As you might already be aware, a short while ago on My Own Advisor I wrote a controversial post about the intent to live off dividends and distributions form our portfolio. Some investors don’t agree with this approach:
“The trouble with a “live off the dividends” approach is that I’d have to save too much in order to create my desired retirement income. For example, I’d need to save between $2.5M and $3M in order to generate $90,000 per year in dividend income. Alternatively, I could get the same $90,000 per year by simply withdrawing from a portfolio of $1.45M (assuming 5% annual growth and the portfolio lasts 30 years).”
Personally, I don’t think you need a nest egg of $3M to retire on. This of course depends on your expensive retirement tastes and how much you think inflation will kill your portfolio value over time.
For me, “living off dividends” is very much a mindset:
- There are simply too many unknowns about the future. This means keeping our capital intact should give us more financial options.
- If we are able to keep our capital intact we don’t need to worry as much about when to sell shares or ETF units. Consequently there will be less transaction costs and portfolio manipulation.
- Saving and investing this way is my form of forced savings – there is motivation.
If you’ve been following this series on my blog, you know I reached out to a few dividend investors to ask them some questions about their financial freedom journey, including any plans to “live off dividends and distributions”.
You can read what Dividend Growth Investor mentioned here.
You can read what Tawcan thought here.
You can read what The Dividend Guy thinks here.
As part of this series, here is what Dividend Earner told me.
My nom de plume is Dividend Earner. I blog on this site but I also provide a dividend data product at Dividend Snapshot. I have been solely focused on dividend investing since 2009 but started investing in my early 20’s.
What is your investing goal? Do you really intend to live off dividends or distributions?
Let me first highlight that my parents are living off dividends and have been doing so for 30 years now. Living off dividends in retirement requires a slightly different strategy than dividend investing during the accumulation years. When I started investing, I was focused on yield but very little growth. I changed my strategy to focus on dividend growth for the asset accumulation years but the same portfolio will be adjusted when I near retirement. I’ll be focused on strong income as opposed to strong growth stocks.
The RESP account I have for my kids’ education is a retirement-like portfolio as opposed to an accumulation portfolio and 25% of my dividend comes from this account while it only represent 15% of my overall portfolio. It’s like a practice account for the retirement years.
I am targeting living off dividends to avoid the following:
- Depleting my portfolio via withdrawals due to longer life
- I don’t believe in the 4% withdrawal rule anymore
- I don’t believe in the estimated rate of return of mutual funds and ETFs.
Financial services do their best to put together systems and processes but it’s all based on two things:
- Your risk profile. Everyone is pretty conservative and then they find out they need so much savings that they adjust their risk profile to match their goals.
- Forward estimation based on historical data, so it’s just a guess. Life expectancy has not been adjusted at the same rate as life in my opinion.
Why does this approach work for you?
Dividend income to me seems like the only sustainable method to manage retirement expenses. You should feel relieved that if you have dividend income for retirement, or other sources of income (real estate or small business), you don’t have to focus on when you are going to die but how to live.
Mathematically speaking, someone may outline that you need more savings to reach sustainable dividend income retirement but is that wrong? All you have to do is aim for it and if you are not quite there, you can always switch to index investing approach with a cash wedge. You’ll probably have more money by attempting to live off dividends than if you had targeted index investing as your strategy – at least I feel this way. I believe you should strive to save as much as you can and learn to compromise a little bit in terms of your day-to-day items.
So far, I have grown my dividend portfolio to just over $300,000 and I earn $10,000 per year in dividends. I know I can switch my portfolio to some higher yields but overall growth would be sacrificed which is not what I want in my asset accumulation years.
Will you eventually “eat” your capital and if so, how?
I would like not to and that will depends on a number of reasons. First, I need the kids out of the house and it seems they stay home longer these days! 🙂 Second, when I reach a time in life when I need support, I will not worry about starting to eat into the capital as long as we have a plan for being looked after. It may be that we help one of our kids build a bigger house with a suite for the parents! Planning in retirement has two aspects in my opinion; the good years, the slow years. They both need to be planned for. The bad years require more planning and we only can learn from our parents and others – you get one shot at it.
How close are you to realizing your retirement goal? What are your assumptions about your savings rate, your portfolio value and your rates of return needed?
