One of the big things looming on the horizon is the retirement of the 30 million baby boomers.  Some have called this an impending crisis for the financial markets and the economy.  The main reason is that baby boomers are seen as a potential net sellers of assets with not enough workers left to sell to.  On the economic side, in addition to the problem "too many sellers, not enough buyers" would cause, there also is the problem of too many consumers and not enough producers.

The second problem has a solution according to Siegel, which is increased productivity of emerging nations like China and India to produce the goods and services we need.

But I'm more intrigued by the first problem.  If TR investors try to sell more shares to fund their retirements than there are buyers, that will drive the price down which will lead to more selling, which will lead to ever lower prices, which will lead.....well, you get the idea.

On the other hand, those living off dividends and interest don't have to sell anything to fund their retirements.  If enough boomers become dividend investors, there will be a natural equilibrium of buyers and sellers, despite the huge difference in numbers of investors.  This could push the demand for dividends up as this becomes recognized by the finance community, causing pressure on companies to raise dividends and dividend growth where possible.  We could even get to a point where there are less sellers than buyers which would cause the price to rise for dividend stocks while the payouts rise.

Copie would become a multi-millionaire and El Lobo would own all of Washington State and everything in Oregon west of the Cascades :o}

best,

Bill

Bill,

I'm wondering if this is another Y2K type of crisis.  The solution to the second problem may very well act as  equilibrium for the stock market as well.  

Some estimates have India's middle class at over 300,000,000.  This is more than  the entire population of the U.S. 

The rest of the world is ahead of the U.S. investor as far as recognizing the global market.  IMO as the rest of the world becomes more affluent, investment demand will increase with consumer demand.   

helmut 

One of the big things looming on the horizon is the retirement of the 30 million baby boomers. 

[/quote]

Bill, I was born in Q1 of 1946 so I'm right at the front edge of the gray wave that's starting to pound the beach.  Although there might be some debate about how productive I am I haven't completely retired because I'm still having too much fun.

But the questions you raise I think about a fair amount.  My belief is that there will be considerably more focus on dividends/distributions in the near future than the recent past.  Quite simply because there will have to be.

I can't get out of my mind some recent musings from that old investor from Nebraska that everyone quotes when it comes to investing.  In his recent annual letter to shareholders.

He pointed out that the last century resulted in 5.3% appreciation - the rest of the historic about 10% total return came from generous dividends throughout much of that 100 years.  It didn't escape his attention that we're now in a 2% dividend situation on an overall basis.

He asked whether I thought the market was going to increase 5.3% this century - and pointed out that if I believed that I implicitly believed the Dow would be at 2,000,000 by 12/31/2099.  Just to rub it in a bit, he reminded me that we were already 8 years into this century already and we had 1,987,000 to go on the Dow to hit that number.

If I believed the market was going to get me 10% in total with a 2% dividend, that meant I implicitly believed that the Dow would hit 24,000,000 by 2100.

I don't think we're going to see 10% total returns long term (short term either, but that's another discussion).  I'm not sure we'll hit Warren's 5.3% appreciation plus 2.0% dividend total of 7.3%.

I've opted to take my 7% return in pretty dependable monthly and quarterly cash, growing at about 7-8% per year.  My attitude is that if I can do that with low (virtually no) costs and a turnover (usually 6-10% per year) in my equity portfolio that averages much, much less than most funds, I am quite content.

I wonder about those who will have to primarily rely upon appreciation as opposed to dividends when that gray wave hits the beach.  In a changed world, that seems too risky to me.

I do hope for your scenario where more buyers than sellers would get me some appreciation along with rising dollar payouts.

Regards.

