Anyone Invested In Utilities?

mathjak107

Well-known member
I think you are making part of my point. I would rather reallocate excess cash than giving management the opportunity to do so. Management is notoriously bad an reinvesting their own cash (there are always exceptions). There’s no downside to dividends in a tax deferred account.

And selling equities is easy to do in a bull market with healthy gains, not sure it will be as easy in a deep bear market - and if management does not feel comfortable making distributions because they need the cash, then they’ll keep it - otherwise I’ll take that cash dividend and buy whatever is cheapest within my portfolio (i.e., rebalance).
So you can just as easily sell some shares from a non div payer .
 

CallmeIshmael

New member
Dividends were once a company’s way of saying look at me .. I am doing so well I have money I don’t even need .it was a sign of health and investors liked that .

But of course we found that was not really true ..boards voted to pay dividends right up in to the financial graveyard as they went bankrupt....

Dividends have a whole lot of myth and mis information believed by the uninformed , but if they simply did the math all they are is a return of a piece of the share price so you have less dollars invested .

If you reinvest you merely end up back to where you were in total dollars invested before the stock traded ex div ...there is nothing magical going on or free money ....otherwise we would all buy the day before it went ex div and sell after ..so obviously that accomplishes nothing ....there is not even a benefit to reinvesting when markets fall ...the math stays the same because to make a difference you need to add more dollars then you had
That’s only true if you reinvest within the same security. If you have better opportunities in another asset, you can invest there.
 

CallmeIshmael

New member
So you can just as easily sell some shares from a non div payer .
That’s definitely true. I do like dividends in tax-deferred though, as noted earlier, I have an inherent mistrust in how management handles excess cash.
 

CallmeIshmael

New member
Huh ? I can sell the same dollars from a non div payer and deploy it any where else I want ....there is no difference
Another, different reason - take a REIT in a Roth IRA account. You have converted real estate income from a single level of tax at the shareholder level (i.e., a REIT dividend) into a completely non-taxed source of income.
 

mathjak107

Well-known member
Another, different reason - take a REIT in a Roth IRA account. You have converted real estate income from a single level of tax at the shareholder level (i.e., a REIT dividend) into a completely non-taxed source of income.
Meh ,, it works out the same regardless ......you merely paid the taxes up front in a Roth ....

If I want to convert or get 5k in a Roth at the 25% bracket I need 6666.00 in pretax dollars ...if I get that 5k in a Roth and my reit doubles I have 10k ...

If I have 6666 in a traditional 401k and it doubles , assuming the same tax bracket it has the same 10k after tax balance ...
The Roth has you paying with pretax dollars up front that could be deployed elsewhere if it did not go for taxes ....the problem is people never calculate correctly.
 

CallmeIshmael

New member
Meh ,, it works out the same regardless ......you merely paid the taxes up front in a Roth ....

If I want to convert or get 5k in a Roth at the 25% bracket I need 6666.00 in pretax dollars ...if I get that 5k in a Roth and my reit doubles I have 10k ...

If I have 6666 in a traditional 401k and it doubles , assuming the same tax bracket it has the same 10k after tax balance ...
The Roth has you paying with pretax dollars up front that could be deployed elsewhere if it did not go for taxes ....the problem is people never calculate correctly.

Yeah, I paid the tax a long time ago in a lower tax bracket than I am in today.
 

mathjak107

Well-known member
Yeah, I paid the tax a long time ago in a lower tax bracket than I am in today.
Most people look at that wrong too.

Most people look at their final years of working and then go I will be in a lower bracket in retirement .. that could not be more flawed ....most of us have had normal jobs where we ramp up in income over 30-40 years... we start off really low and end up usually much higher by retirement...it is the average over those 40 years that determines what your average bracket is , not the final years people mistakenly look at ...in most cases we are higher in retirement then that average ...... unless you are in a career like doctor ,lawyer , etc where you start off in high brackets , the way things are looked at is flawed
 

CallmeIshmael

New member
Most people look at that wrong too.

