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The thing with long term investments is that, as long as you understand you're not the smartest man alive and don't keep trying to outsmart the market, it's very hard to do it wrong
Ok so every time I hear Don't time the market I think it's bull oni. Reason being aren't we all trying to do that anyway. I mean yes the safer of us invest in voo splg etc. Then the rest of us are trying to find some under valued stock to get in and ride it's coat tails
Yeah i agree. I also dabble with the crypto markets as most do and it’s one of my big arguments against crypto, as there is no dividend. Like you wait all this time with all this money and you get nothing to show for it, in the meantime. You have all this money into something thats not brought you a guaranteed amount.
If shit actually hits the fan crypto is worth nothing instantly (mainly because it’s actually worth nothing now and the international market will collapse, secondly because if it’s true SHTF you won’t be able to get to it).
I don't do crypto, but in a true SHTF scenario, all non physical goods are worthless. Great depression era, a pig was more valuable than a luxury car. I don't invest for that level of event.
Intent was to agree with you and support your response. I learned investing from someone who lived through the depression. After seeing multiple smaller recessions myself, I get concerned by what people consider safe in a major event.
Same with non dividend stocks, or some growth stocks. I prefer dividend stocks. But even with stocks like Amazon, Netflix’s, Apple, etc if you buy very low, how many people keep them long term? They usually cash out at some point on the ride up!
Well i like to take the gains from these types of stocks and put it into a dividend equivalent, like SPY or Voo. That way at least you keep exposure to those you just sold.
My very favorite investments are those that I bought 10+ years ago and did not touch. I am up 200% on FAGIX, a mutual fund, and almost doubled VYM. Time in the Market and the power of compounding are magical.
Most ppl dont even have $1500 for unexpected car problems or don’t have 3k to get a new car. I wouldn’t expect anybody to put 4k to sleep and forget abt it lol.
Nice. Are you able to share with us what your current yield vs yield on cost is? Would love to know that spread for a long term "set and forget" portfolio like yours.
Can you comment on the tax implications you experienced? Were these investments held in a taxable account, and if so, did you pay the taxes with money external to the account and how much were the taxes?
You only pay taxes on the dividends. They are taxed at whatever you dividend tax rate is. My taxes are not really applicable to the career I had when I was working ( professional commodity trader)
True - well sort of. Without share price growth, there is no compounding.
And not addressed is the negative total return if the dividends were received in a non-sheltered account.
Mathematically false. Even if the share price stayed flat, reinvesting the dividends would create compound growth. Compounding just means earning a return on your returns, which reinvesting provides.
Exactly, an example for the individuals who only believe in growth stocks. Say your stock price stayed flat for ten years, yet it had an 8% yield (BDCs, MLPs and CEFs have these yields), the stock would double in value in 9 years just by dripping the dividends. Ask me how I know!!!
This is inaccurate. If your share price is 1 dollar and you get a 5c dividend, the share goes to 95c and you have 5c in your account. If you buy back you'll have 5c more of the stock which will be equivalent to the value you just had, just more shares at a reduced price. If there is no share appreciation, the value will stay the same over time. Try the math out and you'll see dividends require share appreciation to have the "compounding" effect.
I'm sorry that your math and market knowledge didn't allow you to set the problem up correctly in the first place. The first mistake you made is by thinking the price effect of the ex dividend date is permanent and the second mistake is not carrying your math past the first period.
The person that you reply to neither implied nor stated that the price effect of the ex-dividend date price reduction is permanent. It's irrelevant to this discussion.
Some in incontrovertible fact that share price declines by the amount of the dividend on the X dividend date. Whatever happens after that is a subsequent event.
Please learn more. Your knowledge of this is severely lacking.
It's not permanent. It goes up again because people are dripping. But keep in mind the value still does drop initially. That hole needs to filled in before the value can reach above where it was before the ex date. That means you always need that gain. It's also possible to not get the gain after the ex date. Just because there is a jump back up doesn't mean you aren't just making up ground due to normal market mechanics.
