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Thanks for the feedback. Could you clarify if you only use the capital gains? I have read that dividend stocks are also a good way to have a passive income. Ad

Thanks for the feedback. Could you clarify if you only use the capital gains? I have read that dividend stocks are also a good way to have a passive income. Additionally have you thought about what you would do in case of a market downturn?

EliRivers 10y ago
Currently, I don't use any of it. I keep track of the gains (which is how I know they outweigh my rent and bills), but because I still work, I pay the rent and bills out of wages and leave the investments alone. All my dividends get reinvested. I'm in the UK, and I've taken full advantage of the tax free savings scheme, currently allowing about 15000 GBP a year to be put into stocks and funds with no tax to pay on dividends or gains. There have been market downturns during the time I've done this (started around 2005). Generally, during a downturn, I scrape together as much spare cash as I can and invest it in things that seem cheap. April 2015 to April 2016 was something of a downturn, for example, and I ploughed extra money into the markets while prices were low.
n72 10y ago
Dividend stocks are not a good way to have passive income. The benefit of the dividend is already priced into the stock, so they are no better than any other stock. Prefer, rather, to just go for good stocks and not worry about the dividend. If you need income, sell some stocks. Also, the % that you're pulling out of stocks should be determined by looking at, say, a 30 year window, not a very recent one. That is, if your savings can sustain a 2% withdraw every year, taking into account inflation, then take out 2% every year. Some years this will be less that your cap gains and some years more. The key is making a long term outlook. FWIW, these are some very brief thoughts of mine on investment: https://github.com/nickgieschen/investingguidelines https://github.com/nickgieschen/investingguidelines
- EliRivers 10y ago
  "The benefit of the dividend is already priced into the stock, so they are no better than any other stock." I hear this sort of thing a lot, and in my experience, everything already being priced in isn't true (both of dividend stocks, and stocks not paying dividends). This relies on the efficient market hypothesis being broadly correct, and based purely on my own experience, it isn't. My findings are very much based on my own experience, but I have had no small success simply reading the news and seeing that a company is doing well or is looking at a brighter future, and buying shares in them and making a nice profit on it out of both increased share price and increasing dividends. The EMH suggests that it shouldn't work; that by the time I get round to buying the shares, the efficient market has priced all that in. But it just doesn't seem to be true, in my experience.
  - n72 10y ago
    You're talking about two different things: Stock picking and whether dividends are priced in. Because stock picking works for you (let's ignore the sample size issue), doesn't mean dividends aren't priced in.
    - EliRivers 10y ago
      I believe that dividends are not priced in. The reason I believe this is not related to stock picking working for me. I believe it because the market is not efficient, and dividends being priced in relies on an efficient market. Any success I have in stock picking relies on this inefficiency; it's just a symptom.
      - tonyedgecombe 10y ago
        If dividends weren't priced in then prices wouldn't dip when stocks go ex-dividend.
        EliRivers 10y ago
        Sometimes they don't. Sometimes they go up. Lots of people think they're priced in, and the point at which they go ex-dividend is a convenient point to decide that it's now worth a bit less. Was it "priced in" before? No idea. Going ex-dividend is a single, identifiable point at which people can say it surely must be worth less now. I personally value dividend paying stocks more highly than non-dividend paying stocks. A history of dividends makes the stock appear more valuable to me (given that the majority of companies are rubbish at investing in themselves, giving me the money and letting me reinvest it myself is preferable). If they just went ex-dividend, that's a excellent very fresh data point that makes the stock look more valuable to me.
        forgetsusername 10y ago
        >the point at which they go ex-dividend is a convenient point to decide that it's now worth a bit less. The company has less cash ex-dividend, so as a matter of fact is worth a bit less.
- mywittyname 10y ago
  Dividend stocks absolutely are a great source of passive income. You don't do anything (passive) and you get a check a few times a year (income). Companies that pay dividends plan ahead for distributions. So they have the cash reserves to pay dividends even in a recession. Which is great because you get a payout but you don't need to liquidate your holdings at a discount.

EliRivers 10y ago

Currently, I don't use any of it. I keep track of the gains (which is how I know they outweigh my rent and bills), but because I still work, I pay the rent and bills out of wages and leave the investments alone. All my dividends get reinvested. I'm in the UK, and I've taken full advantage of the tax free savings scheme, currently allowing about 15000 GBP a year to be put into stocks and funds with no tax to pay on dividends or gains. There have been market downturns during the time I've done this (started around 2005). Generally, during a downturn, I scrape together as much spare cash as I can and invest it in things that seem cheap. April 2015 to April 2016 was something of a downturn, for example, and I ploughed extra money into the markets while prices were low.

n72 10y ago

Dividend stocks are not a good way to have passive income. The benefit of the dividend is already priced into the stock, so they are no better than any other stock. Prefer, rather, to just go for good stocks and not worry about the dividend. If you need income, sell some stocks. Also, the % that you're pulling out of stocks should be determined by looking at, say, a 30 year window, not a very recent one. That is, if your savings can sustain a 2% withdraw every year, taking into account inflation, then take out 2% every year. Some years this will be less that your cap gains and some years more. The key is making a long term outlook. FWIW, these are some very brief thoughts of mine on investment: https://github.com/nickgieschen/investingguidelines https://github.com/nickgieschen/investingguidelines

EliRivers 10y ago
"The benefit of the dividend is already priced into the stock, so they are no better than any other stock." I hear this sort of thing a lot, and in my experience, everything already being priced in isn't true (both of dividend stocks, and stocks not paying dividends). This relies on the efficient market hypothesis being broadly correct, and based purely on my own experience, it isn't. My findings are very much based on my own experience, but I have had no small success simply reading the news and seeing that a company is doing well or is looking at a brighter future, and buying shares in them and making a nice profit on it out of both increased share price and increasing dividends. The EMH suggests that it shouldn't work; that by the time I get round to buying the shares, the efficient market has priced all that in. But it just doesn't seem to be true, in my experience.
- n72 10y ago
  You're talking about two different things: Stock picking and whether dividends are priced in. Because stock picking works for you (let's ignore the sample size issue), doesn't mean dividends aren't priced in.
  - EliRivers 10y ago
    I believe that dividends are not priced in. The reason I believe this is not related to stock picking working for me. I believe it because the market is not efficient, and dividends being priced in relies on an efficient market. Any success I have in stock picking relies on this inefficiency; it's just a symptom.
    - tonyedgecombe 10y ago
      If dividends weren't priced in then prices wouldn't dip when stocks go ex-dividend.
      - EliRivers 10y ago
        Sometimes they don't. Sometimes they go up. Lots of people think they're priced in, and the point at which they go ex-dividend is a convenient point to decide that it's now worth a bit less. Was it "priced in" before? No idea. Going ex-dividend is a single, identifiable point at which people can say it surely must be worth less now. I personally value dividend paying stocks more highly than non-dividend paying stocks. A history of dividends makes the stock appear more valuable to me (given that the majority of companies are rubbish at investing in themselves, giving me the money and letting me reinvest it myself is preferable). If they just went ex-dividend, that's a excellent very fresh data point that makes the stock look more valuable to me.
        forgetsusername 10y ago
        >the point at which they go ex-dividend is a convenient point to decide that it's now worth a bit less. The company has less cash ex-dividend, so as a matter of fact is worth a bit less.
mywittyname 10y ago
Dividend stocks absolutely are a great source of passive income. You don't do anything (passive) and you get a check a few times a year (income). Companies that pay dividends plan ahead for distributions. So they have the cash reserves to pay dividends even in a recession. Which is great because you get a payout but you don't need to liquidate your holdings at a discount.