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Post by ElLobo on Jun 23, 2023 18:56:27 GMT
POSTS MOVED FROM ANOTHER THREAD
I remember El Lobo very well, we discussed for years TR vs income. El Lobo went big into MLP. Then he doubled up investing in 200% MLP such as MRRL+SDYL. In march 2020, MRRL+SDYL liquidated, gone, lost everything, others such as AMZA, a typical generic MLP lost 80+%. El Lobo stopped posting. I kept his holdings from 2020. See below a chart of AMZA=InfraCap MLP ETF vs SPY. BTW, I really tried to help the guy. LOL! You knew about as much about TR investing as anyone around those forums, but you knew nothing about yield focused investing and investing during retirement. The M* forums started about the time I was thinking about retirement and a 'safe rate of retirement withdrawal.' Back then, the early guru of investing and retirement withdrawals was Dr. Bill Bernstein, who had a website, called The Efficient Frontier (http://www.efficientfrontier.com/). It is still active, but not nearly as much as back then. Anyhow, Dr. Bill practiced on the southern Oregon coast, in Coos Bay. I had the pleasure of visiting him, twice, where we very briefly discussed the concept of taking a 4% rate of withdrawal from a portfolio that yielded 5%, i.e., VWEHX! He hadn't thought about it and, at that time, he was into the subject of depleting a retirement portfolio by sticking to a fixed, real inflation adjusted rate of withdrawal, come hell or high water. At any rate, those types of discussions were commonplace, on M*, back in its early days. I don't know if they still have those discussions, either on M* or here? The infamous 'seed corn' thread was a direct result. Seed corn is the very basic definition of yield focused investing. Plant a corn field that yields 5%, withdraw and spend 4%, then 1% seed corn is planted for NEXT years crop! Anyhow, I never needed your help on anything. After all, you knew nothing about yield focused investing, otherwise known as Dividend and Income Investing and apparently haven't increased your knowledge over the last few years!
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Post by ElLobo on Jun 23, 2023 19:10:15 GMT
I remember El Lobo very well, we discussed for years TR vs income. El Lobo went big into MLP. Then he doubled up investing in 200% MLP such as MRRL+SDYL. In march 2020, MRRL+SDYL liquidated, gone, lost everything, others such as AMZA, a typical generic MLP lost 80+%. El Lobo stopped posting. I kept his holdings from 2020. See below a chart of AMZA=InfraCap MLP ETF vs SPY. BTW, I really tried to help the guy. I seem to remember that he had little concern how low the price of the ETFs went so long as he had his income stream. That's the thing. You spend income stream, you don't spend portfolio value. Think of an all VWEHX portfolio, valued at $100k, which yields 5.5%, or $5,500/year. Ifn your rate of withdrawal is 4%, or $4,000/year, you withdraw that and reinvest the excess $1,500/year, buying more shares of the fund. Next year, your holding should produce about the same $5,500, ifn the distribution isn't cut, actually a bit more, since you own a few more shares of the fund, regardless of what the share value of the fund does! You are a Dividend and Income Investor. Contrast that with a fund, say, VFINX, that yields only 1.5%, from which you want to withdraw the same real, inflation adjusted 4%. Each year, your $100k portfolio generates $1,500 distribution income. You spend that, but come up with the remaining $2,500 by selling off shares of VFINX. So now you DO care what the share value does, since the number of shares you sell off each year goes up, if NAVs go down, and go down, if NAVs go up. You are then in a game to NOT sell off that last share before you die.
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Post by ElLobo on Jun 23, 2023 19:17:16 GMT
That is generally how income investors view things. If not then they are TR investors. Then there are those who value both; 3-4% income + decent TR like Wellesley for example. Well, the thing is that you KNOW the income stream of a fund, e.g., VWEHX is currently 5.5%, and it will remain $5.50 for every $100 invested in the fund as long as the distribution isn't cut, regardless of what the NAV does. OTOH, what will the TR be, for ANY fund, going forward? To know that, you have to predict fund NAVs!
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Post by ElLobo on Jun 23, 2023 19:25:29 GMT
Then there are those who value both; 3-4% income + decent TR like Wellesley for example. But then again they might care about price and don't complain. I'm talking about real income investors......the 8+% leveraged CEF investors. But then again they might care about price and don't complain. Real income investors target the yield they want and invest accordingly. For me, I targeted a yield that supported a real, inflation adjusted 5% rate of retirement withdrawal. Both myself and my sister, while I was managing her portfolio, needed a bit more than the traditional 4% rate of withdrawal, due to our personal circumstances. I retired early, at age 58, in 2003, so I've been out now 20 years. My younger sister was widowed at age 57. Remember, we're talking about portfolio yield, not the yield of any one asset within it.