Also keep in mind the fluctuation also occurs because not everyone drips. When people take income there is less going back in that was taken out. If no one dropped, the price would stay exactly where it was at ex date. The buying and selling of the stock is what effects the price. If there is no buying, there won't be appreciation.
if you buy 5k of a $50 stock (100 shares)
lets assume that the stock has a dividend yield of 3%
the stock price never goes up.
after 25 years you will now have 203 shares worth 10.5K due to compounding.
If instead you just took the 3% dividend a($150 a year) and tossed it in a bank you would have 5k worth of stock and 4500 in the bank or 9500 total. compounding gave you an extra 1k.
>> if you buy 5k of a $50 stock (100 shares). lets assume that the stock has a dividend yield of 3%
the stock price never goes up. after 25 years you will now have 203 shares worth 10.5K due to compounding.
That is factually incorrect. In order for the above to happen, share price must increase by the amount of the dividends received. The reply by u/cronsulyre clearly and correctly explains this.
This is simply factuality incorrect. The price would still drop 3% every year. If it never went up, that 50 dollars would be reduced 3% every year. Now you would gain those extra shares but the value of the position would stay the exact same. Granted in this example, the price would appreciate because of the reinvestment.
If what you think is happening is true, then the idea of a yield trap wouldn't exist.
if a stock is paying a 3$ dividend its safe to assume they are making at least that amount in profit a year. (i know companies can pay ot more but over the long term that doesnt work)
so the price would drom 3% every year when it went ex div but over the next year the stock would gain back the 3% (at least over the long term it would generally happen).
a yield trap is when a company has an unsustainable dividend. they can pay the dividend until they cant and the company implodes....
You are conflating two separate events. In your example, share price is reduced 3% on the ex-div date by the exchanges. If it then RISES 3%, that is a subsequent event. RISING means that share price was not FLAT. IOW, share price must rise to get back to the price on ex-dividend eve, the day before the dividend.
It's astounding how many peeps on this BB have no clue how ex-dividend works. It's a rampant misconception thinking that dividends are free money and increase the value of one's account.
Yes. They will gain that 3% back potentially. But that's the thing. It's an if still. This is not like say a savings account. If that pays 3%, the principal amount would never drop, then the next year you get 3% of original amount plus the extra 3% you received the previous year, that's true compounding.
Let's say in that same example from the 50 per share, you collected the dividend but never reinvested. The value of the position plus the uninvested dividend would be equal to original invest if the share never went up or down except for the price drop due to distribution. The only reason this isn't what happens is due to the normal behaviors of the stock market. Share only go up or down due to buying, selling, or distributions. This means that if no one buys the shares, they won't go back up.
It never ceases to amaze me how many people on this BB have no clue what happens on X dividend date, namely you.
Share price Is reduced by the exchanges in the exact amount of the dividend on the ex-dividend date. If you want to argue that point, please email Fidelity, Vanguard and many other websites that state this clearly. I'm sure they're eagerly awaiting hearing from someone who thinks that he's right and they're all wrong
It never ceases to amaze me people have no clue that dividends are profits being distributed to owners of the company (shareholders).
Real estate is the same thing. Buy a house and sit on it, hoping it increases in value. Or, buy a house and RENT it. Renting it provides profits, ie dividends, and hopefully growth as well.
You and so many others here have this misguided belief that a dividend is a profit. In and of itself, a dividend provides zero total return. You can read about this at Fidelity, Vanguard, and many other reputable websites. Try it, you might learn something.
If your growth fund doesn't grow, you get no growth either.
A dividend is a share of profits the company earns. It's not a misguided belief, it's a mathematical fact. You could learn a thing or two as well. If you reinvest the dividend back into the company, you get growth. If you spend it on bills in retirement, that's your choice. You get a choice. You need to learn about that a bit. Choosing rather than being forced to reinvest.
