$500 in monthly dividends from a $250,000 portfolio? [Netherlands]

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PersianCapitalist
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$500 in monthly dividends from a $250,000 portfolio? [Netherlands]

Post by PersianCapitalist »

Dear Bogleheads,

Investing has been a passion of mine since I was a teenager. And I bought my first stock when I was 18. I've lived an extremely frugal lifestyle. I've been investing for a long time, generally stocks but also some complex derivatives such as Turbo's. I've never bought any options.

I'm in my thirties now and have around $250K in cash/cash equivalents. I would like to invest the majority of this capital into a dividend portfolio. My goal is to have the dividend stocks pay around $500 per month. Besides the dividend stocks, I'd wanna keep around $50K invested in deep-value growth stocks ($BABA, $FB, and a few others). I'd also like to keep at least $30K in cash that I won't touch. Why $500/mo you ask? Well, as I mentioned, I lived an extremely frugal lifestyle, and $500/mo is enough to cover my basic needs. I believe it will give me a piece of mind that is priceless. I'll keep another income stream for my costs that exceed my basic needs (my wants).

My proposed portfolio:
$170K - Dividend Stocks
$50K - Growth & Value Stocks
$30K - Cash reserves
-------------------------------------
$250K - TOTAL

I understand that such an approach requires trade-offs. It can get quite risky to get a $170K portfolio yield $6K a year in dividends, that's a yield of about 3,5%. Luckily, I'm not in a hurry and won't take any steps yet. I'm reading a book about REIT stocks. But I want to welcome any thoughts you might have so that I can learn and reflect. Feel free to criticize my plan or suggest anything you deem helpful.

Thank you,

PersianCapitalist
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Re: $500 in monthly dividends from a $250,000 portfolio?

Post by David Jay »

Welcome to the forum!

While there are many views on investing style, the overwhelming view on Bogleheads is that total return is a better approach to asset selection than dividend payout. There is no substantive difference to your portfolio if you sell appreciated stock for income or if you receive dividends. Seeking dividend yield can distort your portfolio - selecting certain categories of stocks and passing over others.

The classic example of total yield is Berkshire Hathaway, which intentionally does not pay dividends. In this way investors can choose when to take (or not take) income, they simply sell some shares when they need income. Dividends force investors to take income whether or not they need it.
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Re: $500 in monthly dividends from a $250,000 portfolio?

Post by sailaway »

If you pay capital gains tax, the dividend focus is creating a tax drag on the portfolio during accumulation.
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Re: $500 in monthly dividends from a $250,000 portfolio?

Post by PersianCapitalist »

David Jay wrote: Thu Aug 05, 2021 7:34 am Welcome to the forum!

While there are many views on investing style, the overwhelming view on Bogleheads is that total return is a better approach to asset selection than dividend payout. There is no substantive difference to your portfolio if you sell appreciated stock for income or if you receive dividends. Seeking dividend yield can distort your portfolio - selecting certain categories of stocks and passing over others.

The classic example of total yield is Berkshire Hathaway, which intentionally does not pay dividends. In this way investors can choose when to take (or not take) income, they simply sell some shares when they need income. Dividends force investors to take income whether or not they need it.
Thank you for your response David. I actually agree that total returns is the metric that matters most in the end. And an investor could simply sell a fraction of his shares each month to pay for living expenses. This has proven to be more rational than optimizing for dividends.

However, people are not robots. And in practice, such an investing style would require me to go into my portfolio each month, to choose which stocks to sell, and how many of them. At this point I'd be actively managing, which adds all kinds of other risks. I am not 100% confident that I would be making the right choices, especially given the fact that I'd be forced to make choices once a month. And it would probably consume much of my attention throughout the month. I might lose sight of the long-term plan.

A good investing plan, is a plan that we can stick to. The beauty about dividends (although somewhat irrational perhaps) is that when the market goes up, you get paid. When the market goes sideways, you get paid. When the market goes down, you get paid. For many dividend investors, their monthly dividend income empowers them to stick to their long term plan. And if that's the plan they can stick to in practice, it becomes rational after all. Just my thoughts :).
sailaway wrote: Thu Aug 05, 2021 8:08 am If you pay capital gains tax, the dividend focus is creating a tax drag on the portfolio during accumulation.
I am based in the Netherlands. Capital gains tax does not exist in this country. Lucky me.
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Re: $500 in monthly dividends from a $250,000 portfolio?

Post by aristotelian »

Remember your principal needs to adjust with inflation. That said $6k annually would be a 2.4% withdrawal rate so it shouldn't be hard to find some dividend stock ETFs with that yield and that withdrawal rate should be pretty safe. You could also put it in VTI or VOO and withdraw a little bit extra from the principal. Either way you have about the same expected risk and return.
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Re: $500 in monthly dividends from a $250,000 portfolio?

Post by CyclingDuo »

sailaway wrote: Thu Aug 05, 2021 8:08 am If you pay capital gains tax, the dividend focus is creating a tax drag on the portfolio during accumulation.
If one's taxable income is above a certain point, it can create a tax drag. If one is in the "sweet spot" where their household taxable income allows them to pay $0 taxes on qualified dividends and LTCG, there is no tax drag. Pre-tax deductions, standard deduction, etc... can all be used to get one's taxable income to the level required to pay $0 on the qualified dividends and LTCG.

https://retireby40.org/pay-no-tax-dividend-income/
https://www.kiplinger.com/article/taxes ... ncome.html
https://www.fool.com/taxes/2021/02/18/c ... nd-stocks/
https://www.nerdwallet.com/blog/taxes/d ... -tax-rate/
https://www.marketwatch.com/story/heres ... 2019-11-22

:sharebeer

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Last edited by CyclingDuo on Thu Aug 05, 2021 8:50 am, edited 1 time in total.
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Re: $500 in monthly dividends from a $250,000 portfolio?

Post by exodusNH »

PersianCapitalist wrote: Thu Aug 05, 2021 8:10 am A good investing plan, is a plan that we can stick to. The beauty about dividends (although somewhat irrational perhaps) is that when the market goes up, you get paid. When the market goes sideways, you get paid. When the market goes down, you get paid. For many dividend investors, their monthly dividend income empowers them to stick to their long term plan. And if that's the plan they can stick to in practice, it becomes rational after all. Just my thoughts :).
Unless the companies cut dividends.

https://www.cnbc.com/2021/02/22/220-bil ... -says.html

I know you've got a plan that works. However, if you were in total stock market indexes, you wouldn't have to choose what stocks to sell. If you need $500, you sell $500. The only real thought you need to put in is to sell lots with the long-term gains (or a small loss) to manage your taxes.
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Re: $500 in monthly dividends from a $250,000 portfolio?

Post by burritoLover »

Dividends are a net loss when you spend them. The fund will effectively drop in price by the dividend amount - the market is efficient enough that you can't derive "free money" from dividends. This idea of not spending down the principal if you only spend the dividends is a fantasy. Anyone can buy the high dividend fund the day before the ex-div date, sell the next day and collect the FULL dividend each time with virtually no risk if that wasn't the case.

