Why INCOME Investing = LESS Retirement Income | Retirement Investing Mistake Explained

[@alphamale2363]

I don't chase dividends but I love them as I have no qualms about spending them. If I had to sell shares to generate income I would live like a pauper to avoid eating my "seed corn". It's psychological.

[@rayzerot]

It's easy to calculate safe withdrawal rates though. Really really easy. Lots of research has been done that combines historical data with monte carlo results to find withdrawal methods and rates that are 98%+ effective in situations that are as bad or worse than the great depression, the hyperinflation of the 70's, and the great financial crisis. No guessing or insecurity needed

[@Byssbod]

Seems like it's holding you back. Money is money no matter the source, all that matters is total return, your final number

[@n1chr0me6]

13:50 So tell me how, using DCF model, does the company become less valuable when it pays a dividend this year, if the growth projection for next 10 years is not changed.

[@unorthodocs1]

I like both. Retired early. 12.5% JEPI, 12.5% JEPQ, 12.5% RYLD, 12.5% XYLD, 50% VOO. I figure I’m 50% income and 50% total return. Distributions I don’t use get put back into holdings.

[@yt12363]

Here is my IRA portfolio: 15% JEPI, 10% JEPQ, 25% SCHD; 50% VOO.

[@markbernhardt6281]

@@yt12363 My IRA is in FBGRX and my wife is in FDGRX. My intestinal fortitude is exercised daily.

[@Millennial-Investor1914]

I definitely my portfolio like this when I retire. I love Jepq, XYKD, DGRO, VOO mix

[@Antandthegrasshopper]

@@yt12363 Add.... CEFs, MLPs, REITs, BDCs and you'll be all set!

[@knightfamily8124]

At 15:00 you talk about the tax drag...and its totally valid, if you needed around 2500 this month for groceries and the stock you purchased doubled in price you would be better off selling shares by 225. But what if instead the stock had halved in that time period? Tax implications of realizing a loss when selling the shares aside you would be forced to sell off around 350 shares to get the 2500. A couple of bad (or even flat months) in the market you would be out of shares and no income. Now I am not advocating chasing dividends or jumping at value traps, nor avoiding growth. But a stable company with a history of maintaining a dividend means I can sleep better at night know I am going to have money to buy groceries this month.

[@VanPelt54u7fcyde57]

Choosing a Roth IRA is advantageous as it uses after-tax funds and allows tax-free growth. When I retired, I had $3M million saved, and I won't be taxed on my withdrawals.

[@yourfellowman11]

"Searching for the highest yield" is certainly one way to dividend invest, but you can also seek out higher-paying assets that are also fundamentally sound securities within the BDC, non-mREIT, and CEF classes. All of which, might I add, are legally designed to focus on income rather than total return. There's no need to fear-monger about higher yielding asset classes by using something as unstable as covered call ETFs to paint them all as equally untenable.

[@gk_filer]

I've been retired since 2017. Glad I was 50/50 in the beginning and now 45/55 sequence of returns has been quite challenging. CD/Treasuries/Mygas all are returning 4.5 to 5% and yes growth is needed as well as value giving dividends

[@rdspam]

I’ve been retired since 2018. I’m 75% in stocks and the S&P500 has returned 12.8% CAGR, up 136% over that time. It’s unclear me what returns have been “quite challenging” in that time. I’m quite content with 10.5% from a 75/20/5 over 4.5-5%.

[@gk_filer]

@@rdspam Not sure how much your taking out each year we take out 5% and in feb 2020 - July of 2020 and the period of Dec 2021 to Jan 2024 the markets were down so 4 down years out of 7 not a good average. Just the way we roll. Everyone has there risk tolerance

[@hermes8258]

Why is income considered the priority when old? Instead I reduce my living costs so that I can invest only for growth. I live on GOC, OAS etc and put half of my income in the bank for CDs/trading account. And I am almost 70 and on a low income (below poverty line with few savings). My only significant challenge is that I will be dead in 15+- years and it is not easy to find growth or value/growth stocks that grow fast enough and with a large enough (10%+) increase. My timeline is 3-5 years. Maximum eight. No longer. consistently.

