Ten Year Challenge

[mjs_28s]

(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.

[Robandcindy2]

(01-02-2014, 11:07 AM)hendi_alex Wrote: I wonder what relationship, if any, exists between dividend growth and total returns? It could be that a portfolio that is structured purely toward dividend growth is one that is structured toward chronic under performance. After all, higher dividend payouts are usually a trait of more mature, slower growing companies which can't find more productive use of the cash. On the other hand, smaller cap companies tend to be faster growing and can deploy all of their cash into organic growth that turns out to be the best use of that cash, better both for the company and for the share holder.

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?

Not to hijack this thread but this is exactly why I subscribed to Chuck Carnevale's Fast Graphs. In one relatively easy to read screen you get the past and forecast future of a company. http://www.fastgraphs.net

Ok...back to the challenge....

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(01-03-2014, 09:34 PM)mjs_28s Wrote:

(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.

Check out FireCalc and look for the tab "Your Portfolio". There you can play with asset allocations....

[Dividend Watcher]

Rob, that's a neat tool. I adjusted the portfolio makeup and inflation rate of 4% and I still had a success rate of 100%. Finding it hard to believe but comforting nontheless.

[Robandcindy2]

(01-19-2014, 03:30 AM)Dividend Watcher Wrote: Rob, that's a neat tool. I adjusted the portfolio makeup and inflation rate of 4% and I still had a success rate of 100%. Finding it hard to believe but comforting nontheless.