John Bogle on Dividends

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Da5id
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Re: Vanguard Study on Dividends

Post by Da5id »

Cash is King wrote: Thu Oct 14, 2021 7:10 pm
Taylor Larimore wrote: Thu Oct 14, 2021 6:48 pm Bogleheads:

I have long favored "Total Return Investing." Last June Vanguard experts did a Study titled: "Total-Return Investing: A Smart Response to Shrinking Yields." I am happy to see that it confirms what I have been doing:

https://personal.vanguard.com/pdf/total ... esting.pdf

There is more than one road to Dublin.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: “The greatest enemy of a good plan is the dream of a perfect plan.”
Taylor, Thanks for all you do. I think the attached study is a good example of confirmation bias. Cheers.
Confirmation bias surely afflicts us all. But taking that as a given, is there anything in particular in the study Taylor linked that you find unreasonable? I skimmed it and it seemed plausible, though I don't have strong opinions about it being correct.
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Cash is King
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Re: Vanguard Study on Dividends

Post by Cash is King »

Da5id wrote: Thu Oct 14, 2021 7:22 pm
Cash is King wrote: Thu Oct 14, 2021 7:10 pm
Taylor Larimore wrote: Thu Oct 14, 2021 6:48 pm Bogleheads:

I have long favored "Total Return Investing." Last June Vanguard experts did a Study titled: "Total-Return Investing: A Smart Response to Shrinking Yields." I am happy to see that it confirms what I have been doing:

https://personal.vanguard.com/pdf/total ... esting.pdf

There is more than one road to Dublin.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: “The greatest enemy of a good plan is the dream of a perfect plan.”
Taylor, Thanks for all you do. I think the attached study is a good example of confirmation bias. Cheers.
Confirmation bias surely afflicts us all. But taking that as a given, is there anything in particular in the study Taylor linked that you find unreasonable? I skimmed it and it seemed plausible, though I don't have strong opinions about it being correct.
I skimmed it as well and just thought it ignored the opposing information being discussed in this thread.
Da5id
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Re: Vanguard Study on Dividends

Post by Da5id »

Cash is King wrote: Thu Oct 14, 2021 7:29 pm
Da5id wrote: Thu Oct 14, 2021 7:22 pm
Cash is King wrote: Thu Oct 14, 2021 7:10 pm
Taylor Larimore wrote: Thu Oct 14, 2021 6:48 pm Bogleheads:

I have long favored "Total Return Investing." Last June Vanguard experts did a Study titled: "Total-Return Investing: A Smart Response to Shrinking Yields." I am happy to see that it confirms what I have been doing:

https://personal.vanguard.com/pdf/total ... esting.pdf

There is more than one road to Dublin.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: “The greatest enemy of a good plan is the dream of a perfect plan.”
Taylor, Thanks for all you do. I think the attached study is a good example of confirmation bias. Cheers.
Confirmation bias surely afflicts us all. But taking that as a given, is there anything in particular in the study Taylor linked that you find unreasonable? I skimmed it and it seemed plausible, though I don't have strong opinions about it being correct.
I skimmed it as well and just thought it ignored the opposing information being discussed in this thread.
Interesting, I've not seen much in this thread that is really contrary to the article. The article's main point seems to be that focusing on income to meet your expenses results in reaching for yield. The article isn't specifically (or even mostly?) about dividends, but about reaching for yields in a variety of ways (riskier bonds, REITS, etc). Their belief is that reaching for yield will distort your portfolio and perhaps cause you to take on unintended risks. I also tend to weight articles from Vanguard Research and such more heavily than peoples opinions posted in bogleheads (which quite fairly should include my own opinions). That said, I'm not sure they are right, but the idea that being *overly* focused on yield can lead in bad directions is not unreasonable at least to me.
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Cash is King
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Re: Vanguard Study on Dividends

Post by Cash is King »

Da5id wrote: Thu Oct 14, 2021 7:42 pm
Cash is King wrote: Thu Oct 14, 2021 7:29 pm
Da5id wrote: Thu Oct 14, 2021 7:22 pm
Cash is King wrote: Thu Oct 14, 2021 7:10 pm
Taylor Larimore wrote: Thu Oct 14, 2021 6:48 pm Bogleheads:

I have long favored "Total Return Investing." Last June Vanguard experts did a Study titled: "Total-Return Investing: A Smart Response to Shrinking Yields." I am happy to see that it confirms what I have been doing:

https://personal.vanguard.com/pdf/total ... esting.pdf

There is more than one road to Dublin.

Best wishes.
Taylor
Taylor, Thanks for all you do. I think the attached study is a good example of confirmation bias. Cheers.
Confirmation bias surely afflicts us all. But taking that as a given, is there anything in particular in the study Taylor linked that you find unreasonable? I skimmed it and it seemed plausible, though I don't have strong opinions about it being correct.
I skimmed it as well and just thought it ignored the opposing information being discussed in this thread.
Interesting, I've not seen much in this thread that is really contrary to the article. The article's main point seems to be that focusing on income to meet your expenses results in reaching for yield. The article isn't specifically (or even mostly?) about dividends, but about reaching for yields in a variety of ways (riskier bonds, REITS, etc). Their belief is that reaching for yield will distort your portfolio and perhaps cause you to take on unintended risks. I also tend to weight articles from Vanguard Research and such more heavily than peoples opinions posted in bogleheads (which quite fairly should include my own opinions). That said, I'm not sure they are right, but the idea that being *overly* focused on yield can lead in bad directions is not unreasonable at least to me.
That's an interesting take. I thought it was supporting the study's recommendation of a Total return approach to investing.
Da5id
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Re: Vanguard Study on Dividends

Post by Da5id »

Cash is King wrote: Thu Oct 14, 2021 7:50 pm
Da5id wrote: Thu Oct 14, 2021 7:42 pm
Cash is King wrote: Thu Oct 14, 2021 7:29 pm
Da5id wrote: Thu Oct 14, 2021 7:22 pm
Cash is King wrote: Thu Oct 14, 2021 7:10 pm

Taylor, Thanks for all you do. I think the attached study is a good example of confirmation bias. Cheers.
Confirmation bias surely afflicts us all. But taking that as a given, is there anything in particular in the study Taylor linked that you find unreasonable? I skimmed it and it seemed plausible, though I don't have strong opinions about it being correct.
I skimmed it as well and just thought it ignored the opposing information being discussed in this thread.
Interesting, I've not seen much in this thread that is really contrary to the article. The article's main point seems to be that focusing on income to meet your expenses results in reaching for yield. The article isn't specifically (or even mostly?) about dividends, but about reaching for yields in a variety of ways (riskier bonds, REITS, etc). Their belief is that reaching for yield will distort your portfolio and perhaps cause you to take on unintended risks. I also tend to weight articles from Vanguard Research and such more heavily than peoples opinions posted in bogleheads (which quite fairly should include my own opinions). That said, I'm not sure they are right, but the idea that being *overly* focused on yield can lead in bad directions is not unreasonable at least to me.
That's an interesting take. I thought it was supporting the study's recommendation of a Total return approach to investing.
Sure, that is its conclusion. But the article is particularly saying that income focused strategies reaching for yield are unusually bad in the current low bond yield/low dividend yield environment. And I'd rather agree with that. If you want to spend 4% (the assumption in the article) and are reaching for yields to cover close to that level of expenditure it distorts your portfolio composition much more than it would have historically. Mind you, getting most of your spend from dividends is rather harder than it used to be because buybacks overtook dividends in the 90s and so that portion of the corporate payout to shareholders isn't available without selling shares.
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Re: John Bogle on Dividends

Post by willthrill81 »

It seems entirely logical to me for companies to prefer stock buybacks over paying dividends. Both accomplish the goal of providing financial compensation to shareholders, but buybacks allow those shareholders to pay taxes on that compensation when they want to.

