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Living off dividends only.

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  • #31
    You're right. I swear someone corrected me the other day just the opposite, but when I look it up, it is Principal.
    Helping those who wear the white coat get a fair shake on Wall Street since 2011

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    • #32
      Taxes are the third main problem I have with dividend investing.

      Also, if "even 0.08% is too much" why don't you just buy SCHV?  Are you seriously going to argue that 0.04% is too expensive also?
      I sometimes have trouble reading private messages on the forum. I can also be contacted at [email protected]

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      • #33




        How does one define uncompensated risk? Like is there a formula/academic thought behind this or its one of those “hey I think its risky … dont do it” things?
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        Uncompensated risk is risk that can be diversified away. Since it can be easily eliminated, you won't be paid for taking it. Market risk is compensated risk. Individual stock risk is uncompensated risk.
        Helping those who wear the white coat get a fair shake on Wall Street since 2011

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        • #34




          Also, I find it fascinating to see people encouraging the purchase of individual stocks to get the dividends (people in this thread) at the same time other people are encouraging the purchase of individual stocks to avoid the dividends (such as Demuth.)
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          You mean like this thread? https://www.whitecoatinvestor.com/forums/topic/zero-dividend-investing-in-taxable-account/

          I don't find avoiding 0.05% expense ratio for VTSAX to be particularly compelling, but when you start talking about annual tax drag of ~0.57% on VTSAX qualified dividends - now you have my attention!  For me it is 2% dividend x (23.8% + 5% state).  You can't blame me for trying to reduce the thousands of dollars I pay every year in taxes on VTSAX/VTIAX dividends (which is only going to get worse in the years/decades ahead).

          If you decide to replace some of your VTSAX with BRKB, you may fair better or worse, only time will tell.  What is certain though, is you will pay less tax over time with BRKB (certainly if BRKB underperforms, but probably also when BRKB outperforms).  Returns are variable and unknowable, but taxes are certain.

          While I can strangely understand some of the appeal of living off dividends only in retirement, I consciously reject it as illogical.

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          • #35
            Here is a thoughtful presentation of this issue for those who are interested:

            http://www.fromcentstoretirement.com/guest-post-investing-dividends-index/

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            • #36
              1) There are trading costs to holding and selling individual shares vs receiving dividends.  Depending on how often you have to sell shares, will depend on how high those costs are.  For many people, there are no trading costs to selling shares of their ETF.

              2)  I do some of both.  I have ETFs and have individual stocks.  I have a dividend focused ETF and a total index ETF.  Most of the individual stocks I have are dividend focused, but some have had some decent growth too.

              3)  I like the dividend because I am getting some of the profit every quarter.  I don't mind getting rewarded a little bit through out the year.  Since I am still in my accumulation I reinvest my dividends with no trading costs and get to purchase fractional shares.  Seems like a pretty good deal.

              4)  With that in mind, the approach is to buy basically household name stocks.  It doesn't take that much time to "manage" 30 - 40 stocks that are unlikely to be going anywhere.  However, I still believe a mixed approach is better.  There are some good household name stocks that will provide ample growth and you might not want to miss those.

              5)  To be fair, I am unlikely to be able to save enough to be in the category of even being blessed with the opportunity to give it a try.

               

              cd :O)
              Yet those who wait for the LORD Will gain new strength; They will mount up with wings like eagles, They will run and not get tired, They will walk and not become weary. -- Isaiah 40:31

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              • #37
                I have been buying SPY for years in my taxable account.

                my question for those who plan to go this route without an annuity or money managers, how do you figure out the 'basis' of such ETFs that you might have accumulated over years in hundreds of transactions. That's in case you had to sell some. In the 401k it's not a problem as you don't have to figure out a basis. It all gets taxed as you take a distribution.

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                • #38




                  I have been buying SPY for years in my taxable account and now at the age of 56, I have over 4M in SPY, DIA and QQQ. My 401K has another 2.3M. I think I could very easily live off just my dividends. It’s too late now to sell SPY and move it into bonds or international ETFs. I would have to take a profit and pay cap gains.

                  my question for those who plan to go this route without an annuity or money managers, how do you figure out the ‘basis’ of such ETFs that you might have accumulated over years in hundreds of transactions. That’s in case you had to sell some. In the 401k it’s not a problem as you don’t have to figure out a basis. It all gets taxed as you take a distribution.
                  Click to expand...


                  Your brokerage should have all that immediately available. You may very well do great on dividends alone, depending on your spending. Otherwise you may have only a couple years of principal selling before the dividends more than sustain you. I wouldnt really change anything now, probably not worth it.

                  If you felt you wanted/needed more bonds you could just buy them instead of directing new purchase to equities, but I think you're doing all right.

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                  • #39




                    I have been buying SPY for years in my taxable account and now at the age of 56, I have over 4M in SPY, DIA and QQQ. My 401K has another 2.3M. I think I could very easily live off just my dividends. It’s too late now to sell SPY and move it into bonds or international ETFs. I would have to take a profit and pay cap gains.

                    my question for those who plan to go this route without an annuity or money managers, how do you figure out the ‘basis’ of such ETFs that you might have accumulated over years in hundreds of transactions. That’s in case you had to sell some. In the 401k it’s not a problem as you don’t have to figure out a basis. It all gets taxed as you take a distribution.
                    Click to expand...


