How to Retire on Dividends - Brett Owens & Tom Jacobs

[PWMDMD]

I'm in a phase where I'm just reading as many books as possible on personal finance, investments, and markets. I started with WCI Financial Boot Camp, Bitcoin and Cryptocurrency Trading of Beginners, The Bogleheads' Guide to Investing, Principles by Ray Dalio, The Only Investment Guide You'll Ever Need, and now I'm on How to Retire on Dividends.

The first five books all basically jive with each other, all of them made sense conceptually to me, and in many cases, they advocate for the exact same investment strategies or very similar strategies. Then there's How to Retire of Dividends and I have to admit this one is a little more effort to get my head around compared to the other books.

I'm just looking for feedback on this book:

1. Is this really a viable strategy or are these guys nuts?
2. If viable, is it really worth the effort?
3. I haven't finished the book just yet but I constantly feel like the authors are on the verge of selling me something.
4. This could be coming but I feel like while they cover the theoretical basis for their investment decisions and even tell you what they were investing at the time they were writing the book I don't have any sense if those investments still make any sense or if they were all time-specific? Seems like there's a lack of actionable advice specific to now.

Any feedback on this book, including their method, is appreciated!


Thanks

[Max Power]

You are all over the place, man.

Crypto is for gambling... WCI or Bogle is for conservative growth... Principles isn't even a money book (mostly)...

Dividend (or selling covered calls or REITs, MLP, utilities, etc) once in retirement is just to create cash flow. The idea is that you keep the shares and live off the dividends. It is something you can do in retirement... not the best way to get to retirement or FI (since divi companies like KR or PG or MMM or T or etc are usually fairly maxed out and share prices don't change much).

[Notsobad]

I think the dividend income approach is obsolete. In the past few decades more companies like to focus on growth over income.

so not all successful companies give much of a dividend, and can vary what they pay. so in any one year a retiree can fall short of their wants or get excess taxable dividend from a dividend oriented portfolio. (If in taxable) Plus, at least in funds, the price goes down after the dividend is paid out.


So the total return of a portfolio allows more diversified holdings without trying to find dividend producing stock. And you can take out what you need annually.

[PWMDMD]

You are all over the place, man.

Crypto is for gambling... WCI or Bogle is for conservative growth... Principles isn't even a money book (mostly)...

Dividend (or selling covered calls or REITs, MLP, utilities, etc) once in retirement is just to create cash flow. The idea is that you keep the shares and live off the dividends. It is something you can do in retirement... not the best way to get to retirement or FI (since divi companies like KR or PG or MMM or T or etc are usually fairly maxed out and share prices don't change much).

Lol...as I said I'm just trying to survey the entire investment world to get an idea of everything out there.

As far as this book - yeah, I understand the basic ideas of what they're trying to accomplish but unlike many of the other books, the methods are a little more difficult to follow. I can follow buy VTI knucklehead and here's why but this book requires a bit of timing expertise - for example: Knowing when to buy based on the difference between the price of the CEF and its NAV.

[ShredtheGnar]

Lol...as I said I'm just trying to survey the entire investment world to get an idea of everything out there.

As far as this book - yeah, I understand the basic ideas of what they're trying to accomplish but unlike many of the other books, the methods are a little more difficult to follow. I can follow buy VTI knucklehead and here's why but this book requires a bit of timing expertise - for example: Knowing when to buy based on the difference between the price of the CEF and its NAV.

Haven’t read the book, but I have looked into CEFs. And there are some CEF income funds that are almost like annuities that pay a high dividend/distribution. There are a lot that do return of capital. But some of them are pretty good funds. They are similar to mutual funds but have a fixed number of shares issued and trade like a stock or ETF. They also have the ability to leverage their holdings to boost returns. Most will have high ER. You can sometimes find a good deal and get the fund for a large discount to NAV. I hold some high yield muni fund CEFs that have produced good returns. So it can work out but requires a bit more research and effort than just buying and holding an index fund.

[bovie]

Perhaps give these a read too, while you're at it:

https://www.physicianonfire.com/sell...ing-dividends/

https://www.physicianonfire.com/marble-movers/

[Hank]

Declare your own dividend: sell shares.

[PWMDMD]

Declare your own dividend: sell shares.