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Post by fishingrod on Jun 23, 2023 19:50:07 GMT
I'm talking about real income investors......the 8+% leveraged CEF investors. But then again they might care about price and don't complain. Real income investors target the yield they want and invest accordingly. For me, I targeted a yield that supported a real, inflation adjusted 5% rate of retirement withdrawal. Both myself and my sister, while I was managing her portfolio, needed a bit more than the traditional 4% rate of withdrawal, due to our personal circumstances. I retired early, at age 58, in 2003, so I've been out now 20 years. My younger sister was widowed at age 57. Remember, we're talking about portfolio yield, not the yield of any one asset within it.
You bring up very essential portfolio assessment. That is, to always assess the portfolio as a whole, and not to give too much concern to any one particular holding or asset class. Just the performance of the portfolio as a whole, with all the ups and downs.
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Post by racqueteer on Jun 23, 2023 20:09:28 GMT
Biting tongue 😛
Nope, can’t do it…..
TR matters. If you’re in danger of “selling your last share”, then you ALSO didn’t maintain your distribution. Was, is, and always has been a flawed argument.
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Post by ElLobo on Jun 23, 2023 21:25:47 GMT
Biting tongue 😛 Nope, can’t do it….. TR matters. If you’re in danger of “selling your last share”, then you ALSO didn’t maintain your distribution. Was, is, and always has been a flawed argument. LOL. TR only matters to a TR focused investor! A yield focused investor, who's total portfolio yield is always more than the withdrawal, is never in danger of selling that last share since he never sells shares to cover the withdrawal. The ONLY one who cares about TR is the one who always sells shares to cover the withdrawal.
(Whether a TR or yield focused investor only makes a difference ifn you are taking cash out of your portfolio, especially during retirement.)
It's simple math and is the only argument one can make that is not flawed! Hope you didn't loose that tongue!
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Post by richardsok on Jun 23, 2023 22:28:52 GMT
Nope. I won't.
I'm not going to jump into this TR furball, 'cept to say it's great to see you back, wolfie.
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Post by Chahta on Jun 23, 2023 22:29:12 GMT
Biting tongue 😛 Nope, can’t do it….. TR matters. If you’re in danger of “selling your last share”, then you ALSO didn’t maintain your distribution. Was, is, and always has been a flawed argument. LOL. TR only matters to a TR focused investor! A yield focused investor, who's total portfolio yield is always more than the withdrawal, is never in danger of selling that last share since he never sells shares to cover the withdrawal. The ONLY one who cares about TR is the one who always sells shares to cover the withdrawal.
(Whether a TR or yield focused investor only makes a difference ifn you are taking cash out of your portfolio, especially during retirement.)
It's simple math and is the only argument one can make that is not flawed! Hope you didn't loose that tongue! I understand income investing. It is basic math. But how does a TR investor decide how much to withdraw? If it’s the 4% guideline then if the TR is 4% you are selling shares(spending down). You can’t control TR but you can decide income.
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Post by ElLobo on Jun 24, 2023 1:12:47 GMT
LOL. TR only matters to a TR focused investor! A yield focused investor, who's total portfolio yield is always more than the withdrawal, is never in danger of selling that last share since he never sells shares to cover the withdrawal. The ONLY one who cares about TR is the one who always sells shares to cover the withdrawal.
(Whether a TR or yield focused investor only makes a difference ifn you are taking cash out of your portfolio, especially during retirement.)
It's simple math and is the only argument one can make that is not flawed! Hope you didn't loose that tongue! I understand income investing. It is basic math. But how does a TR investor decide how much to withdraw? If it’s the 4% guideline then if the TR is 4% you are selling shares(spending down). You can’t control TR but you can decide income. That's the real question, isn't it? An yield focused investor withdraws W from a portfolio that yields Y, where W is less than Y. The TR investor, OTOH, withdraws the same W from his portfolio that returns TR, where TR now can be positive OR negative, for the year. That is, the portfolio value itself can go up, or down, each year.
The way to think about it, you have to assume both the TR investor and the yield focused investor withdraw exactly the same amount each year, come hell or high water. Traditionally, it's been assumed that a real, inflation adjusted 4% rate of retirement withdrawal was considered 'safe', where safe means the retirement portfolio lasts, say, 30 years. 'Last' means that the portfolio isn't depleted (you don't run out of money before you die (before 30 years).
