Author Topic: Blending Dividend Investing and Index Investing  (Read 41995 times)

h2ogal

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Blending Dividend Investing and Index Investing
« on: April 24, 2015, 10:33:52 AM »
I've done index investing for the past 10+ years, and never figured I would change, but after reading Spoonman's Journal, my interest is getting drawn to Dividend investing. 

There are some interesting aspects to it; the potential for higher yields, the purity of not touching the principle investment, the potential to realize gains even during long flat periods in the equities market....

From what I've read using a dividend index fund is not a good option - lower yields, higher fees, etc.   Consensus seems to be its "the worst of both worlds"....

From a portfolio allocation perspective, is anyone blending a self-made dividend portfolio with index funds?    The folks who blog about dividend strategy seem to be "all in", with maybe some cash reserves (like a year of expenses) to fall back on.

Does having half your US equity allocation in a self made portfolio of dividend-paying stocks and the other half in a low cost index fund water down both strategies, or does it add balance and lower risk?

I would be interested in hearing from those who have looked into this.





Scandium

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Re: Blending Dividend Investing and Index Investing
« Reply #1 on: April 24, 2015, 11:01:31 AM »
There's a tread on this about once a month. It has been debunked as a bad idea here and elsewhere umteen times. All the aspects you find interesting are false or irrelevant. Stick to index fund (assuming you agree that more money is better than less money)

Of course the people who are "all in" on this can't admit that they have suboptimaly placed their money for so long, so they will be along shortly to tell you why..

skyrefuge

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Re: Blending Dividend Investing and Index Investing
« Reply #2 on: April 24, 2015, 03:16:30 PM »
From what I've read using a dividend index fund is not a good option - lower yields, higher fees, etc.   Consensus seems to be its "the worst of both worlds"....

It's impossible to prove, but I get the feeling that the main reason most dividend-growth investors avoid dividend-focused funds is really just because their historical performance is easily-viewable, and they don't paint as rosy of a picture as dividend-focused investors like to paint. It's much more difficult to ascertain the performance of a set of individual, independent investors, and that fog creates a refuge in which those investors can continue to paint their picture as rosily as they would like and not have that picture be subject to the harsh light of objectivity.

From a portfolio allocation perspective, is anyone blending a self-made dividend portfolio with index funds?

Anyone invested solely in index funds is already "blending" in a dividend portfolio, since most stocks in an index pay dividends.

Adding a low-cost broad-market index fund to a self made portfolio of dividend-paying stocks would add balance and lower risk, but not because any dividends-vs.-non-dividends story; measured on its own, there is no reason that a dividend stock is any riskier than a non-dividend stock (or vice-versa). The reduced risk would simply come via increased diversification.

See here for more on the false-dichotomy of "dividend-growth" vs. "index".
« Last Edit: April 24, 2015, 03:33:25 PM by skyrefuge »

Financial.Velociraptor

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Re: Blending Dividend Investing and Index Investing
« Reply #3 on: April 24, 2015, 04:27:37 PM »
I'll be the sacrilegious one who says you can beat the index with dividends and other components.  I defer arguments as to why this is possible to James O'Shaughnessy, author of What Works On Wall Street.  But I'll give you the short version.  A long time ago, the author found that companies that paid dividends outperformed.  He also found that companies that bought back their own stock or paid down debt (the three components of "shareholder yield") outperformed as well.  He further found that momentum investing outperforms simple buy and hold.

There is a fund that invests in the companies with the highest shareholder yield and adds an element of momentum investing to determine entry points.  That is Cambria Shareholder Yield (NYSEMKT:SYLD).  I bought shares of SYLD on 28MAY2013 and simultaneously recorded the event in my Motley Fool CAPS to track performance against the S&P index. 

Result per http://caps.fool.com/player/FVelociraptor.aspx?
S&P            26.71%
SYLD          32.97%
Advantage   6.26%

Expense ratio is 0.59% and I leave it to the reader to determine if that is more or less than 6.26% since June 2013.

Or you can listen to skyrefuge who insists the DGI folks have 'drank the Kool-Aid' and are blind to reputed under-performance.

Dodge

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Re: Blending Dividend Investing and Index Investing
« Reply #4 on: April 24, 2015, 07:24:06 PM »
I'll be the sacrilegious one who says you can beat the index with dividends and other components.  I defer arguments as to why this is possible to James O'Shaughnessy, author of What Works On Wall Street.  But I'll give you the short version.  A long time ago, the author found that companies that paid dividends outperformed.  He also found that companies that bought back their own stock or paid down debt (the three components of "shareholder yield") outperformed as well.  He further found that momentum investing outperforms simple buy and hold.

There is a fund that invests in the companies with the highest shareholder yield and adds an element of momentum investing to determine entry points.  That is Cambria Shareholder Yield (NYSEMKT:SYLD).  I bought shares of SYLD on 28MAY2013 and simultaneously recorded the event in my Motley Fool CAPS to track performance against the S&P index. 

Result per http://caps.fool.com/player/FVelociraptor.aspx?
S&P            26.71%
SYLD          32.97%
Advantage   6.26%

Expense ratio is 0.59% and I leave it to the reader to determine if that is more or less than 6.26% since June 2013.