[@ShamileII]

Dividend investor here and financially retired. I use the dividend snowball and have more dividends than I need each month. Every single month, dividends are being reinvested in buying more shares of stable albeit slower growth companies. People that bought Amazon in the last few years are right back to where they started....with nothing to show for it. Buffett loves receiving dividends to make acquisitions but makes excuses on why it's bad to pay them out. lol

[@petersinclair-day7499]

Same here. I started out with one share of Amazon. It more than doubled with in a year. Never sold, due to high capital gains tax. It split 20-1 and the value tanked below cost. Has recovered by a third. My vwiax in my IRA faithfully reinvests dividends with year end capital gains to add more shares with increased payout causing a snowball affect.

[@johng4093]

It's been my observation that people tend to be defensive about their investment strategy. Myself included. But probably best to consider other ideas and arguments.

[@asage5801]

Check out JEPI and JEPQ. These new JP Morgan dividend ETFs blow his argument out if the water. Granted they are new…

[@mmabagain]

I am retiring soon and have been doing just as you said. Chasing yield. I currently have about 40% spread equally in XYLD, RYLD, QYLD, JEPI and JEPQ for the income they generate. The rest in a Target Date fund and short term treasuries.

[@arymniak1]

Income in retirement. Reinvest dividends and build more income. Use stocks, CEFs, MLPs, REITs, BDCs, fixed income. The 4% withdrawal strategy is BS in the inflation driven future.

[@kenabelson8423]

Thanks for saving me the trouble of posting this.

[@Antandthegrasshopper]

👆

[@delt2575]

Yeah, don't chase high yields. What about a portfolio that is throwing off dividend income vs one that doesn't and you are ready to retire and the market tanks? Might cause the total return guy to not retire when he wants to. That is why people invest in dividend growth stocks that have a history of increasing their dividends. It also helps prevent people from selling when the market corrects 20+% like we are seeing now. You are assuming the total return investor is just holding on through decades of market risk which is a huge assumption. You have not changed my opinion.

[@ShamileII]

I know so many people over the years with that type of portfolio and in the end couldn't retire. Dividend snowball for the win!

[@supersteve8305]

I like dividend growth investing. Not going for high dividends that may be cut. It actually pays my bills currently. Haven't had a dividend cut in a long time. Last dividend cut was GE I think. Years ago. I will stick with my current plan but I appreciate the opposite view.

[@Asstronauts93]

The numbers in the video might say that growth investing returns more over a certain period of time, but how much of that return is actually captured? One of the benefits of dividend investing is it removes the impulsiveness of trying to sell at a loss to keep your balance from going down even more. Dividend investing also allows you to see your portfolio receiving growing dividends even if the stock price is flat or down. Most of investing is psychology and a dividend-focused portfolio will gross a higher return based on investor psychology.

[@markbernhardt6281]

That's where outfits like Safeguard come into play, it's another layer of knee jerk protection. Even including Safeguard's fees, dividend people are still behind. I also have to add companies which are paying huge dividends do not have the drive to grow and evolve as a company. Look at Intel (dividend) vs AMD and Nvidia (growth). Invest in the companies which are taking over the world, they leave the rest in the dust.

[@miken7629]

People have been told to invest in bond funds for security, but bond funds were never intended for zero interest rates. People that bought bond funds in recent years were buying future loss. Due to Fed pushing interest rates down, many bonds in bond funds had market values much higher than payoff value. People that bought individual bonds saw what was happening. I had bonds with market values of 161 when payoff was 100. That is insane. Sold those bonds in 2021 to lock in capital gains. Most people didn't have any idea how many bonds were overvalued in bond funds. Everyone should be pissed off at Vanguard for not telling investors in Bond Funds (or Target Retirement and other Balanced Funds), that they were "NOT" buying security, but buying future loss. The paradigm changed due to zero interest rates but nobody told ignorant investors. People that bought individual bonds before 2008, saw what was happening, and got both interest and capital gains due to lowering of interest rates and made a killing.

[@rayzerot]

We're up to a 5% interest rate now. Does that make a difference?