The yield component of TR is always positive, meaning that the amount of cash it represents is always available for withdrawal and spending. So if the yield of your portfolio, today, is 4% and you expect that yield to rise with inflation each year, going forward, than you, by definition, will have a 'perpetual annuity' that exactly covers your expected real, inflation adjusted 4% rate of retirement withdrawal.
For those portfolios that generate a higher yield, for example, VWEHX, at 5.5%, you can still take your 4% withdrawal, and reinvest the excess 1.5%, buying more fund shares, each one still yielding 5.5% So even if the distribution yield itself stays constant, the amount of cash generated by your portfolio actually increases by that 5.5% as more shares are bought each year. In essence, as long as inflation itself is 5.5%, or less, your portfolio cash flow keeps up with inflation.
Now, do exactly the same mind experiment, using the TR of your portfolio, where its yield is, say, 1.5%, like VFINX. Tell me how you have confidence that such a portfolio will keep up with a real, inflation adjusted 4% rate of retirement withdrawal? You will soon find out that you have to make some assumptions regarding the TR of your portfolio, given that the TR equates to an unrealized capital gain or loss each year plus the 1.5% portfolio yield, from which you are taking that real 4% out each year.
And whatever assumptions you make regarding your TR, in order to come up with your 4% withdrawal from a portfolio that yield only 1.5%, you have a guaranteed 2.5% 'loss' in portfolio value each year, as you sell shares to cover the withdrawal, regardless of whether you had a capital gain, or loss, for the year. Ifn you start with, say, X shares in your retirement portfolio and have to sell Y shares EACH YEAR, you deplete your portfolio (it runs out of money) whenever the sum of the number of shares each year, Y, becomes greater than your starting value, X! At any rate, you, obviously, understand this. So does racqueteer, but, as always, he just like to hear himself type! Now back to my nightly nap, where I rest until it's time to go to bed!
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Post by Chahta on Jun 24, 2023 1:32:32 GMT
ElLobo , but I have a problem with "inflation adjusted" rate. If you are getting 5.5% then each year the 5.5% needs to go up by X% to account for inflation or your income is degraded in spending power. I think that is why we need some growth from equities. Or I suppose the 4% you ( or someone else) are spending from the 5.5% would be up to 4.9% or so by now. Then what?
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Post by mnfish on Jun 24, 2023 10:44:52 GMT
ElLobo , but I have a problem with "inflation adjusted" rate. If you are getting 5.5% then each year the 5.5% needs to go up by X% to account for inflation or your income is degraded in spending power. I think that is why we need some growth from equities. Or I suppose the 4% you ( or someone else) are spending from the 5.5% would be up to 4.9% or so by now. Then what? That's why tools such as Portfolio Visualizer are important to use.
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Post by racqueteer on Jun 24, 2023 12:30:45 GMT
I understand income investing. It is basic math. But how does a TR investor decide how much to withdraw? If it’s the 4% guideline then if the TR is 4% you are selling shares(spending down). You can’t control TR but you can decide income. That's the real question, isn't it? An yield focused investor withdraws W from a portfolio that yields Y, where W is less than Y. The TR investor, OTOH, withdraws the same W from his portfolio that returns TR, where TR now can be positive OR negative, for the year. That is, the portfolio value itself can go up, or down, each year.
The way to think about it, you have to assume both the TR investor and the yield focused investor withdraw exactly the same amount each year, come hell or high water. Traditionally, it's been assumed that a real, inflation adjusted 4% rate of retirement withdrawal was considered 'safe', where safe means the retirement portfolio lasts, say, 30 years. 'Last' means that the portfolio isn't depleted (you don't run out of money before you die (before 30 years).
The yield component of TR is always positive, meaning that the amount of cash it represents is always available for withdrawal and spending. So if the yield of your portfolio, today, is 4% and you expect that yield to rise with inflation each year, going forward, than you, by definition, will have a 'perpetual annuity' that exactly covers your expected real, inflation adjusted 4% rate of retirement withdrawal.
For those portfolios that generate a higher yield, for example, VWEHX, at 5.5%, you can still take your 4% withdrawal, and reinvest the excess 1.5%, buying more fund shares, each one still yielding 5.5% So even if the distribution yield itself stays constant, the amount of cash generated by your portfolio actually increases by that 5.5% as more shares are bought each year. In essence, as long as inflation itself is 5.5%, or less, your portfolio cash flow keeps up with inflation.