                    Wiscoblue you and I have similar account sizes.  I have some muni bonds in my taxable as well as Apple.  I plan to initially just live off the income from the taxable which will more than meet my needs.  Yeah it might be messy to sell your original shares of SPY etc.  I think the law changed in 2011 to the brokerage has to track this. If you need some money you can sell the shares that you know the basis on first.  If you are at Vanguard click the specific share id feature.  It is not that I think living off dividends is a superior withdrawal strategy but I realized like wiscoblue that I had saved enough along the way that I can do it.

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                    • #40


                      my question for those who plan to go this route without an annuity or money managers, how do you figure out the ‘basis’ of such ETFs that you might have accumulated over years in hundreds of transactions.
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                      Wiscoblue you and I have similar account sizes. I have some muni bonds in my taxable as well as Apple. I plan to initially just live off the income from the taxable which will more than meet my needs. Yeah it might be messy to sell your original shares of SPY etc.
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                      I have similar issues in that I have always done dividend reinvesting, especially if the cost to do that was nominal. So I have hundreds of transactions in different stocks with different purchase prices. My dividends will give me 1/3 of my living expenses and the distributions from real estate holdings will easily cover the rest.

                      Should I ever need to sell stocks I might just sell one of two stocks that are underperforming. Add up the initial purchase price and all the dividends given ( for which I have already paid taxes on) as the cost basis and get a sale price and pay capital gains on the difference. Unless the law changes in the next few years on how taxes are to be under DJT.

                       

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                      • #41
                        Hey Value Doc I had to register to sign in and support your position. I purchased Security Analysis by Graham and Dodd in 1995, my first year in private practice in a sleepy coastal backwater as a hyper-specialist. Fast forward 22 years and my qualified dividends based on 52 equities is more than my last year of earned income. They're all being reinvested. I still work x < 1/2 time to cover our 2 kids college/med-school tuitions and I enjoy my branch of medicine. My spouse is also a hyper specialist (with zero interest in investment). My point is an 8 figure portfolio is achievable with your approach.

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                        • #42


                          My spouse is also a hyper specialist (with zero interest in investment). My point is an 8 figure portfolio is achievable with your approach.
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                          So, which part of your post leads to the result of an 8 figure portfolio?  A hyper specialist married to a hyper specialist, or a dividend approach to investing?

                          The favorable tax treatment of qualified dividends in low marginal tax brackets is attractive.  However, you don't all of the sudden wake up one morning and have an 8 figure portfolio of dividend stocks.  This portfolio was probably accumulated over several years when you and your hyper-earning spouse were probably in the highest tax bracket.  This means you were paying a lot of taxes every year that were entirely unnecessary and avoidable.  It's okay though, when you are a hyper-earner married to a hyper-earner, you can make unforced errors like this and still be okay.  You would have almost certainly been better served with an index fund though - sorry to be the bearer of bad news (at least everything worked out okay in the end).

                          Please, please tell me though that you took advantage of one of the strongest arguments for a portfolio of individual stocks (which thevaluedoc doesn't seem to have addressed directly) - and you were aggressively tax-loss harvesting all those years.  Index funds (actually, all mutual funds) heavily restrict your ability to harvest losses - negatively impacting your tax-efficiency.

                          I didn't see thevaluedoc making this argument, which is worth a lot more $$$ than a 0.08% expense ratio.

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                          • #43
                            So what is the boards thoughts on buying Berkshire Hathaway to put in a taxable account? I know its more risky than an index fund, but they get the dividend to work for them and you as the holder only sell when you want. Plus you have the greatest capital allocator in history working for you.

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                            • #44




                              So what is the boards thoughts on buying Berkshire Hathaway to put in a taxable account? I know its more risky than an index fund, but they get the dividend to work for them and you as the holder only sell when you want. Plus you have the greatest capital allocator in history working for you.
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                              Past results are not indicative of future performance.  As Warren Buffet himself has said, if you held a national coin flipping tournament in which the folks who called the coin correctly advanced to the next round and the losers dropped out, after a few rounds you would be left with a select group of people who guessed many flips in a row correctly who would be writing books on coin flipping strategies.

                              Maybe Buffet is better than anyone else, and his firm will continue to outperform the market indefinitely, but he's far from perfect.  While his internet stock aversion was wise back in 2000, it is going to become more of an issue in the future.  By his own admission he completely missed the boat on Google and Amazon.

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                              • #45




                                So what is the boards thoughts on buying Berkshire Hathaway to put in a taxable account? I know its more risky than an index fund, but they get the dividend to work for them and you as the holder only sell when you want. Plus you have the greatest capital allocator in history working for you.
                                Click to expand...


                                I buy a small bit of BRK.B every quarter and keep it in taxable.  You're right the tax treatment is unparalleled; Phil DeMuth's book turned me on to this approach.  Aside from a small position in Danoff's Contrafund, Berkshire is my only nod to active management (outside of my own efforts of course).

                                Like Donnie points out, who knows what will happen in the future.  Maybe when Buffett passes away and the stock craters, I can afford a couple shares of BRK.A?

                                Plus, I think it would be a hoot to go to the annual shareholder meeting.  Unfortunately, my wife does not share this view.

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