Most people look at their final years of working and then go I will be in a lower bracket in retirement .. that could not be more flawed ....most of us have had normal jobs where we ramp up in income over 30-40 years... we start off really low and end up usually much higher by retirement...it is the average over those 40 years that determines what your average bracket is , not the final years people mistakenly look at ...in most cases we are higher in retirement then that average ...... unless you are in a career like doctor ,lawyer , etc where you start off in high brackets , the way things are looked at is flawed
Roth IRAs do not have RMDs, which can be a significant benefit over regular IRAs when trying to manage taxable income in retirement. Roth IRAs are also more beneficial if you are likely to leave significant assets to your heirs.
 

mathjak107

Well-known member
Roth IRAs do not have RMDs, which can be a significant benefit over regular IRAs when trying to manage taxable income in retirement. Roth IRAs are also more beneficial if you are likely to leave significant assets to your heirs.
Roth’s have a lot of other benefits that are not tax bracket related ...no rmd’s , at 70-1/2 unlike traditional accounts the gains are still not taxed on future earnings....

Roth’s can help you maybe not get social security taxed ...it may help you get an aca subsidy , etc ...so there are quite a few perks besides comparing tax brackets
 

mathjak107

Well-known member
I think you are making part of my point. I would rather reallocate excess cash than giving management the opportunity to do so. Management is notoriously bad an reinvesting their own cash (there are always exceptions). There’s no downside to dividends in a tax deferred account.

And selling equities is easy to do in a bull market with healthy gains, not sure it will be as easy in a deep bear market - and if management does not feel comfortable making distributions because they need the cash, then they’ll keep it - otherwise I’ll take that cash dividend and buy whatever is cheapest within my portfolio (i.e., rebalance).

bull or bear market , the same dollars as the dividend from a portfolio of non div payers will leave you with the same cash flow and balance as the dividend payer as long as total returns are the same or greater .

here is a down market scenario


if you have 1000 shares of a 100 dollar stock, that is 100k invested

if it falls 10% over the quarter to 90k and pays a 10% dividend you will have 81k left invested after the mandatory roll back and 9k in pocket so you have 1000 shares at 81 a share left which equals 81k for markets to act upon .

if you reinvest the 9k back in back in at this reduced price of 81 dollars you will have 1111 shares at 81 a share or the same exact 90k you had .


on the other hand a portfolio of non div payers with 100k invested can drop the same 10% which is 90k ,,,sell off 9k to create the dividend and guess what , you got the same 81k left for markets to compound on .

if you put the 9k back in and decided not to take it you have the same 90k left

it just consists of less shares at a higher price since there is no mandatory roll back like with the div payer . the div payer ends up with more shares at a lower price but they equal the same dollars being acted on by the markets .

in both cases if markets double the investment your balances are identical .

people get all confused because they see the share balance increase , but they fail to realize it increases on a lower share price then had the dividend not been paid out .

ALL GROWTH COMES FROM SHARE APPRECIATION IN BOTH CASES . how you draw some out is irrelevant
 
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OneEyedDiva

Well-known member
Location
Nrw Jersey
Original Poster
Most people look at that wrong too.

Most people look at their final years of working and then go I will be in a lower bracket in retirement .. that could not be more flawed ....most of us have had normal jobs where we ramp up in income over 30-40 years... we start off really low and end up usually much higher by retirement...it is the average over those 40 years that determines what your average bracket is , not the final years people mistakenly look at ...in most cases we are higher in retirement then that average ...... unless you are in a career like doctor ,lawyer , etc where you start off in high brackets , the way things are looked at is flawed
For me, I also was in a lower tax bracket when I converted to a Roth and I paid taxes on much less money (a mere fraction) than I would if I had to pay taxes on my holdings now.
 

mathjak107

Well-known member
For me, I also was in a lower tax bracket when I converted to a Roth and I paid taxes on much less money (a mere fraction) than I would if I had to pay taxes on my holdings now.
It can work out the same depending on brackets ....like I said there is a price to pay for laying out all those pretax dollars for a roth up front ..... if you remember my example you can take 6666.00 from a traditional and convert 5k to a Roth ... that Roth can double and go to 10k ...so you now have 10k clean .

But that 6666.00 in the traditional which is the equal in pretax dollars would also double and assuming the same tax bracket also net 10k clear after paying those taxes even though the Roth paid them on just 5k ....
 

