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Post by steadyeddy on Jun 25, 2023 22:43:22 GMT
I fail to see how a bond fund can provide steady cashflow beating inflation. I do not think there is a rational explanation for inflation-adjusted 4% withdrawal just from dividends. There have been decade long periods where the yield from junk bond funds exceeded inflation. Up until ten years ago, I had the majority of my fixed income in fund bond funds. The most notable being Vanguard's offerings, which were conservative and had low annual default rates of underlying junk (lower rated) bond holdings. R48 retiredat48, good to know. So, if we one believes that we are nearing the peak in the interest-rate-cycle, it might make sense to increase allocation to HY bonds?
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Post by retiredat48 on Jun 25, 2023 22:49:10 GMT
There have been decade long periods where the yield from junk bond funds exceeded inflation. Up until ten years ago, I had the majority of my fixed income in fund bond funds. The most notable being Vanguard's offerings, which were conservative and had low annual default rates of underlying junk (lower rated) bond holdings. R48 retiredat48 , good to know. So, if we one believes that we are nearing the peak in the interest-rate-cycle, it might make sense to increase allocation to HY bonds? Problem is yields on such junk bonds are still historically low for the risk. Could easily get 9-11% in the past. My posted strategy is to WAIT on junk bonds...Waiting for some key bankruptcies of companies that puts a shrill in the corp bond market, including higher rated bonds. I frankly am amazed we have not had more bankruptcies in current fed reserve swift-trend increase in rates. Many zombie companies out there. Best buys are when talking-heads are projecting all junk bonds heading to default! And if banks have to tighten up further on capital, that means lesser dollars to lend, which means HIGHER RATES for companies rolling over junk bonds. They will pay dearly, or default. Some will default by no choice. That will be the time period to buy! R48
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Post by ElLobo on Jun 25, 2023 23:27:46 GMT
There have been decade long periods where the yield from junk bond funds exceeded inflation. Up until ten years ago, I had the majority of my fixed income in fund bond funds. The most notable being Vanguard's offerings, which were conservative and had low annual default rates of underlying junk (lower rated) bond holdings. R48 retiredat48 , good to know. So, if we one believes that we are nearing the peak in the interest-rate-cycle, it might make sense to increase allocation to HY bonds? Back in early 2020, 30-year Treasuries hit their all time low yield, about 1.25%. Inflation was about 2% the previous 3 months so 30-year Ts were paying a negative real yield! Since there wasn't an inverted yield curve at any term, you can say that the Great Bond Bull Market, which started in the 1970s, had finally come to an end.
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Post by ElLobo on Jun 25, 2023 23:42:57 GMT
retiredat48 , good to know. So, if we one believes that we are nearing the peak in the interest-rate-cycle, it might make sense to increase allocation to HY bonds? Problem is yields on such junk bonds are still historically low for the risk. Could easily get 9-11% in the past. My posted strategy is to WAIT on junk bonds...Waiting for some key bankruptcies of companies that puts a shrill in the corp bond market, including higher rated bonds. I frankly am amazed we have not had more bankruptcies in current fed reserve swift-trend increase in rates. Many zombie companies out there. Best buys are when talking-heads are projecting all junk bonds heading to default! And if banks have to tighten up further on capital, that means lesser dollars to lend, which means HIGHER RATES for companies rolling over junk bonds. They will pay dearly, or default. Some will default by no choice. That will be the time period to buy! R48 VWEHX has been in existence since 1978. It was begat at the start of the Great Bond Bull Market, whenever junk bonds became an investment vehicle, and it still exists today, at the end of the Great Bond Bull Market, in March 2020. Over that period of time, whenever the fund NAV tanked from $10 to its current $5.18, whenever it's monthly distribution was almost continuously cut, from 9 cents/share in 1980 to 2 cents/share, in the 2020s, the fund has seen an average annualized TR of 7.7% , compared to VFINX, at 7.1% over roughly the same period of time. (deleted this part of comment, not true.)Since 2020, the VWEHX distribution has started to rise, currently at 2.4 cents/share/month over the last 6 months. The Vanguard folk sure do know how to manage their portfolio! Over the last 40 years, VWEHX, a bond fund, has been a much better fund to own that VFINX, the stock market index fund, regardless of whether one invests for TR or YIELD! Deleted sentance, not true.)