Now, do exactly the same mind experiment, using the TR of your portfolio, where its yield is, say, 1.5%, like VFINX. Tell me how you have confidence that such a portfolio will keep up with a real, inflation adjusted 4% rate of retirement withdrawal? You will soon find out that you have to make some assumptions regarding the TR of your portfolio, given that the TR equates to an unrealized capital gain or loss each year plus the 1.5% portfolio yield, from which you are taking that real 4% out each year.
And whatever assumptions you make regarding your TR, in order to come up with your 4% withdrawal from a portfolio that yield only 1.5%, you have a guaranteed 2.5% 'loss' in portfolio value each year, as you sell shares to cover the withdrawal, regardless of whether you had a capital gain, or loss, for the year. Ifn you start with, say, X shares in your retirement portfolio and have to sell Y shares EACH YEAR, you deplete your portfolio (it runs out of money) whenever the sum of the number of shares each year, Y, becomes greater than your starting value, X! At any rate, you, obviously, understand this. So does racqueteer, but, as always, he just like to hear himself type! Now back to my nightly nap, where I rest until it's time to go to bed! Am I the only one who finds this throwaway comment both ironic and hypocritical in the light of my five-sentence post versus this manifesto of misdirection? Not to mention that it is non-responsive to my point. You have to be EARNING that dividend (TR positive) or you will not continue to receive it. But if you ARE, (TR positive), then even selling for income can never result in "selling that last share". Unless, of course, you're exceeding the TR (not income), but then YOUR approach would have led to either the distribution being cut, or the investment (and income) going to zero. "AS ALWAYS", I have no issue with the idea of Income investing, but I DO have an issue with the 'magic pixie dust' explanations you provide in promotion of the approach. The "annuity" you liken this to, behaves as any OTHER annuity; you buy it up front, and the seller arranges the periodic payout such that the likelihood of running out of money is very low. That said, if the annuity payments DO exceed the original purchase funds, then that annuity will most certainly end. No one is going to give you money which isn't there. But you knew that.
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Post by steadyeddy on Jun 24, 2023 12:40:57 GMT
ElLobo, one thing I am missing re: VWEHX is as follows: How are we sure that the fund will generate 5.5% yield for years and years? Does that not depend on the composition of the bonds it holds and the yield-at-cost for new bonds it acquires through rotation?
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Post by racqueteer on Jun 24, 2023 12:51:14 GMT
ElLobo , one thing I am missing re: VWEHX is as follows: How are we sure that the fund will generate 5.5% yield for years and years? Does that not depend on the composition of the bonds it holds and the yield-at-cost for new bonds it acquires through rotation? And would THAT not ALSO imply that the TR would have to be zero to positive (further flogging a dead horse)?
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Post by ElLobo on Jun 24, 2023 12:57:35 GMT
ElLobo , but I have a problem with "inflation adjusted" rate. If you are getting 5.5% then each year the 5.5% needs to go up by X% to account for inflation or your income is degraded in spending power. I think that is why we need some growth from equities. Or I suppose the 4% you ( or someone else) are spending from the 5.5% would be up to 4.9% or so by now. Then what? Good questions. In general, the highest yielding bonds (longer term, lower quality, like VWEHX) still pay a set amount of interest for their term, unless, of course, they default. So there will be no 'growth' in order to keep up with inflation. But the growth in equities you are talking about isn't a growth in terms of TR, where equities increase in value. You are talking growth in the dividends they pay, like investing in the Dividend Aristrocrats or a fund/ETF that focuses on 'em, say SDY. At least ifn you are a yield focused investor. Note that SDY pays 1.25% more distribution cash than SPY. Ifn you are talking about growth, in the value of your portfolio, you are still a TR investor. Remember, I make this distinction only whenever you are retired and taking cash out of your portfolio.
But you really had two questions, the second regarding how taking a real inflation adjusted 4% from a portfolio, VWEHX in my case, that distributes 5.5% covers inflation? The simple answer is that, if so, your portfolio distribution cash flow (yield) DOES go up each year by 1.5%, the 'seed corn'. You buy more shares for your portfolio, growing the number of shares you own, each one of them now paying that same 5.5%!
Remember, ifn you are withdrawing a real 4% from a portfolio that yields only 1.5% (SPY), you make up the 2.5% difference by selling off shares each year. The number of shares you sell each year goes up or down with the fund NAV going down or up. But you always sell, never buy, as you do whenever the distribution yield covers the withdrawal.
The game then becomes whether or not you outlast your retirement portfolio! Selling and spending 2.5% of your portfolio each year means that, on average, you'll sell off that last share 40 years down the road (1/0.025) If your portfolio TR, on average, turns out to be good to you, fine. If not, you end up eating Alpo in the nursing home.