What you are envisioning could be accomplished via a high yield bond fund. Of course, that adds interest rate risk. There's no free lunch.
Last edited by burritoLover on Thu Aug 05, 2021 8:51 am, edited 1 time in total.
dbr
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Re: $500 in monthly dividends from a $250,000 portfolio?

Post by dbr »

It is totally unnecessary to equate taking dividends from a particular subset of the stock market with the general process of withdrawing money from a portfolio for income. It is also dangerous because it pays no attention to the estimated or hoped for condition of your finances as time goes on into the future. You have probably a half a century yet to think about. In that context it is also a mistake to not take all your investments into account as a whole, meaning what is this other income stream and all other conditions that apply. None of this means you can't stop saving and start spending money from your portfolio and it also doesn't mean that when there are dividends you can't spend them.
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Re: $500 in monthly dividends from a $250,000 portfolio?

Post by CyclingDuo »

exodusNH wrote: Thu Aug 05, 2021 8:49 am
PersianCapitalist wrote: Thu Aug 05, 2021 8:10 am A good investing plan, is a plan that we can stick to. The beauty about dividends (although somewhat irrational perhaps) is that when the market goes up, you get paid. When the market goes sideways, you get paid. When the market goes down, you get paid. For many dividend investors, their monthly dividend income empowers them to stick to their long term plan. And if that's the plan they can stick to in practice, it becomes rational after all. Just my thoughts :).
Unless the companies cut dividends.

https://www.cnbc.com/2021/02/22/220-bil ... -says.html

I know you've got a plan that works. However, if you were in total stock market indexes, you wouldn't have to choose what stocks to sell. If you need $500, you sell $500. The only real thought you need to put in is to sell lots with the long-term gains (or a small loss) to manage your taxes.
In spite of the cuts within the year, S&P 500 dividends ended the year where they were actually up .7% for 2020 over 2019. :beer

https://www.barrons.com/articles/s-p-50 ... 1609357661

Your article, does however, highlight that was not the case for international.

CyclingDuo
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Re: $500 in monthly dividends from a $250,000 portfolio?

Post by Jack FFR1846 »

PersianCapitalist wrote: Thu Aug 05, 2021 8:10 am I am based in the Netherlands. Capital gains tax does not exist in this country. Lucky me.
Do they tax dividends?

If not, it's a wash whether you invest in dividend stocks or not. The total return on similar stocks will be the same.

If Holland taxes dividends, then investing in dividend stocks will be inferior in returns to investing in non-dividend stocks.

With respect to taking income, you don't need to do that until you stop working, right? So at that time, you can do what many retirees do and near the start of the year or maybe when annual income is known, near the end of the year, sell stock and withdraw an amount that you expect will be needed to get you through a year. Some even initially withdraw several years worth and stick the money into checking or high yield savings account where they can get immediate cash.
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Re: $500 in monthly dividends from a $250,000 portfolio?

Post by 02nz »

aristotelian wrote: Thu Aug 05, 2021 8:12 am Remember your principal needs to adjust with inflation. That said $6k annually would be a 2.4% withdrawal rate so it shouldn't be hard to find some dividend stock ETFs with that yield and that withdrawal rate should be pretty safe. You could also put it in VTI or VOO and withdraw a little bit extra from the principal. Either way you have about the same expected risk and return.
I would argue even a mutual fund/ETF holding high-dividend stocks is higher risk than broad index funds like VTI, because the dividend-yielding stocks tend to be value stocks concentrated in certain sectors, and thus less diversified than VTI. And if OP is picking individual stocks, it's much riskier still.
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Re: $500 in monthly dividends from a $250,000 portfolio?

Post by LadyGeek »

PersianCapitalist wrote: Thu Aug 05, 2021 8:10 am ...I am based in the Netherlands. Capital gains tax does not exist in this country. Lucky me.
This thread is now in the Non-US Investing forum (Netherlands). I added the OP's home country to the thread title.

(Thanks to the member who reported the post.)
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Re: $500 in monthly dividends from a $250,000 portfolio?

Post by 22twain »

PersianCapitalist wrote: Thu Aug 05, 2021 8:10 am I actually agree that total returns is the metric that matters most in the end. And an investor could simply sell a fraction of his shares each month to pay for living expenses. This has proven to be more rational than optimizing for dividends.

However, people are not robots. And in practice, such an investing style would require me to go into my portfolio each month, to choose which stocks to sell, and how many of them. At this point I'd be actively managing, which adds all kinds of other risks.
Of course, that problem would be lessened if you were invested in two or three broad-based (preferably although not necessarily index-based) mutual funds, instead of a gaggle of individual stocks.

Or you could limit your sales to once or twice a year, leave the proceeds in your brokerage's settlement fund, and pay yourself your monthly "paycheck" from there. That's basically what I do (using index funds instead of individual stocks). However, I may have more tolerance than you do for having a few % of my money "sitting around not working for me." :wink:
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Re: $500 in monthly dividends from a $250,000 portfolio?

Post by dbr »

PersianCapitalist wrote: Thu Aug 05, 2021 8:10 am

However, people are not robots. And in practice, such an investing style would require me to go into my portfolio each month, to choose which stocks to sell, and how many of them. At this point I'd be actively managing, which adds all kinds of other risks. I am not 100% confident that I would be making the right choices, especially given the fact that I'd be forced to make choices once a month. And it would probably consume much of my attention throughout the month. I might lose sight of the long-term plan.

You can hold a portfolio of total market index funds and most brokers will arrange to disburse a fixed monthly amount for you. I can't comment if there is something unique about a brokerage in your country, however.

Everything you say is exactly why a portfolio of dividend stocks and collecting the dividend is what not to do.
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Re: $500 in monthly dividends from a $250,000 portfolio?

Post by PersianCapitalist »

exodusNH wrote: Thu Aug 05, 2021 8:49 am I know you've got a plan that works. However, if you were in total stock market indexes, you wouldn't have to choose what stocks to sell. If you need $500, you sell $500.
Thanks for your response Exodus. I think there's a time and place for total stock market ETF's (which btw are US companies for ~80%). Currently, the Shiller P/E ratio for the S&P500 sits at 38. This is a historically high number. And it makes me not want to invest a lump sum into the S&P500 or a total world index (which again, is more or less the S&P500) at this time.

I'm aware that timing the market is frowned upon in this community. Let's just say that I'm timing the fundamentals. I'm OK with missing out on potential gains if the index continues to go even higher. Having said that, I have invested in ETF's in the past. I bought S&P500 ETF's using leveraged products near the bottom in March and April of 2020.
burritoLover wrote: Thu Aug 05, 2021 8:50 am Dividends are a net loss when you spend them. The fund will effectively drop in price by the dividend amount - the market is efficient enough that you can't derive "free money" from dividends. This idea of not spending down the principal if you only spend the dividends is a fantasy.
I'm aware that stocks drop with the exact amount of the dividend. But I don't understand what you mean with the sentence that I highlighted in bold. How is it a fantasy to live off dividends and not touching the principal? Tons of people already do this.
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Take $SPHD, which is an S&P500 High Dividend, Low Volatility ETF. It yields 3,8% per year in dividends, with are distributed monthly. It has 53 holdings, which are well-diversified across different sectors, although still all American companies. There are other ETF's which one could use to diversify internationally. And there are of course REIT and BDC stocks. With sufficient capital, one could live off the dividends and not touch the principal of the investments. And many people do exactly that. I don't think it's a fantasy.
dbr wrote: Thu Aug 05, 2021 8:51 am You have probably a half a century yet to think about.
That's true. And each person is playing a different game. Some people optimize for being rich when they are 80. But my preference is to gain independence now. In reality, I've already stopped working regular jobs. Though I still do contract work every now and then.
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Re: $500 in monthly dividends from a $250,000 portfolio?

