work my cushy remote deskjob than deal with the stress and frustration in order to get the higher return.

[EscapeVelocity2020]

You're asking a question that can't possibly be answered.  Equity investing should be looked at from a total return perspective - price growth, dividend yield, and business valuation are all important and not necessarily reflected in price.  Bonds have their place for (supposedly) being uncorrelated to equities, holding their principal, etc.  Real estate, on the other hand, is like a fusion of both an equity (asset with a marketable value and yield (e.g. rental income / imputed income)) and price is affected by mortgage rates (which is correlated to 10 yr. Treasuries)... 

Over the course of a 30, 40, 50 year retirement period, sometimes real estate outperforms, sometimes equities are king, and usually a sprinkling of bonds helps balance it all out to create stability so that income can be generated in a more stable, predictable fashion, if risk-adjusted returns are important to you.

But real estate is more typically a leveraged investment and can have more tax advantages, at least up front, and it is an active investment (compared to ETFs), so it is easy for people to claim that real estate provides superior returns.  In many cases, they are comparing apples and oranges and ignoring either paying back the tax relief upon selling, ignoring many carrying costs of real estate, falling prey to survivor bias (not carrying to losses in the total return), etc.

But I'll leave with a challenge, is there a SWR % for real estate only investors?  Does that value exceed 4%?

Also, although it doesn't answer your question because I'm not 100% equities and also have contributions, but my returns were roughly 15% per year from 2009 to 2019...  a 2% dividend yield income (current market yield) would be a silly thing to restrict yourself to if your net worth is growing over 10% YoY...  4% SWR still holds.

[Lews Therin]

I can give you my data points.

My returns since 2017 (When I opened my Questrade accounts) are attached. Even with this terrible crash, I'm still at 8.1% annualized. (Ignore the last two, they are very high because it was opened in the 2020 crash, and the last one in the last 6 months).

So the longer the time frame, the smoother the account returns become. In Dec, I was at 10%-11% annualized.

I've been reinvesting my dividends because I didn't need the cash yet, but if I were to pull them out, I'd get about 3% (Due to a mix of ETF paying 2% and some stocks paying 4%)

That's a significant amount when you are aiming for the 4% rule, since you only have to sell 1-2% of the portfolio to cover the shortfall, and when you have all-time highs, I like to sell a bit to pad my cash portion.

For the rental business, remember that it's a leveraged investment. You've borrowed 2/3 of the value of that building (if you put down 30% for example) so it makes sense that you are making more than an ETF in which you haven't borrowed money.

But on the other hand, your time has value, and as your stash gets bigger, you have to decide if you want to keep doing that overtime (I call all extra work overtime) in order to get more money.

Take the Bank of Nova Scotia, which has been paying and increasing dividends for 43 of the past 45 years: Currently, they are paying out 5.5% dividends. There's all sorts of interesting options, especially when the market looks less great.

(If I was able to borrow at the same rate as a mortgage to invest, I could pay off the loan with just a part of their dividends!)

[FiveSigmas]

Web calculators like PortfolioVisualizer can help with these sorts of analyses. For instance, here's what a $1 Million (in 2008 dollars) 50/50 VTSAX/BND portfolio has kicked off in dividends (and other distributions) over the past several years:

PortfolioVisualizer:


Click the link and modify the allocations/amounts to match your personal preferences.

Of course, "living off the dividends" is just one of many possible withdrawal strategies. You're completely free to withdraw any amount of principle you wish as well :-).

[Le Poisson]

Thanks @FiveSigmas - that tool pretty much answered my question.

[EscapeVelocity2020]

One thing that the Portfolio Visualizer seems to miss is that the 1MM principal grew each year.  So in my experience, your million principal could double then double again in 10 years.  3% yield would be on 4MM principal, or $120k per year by the 10th year in the series (2019 in my example).  The blog MrTakoEscapes is at about this level currently.

