7 ms·
Revised follow-up paper https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3805927 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3805927
by nfcampos 4y ago
Revised follow-up paper https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3805927 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3805927
- metacritic12 4y agoIt seems like this follow up paper clarifies the data's vision a lot more. Notable changes from the previous version discussed in a sister thread here: - There is no more emphasis on price-only-inflation-adjusted returns. Good riddance: getting rid of dividends makes no sense and is borderline intellectually dishonest just to make the point. - He no longer argues stocks don't work for the long run, just that bonds were as good in the past. This is a lower bar to meet as bonds in the past, especially corporate bonds as he's included, are actually quite risky! - Finally there is some argument to be made that bonds are better investments when monitoring technology is poor -- since insiders can steal equityholders' wealth. But the 20th century invented good accounting, auditing, etc to reduce that and drive up equity returns.
- dot1x 4y ago> getting rid of dividends makes no sense and is borderline intellectually dishonest just to make the point How so? Once you retire, you don't let dividends reinvest. Makes perfect sense.
- whall6 4y agoThere are enough “cash cow” securities that maintain a same / similar share price by distributing heavily for this to make sense. The price wouldn’t show the whole story and the cash could go much further over 100 years than just sitting in a bank account. I don’t know many people that spend 100 years in retirement.
- Dylan16807 4y agoYou should be taking money out at your chosen rate, not depending on how those companies choose to allocate money between dividends vs. buybacks vs. cash piles vs. reinvestment. So treating dividends as reinvested by default makes sense to me.
- metacritic12 4y agoExactly -- dividends and share buybacks are nearly the same, but the original paper stripped out the first.
- danuker 4y agoDividends aren't enough to cover living expenses. If you plan to withdraw 4% per year, so you preserve your wealth indefinitely, you're more than 2 percentage points short when the dividend yield is 1.71% [1] If you want to live solely from dividends, you'll need more than double the capital. If you want to die with zero [2], it's impossible. I'd much rather invest in a dividend-accumulating index fund and sell as I please. [1] - https://www.multpl.com/s-p-500-dividend-yield https://www.multpl.com/s-p-500-dividend-yield [2] - https://www.goodreads.com/book/show/52950915-die-with-zero https://www.goodreads.com/book/show/52950915-die-with-zero
- dot1x 4y agoSeems like you agree returns would be even worse since you'd take out more than the dividend to survive.
- Dylan16807 4y agoOnce you start selling off your assets, the """returns""" are worse, but equally so no matter what you invested in. It's better to leave that math out of the situation and look at the returns of the actual assets by themselves. Which includes reinvesting. If you really want to factor in the sell-off, then every dollar of dividend means one less dollar of sold stock. If dividends go higher than withdrawals for a year, then you need to buy more stock to compensate. So the math comes out the same. What you don't do is ignore dividends, or let excess dividends pile up in cash form. Which the original paper apparently did.
- NovemberWhiskey 4y agoYou can absolutely die with zero: buy a life annuity and let someone else worry about the problem.
- ghaff 4y agoI think parent is saying that you can't die with zero if you plan to live off dividends. (Because you need to keep owning the stock throwing off the dividends.)
- NovemberWhiskey 4y agoWhy would you exclude part of the total return on an investment? It'd be like ignoring the principal value of a bond because you expect to live on the coupon. Cashflows are cashflows.
- hartator 4y ago> Once you retire, you don't let dividends reinvest. Makes perfect sense. You don't let interests from bonds reinvest as well then.
- danielmarkbruce 4y agoIt's not a chart of "how much money does Jonny have".
- coliveira 4y agoRemoving dividend does make sense because dividends are taxed. You cannot reinvest all dividends, unless you're using a tax advantaged account.
- NovemberWhiskey 4y agoSo are bond coupons, and (within the current regime) at a disadvantageous rate relative to dividends!
- lexapro 4y agoPrice increases are taxed as well (eventually), do you also remove them?
- fshbbdssbbgdd 4y agoStepped-up basis takes care of that. Buy, borrow, die!
- MichaelDickens 4y agoThis might justify discounting dividends (eg reducing them by 20%), but not removing them entirely.
- nwiswell 4y agoMoreover the more modern approach is share repurchases, which are largely not subject to the tax drag and use the same money that was used historically for dividends.
- ClumsyPilot 4y agoIt is worth noting that until 1982, stock buybacks were illegal—deemed as market manipulation
- joshlemer 4y agoAnd since a few years ago they are highly taxed in Canada.
- gbasin 4y agoThe 3rd one is interesting and something I hadn't considered as much before — may be applicable still in less regulated markets
- danuker 4y agoData is available as a spreadsheet here: https://www.edwardfmcquarrie.com/?p=579 https://www.edwardfmcquarrie.com/?p=579