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Post by yogibearbull on Jun 26, 2023 0:54:09 GMT
M* shows from 1978-now (44.5 yrs):
VWEHX +7.71% annualized, 27.24x cumulative
VFINX +11.65% annualized (source for +7.1%?), 134.94x cumulative
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Post by roi2020 on Jun 26, 2023 1:01:21 GMT
VWEHX has been in existence since 1978. It was begat at the start of the Great Bond Bull Market, whenever junk bonds became an investment vehicle, and it still exists today, at the end of the Great Bond Bull Market, in March 2020. Over that period of time, whenever the fund NAV tanked from $10 to its current $5.18, whenever it's monthly distribution was almost continuously cut, from 9 cents/share in 1980 to 2 cents/share, in the 2020s, the fund has seen an average annualized TR of 7.7%, compared to VFINX, at 7.1% over roughly the same period of time. Since 2020, the VWEHX distribution has started to rise, currently at 2.4 cents/share/month over the last 6 months. The Vanguard folk sure do know how to manage their portfolio! Over the last 40 years, VWEHX, a bond fund, has been a much better fund to own that VFINX, the stock market index fund, regardless of whether one invests for TR or YIELD!
The earliest portfolio backtesting data available in Portfolio Visualizer goes back to January 1985. VFINX and VWEHX were analyzed from January 1985 - May 2023 (38.42 years). Both portfolios had a $100,000.00 initial balance and 4.0% was withdrawn annually. The final balance for VFINX was more than three times greater than that of VWEHX! Link
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Post by ElLobo on Jun 26, 2023 1:26:22 GMT
M* shows from 1978-now (44.5 yrs): VWEHX +7.71% annualized, 27.24x cumulative VFINX +11.65% annualized ( source for +7.1%?), 134.94x cumulative My bad. I can't even find VFINX on the Vanguard website. Looks as if I used return for VFIAX, Admiral shares for S&P 500 index, but it's only been around since 2000.
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Post by yogibearbull on Jun 26, 2023 1:33:59 GMT
ElLobo, while Vanguard dropped Investor VFINX for Admiral VFIAX on its website (VG site search produces no results!), all data sources (M*, Yahoo Finance, StockCharts) still report full data for VFINX - so, Vanguard must be providing that data.
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Post by ElLobo on Jun 26, 2023 1:38:40 GMT
ElLobo , while Vanguard dropped Investor VFINX for Admiral VFIAX on its website (VG site search produces no results!), all data sources (M*, Yahoo Finance, StockCharts) still report full data for VFINX - so, Vanguard must be providing that data. Yup, but I think the Vanguard site is the only one that reports average annual TR for fund from inception.
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Post by yogibearbull on Jun 26, 2023 1:44:22 GMT
In this case, the date that mattered was 1978 (the inception date for VWEHX) and I used my phone calculator's x^y function. So, for VWEHX, (27.24)^(1/44.5) = 1.07709, or +7.71%, etc.
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Post by ElLobo on Jun 26, 2023 2:20:10 GMT
So, gang, if the average annualized TR for VFINX has been 11.65% over its 44.5 year lifetime, and PV shows that its Safe Withdrawal Rate over its lifetime has been 10.93% AND its perpetual withdrawal rate has been 7.52%, why do experts think the safe withdrawal rate, going forward, is less than 4%? See www.morningstar.com/retirement/whats-safe-withdrawal-rate-today, for example. 4% has been the 'standard' for 2 decades now. (Note that average annualized TR for VWEHX was 7.7%, and PV shows it Safe Withdrawal Rate to be 6.4%, and its perpetual withdrawal rate has been 4.14%. Maybehaps consider that withdrawing 4%, from VWEHX, currently paying 5.5% distribution yield, allows 1.5% excess yield to be reinvested back into the fund, rather than spent, growing the total distribution to compensate for inflation. FYI, inflation has averaged about 3%/year for the last several decades.) And it would be 'perpetual', since shares are never sold.