I would like to earn a minimum of $50,000 per year before I call it “Goal Achieved”! It’s a little more complicated than that because I have another indexed portfolio through my company’s defined contribution pension plan. Extrapolating from that indexed portfolio I would earn just over $16,000 from that plan today. I would need about 3 times that income level to reach my $50,000 income goal. My target is retire or at least reach financial independence in 10 years from now.
My savings are accelerated now. I pay a small amount on my mortgage and invest the rest. I easily invest 30% of my gross income and I’m aiming for more.
Any last words you wish to share about your approach?
Dividend investing requires hands on portfolio management and may not be for everyone. While the income is passive, the stock selection and portfolio management needs some attention but I think you should always pay attention to your portfolio – it’s your money. You need a process to manage your portfolio and you can visit my site to learn more about what I do. Regardless of the strategy you take, my advice is to get engaged and learn as much as you can because anyone who helps you at one point in time may not be there for one reason or another to help you in the future.
Thanks to Dividend Earner who participated in this dialogue and shared his thoughts. The goal of living off dividends (or distributions) can be a prudent strategy but it’s not for everyone and dividend investing also has risks. Only you can decide what is right for you. I encourage you to consult a financial professional in the form of a fee-only advisor if you need help with your financial plan.
Mark
My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I've surpassed my goal and now investing beyond the 7-figure portfolio to start semi-retirement with. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.
You’re welcome.
Great point about health = wealth & is priceless. I 100% concur.
You’ve got a lot of CDN stocks so doubtful you’re leaving anything on the table. You may even be “lucky” and have more winners than the index. I’m the one probably leaving more on the table with much less equity, but for now that’s the choice.
I firmly believe that RBull. Yeah, we have a good number of stocks, which is good. Better to be lucky in investing that good I guess!
True enough when considering the numbers. What I meant is – my goal is to achieve my targeted overall return with lowest risk (otherwise I would have more equity). Although most of my FI is individual bonds which are all earning 3.65-3.8%+ and I hold to maturity. This is quite acceptable to me for now.
Your hybrid approach may well be the wisest choice of all.
Hindsight can be a great teacher but it can also be torturous if a person allows it. We all wonder if things could have been better with other choices, but at what cost to other experiences etc. It’s good to read someone who wouldn’t change a thing. I really feel the same way and am optimistic about now and the future.
To many you’re already “wealthy” and with your plan and progress so far you’ll reach the goal of FI a lot earlier than most. Plenty of folks will never get there.
Ah, gotcha. That makes sense.
I figure my hybrid approach is rather conservative since I’m likely leaving returns “on the table” but not following a total equity, indexed approach. I guess I will only know after those years of investing have been calculated!?
It’s funny. Sometimes in my workplace, folks (i.e., some management) don’t care to “learn lessons”. They consider it a waste of time and wish to “move on” to the next big thing. I get that. However, I also feel those individuals who don’t embrace history and doomed to make the same mistakes. Those same mistakes are costly over time. The same goes for personal finance. I mean, time is money right? If you have an opportunity to right-the-ship why wouldn’t you seize those opportunities? I get the feeling my personal and management philosophy is not aligned to others. Or, maybe my organizational fit is not ideal but I enjoy most of my work and keep the hope people will listen to me 🙂
As long as I have my health, I will always consider myself very wealthy. I am very blessed for that as is my wife. Health is priceless. The challenge is how to build some financial wealth sooner than later because there will come a day when health will fade and I don’t want to have any regrets of living in a cubicle working for a living….
Thanks for the kind words.
Not sure if you mean vs balanced portfolio or indexing.
If vs. balanced portfolio of course a different animal. A conscious decision at this point in retirement considering our needs and risk tolerance, trading potentially lower returns for lower risk. I believe the advantage has to be viewed in context of the individuals goal.
If vs indexing equities- perhaps. You have to believe dividend growth equities will outperform equity indexing.
Well thanks. Your time will come!
We think we’re living it up pretty well now. I like buffers and like to hang on to them if I can, assuming we’re otherwise satisfied lifestyle wise. We’ll see. 2016 is an expensive year upcoming with what we’re planning.
Well, I feel dividend investing has an edge over a balanced portfolio given the bond yields of late. Dividend investing likely does not have an edge over total return, long-term (10+ years), since it hinges on the appropriate stock selection and entry points of those stocks. Certainly I don’t see one as a superior over the other, both approaches have their merit which is why I use both as a “hybrid” investor.