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Post by ElLobo on Jun 24, 2023 13:04:02 GMT
ElLobo , one thing I am missing re: VWEHX is as follows: How are we sure that the fund will generate 5.5% yield for years and years? Does that not depend on the composition of the bonds it holds and the yield-at-cost for new bonds it acquires through rotation? Absolutely. What you do know is that an individual bond within the portfolio will pay its interest for the term of the bond, sans default. Sans default, it will eventually mature, being replaced by a new bond, paying whatever rate of interest at that point in time. At any rate, just like you have the history of the NAV of a bond fund to look at, you also have the distribution history, the actual cash payout, not the yield.
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Post by ElLobo on Jun 24, 2023 13:13:52 GMT
ElLobo , but I have a problem with "inflation adjusted" rate. If you are getting 5.5% then each year the 5.5% needs to go up by X% to account for inflation or your income is degraded in spending power. I think that is why we need some growth from equities. Or I suppose the 4% you ( or someone else) are spending from the 5.5% would be up to 4.9% or so by now. Then what? That's why tools such as Portfolio Visualizer are important to use. Absolutely, depending, of course, on the complexity of your portfolio. But if your portfolio is a 60/40 bond/stock (VWEHX/SDY) the distribution yield of your portfolio turns out to be 4.368%. Take your 4%, reinvest 0.368% for inflation, and get a bit more distribution growth from the individual stocks held by SDY.
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Post by ElLobo on Jun 24, 2023 13:36:44 GMT
ElLobo , one thing I am missing re: VWEHX is as follows: How are we sure that the fund will generate 5.5% yield for years and years? Does that not depend on the composition of the bonds it holds and the yield-at-cost for new bonds it acquires through rotation? And would THAT not ALSO imply that the TR would have to be zero to positive (further flogging a dead horse)? Your original comment was thus: "TR matters. If you’re in danger of “selling your last share”, then you ALSO didn’t maintain your distribution. Was, is, and always has been a flawed argument." Not sure what you mean. The TR of a holding equates to the value of the holding at the end of the year minus the value at the beginning of the year. The value, in turn, equates to the number of shares you own times the NAV, again at the beginning and end of the year. The value at the end of the year obviously has to also include the distribution yield of the holding, or the number of shares owned, at the beginning of the year, times the per share distribution yield. Although you can't control either the fund NAV nor it's per share distribution yield, you DO control the number of shares you own whenever you are taking cash out of your portfolio. Specifically, whenever the amount of cash withdrawn exceeds the total amount of distribution yield cash generated, you have to liquidate shares to cover the withdrawal and the only question is at what point in time you sell that last share.
Conversely, whenever the amount of cash taken out is less than the total amount of distribution yield cash generated, you are always buying more shares, and run absolutely no risk of selling off that last share.
SO, in these simple math, not calculus terms, please explain where you disagree. Specifically, what do you mean whenever you say, TR matters? How does it matter in terms of retirement withdrawals?
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Post by steadyeddy on Jun 24, 2023 13:39:06 GMT
ElLobo , one thing I am missing re: VWEHX is as follows: How are we sure that the fund will generate 5.5% yield for years and years? Does that not depend on the composition of the bonds it holds and the yield-at-cost for new bonds it acquires through rotation? Absolutely. What you do know is that an individual bond within the portfolio will pay its interest for the term of the bond, sans default. Sans default, it will eventually mature, being replaced by a new bond, paying whatever rate of interest at that point in time. At any rate, just like you have the history of the NAV of a bond fund to look at, you also have the distribution history, the actual cash payout, not the yield. Thanks for responding. I need to sleep on this concept to make sure I follow - not an expert in this TR vs Income area. Let me pose this question: Let us take the current duration of VWEHX of 3.8 years. And let us assume falling interest rates over that period. Which means in 3.8 years all the bonds held in VWEHX would have much lower payout than today. So, how can it yield 5.5% ? That is where I am falling off the horse.
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Post by racqueteer on Jun 24, 2023 13:53:02 GMT
Sorry, not willing to follow you down the rabbit hole you like to retreat into. When you want to discuss, you can start with refuting what I wrote. It doesn't matter HOW you elect to get money out. What you originally put in, plus whatever profit you generated, must equal or exceed what you're removing as 'income', or the investment fails. Two ways that can happen: you sell your last share...OR...You don't earn your income and your invested funds (and income) go to zero. Ending with 'shares' is of no use if the shares have no value! There's no monetary advantage in one approach over the other. An income approach has the advantage of being 'smoother', but that 'advantage' typically costs something - nothing in life is 'free'.