Or you can listen to skyrefuge who insists the DGI folks have 'drank the Kool-Aid' and are blind to reputed under-performance.

Morningstar says this is a Mid-cap fund:



Comparing SYLD (orange), to the Vanguard Mid-cap index (blue), and the Vanguard total market index (green), during the time period you specified:



Mid-cap index: 38%
SYLD: 35%
Total market index: 33%

We see SYLD underperformed the Mid-cap index, and just barely nudged out the total market index.  So, your information is wrong.  In fact, it looks like your data is comparing an S&P500 price chart, to an SYLD total return (price + dividends) chart.  Sure enough, when I pulled up Vanguard's S&P500 price chart, I got a 27% increase:



So, not only are you using the wrong benchmark, it isn't even an apples-to-apples comparison, as your data is explicitly removing dividends from only the benchmark side.  Now, forgetting about SYLD for a moment, let's look at the general statement you're making:

"Companies that paid dividends in the past, ended up outperforming the market as a whole."

Since dividends are just another way to express returns, this statement is the equivalent of:

"Companies that had consistent returns in the past, ended up with more returns than the market as a whole."

That sounds like a reasonable statement to make.  How is that information actionable?  Shall I then invest money in the stocks which have performed well in the past, hoping they will continue to perform well in the future?  Alarm bells should start ringing on that one.  When you think about it, the whole concept sounds downright silly.  If you look at stocks which continually paid dividends over a long period of time, of course they will have beaten the market.  Because when companies are doing well...they continue to pay their dividends.  But it's the fact that the companies did well which caused them to outperform, not the dividends.

Taking that information, and extrapolating it into, "Therefore I should only buy dividend stocks!" is not just silly, it’s illogical.  You can't look at a list of stocks which outperformed, note that almost all of them paid dividends over that period, then expect current dividend stocks to outperform as well.  Correlation does not imply causation.  Example:

------------------------------
Paying dividends are strongly correlated with stocks that outperformed.
Therefore, buying dividend stocks will result in me outperforming.
------------------------------

The above example commits the correlation-implies-causation fallacy, as it prematurely concludes that the same factor which leads to paying dividends, also causes outperformance.  A more plausible explanation is that companies which outperform, continue to pay their dividends, which thereby gives rise to a correlation. So the conclusion is false.
« Last Edit: April 24, 2015, 07:26:53 PM by Dodge »

h2ogal

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Re: Blending Dividend Investing and Index Investing
« Reply #5 on: April 24, 2015, 08:21:15 PM »
Thanks for the thoughts and the links.    I'm getting close to my goal and anxious to get to RE.   I'm becoming susceptible to promises of faster growth.   When you get close to your goal, even saving 50% doesn't make as much of an impact as a few good days in the market .  it can become a little addicting. 

matchewed

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Re: Blending Dividend Investing and Index Investing
« Reply #6 on: April 25, 2015, 06:04:29 AM »
Thanks for the thoughts and the links.    I'm getting close to my goal and anxious to get to RE.   I'm becoming susceptible to promises of faster growth.   When you get close to your goal, even saving 50% doesn't make as much of an impact as a few good days in the market .  it can become a little addicting.

Then you're seeking emotional impact of an increase in your portfolio, that's a dangerous viewpoint for something that needs to last the rest of your life.

Stop and take some time to realize that as you get closer the small swings matter less. Start working on the step(s) after (aka life) if you're that close to your goal and all you're trying to do is eck out a 3% increase over the market.

mrpercentage

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Re: Blending Dividend Investing and Index Investing
« Reply #7 on: April 25, 2015, 08:49:21 AM »
Do not under value the power of dividends. Especially in bad times.



IN FACT BLEND IT WITH THIS ONE INDEXERS.... thanks for making me look. I will be switching ANEFX back to AGTHX

« Last Edit: April 25, 2015, 09:29:59 AM by mrpercentage »

h2ogal

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Re: Blending Dividend Investing and Index Investing
« Reply #8 on: April 25, 2015, 10:47:38 AM »
Quote
Then you're seeking emotional impact of an increase in your portfolio, that's a dangerous viewpoint for something that needs to last the rest of your life.

Stop and take some time to realize that as you get closer the small swings matter less. Start working on the step(s) after (aka life) if you're that close to your goal and all you're trying to do is eck out a 3% increase over the market.

Yup, you Nutshelled it....Im addicted to the emotional boost from seeing the growth of the past few years.   

The other thing is I have some extra cash I've been trying to decide what to do with.....  Since finding this site and bogleheads Im learning so much so fast.  Its hard to make up my mind what to buy because Im literally learning new things daily. 

Dodge

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Re: Blending Dividend Investing and Index Investing
« Reply #9 on: April 25, 2015, 10:52:45 AM »
Do not under value the power of dividends. Especially in bad times.



