I've always been more into picking all my own stocks, but I was wondering what you guys think of some of the dividend ETFs. I think something like DVY might be ok for a certain % of your allocation. Also, I was looking at something like PGX as a way to get some easy exposure to preferred shares.
Thoughts on Dividend ETF's
I think dividend ETF's are fine, but I like individually picking stocks better. With that being said, I have about 1% of my dividend portfolio in DVY.
PGX looks very similar to PFF which I own. Both look to be big into financial preferred shares.
IMO ETF's have there place. Just like anything else though, dont over do it.
PGX looks very similar to PFF which I own. Both look to be big into financial preferred shares.
IMO ETF's have there place. Just like anything else though, dont over do it.
WisdomTree has a number of dividend etf's that you may want to look at. I personally haven't been interested in them because: (1) i'm not seeking dividends, (2) there's some evidence to suggest that dividend based portfolio's have lower return than portfolios based on other measures like book to market, (3) i'm unsure about the volume of the wisdomtree funds -- they may be thinly traded, and (4) I question wisdomtree's ability to be around in 10, 20, 30 years.
If you need cash from your portfolio and prefer not to sell, some other options include bond funds, REITS, and index/etfs designed to produce income like VTINX.
Finally, I have a question for people with dividend producing portfolios: how did you structure your portfolio to avoid taxes during accumulation before you are ER and can use the cashflow?
If you need cash from your portfolio and prefer not to sell, some other options include bond funds, REITS, and index/etfs designed to produce income like VTINX.
Finally, I have a question for people with dividend producing portfolios: how did you structure your portfolio to avoid taxes during accumulation before you are ER and can use the cashflow?
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George the original one
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> Finally, I have a question for
> people with dividend producing
> portfolios: how did you structure
> your portfolio to avoid taxes
> during accumulation before you are
> ER and can use the cashflow?
I haven't bothered to worry about it as I have a considerable amount of flexibility in my budget (e.g. there's something like $6k/yr of unassigned budget and that can eventually fund the taxes for $20k+/yr income).
Since I'm aiming for ER, the bulk of my money is in retirement accounts and I'll be using the taxable money for 3-5 years before tapping retirement funds. Because of my pension terms, I'd be throwing away $100-200k by exiting the workforce more than 5 years before my earliest retirement date.
If I were planning on ERE (5-7 yrs), then I'd seriously consider keeping the majority of the money in municipal bond funds, even funds focused on Oregon (my state of residence) that only return 3.5-5%. When going for ERE, one shouldn't obsess about returns, so return of principal is most important. At the time of ERE, then I'd aim for a portfolio dividend of at least 5% with whatever mix one is comfortable with.
******
@Clarky - PGX looks like a good idea for preferred shares. DVY's yield is only 3.6%. That's higher than the average yield of the stocks in major indexes that have a yield, so that's good. On the negatives, however:
- 3.6% is lower than typical 4% SWR, so you'd need 27x annual income or else you'd need to sell things to maintain an income or it would have to be balanced with other portfolio components
- it is significantly lower than my target yield of 6.5%
- YTD market return of -1.5% vs. my own +10% (without yield), so you're not getting the benefit of capital appreciation to make up for the low yield
> people with dividend producing
> portfolios: how did you structure
> your portfolio to avoid taxes
> during accumulation before you are
> ER and can use the cashflow?
I haven't bothered to worry about it as I have a considerable amount of flexibility in my budget (e.g. there's something like $6k/yr of unassigned budget and that can eventually fund the taxes for $20k+/yr income).
Since I'm aiming for ER, the bulk of my money is in retirement accounts and I'll be using the taxable money for 3-5 years before tapping retirement funds. Because of my pension terms, I'd be throwing away $100-200k by exiting the workforce more than 5 years before my earliest retirement date.
If I were planning on ERE (5-7 yrs), then I'd seriously consider keeping the majority of the money in municipal bond funds, even funds focused on Oregon (my state of residence) that only return 3.5-5%. When going for ERE, one shouldn't obsess about returns, so return of principal is most important. At the time of ERE, then I'd aim for a portfolio dividend of at least 5% with whatever mix one is comfortable with.
******
@Clarky - PGX looks like a good idea for preferred shares. DVY's yield is only 3.6%. That's higher than the average yield of the stocks in major indexes that have a yield, so that's good. On the negatives, however:
- 3.6% is lower than typical 4% SWR, so you'd need 27x annual income or else you'd need to sell things to maintain an income or it would have to be balanced with other portfolio components
- it is significantly lower than my target yield of 6.5%
- YTD market return of -1.5% vs. my own +10% (without yield), so you're not getting the benefit of capital appreciation to make up for the low yield
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Steve Austin
- Posts: 177
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I also haven't made a big distinction between accumulation and steady state of the portfolio. I try to minimize Federal taxation whatever my situation, pre-, post-, or anywhere in between.
General rules of thumb for my arrangements: REIT and preferred share payouts are in the IRA and RIRA; qualified dividend and municipal bond ETF payouts are in the taxable account; have an exception of one qualified dividend payer in the RIRA due to high taxable income in the near term and wishing to maximize cash accum in the taxable account.