[FiveSigmas]

One thing that the Portfolio Visualizer seems to miss is that the 1MM principal grew each year.  So in my experience, your million principal could double then double again in 10 years.  3% yield would be on 4MM principal, or $120k per year by the 10th year in the series (2019 in my example).  The blog MrTakoEscapes is at about this level currently.

I don't think PortfolioVisualizer is missing anything in this case. It's not assuming a hypothetical x% yield. It's not even performing any kind of inflation correction. It's just taking a certain number of shares of whatever securities you select and then tallying the distributions over the historical period (# shares * dividends per share).

Now, the dividends per share might increase over time and this might correlate with the price of the security over time, but PV is just telling you what actually happened during those specific years *. I think this most closely corresponds to what Le Poisson was asking for.

I think your meta-point is that a "spend the dividends" withdrawal plan is very conservative and will generally lead to a rapidly growing portfolio over time (assuming you're not skewing your portfolio just to chase dividends). I won't argue with this :-).

* Indeed, it also catches the recent Vanguard Target Retirement fiasco:


Edit: Correct VFORX link.

[EscapeVelocity2020]

So if you bought a million dollar portfolio in 2009 and it went to 2.5m (in your linked sheet), it only paid 35k on that portfolio in 2019?  That is just plain wrong.  More like every year is an individual starting point if 1 million, which probably was not the question, or if it was the question then I’m even more confused why it was asked because current ETF yield is readily available.

It is more likely Poisson wanted to compare a decade of real estate returns with a decade of ETF income, and by year 10 your 3% portfolio yield will have grown to 75k in your example, not remained around 35k…. I’m telling you this from real world experience.

[Lews Therin]

Dividends don't go up with portfolio value, rather by amount of shares.

If companies didn't raise their dividends, you receive the same amount regardless of the share price increase.

[park10]

One thing that the Portfolio Visualizer seems to miss is that the 1MM principal grew each year.  So in my experience, your million principal could double then double again in 10 years.  3% yield would be on 4MM principal, or $120k per year by the 10th year in the series (2019 in my example).  The blog MrTakoEscapes is at about this level currently.

----
This is just plain wrong. Vow.. 3% yield on $1mm today will be LOT lower if portfolio goes up to $3 or $4MM. In other words, if you receive $30,000 in dividends Today, you will receive $30,000 (or slightly higher due to divi increases over time) even if portfolio value goes up to $4MM

[Lews Therin]

If you buy the actions today, they pay out a dividend per share.

In ten years, if the action had no dividend increases, you'd receive the same amount in dividends, regardless of share appreciation.

New buyers would get the same amount of dividends per share (which would be a lower yield for them compared to when you bought it earlier)

[EscapeVelocity2020]

I’m on vacation so I’m not going to put a lot more effort in to this.  RootOfGood also has a blog where you can see a real world example of dividend growth over time.  I think he’s up to $60k/yr on a starting million dollar portfolio that has grown to $2.8M, while spending has been in line with original dividends.  With an ETF, the yield remains relatively constant vs. price.  Some of this is increased dividends on stocks.  So in the real world, your dividend income will increase as your ETF portfolio value increases,  I don’t have time to poke around PV and see if it’s the assumptions that are wrong or the interpretation of the question, but hopefully I’ve given 3 real world examples (myself, Tako, and Good) and you will not be misled that dividends are only $30k after 10 years of portfolio growth.

[Le Poisson]

Dividends don't go up with portfolio value, rather by amount of shares.

If companies didn't raise their dividends, you receive the same amount regardless of the share price increase.

Whew! At least I had this part right! I've always viewed it as the dividend is a function of profitability, which share price is a function of faith in the company to increase in value (unless the stock is being tinkered with by short sellers, etc.). So the two values change independently of each other, despite being related.

(ie. the shares in Transat that I bought right before a management change and the Air Canada deal fell apart. Or the way share prices were changing through the CN/CP/KCS deal.)