Post by dbr »

PersianCapitalist wrote: Thu Aug 05, 2021 9:34 am
dbr wrote: Thu Aug 05, 2021 8:51 am You have probably a half a century yet to think about.
That's true. And each person is playing a different game. Some people optimize for being rich when they are 80. But my preference is to gain independence now. In reality, I've already stopped working regular jobs. Though I still do contract work every now and then.
My observation addresses keeping that independence for another 50 years. Of course when continuing to work to some degree is included the plan is still wide open. None of this changes the fact that in my opinion setting income the same as dividends is bad thinking concerning the properties of investments that matter to what you want to do.
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Re: $500 in monthly dividends from a $250,000 portfolio? [Netherlands]

Post by MarkRoulo »

PersianCapitalist wrote: Wed Aug 04, 2021 10:39 pm Dear Bogleheads,

Investing has been a passion of mine since I was a teenager. And I bought my first stock when I was 18. I've lived an extremely frugal lifestyle. I've been investing for a long time, generally stocks but also some complex derivatives such as Turbo's. I've never bought any options.

I'm in my thirties now and have around $250K in cash/cash equivalents. I would like to invest the majority of this capital into a dividend portfolio. My goal is to have the dividend stocks pay around $500 per month. Besides the dividend stocks, I'd wanna keep around $50K invested in deep-value growth stocks ($BABA, $FB, and a few others). I'd also like to keep at least $30K in cash that I won't touch. Why $500/mo you ask? Well, as I mentioned, I lived an extremely frugal lifestyle, and $500/mo is enough to cover my basic needs. I believe it will give me a piece of mind that is priceless. I'll keep another income stream for my costs that exceed my basic needs (my wants).

My proposed portfolio:
$170K - Dividend Stocks
$50K - Growth & Value Stocks
$30K - Cash reserves
-------------------------------------
$250K - TOTAL

I understand that such an approach requires trade-offs. It can get quite risky to get a $170K portfolio yield $6K a year in dividends, that's a yield of about 3,5%. Luckily, I'm not in a hurry and won't take any steps yet. I'm reading a book about REIT stocks. But I want to welcome any thoughts you might have so that I can learn and reflect. Feel free to criticize my plan or suggest anything you deem helpful.

Thank you,

PersianCapitalist
The "Vanguard International High Dividend Yield Index Fund Admiral Shares" seems to have a trailing dividend yield of about 3.5%.

There are probably other similar funds.

This is an observation rather than a recommendation.

Also, if you live in the Netherlands you may want something denominated in Euros and/or hedged to Euros.
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Re: $500 in monthly dividends from a $250,000 portfolio? [Netherlands]

Post by TedSwippet »

There is a wiki article specifically for NL investors:

- Investing from the Netherlands - Bogleheads

This article is a little dated (you are welcome to help update it!). However, there is more general information for EU investors in these articles:

- EU investing - Bogleheads
- Simple non-US portfolios - Bogleheads
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Re: $500 in monthly dividends from a $250,000 portfolio?

Post by burritoLover »

PersianCapitalist wrote: Thu Aug 05, 2021 9:34 am I'm aware that stocks drop with the exact amount of the dividend. But I don't understand what you mean with the sentence that I highlighted in bold. How is it a fantasy to live off dividends and not touching the principal? Tons of people already do this.
If you have $100k in a high dividend fund (or any fund) and there's a 1% dividend payment, you now have $1k and your principal (your position in the fund) drops to $99k. If you spend the $1k in dividends and your portfolio is now worth $99k, you are spending down the principal.

You could take a non-dividend paying fund and if you were only withdrawing a fixed 3.5% to 4%, you likely wouldn't run out of money.
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Re: $500 in monthly dividends from a $250,000 portfolio? [Netherlands]

Post by 22twain »

PersianCapitalist wrote: Thu Aug 05, 2021 9:34 am How is it a fantasy to live off dividends and not touching the principal? Tons of people already do this.
I think "fantasy" is a bit of hyperbole for argument's sake. Many people (for some definition of "many") do "live off dividends". However, it requires a portfolio that is either significantly larger than what would be needed for a total-return based approach based on index funds, or more work in monitoring and tending a basket of individual dividend-paying stocks.

You may have seen the "4% rule" which is common here in US-based discussions. Using a "reasonable" asset allocation with broadly-based mutual funds, one can start by withdrawing 4% of one's portfolio per year (usually dividends first, then capital gains), thereafter adjusting the dollar (or euro) value for inflation. This leads to a low probability of exhausting the portfolio after 30 years. How "low is low" is the subject of much anxious debate here. :wink: Also there is skepticism about the validity of this withdrawal rate for non-US markets. Nevertheless, let's accept as a reference for the point I'm about to make.

In the US, the dividend yield for Vanguard's total [US} stock market ETF (VTI) is about 1.2%. For their total bond market ETF (BND) it's about 1.3%. Clearly these require sales of shares in order to get to 4%.

Vanguard's high dividend yield ETF (VYM) delivers about 2.8%. Its total return the past few years has actually been lower than VTI's, which can be argued as due to recent outperformance in capital growth of tech stocks. In earlier years (say about 2007-2017) they were about equal in total return, which I tend to believe is a better assumption over the long term. So with a large pool of stocks in a mutual fund, there seems to be a fundamental trade-off between dividends and capital gains, with the total return being roughly the same.

So to get to 4% using dividends only, you need to cherry-pick high-dividend paying stocks, watch them closely, and probably swap some out occasionally. AT&T is about to cut its dividend in half, for example. You have to trade the work involved in selling shares occasionally with the work involved in managing the portfolio to ensure the dividends keep flowing at a suitable level.

If you have a very large portfolio, such that you can live off only 2% or less per year, then it's obviously a lot easier to use dividends only (or mostly). And your heirs will probably be happier.

And now we can make adjustments to these arguments for non-US markets... e.g. European companies might be more prone to pay high dividends than US companies, taxation regimes may make a significant difference, etc.
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Re: $500 in monthly dividends from a $250,000 portfolio?

Post by PersianCapitalist »

LadyGeek wrote: Thu Aug 05, 2021 9:09 am
PersianCapitalist wrote: Thu Aug 05, 2021 8:10 am ...I am based in the Netherlands. Capital gains tax does not exist in this country. Lucky me.
This thread is now in the Non-US Investing forum (Netherlands). I added the OP's home country to the thread title.