More importantly, a company's income is not always consistent, especially if the firm is making significant periodic investments in their future, which most should be doing. Since income can be inconsistent, buybacks make more sense than dividends. Many shareholders get very angry if dividends are cut, whereas a company deciding to delay a buyback typically has far less negative repercussions.
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Re: John Bogle on Dividends

Post by dbr »

I wish in that paper Vanguard didn't phrase the method as getting income from return rather than from yield. Most retirement planning includes the idea that one is actually spending down savings.* That was the purpose of saving the money in the first place, consuming later rather than now. Of course the way the math works how much you can spend before the money is gone depends on the intervening returns, but that is not the same as setting the spending equal to the return on average. In fact they don't actually mean that. The referenced method for setting income is in fact varieties of safe withdrawal rate spending schemes, but those are not in the paper itself. Another, but not mentioned, useful way to obtain income from savings is to abandon some of the savings altogether and buy an SPIA or two, which now has no relationship to return though it does have a relationship in terms of the cost of the SPIA relating to interest rates at time of purchase.

*Of course the mathematics can be generalized to the restriction that the portfolio also end up not likely to be less than some final target value.
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Cash is King
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Re: Vanguard Study on Dividends

Post by Cash is King »

Da5id wrote: Thu Oct 14, 2021 7:59 pm
Cash is King wrote: Thu Oct 14, 2021 7:50 pm
Da5id wrote: Thu Oct 14, 2021 7:42 pm
Cash is King wrote: Thu Oct 14, 2021 7:29 pm
Da5id wrote: Thu Oct 14, 2021 7:22 pm

Confirmation bias surely afflicts us all. But taking that as a given, is there anything in particular in the study Taylor linked that you find unreasonable? I skimmed it and it seemed plausible, though I don't have strong opinions about it being correct.
I skimmed it as well and just thought it ignored the opposing information being discussed in this thread.
Interesting, I've not seen much in this thread that is really contrary to the article. The article's main point seems to be that focusing on income to meet your expenses results in reaching for yield. The article isn't specifically (or even mostly?) about dividends, but about reaching for yields in a variety of ways (riskier bonds, REITS, etc). Their belief is that reaching for yield will distort your portfolio and perhaps cause you to take on unintended risks. I also tend to weight articles from Vanguard Research and such more heavily than peoples opinions posted in bogleheads (which quite fairly should include my own opinions). That said, I'm not sure they are right, but the idea that being *overly* focused on yield can lead in bad directions is not unreasonable at least to me.
That's an interesting take. I thought it was supporting the study's recommendation of a Total return approach to investing.
Sure, that is its conclusion. But the article is particularly saying that income focused strategies reaching for yield are unusually bad in the current low bond yield/low dividend yield environment. And I'd rather agree with that. If you want to spend 4% (the assumption in the article) and are reaching for yields to cover close to that level of expenditure it distorts your portfolio composition much more than it would have historically. Mind you, getting most of your spend from dividends is rather harder than it used to be because buybacks overtook dividends in the 90s and so that portion of the corporate payout to shareholders isn't available without selling shares.
I agree with most everything you said. I think you can build your own index fund of stocks and get most of your spend (3.5 yield) from dividends. I do realize that approach is not for everyone. FWIW, my old 401K is all in a Vanguard 500 index.
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Re: John Bogle on Dividends

Post by Retired Bill »

Since RMD's exceed the amount of dividends and interest the retirement accounts annually generate, our interest and dividends go right to the core account and distributed for living expenses. If need to replenish the cash to make the distributions, usually that entails selling the stocks and adding to bonds and also is the time to re-balance. It a simple way for me to manage the process. Maybe the Bogle comment goes back to the days that retirement planning was like a 3 legged stool. One leg was social security, another leg the company pension (now the 401(k), and the 3rd leg personal investments in taxable accounts (now have IRA;s and Roth IRA's as new tools in the toolbox). During the accumulation phase, dividend reinvestment always made the most since to me just to make sure it was done timely.
Da5id
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Re: Vanguard Study on Dividends

Post by Da5id »

Cash is King wrote: Thu Oct 14, 2021 8:30 pm
Da5id wrote: Thu Oct 14, 2021 7:59 pm
Cash is King wrote: Thu Oct 14, 2021 7:50 pm
Da5id wrote: Thu Oct 14, 2021 7:42 pm
Cash is King wrote: Thu Oct 14, 2021 7:29 pm

I skimmed it as well and just thought it ignored the opposing information being discussed in this thread.
Interesting, I've not seen much in this thread that is really contrary to the article. The article's main point seems to be that focusing on income to meet your expenses results in reaching for yield. The article isn't specifically (or even mostly?) about dividends, but about reaching for yields in a variety of ways (riskier bonds, REITS, etc). Their belief is that reaching for yield will distort your portfolio and perhaps cause you to take on unintended risks. I also tend to weight articles from Vanguard Research and such more heavily than peoples opinions posted in bogleheads (which quite fairly should include my own opinions). That said, I'm not sure they are right, but the idea that being *overly* focused on yield can lead in bad directions is not unreasonable at least to me.
That's an interesting take. I thought it was supporting the study's recommendation of a Total return approach to investing.
Sure, that is its conclusion. But the article is particularly saying that income focused strategies reaching for yield are unusually bad in the current low bond yield/low dividend yield environment. And I'd rather agree with that. If you want to spend 4% (the assumption in the article) and are reaching for yields to cover close to that level of expenditure it distorts your portfolio composition much more than it would have historically. Mind you, getting most of your spend from dividends is rather harder than it used to be because buybacks overtook dividends in the 90s and so that portion of the corporate payout to shareholders isn't available without selling shares.
I agree with most everything you said. I think you can build your own index fund of stocks and get most of your spend (3.5 yield) from dividends. I do realize that approach is not for everyone. FWIW, my old 401K is all in a Vanguard 500 index.
Sure, but most people in retirement probably don't want 100% stocks unless they have high risk tolerance and/or have a big cushion. In any case, their point would be that "pick a yield then choose investments that will get it for you" is probably not a great approach to portfolio construction, particularly currently.