IN FACT BLEND IT WITH THIS ONE INDEXERS.... thanks for making me look. I will be switching ANEFX back to AGTHX



You're comparing a 70/30 LargeValueStock/bond fund, to the 100% stock S&P500, and concluding that AMECX is safer (despite it's 5.75% load) because of dividends?  That argument is all over the place.  Then you cherry pick a seemingly random fund (again with a 5.75% load), show that it beat the S&P500 in the past, then declare you're moving money into it?  Mrpercentage, seriously, you have a lot to learn in this space, and I'd recommend doing some additional reading before putting your money anywhere.  You are exhiibiting so many negative investor traits, it's genuinely quite worrying.

Let's look at AMECX, and compare it to a portfolio with 70/30 LargeValueStocks/Bonds:





Seems just as safe to me, and it outperformed too.  Let's not forget that these charts don't take into account AMECX's 5.75% load.  That would've brought down the returns of AMECX to 56,113.  Compared to $64,647 with the index.  A 15% increase by going with the index.

Now let's look at the cherry picked AGTHX vs some other index funds with comparable risk:



AGTHX: $43,454 ($40,951 after considering the 5.75% load)
Mid-Cap Growth Index VMGRX: $51,302
Mid-cap Index: $53,343
Small-cap Growth Index: $43,002

Mrpercentage, I implore you.  Sit back, and don't touch anything in your portfolio, until you've done some reading.  I'd start with A Random Walk Down Wall Street, and The Bogleheads Guide To Investing.

Good luck!

matchewed

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Re: Blending Dividend Investing and Index Investing
« Reply #10 on: April 25, 2015, 11:01:42 AM »
Quote
Then you're seeking emotional impact of an increase in your portfolio, that's a dangerous viewpoint for something that needs to last the rest of your life.

Stop and take some time to realize that as you get closer the small swings matter less. Start working on the step(s) after (aka life) if you're that close to your goal and all you're trying to do is eck out a 3% increase over the market.

Yup, you Nutshelled it....Im addicted to the emotional boost from seeing the growth of the past few years.   

The other thing is I have some extra cash I've been trying to decide what to do with.....  Since finding this site and bogleheads Im learning so much so fast.  Its hard to make up my mind what to buy because Im literally learning new things daily.

Then stop trying to apply each new thing you learn daily to your life. Come up with an Investment Policy Statement. Follow that IPS. Then learn. Incorporate within your IPS a periodic review in which you may choose to apply your new found knowledge. I wouldn't put this review on anything shorter than six months. Otherwise you may just end up like a dog chasing a new ball that has been thrown to it. Slow down and choose something solid on which to rest your foundation. Take time to learn and then you can apply. Don't try to do all at once.

scottish

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Re: Blending Dividend Investing and Index Investing
« Reply #11 on: April 25, 2015, 11:54:46 AM »
The IPS is a really good idea.   After decades of investing it's really easy to lose your way and make sub-optimal decisions unless you have some kind of review mechanism.  I wish I'd done this.

jsternitzky

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Re: Blending Dividend Investing and Index Investing
« Reply #12 on: April 25, 2015, 12:28:58 PM »
I have been going heavy on the vanguard S&P 500 index fund (VFIAX).

It is hard to argue against a .05% expense ratio...

Not paying those crazy fees is like an extra dividend in my eyes.

mrpercentage

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Re: Blending Dividend Investing and Index Investing
« Reply #13 on: April 25, 2015, 01:06:48 PM »

Mrpercentage, I implore you.  Sit back, and don't touch anything in your portfolio, until you've done some reading.  I'd start with A Random Walk Down Wall Street, and The Bogleheads Guide To Investing.

Good luck!

I think it illustrates perfectly well the power of dividends. Sales load isn't applied to NAV by the way.

Dodge

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Re: Blending Dividend Investing and Index Investing
« Reply #14 on: April 25, 2015, 02:15:43 PM »

Mrpercentage, I implore you.  Sit back, and don't touch anything in your portfolio, until you've done some reading.  I'd start with A Random Walk Down Wall Street, and The Bogleheads Guide To Investing.

Good luck!

I think it illustrates perfectly well the power of dividends.

You're highlighting the problem.  You posted a fund which has 30% bonds, compared it to a 100% stock fund, and claimed the reason it was safer is because of dividends.  Dividends demonstrably, almost as a rule, fall harder during crashes.  This is not opinion, it's an observational fact.  That's simply the way it is.  So not only did you ignore the effect of bonds, you attributed the safety to dividends when they in fact are less safe, then when shown evidence that dividends weren't a factor and you still underperformed the index, your response is...this?

You are horribly lost here.  To any newbies in the thread, this is a textbook example of what not to do.  Keep it simple, focus on your savings rate, and it's almost a statistical certainty that you'll end up better off than following mrpercentage.

mrpercentage

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Re: Blending Dividend Investing and Index Investing
« Reply #15 on: April 25, 2015, 02:33:22 PM »

Mrpercentage, I implore you.  Sit back, and don't touch anything in your portfolio, until you've done some reading.  I'd start with A Random Walk Down Wall Street, and The Bogleheads Guide To Investing.

Good luck!

I think it illustrates perfectly well the power of dividends.

You're highlighting the problem.  You posted a fund which has 30% bonds, compared it to a 100% stock fund, and claimed the reason it was safer is because of dividends.  Dividends demonstrably, almost as a rule, fall harder during crashes.  This is not opinion, it's an observational fact.  That's simply the way it is.  So not only did you ignore the effect of bonds, you attributed the safety to dividends when they in fact are less safe, then when shown evidence that dividends weren't a factor and you still underperformed the index, your response is...this?