(Thanks to the member who reported the post.)
Thank you LadyGeek. I know you are just doing your job as an admin. I wanted to share that, even though I am indeed based in the Netherlands, I spend the majority of my time traveling around cheaper countries (which can include the US).
TedSwippet wrote: Thu Aug 05, 2021 9:45 am There is a wiki article specifically for NL investors:
- Investing from the Netherlands - Bogleheads
Thank you Ted. I read the article last night and it is very dated haha! I messaged the forum admin to request a Wiki editor account. I can update it after that.
burritoLover wrote: Thu Aug 05, 2021 10:07 am
PersianCapitalist wrote: Thu Aug 05, 2021 9:34 am I'm aware that stocks drop with the exact amount of the dividend. But I don't understand what you mean with the sentence that I highlighted in bold. How is it a fantasy to live off dividends and not touching the principal? Tons of people already do this.
If you have $100k in a high dividend fund (or any fund) and there's a 1% dividend payment, you now have $1k and your principal (your position in the fund) drops to $99k. If you spend the $1k in dividends and your portfolio is now worth $99k, you are spending down the principal.

You could take a non-dividend paying fund and if you were only withdrawing a fixed 3.5% to 4%, you likely wouldn't run out of money.
Thanks for clarifying that. Yes you have a good point. This is why I opened the thread on this forum. To have people attack my hypothesis in a constructive manner, so that I can reflect and decide what to do :). I'm still open to other ideas, however crazy they may seem. Although I'm unwilling to dump a lump sum of $250K into the S&P500 at current valuations.
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Re: $500 in monthly dividends from a $250,000 portfolio?

Post by PersianCapitalist »

Jack FFR1846 wrote: Thu Aug 05, 2021 9:00 am
PersianCapitalist wrote: Thu Aug 05, 2021 8:10 am I am based in the Netherlands. Capital gains tax does not exist in this country. Lucky me.
Do they tax dividends?

If not, it's a wash whether you invest in dividend stocks or not. The total return on similar stocks will be the same.

If Holland taxes dividends, then investing in dividend stocks will be inferior in returns to investing in non-dividend stocks.
Yes, unfortunately The Netherlands taxes dividend income at 15%. You are right that this is an important number to consider, as it does make it inferior than realizing capital gains, which are untaxed in NL.
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Re: $500 in monthly dividends from a $250,000 portfolio?

Post by dbr »

PersianCapitalist wrote: Thu Aug 05, 2021 10:32 am
Thanks for clarifying that. Yes you have a good point. This is why I opened the thread on this forum. To have people attack my hypothesis in a constructive manner, so that I can reflect and decide what to do :). I'm still open to other ideas, however crazy they may seem. Although I'm unwilling to dump a lump sum of $250K into the S&P500 at current valuations.
By that reasoning you should not be willing to dump a lump sum into any other portfolio of stocks. Certainly there is no assurance the investments you select are any less risky than the S&P 500, allowing for the cash reserves.
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Re: $500 in monthly dividends from a $250,000 portfolio?

Post by exodusNH »

PersianCapitalist wrote: Thu Aug 05, 2021 9:34 am
exodusNH wrote: Thu Aug 05, 2021 8:49 am I know you've got a plan that works. However, if you were in total stock market indexes, you wouldn't have to choose what stocks to sell. If you need $500, you sell $500.
Thanks for your response Exodus. I think there's a time and place for total stock market ETF's (which btw are US companies for ~80%). Currently, the Shiller P/E ratio for the S&P500 sits at 38. This is a historically high number. And it makes me not want to invest a lump sum into the S&P500 or a total world index (which again, is more or less the S&P500) at this time.

I'm aware that timing the market is frowned upon in this community. Let's just say that I'm timing the fundamentals. I'm OK with missing out on potential gains if the index continues to go even higher. Having said that, I have invested in ETF's in the past. I bought S&P500 ETF's using leveraged products near the bottom in March and April of 2020.
Timing is timing, but you do you.
PersianCapitalist wrote: Thu Aug 05, 2021 9:34 am
burritoLover wrote: Thu Aug 05, 2021 8:50 am Dividends are a net loss when you spend them. The fund will effectively drop in price by the dividend amount - the market is efficient enough that you can't derive "free money" from dividends. This idea of not spending down the principal if you only spend the dividends is a fantasy.
Ben Felix (a Canadian -- no US bias here!) has a couple of videos on the topic.

https://www.youtube.com/watch?v=9j6DInAMMaM
https://www.youtube.com/watch?v=UpXI_Vd51dA
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Re: $500 in monthly dividends from a $250,000 portfolio?

Post by 22twain »

PersianCapitalist wrote: Thu Aug 05, 2021 9:34 am I think there's a time and place for total stock market ETF's (which btw are US companies for ~80%).
There are non-US "total" stock market index funds and ETFs, e.g. Vanguard's own VXUS. There are differences in the exact meaning of "total", e.g. whether to include developing countries or now. And Vanguard's Total World Stock Index mutual fund (VTWAX) and ETF (VT) are about 55% US and 45% ex-US, IIRC.

On a forum where most investors are in the US, it's natural that the US-centered indexes get the most attention.
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Re: $500 in monthly dividends from a $250,000 portfolio?

Post by PersianCapitalist »

dbr wrote: Thu Aug 05, 2021 10:39 am
PersianCapitalist wrote: Thu Aug 05, 2021 10:32 am
Thanks for clarifying that. Yes you have a good point. This is why I opened the thread on this forum. To have people attack my hypothesis in a constructive manner, so that I can reflect and decide what to do :). I'm still open to other ideas, however crazy they may seem. Although I'm unwilling to dump a lump sum of $250K into the S&P500 at current valuations.
By that reasoning you should not be willing to dump a lump sum into any other portfolio of stocks. Certainly there is no assurance the investments you select are any less risky than the S&P 500, allowing for the cash reserves.
Which reasoning are you referring to exactly? Just because I think the S&P500 is overvalued, does not mean that I believe every stock on the planet is overvalued.
exodusNH wrote: Thu Aug 05, 2021 10:56 am Ben Felix (a Canadian -- no US bias here!) has a couple of videos on the topic.

https://www.youtube.com/watch?v=9j6DInAMMaM
https://www.youtube.com/watch?v=UpXI_Vd51dA
I've seen all of Ben Felix his videos. He's great and I agree with his sentiment. He's right that dividend investing is irrational.

Although I disagree with his almost religious insistence that investing in low fee S&P500 or Total World ETF's is always the best investing strategy, for every person. Unless that person is nearing retirement, in which case he recommends throwing bonds into the mix.

There are tons of smart individuals who outperform the S&P500. Ben Felix would counter that with studies showing that almost all mutual funds and hedge funds underperform. But over 50% of mutual funds' managers do not even own a stake in the portfolio that they sell to clients. They have no skin in the game. Ben Felix never addresses the group of individual investors who have outperformed the market over time. Perhaps because there's not a lot of reliable data on this group of people.
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Re: $500 in monthly dividends from a $250,000 portfolio? [Netherlands]

Post by gougou »

US pipeline MLPs pay pretty high dividends. Even some conservative blue-chip MLPs such as EPD (8% yield), MPLX (10% yield), MMP (9% yield), ET (6.5% yield) have pretty high yield. So a $250K portfolio will net you $20K to $25K of dividends per year.

But I see that you are not a US resident so you'll be subject to 37% withholding tax on such distributions unless you elect to file US taxes every year. There are ways to use options to synthetically get the total returns of such MLPs to avoid that massive withholding tax but you'll probably be subject to some unfavorable short term gains in your own country.

