The other thing I like about dividends (and rent)

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ataloss
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The other thing I like about dividends (and rent)

Post by ataloss »

the objective of portfolio management is to fund
liabilities, either current or future, either known
with precision or estimated, either actual or
expected. The true benchmark, then, is the return
required by the structure and timing of these liabilities.
This principle applies whether we are looking
at a pension fund, an endowment fund, a foundation,
or an individual hoping to grow wealthier.


http://www.aimrpubs.org/faj/issues/v59n ... 90018a.pdf

this was taken from a peter bernstein article cited on the hocus board and the following comment was made:

So much for a single, one-size-fits-all solution

the article was about changes in the investment management business (and frankly wasn't very interesting imco)

Anyway, I think an individual investing for retirement is similar to an endowment fund/pension fund/ or foundation. An individual (or two individuals) investing for retirement need periodic income for living expenses for an unknown but potentially long period of time. Pension funds have the advantage of being able to reasonably assume some degree of predictability of mortality among pensioners. Prudent individuals/couples must make some (financial) worst case type assumptions since mortality predictions for a group of 1 to 2 pensioners are going to be "difficult" (or practically impossible.)

The liabilities that the pension fund faces are monthly pension payments owed to pensioners. The liabilities of retirees include groceries and the electric bill. Since the need is for income, investment in income producing stocks/bonds/real estate should be favored. Even if one believes this:

It is not necessarily true that a company's reinvestment of dividends in itself via reduced payouts is less efficient than reinvestment by investors. Certainly, it leaves investors with less control. It does not necessarily leave them with inferior returns.

The retiree or pension fund needs investment income and should not favor retention of all earnings. Obviously there is a need for growth in earnings because of inflation and 100% payout of earnings is not optimal either.

I think that dividends and rents fit the bill for retirement investing. Others will, most likely, vehemently disagree.
Have fun.

Ataloss
therealchips
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Location: Henderson, Nevada, USA

Post by therealchips »

ataloss:
I think that dividends and rents fit the bill for retirement investing.


Sure, but capital gains fit the bill too. My tentative plan is to use dividends to supplement pensions for current living expenses and income taxes, and to use capital gains (mostly unrealized) to repair the damage inflation does to retirement assets. Inflation amounts to a current tax on wealth, even wealth held in tax-deferred accounts.
He who has lived obscurely and quietly has lived well. [Latin: Bene qui latuit, bene vixit.]

Chips
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