You are horribly lost here.  To any newbies in the thread, this is a textbook example of what not to do.  Keep it simple, focus on your savings rate, and it's almost a statistical certainty that you'll end up better off than following mrpercentage.

Im NAV dude. I am the blue line. I was showing that something that was "underperforming" your beloved 500 was in fact beating the shit out of it. I was showing how even an income fund can beat the shit out of it. I was showing that the market when managed properly can be beat. Did you look at AMECX's blue line? Because as an actual owner of an account I can say it fell less. It fell less. Income [dividend] is safer depending on the market. Now if your argument is that interest rate will highly damage it-- maybe.. but not in the last 20 years sir. Look at the blue line. That is in fact me.

But a new question.. what will be hurt worse if interest rates rise? The dividend fund or the the bonds you are holding. Its my understanding that bonds can lose 7% of trading principle for every 1 point the interest rate is raised above the current one. That is of course unless you use an adjustable interest rate bond.
« Last Edit: April 25, 2015, 03:44:45 PM by mrpercentage »

Wadiman

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Re: Blending Dividend Investing and Index Investing
« Reply #16 on: April 25, 2015, 03:27:37 PM »
Dodge -

Side-topic - Is the portfolio modelling tool that you have shown an extract from above a freely available product or is it part of a fee-for-service product?

Thanks!

Dodge

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Re: Blending Dividend Investing and Index Investing
« Reply #17 on: April 25, 2015, 03:58:59 PM »
Dodge -

Side-topic - Is the portfolio modelling tool that you have shown an extract from above a freely available product or is it part of a fee-for-service product?

Thanks!

Here you go!

https://www.portfoliovisualizer.com/

Specifically:

https://www.portfoliovisualizer.com/backtest-portfolio

mrpercentage

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Re: Blending Dividend Investing and Index Investing
« Reply #18 on: April 25, 2015, 04:02:46 PM »

AGTHX: $43,454 ($40,951 after considering the 5.75% load)
Mid-Cap Growth Index VMGRX: $51,302
Mid-cap Index: $53,343
Small-cap Growth Index: $43,002


Uh, you removed all the dividend reinvestment dude. Mine [AMECX] pays 4.5% @NAV and when reinvested it beat the S&P 500 for over a decade. Nice try though

divinvestor

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Re: Blending Dividend Investing and Index Investing
« Reply #19 on: April 25, 2015, 04:06:07 PM »

Mrpercentage, I implore you.  Sit back, and don't touch anything in your portfolio, until you've done some reading.  I'd start with A Random Walk Down Wall Street, and The Bogleheads Guide To Investing.

Good luck!

I think it illustrates perfectly well the power of dividends.

You're highlighting the problem.  You posted a fund which has 30% bonds, compared it to a 100% stock fund, and claimed the reason it was safer is because of dividends.  Dividends demonstrably, almost as a rule, fall harder during crashes.  This is not opinion, it's an observational fact.  That's simply the way it is.  So not only did you ignore the effect of bonds, you attributed the safety to dividends when they in fact are less safe, then when shown evidence that dividends weren't a factor and you still underperformed the index, your response is...this?

You are horribly lost here.  To any newbies in the thread, this is a textbook example of what not to do.  Keep it simple, focus on your savings rate, and it's almost a statistical certainty that you'll end up better off than following mrpercentage.

Dodge,

Can you provide some data and evidence that backs up your assertion that dividend-paying stocks fall more during hard times in the market than non-dividend stocks? All of my research has shown the opposite but maybe I'm mistaken.

Dodge

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Re: Blending Dividend Investing and Index Investing
« Reply #20 on: April 25, 2015, 04:24:14 PM »

Mrpercentage, I implore you.  Sit back, and don't touch anything in your portfolio, until you've done some reading.  I'd start with A Random Walk Down Wall Street, and The Bogleheads Guide To Investing.

Good luck!

I think it illustrates perfectly well the power of dividends.

You're highlighting the problem.  You posted a fund which has 30% bonds, compared it to a 100% stock fund, and claimed the reason it was safer is because of dividends.  Dividends demonstrably, almost as a rule, fall harder during crashes.  This is not opinion, it's an observational fact.  That's simply the way it is.  So not only did you ignore the effect of bonds, you attributed the safety to dividends when they in fact are less safe, then when shown evidence that dividends weren't a factor and you still underperformed the index, your response is...this?

You are horribly lost here.  To any newbies in the thread, this is a textbook example of what not to do.  Keep it simple, focus on your savings rate, and it's almost a statistical certainty that you'll end up better off than following mrpercentage.

Dodge,

Can you provide some data and evidence that backs up your assertion that dividend-paying stocks fall more during hard times in the market than non-dividend stocks? All of my research has shown the opposite but maybe I'm mistaken.