Mind you, if you have enough I-bonds you are all set this year for fixed income yield. Not that real yield is great given inflation, but at least in terms of "spending your income" it works.
Da5id
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Re: John Bogle on Dividends

Post by Da5id »

Retired Bill wrote: Thu Oct 14, 2021 8:33 pm Since RMD's exceed the amount of dividends and interest the retirement accounts annually generate, our interest and dividends go right to the core account and distributed for living expenses. If need to replenish the cash to make the distributions, usually that entails selling the stocks and adding to bonds and also is the time to re-balance. It a simple way for me to manage the process. Maybe the Bogle comment goes back to the days that retirement planning was like a 3 legged stool. One leg was social security, another leg the company pension (now the 401(k), and the 3rd leg personal investments in taxable accounts (now have IRA;s and Roth IRA's as new tools in the toolbox). During the accumulation phase, dividend reinvestment always made the most since to me just to make sure it was done timely.
It is also the case that dividends were very helpful in retirement back in the days when selling shares incurred significant transaction costs.
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Cash is King
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Re: Vanguard Study on Dividends

Post by Cash is King »

Da5id wrote: Thu Oct 14, 2021 8:36 pm
Cash is King wrote: Thu Oct 14, 2021 8:30 pm
Da5id wrote: Thu Oct 14, 2021 7:59 pm
Cash is King wrote: Thu Oct 14, 2021 7:50 pm
Da5id wrote: Thu Oct 14, 2021 7:42 pm

Interesting, I've not seen much in this thread that is really contrary to the article. The article's main point seems to be that focusing on income to meet your expenses results in reaching for yield. The article isn't specifically (or even mostly?) about dividends, but about reaching for yields in a variety of ways (riskier bonds, REITS, etc). Their belief is that reaching for yield will distort your portfolio and perhaps cause you to take on unintended risks. I also tend to weight articles from Vanguard Research and such more heavily than peoples opinions posted in bogleheads (which quite fairly should include my own opinions). That said, I'm not sure they are right, but the idea that being *overly* focused on yield can lead in bad directions is not unreasonable at least to me.
That's an interesting take. I thought it was supporting the study's recommendation of a Total return approach to investing.
Sure, that is its conclusion. But the article is particularly saying that income focused strategies reaching for yield are unusually bad in the current low bond yield/low dividend yield environment. And I'd rather agree with that. If you want to spend 4% (the assumption in the article) and are reaching for yields to cover close to that level of expenditure it distorts your portfolio composition much more than it would have historically. Mind you, getting most of your spend from dividends is rather harder than it used to be because buybacks overtook dividends in the 90s and so that portion of the corporate payout to shareholders isn't available without selling shares.
I agree with most everything you said. I think you can build your own index fund of stocks and get most of your spend (3.5 yield) from dividends. I do realize that approach is not for everyone. FWIW, my old 401K is all in a Vanguard 500 index.
In any case, their point would be that "pick a yield then choose investments that will get it for you" is probably not a great approach to portfolio construction, particularly currently.

You don't choose an investment solely on yield.
Da5id
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Re: Vanguard Study on Dividends

Post by Da5id »

Cash is King wrote: Thu Oct 14, 2021 8:42 pm
Da5id wrote: Thu Oct 14, 2021 8:36 pm
Cash is King wrote: Thu Oct 14, 2021 8:30 pm
Da5id wrote: Thu Oct 14, 2021 7:59 pm
Cash is King wrote: Thu Oct 14, 2021 7:50 pm

That's an interesting take. I thought it was supporting the study's recommendation of a Total return approach to investing.
Sure, that is its conclusion. But the article is particularly saying that income focused strategies reaching for yield are unusually bad in the current low bond yield/low dividend yield environment. And I'd rather agree with that. If you want to spend 4% (the assumption in the article) and are reaching for yields to cover close to that level of expenditure it distorts your portfolio composition much more than it would have historically. Mind you, getting most of your spend from dividends is rather harder than it used to be because buybacks overtook dividends in the 90s and so that portion of the corporate payout to shareholders isn't available without selling shares.
I agree with most everything you said. I think you can build your own index fund of stocks and get most of your spend (3.5 yield) from dividends. I do realize that approach is not for everyone. FWIW, my old 401K is all in a Vanguard 500 index.
In any case, their point would be that "pick a yield then choose investments that will get it for you" is probably not a great approach to portfolio construction, particularly currently.
You don't choose an investment solely on yield.
I certainly don't at all, I try to focus on risk and on total return. Which is what the article argues for. Adding a target "income yield" constraint distorts those higher priorities in their view. And a target yield anywhere near 4% really constrains your investment choices in the current environment. But again, each to their own. For those who are more comfortable getting bigger dividends that is a choice one can make.
Last edited by Da5id on Thu Oct 14, 2021 9:06 pm, edited 1 time in total.
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Re: John Bogle on Dividends

Post by investnoob »

Low fee etfs only became accessible in Canada relatively recently? Until then, it seems like dividend investing was popular as it helped keep fees down and retirees held individual payers in their portfolios.

That seems to be changing now.

As I get older, though, I see the appeal to dividends in retirement. When you are used to a paycheque coming in every two weeks, a monthly dividend cheque has its appeal. I am finding it hard to wrap my head around finances where I would no longer have a steady income (i will have a pension but if i didnt...).
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Re: John Bogle on Dividends

Post by HanSolo »

burritoLover wrote: Thu Oct 14, 2021 10:00 am I've come to realize that Bogle was a master at recognizing the behavioral mistakes of common investors and coming up with solutions to help them stay the course, even though those solutions weren't optimal in the strictest sense. That dividend check "coming in the mail" for the retiree can have a huge psychological influence even though it is the functional equivalent of selling shares in the portfolio.
No. There is a functional difference. Selling shares reduces one's fraction of ownership in the company(ies) owned. Accepting a dividend payment does not.

Another functional difference is that the strategy of generating income by selling shares of non-dividend-paying stock may have the consequence of forcing someone to sell shares at temporarily depressed prices. Accepting a dividend payment doesn't do that.

If you're still not certain of the difference, see my "Person A" post, above. Nobody contested it. It demonstrated how the controversy being debated in this thread doesn't actually even exist (unless you're ready to tell Person A that they're "wrong"). It's also notable that there was no rebuttal to the quote above from "Bogle on Mutual Funds, section Total Return on Common Stocks". I'm not saying he's automatically right because he's Jack, but if you think your ideas are better, you could write a book to compete with his.
burritoLover wrote: Thu Oct 14, 2021 10:26 am I've never seen any of the "dividends are not spending down the principal" investors on this forum change their position to agree that a dividend is the equivalent to selling shares. Despite numerous arguments presented and many heated discussions, they will clutch to their dividend beliefs till' death it seems.
OK, then speaking of clutching to beliefs, I can only hope my comment above helps to debunk your own above-quoted beliefs that you were clutching to.