[@miken7629]

@@rayzerot Good for money market. When interest rates rise, bond market values decrease, during the rising period, bond funds were crushed. Interest rates should start dropping this year according to FED projections, so buying bonds now should increase in market value when interest rates drop over next 2 years, get interest rate return + gain in market value. Bond market values are priced according to 10yr interest rate, that is the one to watch. I bought bonds in mid October when 10yr was near 5% (4.295% today).

[@Magdalene777]

The share price is controlled by the market. If you don't sell you still own the shares and the price can recover.

[@antonioblt9407]

Is there a case in favor of ETF focusing on companies with a history of growing dividend since those companies are probably better managed and have more consistent results/returns? When you own SPY you have for sure high quality growth stocks but you also own a lot of mediocrity? Is there data to back up this assumption or to confirm that I am wrong?

[@yvonneachieng6742]

Please do not discount how strong a role emotions play in investing decisions.

[@comingshortly]

One point on dividend stocks. I view them as a way to diversify my fixed income portion of my portfolio not the growth stock portion. Goal is to move forced income from ordinary income to LTCG rates.

[@chessdad182]

I am a switch hitter. I bought a lot of bonds in December 2019. Followed the All Weather approach. I was afraid the market would tank. Sure enough... Sold the bonds and bought stocks at bottom of market. Made a bundle. Enough I am comfortably retired now. And now pulling in a solid income and beat the S&P500 the past year.

[@DavidFarley-ex6wr]

I learn a lot from video but much more from the comments- thank you

[@mikesimmel5913]

Great video but was there discussion about what instruments or ETFs should be considered?

[@ld5714]

Thanks Eric, good info and presentation.

[@comingshortly]

I always reinvest dividends. Paid 15% over many years while in the 35% bracket. Now retired and will pay zero tax on dividends for a few years before SS kicks in.

[@jdedad]

What about CEFs, BDC, etc

[@FriendlyCommentor]

8:04 the chart discussion titled “The Problem of Yield Searching in Stocks” is dishonest. The fact that international and emerging markets under performed the US stock market has nothing to do with dividends Let’s compare apples to apples … which is the two US stock market options. The US dividend portfolio is clearly superior. I’m just reading off the slide which I assume is accurate. The slide clearly shows dividend investing since 1994 outperformed the total stock market by 74 basis points when you add the growth rate plus dividend yield.. and did so with lower volatility. (11.69 for dividend vs 10.95 for total)

[@SafeguardWealthManagement]

Dividends are not a free return. You can't just add the dividend rate to the total return and say, "This is better" Growth rates include dividends.

[@RayMelville]

9 of the top 10 holdings of Berkshire Hathaway are dividend paying stocks. Even though Berkshire doesn't pay dividend, Buffett seems to like having dividend paying stocks in his portfolio. Bank of America, Coca Cola, American Express, Chevron, Kraft-Heinz are all high yield stocks included inhis top holdings.

[@JulianSiedlecki-de2nn]

Caution - US focused analysis may not be applicable elsewhere. Yield figures touted are US market which tends to pay less in divs and leans more to stock buyback.

[@toddhallam9598]

Schd is my largest division play. I am sticking with that strategy.

[@robertduan5143]

Once you are retired, you need income to live so you either get it from dividend or from selling shares. No difference in tax. However, I find psychologically, stable dividend is so much better than selling shares in a down market. As long as the company is doing ok and can afford paying dividend, then I don’t have to worry about the share price fluctuations. THAT is HUHG in retirement. I suppose the person that makes the video has not been retired. Once you are in the same boat with us, you will understand what I mean. Of cause, you are right that we should not cashing the yield. I always buy high quality company that has a long history of paying dividend with a very good product mix that has stood the test of time.

[@alanyoung159]

"No difference in tax"... ummm, did you watch the video? He has a whole section where he explains it is more tax efficient to sell shares, and he gives an example.

[@Markazoid6041]

Plenty of people are retired and don’t sell any stocks to get by. Just because you do doesn’t mean everyone one does. If you set yourself up to live on less then retirement income you will never have to worry about it.

[@Antandthegrasshopper]

Amen to that! It's difficult to explain these young whipper snappers about dividends. All my income comes from dividends and interest. I don't have to sell a dime worth of my stocks. I don't care how much growth I'm getting... I care about Average monthly CASH FLOW!! Once I'm gone, my kid can get whatever is left over.