I’m optimistic our time will come but sadly investing is a slow, get wealthy eventually process. I often think I didn’t do enough in my 20s to save and invest properly. Lessons learned of course – but I enjoyed my 20s and wouldn’t change a thing. It made me who I am today. 😉
I agree with your opening statement Cannew.
We also need extra cash to offset inflation (pension has some indexing possibilities but not likely at all to be indexed) but at some point within the next 20 years expect to spend far less on discretionary travel which currently is over 50% of our total spend. This will free up some money for later years. Although dementia or other illness is possible, for us it’s not a good enough reason in conjunction with family history to leave a significant asset base untouched in case we might need some extra help or possibly even costly care, beyond planned finances.
Thanks Mark. Your approach will give you plenty of good nights sleep with some dreaming of how you’ll spend the extra.
I too had some several wins (2 are great stories but can’t share on line) and a couple of bad ones in the earlier years when I was “learning”. And, I still am. Learning, winning and losing. LOL
I’m also not against dividend investing either. I just seek to understand others methods and reasoning. And from all the research I can find I believe our best option to meet our needs and for success is – simply keep costs low and invest broadly, along with a balanced asset allocation.
I don’t peg a % for withdrawal. It’s a changing number with other income streams coming on (pensions) etc. I just use our spreadsheet and adjust our next years withdrawals based on each years ending balance plus inflation factor. It might go up a bit or down a bit and we adjust our discretionary spending if needed. Very simple.
For returns in our plan I try to be conservative using 60% of academic future market return projections (for our balanced portfolio), and 10% higher than expected inflation from the latest research I can find. If we do better we can live it up little more or keep a little in reserve, which is where we are now. So far very good. Our last survivor’s will leaves everything to specific charities-no relatives.
This is where I feel DG investing has an advantage…capital appreciation and/or dividend hikes offset inflation.
Back to you, if your discretionary travel is over 50% of your total spend, well, you’re living it up! *sigh* I need to work tomorrow…
“If we do better we can live it up little more or keep a little in reserve, which is where we are now. So far very good.”
You worked for this, might as well live it up. Good on you.
If we all invested the same way, we’d probably all be in trouble.
However, for me DG investing is about getting your savings to generate as much “growing income” as one can for the future. It doesn’t have to meet all your needs, but its great if it does. For us without company pensions having income to offset rising cost is a must.
Others have mentioned this, but life span and health are the major concerns about outliving ones funds. I think health has to be the biggest concern, especially if full time care is needed. Dementia is becoming something everyone must consider and it’s not just the spouse, what if it you.
DG investing for me is really about the tangible cash; the passive income for doing nothing but being a shareholder. I prefer money in my pocket vs. senior management of a company that I don’t really know what they’ll do with. Could that management team be more successful if they kept that capital? Maybe. I don’t know and I don’t really care 🙂 I care about an income stream that I don’t have to work for. Dividends are just that.
Good luck with your plan Dividend Earner. You seem to be well on your way to FI.
Interesting discussion between the dividend only vs indexers. For the record I take the approach Michael James has argued.
I am not aware of mutual funds or ETF’s that forecast future returns. Perhaps you mean specific asset market indexes that many academics or financial professionals analyze and forecast for.
I also don’t agree with the 4% rule. It’s too simplistic with forecasting historical returns and doesn’t account for early retirement.
Depleting a portfolio before dying can be avoided with a prudent plan and adjustments, and doesn’t necessarily dictate a dividend growth only approach.
The dividend growth folks make a compelling argument about dividends being fairly safe and income continuing to grow, but it does assume they are good stock pickers, requires a larger capital base, and has reliance on a growing stock market. What is most interesting to me though is why some dividend investors feel they need to never touch capital and always need to continue to grow income. This statement outlines that philosophy- “it’s all about getting reliable cash to live off without depleting your capital”. It occurs to me they must have a strong desire to leave an inheritance or family financial gifts later on in life, otherwise it’s hard to otherwise understand would anyone would be so conservative as to knowingly leave behind all of their financial assets when they die, not withstanding dying prematurely. This is fine if it meets your goals but it doesn’t seem to be discussed in these threads.
I see no good reason why a person can’t at least use both dividends and capital gains for their income. In my case I have absolutely no interest in leaving capital intact with no need to leave an inheritance. I want to deplete capital prudently over time or at least make a significant dent in it, so that we maximize our lifestyle especially during golden (younger) retirement years, and as a Canadian I worry not about being very old with little or no assets. I respect some don’t want to take this approach, but for us its definitely the way we want to fly.