If you instead buy some pipeline corporations such as ENB (7% yield), KMI (6% yield) you'll only be subject to 15% withholding tax. You could also buy a pipeline ETF such as MLPX (6% yield).

Currently the Chinese/Hong Kong stock market is in a huge bear market and some blue-chip stocks are also yielding high. Some examples include Bank of China (HK.3988 8.6% yield), China Life Insurance (LFC or HK.2628 5.8% yield). You'll be subject to 10% withholding tax on dividend.
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Re: $500 in monthly dividends from a $250,000 portfolio?

Post by dbr »

PersianCapitalist wrote: Thu Aug 05, 2021 11:19 am
dbr wrote: Thu Aug 05, 2021 10:39 am
PersianCapitalist wrote: Thu Aug 05, 2021 10:32 am
Thanks for clarifying that. Yes you have a good point. This is why I opened the thread on this forum. To have people attack my hypothesis in a constructive manner, so that I can reflect and decide what to do :). I'm still open to other ideas, however crazy they may seem. Although I'm unwilling to dump a lump sum of $250K into the S&P500 at current valuations.
By that reasoning you should not be willing to dump a lump sum into any other portfolio of stocks. Certainly there is no assurance the investments you select are any less risky than the S&P 500, allowing for the cash reserves.
Which reasoning are you referring to exactly? Just because I think the S&P500 is overvalued, does not mean that I believe every stock on the planet is overvalued.

Yes, I contend that most people's ability to determine that anything in particular is or isn't overvalued and therefore make predictions about the odds for future performance is limited. If you are comfortable that you have the ability to do that, then by all mean ignore the comment.
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Re: $500 in monthly dividends from a $250,000 portfolio? [Netherlands]

Post by PersianCapitalist »

gougou wrote: Thu Aug 05, 2021 11:22 am US pipeline MLPs pay pretty high dividends. Even some conservative blue-chip MLPs such as EPD (8% yield), MPLX (10% yield), MMP (9% yield), ET (6.5% yield) have pretty high yield. So a $250K portfolio will net you $20K to $25K of dividends per year.

But I see that you are not a US resident so you'll be subject to 37% withholding tax on such distributions unless you elect to file US taxes every year. There are ways to use options to synthetically get the total returns of such MLPs to avoid that massive withholding tax but you'll probably be subject to some unfavorable short term gains in your own country.

If you instead buy some pipeline corporations such as ENB (7% yield), KMI (6% yield) you'll only be subject to 15% withholding tax. You could also buy a pipeline ETF such as MLPX (6% yield).

Currently the Chinese/Hong Kong stock market is in a huge bear market and some blue-chip stocks are also yielding high. Some examples include Bank of China (HK.3988 8.6% yield), China Life Insurance (LFC or HK.2628 5.8% yield). You'll be subject to 10% withholding tax on dividend.
Thanks for your comment. Regarding the US 37% withholding tax; The Netherlands and the US have a treaty on this matter, and I have filed the required document (W8-BEN in case it helps anyone) long ago through my broker. That means that I only pay the 15% Dutch dividend rate. And everything is automated through my broker, which is great. Currently, my only dividend-paying holding is $TSM, which I bought last year for $60.

I appreciate you sharing a number of high-yield dividend stocks. I will research each ticker individually, as I care deeply about the safety of the dividend and its growth. Furthermore, I don't like to see the stock decline in value over time. Often that means ignoring some of those high-paying dividend stocks.

Which dividend stocks are you holding yourself now?
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Re: $500 in monthly dividends from a $250,000 portfolio?

Post by exodusNH »

PersianCapitalist wrote: Thu Aug 05, 2021 11:19 am Although I disagree with his almost religious insistence that investing in low fee S&P500 or Total World ETF's is always the best investing strategy, for every person. Unless that person is nearing retirement, in which case he recommends throwing bonds into the mix.

There are tons of smart individuals who outperform the S&P500. Ben Felix would counter that with studies showing that almost all mutual funds and hedge funds underperform. But over 50% of mutual funds' managers do not even own a stake in the portfolio that they sell to clients. They have no skin in the game. Ben Felix never addresses the group of individual investors who have outperformed the market over time. Perhaps because there's not a lot of reliable data on this group of people.
I think luck plays a much bigger role here than skill. But if you think you have the skill to do so, I can only wish you well.

An excellent book on the role that randomness / luck plays in our lives is "The Drunkard's Walk: How Randomness Rules Our Lives" by Leonard Mlodinow.
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Re: $500 in monthly dividends from a $250,000 portfolio? [Netherlands]

Post by flyingcows »

For income why not just write put options on SPY? Why the bother with the stock picking? Would the dividends have a tax advantage over short term cap gains in your country?
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Re: $500 in monthly dividends from a $250,000 portfolio? [Netherlands]

Post by gougou »

PersianCapitalist wrote: Thu Aug 05, 2021 12:37 pm
gougou wrote: Thu Aug 05, 2021 11:22 am US pipeline MLPs pay pretty high dividends. Even some conservative blue-chip MLPs such as EPD (8% yield), MPLX (10% yield), MMP (9% yield), ET (6.5% yield) have pretty high yield. So a $250K portfolio will net you $20K to $25K of dividends per year.

But I see that you are not a US resident so you'll be subject to 37% withholding tax on such distributions unless you elect to file US taxes every year. There are ways to use options to synthetically get the total returns of such MLPs to avoid that massive withholding tax but you'll probably be subject to some unfavorable short term gains in your own country.

If you instead buy some pipeline corporations such as ENB (7% yield), KMI (6% yield) you'll only be subject to 15% withholding tax. You could also buy a pipeline ETF such as MLPX (6% yield).

Currently the Chinese/Hong Kong stock market is in a huge bear market and some blue-chip stocks are also yielding high. Some examples include Bank of China (HK.3988 8.6% yield), China Life Insurance (LFC or HK.2628 5.8% yield). You'll be subject to 10% withholding tax on dividend.
Thanks for your comment. Regarding the US 37% withholding tax; The Netherlands and the US have a treaty on this matter, and I have filed the required document (W8-BEN in case it helps anyone) long ago through my broker. That means that I only pay the 15% Dutch dividend rate. And everything is automated through my broker, which is great. Currently, my only dividend-paying holding is $TSM, which I bought last year for $60.

I appreciate you sharing a number of high-yield dividend stocks. I will research each ticker individually, as I care deeply about the safety of the dividend and its growth. Furthermore, I don't like to see the stock decline in value over time. Often that means ignoring some of those high-paying dividend stocks.

Which dividend stocks are you holding yourself now?
The 37% withholding tax is irrespective of tax treaties since those are Master Limited Partnerships. I'm not sure how that's legal from a tax treaty point of view but you'll get 37% withholding for sure if you own MLPs as a non resident, and the only way to get it back and pay a lower rate is to file US income taxes as a non resident.

Since you mentioned there's no capital gains tax in your country, you could sell deep-in-the-money-put-options on EPD or ET to realize the total return of the stock without worrying about withholding taxes. There will be some transaction costs and implied financing cost but it's much lower than 37% withholding tax.