Cliff 

Helmut,

Yes that is possible, but I would think those Indian's that are moving into the middle class will be consumers first, and investors later in their country's growth  cycle.  Baby boomers are now.  And don't forget, Europe is in even worse shape because they gave no incentive to their older citizen to keep working, and Japan is so old, most of them don't even buy ripe bananas :o}

I too, however, am an optimist and a believer that the markets will sort this out like they always have.  But sorting it out may well mean a different retirement than we had planned.

best,

Bill

Cliff,  Happy belated Birthday!!  I was born in March of 1946, so we are in the same boat.  I think we have it a lot easier than the boomers 15 years or more out.

I have retired because my job changed and I wasn't willing to.

What you have said makes a lot of sense.  As the risk premium for equities decreases, people will demand higher dividends visa vie bonds, just like it was in the old days.

In addition, as high productivity moves to EM countries, some of our bigger companies may begin to become mature and will have no need to put profits back into expansion.  Companies like Microsoft, and Home Depot may begin to pay bigger and bigger dividends.

So even though I may be delusional, I'm optimistic and happy.

best,

Bill

 I wonder about those who will have to primarily rely upon appreciation as opposed to dividends when that gray wave hits the beach.  In a changed world, that seems too risky to me.
Cliff,
Irrational exuberance works both ways.  Markets as a whole may underperform, but there will always be individual companies undervalued by the market.  The Oracle has built his fortune on that premise.  
But why not exploit both dividends and appreciation e.g. our last escapade with GE.  I can certainly retire on a 3.9% dividend if needed, but I feel the market will always present opportunity.

helmut  

Cliff:  I wonder about those who will have to primarily rely upon appreciation as opposed to dividends when that gray wave hits the beach.  In a changed world, that seems too risky to me.
 
Helmut:  But why not exploit both dividends and appreciation . . .   

[/quote]

Helmut, exactly.

Regardless of whether a bunch of stocks yields your 3.9% or my 7.0%, if those dollar payouts are growing consistently at 7-8% a year, over time my expectation is that the bunch of stocks will appreciate 7-8% a year.  This obviously assumes that the underlying companies aren't  being valued at a 30 P/E that might revert to a 15 P/E as the companies mature and also assumes a stable payout ratio for the portfolio.

So really, when I look at the world, I'm looking (forward-looking, that is) for companies whose underlying business seems to afford a reasonable chance that they will grow 7-8% a year.

I'm with you.  I do expect that, over time, I will experience some appreciation because the companies I invest in are creating wealth.  I guess where we might have a bit of difference is that I have a greater overall expectation from my companies on a current basis.  I want them to return as much of my share of the profits to me as possible so that I don't have to fear any period of irrational market pricing on the downside (no matter how long) and can merely look at such a period as a buying opportunity, never one where selling becomes a necessity.

Regards.

Cliff

Since you two are just kids as I was born in 1943 so how about showing more respect to your elders! :-} Try cutting me a little slack on my XOM stock!!

All kiding aside what scares me is not the baby boomers, but how close we are into going in to a deep recession as I for one see high gas prices really starting to affect just about every thing we do every day. Coal has went from $45 a ton to $99 a ton and guess what powers most of the ele. util. companies in the south!  This summer we may have to make a choice between gas or air cond. I see people every day using money for gas that they would put other wise into the system causing more jobs and all the time G. Bush and congress is not worried. I have to ask myself how many XOM dividends is it going to take to buy food and gas? They will need to increase it more then 14% a year!

Da** I got to cut back on the wild turkey.

Copie

Copie, who are you going to blame next year when G. Bush is no longer president?

Looking at the supply side, basic economics says lower prices result when supply of a good increases and/or cost of production decreases.  So far, Congress has seen fit to prohibit oil drilling in the Arctic, limited drilling in Alaska, and no new off-shore oil drilling in California, all of which  "decreases" supply.  Further, Congress wants to increase taxes on Oil Companies which "raises" the cost of production.  Needless to say, these policies cause oil prices to increase, not decrease.

I note that G. Bush proposed oil drilling in the Arctic and asked for an accelerated Nuclear power development program.  "You know who" turned him down. 

You had better watch out what you say about G. Bush or next time he will send an even bigger hurricane right where you live  :-) :-). 