Sure, you can find instances of delusional people on any topic (dividend stocks, non-dividend stocks, REITs, TIPS, gold, etc.). That doesn't prove that everyone making a particular investment choice (that you don't happen to like) is "wrong".
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Re: John Bogle on Dividends

Post by Northern Flicker »

GoingOnTilt wrote: John Bogle believed in dividend investing for retirees:
...
With this kind of sound reasoning, I wonder why there is so much opposition to dividend investing on this forum?
Total market index funds pay dividends. Be careful not to over-interpret the comment. Mr. Bogle himself held the US total market portfolio, as he said multiple times publicly that he held the Vanguard Balanced Index fund alnost exclusively as his portfolio, with only very small deviations.
Last edited by Northern Flicker on Fri Oct 15, 2021 2:53 am, edited 1 time in total.
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Re: John Bogle on Dividends

Post by HanSolo »

Northern Flicker wrote: Fri Oct 15, 2021 2:32 am Total market index funds pay dividends. Be careful not to over-interpret the comment.
I'm not seeing evidence of either over-interpretation or under-interpretation. If you see where that happened, you might want to point it out.
Mr. Bogle himself held the US total market portfolio, as he said multiple times publicly that he held the Vanguard Balanced Index fund alnost exclusively as his portfolio, with only very small deviations.
He reportedly held Wellington, Wellesley and Windsor as well. I'm in no way implying that everyone should do what he did. My only point is that it serves no useful purpose for one person to argue that another person's investment choices are "wrong"... one could do that to Jack... what do they get out of it?
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Re: John Bogle on Dividends

Post by Northern Flicker »

HanSolo wrote: I'm not seeing evidence of either over-interpretation or under-interpretation. If you see where that happened, you might want to point it out.
I was replying to the initial posting in the thread, not your last posting, and didn't realize the quote was missing when I posted. See edit above.
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Re: Vanguard Study on Dividends

Post by Bernmaster »

Taylor Larimore wrote: Thu Oct 14, 2021 6:48 pm Bogleheads:

I have long favored "Total Return Investing." Last June Vanguard experts did a Study titled: "Total-Return Investing: A Smart Response to Shrinking Yields." I am happy to see that it confirms what I have been doing:

https://personal.vanguard.com/pdf/total ... esting.pdf

There is more than one road to Dublin.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: “The greatest enemy of a good plan is the dream of a perfect plan.”
Great study - thank you very much!
"The unsophisticated investor who is realistic about his shortcomings is likely to obtain better results than the knowledgeable professional who is blind to even a single weakness” ― Warren Buffett
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HanSolo
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Re: John Bogle on Dividends

Post by HanSolo »

Northern Flicker wrote: Fri Oct 15, 2021 2:49 am
HanSolo wrote: I'm not seeing evidence of either over-interpretation or under-interpretation. If you see where that happened, you might want to point it out.
I was replying to the initial posting in the thread, not your last posting, and didn't realize the quote was missing when I posted. See edit above.
Yes, but I'm also not seeing anything in the initial post that was either an over-interpretation or under-interpretation. If you disagree with something, it might be helpful if you quoted the specific assertion and shared what you disagreed with in it.
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Re: John Bogle on Dividends

Post by burritoLover »

HanSolo wrote: Fri Oct 15, 2021 2:14 am
burritoLover wrote: Thu Oct 14, 2021 10:00 am I've come to realize that Bogle was a master at recognizing the behavioral mistakes of common investors and coming up with solutions to help them stay the course, even though those solutions weren't optimal in the strictest sense. That dividend check "coming in the mail" for the retiree can have a huge psychological influence even though it is the functional equivalent of selling shares in the portfolio.
No. There is a functional difference. Selling shares reduces one's fraction of ownership in the company(ies) owned. Accepting a dividend payment does not.
Irrelevant to a retail investor.
Another functional difference is that the strategy of generating income by selling shares of non-dividend-paying stock may have the consequence of forcing someone to sell shares at temporarily depressed prices. Accepting a dividend payment doesn't do that.
This all hinges on whether you believe the share price drops by the dividend amount (all else equal) on the ex-div date. If you do understand that, then it can easily be shown that your premise is false:

You own the following shares of stock in two companies:
Company A, 10 shares at $100/share = $1000
Company B, 10 shares at $100/share = $1000

There's a bear market and the price of both companies drops 50%:
Company A, 10 shares at $50/share = $500
Company B, 10 shares at $50/share = $500

Company A pays a dividend of $5/share ($50 to you). The share price drops by the amount of the dividend (to $45/share). You sell 1 share of the non-dividend paying company B ($50 to you):
Company A, 10 shares at $45/share = $450
Company B, 9 shares at $50/share = $450

The market recovers (goes up 100%):
Company A, 10 shares at $90/share = $900
Company B, 9 shares at $100/share = $900
If you're still not certain of the difference, see my "Person A" post, above. Nobody contested it. It demonstrated how the controversy being debated in this thread doesn't actually even exist (unless you're ready to tell Person A that they're "wrong").
Can you quote your Person A post? I don't see it above.
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Re: John Bogle on Dividends

Post by Schlabba »

burritoLover wrote: Fri Oct 15, 2021 6:09 am
HanSolo wrote: Fri Oct 15, 2021 2:14 am
burritoLover wrote: Thu Oct 14, 2021 10:00 am I've come to realize that Bogle was a master at recognizing the behavioral mistakes of common investors and coming up with solutions to help them stay the course, even though those solutions weren't optimal in the strictest sense. That dividend check "coming in the mail" for the retiree can have a huge psychological influence even though it is the functional equivalent of selling shares in the portfolio.
No. There is a functional difference. Selling shares reduces one's fraction of ownership in the company(ies) owned. Accepting a dividend payment does not.
Irrelevant to a retail investor.
Another functional difference is that the strategy of generating income by selling shares of non-dividend-paying stock may have the consequence of forcing someone to sell shares at temporarily depressed prices. Accepting a dividend payment doesn't do that.
This all hinges on whether you believe the share price drops by the dividend amount (all else equal) on the ex-div date. If you do understand that, then it can easily be shown that your premise is false:

You own the following shares of stock in two companies:
Company A, 10 shares at $100/share = $1000
Company B, 10 shares at $100/share = $1000

There's a bear market and the price of both companies drops 50%:
Company A, 10 shares at $50/share = $500
Company B, 10 shares at $50/share = $500

Company A pays a dividend of $5/share ($50 to you). The share price drops by the amount of the dividend (to $45/share). You sell 1 share of the non-dividend paying company B ($50 to you):
Company A, 10 shares at $45/share = $450
Company B, 9 shares at $50/share = $450

The market recovers (goes up 100%):
Company A, 10 shares at $90/share = $900
Company B, 9 shares at $100/share = $900
If you're still not certain of the difference, see my "Person A" post, above. Nobody contested it. It demonstrated how the controversy being debated in this thread doesn't actually even exist (unless you're ready to tell Person A that they're "wrong").
Can you quote your Person A post? I don't see it above.
A dividend payment is simply a bank transfer. It is independent of the share price, the company is simply spending an amount of cash on its shareholders.
When you sell shares you depend on the share price.
In a perfectly priced world you're right, the dividends taken out are exactly reflected in the share price.

In the real world the animal spirits can send a share price far higher/lower than what it is really worth; like what happened during black Monday or the dot-com bubble.

In the end though, both share prices and dividends depend on profit. So the disconnect cannot last over a long period of time.
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Re: John Bogle on Dividends

Post by HanSolo »

burritoLover wrote: Fri Oct 15, 2021 6:09 am
HanSolo wrote: Fri Oct 15, 2021 2:14 am No. There is a functional difference. Selling shares reduces one's fraction of ownership in the company(ies) owned. Accepting a dividend payment does not.
Irrelevant to a retail investor.
Since you stated that in the singular, I agree, as that retail investor is you. If you want to make an assertion about another retail investor, you should ask them first. Some people who own 1,000 shares of P&G and might not want to reduce their ownership stake to 990. Have you spoken to them?