CallmeIshmael

New member
bull or bear market , the same dollars as the dividend from a portfolio of non div payers will leave you with the same cash flow and balance as the dividend payer as long as total returns are the same or greater .

here is a down market scenario


if you have 1000 shares of a 100 dollar stock, that is 100k invested

if it falls 10% over the quarter to 90k and pays a 10% dividend you will have 81k left invested after the mandatory roll back and 9k in pocket so you have 1000 shares at 81 a share left which equals 81k for markets to act upon .

if you reinvest the 9k back in back in at this reduced price of 81 dollars you will have 1111 shares at 81 a share or the same exact 90k you had .


on the other hand a portfolio of non div payers with 100k invested can drop the same 10% which is 90k ,,,sell off 9k to create the dividend and guess what , you got the same 81k left for markets to compound on .

if you put the 9k back in and decided not to take it you have the same 90k left

it just consists of less shares at a higher price since there is no mandatory roll back like with the div payer . the div payer ends up with more shares at a lower price but they equal the same dollars being acted on by the markets .

in both cases if markets double the investment your balances are identical .

people get all confused because they see the share balance increase , but they fail to realize it increases on a lower share price then had the dividend not been paid out .

ALL GROWTH COMES FROM SHARE APPRECIATION IN BOTH CASES . how you draw some out is irrelevant
Yes, I understand the math. I think you should study behavioral finance - just because the rationality of the math is so clear to you doesn’t mean its so clear to, I don’t know, your significant others. If it is clear to them and they are on completely the same page, then that’s great - you have a very thoughtful, tax-efficient, diversified retirement portfolio and many are far worse off than you. DW does not take the same interest in our portfolio as I do, so I think cash flows from dividends will work very well for her especially once we shift from an accumulation phase to an income conversion phase.
 

mathjak107

Well-known member
Funny you mentioned it .....my wife was a widow once. Her husband dropped a bunch of investments in her lap that she did not understand...she went to the guy at the bank whom she trusted and at the time he put her in dot coms and tech stock ..when the smoke cleared she lost half her savings ..

So our plan had to be simple and understandable by her.....our portfolios are simply rebalanced yearly to raise spending cash ...she knows they all get reduced down to the original allocations we decided on ....that is it ...that is the entire plan.. we fill the checking account once a year with all the spending money.

we put the dividends and fund distributions towards the following years money ....why ? Trying to live off cash flow as it comes in directly ends up being all over the map ...dividends get cut , dividends get suspended , interest goes up and down so without a buffer bucket to spend from you can come up short at the worst of times ....

So we find that-saving the distributions towards next years budget works the best for us ....we have a constant flow from the checking account all year with no surprises or coming up short.

Then next year we see what is in the bucket from all the stuff coming in and anything we need to top it off comes from rebalancing the portfolio back to the allocation we want.

We found trying to live hand to mouth directly from distributions was to much work as the amounts coming in varied , especially fund distributions....
 
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CallmeIshmael

New member
Funny you mentioned it .....my wife was a widow once. Her husband dropped a bunch of investments in her lap that she did not understand...she went to the guy at the bank whom she trusted and at the time he put her in dot coms and tech stock ..when the smoke cleared she lost half her savings ..

So our plan had to be simple and understandable by her.....our portfolios are simply rebalanced yearly to raise spending cash ...she knows they all get reduced down to the original allocations we decided on ....that is it ...that is the entire plan.. we fill the checking account once a year with all the spending money.

we put the dividends and fund distributions towards the following years money ....why ? Trying to live off cash flow as it comes in directly ends up being all over the map ...dividends get cut , dividends get suspended , interest goes up and down so without a buffer bucket to spend from you can come up short at the worst of times ....

So we find that-saving the distributions towards next years budget works the best for us ....we have a constant flow from the checking account all year with no surprises or coming up short.

Then next year we see what is in the bucket from all the stuff coming in and anything we need to top it off comes from rebalancing the portfolio back to the allocation we want.

We found trying to live hand to mouth directly from distributions was to much work as the amounts coming in varied , especially fund distributions....
That’s helpful and very similar to what we have in mind.
 

mathjak107

Well-known member
That’s helpful and very similar to what we have in mind.
For more than 30 years I have been using the fidelity insight newsletter ....I can put portfolios together in my sleep , but I like using them because I never have to think about our portfolios.... 30 second update each week keeps you on track ....if I was in control I would always
be thinking about future shifts or second guessing the last moves ......

This way we devote really no time to managing a multi 7 figure portfolio ....it is so easy my 80 year old aunt does hers this way ......

There really is nothing to do except for an occasional fund swap ...
 

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