Regards,
Russ

This is '42 checking in.  Throughout the years I have found us pre-war babies are harbingers of what the post war baby boom wants.  When we started wanting relaxed waist slacks, when you came along we got them.

People want a regular "paycheck" i.e. something like monthly dividends.  They have trouble with even quarterly but they'll go for that.  They don't get 4+3; they don't know what to do with an annual deposit into their money market.  They don't want to do the work to plan and put together a retirement portfolio; they don't even recognize the difference between accumulation investing and investing in retirement.

We're not the average bunnies, people.  Why do you think that fidelity and vanguard came up with their PAYOUT funds?  When did the shift from defined pensions to 401k's and defined benefits start?  How many of the boomers have anything beyond their SS?  This bit about all the boomers selling their stocks is another one of those fear mongering situations that our society currently thrives upon.  It has more validity when you talk about Gen X or Y.

Being the "old lady" around here, I'll also say the obits of my peers are ever increasing, which is another solution to the problems of the boomers that they deny and think they'll live forever.  What's that commercial about you get your cholesterol from your french fies and your aunt frieda?

Sheesh.  I don't do wild turkey.  It's rum time for me, as soon as I have enough coffee to find the bottle.

Roberta 

Copie:

"You had better watch out what you say about G. Bush or next time he will send an even bigger hurricane right where you live  :-) :-)."

I live in the Sarasota/Venice area in SW Florida.  What area do you live in that has hurricanes? 

best,

Bill

 "But why not exploit both dividends and appreciation e.g. our last escapade with GE.I can certainly retire on a 3.9% dividend if needed,but I feel the market will always present opportunity."

You can retire on 3.9% dividend.There are those who can't. And I think herein lies the real basis for a lot of the differences in methodology with dividend investing.Concern for higher yield is always going to be partly dictated by need.The more % we feel we need from our stash the more our reasoning will be directed in that direction.Our minds have a way of coloring our beliefs when our needs change.Someone who can live on 2% is looking through a different point of the prism than I and  he may see blue while i see orange.I have found over the years that I can convince myself of almost anything.We have to constantly be on our guard against ourselves.  : )

By the way,I think the people of India and China are going to be really big savers and investors.At least this generation will be.-wes

 "But why not exploit both dividends and appreciation e.g. our last escapade with GE.I can certainly retire on a 3.9% dividend if needed,but I feel the market will always present opportunity."

You can retire on 3.9% dividend.There are those who can't. And I think herein lies the real basis for a lot of the differences in methodology with dividend investing.Concern for higher yield is always going to be partly dictated by need.The more % we feel we need from our stash the more our reasoning will be directed in that direction.Our minds have a way of coloring our beliefs when our needs change.Someone who can live on 2% is looking through a different point of the prism than I and  he may see blue while i see orange.I have found over the years that I can convince myself of almost anything.We have to constantly be on our guard against ourselves.  : )

By the way,I think the people of India and China are going to be really big savers and investors.At least this generation will be.-wes

[/quote]

Wes,

Thank you for saying it so well.

I totally agree.

Justin

Russ I am going to miss G. Bush as I will have to switch over to the next president if he or she does not get us out of Iraq. Had to quit calling him Da** Bush because my 6 year old grandson asked his grandmother if that was his real first name!!

Bill if you go mid ways of Mobile and Gulfport and go due north 100 or so miles as the crow flies then you will be in the area. I live out in county so far that I can go outside in my underwear and only my dogs and the deer notice!  I build my house on a slab so I would not be a redneck with the joke about if your porch falls in and it kills three or more dogs you may be a redneck!

Hate to leave these good posts, but I need to put about 15 ribs, 10# chicken quarters and 5# of sausage on my new open bbq grill. Case of miller lite on ice for three hours now and friends coming over with BBQ beans, Pot. salad and bread. I will be rich for a little while!!! Hope everyone has a great weekend.