Even still, the question was whether there was a functional difference, you said there was not, and I pointed out how that was false. That much is still false. Now you raise a conjecture about the number of people who care about that functional difference, and that's a separate question.
Another functional difference is that the strategy of generating income by selling shares of non-dividend-paying stock may have the consequence of forcing someone to sell shares at temporarily depressed prices. Accepting a dividend payment doesn't do that.
This all hinges on whether you believe the share price drops by the dividend amount (all else equal) on the ex-div date. If you do understand that, then it can easily be shown that your premise is false: ...

There's a bear market and the price of both companies drops 50%:
Company A, 10 shares at $50/share = $500 ...

Company A pays a dividend of $5/share ($50 to you).
This all hinges on whether you believe that the market will allow the dividend-payer and the non-divided-payer to go down an equal amount, to the point where the former yields 10%. That's unlikely (although perhaps possible) for a company with good fundamentals. If someone was stupid enough to buy a dividend-paying company with poor fundamentals, then of course it's much more likely.
If you're still not certain of the difference, see my "Person A" post, above. Nobody contested it. It demonstrated how the controversy being debated in this thread doesn't actually even exist (unless you're ready to tell Person A that they're "wrong").
Can you quote your Person A post? I don't see it above.
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Re: John Bogle on Dividends

Post by muffins14 »

I really don’t think that people should care about their ownership rights or voting rights changing

Say I get a dividend in one case, and in the other case I sell a share of VTI. I don’t think any retail investor’s life will change because they get one less shareholder vote. Do the combined votes of retail shareholders even do anything?

Is this hypothetical shareholder of 1000 P&G shares no longer going to achieve the same outcomes when trying to exert his will on the company if he has 990 shares now?

There are 2.54 Billion shares of P&G. The shareholder isn’t making a difference anyway
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Re: John Bogle on Dividends

Post by JoMoney »

muffins14 wrote: Fri Oct 15, 2021 7:47 am I really don’t think that people should care about their ownership rights or voting rights changing
...
A lot of people seem to have that mindset. I find it disturbing, especially among "buy and hold" investors. Granted most of their voting rights will be dwarfed by institutional firms, pensions and the like,... but a shareholders only rights are through wielding their vote, or to sell the stock. If one is a "buy and hold" investor, their vote on the management of their business is about all they have. In the context of this thread, if they don't even have the expectation of some dividend payout, I can't imagine what it is an investor thinks they're buying - perhaps that's why so many view the entire stock market as a giant scam. :annoyed
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Re: John Bogle on Dividends

Post by burritoLover »

HanSolo wrote: Fri Oct 15, 2021 6:42 am
burritoLover wrote: Fri Oct 15, 2021 6:09 am
HanSolo wrote: Fri Oct 15, 2021 2:14 am No. There is a functional difference. Selling shares reduces one's fraction of ownership in the company(ies) owned. Accepting a dividend payment does not.
Irrelevant to a retail investor.
Since you stated that in the singular, I agree, as that retail investor is you. If you want to make an assertion about another retail investor, you should ask them first. Some people who own 1,000 shares of P&G and might not want to reduce their ownership stake to 990. Have you spoken to them?

Even still, the question was whether there was a functional difference, you said there was not, and I pointed out how that was false. That much is still false. Now you raise a conjecture about the number of people who care about that functional difference, and that's a separate question.
So, the retail investors may not want to reduce their small ownership stake for no real functional reason - just cause. Got it. Arguing for the sake of arguing is always fun.
This all hinges on whether you believe that the market will allow the dividend-payer and the non-divided-payer to go down an equal amount, to the point where the former yields 10%. That's unlikely (although perhaps possible) for a company with good fundamentals. If someone was stupid enough to buy a dividend-paying company with poor fundamentals, then of course it's much more likely.
lol - I could have used an example of a 1% dividend pre-crash. You made the statement of "the strategy of generating income by selling shares of non-dividend-paying stock may have the consequence of forcing someone to sell shares at temporarily depressed prices". Now you want to say that the market valuation of two otherwise identical companies hinges on the fact that one pays a dividend and the other doesn't. That is non-sensical. If we take two companies that are identical in every way, and say, spend all their earnings on growing future earnings, they should have the identical valuation by the market. Now, let's say one of those companies decides they want to pay $100k in dividends but they do not want to change their investment in future earnings. So they issue new shares to raise the $100k to the pay the dividend to all investors - diluting the ownership and reducing the share price. So, now you are saying the market valuation of this company will be different just because they started paying a dividend - even though their investment in future profits is identical to the non-dividend paying company. That the market cap for the company paying the dividend should somehow not drop from the dilution of shares.
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Re: John Bogle on Dividends

Post by muffins14 »

JoMoney wrote: Fri Oct 15, 2021 7:56 am
In the context of this thread, if they don't even have the expectation of some dividend payout, I can't imagine what it is an investor thinks they're buying - perhaps that's why so many view the entire stock market as a giant scam. :annoyed
Well “dividends” could be many things if we frame it as proceeds from my investment

For an equal total return:
1) I’d prefer buybacks to a cash dividend, because then the share price goes up but I don’t get taxed
2) I’d prefer the money to be reinvested in a new initiative that would drive revenue to ultimately increase profit and share price, again because the share price would rise but I wouldn’t get taxed.

Ultimately of course I want -some- proceeds from my investment in the company, I just don’t really mind if they are delivered immediately or in a few years, or as cash or price. And again my measly 0.0000001% of shares isn’t going to sway the CEO into starting a buyback plan, so I guess I am along for the ride as you say :(
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Re: John Bogle on Dividends

Post by HanSolo »

burritoLover wrote: Fri Oct 15, 2021 7:57 am So, the retail investors may not want to reduce their small ownership stake for no real functional reason - just cause. Got it. Arguing for the sake of arguing is always fun.
Not arguing. I pointed out a fallacy in your statement. That's not because it's fun. I just prefer facts.

I'd say that arguing for the sake of arguing has no functional reason. You might want to consider that.
Now you want to say that the market valuation of two otherwise identical companies hinges on the fact that one pays a dividend and the other doesn't. That is non-sensical.
I didn't say anything about otherwise identical, because that takes the discussion out of reality. There are no companies that are otherwise identical. I prefer to talk about reality.

It's a fact of history that some people bought high-yielding dividend stocks with strong fundamentals (e.g., utilities) due to a perception of relative safety. If you think that perception was unfounded, then of course I'll disagree with you.
muffins14 wrote: Fri Oct 15, 2021 7:47 am I really don’t think that people should care about their ownership rights or voting rights changing
I agree that you don't need to care about it. If someone else wants to keep 1,000 shares of P&G, then that's up to them. I didn't state whether it has to do with voting rights, or just wanting to keep a certain stake in the company. Just because someone wants something that you don't want doesn't mean they're wrong.

Bottom line, if they violate your "shoulds", and you take issue with that (and you are), and then that's your issue. It's not their problem.
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Re: John Bogle on Dividends

Post by Da5id »

muffins14 wrote: Fri Oct 15, 2021 8:07 am
JoMoney wrote: Fri Oct 15, 2021 7:56 am
In the context of this thread, if they don't even have the expectation of some dividend payout, I can't imagine what it is an investor thinks they're buying - perhaps that's why so many view the entire stock market as a giant scam. :annoyed
Well “dividends” could be many things if we frame it as proceeds from my investment

For an equal total return:
1) I’d prefer buybacks to a cash dividend, because then the share price goes up but I don’t get taxed
2) I’d prefer the money to be reinvested in a new initiative that would drive revenue to ultimately increase profit and share price, again because the share price would rise but I wouldn’t get taxed.

