Are Pos. Or Neg. On The Stock Market for The Next Three Years?

no it does not . that is nonsense . stocks are stocks period . how a total return is arrived at is irrelevant . you have sectors that just react differently at times than others so a company appears immune .

now you can argue that historically high quality dividend stocks tended to out perform a bit but over the years because a company that was giving it's money away was looked at as a healthy company . that theory has faded and the dividend payers became the least efficient at compounding investors money .

as award winning fund manager chuck akre said , compounding investor money is the key to growing money.

a penny doubled and compounded every day for only 31 days is over 10 million bucks . such is the power of compounding

what is interesting is dividends have increased to the highest levels since 1998 with a record increase of 17.8 billion dollars in increased dividends payed out .

all dow stocks pay dividendsand 84% of the s&p 500 does too

but according to a study done by howard silverblatt at s&p those dividendshave been coming at a price as they go up and up..

a good part of that capital from free cash flow is gone forever and no longer available for .compounding

mid-caps and small caps who pay little in dividends have been far and away providing far better compounding and use of investor money for much greater returns..

in fact one of the least efficient ways to attract and grow investor money now is paying it out as a dividend.

as chuck akre said ,free cash flow in a company can be used to compound by buying back its own stock, investing in its own company or buying other companies . cash flow paid out as dividends loses its compounding ability and much of it is gone forever and can no longer compound.

many of the great companies in the s&p 500 have lagged behind their non dividend payers in the micap and small cap markets who now seem to be much more efficient at generating compoundingon investor money.

midcaps and small caps have compounded the last 5 years at rate of 5-6% higher then their dividend paying cousins.
 

in fact lets look at the group referred to as the dividend aristocrats .

you keep seeing just invest in this group and call it a day .

however what constitutes this group changes all the time so get ready for lots of selling trying to keep up as they get bumped and replaced AFTER THE FACT THEY DID NOT LIVE UP TO EXPECTATIONS . you could be behind the curve here very easily .

these dividend aristocrats are not somehow immune to all the things that effect company's and stocks . Just like other companies, their outcomes change.

in 2009 there were 52 stocks that met the group’s strict criteria.

As of 2012, there were 51.

But of those 51, 13 were different than the original set. So over the course of just 3 years, there was a 27% change in the group’s composition.

in fact going back to 1989's list :

Of those 26, seven are still on the list today, ten were removed because they either cut or froze their dividend, four were removed for an unknown reason, and the remainder were aquired at some point. So at least ten of the 26 had an outcome that is different from the assumption of dividend growth every year through thick and thin.

Indeed, dividend stocks are a fine investment vehicle, but but they are stocks at the end of the day and are no different
 
I expect a lot of volatility going forward but expect we'll end up ahead at the end of the year. The economy is in high gear and the tax cuts should raise company profits enough to help support the high P/E levels. My concern ,as I'm retiring June 1, is sequence of returns risk. We'll have a major correction eventually and I just hope it's not in the next couple years.
 

i think we will have very strong head winds .

we have a president starting a trade war . no one wins in a trade war , it has hurt us the consumer every time. it will either squelch global growth which has been getting traction since 20-25% of all revenue in the 500 largest companies are based on foreign sales . increased costs on steel and aluminum will suck profits right out of the bottom line of all companies who buy it if they don't raise prices , or will stoke inflation if they do and shaft the consumer .

we then have all that money from the tax cuts being dumped in to an already healthy economy stoking inflation fears driving up rates .

all in all trump now seems to be making one bad choice after another that can hurt all our financial health . i have no political loyalty at all but this guy is a loose cannon
 
garyt1957 said:
I expect a lot of volatility going forward but expect we'll end up ahead at the end of the year. The economy is in high gear and the tax cuts should raise company profits enough to help support the high P/E levels. My concern ,as I'm retiring June 1, is sequence of returns risk. We'll have a major correction eventually and I just hope it's not in the next couple years.
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you could use a rising glide path if you are not comfortable . reduce equities to 30-35% and then increase each year until you reach your allocation .

once you have an up cycle then the risk of sequence risk hurting you pretty much goes away . so it really is an issue entering retirement . the good news is even if you retired in 2008 and got hammered , 10 years in at this point you are no different than any other average retiree group in history .

2008 was short and pretty much a non event to a retiree who did not exhibit bad investor behavior . however even a moderate drop day 1 that is extended can hurt
 
mathjak107 said:
you could use a rising glide path if you are not comfortable . reduce equities to 30-35% and then increase each year until you reach your allocation .

once you have an up cycle then the risk of sequence risk hurting you pretty much goes away . so it really is an issue entering retirement . the good news is even if you retired in 2008 and got hammered , 10 years in at this point you are no different than any other average retiree group in history .

2008 was short and pretty much a non event to a retiree who did not exhibit bad investor behavior . however even a moderate drop day 1 that is extended can hurt
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I have thought of that and even seen it advised to got to zero equities and then slowly get back in. If the economy wasn't doing so well, I might go that route.
 