Copie

You can retire on 3.9% dividend. There are those who can't. And I think herein lies the real basis for a lot of the differences in methodology with dividend investing. Concern for higher yield is always going to be partly dictated by need.

First, because I said I could if I had to, it does not mean a 3.9% dividend would be ideal or what I expect from my retirement portfolio.

Secondly, just because an investor opts for higher yielding investments it does not guarantee more long-term income.  In fact it could mean less income.

After all the noise, it is a pretty straightforward proposition that ultimately the only significant driver for dividends, or share price appreciation for the long-term are earnings.

It is a mistake to consider distribution yield from managed distribution policies, special dividends from debt, dividends created by leverage, and yield from dividend capture as income.

Lets take the case of one of my favorite global funds. If an investor had invested $10,000 in CWGIX on 10/01/2003, that initial $10,000 investment would have grown to $20955 as of 03/31/2008.

CWGIX has had an average annul total return of 14.42% for fifteen years.

By how much could have CWGIX improved their returns or lessened volatility by raising their yield using a third of its portfolio for dividend capture?  Would the managers have made the capital appreciation any safer by selling assets internally to fund a distribution yield through a managed distribution plan?  Would leverage have created higher returns over a 15-year period?

Would any of these tactics increase the combined earnings of the stocks held by CWGIX?

All of the tactics I have mentioned in this post have been around for years, except for leverage; I have not seen any long-term advantage to any of them.  To my knowledge none, including leverage, have made any investment less volatile.  
Are there any reasonable examples of long-term success using these tactics, and is there enough of them to build a diversified portfolio?

helmut

.....The 15% div tax rate is an attempt to offload some of the B-boomer pension burden that's starting weigh heavilly ('53 checking in here, by the way). The pressure on Corps. to up their payout -yes, redistribute the wealth, comrade- is going to mount.

I'll be happy to take the check, but that means less money for the corps to invest for growth. Eventually that trend will bite us all on the ass, but in the mid-run it's the young ones who will suffer with less eco-growth to buy all the stuff they see on the internet.

But I agree, this little cohort here is pretty atypical. If our peers have anything at all put aside, it's in Magellin or an index fund. 

July-45 checking in here, officially missing the boomer generation by less then a month!

"You can retire on 3.9% dividend. There are those who can't. And I think herein lies the real basis for a lot of the differences in methodology with dividend investing. Concern for higher yield is always going to be partly dictated by need."

Ultimately, you withdraw and spend what you need to withdraw and spend.  At the point in time that you do so, you know whether you are withdrawing your asset base, your seed corn, your principal, your capital, or the income that your asset base, your seed corn, your principal, your capital has generated.  Spend more then the income during the year and you are spending down your asset base.

Earnings affect dividends.  Earnings growth/decline affect dividend growth/decline, as well as share price growth/decline.  It's safer to limit your spending to the income that your portfolio generates.

ElLobo,

It's safer to limit your spending to the income that your portfolio generates.

Does this mean that you only harvest .25% from your holding in BLU?

helmut

Does this mean that you only harvest .25% from your holding in BLU?

How in the world did you come up with this number? Not from what ElLobo wrote.

Have fun.

John Walter Russell 

Does this mean that you only harvest .25% from your holding in BLU?

How in the world did you come up with this number? Not from what ElLobo wrote.

Have fun.

John Walter Russell 

[/quote]

John,

.25% is the income yield for BLU as reported by CEFA. The distribution yield is 11.56%.

helmut 

"Just because an investor opts for higher yielding investments does not guarantee more long-term income."

Of course not.I never said it did.

 "CWGIX has had an average annul total return of 14.42% for fifteen years.By how much could have CWGIX improved their returns or lessened volatility by raising their yield using a third of its portfolio for dividend capture?Would the managers have made the capital appreciation any safer by selling assets internally to fund a distribution yield through a managed distribution plan?Would leverage have created higher returns over a 15-yearf period?
Would any of these tactics increase the combined earnings of the stocks held by CWGIX?"