Ultimately of course I want -some- proceeds from my investment in the company, I just don’t really mind if they are delivered immediately or in a few years, or as cash or price. And again my measly 0.0000001% of shares isn’t going to sway the CEO into starting a buyback plan, so I guess I am along for the ride as you say :(
Well, in terms of 1) I generally agree in taxable, but don't care *that* much. If I cared more, I'd probably try to take active steps to get lower dividends than TSM or VXUS provides, and I don't do that. Given that a number of people pay 0 taxes on qualified dividends, not a huge deal perhaps for those individuals anyway. And for my money in Roth/IRA, I don't care at all.

As to 2), I don't have such a preference. I'd rather the company do what is best given its nature. Some companies are mature and are better off distributing their earnings somehow. I don't select for growth companies that are more likely to have internal reinvestment targets for excess cash, which is I assume how one would implement your preference?

As to influencing the "starting a buyback plan" by voting your shares, you seem to be winning anyway. Per figure 5 in https://www.yardeni.com/pub/buybackdiv.pdf CEOs hear your silent plea, and buybacks continue to be larger dollar amounts than dividends as they have since the 90s. Per exhibit 4 in https://www.spglobal.com/spdji/en/docum ... ndices.pdf buybacks + acquisitions are over 2x as many $ as dividends. But I agree, I don't care about the ability of my mutual funds to vote shares on my behalf. Even if I had direct ability to vote those shares, my fraction of ownership is too small AND regardless I don't know enough about any of those business to intelligently make decisions on their behalf.
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Re: John Bogle on Dividends

Post by JoMoney »

Da5id wrote: Fri Oct 15, 2021 8:22 am... I don't know enough about any of those business to intelligently make decisions on their behalf.
For sure that's why competent management that does understand that business should be hired, and a board to oversee them... but there's also a matter of making sure those managers are cognizant of and acting in the best interest of you the owner and your capital investment they are acting as agents for.
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Re: John Bogle on Dividends

Post by azanon »

For me, the "Spend only the Dividends" approach to retirement income only makes sense if leaving a legacy is very important to you. But if someone is interested in an "efficient" method of retirement income, just about every popular method out there will be varying degrees of more efficient. Even a straight 4% of principle is more efficient. And of course, the most efficient methods will include gradually eating into principle such as 1/n or VPW method. Most of you know this, but all of these methods including "Spend only the Dividends" are covered here: https://www.bogleheads.org/wiki/Withdrawal_methods
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Re: John Bogle on Dividends

Post by Da5id »

JoMoney wrote: Fri Oct 15, 2021 8:29 am
Da5id wrote: Fri Oct 15, 2021 8:22 am... I don't know enough about any of those business to intelligently make decisions on their behalf.
For sure that's why competent management that does understand that business should be hired, and a board to oversee them... but there's also a matter of making sure those managers are cognizant of and acting in the best interest of you the owner and your capital investment they are acting as agents for.
I own small fractions of thousands of companies, as do most index fund investors. Spending the hour needed to investigate each company's management in a cursory way would take most of the waking time I have in a year, and in practice would make no difference whatsoever. Which is why I'd assume the *overwhelming* majority of investors are happy to be completely passive in terms of corporate leadership and governance.
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Re: John Bogle on Dividends

Post by burritoLover »

HanSolo wrote: Fri Oct 15, 2021 8:19 am I didn't say anything about otherwise identical, because that takes the discussion out of reality. There are no companies that are otherwise identical. I prefer to talk about reality.

It's a fact of history that some people bought high-yielding dividend stocks with strong fundamentals (e.g., utilities) due to a perception of relative safety. If you think that perception was unfounded, then of course I'll disagree with you.
Then you are just pulling the statement you made out of thin air with no basis in fact: " "the strategy of generating income by selling shares of non-dividend-paying stock may have the consequence of forcing someone to sell shares at temporarily depressed prices" - as if the dividend was preferable in that case. I give you an example of two companies in a bear market, one with a dividend payment and the other without showing no difference in selling vs dividend at depressed prices. But, then, you claim, the market must have a different valuation metric for otherwise identical dividend vs. non-dividend paying stocks. Then I give you an apples to apples comparison why that doesn't make sense. Then you give me an anecdote about some investors preferring high yield dividend payers.

Your responses have been the equivalent of "just because". And that goes to what I mentioned before - when you get down to it, the dividends are NOT irrelevant argument breaks down when you examine it in detail but those taking the other side will never be convinced.
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Re: John Bogle on Dividends

Post by muffins14 »

HanSolo wrote: Fri Oct 15, 2021 8:19 am
muffins14 wrote: Fri Oct 15, 2021 7:47 am I really don’t think that people should care about their ownership rights or voting rights changing
I agree that you don't need to care about it. If someone else wants to keep 1,000 shares of P&G, then that's up to them. I didn't state whether it has to do with voting rights, or just wanting to keep a certain stake in the company. Just because someone wants something that you don't want doesn't mean they're wrong.
No, but it could be irrational or illogical. it’s an odd desire to say they want 1000 shares and 999 or 1001 is bad for them. Or if they want a 0.00000001% ownership stake but 0. 0000000099% is too small? They have no control over further dilution of stares either.

So sure, I don’t get to impose my views on them, but it doesn’t mean their views make sense

I’ll leave the conversation there because I feel like we’re setting up an elaborate hypothetical or straw man
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Re: John Bogle on Dividends

Post by azanon »

I feel compelled to point out there's not only what Jack said, but what he actually did. He died at a relatively old age and (correct me if I'm wrong) died very wealthy, perhaps even as wealthy as he had ever been in his life. Its pure mathematics that if that happens to you, then you weren't using an efficient retirement income method. Or maybe you didn't need all of that money because you have saved so much (I personally know a few people in this camp).

So I'm just saying be careful those of you with more modest means - some here might be doing or plan to do the dividend income only method because they're wealthy and fail to mention that (very important) relevant fact to you. If I had 10 million or more, it'd work quite fine for me.
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Re: John Bogle on Dividends

Post by Da5id »

burritoLover wrote: Fri Oct 15, 2021 8:39 am
HanSolo wrote: Fri Oct 15, 2021 8:19 am I didn't say anything about otherwise identical, because that takes the discussion out of reality. There are no companies that are otherwise identical. I prefer to talk about reality.

It's a fact of history that some people bought high-yielding dividend stocks with strong fundamentals (e.g., utilities) due to a perception of relative safety. If you think that perception was unfounded, then of course I'll disagree with you.
Then you are just pulling the statement you made out of thin air with no basis in fact: " "the strategy of generating income by selling shares of non-dividend-paying stock may have the consequence of forcing someone to sell shares at temporarily depressed prices" - as if the dividend was preferable in that case. I give you an example of two companies in a bear market, one with a dividend payment and the other without showing no difference in selling vs dividend at depressed prices. But, then, you claim, the market must have a different valuation metric for otherwise identical dividend vs. non-dividend paying stocks. Then I give you an apples to apples comparison why that doesn't make sense. Then you give me an anecdote about some investors preferring high yield dividend payers.