I would never go zero nor less than 35-40% . Markets never give signs or notice when they go up . All the biggest gains are always from stock market hell when it looks like there is no bottom . All the biggest drops come from when things are humming and confidence is high.

more money is lost or given up in anticipation or preparation for the next downturn than has been lost in any downturn
 
mathjak107 said:
don't get confused by the market action or number of shares . it is only total dollars in the investment that is compounding for you .

if you had 100k in stock and it grew 5% over the year as an example you have 105k in value . if it pays out a 5% dividend you have 100k left at the open once the exchanges reduce you and a 5K dividend . so you reinvest it . you have the exact same 105k you had the night before once it is back in and being compounded on by the markets . the dividend did not add any additional dollars to your investment than you had . it merely switched the consistency from say 1000 shares at 105 dollars a share to 1050 shares at 100 a share at the open . dollars compounding are the same as you had pre ex div . whether you have 1000 shares at 105 or 1050 shares at 100 at the ring of the bell is irrelevant . only the dollars compounding are acted on .

if your stock went up 10% the next quarter and you reinvested than it is 10% on 105k , if you pocketed the dividend than you only had 100k compounding that 10%.

people get confused because the shares are growing and markets are running with the price but it is far more basic than that . as you see in the example it is only about dollars left compounding on by the markets . the consistency of the make up of the investment is irrelevant .

1 share of a 100k stock going up 10% is the same as 2 shares of a 50k stock going up 10% . you are just confusing the issue in your example . it is only about i started with x invested , i saw y percentage of compounding on those opening dollars and this is my new balance .

there is zero additional dollars added when that dividend is paid out then you had the evening before it went ex div , you are just starting out of the gate with more shares if you reinvested at a lower value . whatever the percentage is the markets move it up or down is on those opening dollars not shares .
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Let me understand this. Are you saying that those extra shares purchased with that $5,000 dividend don't generate even more income eventually? For instance, I have a mutual fund that I purchased for around $19 a share several years ago. It generated capital gains, mostly. So if I accumulated another 100 shares via those caps and the mutual fund is now worth $51 a share, didn't at least some of those added shares increase in value by $32 each (eg: $3,200). Obviously shares were added over time so they didn't all increase by that much. Now if all the investments added 1,000 shares via divs and caps and all the investments increased by double digit figures annually, as most of my investments have, I don't understand why you see those extra shares as "the same dollars". That original $100,000 may become $132,000 or $125,000 or whatever due to those additional shares earning money via share price increases and additional divs and/or caps being paid on them.
 
there is no free lunch . with every payout you get more share's if you reinvest but the price is reset lower as a starting point . so if market action increase your investment 10% it is 10% from that reset price .

it is very simple really .

if you bought 100k of xyz and it went up 10% you have 110k in stock . so now it pays out a 10% dividend and you have 11k in a dividend and 89k left invested in value. there is an automated reset of the price by the amount paid out every time . so your starting out with the share price lower .

if next year it went up 20% then it is up 20% on 89k if you did not reinvest .

if you did reinvest , regardless how many shares make up your investment is is still the same 110k you had going up 20%

do not get confused by number of shares . it is like a stock split , you have more shares at a lower price but the same value in dollars as you had .

money does not drop out of the sky when a dividend is paid . it merely redistributes the value you already had the night before . it is basically a wash if you reinvest or you have less dollars in the investment if you don't .

getting a 4% dividend is no different than taking equal dollars from a portfolio of non dividend payers with the same total return .

the dividend takes the value of your investment and redistributes it as more shares at a lower price . taking the same amount from a portfolio of non div payers would have less shares at a higher price because that would see no set back .

if total returns are equal balances and income will be equal .
 
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even simpler . you had 100 bucks in stock pay out a 1 dollar dividend that closed on the day at 102 . . so at the open the stock is reduced to 99 bucks and you have 1 dollar in pocket .

you had 99 in stock at the open go up 3% to 102.00 by the close plus 1 dollar in pocket .that is a total value of 103 .


you reinvested the 1 dollar so you have 99 left in your original investment plus a fractional share worth 1 . if it all goes up 3% it is the same value of 103 dollars .


103 invested vs 102 and a 1 dollar in pocket if not . nothing changed as far as the return .


the return is the same 3% . it is just on different investment amounts depending on whether you reinvest or not . in both cases you open at 99 regardless and go to 102 .


only the amount of shares acted on changed depending if you reinvest or not but if you never got the dividend and the stock went up the same 3% it would still be 103 . it just would not have been rolled back to 99 . it would have been 3% on 100 in stock , the same as a reinvestment ..
 