Who knows?I would guess that it wouldn't have increased it's total return and may even have lowered it.But we'll never know what kind of payout it may have produced.   : )

-wes

Hi bilperk

I agree with the concern of your OP, but I haven't seen any mention yet of the following three points:

First, I think the reallocation telltale has shown up more in bonds than stocks.  I was lucky to retire 15 years ago with very high bond percentage yields available.  Some I locked in for 30 years.  As boomers now near retirement, their whole life they heard "convert to more bonds, and reap the yields."  Well, those yields are now history.  Yet the reallocations are underway.  I'm not sure many retirees realize how meager bond yields are, now.  Perhaps even underwater to true inflation.  Perhaps almost a bubble in bonds.  The potential for real loss exists in long term bonds.

Regarding stocks, the boomers are not being forced out of equities, but all the teachings and literature and advisors tell them to reduce equity allocations.  So they are doing it.  I've read some studies, like Seigel who thinks foreigners will pick up all the selling slack, but there is no good evidence yet to back this up. And there may be a subtle, beneficial, shift from growth to dividend paying stocks, which for the first time in decades are giving bonds competition re yield.

Lastly, and importantly, what is one to do.  Here's my take.  It doesn't matter if stock returns are less than the past decades, because there is no real growth alternative to beat it.  Stocks are a call on the underlying businesses, and their attendant growth and dividend increases, in whatever the currency is at the time.  So if the return is only 6% for the next decade or two, so be it.  That's why I support the direction of those investing for corporate dividends and companies which have good prospects of increasing dividends annually.  And if we have massive inflation, stocks will, in the long run, be the things to own.

Just some thoughts  (am I on the wrong forum? How did I get over here?)

retired at 48

Hi again retired/48,

You be on the right forum!

I tried to steer you here once before, you finally made it :o)

Glad to see you here and think you have much to offer.

Thanks for sharing your thoughts, stick around wont you?

Brian

Hi Brian...I'm expanding my horizons.  Thanks for your support. 

 retired at 48

Hi Brian...I'm expanding my horizons.  Thanks for your support. 

 retired at 48

[/quote]

Hi 48,

This is a nice forum where everyone respects each others investment style and where we are able to challenge each other without rancor.  While most here believe their approach is best, they don't feel it necessary to convert everyone else.

Thanks for your points on the OP.

best,

Bill

Bill,

Good Morning!

"While most here believe their approach is best, they don't feel it necessary to convert everyone else."

There's a difference between 'beliefs' and 'feelings'.

I KNOW my approach is best, and WILL eventually convert you!

ElLobo, de la casa de la toro caca grande!

Good Morning to you El,

If your approach was so good, you wouldn't be up at 4:30 in the morning posting on M* trying to convince me :o}

best,

Bill

Hi Brian...I'm expanding my horizons.  Thanks for your support. 

 retired at 48

[/quote]

Hi 48,

This is a nice forum where everyone respects each others investment style and where we are able to challenge each other without rancor.  While most here believe their approach is best, they don't feel it necessary to convert everyone else.

Thanks for your points on the OP.

best,

Bill

[/quote]

Hi Bill...thanks for your support.  I chose your posting to make my first response post on this forum, because I knew the replies would be civil.  I have enjoyed your posts elsewhere, and usually stop my mouse whenever I see "bilperk". 

BTW, Mel Lindauer linked us with the following words, quote:

There are lots of folks here (Diehards F.) who invest in managed funds, and they're certainly welcome here. However, they have reasons for doing what they do, and they're able to clearly state and explain why and how they handle their investments when someone asks. A few examples of Diehards who post here on a regular basis that don't walk the Diehards line include Billperk, Petrocelli and Retired@48. Each marches to a different drummer, but they're able to cleary explain why/how they invest the way they do when asked. ...Mel L. 

 I'm now just repositioning to Saratoga, upstate NY, home of horseracing, ballet, polo and other fine southern gentlemen activities.

R48