I calculate my total return each month and annually, including all financial assets. Simple.
Thanks for the detailed comment RBull. From what I know of Michael, he has “enough money” to retire thanks to largely an indexing path and a very high savings rate over the years. Maybe Michael has mentioned that on his blog, how he got to where he is. I know he made a couple of lucky stock calls early on in his investing career but he also got burned as well. Clearly he has done well and I respect him for his investing discipline. I also recall he doesn’t believe in the 4% rule either. If anything, he is a fan of a 3% rule.
He’s also not anti-dividend investing, simply he feels he best odds for success are getting market returns with minuscule fees. It’s hard to argue with success and given the fact that extensive academic literature says so.
I know my wife and I will touch the capital. I think we just want to ensure from an income perspective, passive income can pay for the majority of our expenses in retirement. As we eat our capital over time, we’ll be cautious how much we draw down.
I would like to leave a small legacy for our nieces and nephews, maybe a charity or two, but that’s about it. We’ve worked hard to get to where we are and we want to enjoy the journey. We’re only here once and life is for the living. Now, back to my cold beer after a full day of yardwork 😉
Dividend Earner added a follow up comment “Living off Dividends” on his blog. Everyone should go and check it out. He covers “Does Total Return Matter” really well.
Michael: If one sells the stocks than I would agree, but as I don’t intend to sell, Market value has little meaning. The 6% is the dividends I’m receiving on the money invested (cost if you wish) and the dividends have been rising well above inflation. I prefer to calculate my total return as dividends% + dividend growth%. Your Total return must be recalculated daily and compared to what? Yesterdays value, last month or last year?
If you hold bonds or gic, how do you calculate the value of those? Most people would say they have a $10,000 gic returning 2%, not a discounted value of the $10k for inflation.
Mark: sorry we got off target.
Don’t apologize. I don’t mind a healthy dialogue on this site, ever.
@Cannew: Total return = capital gains + dividends. (There is also interest, but that’s not relevant to to stocks.) If dividends exceed total return, that means the stock price is dropping. This happens over a long period of time usually because the dividends exceed company earnings. I’m optimistic that this won’t happen. However, those who believe that market returns in the future will disappoint are indirectly saying that their dividend stocks will have to cut dividends or that their dividend stocks are better than other stocks.
I’m guessing that the 6%+ dividend yield you mention is computed based on your cost rather than current stock prices. This is a feel-good way to look at things but has little significance. It would make some sense if you adjusted your cost for inflation, but even then it’s better to look at dividend yield based on current share prices.
Hey Mark
It always seems like you have a good, solid plan and at such an early age. I didn’t pay much attention until I was almost 50. Before that, I just had a bunch of mutual funds. (before all the ETFs or I would have held them instead)
As for the O&G side, a wild ride is one thing and I am fine with that, but it’s the dividend cuts that hurt a retiree. The only cuts I’ve ever had have been the 4 O&G producers I hold. Of my 23 other holdings, 14 have had a dividend increase in the .last year.
Ciao
Don
It’s coming along Don….thanks for the kind words.
If anything I sometimes feel I’m not doing enough. For example, if my wife and I didn’t move to our current house, we’d be mortgage free now. But, we also wouldn’t have had some experiences we’d had. Now, do those experiences offset the investment we made? I dunno. We also have more RE assets now vs. before with our old house. In the end, life is about decisions and you don’t know how well they will turn out until you make them…
As for the O&G stuff, I don’t mind the ride as I was able to pick up a few stocks this summer on the cheap. I hope to max out my TFSA in 2016 with more CDN dividend payers. Let’s see if Justin keeps our TFSA at $10k for at least 2016 contribution year. 😉
Enjoy your weekend!
Michael: “Total returns matter, even to dividend investors. If the total return of your stocks in the coming decades is below the dividend yield, the dividend payments won’t keep up with inflation. I’ve seen the claim that dividends don’t cause stock prices to drop. This is nonsense. If I offer a business for sale today that has $100 million in cash, but tell buyers that if they wait until tomorrow to buy the business, the cash will not be included in the sale, you can bet the potential buyers will offer a lower price tomorrow.”
I’m not sure I understand your statement, especially “If the total return of your stocks in the coming decades is below the dividend yield” How do you calculate Total Return?
