Equal Weighted Over Value Weighted: RSP Vs. SPY [View article]
Thanks, I'll check it out. Weird that the link won't work - Seeking Alpha allows any outbound links, as long as they are not to porn or other sites that make the comment "abusive". As far as I know, S&P's website doesn't fall into that category :-)
A Dividend Bull Considers How A Recession Might Play Out [View article]
Rob,
That would be interesting to watch.
I wonder also whether metrics for the entire index of Dividend Aristocrats could provide a warning signal for overvaluation of dividend stocks generally, such as whether the average PE of the Dividend Aristocrats minus the average PE of the S&P 500 is rising over time.
Yup. Other disadvantages of target date funds: - they layer fees over fees, as they tend to hold ETFs inside the funds which charge their own fees. Fees x fees mounts up. - they often hold only the ETFs of the company that runs the target date funds. That means you can't shop around for the best ETF for each asset class.
There are many people better qualified than me to comment on what you've called "the conversion phase". My guess is the easiest way to do this is to gently change your asset allocation over many years, so that when you rebalance (say annually), you gradually shift your asset allocation.
Another alternative is to plan to shift your equity allocation to higher dividend equities in one shot when you enter retirement. But that assumes that dividend stocks and non-dividend stocks will share broadly the same returns and valuations. That assumption may not hold, particularly if dividend stocks get expensive as more and more people enter retirement and look for yield.
Equal Weighted Over Value Weighted: RSP Vs. SPY [View article]
Just to expand on my question above: Showing that RSP is correlated with the mid-cap index doesn't necessarily show that "Part of the excess return is therefore *attributable* to the size function." Clearly quarterly rebalancing must have some effect. The way to test this would be to track the stocks in the index, equal weighted, from a given point but without quarterly rebalancing, and compare that to how the fund performed with quarterly rebalancing.
Vanguard's Confusing Statements On Allocation [View article]
Hi Roger,
Here's the para from the Vanguard report's executive summary:
"We remain concerned that the currently low nominal yield environment will lead some to aggressively pursue higher nominal returns based on the thematic allure of either higher dividend yields (potentially comprising total return), higher economic growth (without considering market valuations), inflation protection (regardless of price), or alternative investments (without regard to cost or risk exposure). We believe that a balanced and diversifed low-cost portfolio can remain an extremely high-value proposition in the decade ahead."
Later on in the report, they clarify that their concern about allocating assets to faster-growth economies is *if* this is done without taking account of valuations. They argue that emerging market valuations are high relative to historic norms. And since valuations are a better of predictor of market performance than expected GDP growth, investors need to resist being drawn into those markets with the allure of high expected growth, because they're trading at higher valuations.
On a separate note, I think their caution about dividend stocks is important. They look at this primarily in terms of asset allocation (ie. dividend stocks shouldn't be confused with bonds), but I also wonder whether inflows into dividend stocks will lead to overvaluation and poor long term performance.
A Dividend Bull Considers How A Recession Might Play Out [View article]
Robert, you're right to raise the issue that money is rapidly flowing into the dividend stock asset class.
With millions of baby boomers heading into retirement and looking for inflation protected yield, there's a real risk that dividend stocks could become seriously overvalued.
What do you think is the best way to track this? PE ratio for the dividend ETFs vs. the S&P 500, vs. historical norms?
ETFs for High-End Wealth Management [View article]
Robert, I'm really enjoying your articles.
I wonder whether the challenge Barclays will face is that the cost of providing asset allocation advice shouldn't vary on the amount of assets that implement that allocation. Which means that fee-only FAs like you should clean up: you advise on asset allocation, and clients implement it with ETFs, or pay you to do the implementation in separate accounts for a fixed fee.
Dave, a warm congratulations on your 100th article!
Like Roger, my views aren't exactly captured in this, so here's a quick run-down which I hope may be helpful:
Principle long-term goal: To have enough money for your needs, specifically for retirement and major life expenses (such as sending children to college). It makes no difference whether this is achieved through portfolio income or realizing capital gains, as long as the goal is achieved.
Secondary long-term goal: To avoid emotional stress and worry about your financial situation.
Most proponents are: Investment professionals + individual investors, who can now build and manage their own diversified portfolios at low cost using index funds, including ETFs. Anecdotally, the response I got from the ETF Guide (http://seekingalpha.co...) was overwhelmingly positive, and was almost entirely from individual investors.
