01-03-2014, 09:34 PM
(01-02-2014, 11:07 AM)hendi_alex Wrote: ...I'm a big believer in dividend stocks, but think that getting 100% focused on a DG type portfolio could be counter productive to one's wealth, especially for those with decades before retirement. Does anyone have any thoughts on what allocation, if any, one should give to smaller cap growth companies?
Read The Future for Investors by Jeremy Seigel. That book should address your comment about a DG being counter productive for someone in the asset build phase (decades from retirement). If you don't want to read it or if you already have but need a refresher - Seigel broke the S&P 500 into quintiles (equal groups representing 1/5th the whole index) by dividend yield. The highest dividend paying quintile smoked the index itself by around 4.7% per year from the 1950s to 2006ish (the start of the S&P to the books printing depending on the edition). 4% compouned over time is HUGE.
My personal account uses 20% small-cap in my "core" holdings which I use a mutual fund for that. I would think 20% if someone is still in the growth phase of their investing career and maybe 5 to 10% if they are in retirement depending on how much their cash flow needs are. I prefer to spend dividends but I will spend less than what comes in so playing small caps is ok for me.
If someone is retired and does cash flow enough small cap should be in there for sure. Gives you the opportunity to realize nice gains when small caps are hot. You can then trim some on the way up and redeploy to the dividend payers to give yourself a faster than annual dividend increase raise.