Comments on: Still questioning growth vs. income investments

By: davmp

davmp — Sat, 14 Feb 2009 01:21:33 +0000

@fee only: I’ll agree that three does not a statistically valid sample make. However, careful choices in investments (say the S&P Dividend Aristocrats) can help ensure that our choices will continue to pay dividends even in this recession / depression. Plus, dividends have certainly helped in other market conditions too. For example, a number of studies have shown that 80% or more of the increase in the market people have seen since the depression is due to dividends. (Though I will admit I’m parroting other people’s conclusions rather than reading the studies myself.)

And while getting that dividend income may not be tax-efficient, it is pretty much the only way I know of to generate a recurring income stream from securities without frequent trading (which also doesn’t get favorable tax treatment.) If you know of other ways, I’m eager to learn!

By: fee only financia advisor

fee only financia advisor — Thu, 12 Feb 2009 22:42:08 +0000

Dave,

There are two caveats using the dividend oriented approach. In the past 100 years, there are only three other recessions as bad as this one. Though dividends held up well during all three, still three does not make a rule. Dividends are not tax-efficient. You’d better have a number of tax-deferred accounts to hold all those dividend stocks.

By: davmp

davmp — Fri, 02 Jan 2009 12:06:45 +0000

@fee only: Thanks for the links. Since this post I’ve been doing alot of reading and discussing with my wife. We’re mostly leaning toward the idea that, with a proper buying strategy, we can acquire investments that pay dividends and have lots of room for dividend growth, yet also have a significant chance of price appreciation as well. Certainly the focus on income fits best with our geographic independence goal, whether its just acquiring income at all or trying to ensure we don’t suffer too much in a market downturn.

By: fee only financia advisor

fee only financia advisor — Mon, 29 Dec 2008 20:10:36 +0000

Nice article. Since your article links to one of mine, I’d like to add two links here that are relevant to your point.

One is Bob Shiller’s old paper that basically says dividends don’t fluctuate as much as prices:

http://tinyurl.com/bx35af

The other is my own research that investing in top 30% dividend paying stocks would have saved you in the Great Depression:

http://tinyurl.com/amhrvy