I currently hold a bunch of dividend paying MLPs such as ET, EPD, MPLX, DMLP, BSM, SHLX in my taxable accounts. I also hold some REITs in my retirement accounts such as ALX, SLG, SPG, EQR, ESS. In addition I hold Bank of China (HK.3988), Agricultural Bank of China (HK.1288), Rio Tinto (RIO), Fortescue Metals (ASX.FMG), Grange Resources (ASX.GRR).
Last edited by gougou on Thu Aug 05, 2021 1:28 pm, edited 1 time in total.
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Re: $500 in monthly dividends from a $250,000 portfolio?

Post by jarjarM »

PersianCapitalist wrote: Thu Aug 05, 2021 11:19 am
I've seen all of Ben Felix his videos. He's great and I agree with his sentiment. He's right that dividend investing is irrational.

Although I disagree with his almost religious insistence that investing in low fee S&P500 or Total World ETF's is always the best investing strategy, for every person. Unless that person is nearing retirement, in which case he recommends throwing bonds into the mix.

There are tons of smart individuals who outperform the S&P500. Ben Felix would counter that with studies showing that almost all mutual funds and hedge funds underperform. But over 50% of mutual funds' managers do not even own a stake in the portfolio that they sell to clients. They have no skin in the game. Ben Felix never addresses the group of individual investors who have outperformed the market over time. Perhaps because there's not a lot of reliable data on this group of people.
Here is the comparison of hedge fund (not mutual fund) performance vs. S&P500. They been lacking behind over the last 10+ years. While I do agree that there are group of investors that outperform the index every year, it's difficult to be consistently in that group, especially if one uses risk-adjusted return as the metric. Smaller retail investors generally outperform index because they will take on significant risk and the end result is likely more luck than skill.
Image
Now, I'm not one to say there's no one or no way to do better than the index, just that it is difficult to do it consistently and requires more work than some of us is willing to put in. :twisted:
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Re: $500 in monthly dividends from a $250,000 portfolio? [Netherlands]

Post by jarjarM »

gougou wrote: Thu Aug 05, 2021 11:22 am US pipeline MLPs pay pretty high dividends. Even some conservative blue-chip MLPs such as EPD (8% yield), MPLX (10% yield), MMP (9% yield), ET (6.5% yield) have pretty high yield. So a $250K portfolio will net you $20K to $25K of dividends per year.

But I see that you are not a US resident so you'll be subject to 37% withholding tax on such distributions unless you elect to file US taxes every year. There are ways to use options to synthetically get the total returns of such MLPs to avoid that massive withholding tax but you'll probably be subject to some unfavorable short term gains in your own country.

If you instead buy some pipeline corporations such as ENB (7% yield), KMI (6% yield) you'll only be subject to 15% withholding tax. You could also buy a pipeline ETF such as MLPX (6% yield).

Currently the Chinese/Hong Kong stock market is in a huge bear market and some blue-chip stocks are also yielding high. Some examples include Bank of China (HK.3988 8.6% yield), China Life Insurance (LFC or HK.2628 5.8% yield). You'll be subject to 10% withholding tax on dividend.
Just curious, with such substantial exposure to high dividend yield MLPs, won't the tax drag be quite significant? Especially if one is already in the highest fed/state marginal tax bracket (not referring to OP)? Thanks.
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Re: $500 in monthly dividends from a $250,000 portfolio?

Post by PersianCapitalist »

exodusNH wrote: Thu Aug 05, 2021 12:51 pm I think luck plays a much bigger role here than skill. But if you think you have the skill to do so, I can only wish you well.

An excellent book on the role that randomness / luck plays in our lives is "The Drunkard's Walk: How Randomness Rules Our Lives" by Leonard Mlodinow.
That's one important reason why I'd like to shift away from picking individual stocks. If I was just lucky (and there's a good chance of that), I don't want to lose it all by continuing the same strategy that brought me where I am now. Capital destruction is a lot more painful when there's $250K on the line and I don't have that much confidence in myself :).
gougou wrote: Thu Aug 05, 2021 1:12 pm The 37% withholding tax is irrespective of tax treaties since those are Master Limited Partnerships. I'm not sure how that's legal from a tax treaty point of view but you'll get 37% withholding for sure if you own MLPs as a non resident, and the only way to get it back and pay a lower rate is to file US income taxes as a non resident.

I currently hold a bunch of dividend paying MLPs such as ET, EPD, MPLX, DMLP, BSM, SHLX in my taxable accounts. I also hold some REITs in my retirement accounts such as ALX, SLG, SPG, EQR, ESS. In addition I hold Bank of China (HK.3988), Agricultural Bank of China (HK.1288), Rio Tinto (RIO), Fortescue Metals (ASX.FMG), Grange Resources (ASX.GRR).
Thanks for clarifying that. I was confused as to what "witholding tax" meant, but after a translation I get it. In Dutch we call it "source tax" (literally translated). 37% is a hefty tax so it's good take into consideration.
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Re: $500 in monthly dividends from a $250,000 portfolio? [Netherlands]

Post by gougou »

jarjarM wrote: Thu Aug 05, 2021 1:27 pm
gougou wrote: Thu Aug 05, 2021 11:22 am US pipeline MLPs pay pretty high dividends. Even some conservative blue-chip MLPs such as EPD (8% yield), MPLX (10% yield), MMP (9% yield), ET (6.5% yield) have pretty high yield. So a $250K portfolio will net you $20K to $25K of dividends per year.

But I see that you are not a US resident so you'll be subject to 37% withholding tax on such distributions unless you elect to file US taxes every year. There are ways to use options to synthetically get the total returns of such MLPs to avoid that massive withholding tax but you'll probably be subject to some unfavorable short term gains in your own country.

If you instead buy some pipeline corporations such as ENB (7% yield), KMI (6% yield) you'll only be subject to 15% withholding tax. You could also buy a pipeline ETF such as MLPX (6% yield).

Currently the Chinese/Hong Kong stock market is in a huge bear market and some blue-chip stocks are also yielding high. Some examples include Bank of China (HK.3988 8.6% yield), China Life Insurance (LFC or HK.2628 5.8% yield). You'll be subject to 10% withholding tax on dividend.
Just curious, with such substantial exposure to high dividend yield MLPs, won't the tax drag be quite significant? Especially if one is already in the highest fed/state marginal tax bracket (not referring to OP)? Thanks.
MLPs pay tax-deferred distributions because they can claim depreciation. Most of the distributions are a return of capital on my tax returns that reduce my cost basis. I intend to retire in 10 to 15 years when my tax basis go all the way to 0 :D
Last edited by gougou on Thu Aug 05, 2021 1:45 pm, edited 1 time in total.
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Re: $500 in monthly dividends from a $250,000 portfolio? [Netherlands]

Post by LadyGeek »

gougou wrote: Thu Aug 05, 2021 1:12 pm ...The 37% withholding tax is irrespective of tax treaties since those are Master Limited Partnerships. I'm not sure how that's legal from a tax treaty point of view but you'll get 37% withholding for sure if you own MLPs as a non resident, and the only way to get it back and pay a lower rate is to file US income taxes as a non resident.

Since you mentioned there's no capital gains tax in your country, you could sell deep-in-the-money-put-options on EPD or ET to realize the total return of the stock without worrying about withholding taxes. There will be some transaction costs and implied financing cost but it's much lower than 37% withholding tax.