General rules of thumb for my arrangements: REIT and preferred share payouts are in the IRA and RIRA; qualified dividend and municipal bond ETF payouts are in the taxable account; have an exception of one qualified dividend payer in the RIRA due to high taxable income in the near term and wishing to maximize cash accum in the taxable account.
@photoguy - there's some evidence to suggest that dividend based portfolio's have lower return than portfolios based on other measures like book to market
That may or may not be true, but it really doesn't matter. I like to diversify my investing style so that I have a better chance to do well in various economic and market cycles. For the equity portion of my portfolio, I do both "total return" and "dividend growth" investing.
With dividend growth, I look to the underlying business and its ability to regularly grow its dividend in the future. My income is based on what the business earns and distributes rather than what the market thinks the business is worth. In other words, I do not have to dip into principal to pay living expenses.
With total return, my income is based on both dividends and capital gains. While dividends are still based on the quality of the underlying business (and its Board of Director's willingness to distribute part of its earnings in the form of a dividend), the capital gain portion is based on selling an appreciating asset. As long as the market is willing to pay a good price for an asset that has appreciated, I'm OK. But in secular bear markets, P/E ratios often contract because the market is not willing to pay as much for a dollar of earnings as it was during a secular bull market. So even if a business is doing well, it may decline in price and a sale results in a capital loss (or a reduced capital gain if I've owned the business for a long period of time).
I've been studying "Fail-Safe Investing" by Harry Browne and his permanent portfolio idea for further diversification because I believe times are going to get very wild for the next several years. I hope I'm wrong, but I want a portion of my income-producing assets invested in this manner in case I'm not wrong about the future.
I keep at least a year's worth of expenses in cash (and will be increasing this reserve) so that I won't be forced to sell when the market is down to pay living expenses. Dividends also reduce this need to sell, but my income from dividends alone isn't enough yet to support me fully.
That may or may not be true, but it really doesn't matter. I like to diversify my investing style so that I have a better chance to do well in various economic and market cycles. For the equity portion of my portfolio, I do both "total return" and "dividend growth" investing.
With dividend growth, I look to the underlying business and its ability to regularly grow its dividend in the future. My income is based on what the business earns and distributes rather than what the market thinks the business is worth. In other words, I do not have to dip into principal to pay living expenses.
With total return, my income is based on both dividends and capital gains. While dividends are still based on the quality of the underlying business (and its Board of Director's willingness to distribute part of its earnings in the form of a dividend), the capital gain portion is based on selling an appreciating asset. As long as the market is willing to pay a good price for an asset that has appreciated, I'm OK. But in secular bear markets, P/E ratios often contract because the market is not willing to pay as much for a dollar of earnings as it was during a secular bull market. So even if a business is doing well, it may decline in price and a sale results in a capital loss (or a reduced capital gain if I've owned the business for a long period of time).
I've been studying "Fail-Safe Investing" by Harry Browne and his permanent portfolio idea for further diversification because I believe times are going to get very wild for the next several years. I hope I'm wrong, but I want a portion of my income-producing assets invested in this manner in case I'm not wrong about the future.
I keep at least a year's worth of expenses in cash (and will be increasing this reserve) so that I won't be forced to sell when the market is down to pay living expenses. Dividends also reduce this need to sell, but my income from dividends alone isn't enough yet to support me fully.
I think there are some pretty interesting ideas in Harry Browne's permanent portfolio, however I would be concerned about getting into it now after the risk has essentially shown up and many investors are pouring tons of money into this. A long time follower of PP would probably be selling gold now to rebalance whereas someone starting a PP would be buying gold at record prices.
As discussed in other posts on the forum, PP takes into account the high/low prices. So, even if we do buy into gold on the high side, it could go even higher.
At the meet-up, Jacob talked about buying antiques for the gold portion - guns and tools, for example. I think this might work, but I think in the long run I would rather have the actual gold coins (smaller/compact) that a bunch of old guns and tools...tho, having tools in kits as someone else said in yet another post sounds reasonable to me. Like an EDC bag/bug out back (as described in Emergency)
At the meet-up, Jacob talked about buying antiques for the gold portion - guns and tools, for example. I think this might work, but I think in the long run I would rather have the actual gold coins (smaller/compact) that a bunch of old guns and tools...tho, having tools in kits as someone else said in yet another post sounds reasonable to me. Like an EDC bag/bug out back (as described in Emergency)
@photoguy, clarky07
By design the permanent portfolio will always have at least one asset rallying. Accordingly, one asset will always feel overpriced. Part of using the PP is accepting that we can't predict any of these valuations a priori, so we might as well hold a diverse blend of assets at all times. Rebalancing forces you to buy low and sell high and avoid getting carried away by overvalued markets.
By design the permanent portfolio will always have at least one asset rallying. Accordingly, one asset will always feel overpriced. Part of using the PP is accepting that we can't predict any of these valuations a priori, so we might as well hold a diverse blend of assets at all times. Rebalancing forces you to buy low and sell high and avoid getting carried away by overvalued markets.
