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+--- Thread: Calculating investment returns: Actuarially speaking, 6% is a good rule of thumb. (/showthread.php?tid=230)
Calculating investment returns: Actuarially speaking, 6% is a good rule of thumb. - cannew - 10-01-2013
Here's an article which suggests a return of 6%.
http://business.financialpost.com/2013/09/21/calculating-investment-returns-actuarially-speaking-6-is-a-good-rule-of-thumb/
My dividend income on my YOC is just below 6% and rising, so why should I worry about future returns, mgt fees, inflation or re-balancing.
Note that there is no mention of dividends or dividend growth.
RE: Calculating investment returns: Actuarially speaking, 6% is a good rule of thumb. - EricL - 10-01-2013
(10-01-2013, 03:24 PM)cannew Wrote: Here's an article which suggests a return of 6%.
http://business.financialpost.com/2013/09/21/calculating-investment-returns-actuarially-speaking-6-is-a-good-rule-of-thumb/
My dividend income on my YOC is just below 6% and rising, so why should I worry about future returns, mgt fees, inflation or re-balancing.
Note that there is no mention of dividends or dividend growth.
I expect my income to grow at least twice that rate between reinvestment of dividends and increases in dividends declared by companies I own. I guess there's something to be said about under promise and over deliver?
RE: Calculating investment returns: Actuarially speaking, 6% is a good rule of thumb. - Kerim - 10-01-2013
(10-01-2013, 03:24 PM)cannew Wrote: Note that there is no mention of dividends or dividend growth.
(10-01-2013, 08:37 PM)EricL Wrote: I expect my income to grow at least twice that rate between reinvestment of dividends and increases in dividends declared by companies I own. I guess there's something to be said about under promise and over deliver?
Interesting read, though whenever I see assumption upon assumption piled up like that I get a bit wary. Though it is a good point about it being easier to predict average temperatures for the next decade than it is to predict the weather next week.
As you both identified, I'm assuming those returns are capital growth only and do not include dividend reinvestment or growth -- which are our secret ingredients!
RE: Calculating investment returns: Actuarially speaking, 6% is a good rule of thumb. - cannew - 10-01-2013
My 6% is just the dividend income I'm currently receiving. I call YOC my initial investment, dividend reinvestments and additional purchases to arrive at my total investment. Divide the total dividends received and I get the 6% income.
Capital appreciation is not even considered though I'm up 23%. I watch the income.
RE: Calculating investment returns: Actuarially speaking, 6% is a good rule of thumb. - hendi_alex - 10-02-2013
From a common sense point of view and from the view of everything that I've read and been told, YOC is a meaningless, feel good metric. All that really matters is current yield, current growth and how that compares to current alternatives. I never calculate YOC, and only look at the stock's current metrics. Would I buy the stock now at its current yield and growth rate? If the answer is no, then it is time to be looking around to see if there is a stock that would generate an answer of yes.
RE: Calculating investment returns: Actuarially speaking, 6% is a good rule of thumb. - cannew - 10-02-2013
(10-02-2013, 06:51 AM)hendi_alex Wrote: From a common sense point of view and from the view of everything that I've read and been told, YOC is a meaningless, feel good metric.Common sense to me is what Income will my investments give me. Currently I'm receiving over $50,000/yr. of income and that amount is increasing each quarter (actually I do feel pretty good).
(10-02-2013, 06:51 AM)hendi_alex Wrote: All that really matters is current yield, current growth and how that compares to current alternatives. I never calculate YOC, and only look at the stock's current metrics. Would I buy the stock now at its current yield and growth rate? If the answer is no, then it is time to be looking around to see if there is a stock that would generate an answer of yes.Certainly if I wanted to add to my positions current yield and growth potential are important. Would I dump a holding that is returning 9% on my YOC (and its current yield is 3.5%) because a new stock looks good (with say 4% or 4.5%) and may have good growth? I wouldn't, because the stocks I hold have a history that's giving me what I want...Growing Income.
RE: Calculating investment returns: Actuarially speaking, 6% is a good rule of thumb. - hendi_alex - 10-02-2013
We will just have to disagree on this issue. I would suggest however that YOC should really just market yield. The value of the capital is what it is worth today, and the yield is cash flow that value generates. Further, to calculate this thing that you are calling YOC, totally ignores any effect of inflation. That capital was worth a lot more in the past, and has to yield a lot more just to stay even with its original yield. Like I say, for me just a feel good metric. Not saying that it is wrong to look at it, but focusing on the metric too much, could cause an investor to ignore better opportunities that exist in the present. Also, am not saying that problem belongs to you or anyone else in particular. These forums exist in large measure to share different opinions and different strategies. I am sure that your strategies are working well for you.
RE: Calculating investment returns: Actuarially speaking, 6% is a good rule of thumb. - cannew - 10-02-2013
Like you say this is an information forum. I'm not trying to convince others to agree with my strategy which is:
- to find a group of stocks which have paid and increased their dividend over a long term
- buy them at a value price
- hold them and allow the dividend to grow
- monitor them to insure the dividend is safe and continues to grow
- never sell, but add to those positions, again when they are value priced
- In 2008\2009 only one stock of 27 cut the dividend while 12 increased and the rest kept them the same.
- Since then I've dropped to 22 stocks and none have cut their dividend. 18 have increased the dividend at an average of 9% per yr,
- I added to my positions during 2009\2010 of the stocks I held and my YOC has increased considerably
- I could care less if the capital goes up or down (it dropped 35% 2008\2009) as long as the dividends continue to increase (they did at a much slower rate).
- some of my previous buys have not recovered to their original purchase, but I'm ahead on all of them and my income from all of the stocks continue to increase.
- to me its the income I watch and concerned about. As long as it continues to grow at a rate faster than inflation I'm happy. The capital growth will follow, which it has. However, when the next crisis comes the capital will drop (regardless of Asset Allocation & diversification), but I really don't care. That's when I'll buy more of what I already own (not new stocks).
If others wish to sell what they own and buy new stocks in the search for better returns, try to match or beat certain markets, or if their goal is to increase their capital holdings value, good luck.
I don't want to claim capital gains, pay taxes, pay commissions or spend my time looking for better holdings.