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Post by ElLobo on Jun 24, 2023 13:54:27 GMT
ElLobo , one thing I am missing re: VWEHX is as follows: How are we sure that the fund will generate 5.5% yield for years and years? Does that not depend on the composition of the bonds it holds and the yield-at-cost for new bonds it acquires through rotation? And would THAT not ALSO imply that the TR would have to be zero to positive (further flogging a dead horse)? To answer my own question to you, it seems you obviously remember discussions, mostly with Bill Perkins, where we looked at taking the same amount of cash out of two different portfolios, one with a higher yield than the withdrawal, the second lower, where you assume the TR was exactly the same for each portfolio. In the limit, whenever you sold the last share to cover a withdrawal, you had to assume either the per share distribution yield OR the fund NAV went to zero in order for the TRs to be equal. I assume you can figure out the flaw in that logic! )
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Post by ElLobo on Jun 24, 2023 14:41:55 GMT
Absolutely. What you do know is that an individual bond within the portfolio will pay its interest for the term of the bond, sans default. Sans default, it will eventually mature, being replaced by a new bond, paying whatever rate of interest at that point in time. At any rate, just like you have the history of the NAV of a bond fund to look at, you also have the distribution history, the actual cash payout, not the yield. Thanks for responding. I need to sleep on this concept to make sure I follow - not an expert in this TR vs Income area. Let me pose this question: Let us take the current duration of VWEHX of 3.8 years. And let us assume falling interest rates over that period. Which means in 3.8 years all the bonds held in VWEHX would have much lower payout than today. So, how can it yield 5.5% ? That is where I am falling off the horse. Good question. First, don't think in terms of percentage yield. Think in terms of actual cash distribution yield, remembering that percentage yield equates to distribution divided by fund NAV. So that 5.5% will go up or down whenever the fund NAV goes down or up. Then don't think in terms of bond fund duration. That's a complicated thing to discuss, especially whenever you are really talking bond term, or maturity. Suffice it to say, whenever a bond, held by VWEHX, matures, paying $X, sans default, its replaced by another bond, paying $Y. So in terms of your question, $Y is less than $X. Next, all bonds held by the fund were not necessarily bought at issue or sold at maturity. So, when sold, the cash receipts may not necessarily be put back to use in a bond that pays the lower current yield. Then the replacement bond may be a slightly longer term, or slightly lower quality, which may result in little or no change to the distribution. The real bottom line is that it's almost impossible to think about/discuss your hypothetical situation. The absolutely best thing you can do is to plot out the actual distribution yield for VWEHX, over time, and see ifn you can draw any conclusions. I first did that 25 years ago for VWEHX, while learning about investments and retirement withdrawals. I haven't bothered since then!
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Post by steelpony10 on Jun 24, 2023 15:16:06 GMT
All right. The good old days.
Simple example. If one has 30k in income needs per year generated in excess to needs (in my case CEF’s) and that excess is reinvested at a rate much higher then ones personal inflation rate how could one ever spend down except for a sudden increase in income needs like LTC?
The same can be done with 300k in VOO, VTI etc. or any combination, allocation etc. The big BUT is there will be times where there will be lulls in the process of varying lengths where compounding is interrupted, decisions have to be mulled etc. like now. Our compounding keeps on going at high rates in all markets.
My conclusion was to press the easy button. In our case we combine that with VTI so I guess I’m a mongrel (or TR) income investor. Separating present income needs from unknown future needs and returns. .
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Post by ElLobo on Jun 24, 2023 15:36:27 GMT
All right. The good old days. Simple example. If one has 30k in income needs per year generated in excess to needs (in my case CEF’s) and that excess is reinvested at a rate much higher then ones personal inflation rate how could one ever spend down except for a sudden increase in income needs like LTC? The same can be done with 300k in VOO, VTI etc. or any combination, allocation etc. The big BUT is there will be times where there will be lulls in the process of varying lengths where compounding is interrupted, decisions have to be mulled etc. like now. Our compounding keeps on going at high rates in all markets. My conclusion was to press the easy button. In our case we combine that with VTI so I guess I’m a mongrel (or TR) income investor. Separating present income needs from unknown future needs and returns. . Yup, I also pressed the easy button and went back to all VWEHX, from which I started my retirement 20 years ago. Regarding retirement withdrawal discussions around here, are there any threads dealing with POS (Probability Of Success) issues? Just curious.