Regarding dividend funds/stocks crashing harder.  I first noticed this in a thread about dividends, where a hot-shot dividend investor was being interviewed about how dividend stocks always outperform.  I pulled up his biggest fund, the WisdomTree Total Dividend Fund (their total dividend index fund - DTD), a dividend fund with about 1000 stocks in the US, listed on the NYSE, AMEX or NASDAQ Global Market, which pay regular cash dividends, and plotted it against the market index (VTSAX - blue line):



Then I plotted their Small Cap dividend fund (DES), one of their biggest funds in terms of dollars invested:



A $900,000 portfolio, would have dropped to $315,000 during the last crash.  While not all dividend funds were this bad, they all had a commonality to them...they all dropped harder in 2008-2009 than the market.  By going this route, you have the worst of both worlds during a bear market.  Lower gains than 100% bonds, and higher risk than 100% stocks.

I noticed this time and time again, every dividend fund I looked at, no matter who was behind it, crashed harder, but I didn't have a good reason why it happens so uniformly across dividend stocks, until I saw Skyrefuge's recent post:

http://forum.mrmoneymustache.com/investor-alley/ive-decided-on-vanguard-but-need-some-help-please/msg584803/#msg584803

Dodge

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Re: Blending Dividend Investing and Index Investing
« Reply #21 on: April 25, 2015, 04:40:43 PM »
Mrpercentage, it's clear you aren't following my argument, or the data I've posted.  This is showing more and more with each subsequent post.  Literally nothing you've said actually counters my assertion.  Again, I implore you, do some reading, and don't make any follow-up arguments until you understand my posts.  I'm not saying you have to agree with them, but you should be able to follow along, and understand my reasoning.  Then if you still disagree, you can make counter points which actually address what I'm saying.

mrpercentage

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Re: Blending Dividend Investing and Index Investing
« Reply #22 on: April 25, 2015, 04:58:32 PM »
Mrpercentage, it's clear you aren't following my argument, or the data I've posted.  This is showing more and more with each subsequent post.  Literally nothing you've said actually counters my assertion.  Again, I implore you, do some reading, and don't make any follow-up arguments until you understand my posts.  I'm not saying you have to agree with them, but you should be able to follow along, and understand my reasoning.  Then if you still disagree, you can make counter points which actually address what I'm saying.

Did I cherry pick those funds? You bet. Nothing but the best for my kids. Don't pretend an index always wins. They don't.
Since you are in the industry I suggest working for Capitol Group. They take care of their employees, their kids, and their grand kids. They ensure they can always beat the market without trying.
Cherry picking wisdom tree is crap. Im not talking about crap, Im talking about American Funds. They can beat the market for you too- even with a 5.75% load. As long as you are smart and don't think throwing around your funds a lot are going to beat the best minds in the industry. It won't unless you have NAV.
You come across as condescending. My actually money was in the account at bad times. Chew on those charts I posted and look at the numbers. They are real

mrpercentage

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Re: Blending Dividend Investing and Index Investing
« Reply #23 on: April 25, 2015, 05:33:53 PM »
Top of the world Mom! Thank you for the NAV for me and my kids

Wadiman

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Re: Blending Dividend Investing and Index Investing
« Reply #24 on: April 25, 2015, 09:36:47 PM »
Dodge -

Side-topic - Is the portfolio modelling tool that you have shown an extract from above a freely available product or is it part of a fee-for-service product?

Thanks!

Here you go!

https://www.portfoliovisualizer.com/

Specifically:

https://www.portfoliovisualizer.com/backtest-portfolio

Thanks Dodge - will see if i can find something similar for the australian market

mrpercentage

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Re: Blending Dividend Investing and Index Investing
« Reply #25 on: April 25, 2015, 11:32:53 PM »
I will read that book since it has come up a lot. Perhaps a better argument would have been posting the payout vs dividend reinvestment. Correct me if I'm wrong here but isn't Amecx a large cap dividend fund? Perhaps less vulnerable to a market crash

Dodge

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Re: Blending Dividend Investing and Index Investing
« Reply #26 on: April 26, 2015, 12:22:50 AM »
I will read that book since it has come up a lot. Perhaps a better argument would have been posting the payout vs dividend reinvestment. Correct me if I'm wrong here but isn't Amecx a large cap dividend fund? Perhaps less vulnerable to a market crash

AMECX is 70/30 stocks bonds:



Let's see how AMECX (Portfolio 2 below) did during the last crash, vs the comparable 70/30 index (Portfolio 1 below), and the 100% stock market index (Portfolio 3 below):




We can see that it's safety compared to the 100% market index, is attributed to it's allocation to bonds, as it performed similarly to the 70/30 index during the crash.  AMECX in fact holds almost 10x more unique bonds than unique stocks:



Wow, a 47% turnover is huge!  I guess when you're only holding 150 stocks you feel the need to swap almost half of them out every year?  Unfortunately, this causes a huge tax drag:



Compare the Pretax return, with the Tax-adjusted return, and you'll see this penalty in effect.  The tax penalty on a 1 year holding of AMECX was 7.5%!  Turning a 6.6% gain into a -1.09% loss.  On the comparable indexes, the penalty was only 2% and 1%.  I hope you aren't holding this in a taxable account...