Role of investor: Active - to think carefully about which asset allocation best matches your needs and life stage, to find the cheapest index funds to implement your desired asset allocation, to minimize your tax liability by parking the right assets in the right type of account, and to rebalance your portfolio appropriately.
Pick stocks: No.
Role of "Value": Crucial as a means to achieve total return. The best way for individual investors to account for value is via portfolio rebalancing, which automates the process of buying asset classes when cheap and selling when expensive. US stock market declines are therefore a buying opportunity (via rebalancing). But so too are declines in other asset classes, such as bonds, REITs, and emerging market stocks.
How Ideally Finance Retirement? From portfolio income. As you reach retirement, asset allocation therefore shifts towards bonds and dividend stocks, obviously depending on the attractiveness of each at the time. The greater your total return by the time you retire, the more money you'll have to buy bonds and dividend stocks, and the greater your retirement income will be.
Role of dividends: In retirement - crucial, along with other income generating assets. Before retirement - only important if they result in a bigger after-tax nest egg by the time you retire.
I've kept out of these discussions because they often seem to tread the same path or feel like ideological debates where teams cheer each other on in stating the rightness of their own views rather than engaging in a genuinely open-minded exchange of ideas.
I weighted in this time because I'm concerned that some comments are advocating risky strategies which could mislead other people if they go unchallenged.
That's why I wrote my comment in reply to an invitation by Richjoy403 to write an article "100% Dividend Stock Investing Is A Poor Strategy For These Reasons". The first line of my comment was a quote from him.
I'm glad that those who view you as an ideologically committed dividend investor will see that you also think that "few advocates of dividend growth investing advocate 100% investment in the strategy" to the point that it's "a red herring".
Finally, on your statement "It is possible that practically ALL dividend growth stocks will become overvalued, as they were in the dot-com bubble. But if that happens, then it is almost certain that an equal percentage of ALL stocks will be overvalued":
If there's one thing I've learned watching the market, it's that historical correlations (which people are "almost certain" about) can break down.
For anyone who hasn't read it, Roger Lowenstein's book about the collapse of Long Term Capital Management is an unforgettable lesson in this, and a fantastic read.
Equal Weighted Over Value Weighted: RSP Vs. SPY [View article]
A Dividend Bull Considers How A Recession Might Play Out [View article]
That would be interesting to watch.
I wonder also whether metrics for the entire index of Dividend Aristocrats could provide a warning signal for overvaluation of dividend stocks generally, such as whether the average PE of the Dividend Aristocrats minus the average PE of the S&P 500 is rising over time.
- David
Asset Allocation 'Vs.' Dividend Growth Investing: A Handy Comparator [View article]
- they layer fees over fees, as they tend to hold ETFs inside the funds which charge their own fees. Fees x fees mounts up.
- they often hold only the ETFs of the company that runs the target date funds. That means you can't shop around for the best ETF for each asset class.
Asset Allocation 'Vs.' Dividend Growth Investing: A Handy Comparator [View article]
There are many people better qualified than me to comment on what you've called "the conversion phase". My guess is the easiest way to do this is to gently change your asset allocation over many years, so that when you rebalance (say annually), you gradually shift your asset allocation.
Another alternative is to plan to shift your equity allocation to higher dividend equities in one shot when you enter retirement. But that assumes that dividend stocks and non-dividend stocks will share broadly the same returns and valuations. That assumption may not hold, particularly if dividend stocks get expensive as more and more people enter retirement and look for yield.
- David
Equal Weighted Over Value Weighted: RSP Vs. SPY [View article]
Vanguard's Confusing Statements On Allocation [View article]
Vanguard's Confusing Statements On Allocation [View article]
Vanguard's Confusing Statements On Allocation [View article]
Here's the para from the Vanguard report's executive summary:
"We remain concerned that the currently low nominal yield environment will lead some to aggressively pursue higher nominal returns based on the thematic allure of either higher dividend yields (potentially comprising total return), higher economic growth (without considering market valuations), inflation protection (regardless of price), or alternative investments (without regard to cost or risk exposure). We believe that a balanced and diversifed low-cost portfolio can remain an extremely high-value proposition in the decade ahead."
