jdom4, I'm 65 and took a "voluntary" early retirement at yearend 2009.
I don't put a lot of faith in studies that are based on economic periods that are very different from the one we are currently experiencing (that is: intermediate term investment grade bonds with real yields approaching zero which has, in turn, created an overpriced equity market).
Over the years I have occasionally bumped into various professional money managers (bank investment portfolio managers, private wealth managers, etc.) and in variably, I always ask them the same question. What do you believe the stock market, specifically the S&P 500, will average over the next decade? The answer typically has been an annualized total return of about 7%. If asked today, my answer would be: ~1% to ~5%. The underlying assumptions behind by guess are: the current dividend yield of 1.9% added to real growth of about 1% per year going forward (historically it has been about 1.5%) added to an inflationary growth of about 2.2% per year gets you roughly 5%. If the stock market undergoes a 33% correction (that is, stock prices drop 33% in aggregate, pushing the dividend yield out from the current ~2% to ~3%) that would knock ~3% per year off the uncorrected 5%, dropping it to 2% or less.
I'll keep in touch. This board will very likely disappear when Vanguard retires the ticker symbol. But, I'll watch for a new message board based on the new ticker symbol for the merged fund.
On a related note, there is an interesting article in this week's BARRON'S: "Revisiting the 4% Rule".
I probably mentioned that Vanguard recently closed two of their Managed Payout Funds, the "so called" 3% and 7% funds (I had that one). They're merging the assets of the two closed funds into the old "so called" 5% fund, renaming it, and then setting the new payout to 4%.
If the BARRON'S article is correct, even 4% is probably too high.
The article of the same name is in this week's (9Nov2013) BARRON'S magazine.
In my opinion, it is worth a trip to the public library next week to read it.
Here's a snippet to wet your appetitive:
"Vanguard reran the numbers looking at a 35-year retirement and found that a static withdrawal based on the 4% rule held up only 71% of the time."
They're all over at the Gentlemen's Club, debating the merits of dividend paying stocks. LOL! The "I finally get the lure of DIVIDENDS" thread is now 71 posts long.
"Nothing is as powerful as an idea whose time has come." - Victor Hugo
LOL! They put my post in a holding cell for three hours and then took it out and shot it.
My crime? I included a one line function from a well know spreadsheet program and detailed the inputs in the sentence that followed it. Apparently endless, pointless, jibber jabber is acceptable and even welcomed here, but an unpopular bearish position supported with an arithmetical rationalization is not.
Well, to be fair, this board is free, and as I have often remarked, one general gets what one pays for or less.
Jeff Reeve's Strength in Numbers - MarketWatch "Is this the death of dividend stocks?"
I only scanned the article briefly, since the author outs himself in his very first sentence.
"I like juicy yields as much as the next guy, since I personally lean towards buy-and-hold investing for the long-term with reinvested dividends."
IMO, automatically reinvesting the dividend in the stock that generated it, has got to be the dumbest idea on record. It is my understanding that WEB doesn't do it. All cash flows to Omaha FIRST, reinvestment in the business that generated it is considered afterwards on a case by case basis.
Yo, MV, speaking of crashes, I see a third TESLA has caught fire and burned, this time in Tennessee on 6Nov2013. Apparently the electrolyte (if I'm not mistaken, a jellied mixture of polar organic solvents, ethylene carbonate & diethyl carbonate) is highly flammable once the battery has been breached and ignited by an internal short circuit. Fascinating.
Thanks for the heads up, hc.
Wow! The "I finally get the lure of DIVIDENDS" thread is 28 posts long. For a bunch of clowns that absolutely hate dividends with a passion, they sure do spill a lot of digital ink on the subject. What can I say? They're good for a laugh but not much else.
I'm back to lurking at periscope depth.
Thanks hc, another good article.
It looks like IBM is becoming the poster child for everything that is wrong with buybacks.
« More worrisome is how bigger buybacks have a way of masking companies’ underlying troubles. Consider IBM ... » ... « “The news and trading action in IBM personify what is unhealthy about the current environment,” said Mike O’Rourke, chief market strategist at brokerage firm JonesTrading. »
But there is hope:
« “Financially engineered earnings growth is losing favor in the market,” Mr. O’Rourke says. “Confirmation of that signal will occur when such buyback announcements are met with less fervor.” »
Some snippets (I wonder, is "X" IBM?):
"My goodness! If X can’t grow revenues any more, if X company’s stock has only gone up because of expense cutting and stock buybacks, what does that say about the U.S. or many other global economies?"
"3) Investors in the U.S. and elsewhere must look for investment in the real economy, not share buy-back maneuvers that artificially elevate stock prices."