Anyway, yes, you can see in the chart above (which has all dividends reinvested) that AMECX indeed crashed a bit harder than it's index, showing that the dividend component to AMECX provided no additional safety.  On the contrary, it likely contributed to its further decline.

peterpatch

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Re: Blending Dividend Investing and Index Investing
« Reply #27 on: April 26, 2015, 02:48:58 PM »
I've done index investing for the past 10+ years, and never figured I would change, but after reading Spoonman's Journal, my interest is getting drawn to Dividend investing. 

There are some interesting aspects to it; the potential for higher yields, the purity of not touching the principle investment, the potential to realize gains even during long flat periods in the equities market....


I would be interested in hearing from those who have looked into this.

I do some active investing, dividends are a factor but I look at a variety of other things as well. I don't like the term "dividend investing" in this context. Index investing has a much more narrow and concrete meaning then the term "dividend investing". This makes it almost impossible to make a coherent argument for either side because I am sure people have wildly different ideas of what "dividend investing" means.

Dividend investing could mean a variety of things like:

1. Investing only in stocks that pay a cash dividend
2. Investing only in stocks that have a notion of shareholder yield (buybacks, dividends, lowering debt etc.)
3. Investing only in stocks that regularly increase their cash dividend
4. Investing only in stocks that have a relatively high yield vs other stocks (dogs of the dow type of strategy)
 
etc.


mrpercentage

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Re: Blending Dividend Investing and Index Investing
« Reply #28 on: April 26, 2015, 06:42:45 PM »
You won't convince me to leave American Funds at NAV. You also won't convince me that small and mid cap higher volatility index will respond the same as a large cap low volatility high yeild fund. The idea was to show the positive gains of dividends.
You wont convince me I am a bad example either. Or that mutual funds are always a bad idea. I would go even further and say that in some cases that sales load will save somebody money who might think they can out smart the market by shuffling their index around.

hold on I will show you the power of dividends in a minute

Cathy

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Re: Blending Dividend Investing and Index Investing
« Reply #29 on: April 26, 2015, 06:55:32 PM »
...Sales load isn't applied to NAV by the way.
...Im NAV dude. I am the blue line....
...Uh, you removed all the dividend reinvestment dude. Mine [AMECX] pays 4.5% @NAV and when reinvested it beat the S&P 500 for over a decade. Nice try though
...Im not talking about crap, Im talking about American Funds. They can beat the market for you too- even with a 5.75% load. As long as you are smart and don't think throwing around your funds a lot are going to beat the best minds in the industry. It won't unless you have NAV.
Top of the world Mom! Thank you for the NAV for me and my kids
You won't convince me to leave American Funds at NAV.

Have you explained what you mean by "NAV" in each of the quotes bolded above? "Net asset value" doesn't make sense for most of those quotes. "Navistar International Corp" (ticker symbol NAV) might make sense for some of the quotes, but not for all of them. Are you saying that your big market-beating technique is owning the company NAV?

mrpercentage

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Re: Blending Dividend Investing and Index Investing
« Reply #30 on: April 26, 2015, 06:56:06 PM »
Here you go.. dividends taken in cash vs reinvesting. Chew on that




mrpercentage

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Re: Blending Dividend Investing and Index Investing
« Reply #31 on: April 26, 2015, 07:34:59 PM »
...Sales load isn't applied to NAV by the way.
...Im NAV dude. I am the blue line....
...Uh, you removed all the dividend reinvestment dude. Mine [AMECX] pays 4.5% @NAV and when reinvested it beat the S&P 500 for over a decade. Nice try though
...Im not talking about crap, Im talking about American Funds. They can beat the market for you too- even with a 5.75% load. As long as you are smart and don't think throwing around your funds a lot are going to beat the best minds in the industry. It won't unless you have NAV.
Top of the world Mom! Thank you for the NAV for me and my kids
You won't convince me to leave American Funds at NAV.

Have you explained what you mean by "NAV" in each of the quotes bolded above? "Net asset value" doesn't make sense for most of those quotes. "Navistar International Corp" (ticker symbol NAV) might make sense for some of the quotes, but not for all of them. Are you saying that your big market-beating technique is owning the company NAV?

Im listening Cathy. When you are all done attacking my fund spreading the love of index. Please explain how a dividend reinvestment strategy doesn't work. From my view you guys look totally retarded. Im not trying to insult anyone. Im saying I must view you in the same way you apparently see me. When somebody slaps up figures that don't match the performance I see, I rightfully question it. Dividends are powerful.. Specifically large cap- low volatility- high yield-- when you are all done attacking me because I have the audacity to:
Invest for my kids
Use mutual funds
Invest in very success large companies with a promising future who are beating your indexs-- I am beating your indexs over all thank you
Invest my saving-- okay that might be stupid.. I should pull out of Betterment and index all together and keep more cash
Not to mention Im backed by a pension, have no debt, my cars paid off..
Im a bad example huh.. well you are all very poor judges. Im okay with be a bad example then.

kendallf

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Re: Blending Dividend Investing and Index Investing
« Reply #32 on: April 26, 2015, 08:50:23 PM »
Quote

Have you explained what you mean by "NAV" in each of the quotes bolded above? "Net asset value" doesn't make sense for most of those quotes. "Navistar International Corp" (ticker symbol NAV) might make sense for some of the quotes, but not for all of them. Are you saying that your big market-beating technique is owning the company NAV?