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Post by ElLobo on Jun 26, 2023 2:21:20 GMT
In this case, the date that mattered was 1978 (the inception date for VWEHX) and I used my phone calculator's x^y function. So, for VWEHX, (27.24)^(1/44.5) = 1.07709, or +7.71%, etc. 7.7% is what shows up on the Vanguard website.
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Post by mozart522 on Jun 26, 2023 18:29:02 GMT
ElLobo :,"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." Sorry, but just bad logic. An "income investor" may yield "Y", but "Y" can easily represent a negative total return. Any investor who withdraws "w" can have a negative or a positive TR, depending. Every time you take "y", you are in effect selling shares that could have been reinvested and sold at your pleasure. Everyone gets a TR; everyone. Targeting income is a perfectly sane way to invest, but ultimately, your long term success depends on TR. Fortunately, TR abounds in all kinds of investing, so it just comes down to one's comfort zone.
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Post by ElLobo on Jun 26, 2023 19:01:23 GMT
ElLobo :,"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." Sorry, but just bad logic. An "income investor" may yield "Y", but "Y" can easily represent a negative total return. Any investor who withdraws "w" can have a negative or a positive TR, depending. Every time you take "y", you are in effect selling shares that could have been reinvested and sold at your pleasure. Everyone gets a TR; everyone. Targeting income is a perfectly sane way to invest, but ultimately, your long term success depends on TR. Fortunately, TR abounds in all kinds of investing, so it just comes down to one's comfort zone. LOL. Unfortunately, there is no such thing as 'negative yield'. There, obviously, can be negative returns.
TR (portfolio) = +/-cap gain/loss + (yield - withdrawal.)
If Y GT W, then (yield - withdrawal) is positive. If Y LT W, then (yield - withdrawal) is negative.
TR then equates to +/- cap gain/loss (depends on NAV behavior AND purchase or sale of shares) +/- (yield - withdrawal)
Simple math leads to good logic! A retirement portfolio WILL be spent down whenever shares are sold, year in and year out. There is no way that a portfolio can be spent down ifn a retiree is ALWAYS buying more shares, each year, with the yield that is NOT withdrawn and spent.
Regardless of what the TR of her portfolio happens to do!
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Post by habsui on Jun 26, 2023 20:48:52 GMT
PLEASE ... STOP
We (or at least I) suffered through this type of discussion enough, on several forums.
If TR is capgains+dividends, and one withdraws less than TR, one has a fighting chance to keep up with inflation.. Or as another math wiz stated, 5% is 5%.
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Post by ElLobo on Jun 26, 2023 23:54:20 GMT
PLEASE ... STOP
We (or at least I) suffered through this type of discussion enough, on several forums.
If TR is capgains+dividends, and one withdraws less than TR, one has a fighting chance to keep up with inflation.. Or as another math wiz stated, 5% is 5%.
TR isn't just capgains. Sometimes they're capital losses. If the TR is negative for the year (the value of your portfolio dropped), how can you withdraw less than a negative amount! You never withdraw capital gains or losses, one component of TR. You withdraw capital and/or yield. < Remark deleted by Admin >
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Post by richardsok on Jun 27, 2023 0:05:04 GMT
PLEASE ... STOP
We (or at least I) suffered through this type of discussion enough, on several forums.
If TR is capgains+dividends, and one withdraws less than TR, one has a fighting chance to keep up with inflation.. Or as another math wiz stated, 5% is 5%.
No offense, hab. Whenever I see a thread that bores or annoys me, I generally don't click on it.... and I find the participants don't bemoan my absence. Unless people get abusive or rude, the problem is solved and no one's stifled.
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Post by steadyeddy on Jun 27, 2023 0:29:28 GMT
The way I understand Income Investing is as follows: - In taxable accounts, no need to sell anything; just hold income producing widgets and spend the income produced. Possible benefit being less tax filing hassles. - In tax deferred accounts, it really doesn't matter if you hold income generating widgets or TR generating widgets since what you take out gets taxed as ordinary income.
Am I missing something?