[@SafeguardWealthManagement]

"I suppose the person that makes the video has not been retired. Once you are in the same boat with us, you will understand what I mean." I'm always confused by these type of comments. You do realize the # of retirements we manage on an ongoing basis?

[@dennisd9554]

I can certainly understand your "peace of mind" thinking on just collecting dividends and income. And if your intent is to never run out of money and/or to leave a huge chunk to your heirs (essentially what you retired with on day 1), then that is great. But you are leaving so much on the table when you don't harvest shares. You could support a lifestyle probably 25-50% higher that you currently are living on.

[@asage5801]

He now needs to address the covered call approach of JEPI and JEPQ….

[@khanbus]

The video was great, but JEPI's total returns seem to closely track the S&P 500, despite its income generation from covered calls. In fact after a drop it recovers faster than the S&P 500, can you please comment.

[@SafeguardWealthManagement]

Thanks for the comment. JEPI is a bit young (mid 2020 inception). I believe JEPIX is the mutual fund equivalent with slightly more history (mid 2018). In both cases, total return underperformance is about 3% per year. JEPI has slightly less volatility but not enough to create a better risk adjusted return. JEPI is worse on both a gross and risk adjusted return basis.

[@ADAdams-wn1nc]

From a retiree perspective, the capital appreciation and selling shares for income is like eating your seed corn. Once you sell a share of stock it is gone. No more capital appreciation from that share of stock. In the case of a dividend paying stock you just take a portion of the profits of the dividend paying stock as a dividend, you have not sold the income producing investment. Since you do not need to sell the income producing stock, each share continues to pay out income for the retiree. When I was working my investing was all about growth, growth, growth and the faster the better. Those types of stocks, mutual funds, or index funds are like a waterfall during contractions. I have lived through 5 large draw downs in my lifetime. My portfolio in retirement is for income and some reasonable growth is nice too but I want to be paid regularly to hold an investment. As an example, year to date (YTD) last week; the SPX was down 16.75%, NASDAQ was down 28.48%, the DJIA was down 7.76%, and my portfolio was down 7.61%. My portfolio income year to date is up 13.07%. I do not disagree with your charts and graphs but in my opinion, and I have near zero financial training, is this type of investing is for people who are young and still working. I gotten a call from one of the Schwab representatives every few months this year and they are always astonished when I tell them I am happy with my self directed investments. They usually ask why when the market has been so far down all year. I tell them that my value is down slightly but my income is up. Good day!

[@SafeguardWealthManagement]

Thanks for the comment A.D. Adams. We address this objection in the video, "But Dividends Allow Me to Avoid Selling Shares". The conclusion we arrive at is that selling shares or taking a dividend is a semantical point. You don't live off shares, you live off wealth. Keep in mind that total return investing does not mean growth, growth, growth. You absolutely need safety in retirement. This is why I said, your goal should be to obtain the highest risk-adjusted growth your plan (as well as risk tolerance) can handle.

[@pdxway]

Well, for those who retired early, there is supposed to be not enough earned income to make either div or capital gain taxable. So, in this case, the tax implications of getting div vs selling stocks is a big Zero. 😊

[@paulsackles1329]

Great one Eric, thanks !

[@sbkpilot1]

Done a lot of backtesting and found that dividend investing is just for psychological purposes, in all cases I tested lower dividends and withdrawal from appreciation was far far superior

[@user-bv4sj2gq7g]

D 2 minutes ago With regard to the "Tax Implications of Dividends" illustration (starting around 15 minutes), after selling shares I now have only 900 shares left, but worth more. Let's continue to the next distribution... say now the stock price has declined to $25 and I need to sell another 100 shares. I only get $2125 after taxes whereas my dividend is still $2550 after tax. Maybe higher, if it was raised, but even if it was cut to 2.50/share, I get the same $2125 net. The ending value of my 1000 shares of dividend stock, even with a cut, is $22500, but the ending value of my 800 shares of non-dividend stock is only 20000.