Quote
Im a bad example huh.. well you are all very poor judges. Im okay with be a bad example then.

How do we put this politely?  She's asking you, very literally, what your acronym "NAV" means.  That's all. 

You may be a paragon of well managed personal finance.  Nobody's asking about that here.  They're commenting on your investment posts, which, to be as charitable as possible, read like garbled stream of consciousness rants.

Runge

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Re: Blending Dividend Investing and Index Investing
« Reply #33 on: April 26, 2015, 09:08:26 PM »
Here you go.. dividends taken in cash vs reinvesting. Chew on that
...extremely large image...


...extremely large image 2...

So all I gathered from that was that the net asset value of a portfolio that reinvests dividends is much higher than the same portfolio that doesn't reinvest dividends. Well...I mean...that's pretty obvious, even if it's not understood that a company giving a dividend and the investor reinvesting in said company is no different than that company not giving a dividend and instead reinvesting that money themselves.

Is the point you're trying to make that by reinvesting dividends, you get a higher net asset value in the end? If so, then I think it's safe to say that everyone will agree with you on that point.

waltworks

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Re: Blending Dividend Investing and Index Investing
« Reply #34 on: April 27, 2015, 10:04:26 AM »
Jeebus. Yes, reinvesting your dividends makes you more money than buying yourself hookers and blow and fast food with them.

It also has no bearing on the question of what produces the best total returns, or what's the least volatile, etc. Please, please listen to Dodge.

-W

mrpercentage

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Re: Blending Dividend Investing and Index Investing
« Reply #35 on: April 27, 2015, 10:44:59 AM »
Okay Im being unclear.

NAV [net asset value]: 1. hey Im happy with the deal I have please don't try to sell me an index 2. can we get back to how dividend focused investing can stabilize your portfolio 3. Im really not interested in discussing fees Im trying to show you how a focus of dividends can reduce the downside on your portfolio 4. I do realize it would be unfair to compare a fund without discussing fees but I don't want to compare funds I want to talk about how dividend focused investing can produce results

Dividends keep popping out even when the principle is lowering due to the market. Even if a stock you hold is losing value you might be out performing the S&P 500 if you are reinvesting your dividends. Your upside is from increased shares not capitol gains--its from the shares you have increasing and increasing the dividends returned now that you have more shares.

Taxes matter more for non retirement accounts. Lack of sleep plays with clarity, sorry about that

FIRE4Science

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Re: Blending Dividend Investing and Index Investing
« Reply #36 on: April 27, 2015, 10:46:27 AM »
Well, just like how anyone can start a business or a dividend portfolio, so too can anyone start a fund and get customers to invest into their picks with customer money and fee them.

Taking control of your money may pay out more, just like when you take control of your finances and life's limited time.

waltworks

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Re: Blending Dividend Investing and Index Investing
« Reply #37 on: April 27, 2015, 10:53:30 AM »
Dividends often get cut in bad times, and if you'd read the link to the earlier thread about this, or listened to anything Dodge had to say, high dividend paying stocks *crash harder* in a downturn.

If you are concerned with overall returns, focusing on dividends is a bad idea. It's not horrible, it's just not optimal. You will end up with more money by just buying everything, dividend paying or not. If you are combining that with picking individual dividend stocks... well, then you're picking stocks, and that's almost universally considered a terrible idea, but it's a different discussion.

The fee and tax drags are significant too, of course.

-W

Dividends keep popping out even when the principle is lowering due to the market. Even if a stock you hold is losing value you might be out performing the S&P 500 if you are reinvesting your dividends. Your upside is from increased shares not capitol gains--its from the shares you have increasing and increasing the dividends returned now that you have more shares.

Scandium

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Re: Blending Dividend Investing and Index Investing
« Reply #38 on: April 27, 2015, 11:29:45 AM »
mrpercentage invest in individual stocks and front-load, managed mutual funds. I think I also saw him say he was going to spend thousands on the latest iPhone an/or apple watch. What exactly is he doing on this forum? Don't know if there is anywhere on the internet less aligned with his interests.
Is he really MMM trolling in his off-hours?

mrpercentage

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Re: Blending Dividend Investing and Index Investing
« Reply #39 on: April 27, 2015, 11:30:46 AM »
Dividends often get cut in bad times, and if you'd read the link to the earlier thread about this, or listened to anything Dodge had to say, high dividend paying stocks *crash harder* in a downturn.

If you are concerned with overall returns, focusing on dividends is a bad idea. It's not horrible, it's just not optimal. You will end up with more money by just buying everything, dividend paying or not. If you are combining that with picking individual dividend stocks... well, then you're picking stocks, and that's almost universally considered a terrible idea, but it's a different discussion.

The fee and tax drags are significant too, of course.

-W

Dividends keep popping out even when the principle is lowering due to the market. Even if a stock you hold is losing value you might be out performing the S&P 500 if you are reinvesting your dividends. Your upside is from increased shares not capitol gains--its from the shares you have increasing and increasing the dividends returned now that you have more shares.