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Post by ElLobo on Jun 27, 2023 0:49:52 GMT
The way I understand Income Investing is as follows: - In taxable accounts, no need to sell anything; just hold income producing widgets and spend the income produced. Possible benefit being less tax filing hassles. - In tax deferred accounts, it really doesn't matter if you hold income generating widgets or TR generating widgets since what you take out gets taxed as ordinary income. Am I missing something? IMO, H as always, Income Investing, DURING RETIREMENT (taking withdrawals, IOW) defined as withdrawing less than what your portfolio yields, meaning you don't have to realize capital gains, or losses (sell something) to cover your withdrawal. Regardless of where you hold the asset (taxable, tax deferred, tax free Roth.) All widgets will generate TR, by definition. Most widgets will generate yield (except those pure growth stocks/funds, where Y% is zero.) The only question is whether Y is greater than, or less than, W. Y is greater than W for an Income Investor, Y is less than W for a TR investor, by definition.
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Post by steelpony10 on Jun 27, 2023 1:35:51 GMT
steadyeddy , Think of spend down retirees who retired in 2019 with peak assets and 2 years of cash. 4 years later what do they have to do in this market for an unknown period of time to maintain their chosen lifestyle. Sell shares and the yield the shares might provide. What would an income investor do with the same assets and 2 years of cash that retired in 2019? Those retirees would be investing in cheaper shares and increasing their cash flow with unused cash. In our situation to keep the process continual, we hold VTI so we “could” take gains in good markets and let cash accumulate in our income account waiting for corrections or bad news to buy income on sales or the next bad market cycle. For us VTI is in a taxable account to take advantage of favorable tax rates. Income producers don’t provide much capital gains. They may be HY stocks like utilities and REITS or mostly bonds types. We hold our income producers in a TIRA. This keeps our RMD’s lower (RMD’s are based on value) longer because the value doesn’t grow as much giving us more control of withdrawls and more funds to invest for more income longer. We try to take advantage of both investing methods because each has merits and drawbacks depending on market conditions. Since future market conditions are unknown we used to just switch back and forth once a factual market direction was obvious.
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Post by ElLobo on Jun 27, 2023 2:10:51 GMT
The way I understand Income Investing is as follows: - In taxable accounts, no need to sell anything; just hold income producing widgets and spend the income produced. Possible benefit being less tax filing hassles. - In tax deferred accounts, it really doesn't matter if you hold income generating widgets or TR generating widgets since what you take out gets taxed as ordinary income. Am I missing something? I have yet to hear anyone DEFINE a TR investor. I define an Income Investor as a retiree, taking cash out of her portfolio, where the total cash distribution of her portfolio exceeds the amount of cash she withdraws.
In that view, a TR investor is a retiree, taking cash out of his portfolio, where the total cash distribution of his portfolio is less than the amount of cash he withdraws. As a result, he has to withdraw capital, by selling shares, regardless of whether he is realizing capital gains or losses, from a tax perspective.
So, an Income Investor will construct a portfolio where its total distribution yield exceeds the amount of the withdraw she plans to take. She may do things like use the Dividend Aristrocrat ETF, SDY, yielding 2.67% today, rather than SPY, yielding 1.55%. She might use VWEHX as a bond fund, yielding 5.5%, rather than VBMFX, yielding 2.65%.
So what do YOU mean whenever you say you are a TR investor and that Income Investors haven't a clue as to what is going on in their lives! And if you say you invest for TR and NOT income, what criteria do you use to select specific assets for your portfolio? Do you invest in the individual stocks and funds that have had the highest TR, in the past? If so, how many years in the past? 1, 3, 5, 10, 20 years, lifetime?
An income investor looks at the current yield, assuming that, if it was $X/share, last year, it will be $X/share, this year.
Unless, of course, it's a Dividend Aristrocrat!
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Post by mozart522 on Jun 27, 2023 11:42:50 GMT
ElLobo,: "If the TR is negative for the year (the value of your portfolio dropped), how can you withdraw less than a negative amount!" Exactly! And negative TR can happen with an income portfolio also. You have apparently forgotten this concept since 2008 when your VWEHX went from an NAV of $6+ to about 3. But I agree, this is an endless loop so I'm done.