[FiveSigmas]

I’m on vacation so I’m not going to put a lot more effort in to this.  RootOfGood also has a blog where you can see a real world example of dividend growth over time.  I think he’s up to $60k/yr on a starting million dollar portfolio that has grown to $2.8M, while spending has been in line with original dividends.  With an ETF, the yield remains relatively constant vs. price.  Some of this is increased dividends on stocks.  So in the real world, your dividend income will increase as your ETF portfolio value increases,  I don’t have time to poke around PV and see if it’s the assumptions that are wrong or the interpretation of the question, but hopefully I’ve given 3 real world examples (myself, Tako, and Good) and you will not be misled that dividends are only $30k after 10 years of portfolio growth.

One thing that may be confusing is that I used a 50/50 portfolio of stocks and bonds. Here's the same income chart with 100% VTSAX:

Portfolio Visualizer:


Note that this is still topping out at around $40K with a portfolio that peaks past $3 million:



This again, though, is an artifact of using a broad-market index. If you try and goose your (past) dividend performance with a more targeted portfolio (it looks like RootOfGood recommends VHYAX VYM among others), the charts look even better. VHYAX appears to be a very new ETF, but here's what happened to HDV (found by a random internet search for "high dividend etf") after putting $1 million in in 2012 Here's what happened to VYM after putting $1 million in in 2008:

Portfolio Visualizer:


This looks more like what you're describing. Of course, a high dividend doesn't guarantee a stable share price (or even a high dividend) in the future. Will a dividend-focused strategy do better than a simple broad-market, total return strategy in the future? <shrug>

Edit: VHDYX (the actual ticker symbol RoG mentioned) doesn't appear to exist any longer, but the VYM ETF does (and has a longer history to boot).

[EscapeVelocity2020]

That’s more in line with my experience, dividends go from 20k in 2009 to 50k in 2019.  You should use 2009 as your 1m investment and you’ll see what I was talking about…

[EscapeVelocity2020]

Dividends don't go up with portfolio value, rather by amount of shares.

If companies didn't raise their dividends, you receive the same amount regardless of the share price increase.

Whew! At least I had this part right! I've always viewed it as the dividend is a function of profitability, which share price is a function of faith in the company to increase in value (unless the stock is being tinkered with by short sellers, etc.). So the two values change independently of each other, despite being related.

(ie. the shares in Transat that I bought right before a management change and the Air Canada deal fell apart. Or the way share prices were changing through the CN/CP/KCS deal.)

Sorry I don’t have more time to post, but I think you’re getting the wrong conclusion.  My dividend income has gone up significantly with my portfolio value over the years!

[Lews Therin]

That's because most companies do increase dividends every year or every few years.

Your dividend income most likely didn't follow the exact proportion of your investment value increases. Depends what you've invested in.

[FIKris]

If folks with about $1MM in ETFs, I'm curious what your "living wage" is off them. How much are you seeing in dividends, and is it enough to support yourself? This question comes as I look at the level of effort to keep rentals going and wonder if the cash could work harder for me in the market.

--------
OP, very valid question. To generate income from investments you have at least 2 pathways:-
1. Use options to generate income from premiums: Simple to Little More complex: Simple being Covered Calls - allow assignment, little more complex could be Covered calls with Continuous Forward Roll to Not have shares assigned. More elegant would be use of Covered Strangles:- Sell cov call and also a Put. you get 2 premiums. you cannot be wrong on both sides. Roll the ITM option if necessary just like earlier. Tax consequences of forward roll need to understood and managed. Need to convert your investments to liquid ETFs like $SPY or $QQQ or $IWM. No Vanguard. After some learning and practice you will wonder why you didnt always do it..

2. Closed End Funds: this is like opening a new world. You can keep it simple by buying equity based that have seldom cut dividends and stick to 7% or less. Here also you can use option based ones. Several names like $CII, $ETY, STK etc... Do not expect much or any price appreciation, only distributions.