The stock markets can be a roller coaster, and a bit stressful, tracking the ups and downs. However, there probably isn't a better way to maintain and grow one's assets....interest in a bank account, for example, is almost non-existent. If a person monitors their accounts regularly, and takes advantage of the "trends", they should be able to enjoy their retirement without worrying about next months bills. Presently, I'm a bit amazed that the markets haven't taken a major nosedive since 2007/2008, and most of the "experts" seem to think that this positive market performance will continue for the immediate future....but, I'm still cautious, and ready to rebalance quickly if things change.
 
i agree . the problem is most people have very mis-informed views and a lack of general knowledge about financial planning for retirement .

how many times have you heard that if you have equities in retirement and it was 2008 that you may not have enough left to support you ?

sounds like it makes sense , however there is far more that goes in to that retirement equation .

here is the part you miss .

lets take bill and john .

both have a million bucks and decide to retire . bill retires in 2008 and gets caught up in the crash so he draws draws 30k which is 4% from his 50/50 allocation which now has 750k left.
so 4% of 750k is 30k .

john is the gun shy guy and he has only 10% equities going in to retirement and close to 1 million left. but johns allocation can never support 4% in retirement so john is forced to draw a max of 3% of 1 million or only 30k at a max , . you can see incomes are the same .

this is why i say you can't just look at 1 factor , it is the whole picture . it is everything as a whole both going in and being in retirement .

it is not just magically taking numbers and subtracting numbers . there are draw rates that can support higher draws and confirmed draw rates that will likely fail if not using equities that have to be accounted for .

in fact , if markets were being counted on to raise that 1 million for retirement , if bill hit that 1 million with his more aggressive portfolio, and john was far more conservative, the real life outcome would be john would not even have a million dollars saved going in to 2008 .
 
mathjak107 said:
i agree . the problem is most people have very mis-informed views and a lack of general knowledge about financial planning for retirement .

how many times have you heard that if you have equities in retirement and it was 2008 that you may not have enough left to support you ?

sounds like it makes sense , however there is far more that goes in to that retirement equation .

here is the part you miss .

lets take bill and john .

both have a million bucks and decide to retire . bill retires in 2008 and gets caught up in the crash so he draws draws 30k which is 4% from his 50/50 allocation which now has 750k left.
so 4% of 750k is 30k .

john is the gun shy guy and he has only 10% equities going in to retirement and close to 1 million left. but johns allocation can never support 4% in retirement so john is forced to draw a max of 3% of 1 million or only 30k at a max , . you can see incomes are the same .

this is why i say you can't just look at 1 factor , it is the whole picture . it is everything as a whole both going in and being in retirement .

it is not just magically taking numbers and subtracting numbers . there are draw rates that can support higher draws and confirmed draw rates that will likely fail if not using equities that have to be accounted for .

in fact , if markets were being counted on to raise that 1 million for retirement , if bill hit that 1 million with his more aggressive portfolio, and john was far more conservative, the real life outcome would be john would not even have a million dollars saved going in to 2008 .
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I've been reading that 4% rule is no longer feasible as a "one rule fits all" thus somewhat obsolete. What do you think about that and the other method (bucket aka envelope)? What method do you use?
 
the 4% rule is a good starting point . no one spends like a robot . you adjust as time goes on . it is good for projecting a day 1 income .

i use a dynamic method. it sets goal posts for our yearly spending that i try to stay within . we look at our total portfolio balance and can spend 4% of that amount . if markets are up you get rewarded. if markets are down you take the higher of 4% or 5% less than you took the previous year. that avoids to steep of a cut .

buckets offer no advantage to just rebalancing and creating cash that way .

we like to compartmentalize things so our brains like buckets but having cash buckets vs just rebalancing is actually not as good as rebalancing.

the 4% safe withdrawal rate requires at least 40% equities to hold .

breaking down just what it takes to support 4% inflation adjusted , it takes a minimum of a 2% real return over the first 15 years of a 30 year retirement . if you get less the first 15 years you are usually spent down so far that even the best of times can't bring you back .

those who retired in 1965/1966 had the worst of times early on followed by the best bull markets in history but it was to late .
 
the problem i have with individual stocks is i have to pick the right company , at the right time , in the right market sentiment in the right sector . even if i get all that correct i still have no idea what their competitors are doing . then they miss earnings by a dime and fall 10 or 20% .

i like just market volatility to deal with. my investing requires no time whatsoever for the most part .
 
mathjak107 said:
the problem i have with individual stocks is i have to pick the right company , at the right time , in the right market sentiment in the right sector . even if i get all that correct i still have no idea what their competitors are doing . then they miss earnings by a dime and fall 10 or 20% .

i like just market volatility to deal with. my investing requires no time whatsoever for the most part .
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Mathjak,

My wife and I are looking to invest a bit of money. We've been doing some research on "middle of the road" investments that aren't too conservative, but aren't really risky either. We've narrowed it down to 3 investments that we feel fairly comfortable about, I'd like to get your opinion on the 3 if you wouldn't mind. Before making any final decisions we do plan on sitting with a financial advisor for further input on the 3 investments and exactly where to invest the money.

Any input you could give on the following would be appreciated.

1. Mutual Funds

2. AAA Rated Bonds

3. Fixed Annuity
 
i have always used funds as an investor but of course funds encompass a whole lot of territory . i am not a lover of only high quality bonds right now . i like a broad mix ranging from some high quality ,some lower quality , all different duration's , foreign bonds , junk and emerging market .

as far as annuities that depends on what kind and the roll they are playing vs investing alone .

retirement planning can be very complex once you introduce different goals ,tax situations and personal pucker factor . many times for a couple a single immediate annuity and permanent life insurance which is 100% tax free is a better way to go than a joint annuity . but i don't give advice to others , i only talk in general terms .
 


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