Thanks for the kind words.
Generally speaking, I avoid High Yield | Junk Bonds. About a decade or so ago, part of my wife's bank run account was invested in AIM High Yield. Year after year, they were consistently her biggest loser. The bank apparently got enough complaints that they did eventually replace them with a different offering.
My personal account is currently 64% cash for the simple reason that I believe the market, the S&P 500 in particular, is overpriced and due for a correction. That doesn't mean it will happen. I'm just not willing to take the loss if it does. I'm now down to just a couple of telecoms (T & VZ) and a utilities ETF.
I'm out. No hard feelings with Vanguard. They're still the best in my book. But their noble experiment was doomed to fail the moment the Fed's zero interest rate policy went into effect. I'm not convinced anyone can payout 4% AND increase both the payout and the principal annually by a rate approaching inflation using a balanced fund of stocks, bonds and what nots. It just isn't doable in my opinion. Look at the current real (inflation adjusted) yield to maturity on TIPS (Inflation Protected Treasuries), the 5 year is a NEGATIVE 0.47% and the 30 year is 1.30%. Corporate bonds do pay higher, but only because they're compensating for varying degrees of credit risk (the likely hood that they will fail before maturity). From my point of view, Stocks don't look much better. With a current dividend yield of ~1.9% and a historical real growth rate of about 1.5%, the S&P 500 looks to me like it is priced to deliver a real (inflation adjusted) annual total return of only ~3.4%, which is just short of the 4.0% goal.
At inception, on 5/2/2008, all three of these funds started with a net asset value per share, NAV/s, of $20.00. To keep pace with inflation, the principal, net of the payout, would have had to have grow to about $21.59 by now. That wasn't the goal for this fund, the 7% payout fund, so its current NAV/s of $15.71 can be excused. With a current NAV/s of $21.35, the 3% payout fund came closest, but it too just missed the goal. With a current NAV/s of $19.35, the 5% payout fund just missed.
Just my opinion, folks.
Here's an idea for a future SA article.
How would you estimate Brk's modified duration?
"Stock duration of an equity stock is the percentage change in price in response to a 1% change in the long-term return that the stock is priced to deliver."
'Yumpin' Yimminy!, hc, the Norwegians get it!
« Norway’s Sovereign Wealth Fund Shuns Stocks on Reversal Bet »
"... Europe's biggest equity investor said it won’t use new inflows to buy more shares."
"The fund is preparing for a “correction” in stock prices ..."
“In general, we see market corrections more as opportunities than as threats, so it’s not something that worries us,” Slyngstad said today in an interview. “If they come, that’s just a positive sign for us as an investor.”
From page 2:
« Given these assumptions, it’s a matter of simple math to calculate where the S&P 500 will be in five years’ time: 1,589. That translates into a 1.9% annualized loss between now and October 2018. »
And that's why my portfolio is 64% cash.
« Price to sales ratio is a poor measure. Price to book is much better. »
Sean, you have it backwards, in my opinion.
If you are opened minded enough to consider another point of view then google the text between the guillemets below and read William Hester, CFA, (Hussman Funds) December 2007, comments on the subject. I'm sure that he is smarter, by an order of magnitude or more, than either one of us.
« Price-to-Sales Ratio May Prove Valuable in the Next Profits Recession »
You should have noticed that in my post, that "Sales" appears in the denominator on BOTH the left and right sides of the equation. It cancels out. I could have just as easily have written: Intrinsic Value is equal to the dividend divided by the growth adjusted discount rate. Something else to ponder: If the payout ratio (dividends divided by net earnings) is a constant, and the profit margin (net earnings divided by sales) is a constant, what then, drives or increases the all important dividend per share? An increase in Sales per share.
My boys' accounts have roughly forty years to recover from having bought too high. Even my wife's account has at last 10 to 15 years. By the way, her bankers have her at 8% cash. On the other hand, we'll begin making distributions from MY account this year. I'm hoping it will last at least 10 years, 15 years tops. I'm a heck of a lot more careful with that one.
IV/Rev = Div/Rev / ( RFR + ERP - RGR )
I'm using a dividend to revenue ratio of 3.0%, an equity risk premium of 3.0%, and a real growth rate of 1.5%.
I'm using the real yield to maturity on the 10-Year treasury (TIPS) as the risk free rate. It is currently 0.37%, but the median is 1.68%, according to multpl.
If you believe that interest rates will remain forever at 0.37% then market is fair at the current ~1.60X.
If you believe that interest rates will revert to the mean (I like the median better) then you'll wait for it to fall to 0.94X, which is ~1.00X.