Your responses have been the equivalent of "just because". And that goes to what I mentioned before - when you get down to it, the dividends are NOT irrelevant argument breaks down when you examine it in detail but those taking the other side will never be convinced.
I wonder if a better hypothetical would be if the SAME company had two share classes, each with 50% ownership of the company. Class D (dividend paying) shares pay dividends. Class B (Buyback) shares return to investors the same amount as the Class D shares but on buybacks. Then it isn't a case of "different" companies, rather it is the same entity. And everybody could be happy, getting the shares that behave as they prefer :)
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Re: John Bogle on Dividends

Post by burritoLover »

Da5id wrote: Fri Oct 15, 2021 8:49 am
burritoLover wrote: Fri Oct 15, 2021 8:39 am
HanSolo wrote: Fri Oct 15, 2021 8:19 am I didn't say anything about otherwise identical, because that takes the discussion out of reality. There are no companies that are otherwise identical. I prefer to talk about reality.

It's a fact of history that some people bought high-yielding dividend stocks with strong fundamentals (e.g., utilities) due to a perception of relative safety. If you think that perception was unfounded, then of course I'll disagree with you.
Then you are just pulling the statement you made out of thin air with no basis in fact: " "the strategy of generating income by selling shares of non-dividend-paying stock may have the consequence of forcing someone to sell shares at temporarily depressed prices" - as if the dividend was preferable in that case. I give you an example of two companies in a bear market, one with a dividend payment and the other without showing no difference in selling vs dividend at depressed prices. But, then, you claim, the market must have a different valuation metric for otherwise identical dividend vs. non-dividend paying stocks. Then I give you an apples to apples comparison why that doesn't make sense. Then you give me an anecdote about some investors preferring high yield dividend payers.

Your responses have been the equivalent of "just because". And that goes to what I mentioned before - when you get down to it, the dividends are NOT irrelevant argument breaks down when you examine it in detail but those taking the other side will never be convinced.
I wonder if a better hypothetical would be if the SAME company had two share classes, each with 50% ownership of the company. Class D (dividend paying) shares pay dividends. Class B (Buyback) shares return to investors the same amount as the Class D shares but on buybacks. Then it isn't a case of "different" companies, rather it is the same entity. And everybody could be happy, getting the shares that behave as they prefer :)
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Re: John Bogle on Dividends

Post by dbr »

Simple math of portfolio growth under withdrawals is neutral to the mechanics of how the withdrawal is taken. For the same set of periodic returns whether you withdraw by failing to reinvest a dividend or you withdraw the same amount by selling some shares the result is the same. The number of shares in the two portfolios and the value of a share at any time may be different but the end value of the portfolio and the income taken will be the same.

The point is that you can't separate living off dividends from the question of what returns you are getting from the investments. For "dividend investing" to be special there has to be an increase in returns/decrease in risk from selecting those particular investments compared to some other investments. Whether this is actually consistently achieved by selecting assets on some sort of dividend criterion has to be shown. If it is true everyone would be foolish not to make that asset selection.

The other process that can happen is that the withdrawals are not the same. Today a person spending the dividends from a total stock portfolio is willy nilly withdrawing far less than a person consulting SWR estimates might spend. It follows that the process will be much safer and result in more wealth at death. It would be good for that retiree to consider if that is what he wants. A person finding a way to spend more from dividends might end up no different in the end, and it is even possible to find investments that spend too much.
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Re: John Bogle on Dividends

Post by HanSolo »

Da5id wrote: Fri Oct 15, 2021 8:49 am I wonder if a better hypothetical would be if the SAME company had two share classes, each with 50% ownership of the company. Class D (dividend paying) shares pay dividends. Class B (Buyback) shares return to investors the same amount as the Class D shares but on buybacks. Then it isn't a case of "different" companies, rather it is the same entity. And everybody could be happy, getting the shares that behave as they prefer :)
That would be fine, but then you'll get some people accusing the Class D buyers of "clutching to beliefs". Some people are never happy.
burritoLover wrote: Fri Oct 15, 2021 8:39 am Then you are just pulling the statement you made out of thin air with no basis in fact: " "the strategy of generating income by selling shares of non-dividend-paying stock may have the consequence of forcing someone to sell shares at temporarily depressed prices" - as if the dividend was preferable in that case.
I gave the example of someone owning 1,000 shares of P&G. There's no "right" or "wrong" around a person wanting to either keep all the shares forever or not part with any of them outside of certain criteria, e.g., a target price at which they're willing to sell. You can claim that this preference is "wrong", but that only makes it wrong for you, not necessarily for them.
Your responses have been the equivalent of "just because".
It's no worse than accusing others of "clutch to their dividend beliefs" (especially when I explained how one of your beliefs was false). There's no "functional reason" (as you call it) to accuse people of that.

There's a thing called They-don't-do-what-I-do-so-they-must-be-wrong Syndrome. Be careful about that.
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Re: John Bogle on Dividends

Post by HanSolo »

muffins14 wrote: Fri Oct 15, 2021 8:42 am So sure, I don’t get to impose my views on them, but it doesn’t mean their views make sense
Different people make different choices. That, by itself, isn't enough to say that one of them doesn't make sense. Who knows, maybe they promised to gift someone a certain amount of shares. Or they bought a collar that protects a certain amount of shares. You have to look at the individual situation before judging them.
I’ll leave the conversation there because I feel like we’re setting up an elaborate hypothetical or straw man
Perhaps some people did set that up. I hope I helped to debunk some of it.
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Re: John Bogle on Dividends

Post by Da5id »

HanSolo wrote: Fri Oct 15, 2021 9:09 am
Da5id wrote: Fri Oct 15, 2021 8:49 am I wonder if a better hypothetical would be if the SAME company had two share classes, each with 50% ownership of the company. Class D (dividend paying) shares pay dividends. Class B (Buyback) shares return to investors the same amount as the Class D shares but on buybacks. Then it isn't a case of "different" companies, rather it is the same entity. And everybody could be happy, getting the shares that behave as they prefer :)
That would be fine, but then you'll get some people accusing the Class D buyers of "clutching to beliefs". Some people are never happy.
In that hypothetical do you think the two share types have different prospects? That the total value of the class B or class D shares would diverge because one or the other is "better" in some way? If one isn't currently spending 100% of the dividend, is owning class D shares in a taxable account a rational choice for most investors if one is taxed on qualified dividends?

Based on history, people might accuse the class B share holders of buying shares that are purely speculative because they don't pay (or plan on paying) a dividend.
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Re: John Bogle on Dividends

Post by HanSolo »

Da5id wrote: Fri Oct 15, 2021 9:20 am In that hypothetical do you think the two share types have different prospects? That the total value of the class B or class D shares would diverge because one or the other is "better" in some way? If one isn't currently spending 100% of the dividend, is owning class D shares in a taxable account a rational choice if one is taxed on qualified dividends?

Based on history, people might accuse the class B share holders of buying shares that are purely speculative because they don't pay (or plan on paying) a dividend.
It's like stick shift vs. automatic transmission. As long as you know what you're buying and what works for your personal situation and preferences, then you should just buy what you want.