Well, the whole point is capital preservation.

Ex. Invest $1,000,000 and an 8% dividend means $80K per year income without giving up your $1M.

[GasFIRE]

Well, the whole point is capital preservation.

Ex. Invest $1,000,000 and an 8% dividend means $80K per year income without giving up your $1M.

I used to be a dividend investor with exactly that plan and did eventually reach the point where my dividends were enough to cover my yearly expenses. The problem arises as you approach retirement. You want to spend preferentially from taxable, pre-tax or Roth depending on your situation or plans at the time. But if the dividends are spread across the different account types, you could be forced to distribute the income in a tax-inefficient manner. If you want to spend from your taxable in your 60's then start taking your RMD from pre-tax at 72, you won't have a way to pass dividends between your different account types.

[Max Power]

I think the dividend income approach is obsolete. In the past few decades more companies like to focus on growth over income.
..

This is not true at all. Google 'dividend aristocrats.' There are plenty of companies that pay fine dividends. Dividends are simply what companies do once they are already global or maxed out for whatever reason. There are popular ETFs of dividend producers also. Even VTI is a dividend producer of sorts.

Most REITs, establsihed companies, industrial, consumer staples, utilities, etc are all about dividends. Many people use those in retirement (esp if you also sell covered calls on the blocks of them). I agree that you want overall portfolio growth, but once FI, not everybody likes looking for what shares they need to sell every month or two to pay bills or book their next trip.

As someone nearly or past FI myself, I will likely transition a sizable chunk of my holdings to dividend aristocrats whenever I retire... also a chunk to REITs, etc. Since our interest rates are not going up and will probably be negative again soon with the money print cannons, dividends beats the heck out of bonds or annuity and won't dip nearly as fast as growth or total market stocks and funds in a bear market. If the idea is to travel more and check the stock market less, then I don't want to baby sit growth stocks and be selling frequently to create cash to live on.

[MaxPower]

Well, the whole point is capital preservation.

Ex. Invest $1,000,000 and an 8% dividend means $80K per year income without giving up your $1M.

What do you think happens to the value of that $1,000,000 investment when the $80k dividend is declared? (Hint—the money doesn’t appear out of thin air.)

[spiritrider]

Well, the whole point is capital preservation.

Ex. Invest $1,000,000 and an 8% dividend means $80K per year income without giving up your $1M.

No, the whole point is total return. It doesn't matter whether that is thru capital appreciation or dividends.

In withdrawal phase it is all about sustainable income. In most cases it does not matter whether that is from capital gains or qualified dividends.

However, in my state capital gains are even more beneficial than dividends, because capital gains are not taxed.

[Max Power]

...In withdrawal phase it is all about sustainable income. In most cases it does not matter whether that is from capital gains or qualified dividends...

Yes, but the growth stocks that are good capital gainers tend to be the ones that are more volatile. They will make bad acquisitions, have bad quarters, have bad products, etc. When they dip for those reasons, you have to sell even more shares (at the worst times) if you rely on those sales for retirement income.

The dividends (esp for the aristocrat ones who have maintained or increased dividend for decades) are quite sustainable, and they also tend to be the type of stocks that don't dip as much in bad markets (since they are consistently profitable).

What dips more in 2008 or COVID or Ukraine turbulence:
WMT or TSLA?
PG or AMZN?
VTI or QQQ?
KO or some crypto or marij stocks?

Anyone trying to retire on mainly capital gains takes a risk and would have got cut in half by suddenly having to sell off tons of reduced-price shares just to make ends meet. A dividend owner was basically fine and selling nothing in those same spans. The two tend to go hand in hand: sustainability and dividends. Even the good tech companies pay some dividend after awhile. Dividend companies are dividend companies since they have consistent profits, sales, etc. They don't take a lot of risks (usually because they are already fairly maxed out across the globe, country, state, etc that they target).

Gains are taxed everywhere... sometimes not by the the state, but you always pay fed tax, which is the big one anyways.

[Tangler]

Perhaps give these a read too, while you're at it:

https://www.physicianonfire.com/sell...ing-dividends/

https://www.physicianonfire.com/marble-movers/

This.

[Tangler]

Declare your own dividend: sell shares.

And this.