03-06-2014, 02:49 AM
(This post was last modified: 03-06-2014, 03:16 AM by Dividend Watcher.)
fiveoh, sorry you're a little discouraged about now. I understand being a little concerned about the total value of your portfolio versus where it "could" be.
I don't know your situation nor your goals and I certainly don't want to try to convince you of something you don't believe will meet your goals. That's asking for defeat. I'll just share my feeble thought process that seems to be working for me.
Trailing the S&P wouldn't be a big issue for me. I'm working on the DGI theory and the thing I plan for most is the rising income stream. If the value of my portfolio goes up, yeah for me because I have a higher asset base. If it goes down, I get to buy more shares to boost the income stream. I reinvest all dividends in both our accounts for several reasons: 1.) it's easy and cheap -- no commissions, 2.) at my wife's dividend rate, it would take a year to collect enough to make it worthwhile right now, 3.) compounding does some amazing things if you can hold on long enough, and 4.) nothing in our portfolios is so overvalued that I wouldn't buy it if I was starting over right now.
Just for the heck of it, I went to Vanguard's site and checked out one of their S&P500 index funds. This is their stats on the fund's home page:
The results show they've stayed pretty even with the S&P500 and the lag about corresponds with the 0.17% expense ratio. Not bad.
The part that bugged me was the yield. The current yield is only 1.85%. That's about even or lower than some of the faster growing dividend growth stocks such as CHD, WAG, DPS, UNP, VFC, FDO or TEVA. There's also up-and-coming dividend growth stocks AAPL and AMGN (which I'm keeping an eye on).
I'll share some charts I created in a spreadsheet I made for my wife. I constantly need to have something to show to convince her that saving & investing are going to help in retirement. She's never been a saver -- not that I'm Mr. Thrifty myself. I'm ignoring my own portfolio for now since hers is smaller and has less moving parts. Plus, there were a couple times I went significantly to cash in the last 8 years because I thought there might be an emergency I may have to use it for. That really messed up my returns and wouldn't be instructive. Thank goodness I didn't need it and was able to put it back to work.
First, some background. She worked for a company for a few years when we first married that opened a Simple IRA with an insurance company for her. Before that, she didn't have a penny to her name since she was a single parent when I met her. They managed to get the balance up to around $5K before we decided she should go into a business she's wanted to do since she was in high school. As time went on, I noticed that the account wasn't making much progress with the mutual funds the insurance company offered (their own) and expenses conveniently ate up most of the gains.
I waited until the 7 year penalty period was over and transferred it into an IRA at TDA.
This was around 2008 and I was just getting an inkling about dividend growth investing about that time. You know what the market did for the next few years. So, of course, I didn't make the best choices at the time including a mutual fund that seemed to only go down.
Through 2009, I became more knowledgeable about DGI and rearranged her and my portfolios to reflect my newfound "wisdom". I've been able to add small chunks at a time which, as time progressed, was able to do a little more regularly. Now, you have to remember, we're poor folk living in the middle of a corn field and we've never been able to reach the contribution limits for the IRAs. We do what we can do.
This first chart shows the total value of her account with reinvested dividends (blue line) and the cumulative total cash I've been able to sock away in her account (red line).
You'll notice, up until Dec 2010, we were under water and the market was kaput. Then, very slowly, things began to build. As enough was accumulated, I was able to add more stocks, more dividends were reinvested and the market, volatile as it was, began to move up. Now, we've got enough of a margin that if the market were to take a 20% drop and the portfolio followed, we'd still be in the black. I'm not so sure the portfolio would follow in lock step since we do have some low beta companies but also some more volatile issues but, either way, I feel comfortable I'll be able to avoid any panic. Did I beat the S&P? I don't know. Haven't bothered to calculate it because I'm just trying to find companies that are solid and able to increase the dividend stream.
Now the more interesting part, to me, is the income stream. The next chart shows the dividends. Each data point is the sum of the 3 prior months so I can compare the same period one year to the next. If I did it monthly, the data points would bounce all over the place since dividend payments are not equal month-to-month. Also, we held VOD for a couple years that paid a smaller dividend in February and the big dividend in August. So the 2 months following the dividend payment includes those semi-annual dividends. That partially explains those 2 bumps in the fall of 2012 and 2013. I also included the trend line (light blue) just to make me look smarter than I really am.
As you can see, the compounding plus the gradual addition of more positions is just starting to show up. We've got about 10 years until we have to start thinking about giving the rocking chairs a workout so hopefully it keeps getting better.
I think we're on track. I'm working on a budget now with the bills we have to pay. I've got our estimated SS amounts and I'm using conservative dividend growth rates. I'm underestimating the SS COLAs (1%) and hopefully, using 4.5%, overestimating what inflation rate we'll see. So far it's looking good. Not going to Tahiti for vacation but planning a small trip every year to see the kids and including a car payment in perpetuity. That should add a cushion if we don't spend on either of those. If not, red beans & rice is not such a bad meal a few times a week.
Lastly, (I know, shut up with the damn charts) I just wanted to share something that amazes me whenever I look at my brokerage account. It keeps me focused.
This is from my Gain/Loss page that shows investments and dividend reinvestment for each of my holdings. It's just a list of what CVX has paid me every quarter since I bought the position in the summer of 2010.
I know the amounts are small but it's grown from $46 a quarter to $72 in the 3.5 years I've owned it. Of course, it includes the reinvested dividends but still that's quite a jump for me.
If you've read this far, you're a better man than me. I hope I cheered you up, if anything, and maybe help you think your way through this discouragement.
Whatever you decide to do, I think you'll do what's best for you and you'll sleep well without any consternation.
Best!
I don't know your situation nor your goals and I certainly don't want to try to convince you of something you don't believe will meet your goals. That's asking for defeat. I'll just share my feeble thought process that seems to be working for me.