Second I’m 100% dividend growth stocks and I care ZIP for total return. I care about dividend growth and the income generated. My yield on my Total Investment (initial investment, plus additions, plus dividend reinvestment) is just under 6%. If the market drops I don’t ever expect to get less than 6%, baring dividend cuts by all companies. Rather I expect my income to grow and my yield to grow as well.
Don G & I are two peas…
Just looking for clarification.
First off, everyone needs to make their own decision on what type of investor they are going to be. I’ve had a few debates in the past about dividend income (with guys like Michael James). I don’t want to repeat that and am just commenting to support people that want to follow the dividend income approach in retirement. I think there is a major difference in the appropriate approach for the accumulation vs retirement phase. Growth is very important in accumulation as is using DRIPs. During retirement, it’s all about getting reliable cash to live off without depleting your capital.
I’ve been retired for just over 2 years. I don’t have a company pension so my wife and I are living entirely off our dividend income and my CPP. Our dividend income is actually significantly larger than our needs.so we are still increasing our portfolio size. We are also starting to pass a little of our inheritance on to our kids. It’s nice to be around to see how happy this makes them.
In my opinion, the biggest advantage of living off dividends/distributions is that you never need to sell anything and your capital is preserved. Given this, I also actually think it is very little work to maintain the portfolio. No need to watch the markets to time a sell.
My only other recommendation for the RETIREE dividend income portfolio is to never invest for the long term in any cyclicals including oil & gas producers, mining companies, gold, etc. My favourites are REITs. utilities, pipelines, financials, and telecom.
Good luck to all.
Don G – agreed. Everyone needs to carve their own path.
As the for accumulation vs. capital preservation focus, I agree the latter is critically important as you get older. We’ll have a small pension in our future but regardless, we plan to largely “live off dividends”, at least initially in retirement; which will allow us to spend capital largely as we please. It’s our goal today and maybe it will be our eventual goal. For now, it’s a great way to force us to save.
As for the cyclicals, I own a few O&G stocks and they can definitely have a wild ride now and then 🙂
Like your comments Snapshot “The point is that it’s not about total returns if you focus on living of dividends”
For me, and I have been retired for 8 years, it’s about Income. The great part about DG investing is that you can actually see the income that your investment is providing. Mark post an update each month (or periodically) on how much his dividends have grown. He knows with 90% certainty that the next month or quarter the dividends will be even higher. I would not want to give an Index fund the same certainty.
It’s not that DG investing is better, its that you know what you are working towards and you can see it happen over time. Sure one company my cut the dividend or not grow its dividend, but overall your portfolio continues to grow. Even in retirement, if you’ve reached the goal, your income will continue to grow without additional injections of funds.
I see both sides but I’d also like think devout dividend investors and indexers are very much alike: buy and hold for long term, stick with the plan, recognize yield and captial gains are two sides of the coin, and diversify your holdings to reduce your risk.
You are correct about providing my monthly updates Cannew, and another one is coming next week.
I don’t see dividend investing as a superior form of investing just that dividends are more tangible than capital gains.
@Dividend Snapshot: The ironic thing about these discussions I get into with dividend investors is that I’m not against dividend investing. I think it can work reasonably well as long as you’re sufficiently diversified and don’t trade too much. However, I am against magical thinking.
Total returns matter, even to dividend investors. If the total return of your stocks in the coming decades is below the dividend yield, the dividend payments won’t keep up with inflation. I’ve seen the claim that dividends don’t cause stock prices to drop. This is nonsense. If I offer a business for sale today that has $100 million in cash, but tell buyers that if they wait until tomorrow to buy the business, the cash will not be included in the sale, you can bet the potential buyers will offer a lower price tomorrow.
If you feel safer with dividend investing than with index investing, that’s great. But both types of investors are at the mercy of their portfolio’s total returns.
I’m one of the people who has been challenging the 4% rule. It’s main failings are that it ignores portfolio costs and requires future returns to match those of the past.
The predictable dividend income you desire depends upon your portfolio’s total returns. If these total returns disappoint, then your dividends won’t keep up with inflation. Personally, I don’t think this will happen, at least not consistently for decades. Similarly, I don’t expect the long term total returns of the entire market to seriously disappoint over the coming decades. But we can’t be sure of these things.