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Post by chang on Jun 24, 2023 15:55:31 GMT
My view on this: let's perform what physicists call a gedanken experiment -- a thought experiment (or, if you prefer, a "what if?"). Suppose no asset distributes money in the form of a cash dividend into your account; rather, all distributions are automatically reinvested in the asset.
In other words, if ABC paid a dividend of $100, it is instantly reinvested back into ABC. If you, the shareholder, want the $100 in cash, you simply sell $100 of ABC.
Now, what's happened? There no longer exists such a thing as "income and dividend investing". There is only "investing". You buy ABC; you sell ABC. You may own assets that pay no dividends or high dividends, but in terms of putting money in and taking money out, you buy and you sell the asset.
Now the whole debate has gone away. You always sell shares when you want money.
This is why I believe there is no such thing as "income and dividend" investing. There is ONLY total return investing. Receiving a $100 dividend and saying "Hooray, I didn't sell any shares" is fatuous. It is the same as if it were reinvested and you sold it.
EDIT: The gedanken experiment mentioned above actually exists in Europe. Eurpoean banks and brokerages usually have separate "Distribution" and "Accumulation" class funds. I actually own an accumulation class money market fund that pays no dividends ever. When I want money, I sell shares of the fund. Anyone who wants to extract money from their investment has to sell shares of the fund. And this is a money market fund!
Comment: for reasons unclear to me, this subject generates an unusual amount of heat. Past discussions have run to hundreds if not thousands of posts. As administrator, all I want to do is keep a clean, friendly forum with productive and constructive debate.
I'd like to suggest that everyone have their say, and when the horse's carcass has been beaten to smithereens, we can move on to other topics. We don't really want another thousand-post thread like Taylor's infamous "seed corn" thread, do we?
I've had my say, and since I know my opinion on this isn't going to change, I will not make any further comment.
If folks want to debate the topic, go right ahead: that's why I moved the initial posts to a separate thread. But please keep it friendly and respectful.
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Post by steelpony10 on Jun 24, 2023 15:59:33 GMT
ElLobo , Well you can always start a thread. Start it in Investing 101. Maybe some lurkers will chime in. At least they might be exposed to another method. Many like me are set in our ways. Lot’s of arguing if one likes that. It seems I lean towards greed with no complaints, 45% CEF’s all in the 10% and up range now, about 25% in VTI and 15% in VWAHX with some cash.
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Post by steadyeddy on Jun 24, 2023 16:18:50 GMT
My view on this: let's perform what physicists call a gedanken experiment -- a thought experiment (or, if you prefer, a "what if?"). Suppose no asset distributes money in the form of a cash dividend into your account; rather, all distributions are automatically reinvested in the asset.In other words, if ABC paid a dividend of $100, it is instantly reinvested back into ABC. If you, the shareholder, want the $100 in cash, you simply sell $100 of ABC. Now, what's happened? There no longer exists such a thing as "income and dividend investing". There is only "investing". You buy ABC; you sell ABC. You may own assets that pay no dividends or high dividends, but in terms of putting money in and taking money out, you buy and you sell the asset.Now the whole debate has gone away. You always sell shares when you want money. This is why I believe there is no such thing as "income and dividend" investing. There is ONLY total return investing. Receiving a $100 dividend and saying "Hooray, I didn't sell any shares" is fatuous. It is the same as if it were reinvested and you sold it. Comment: for reasons unclear to me, this subject generates an unusual amount of heat. Past discussions have run to hundreds if not thousands of posts. As administrator, all I want to do is keep a clean, friendly forum with productive and constructive debate. I'd like to suggest that everyone have their say, and when the horse's carcass has been beaten to smithereens, we can move on to other topics. We don't really want another thousand-post thread like Taylor's infamous "seed corn" thread, do we? I've had my say, and since I know my opinion on this isn't going to change, I will not make any further comment. If folks want to debate the topic, go right ahead: that's why I moved the initial posts to a separate thread. But please keep it friendly and respectful. chang, wise words re: decorum. I doubt this forum will devolve into food fight, may be I am too optimistic. Posters are under more scrutiny and the admin is fairly responsive in clamping down disrespect. The retort I would have to your "buying/selling shares" idea is that in decumulation phase generating cash flow is important - so reinvesting back into ABC is not a good idea (particularly in taxable accounts). So, many folks take the dividends in cash rather than reinvest. I think the merits of "Income investing" could become more pronounced in withdrawal phase of life.