3. Invest in a mix of REITs, BDC, and ETN's. some famous names could be $O, $MAIN etc.

@Financial.Velociraptor has outlined this. i had typed my msg before i saw his reply. Anyway, good question.

Curious what you and @Financial.Velociraptor think of EXG: Eaton Vance Tax Managed Global Diversified Equity Income Fund?  It's currently going for a slight discount relative to NAV, and dividend is 10%. Context is that I have $300k cash (separate and apart from my well-funded 401K and post-tax investment accounts).  I'm looking for stable, tax-advantaged income. I was planning to build an accessory dwelling unit to rent out on my property that would net me about $20k / year after construction is complete.  However, a 10% dividend is tempting...an a lot less work.

[jim555]

Just look at the VTI dividend history, it gradually goes up over the years.

[Rob_bob]

Dividends don't go up with portfolio value, rather by amount of shares.

If companies didn't raise their dividends, you receive the same amount regardless of the share price increase.

Whew! At least I had this part right! I've always viewed it as the dividend is a function of profitability, which share price is a function of faith in the company to increase in value (unless the stock is being tinkered with by short sellers, etc.). So the two values change independently of each other, despite being related.

(ie. the shares in Transat that I bought right before a management change and the Air Canada deal fell apart. Or the way share prices were changing through the CN/CP/KCS deal.)

Sorry I don’t have more time to post, but I think you’re getting the wrong conclusion.  My dividend income has gone up significantly with my portfolio value over the years!

Are you reinvesting the dividends?  If you are you are buying new shares which also pay a dividend so the income will go up even if the companies are not increasing the dividend payout, add in some companies that regularly increase dividends so it is natural for dividend income to increase over the years.

[Rob_bob]

If folks with about $1MM in ETFs, I'm curious what your "living wage" is off them. How much are you seeing in dividends, and is it enough to support yourself? This question comes as I look at the level of effort to keep rentals going and wonder if the cash could work harder for me in the market.

--------
OP, very valid question. To generate income from investments you have at least 2 pathways:-
1. Use options to generate income from premiums: Simple to Little More complex: Simple being Covered Calls - allow assignment, little more complex could be Covered calls with Continuous Forward Roll to Not have shares assigned. More elegant would be use of Covered Strangles:- Sell cov call and also a Put. you get 2 premiums. you cannot be wrong on both sides. Roll the ITM option if necessary just like earlier. Tax consequences of forward roll need to understood and managed. Need to convert your investments to liquid ETFs like $SPY or $QQQ or $IWM. No Vanguard. After some learning and practice you will wonder why you didnt always do it..

2. Closed End Funds: this is like opening a new world. You can keep it simple by buying equity based that have seldom cut dividends and stick to 7% or less. Here also you can use option based ones. Several names like $CII, $ETY, STK etc... Do not expect much or any price appreciation, only distributions.

3. Invest in a mix of REITs, BDC, and ETN's. some famous names could be $O, $MAIN etc.

@Financial.Velociraptor has outlined this. i had typed my msg before i saw his reply. Anyway, good question.

Curious what you and @Financial.Velociraptor think of EXG: Eaton Vance Tax Managed Global Diversified Equity Income Fund? It's currently going for a slight discount relative to NAV, and dividend is 10%. Context is that I have $300k cash (separate and apart from my well-funded 401K and post-tax investment accounts).  I'm looking for stable, tax-advantaged income. I was planning to build an accessory dwelling unit to rent out on my property that would net me about $20k / year after construction is complete.  However, a 10% dividend is tempting...an a lot less work.

You weren't asking me but I will comment as I own some CEFs.  I'm not a fan of EXG, it hasn't maintained it's share price well over the years, it's well below it's initial offering price, never buy the IPO of a CEF,  and definitely hasn't grown in value.