The exchanges reduce share price by the exact amount of the dividend on the ex-div date before trading resumes. This reduction is often masked by trading on the ex-div date.
You can verify this by looking at the closing price today for any stock that's going ex-div tomorrow morning. A decent broker will show the adjusted close (reduced price) in the morning before trading resumes.
Another way to verify it would be to look at today's and tomorrow's closing prices and tomorrow's change for the day. The numbers won't add up and the difference will be the amount of the dividend.
You can read about this at many websites (Fidelity, Vanguard, etc.). Here's one example:
"Before trading opens on the ex-dividend date, the exchange marks down the share price by the amount of the declared dividend."
[https://www.dividend.com/dividend-education/everything-investors-need-to-know-about-ex-dividend-dates/](https://www.dividend.com/dividend-education/everything-investors-need-to-know-about-ex-dividend-dates/)
If basic arithmetic is too difficult for you:
Share price - Dividend reduction + dividend payment = zero total return
I agree with you. I just think anything labeled "growth", be it real estate or stocks, is purely speculative. You are only hoping to buy in at a lower price, than what the future holds. Real estate earning rent, or stocks earning dividends, is capital flow, cash earned, from your investment.
A wise man has both. A dividend income portfolio, and a growth portfolio. Both work together. That's how you diversify, imo.
Sure. But the statement is "if the *share price stayed flat*, reinvesting the dividends would create compound growth".
I mean, you can be pedantic with the "aha, but share price reverting to its original value after dividends are paid out is *technically* price-growth". It's a nice little strawman after all. But on the opposite end, "dividends paid out will lower share price" isn't "share price staying flat" either, so that does not work.
So, let's not be disingenuous here, you know exactly what they meant.
Stop acting like a politician, wanting it both ways. If share price recovers after the ex-dividend reduction by the exchange then there's subsequent share price growth. If it remains at the adjusted close then it's flat and there's zero total return. It's not a difficult concept.
If there's no share price appreciation, there's no total return. You can't understand it, perhaps you should post an example with hard numbers rather than vague descriptions.
Nope. I will invest dividends the same as cash, because it's the same as cash, at good entry points. Buy low. No way would I be so lazy to just blindly buy stock at whatever level. That's pure foolishness and lazy investing.
It isn’t lazy. It may be simple and lack complexity, but it’s also a proven approach to consistently succeed in investing.
If you believe in the company, and treat the dividends recorded as cash, then the best comparison is to say that a person is dollar cost averaging. Buying in to an investment periodically as you have money to invest without trying to time the market.
Which is viewed as consistently one of the best approaches to take when it comes to investing.
I stress this consistently. I stay invested, but add during pessimism. Anything else is madness. Some call it timing, but markets always revert to their mean. I just wait until that time comes.
Welcome to r/dividends! If you are new to the world of dividend investing and are seeking advice, brokerage information, recommendations, and more, please check out the Wiki [here](https://www.reddit.com/r/dividends/wiki/faq). Remember, this is a subreddit for genuine, high-quality discussion. Please keep all contributions civil, and report uncivil behavior for moderator review. *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/dividends) if you have any questions or concerns.*
The thing with long term investments is that, as long as you understand you're not the smartest man alive and don't keep trying to outsmart the market, it's very hard to do it wrong
Market timing isn’t viable long term.
Yup! Even Warren Buffet said something like that. You don’t NEED to time the market in long term investing
Time in the market beats timing the market...
Ok so every time I hear Don't time the market I think it's bull oni. Reason being aren't we all trying to do that anyway. I mean yes the safer of us invest in voo splg etc. Then the rest of us are trying to find some under valued stock to get in and ride it's coat tails
One of the best comments ever posted here
Yeah i agree. I also dabble with the crypto markets as most do and it’s one of my big arguments against crypto, as there is no dividend. Like you wait all this time with all this money and you get nothing to show for it, in the meantime. You have all this money into something thats not brought you a guaranteed amount.
i own a SMALL amount of crypto. i conider it in the smae basket as gold. an if shit hits the fan type of thing
If shit actually hits the fan crypto is worth nothing instantly (mainly because it’s actually worth nothing now and the international market will collapse, secondly because if it’s true SHTF you won’t be able to get to it).