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Post by steadyeddy on Jun 24, 2023 16:25:16 GMT
Thanks for responding. I need to sleep on this concept to make sure I follow - not an expert in this TR vs Income area. Let me pose this question: Let us take the current duration of VWEHX of 3.8 years. And let us assume falling interest rates over that period. Which means in 3.8 years all the bonds held in VWEHX would have much lower payout than today. So, how can it yield 5.5% ? That is where I am falling off the horse. Good question. First, don't think in terms of percentage yield. Think in terms of actual cash distribution yield, remembering that percentage yield equates to distribution divided by fund NAV. So that 5.5% will go up or down whenever the fund NAV goes down or up. Then don't think in terms of bond fund duration. That's a complicated thing to discuss, especially whenever you are really talking bond term, or maturity. Suffice it to say, whenever a bond, held by VWEHX, matures, paying $X, sans default, its replaced by another bond, paying $Y. So in terms of your question, $Y is less than $X. Next, all bonds held by the fund were not necessarily bought at issue or sold at maturity. So, when sold, the cash receipts may not necessarily be put back to use in a bond that pays the lower current yield. Then the replacement bond may be a slightly longer term, or slightly lower quality, which may result in little or no change to the distribution. The real bottom line is that it's almost impossible to think about/discuss your hypothetical situation. The absolutely best thing you can do is to plot out the actual distribution yield for VWEHX, over time, and see ifn you can draw any conclusions. I first did that 25 years ago for VWEHX, while learning about investments and retirement withdrawals. I haven't bothered since then! Good response to my question. Thank you! As a test, I ran portfolio visualizer with two funds HY bond fund and Wellesley with no reinvest of dividends, and here are the results. Again, disregarding the actual amount of payout each period, HY bond cumulative annual growth (after taking dividends out) is -1% and Wellesley CAGR is 1% over a span of 20 years. So, from nominal value perspective, neither option is all that bad - EXCEPT if you consider inflation the purchasing power has significantly diminished. Again, if the focus is not on legacy/inheritance, this is a fairly workable idea.
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Post by ElLobo on Jun 24, 2023 16:42:48 GMT
My view on this: let's perform what physicists call a gedanken experiment -- a thought experiment (or, if you prefer, a "what if?"). Suppose no asset distributes money in the form of a cash dividend into your account; rather, all distributions are automatically reinvested in the asset.In other words, if ABC paid a dividend of $100, it is instantly reinvested back into ABC. If you, the shareholder, want the $100 in cash, you simply sell $100 of ABC. Now, what's happened? There no longer exists such a thing as "income and dividend investing". There is only "investing". You buy ABC; you sell ABC. You may own assets that pay no dividends or high dividends, but in terms of putting money in and taking money out, you buy and you sell the asset.Now the whole debate has gone away. You always sell shares when you want money. This is why I believe there is no such thing as "income and dividend" investing. There is ONLY total return investing. Receiving a $100 dividend and saying "Hooray, I didn't sell any shares" is fatuous. It is the same as if it were reinvested and you sold it. Comment: for reasons unclear to me, this subject generates an unusual amount of heat. Past discussions have run to hundreds if not thousands of posts. As administrator, all I want to do is keep a clean, friendly forum with productive and constructive debate. I'd like to suggest that everyone have their say, and when the horse's carcass has been beaten to smithereens, we can move on to other topics. We don't really want another thousand-post thread like Taylor's infamous "seed corn" thread, do we? I've had my say, and since I know my opinion on this isn't going to change, I will not make any further comment. If folks want to debate the topic, go right ahead: that's why I moved the initial posts to a separate thread. But please keep it friendly and respectful. Gedanken indeed. Suppose instead that all asset distributions are taken as cash, put into a money market account, and that NO distributions are reinvested. Once a year, your retirement withdrawal is taken from that MM fund. Ifn you want that $400 withdrawal to spend, but only $100 is in there, you have to sell $300 worth of fund shares to cover the withdrawal. Eventually you sell that last share. First, you are not investing in a TR manner, since TR assumes automatic reinvestment. You are investing for income, that you want to spend. You are not investing for TR. At any rate, you are really concerned about the TR of your portfolio, not any particular asset you invest in. What is really fatuous is trying to define what 'investing for TR' really means! TR is what you get from your portfolio, good, bad, or indifferent. Specifically, can you even define what a good 'TR' investment is? How do you guess, let alone predict, what the TR of a fund will be, going forward? (I have no problem predicting that if a fund, let alone my whole portfolio, produced $5.50 for every $100 I had invested in it, it's quite likely that it will produce about the same amount next year.)
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