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Post by ElLobo on Jun 27, 2023 12:01:08 GMT
ElLobo ,: "If the TR is negative for the year (the value of your portfolio dropped), how can you withdraw less than a negative amount!" Exactly! And negative TR can happen with an income portfolio also. You have apparently forgotten this concept since 2008 when your VWEHX went from an NAV of $6+ to about 3. But I agree, this is an endless loop so I'm done. Nopers. Although the TR can be negative, the distribution yield cannot, obviously, be negative. The NAV of VWEHX started at $10/share back in 1978, whenever the fund was begat. It is currently at $5.18, so it has lost about 11 cents/year, or a capital loss of 1% per year, since inception. Yet its TR over its lifetime was 7.7%, so its average distribution yield was 8.7% (TR = cap gains/losses + yield, or 7.7% = - 1% + 8.7%). Someone with an all VWEHX portfolio spent the 8.8%, not the -1%!
You don't spend TR, you spend income and/or capital, not capital gains or losses.
< remark deleted by Admin >
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Post by chang on Jun 27, 2023 12:31:30 GMT
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Post by steadyeddy on Jun 27, 2023 12:33:44 GMT
I am kinda like steelpony10 in the sense I have investment widgets that are meant for growth (like VTI etc) and widgets meant for income (like PIMIX). So I am good with both approaches. I can also relate to ElLobo's Y < W or Y > W as a means of classifying widgets and their contribution towards cashflow needs. But it does not have to be either or. Hopefully I am not fanning too many flames🤣
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Post by ElLobo on Jun 27, 2023 12:34:48 GMT
No problem. It was, intentionally, snarky in response to this, from Mozart: You have apparently forgotten this concept since 2008 when your VWEHX went from an NAV of $6+ to about 3.
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Post by ElLobo on Jun 27, 2023 12:39:51 GMT
I am kinda like steelpony10 in the sense I have investment widgets that are meant for growth (like VTI etc) and widgets meant for income (like PIMIX). So I am good with both approaches. I can also relate to ElLobo 's Y < W or Y > W as a means of classifying widgets and their contribution towards cashflow needs. But it does not have to be either or. Hopefully I am not fanning too many flames🤣 Absolutely not. TR vs. Income Investing is a distinction without a difference unless you are taking cash out of a portfolio. Whenever taking cash out, an Income/yield focused investor, one whose total portfolio yield is greater than what he takes out, doesn't face the same risks as a TR focused retiree, whose total portfolio yield is less than what he takes out.
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Post by mnfish on Jun 27, 2023 12:53:43 GMT
You don't spend TR, you spend income and/or capital, not capital gains or losses. Obviously, you can spend capital gains or re-invest them and spend them later. I've been spending capital gains for about a year on T-Bills or MM funds that are paying close to what VWEHX pays.
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Post by ElLobo on Jun 27, 2023 13:10:11 GMT
You don't spend TR, you spend income and/or capital, not capital gains or losses. Obviously, you can spend capital gains or re-invest them and spend them later. I've been spending capital gains for about a year on T-Bills or MM funds that are paying close to what VWEHX pays. Well, whenever you sell something, in order to cover a withdrawal, whether you experienced a gain, or a loss, on that particular holding only makes a difference to the tax man and only in a taxable account. If you buy 1,000 shares of a fund, at $10/share, then have to sell 111 shares, at $9/share, to cover a withdrawal, you're spending capital, not a capital loss, let alone a gain!
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bruce
Lieutenant
Posts: 56
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Post by bruce on Jun 27, 2023 19:46:55 GMT
ElLobo ( Chuck ), I need help understanding your concerns about selling shares while disregarding the effect of distribution cuts on fund values. Using your portfolio allocations of 2-29-2020, we know MRRL paid its last dividend on 3/11/20, which was less than two weeks after you explained it was 30% of your investment portfolio constructed of four high-yield funds. Days later, the fund closed down with a 98% decrease in value since 2-29-20. The three other levered funds in your last posted portfolio suffered 50%,45%, and 35% losses over the same period. Note that these were the funds you did due diligence on, sold all your stocks, and constructed what you deemed a safe retirement portfolio with four leveraged funds based solely on past distributions. Time and time again, we have seen choosing investments with very high yields often ends poorly. There is much to learn from examining real-life portfolios vs. discussing generalities. Great to see you back posting again. Enjoy that Texas BBQ.
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