I own HTD John Hancock Tax Advantaged Fund.  It's share price is above it's IPO in 2004 and it's current distribution yield is 7.37%.  PDT is another J Hancock fund that has an increasing share price since inception in 1989 yielding 8.45%.

[park10]

Curious what you and @Financial.Velociraptor think of EXG: Eaton Vance Tax Managed Global Diversified Equity Income Fund?  It's currently going for a slight discount relative to NAV, and dividend is 10%. Context is that I have $300k cash (separate and apart from my well-funded 401K and post-tax investment accounts).  I'm looking for stable, tax-advantaged income. I was planning to build an accessory dwelling unit to rent out on my property that would net me about $20k / year after construction is complete.  However, a 10% dividend is tempting...an a lot less work.
[/quote]
----- $EXG not my favorite at all.. Among Equity CEF's there are some stalwarts: $PDT, $UTG, EVT etc. Even in this category I have fair amount of Option income CEFs which I really like... but no interest in $EXG. we can get into CEF discussion if you want or start a new thread. I think its a whole asset class in itself and one that is shunned by many for no good reason...

[jim555]

CEFs are shunned for good reasons.  Massive expense ratios, no way for NAV and trading price to stay close. 

[force majeure]

I watch the dividend index a lot.
A ratings agency such as Markit will give this information. https://ihsmarkit.com/products/dividend-forecasting.html

I am invested heavily in 2 global dividend ETFs namely ISPA and VHYL.
In 1MM region.
I do reinvest, when markets tank, so I hold back some cash for sale-time.

You would need to find the US equivalent.
The recent quarterly payment was 60% higher than same period last year,
so the index does capture companies that raise dividends yearly.

I would not consider topslicing units, to take profits.

[Financial.Velociraptor]

Curious what you and @Financial.Velociraptor think of EXG: Eaton Vance Tax Managed Global Diversified Equity Income Fund?

It is high yield JUNK.  Two clues 1) NAV has declined over the years due to managing the distribution via using Return Of Capital (and there can be tax hassles with that) instead of income only 2) distribution has fallen steadily since launch.  A total return calculator will likely demonstrate the distribution reinvested return has trailed the market badly and even a broad bond index like BND.

I'll give you a hint, and it comes from an Efficient Markets Hypothesis perspective. (I don't believe in the "Strong" EMH but find it is MOSTLY true in the broadest senses.)  The broad market yields about 9% average over long periods of time.  An income focused investment, is by definition more conservative than one with a growth component.  Thus, income investing should be expected to trail growth and/or blended approaches, or less than 9% total return.  That is, if your entire return is cash distribution, you should EXPECT to average LESS than 9% (over long periods of time).  The market demanding 10% current for an income investment like EXG is your clue the market thinks it will have negative price growth of a few percent a year. 

Others here have noted some "good" CEFs with "good" long term performance, ALL under 10% yield.  If an income oriented CEF yields about 7-8%, the market is signaling it appears to be a quality distribution.  If the market signals with 10, 11, 12% current yield, that is a big flashing red warning.  Plenty of good options with long term growth in NAV and distribution that hover in the 7.5% yield range and sometimes includes tax advantaged income.

Here's another hint, the price you pay matters.  CEFs do not by definition have to track their NAV. You can sometimes get a steep bargain, especially during market turbulence.   PDT has been mentioned, I think 3 times above (and I'm a holder).  As recently as the 2009 crash, you could have gotten it for less than half its current price (the dividend held up pretty well) meaning you can sometimes get double the yield and price upside.  This is also true with true income investments, e.g. closed end bond funds.  When the market tanks, sentiment gets ugly and the bond CEFs, even the super safe municipal oriented ones, fall steeply.  The rebound is quick and the distribution tends to stay flat.  I got really favorable entry points to BIT and CHI during the COVID slump.  I'm watching both again for another favorable entry point.  CASH is a valid asset class.  As primarily an options investor, I think of a cash allocation as being a call option on the broad market with no expiration date and a moving strike. 