[@SafeguardWealthManagement]

You're leaving out some key variables in your 'next distribution example'. If the stock prices declines to $25 per share, you have lost the same total return value in both scenarios. If the dividend gave you the same dollar distribution as before ($2,550 net) then you wouldn't just sell 100 shares, you'd sell as many as you need to. With this example you laid out, you'd end up with the same gross balance. The selling of shares and the dividends are both equal distributions. But as the chart shows (and this would be consistent) you'd end up with a higher after-tax balance in the selling shares example. Dividends don't create added value.

[@peterholmes2089]

I agree that total returns are important, but I far more prefer knowing I have money coming in every month regardless of what the stock market is doing. If we go into another lost decade which seems quite likely, dividend stocks will outperform growth stock in total returns. In fact, they have historically outperformed when looking over a much longer time period than you had in your graphs. I know QYLD is quite popular, but is is a really bad example of a covered call ETF and one of the worst imo. A much better choice is JEPI. This is only down 3% this year (total returns) vs S&P down 16%.

[@Antandthegrasshopper]

Yes, JEPI and SCHD.. my only two holdings.

[@hulenbryant5637]

Was thinking the same thing. JEPI/JEPQ are covered call strategies that have performed MUCH better. I own JEPI/JEPQ , SCHD, VOO & QQQ.

[@gieb6428]

Good information. Please Slow down

[@emiller7040]

What do you think of municipal bonds? Tax free federally & state if they're in your state. They generate a huge amount of interest every year but the non-taxable interest kills me in calculating IRMAA. I need a better plan!

[@paulstein916]

@@johndoedoe4840 iRMAA was first implemented in 2007, only 15 years ago.

[@jonnelson9760]

Well I have just one question for you. If you say that the idea of selling shares is semantics then why do you still use the 4% rule for withdrawals? Ahh, sequence of returns risk.

[@SafeguardWealthManagement]

What do you mean? We don't use the 4% rule for withdrawals. I have used the 4% rule for examples in our videos, however. But, as the video shows, dividends result in the same sequence of return risk as selling shares would.

[@jonnelson9760]

@@SafeguardWealthManagement Well I was assuming you were using the 4% rule for withdrawals. If you use the 4% rule then you don’t have to worry about sequence of returns risk. In that case, what you say about using dividends for income ( maybe you are also including bonds ) versus selling shares would be true. Using the 4% rule means you need a larger portfolio ( at least $1,000,000 ). For those of us who have a moderate income, were not able to start young ( no 401k ), never had the benefit of all the information available today and still have to retire on a 401k, the 4% rule means no retirement. It seems to me that financial advisors are geared towards the wealthy who probably don’t need the advice as much as those with moderate incomes.

[@captainnerd6452]

Are 2% bonds really good when you have 8% inflation?

[@LibaaxTopG]

I agree with you 💯 %

[@imoldandurinmyway]

What about "qualified dividends"? Aren't they taxed as capital gains?

[@larryjones9773]

Yes, they're taxed at the lower capital gains rate.

[@SafeguardWealthManagement]

Yes, same as Long Term Capital Gains Rates (LTCG). The scenario we used was comparing qualified dividends to LTCG rates.

[@antoniomontesdeoca8900]

Hi what do you use for research and to make those charts?

[@gregmartin3456]

Really miss that wallpaper

[@someparts]

Meanwhile Buffet is 30% short term bonds.

[@larryjones9773]

Dividends are monies that are moved from a company's Cash account, to a stockholder's Cash account. Stockholder's already own a portion of said company's Cash account, thus dividends are like moving cash from your right pocket to your left pocket. Said company can be highly profitable or on the verge of bankruptcy. Why do companies pay dividends? Are they trying to TRICK (pat on the head) investors into thinking everything is 'just fine', at said company?

[@jacksons1010]

No. In the USA publicly-traded corporations have strict reporting requirements. There is no end of talking heads analyzing those reports and digging into the details to tell us whether a company is "just fine" or not.