I currently hold a bunch of dividend paying MLPs such as ET, EPD, MPLX, DMLP, BSM, SHLX in my taxable accounts. I also hold some REITs in my retirement accounts such as ALX, SLG, SPG, EQR, ESS. In addition I hold Bank of China (HK.3988), Agricultural Bank of China (HK.1288), Rio Tinto (RIO), Fortescue Metals (ASX.FMG), Grange Resources (ASX.GRR).
The wiki has some background info: Master limited partnership

Note the big orange warning box at the top of the page. Completion of US tax forms is a nightmare. I can imagine how complex it can be for a non-US investor. From this point alone, it may not be appropriate to own this type of investment.
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Re: $500 in monthly dividends from a $250,000 portfolio? [Netherlands]

Post by jarjarM »

gougou wrote: Thu Aug 05, 2021 1:32 pm
jarjarM wrote: Thu Aug 05, 2021 1:27 pm
gougou wrote: Thu Aug 05, 2021 11:22 am US pipeline MLPs pay pretty high dividends. Even some conservative blue-chip MLPs such as EPD (8% yield), MPLX (10% yield), MMP (9% yield), ET (6.5% yield) have pretty high yield. So a $250K portfolio will net you $20K to $25K of dividends per year.

But I see that you are not a US resident so you'll be subject to 37% withholding tax on such distributions unless you elect to file US taxes every year. There are ways to use options to synthetically get the total returns of such MLPs to avoid that massive withholding tax but you'll probably be subject to some unfavorable short term gains in your own country.

If you instead buy some pipeline corporations such as ENB (7% yield), KMI (6% yield) you'll only be subject to 15% withholding tax. You could also buy a pipeline ETF such as MLPX (6% yield).

Currently the Chinese/Hong Kong stock market is in a huge bear market and some blue-chip stocks are also yielding high. Some examples include Bank of China (HK.3988 8.6% yield), China Life Insurance (LFC or HK.2628 5.8% yield). You'll be subject to 10% withholding tax on dividend.
Just curious, with such substantial exposure to high dividend yield MLPs, won't the tax drag be quite significant? Especially if one is already in the highest fed/state marginal tax bracket (not referring to OP)? Thanks.
MLPs pay tax-deferred distributions because they can claim depreciation. Most of the distributions are a return of capital on my tax returns that reduce my cost basis. I intend to retire in 10 to 15 years when my tax basis go all the way to 0 :D
Ah I see, thanks for the clarification on this.
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Re: $500 in monthly dividends from a $250,000 portfolio?

Post by PersianCapitalist »

jarjarM wrote: Thu Aug 05, 2021 1:26 pm Here is the comparison of hedge fund (not mutual fund) performance vs. S&P500. They been lacking behind over the last 10+ years.
Image
Thanks for chipping in jarjar.
I wonder how the "average hedge fund performance" was measured here. Maybe the "average hedge fund" is avoided by the vast majority of US dollars that are chasing a yield.

Having said that; I do agree with the sentiment about hedge funds. Although I don't know much about them, I think I know enough to avoid them. And just like Ben Felix, I believe that broad index funds are the best strategy for 90% of individuals.

Two notable exceptions would be Renaissance Technologies' Medaillon fund, or Michael Burry's Scion Capital. These are two hedge funds which have drastically outperformed everything else. Though I'm sure one could find Bogleheads who'd even advise against those too lol!

But what do you say to someone who is passionate about investing? Who opened his first brokerage account on his 18th birthday, the moment he was legally allowed to do so? After already having read multiple books on the topic as a teenager, when other kids were playing video games. There's a force inside of me that makes me enjoy doing my own research and select stocks. I don't think I could ever control that force, even if that means getting outperformed over the long run by the S&P500. If that ever happens, I might actually kowtow and put it all in $VOO and $VT. That's why dividend investing has started to attract me recently. I'd still have to do some due diligence. But it's less than a gamble. In the worst case scenario: I'd still get paid a dividend (albeit less after dividend cuts).
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Re: $500 in monthly dividends from a $250,000 portfolio?

Post by jarjarM »

PersianCapitalist wrote: Thu Aug 05, 2021 1:52 pm Thanks for chipping in jarjar.
I wonder how the "average hedge fund performance" was measured here. Maybe the "average hedge fund" is avoided by the vast majority of US dollars that are chasing a yield.

Having said that; I do agree with the sentiment about hedge funds. Although I don't know much about them, I think I know enough to avoid them. And just like Ben Felix, I believe that broad index funds are the best strategy for 90% of individuals.

Two notable exceptions would be Renaissance Technologies' Medaillon fund, or Michael Burry's Scion Capital. These are two hedge funds which have drastically outperformed everything else. Though I'm sure one could find Bogleheads who'd even advise against those too lol!

But what do you say to someone who is passionate about investing? Who opened his first brokerage account on his 18th birthday, the moment he was legally allowed to do so? After already having read multiple books on the topic as a teenager, when other kids were playing video games. There's a force inside of me that makes me enjoy doing my own research and select stocks. I don't think I could ever control that force, even if that means getting outperformed over the long run by the S&P500. If that ever happens, I might actually kowtow and put it all in $VOO and $VT. That's why dividend investing has started to attract me recently. I'd still have to do some due diligence. But it's less than a gamble. In the worst case scenario: I'd still get paid a dividend (albeit less after dividend cuts).
Here is the source of that chart (below). I mentioned a few time about Renaissance on this board but as you probably know, it's closed to outside investors and mainly used by employees of the fund. This is what happens when someone truly has an edge on the market. Why give away the secret and make other ppl billions when one has the right strategy to do it themselves. In this age of cheap capital, if you have a truly winning strategy, it's easy to leverage up and amplify your gains without outside investment capitals. In my view, the question you have to ask is not about passion (we all have passion to make more money :P ), it's more about emotional fortitude and the ability to correctly assess risk. That's where retail investors generally fails and index wins. But if you really are passionate about investing and want to try something, the interest thread on this board is hediefungie's excellent adventure (just google it real quick). Good luck :beer

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Re: $500 in monthly dividends from a $250,000 portfolio? [Netherlands]

Post by 22twain »

PersianCapitalist wrote: Thu Aug 05, 2021 1:52 pm There's a force inside of me that makes me enjoy doing my own research and select stocks.
Many people on this forum satisfy that "itch" by putting 5%-10% of their money into a separate account for stock-picking, sector plays, or whatever. Try a forum search for "fun money" or "play money." The rest of their money goes into boring reliable index funds that only need to be rebalanced occasionally.

I don't have the "itch" myself, but if I had an account like this, I would budget for it the same way I would some other hobby: start out with a certain amount (analogous to initial equipment costs for a sport, or photography, or whatever), say 10% of my portfolio, and then add 10% of my new investment money every month or year. I would keep this account completely separate from my main accounts, probably by using a different brokerage.
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Re: $500 in monthly dividends from a $250,000 portfolio? [Netherlands]

Post by PersianCapitalist »

Good responses so far. Thanks to everyone chipping in and giving me a reality check.
I have concluded: Investing to get a monthly dividend income might cost me a vast amount of capital gains. I am not sure if I want to miss out on that.
I will go back to the drawing board and see if I can come up with a better plan.
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Re: $500 in monthly dividends from a $250,000 portfolio? [Netherlands]

Post by LadyGeek »

Perhaps we can help. May I suggest you post your portfolio information (what you have so far) in this thread using the My portfolio: seeking advice format? It will make you think about the "big picture" while giving us the information we need to point you in the right direction.