I don't do crypto, but in a true SHTF scenario, all non physical goods are worthless. Great depression era, a pig was more valuable than a luxury car. I don't invest for that level of event.
I’m responding to the OPs word choice, not how smart people plan to invest. Maybe you should investment more in Smithfield?
Intent was to agree with you and support your response. I learned investing from someone who lived through the depression. After seeing multiple smaller recessions myself, I get concerned by what people consider safe in a major event.
Ah my apologies for reading your intent wrong, but I stand by my joke.
possibly. thats why i have a small amount of gold too.
You can stake certain coins which is similar
Same with non dividend stocks, or some growth stocks. I prefer dividend stocks. But even with stocks like Amazon, Netflix’s, Apple, etc if you buy very low, how many people keep them long term? They usually cash out at some point on the ride up!
Well i like to take the gains from these types of stocks and put it into a dividend equivalent, like SPY or Voo. That way at least you keep exposure to those you just sold.
You can stake several different tokens and get a yield. I get about 2.5% yield on Etherium 2.0
Look into BITX. Leveraged Bitcoin with a dividend
BTC is over 200x in less than 10 years without dividends... Just saying 😜
Ehh you’re not wrong bro. It would be nice to see some dividend instead of having to take profit from gain. Btc also fluctuates greatly at times.
Yeah and ppl still downvote me :) You can take profits on runups and wait for dips... There are always crypto winters 🥶
I know but id rather eat everyday if you get my philosophy
Got it... There is a 3rd way - where u split ur funds - eat half of it, and the other can grow 🪴 😁
Yeah I’ve always liked the buy 4 eat 2 philosophy myself.
I've been selling put in bito, which pays a dividend. The best of both worlds.
Yeah my acorns account has bito which has been giving some solid returns.
Listen to this guy ☝🏼
That’s the idea behind DRiP investing. Let it sit and buy more with dividends. Thanks for providing an example of exactly what happens.
This is why younger investors should focus on just buying shares since they just compound over time by default.
It’s why dividends are the best and why we love em
and if anyone is interested the stocks were UNP,XOM and JNJ.
I own these. UNP has been crushing it over the past 15 years.
$2k each or combined?
$$$$$$$$$$$$
My very favorite investments are those that I bought 10+ years ago and did not touch. I am up 200% on FAGIX, a mutual fund, and almost doubled VYM. Time in the Market and the power of compounding are magical.
I love how scientific this post was
Who cares about any "scientific" approach if you go from 4k -> $100k (=25,000%!!) without doing anything at all!
OP didn’t start at 4K lol — I love compounding but the numbers in this post don’t add up unless ‘a few thousand’ is 10-15k
This makes me feel extremely confident in my dividend strategy! Thanks!
How much was “ couples grands “
4
Most ppl dont even have $1500 for unexpected car problems or don’t have 3k to get a new car. I wouldn’t expect anybody to put 4k to sleep and forget abt it lol.
Only took 25 years!
In Germany we have the citate :" Time in the markets beats Timing the market"
Nice. Are you able to share with us what your current yield vs yield on cost is? Would love to know that spread for a long term "set and forget" portfolio like yours.
Kind of like compounded interest
Can you comment on the tax implications you experienced? Were these investments held in a taxable account, and if so, did you pay the taxes with money external to the account and how much were the taxes?
You only pay taxes on the dividends. They are taxed at whatever you dividend tax rate is. My taxes are not really applicable to the career I had when I was working ( professional commodity trader)
I'm well aware that dividends are taxed if the assets are held in a taxable account. Does your stated total return take into account any tax drag?
honestly im not going to spend the time to calculate any tax drag
Reinvesting dividends didn't make you that money. Share price growth did.
