bilperk:

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

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  

StarHBre:

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 . . .   

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 gua