Trailing the S&P wouldn't be a big issue for me. I'm working on the DGI theory and the thing I plan for most is the rising income stream. If the value of my portfolio goes up, yeah for me because I have a higher asset base. If it goes down, I get to buy more shares to boost the income stream. I reinvest all dividends in both our accounts for several reasons: 1.) it's easy and cheap -- no commissions, 2.) at my wife's dividend rate, it would take a year to collect enough to make it worthwhile right now, 3.) compounding does some amazing things if you can hold on long enough, and 4.) nothing in our portfolios is so overvalued that I wouldn't buy it if I was starting over right now.
Just for the heck of it, I went to Vanguard's site and checked out one of their S&P500 index funds. This is their stats on the fund's home page:
The results show they've stayed pretty even with the S&P500 and the lag about corresponds with the 0.17% expense ratio. Not bad.
The part that bugged me was the yield. The current yield is only 1.85%. That's about even or lower than some of the faster growing dividend growth stocks such as CHD, WAG, DPS, UNP, VFC, FDO or TEVA. There's also up-and-coming dividend growth stocks AAPL and AMGN (which I'm keeping an eye on).
I'll share some charts I created in a spreadsheet I made for my wife. I constantly need to have something to show to convince her that saving & investing are going to help in retirement. She's never been a saver -- not that I'm Mr. Thrifty myself. I'm ignoring my own portfolio for now since hers is smaller and has less moving parts. Plus, there were a couple times I went significantly to cash in the last 8 years because I thought there might be an emergency I may have to use it for. That really messed up my returns and wouldn't be instructive. Thank goodness I didn't need it and was able to put it back to work.
First, some background. She worked for a company for a few years when we first married that opened a Simple IRA with an insurance company for her. Before that, she didn't have a penny to her name since she was a single parent when I met her. They managed to get the balance up to around $5K before we decided she should go into a business she's wanted to do since she was in high school. As time went on, I noticed that the account wasn't making much progress with the mutual funds the insurance company offered (their own) and expenses conveniently ate up most of the gains.
I waited until the 7 year penalty period was over and transferred it into an IRA at TDA.This was around 2008 and I was just getting an inkling about dividend growth investing about that time. You know what the market did for the next few years. So, of course, I didn't make the best choices at the time including a mutual fund that seemed to only go down.
Through 2009, I became more knowledgeable about DGI and rearranged her and my portfolios to reflect my newfound "wisdom". I've been able to add small chunks at a time which, as time progressed, was able to do a little more regularly. Now, you have to remember, we're poor folk living in the middle of a corn field and we've never been able to reach the contribution limits for the IRAs. We do what we can do.
This first chart shows the total value of her account with reinvested dividends (blue line) and the cumulative total cash I've been able to sock away in her account (red line).
You'll notice, up until Dec 2010, we were under water and the market was kaput. Then, very slowly, things began to build. As enough was accumulated, I was able to add more stocks, more dividends were reinvested and the market, volatile as it was, began to move up. Now, we've got enough of a margin that if the market were to take a 20% drop and the portfolio followed, we'd still be in the black. I'm not so sure the portfolio would follow in lock step since we do have some low beta companies but also some more volatile issues but, either way, I feel comfortable I'll be able to avoid any panic. Did I beat the S&P? I don't know. Haven't bothered to calculate it because I'm just trying to find companies that are solid and able to increase the dividend stream.
Now the more interesting part, to me, is the income stream. The next chart shows the dividends. Each data point is the sum of the 3 prior months so I can compare the same period one year to the next. If I did it monthly, the data points would bounce all over the place since dividend payments are not equal month-to-month. Also, we held VOD for a couple years that paid a smaller dividend in February and the big dividend in August. So the 2 months following the dividend payment includes those semi-annual dividends. That partially explains those 2 bumps in the fall of 2012 and 2013. I also included the trend line (light blue) just to make me look smarter than I really am.
As you can see, the compounding plus the gradual addition of more positions is just starting to show up. We've got about 10 years until we have to start thinking about giving the rocking chairs a workout so hopefully it keeps getting better.
I think we're on track. I'm working on a budget now with the bills we have to pay. I've got our estimated SS amounts and I'm using conservative dividend growth rates. I'm underestimating the SS COLAs (1%) and hopefully, using 4.5%, overestimating what inflation rate we'll see. So far it's looking good. Not going to Tahiti for vacation but planning a small trip every year to see the kids and including a car payment in perpetuity. That should add a cushion if we don't spend on either of those. If not, red beans & rice is not such a bad meal a few times a week.
Lastly, (I know, shut up with the damn charts) I just wanted to share something that amazes me whenever I look at my brokerage account. It keeps me focused.
This is from my Gain/Loss page that shows investments and dividend reinvestment for each of my holdings. It's just a list of what CVX has paid me every quarter since I bought the position in the summer of 2010.
I know the amounts are small but it's grown from $46 a quarter to $72 in the 3.5 years I've owned it. Of course, it includes the reinvested dividends but still that's quite a jump for me.
If you've read this far, you're a better man than me. I hope I cheered you up, if anything, and maybe help you think your way through this discouragement.
Whatever you decide to do, I think you'll do what's best for you and you'll sleep well without any consternation.
Best!
=====
“While the dividend itself is merely a rearrangement of equity, over time it's more like owning an apple tree. The tree grows the apples back again and again and again, and the theoretical value of the tree doesn't change just because of when the apples are about to fall.” - earthtodan
“While the dividend itself is merely a rearrangement of equity, over time it's more like owning an apple tree. The tree grows the apples back again and again and again, and the theoretical value of the tree doesn't change just because of when the apples are about to fall.” - earthtodan