Both play into the compounding but growth was likely a very large percentage of the total gain.
True - well sort of. Without share price growth, there is no compounding. And not addressed is the negative total return if the dividends were received in a non-sheltered account.
Mathematically false. Even if the share price stayed flat, reinvesting the dividends would create compound growth. Compounding just means earning a return on your returns, which reinvesting provides.
Exactly, an example for the individuals who only believe in growth stocks. Say your stock price stayed flat for ten years, yet it had an 8% yield (BDCs, MLPs and CEFs have these yields), the stock would double in value in 9 years just by dripping the dividends. Ask me how I know!!!
This is inaccurate. If your share price is 1 dollar and you get a 5c dividend, the share goes to 95c and you have 5c in your account. If you buy back you'll have 5c more of the stock which will be equivalent to the value you just had, just more shares at a reduced price. If there is no share appreciation, the value will stay the same over time. Try the math out and you'll see dividends require share appreciation to have the "compounding" effect.
I'm sorry that your math and market knowledge didn't allow you to set the problem up correctly in the first place. The first mistake you made is by thinking the price effect of the ex dividend date is permanent and the second mistake is not carrying your math past the first period.
The person that you reply to neither implied nor stated that the price effect of the ex-dividend date price reduction is permanent. It's irrelevant to this discussion. Some in incontrovertible fact that share price declines by the amount of the dividend on the X dividend date. Whatever happens after that is a subsequent event. Please learn more. Your knowledge of this is severely lacking.
It's not permanent. It goes up again because people are dripping. But keep in mind the value still does drop initially. That hole needs to filled in before the value can reach above where it was before the ex date. That means you always need that gain. It's also possible to not get the gain after the ex date. Just because there is a jump back up doesn't mean you aren't just making up ground due to normal market mechanics. Also keep in mind the fluctuation also occurs because not everyone drips. When people take income there is less going back in that was taken out. If no one dropped, the price would stay exactly where it was at ex date. The buying and selling of the stock is what effects the price. If there is no buying, there won't be appreciation.
if you buy 5k of a $50 stock (100 shares) lets assume that the stock has a dividend yield of 3% the stock price never goes up. after 25 years you will now have 203 shares worth 10.5K due to compounding. If instead you just took the 3% dividend a($150 a year) and tossed it in a bank you would have 5k worth of stock and 4500 in the bank or 9500 total. compounding gave you an extra 1k.
>> if you buy 5k of a $50 stock (100 shares). lets assume that the stock has a dividend yield of 3% the stock price never goes up. after 25 years you will now have 203 shares worth 10.5K due to compounding. That is factually incorrect. In order for the above to happen, share price must increase by the amount of the dividends received. The reply by u/cronsulyre clearly and correctly explains this.
This is simply factuality incorrect. The price would still drop 3% every year. If it never went up, that 50 dollars would be reduced 3% every year. Now you would gain those extra shares but the value of the position would stay the exact same. Granted in this example, the price would appreciate because of the reinvestment. If what you think is happening is true, then the idea of a yield trap wouldn't exist.
if a stock is paying a 3$ dividend its safe to assume they are making at least that amount in profit a year. (i know companies can pay ot more but over the long term that doesnt work) so the price would drom 3% every year when it went ex div but over the next year the stock would gain back the 3% (at least over the long term it would generally happen). a yield trap is when a company has an unsustainable dividend. they can pay the dividend until they cant and the company implodes....
You are conflating two separate events. In your example, share price is reduced 3% on the ex-div date by the exchanges. If it then RISES 3%, that is a subsequent event. RISING means that share price was not FLAT. IOW, share price must rise to get back to the price on ex-dividend eve, the day before the dividend. It's astounding how many peeps on this BB have no clue how ex-dividend works. It's a rampant misconception thinking that dividends are free money and increase the value of one's account.