If you prefer an automatic and someone accuses you of "clutching to a belief"... ignore the noise.
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Re: John Bogle on Dividends

Post by dbr »

HanSolo wrote: Fri Oct 15, 2021 9:33 am
Da5id wrote: Fri Oct 15, 2021 9:20 am In that hypothetical do you think the two share types have different prospects? That the total value of the class B or class D shares would diverge because one or the other is "better" in some way? If one isn't currently spending 100% of the dividend, is owning class D shares in a taxable account a rational choice if one is taxed on qualified dividends?

Based on history, people might accuse the class B share holders of buying shares that are purely speculative because they don't pay (or plan on paying) a dividend.
It's like stick shift vs. automatic transmission. As long as you know what you're buying and what works for your personal situation and preferences, then you should just buy what you want.

If you prefer an automatic and someone accuses you of "clutching to a belief"... ignore the noise.
What is problematic is finding a way to ascertain in each case what one knows about what one is doing and whether or not it works. There is never anything to object to if one is making an informed choice, but some proposals seem to evidently lack understanding of what one is doing or are missing rationale for why it works for that person. That has always been the real issue in these threads.

So does Mr. Bogle's original statement fall in the category of knowing what one is doing and proposing something that works in any given case or are there some pieces missing?
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Re: John Bogle on Dividends

Post by HanSolo »

dbr wrote: Fri Oct 15, 2021 9:38 am What is problematic is finding a way to ascertain in each case what one knows about what one is doing and whether or not it works. There is never anything to object to if one is making an informed choice, but many proposals seem to evidently lack understanding of what one is doing or are missing rationale for why it works for that person. That has always been the real issue in these threads.
In my observation, the real issue in these threads is that some people object to those making different choices from their own. Some people can't resist deciding for others what they "should" do.

Rather than referring to proposals, out there somewhere, that you have an issue with, it's better to quote them directly and state your objection. But before making such objection, one might consider that different people want different things.
So does Mr. Bogle's original statement fall in the category of knowing what one is doing and proposing something that works in any given case or are there some pieces missing?
I don't personally have any objection to his statements as I consider my own personal case. If others have an issue, that's up to them. If you have an issue, feel free to quote the text and state your issue.
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Re: John Bogle on Dividends

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HanSolo wrote: Fri Oct 15, 2021 9:33 am
Da5id wrote: Fri Oct 15, 2021 9:20 am In that hypothetical do you think the two share types have different prospects? That the total value of the class B or class D shares would diverge because one or the other is "better" in some way? If one isn't currently spending 100% of the dividend, is owning class D shares in a taxable account a rational choice if one is taxed on qualified dividends?

Based on history, people might accuse the class B share holders of buying shares that are purely speculative because they don't pay (or plan on paying) a dividend.
It's like stick shift vs. automatic transmission. As long as you know what you're buying and what works for your personal situation and preferences, then you should just buy what you want.

If you prefer an automatic and someone accuses you of "clutching to a belief"... ignore the noise.
Such a flawed analogy. No one is arguing that investors can't have preferences. If you prefer auto trannies and then you make false claims like they are always cheaper to repair than manual trannies or that they have some magical properties that don't exist, then you will get called out on it. If you then refuse to look at any evidence presented to you and respond with anecdotes about how your cousin paid less to repair his auto tranny than your neighbor's manual, then you are clutching to your beliefs.
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Re: John Bogle on Dividends

Post by burritoLover »

The last phase of the dividend lover's argument usually ends with the strawman that those presenting evidence that dividends are irrelevant are trying to demand that other investors invest a certain way.
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Re: John Bogle on Dividends

Post by muffins14 »

The thread has wandered way off topic, let's try to bring it back on track?
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Re: John Bogle on Dividends

Post by HanSolo »

burritoLover wrote: Fri Oct 15, 2021 9:54 am Such a flawed analogy. No one is arguing that investors can't have preferences. If you prefer auto trannies and then you make false claims like they are always cheaper to repair than manual trannies or that they have some magical properties that don't exist, then you will get called out on it. If you then refuse to look at any evidence presented to you and respond with anecdotes about how your cousin paid less to repair his auto tranny than your neighbor's manual, then you are clutching to your beliefs.
I'm fine with calling someone out on a false statement. I've done it myself.
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Re: John Bogle on Dividends

Post by jh »

I've always been a fan of investing for dividend income. I use the Vanguard High Div Yield Index etf VYM for my taxable account stock investments. I've got around $750k in it and my div income for 2021 will be around $20.5 to $21k depending on how the Q4 payout goes.
Retired in 2022 at the age of 46. Living off of dividends.
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Re: John Bogle on Dividends

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HanSolo wrote: Fri Oct 15, 2021 9:50 am
dbr wrote: Fri Oct 15, 2021 9:38 am What is problematic is finding a way to ascertain in each case what one knows about what one is doing and whether or not it works. There is never anything to object to if one is making an informed choice, but many proposals seem to evidently lack understanding of what one is doing or are missing rationale for why it works for that person. That has always been the real issue in these threads.
In my observation, the real issue in these threads is that some people object to those making different choices from their own. Some people can't resist deciding for others what they "should" do.

Rather than referring to proposals, out there somewhere, that you have an issue with, it's better to quote them directly and state your objection. But before making such objection, one might consider that different people want different things.
So does Mr. Bogle's original statement fall in the category of knowing what one is doing and proposing something that works in any given case or are there some pieces missing?
I don't personally have any objection to his statements as I consider my own personal case. If others have an issue, that's up to them. If you have an issue, feel free to quote the text and state your issue.
Sure, Mr. Bogle is quoted as saying (for everyone is implied) the following:

"And in the retirement stage, that’s what investing should be about—regular checks from dividends and/or from Social Security and/or from a pension account."

I don't agree because I contend that a retirement can perfectly possibly be funded by making withdrawals from one's assets that have nothing to do with what dividends are or aren't paid out by those assets. I contend explicitly that it would be better to consider the results of withdrawal rate studies and note that the dividends paid out can well be much less than what one can prudently spend or could be more than what one can prudently spend, depending on how one is invested. I contend that a missing piece in that advice is actually looking to see what the consequences of spending dividends are and actually comparing that to what one wants to do. Then, of course, each individual can decide what they want to do.

The quote is also somewhat ambiguous or incomplete in that the portfolios for which we study withdrawal rates are blends of stocks and bonds. But the discussion of "dividends" always seems to quickly narrow to a discussion of dividends from stocks. A piece that is missing is that while bond funds call the payouts dividends there is really a totally different thing when the payout is interest on fixed income. For retirees interest on fixed income is a significant piece that apparently is not to be discussed. Another effect of holding an allocation to fixed income is that this has an effect on how much one can withdraw from a portfolio with what results.

Another piece that is missing is the option to annuitize assets. Mr. Bogle explicitly identifies pensions but today there aren't very many pensions and people might well consider buying SPIAs. Putting money in a ladder of TIPS to supply an income stream is another option.

tl:dr Mr. Bogle is making a statement that is incomplete and not sufficient to advise retirees on how to provide for income in retirement. More than that any advice the content of which is that one should retire by spending SS, pensions, and whatever dividends are paid out from one's investments is incomplete and insufficient advice. However, there is certainly nothing wrong if after consideration, the decision is made to do exactly that.
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