If you have any questions, ask them here.
PersianCapitalist wrote: Thu Aug 05, 2021 10:32 am
TedSwippet wrote: Thu Aug 05, 2021 9:45 am There is a wiki article specifically for NL investors:
- Investing from the Netherlands - Bogleheads
Thank you Ted. I read the article last night and it is very dated haha! I messaged the forum admin to request a Wiki editor account. I can update it after that.
Also, I see that you now have access as a Wiki editor. Thank you!
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Re: $500 in monthly dividends from a $250,000 portfolio?

Post by Laurizas »

PersianCapitalist wrote: Wed Aug 04, 2021 10:39 pm Investing has been a passion of mine since I was a teenager. And I bought my first stock when I was 18. I've lived an extremely frugal lifestyle. I've been investing for a long time, generally stocks but also some complex derivatives such as Turbo's. I've never bought any options.
I'm in my thirties now and have around $250K in cash/cash equivalents.
PersianCapitalist wrote: Thu Aug 05, 2021 8:10 am Thank you for your response David. I actually agree that total returns is the metric that matters most in the end. And an investor could simply sell a fraction of his shares each month to pay for living expenses. This has proven to be more rational than optimizing for dividends.

However, people are not robots. And in practice, such an investing style would require me to go into my portfolio each month, to choose which stocks to sell, and how many of them. At this point I'd be actively managing, which adds all kinds of other risks. I am not 100% confident that I would be making the right choices, especially given the fact that I'd be forced to make choices once a month. And it would probably consume much of my attention throughout the month. I might lose sight of the long-term plan.
I see some dissonance here. I think you are perfectly fit to decide what to sell every month (if it's too much work, why not once a year) and the risk you mentioned (active management) is an exaggeration, so it is a poor argument for dividend investing.
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Re: $500 in monthly dividends from a $250,000 portfolio?

Post by CyclingDuo »

PersianCapitalist wrote: Thu Aug 05, 2021 1:31 pmThat's one important reason why I'd like to shift away from picking individual stocks. If I was just lucky (and there's a good chance of that), I don't want to lose it all by continuing the same strategy that brought me where I am now. Capital destruction is a lot more painful when there's $250K on the line and I don't have that much confidence in myself :).
The ability to match the market improves markedly with the number of companies that you invest in using a passively managed strategy, at least based on the studies (which includes random stock selections) found in the Wiki:

https://www.bogleheads.org/wiki/Passive ... ual_stocks

Do you want to take your $220K and invest about $1500 each into 150 companies' individual stocks for your own DIY fund? You could get your dividends and growth - and according to the study - avoid capital destruction if the lag of randomly chosen 150 stocks was only 0.03% compared to the average median return from the market. That's about the same most of us are paying for the ER fee of an index fund. :beer

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Re: $500 in monthly dividends from a $250,000 portfolio?

Post by PersianCapitalist »

Laurizas wrote: Fri Aug 06, 2021 3:02 am Do you want to take your $220K and invest about $1500 each into 150 companies' individual stocks for your own DIY fund?
Interesting study. Thanks for sharing. I don't want to own 150 companies though. I have enough trouble keeping up with the 15 or so companies in my portfolio, and recently I've been trimming some positions (Cloudflare), or sold all my shares in names that became vastly overpriced (Upwork).
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Re: $500 in monthly dividends from a $250,000 portfolio?

Post by PersianCapitalist »

Laurizas wrote: Fri Aug 06, 2021 3:02 am I see some dissonance here. I think you are perfectly fit to decide what to sell every month (if it's too much work, why not once a year) and the risk you mentioned (active management) is an exaggeration, so it is a poor argument for dividend investing.
I gotta say you have a point. The responses in this thread have made me realize that this plan of living off dividends might not be in my own best interest. I'm gonna go back to the drawing board and start from scratch. If I cannot come up with a better plan, I'll just continue investing as I do now.
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Re: $500 in monthly dividends from a $250,000 portfolio?

Post by rjm_cali »

PersianCapitalist wrote: Fri Aug 06, 2021 12:04 pm I gotta say you have a point. The responses in this thread have made me realize that this plan of living off dividends might not be in my own best interest. I'm gonna go back to the drawing board and start from scratch. If I cannot come up with a better plan, I'll just continue investing as I do now.
It's been a useful thread here too. I'm retiring next year so entering the scary decumulation phase. My heart likes the idea of dividend investing partly because it's like a pay cheque appearing in our bank account and also because it obviates the need to look at stocks and even think about where the market is. Or at least that's what my heart tells me.

That said my head knows total return is all that matters. Current plan is to keep a couple of years at least in cash and bonds and then rebalance/sell equities when I am most comfortable doing so. I'm not a fan of cash but I really don't want to spend my retirement stock picking or worrying about the market.
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Re: $500 in monthly dividends from a $250,000 portfolio?

Post by Maverick3320 »

PersianCapitalist wrote: Thu Aug 05, 2021 8:10 am
David Jay wrote: Thu Aug 05, 2021 7:34 am Welcome to the forum!

While there are many views on investing style, the overwhelming view on Bogleheads is that total return is a better approach to asset selection than dividend payout. There is no substantive difference to your portfolio if you sell appreciated stock for income or if you receive dividends. Seeking dividend yield can distort your portfolio - selecting certain categories of stocks and passing over others.

The classic example of total yield is Berkshire Hathaway, which intentionally does not pay dividends. In this way investors can choose when to take (or not take) income, they simply sell some shares when they need income. Dividends force investors to take income whether or not they need it.
Thank you for your response David. I actually agree that total returns is the metric that matters most in the end. And an investor could simply sell a fraction of his shares each month to pay for living expenses. This has proven to be more rational than optimizing for dividends.

However, people are not robots. And in practice, such an investing style would require me to go into my portfolio each month, to choose which stocks to sell, and how many of them. At this point I'd be actively managing, which adds all kinds of other risks. I am not 100% confident that I would be making the right choices, especially given the fact that I'd be forced to make choices once a month. And it would probably consume much of my attention throughout the month. I might lose sight of the long-term plan.

A good investing plan, is a plan that we can stick to. The beauty about dividends (although somewhat irrational perhaps) is that when the market goes up, you get paid. When the market goes sideways, you get paid. When the market goes down, you get paid. For many dividend investors, their monthly dividend income empowers them to stick to their long term plan. And if that's the plan they can stick to in practice, it becomes rational after all. Just my thoughts :).
sailaway wrote: Thu Aug 05, 2021 8:08 am If you pay capital gains tax, the dividend focus is creating a tax drag on the portfolio during accumulation.
I am based in the Netherlands. Capital gains tax does not exist in this country. Lucky me.
"such an investing style would require me to go into my portfolio each month, to choose which stocks to sell, and how many of them"

It sounds like you are already actively managing.
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