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\n<\/a>\n<\/div>\nSource: Shillerdata.com<\/p>\n
When dividends are factored in, the total returns chart appears much smoother. For instance, if you had invested at the peak in 1929 and reinvested your dividends, you would have broken even by 1936 or 1937\u2014just 7-8 years, rather than the often-quoted 25 years.<\/p>\n
This data serves as a reminder to maintain a diversified portfolio for the long haul. Keeping costs, taxes, fees, and turnover low while staying invested is crucial.<\/p>\n
For me, this reinforces the importance of focusing on dividends and disregarding share price fluctuations. Dividends are more predictable and reliable, stemming from cash flows. They provide a consistent source of returns and tend to grow at or above the inflation rate over time, making them an ideal income source for retirees.<\/p>\n
During the accumulation phase, my goal is to add to my portfolio and reinvest dividends until my dividend income surpasses my expenses. In retirement, I prefer to take dividends in cash for spending, leaving any excess to reinvest.<\/p>\n
Avoiding the need to sell stocks is essential, as doing so can deplete a portfolio. The risk of a negative sequence of returns at the onset of withdrawals can significantly impact a portfolio reliant on stock sales.<\/p>\n
Historically, a significant portion of total returns has come from dividends, allowing many to live off their portfolios without needing to sell stocks. However, this changed in the 1990s with the dot-com bubble and the rise of buybacks over dividends.<\/p>\n
Today, the risk lies in experiencing a prolonged sideways market without the cushion of dividend payments, especially since they are lower now than in previous decades. We find ourselves in uncharted territory.<\/p>\n
As seen in the 1970s and 2000s, buybacks can reduce shares outstanding and boost earnings per share (EPS). However, if the price-to-earnings (P\/E) ratio declines, buybacks can become detrimental. Many buybacks were initially implemented to offset dilution from employee equity compensation, which should reduce EPS.<\/p>\n
To achieve starting yields above 1%, which is what the S&P 500 currently offers, one must create a portfolio that diverges from the S&P 500. It is feasible to construct a portfolio yielding around 3% today, with dividends growing at or above the inflation rate over time.<\/p>\n
However, this approach carries the risk that total returns may differ from those of the S&P 500. In some scenarios, this could lead to better returns during prolonged bear markets, while in others, it might result in worse returns during extended bull markets.<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"
Dividends have historically contributed to 33% – 40% of annual total returns. This statistic highlights the importance of dividends in investment strategies, especially when considering long-term performance. However, averages can be misleading. During extended bull markets, such as those seen in the 1920s, 1950s, 1960s, 1980s, 1990s, and more recently in the 2010s and 2020s, […]<\/p>\n","protected":false},"author":1,"featured_media":2343,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[61],"tags":[],"class_list":["post-2342","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-dividends"],"_links":{"self":[{"href":"https:\/\/igorsplayground.com\/appcheckr\/wp-json\/wp\/v2\/posts\/2342","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/igorsplayground.com\/appcheckr\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/igorsplayground.com\/appcheckr\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/igorsplayground.com\/appcheckr\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/igorsplayground.com\/appcheckr\/wp-json\/wp\/v2\/comments?post=2342"}],"version-history":[{"count":0,"href":"https:\/\/igorsplayground.com\/appcheckr\/wp-json\/wp\/v2\/posts\/2342\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/igorsplayground.com\/appcheckr\/wp-json\/wp\/v2\/media\/2343"}],"wp:attachment":[{"href":"https:\/\/igorsplayground.com\/appcheckr\/wp-json\/wp\/v2\/media?parent=2342"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/igorsplayground.com\/appcheckr\/wp-json\/wp\/v2\/categories?post=2342"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/igorsplayground.com\/appcheckr\/wp-json\/wp\/v2\/tags?post=2342"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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