@Michael James
I’ll bite but I am really not interested in discussing index investing… The point is that it’s not about total returns if you focus on living of dividends. Does that mean you need a bigger portfolio then an indexer? Well that depends on all the assumptions your make about returns and withdrawal rates on both side of the fence. Everyone is speculating … Everyone is forecasting … As it stands, with my parents, I truly am exposed to a portfolio that is focused on living of dividends so I can see first hand how it can work. How many other investors actually have the ability to see what can be done as opposed to live in the world of hypothesis …
Another point is that a stock paying 4% dividend doesn’t drop by 4% and doesn’t lose 4% because investors have it built into the price even though the theory would highlight that you removed 4% from the stock value from future expansion. Companies like the banks cannot even put all that money to work anyways … How is Apple putting their pile of cash to work? It’s getting old to hear this theory … In the short term, the stock market is a voting machine, in the long term, it’s a weighting machine. Valuation is different from everyone every day. The theory doesn’t make the stock price adjust in the markets.
For the record, I have an a large amount indexed with my company contribution plan with regular contribution every 2 weeks and it rebalances every quarter and that index portfolio (US, Canada, Fixed Income) under performs my dividend portfolio. It has 10 years of data as well. Let’s be clear, index investing doesn’t all of a sudden saves people’s retirement. Indexers still have a large number of index funds and ETFs to choose from. Retirement planning is also not just about a total rate of return and a blind withdrawal rate with a cash wedge approach. It’s a lot more complicated and you get one chance at retiring.
What dividend investing does for me is provide me with an ability to forecast and have control over it as opposed to be at the mercy of indexes and fearing that the markets are going to crash and burn the year before I retire unless I move everything in a Bond Index to avoid being scared of something I cannot control. But then I am 60% or more in bonds because I am afraid of the stock market boogyman and performance is gone and the bonds don’t even keep up with the inflation … The reality is that it can work for some people but it doesn’t for me because I want some control over my money and my income in retirement.
The 4% withdrawal rule is actually being challenge by many (just google it) due to the low interest rate environment we are in. Anyone that indexes should be careful that they may need to use 2% or 3% to avoid depleting their nest egg. They really challenges the total amount one may need.
Anyways, the point I explained has nothing to do with the performance of my stocks or portfolio in the future but the predictable dividend income.
@Mark: I think you’re smart to take the hybrid approach. If your dividend stocks are paying a 4% dividend now, and if their real returns are below 4% per year in the future, then the dividend payments cannot keep up with inflation.
I think so. I mean, the CDN dividend payers make sense non-registered and so in my registered accounts I’m buying more VTI and VXUS. The only problem I have now is my savings rate. Funds are being diverted to pay for the bathroom reno. But that must be done, it’s very worn. Such is life!
Dividend Earner:
“(Avoid) Depleting my portfolio via withdrawals due to longer life”
“I don’t believe in the 4% withdrawal rule anymore”
“I don’t believe in the estimated rate of return of mutual funds and ETFs”
Super summary and I totally agree! Congratulation!
Thanks for reading and your comments Cannew.
I find it instructive to examine the implications of people’s beliefs. Dividend Earner says “I don’t believe in the 4% withdrawal rule anymore” and “I don’t believe in the estimated rate of return of mutual funds and ETFs.” I take this to mean that he expects future real returns to be lower than those in the past. If this is true of his dividend stocks as well, then their dividend yields will exceed their total returns. This means their share prices must drop and dividends will be cut (or at least not keep up with inflation). Another possibility is that most other stocks will see lower future real returns, but dividend earner’s stocks will perform better. These conclusions are common when we analyze the beliefs of dividend investors. Their beliefs imply that the stocks they own will outperform the general market. Maybe they’re right. But I think it’s much more likely that they aren’t.
What you hit on Michael is a dangerzone many individual investors, myself included enter. They believe their stock selections are superior over the entire market. I’ve learned that I’m not smarter than the market which is why I’m investing more in ETFs like VTI going forward. More diversification and less focus on a basket of individual stocks. I won’t sell my stocks anytime soon though.
If returns going forward are lower, and I think stocks will deliver lower returns in the future (now, 10, 20 years out) then the dividend icome will also be lower as part of that total return. The upside though is, if you aren’t spending your capital or you have the options of when to spend your capital, then this is the margin of safety “living off dividends” can provide. It’s really more of a goal and mindset for me vs. something that I must actually do. I’m learning what when it comes to investing, what I think is a perfect idea now might not actually be the best in 20-30 years.
For now, I will remain a hybrid investor – keep and love the dividends coming in, reinvest everything, and continue to diversify via indexed products to reduce my overall risk profile. I feel this is win-win for me/us.