If you are talking about REIT's with 8+ %  yes they will crash. If you are talking about a well established large cap that does not have explosive growth-- well the market tends to rally around those.
Look an index can be a good deal, but be careful playing with index strategy. I can save a lot of money being my own security guard but I might just get the crap knocked out of me... it is hubris to think that the sales load of a fund is for nothing-- or to think that by picking up a few index's you can better secure your money then having someone who has done this for 30 years handle it.

waltworks

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Re: Blending Dividend Investing and Index Investing
« Reply #40 on: April 27, 2015, 11:42:01 AM »
I'm not sure,  might be too incoherent to be a troll. Then again, maybe that's part of the fun?

Anyway, yeah, no reason to keep trying - I'm not sure anyone is home.

-W

Dodge

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Re: Blending Dividend Investing and Index Investing
« Reply #41 on: April 27, 2015, 11:55:59 AM »
Help us out here.  If you can answer this question, it would go a long way to helping us understand how to respond to your posts.

If you are talking about a well established large cap that does not have explosive growth-- well the market tends to rally around those.

I posted indisputable evidence that in fact, this does not happen.  How do you respond to that?

Dodge

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Re: Blending Dividend Investing and Index Investing
« Reply #42 on: April 27, 2015, 12:10:00 PM »
I'm not sure,  might be too incoherent to be a troll. Then again, maybe that's part of the fun?

Anyway, yeah, no reason to keep trying - I'm not sure anyone is home.

-W



https://www.youtube.com/watch?v=GipZ0cC7IE8

frugalnacho

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Re: Blending Dividend Investing and Index Investing
« Reply #43 on: April 27, 2015, 12:12:09 PM »
Baba Booey! Baba Booey! Howard Stern's penis!

mrpercentage

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Re: Blending Dividend Investing and Index Investing
« Reply #44 on: April 27, 2015, 01:05:17 PM »

and the bumble bee can't fly and Warren Buffets method doesn't work. Indisputable nothing. SOME strategies can not be reproduced indexing indexers. Because some strategies require you work with the strong. Read Neitzche.. and numbers.. okay look at the price of Disney and Apple and go back to the post "Can't beat an index" and look up what the price was when I told you to buy. Indisputable what? Results.. thats what I thought. You can't blanket buy everything and expect to beat the market without wrecking the whole damn thing for everyone. You want to index fine-- stick with the 500-- but if you have 10 million dollars and want to gain money without losing it to a dumbass-- you might want to consider Class A share's.

« Last Edit: April 27, 2015, 01:12:37 PM by mrpercentage »

frugalnacho

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Re: Blending Dividend Investing and Index Investing
« Reply #45 on: April 27, 2015, 01:19:27 PM »





Runge

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Re: Blending Dividend Investing and Index Investing
« Reply #46 on: April 27, 2015, 02:16:06 PM »

Dodge

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Re: Blending Dividend Investing and Index Investing
« Reply #47 on: April 27, 2015, 03:54:08 PM »

and the bumble bee can't fly and Warren Buffets method doesn't work. Indisputable nothing. SOME strategies can not be reproduced indexing indexers. Because some strategies require you work with the strong. Read Neitzche.. and numbers.. okay look at the price of Disney and Apple and go back to the post "Can't beat an index" and look up what the price was when I told you to buy. Indisputable what? Results.. thats what I thought. You can't blanket buy everything and expect to beat the market without wrecking the whole damn thing for everyone. You want to index fine-- stick with the 500-- but if you have 10 million dollars and want to gain money without losing it to a dumbass-- you might want to consider Class A share's.

Mrpercentage, I understand your stance on this.  Let's do this.  I'm going to ask a Yes or No question.  Please, please, please, simply answer with "Yes" or "No".  Seriously.  Nothing else.  Simply "Yes", or "No".

Question 1:  "Dividends crash less during a downturn, as evidenced by this AMECX chart."  Does this accurately portray your stance?

Yes or No?

DavidAnnArbor

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Re: Blending Dividend Investing and Index Investing
« Reply #48 on: April 27, 2015, 08:49:57 PM »
You want to index fine-- stick with the 500-- but if you have 10 million dollars and want to gain money without losing it to a dumbass-- you might want to consider Class A share's.
For buying individual stocks:
According to Investopedia, "Although Class A shares are often thought to carry more voting rights than Class B shares, this is not always the case. Companies will often try to disguise the disadvantages associated with owning shares with fewer voting rights by naming those shares 'Class A,' and those with more voting rights 'Class B.' "
http://www.investopedia.com/terms/c/classashares.asp#ixzz3YZIL38K3

For buying mutual funds:
 "Whenever you see alphabet soup, i.e., Class A, Class B and Class C shares, when shopping for mutual funds, it means you're paying a load. A load is a sales commission; the letter just tells you when you'll get nicked for it. "
http://www.bankrate.com/brm/news/dollardiva/20020110a.asp

Therefore, I don't see class A shares as an advantage.

Wadiman

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Re: Blending Dividend Investing and Index Investing
« Reply #49 on: April 27, 2015, 09:11:32 PM »
Love this thread - it's providing great entertainment!