Word of advice that applies to all equity whether CEF, ETF, individual stocks, mutual funds, etc. DO NOT CHASE YIELD.  Look at your own psychology on EXG as an example "However, a 10% dividend is tempting..." Be honest here, is that your reason speaking or your lizard hind-brain greed?  Which do you want to be in charge of your investing decisions?

[lutorm]

If you count on living off dividents, what happens with inflation? Equity is supposedly a reasonable performer in the presence of inflation, but the dividends off a fixed number of shares don't scale with inflation, do they?

[Financial.Velociraptor]

If you count on living off dividents, what happens with inflation? Equity is supposedly a reasonable performer in the presence of inflation, but the dividends off a fixed number of shares don't scale with inflation, do they?

Say you are using the 4% rule as your baseline assumption but you want to invest conservatively and have a no capital gains strategy.  You can realistically build a "safe" portfolio with maybe 0.5% a year long term growth and 6% current yield.  If you live off 4%, you have 2% to reinvest.  So 1 million nut would provide 40,000 in income, 20,000 to reinvest and grow to 1,025,000 in the first year.  Your year two withdrawal is 61,500 (1.025 * .06).  If  you had the long term Fed target of about 2% inflation, your spend increases to 40,800.  You reinvest 61,500 - 40,800 = 20,700 (more than year one) AND have growth (on average) of about 0.5% or another 5,125 in unrealized gains. 

This is a low beta portfolio (presumably) that is chock full of a high bond allocation, preferreds, (conservative) mREITs, BDC, MLP, utility stocks, consumer staples, and just generally very defensive.  You would not sell in a downturn as even a material decrease in nominal distribution still leaves you reinvesting.

An extended period of "high" inflation busts this strategy, eventually.  But you have a decade or more to adjust, which might include doing your reinvesting into a blend with more growth and small cap value.

Note the super conservative portfolio yields 6.5% average over long periods of time and is almost guaranteed to trail SPY.  There is no free lunch.  If want a no sell portfolio, you are going to give up upside potential.

[CurledMoss]

If folks with about $1MM in ETFs, I'm curious what your "living wage" is off them. How much are you seeing in dividends, and is it enough to support yourself? This question comes as I look at the level of effort to keep rentals going and wonder if the cash could work harder for me in the market.

With RE's track record of insane growth, I don't see it happening, but I'm willing to accept real-world data proving me wrong. So uh, monthly, how much income do your investments pay you? I am skeptical of the blanket 5%-7% growth comments. I see needing dividends in 'N' dollars per month to support yourself, otherwise how do you not erode your portfolio by drawing down shares?

This post is not inspired by the most recent MMM post, but is related to it.

You are thinking of dividends the wrong way. Dividends are just forced sales... Math is simple. Invest in Total U.S or S&P. Dividends (forced sales) are about 1.6%-1.8%. So you'd have $16,000-$18,000. If you are old you could withdrawal 4% (40k) total. If you are younger 3% (30k).

So, if you wanted 4% (40k) and receive a 1.8% dividend. Just sell enough stock to cover the remainder of the 22k.

You don't want dividends in your taxable brokerage account. They are a tax drag that you pay taxes on every year whether you need them or not. But the Total U.S and S&P are diversified, low cost, and fairly low dividend. I've heard some people will have Large Cap growth in their taxable account and value stocks in their tax efficient accounts. It's a fair tax efficient idea but not apples to apples

[CurledMoss]

VTI dividend is 1.50% and you need 4%, so sell 2.5% of the fund to get to the amount you need.

The is the best advise. So many people don't understand dividends are just forced sales whether it's an up year, or a down year. It's not hard to click sell.

[CurledMoss]

https://www.1500days.com/wp-content/uploads/2019/05/SWD.jpg.webp

Check that out on safe withdrawal