[@larryjones9773]

@@jacksons1010 Did the 'talking heads' give you a heads up about the accounting scandals of Enron, GE, Tyco, World Com, Bernie Madoff, AIG, Lehman Brothers? Who are these 'talking heads'? I, personally, wish dividends had never been invented. They add greatly to complexity. The average investor doesn't understand that they are nothing more than money moved from their right pocket to their left pocket. I have a couple retiree friends who didn't understand that dividend returns are not included in the S&P 500's price. This misunderstanding cost one of them $1.9M in opportunity costs, over the last decade, by being invested in fixed income investments (rather than stocks).

[@jacksons1010]

@@larryjones9773 Your cynicism isn't entirely misplaced, but it has nothing at all to do with dividends. Fraud can happen with companies that don't pay a dividend (e.g. WorldCom). Not paying a dividend doesn't tell us they have nothing to hide, now does it? And a dividend isn't moving money between your own pockets! It's money in the company's pocket vs money in MY pocket. I get to control what happens with MY money, if I choose to receive the dividend as a cash payout. That seems entirely lost in the above video; we don't necessarily spend that dividend - we are free to reinvest it elsewhere. Yes...that makes it complicated, so people who can't manage that should leave it to a qualified advisor.

[@larryjones9773]

@@jacksons1010 You brought up 'strict reporting requirements', when the topic was dividends. Thus, I responding with accounting scandal examples. Concerning money moving between pockets. You're forgetting, that you are a part owner of the company, thus it IS moving between your pockets. For example (extreme example), if you are the 100% owner of Jon Jackson Company and the company paid out $100 in dividends, then $100 moved from your right pocket (company account) to your left pocket (personal account). If you are a .01% stockholder in Exxon, the dividends paid out would be the same result (moved from your right pocket, Exxon - stockholder Jon Jackson, to your left, Jon Jackson checking account). As far as control over YOUR money. If Jon Jackson Company decided to stop paying dividends, you could still have control, by selling $100 of your Jon Jackson stock. End result: Jon Jackson checking account would receive a deposit of $100 (the same as if you had received a dividend payment). I'm not saying dividends are a bad thing. I own S&P 500 index funds, thus, I receive dividends, as well. But, as investors we are concerned about total returns (capital gains/losses + dividends). Focusing only on dividends is only a portion of 'total returns'.

[@steveleonardmarsh5519]

this Dividends are actually payments a company makes to share profits with its stockholders.

[@dennisd9554]

Yes, but those dividends could also be re-invested in the company itself so that it grows more than it would have otherwise. And that will typically lead to stock price appreciation. When companies pay out dividends, it is really like taking a small piece of growth away from the company. Neither method is good or bad in itself --- just a matter of what approach they take.

[@presley492]

The key to big returns is not big moving stocks. It's managing risk in relationship to reward. Having the correct size on and turning your edge as many times as necessary to reach your goal. That holds true from long term investing to day trading

[@mmabagain]

Having the correct size on and turning your edge as many times as necessary to reach your goal. What in the world are you talking about? You're one of those BOTs, aren't you?

[@markkeller9378]

If you are planning on using the “4%” rule, then you only need to make 4% on your investment. That can easily be done, risk free via CD’s and Treasuries now. Zero risk.

[@SafeguardWealthManagement]

Not exactly. Keep in mind the 4% rule is designed to be inflation adjusted. So starting out with $40k off a $1M portfolio means that in year 2 you would need to take $42,000 out if inflation was at 5%. So just earning 4% means your assets will decline due to inflation.

[@pensacola321]

So the person who dies with the largest stock portfolio wins?!!! Blah blah blah. Of course there has to be some diversification, but the name of the game in retirement is income. The happiest retirees have good and stable income. Especially as you get older, you don't want to mess with all this theoretical stuff you speak of.

[@larryjones9773]

The happiest retirees are those who don't run out of money. Forty percent of retirees deplete their savings before death. Eric is trying to help reduce this number.

[@ghostl1124]

You promote retirement planning, and then you show simulations of 30-years. Who retires for 30 years?

[@TheAzmountaineer]

The lucky ones.

[@larryjones9773]

I retired at 48. If I live to 108, then that's a 60 year retirement. I'm 62 now, so 46 years to go (hopefully).

[@steveleonardmarsh5519]

this Dividends are actually payments a company makes to share profits with its stockholders.