"Rebalancing forces you to buy low and sell high and avoid getting carried away by overvalued markets."
I think this is generally true if you've had your asset allocation for a long time or are gradually investing in it. However if you are making a major shift then rebalancing doesn't really protect you.
However, valuations still matter even for the PP-- if they didn't there wouldn't be a large difference between time weighted and dollar weighted returns. To quote W. Bernstein on the PP "As you might expect, you can drive a small pickup truck between the fund's time-weighted returns (10.10% annualized for the 10-year period ending 7/31/10) and dollar-weighted returns (6.41%)."
@cashflow -- I understand your point about diversification, however, for myself I wouldn't go so far as to say that expected returns don't matter. They do (and for me *alot*), but they also have to be considered with other factors which may be unique to each investor.
I think this is generally true if you've had your asset allocation for a long time or are gradually investing in it. However if you are making a major shift then rebalancing doesn't really protect you.
However, valuations still matter even for the PP-- if they didn't there wouldn't be a large difference between time weighted and dollar weighted returns. To quote W. Bernstein on the PP "As you might expect, you can drive a small pickup truck between the fund's time-weighted returns (10.10% annualized for the 10-year period ending 7/31/10) and dollar-weighted returns (6.41%)."
@cashflow -- I understand your point about diversification, however, for myself I wouldn't go so far as to say that expected returns don't matter. They do (and for me *alot*), but they also have to be considered with other factors which may be unique to each investor.
Sure. But how can you be certain that gold is overvalued at 1275? If it is, what is the correct price right now? 1200? 600? It's easy to answer those questions in hindsight but impossible to answer in the present.
If I'm not mistaken Bernstein advocates fixed asset allocations, albeit to different assets.
If I'm not mistaken Bernstein advocates fixed asset allocations, albeit to different assets.
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Dividend Growth Investor
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- Contact:
I would be careful with Dividend Etf's:
Asides from paying a high fee to someone to manage your money, dividend etfs might be overweighting certain sectors or could be slow to react to certain changes in the indexes they represent:
http://www.dividendgrowthinvestor.com/2 ... tocks.html
In the world of zero cost stock trading, ETFs or Mutual funds are not a good vehicle for the investor who wants to retire early.
Asides from paying a high fee to someone to manage your money, dividend etfs might be overweighting certain sectors or could be slow to react to certain changes in the indexes they represent:
http://www.dividendgrowthinvestor.com/2 ... tocks.html
In the world of zero cost stock trading, ETFs or Mutual funds are not a good vehicle for the investor who wants to retire early.
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Dividend Growth Investor
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- Joined: Thu Jul 22, 2010 2:50 pm
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Photoguy,
In the link to my site I noted why dividend ETFs are not a good way to invest.
Maybe you like paying 0.40% to 0.60% at least on your portfolio?
Maybe you like being overweight in certain sectors like Utilities today or Financials in 2008.
Maybe you like having your portfolio being weighted based on yield, which gives a higher allocation of questionable accidental high dividend yielders.
Maybe you like having the top 10 holdings in a "diversified portfolio" accounting for almost half of the portfolio.
If you like spending 0.40% (at least) for the questionable diversification and "benefits of a professional manager", then be my guest.
As for index funds for early retirement - are you kidding me?
http://www.dividendgrowthinvestor.com/2 ... index.html
Jacob,
In the world of zero cost trading, you DO NOT incur higher slippage ( bid-ask spread) than with other brokerages where you pay $7-12/trade. At least I haven't had such issues with Zecco. I have checked my execution prices versus best available prices on various ECN's at the time, and haven't seen any difference. Of course, there might be high-frequency trades front running me and earning fractions on the penny from my trades, but then, who aren't these HFT front running?
Marius,
I am sure you could open an account at places like Zecco, even if you are not living in the US. You might want to check their website for more details however.
In the link to my site I noted why dividend ETFs are not a good way to invest.
Maybe you like paying 0.40% to 0.60% at least on your portfolio?
Maybe you like being overweight in certain sectors like Utilities today or Financials in 2008.
Maybe you like having your portfolio being weighted based on yield, which gives a higher allocation of questionable accidental high dividend yielders.
Maybe you like having the top 10 holdings in a "diversified portfolio" accounting for almost half of the portfolio.
If you like spending 0.40% (at least) for the questionable diversification and "benefits of a professional manager", then be my guest.
As for index funds for early retirement - are you kidding me?
http://www.dividendgrowthinvestor.com/2 ... index.html
Jacob,
In the world of zero cost trading, you DO NOT incur higher slippage ( bid-ask spread) than with other brokerages where you pay $7-12/trade. At least I haven't had such issues with Zecco. I have checked my execution prices versus best available prices on various ECN's at the time, and haven't seen any difference. Of course, there might be high-frequency trades front running me and earning fractions on the penny from my trades, but then, who aren't these HFT front running?
Marius,
I am sure you could open an account at places like Zecco, even if you are not living in the US. You might want to check their website for more details however.