Later on in the report, they clarify that their concern about allocating assets to faster-growth economies is *if* this is done without taking account of valuations. They argue that emerging market valuations are high relative to historic norms. And since valuations are a better of predictor of market performance than expected GDP growth, investors need to resist being drawn into those markets with the allure of high expected growth, because they're trading at higher valuations.
On a separate note, I think their caution about dividend stocks is important. They look at this primarily in terms of asset allocation (ie. dividend stocks shouldn't be confused with bonds), but I also wonder whether inflows into dividend stocks will lead to overvaluation and poor long term performance.
- David
A Dividend Bull Considers How A Recession Might Play Out [View article]
With millions of baby boomers heading into retirement and looking for inflation protected yield, there's a real risk that dividend stocks could become seriously overvalued.
What do you think is the best way to track this? PE ratio for the dividend ETFs vs. the S&P 500, vs. historical norms?
ETFs for High-End Wealth Management [View article]
I wonder whether the challenge Barclays will face is that the cost of providing asset allocation advice shouldn't vary on the amount of assets that implement that allocation. Which means that fee-only FAs like you should clean up: you advise on asset allocation, and clients implement it with ETFs, or pay you to do the implementation in separate accounts for a fixed fee.
- David
Dissecting Barron's On Dividends [View article]
http://seekingalpha.co...
and
http://seekingalpha.co...
Asset Allocation 'Vs.' Dividend Growth Investing: A Handy Comparator [View article]
Like Roger, my views aren't exactly captured in this, so here's a quick run-down which I hope may be helpful:
Principle long-term goal: To have enough money for your needs, specifically for retirement and major life expenses (such as sending children to college). It makes no difference whether this is achieved through portfolio income or realizing capital gains, as long as the goal is achieved.
Secondary long-term goal: To avoid emotional stress and worry about your financial situation.
Most proponents are: Investment professionals + individual investors, who can now build and manage their own diversified portfolios at low cost using index funds, including ETFs. Anecdotally, the response I got from the ETF Guide (http://seekingalpha.co...) was overwhelmingly positive, and was almost entirely from individual investors.
Role of investor: Active - to think carefully about which asset allocation best matches your needs and life stage, to find the cheapest index funds to implement your desired asset allocation, to minimize your tax liability by parking the right assets in the right type of account, and to rebalance your portfolio appropriately.
Pick stocks: No.
Role of "Value": Crucial as a means to achieve total return. The best way for individual investors to account for value is via portfolio rebalancing, which automates the process of buying asset classes when cheap and selling when expensive. US stock market declines are therefore a buying opportunity (via rebalancing). But so too are declines in other asset classes, such as bonds, REITs, and emerging market stocks.
How Ideally Finance Retirement? From portfolio income. As you reach retirement, asset allocation therefore shifts towards bonds and dividend stocks, obviously depending on the attractiveness of each at the time. The greater your total return by the time you retire, the more money you'll have to buy bonds and dividend stocks, and the greater your retirement income will be.
Role of dividends: In retirement - crucial, along with other income generating assets. Before retirement - only important if they result in a bigger after-tax nest egg by the time you retire.
A Structural Shift In The U.S. Economy [View article]
A Structural Shift In The U.S. Economy [View article]
Dissecting Barron's On Dividends [View article]
I've kept out of these discussions because they often seem to tread the same path or feel like ideological debates where teams cheer each other on in stating the rightness of their own views rather than engaging in a genuinely open-minded exchange of ideas.
I weighted in this time because I'm concerned that some comments are advocating risky strategies which could mislead other people if they go unchallenged.
That's why I wrote my comment in reply to an invitation by Richjoy403 to write an article "100% Dividend Stock Investing Is A Poor Strategy For These Reasons". The first line of my comment was a quote from him.
I'm glad that those who view you as an ideologically committed dividend investor will see that you also think that "few advocates of dividend growth investing advocate 100% investment in the strategy" to the point that it's "a red herring".
Finally, on your statement "It is possible that practically ALL dividend growth stocks will become overvalued, as they were in the dot-com bubble. But if that happens, then it is almost certain that an equal percentage of ALL stocks will be overvalued":
If there's one thing I've learned watching the market, it's that historical correlations (which people are "almost certain" about) can break down.
For anyone who hasn't read it, Roger Lowenstein's book about the collapse of Long Term Capital Management is an unforgettable lesson in this, and a fantastic read.
- David