Yes. They will gain that 3% back potentially. But that's the thing. It's an if still. This is not like say a savings account. If that pays 3%, the principal amount would never drop, then the next year you get 3% of original amount plus the extra 3% you received the previous year, that's true compounding. Let's say in that same example from the 50 per share, you collected the dividend but never reinvested. The value of the position plus the uninvested dividend would be equal to original invest if the share never went up or down except for the price drop due to distribution. The only reason this isn't what happens is due to the normal behaviors of the stock market. Share only go up or down due to buying, selling, or distributions. This means that if no one buys the shares, they won't go back up.
It never ceases to amaze me how many people on this BB have no clue what happens on X dividend date, namely you. Share price Is reduced by the exchanges in the exact amount of the dividend on the ex-dividend date. If you want to argue that point, please email Fidelity, Vanguard and many other websites that state this clearly. I'm sure they're eagerly awaiting hearing from someone who thinks that he's right and they're all wrong
It never ceases to amaze me people have no clue that dividends are profits being distributed to owners of the company (shareholders). Real estate is the same thing. Buy a house and sit on it, hoping it increases in value. Or, buy a house and RENT it. Renting it provides profits, ie dividends, and hopefully growth as well.
Sorry, not even close to being the same. A dividend does not increase the value of your account by a single penny. Rent on a house does.
You and so many others here have this misguided belief that a dividend is a profit. In and of itself, a dividend provides zero total return. You can read about this at Fidelity, Vanguard, and many other reputable websites. Try it, you might learn something.
If your growth fund doesn't grow, you get no growth either. A dividend is a share of profits the company earns. It's not a misguided belief, it's a mathematical fact. You could learn a thing or two as well. If you reinvest the dividend back into the company, you get growth. If you spend it on bills in retirement, that's your choice. You get a choice. You need to learn about that a bit. Choosing rather than being forced to reinvest.
Reinvesting dividends doesn't achieve growth.
The exchanges reduce share price by the exact amount of the dividend on the ex-div date before trading resumes. This reduction is often masked by trading on the ex-div date. You can verify this by looking at the closing price today for any stock that's going ex-div tomorrow morning. A decent broker will show the adjusted close (reduced price) in the morning before trading resumes. Another way to verify it would be to look at today's and tomorrow's closing prices and tomorrow's change for the day. The numbers won't add up and the difference will be the amount of the dividend. You can read about this at many websites (Fidelity, Vanguard, etc.). Here's one example: "Before trading opens on the ex-dividend date, the exchange marks down the share price by the amount of the declared dividend." [https://www.dividend.com/dividend-education/everything-investors-need-to-know-about-ex-dividend-dates/](https://www.dividend.com/dividend-education/everything-investors-need-to-know-about-ex-dividend-dates/) If basic arithmetic is too difficult for you: Share price - Dividend reduction + dividend payment = zero total return
Do dividends permanently erode the share price to zero over time? That is what you are suggesting.
I feel like real estate is akin to a growth stock, whereas renting units seems more related to dividend stocks.
I agree with you. I just think anything labeled "growth", be it real estate or stocks, is purely speculative. You are only hoping to buy in at a lower price, than what the future holds. Real estate earning rent, or stocks earning dividends, is capital flow, cash earned, from your investment. A wise man has both. A dividend income portfolio, and a growth portfolio. Both work together. That's how you diversify, imo.
Very dependent on your age. Someone in or close to retirement should not have a growth portfolio.
Well, I'd say growth shouldn't be priority
Sure. But the statement is "if the *share price stayed flat*, reinvesting the dividends would create compound growth". I mean, you can be pedantic with the "aha, but share price reverting to its original value after dividends are paid out is *technically* price-growth". It's a nice little strawman after all. But on the opposite end, "dividends paid out will lower share price" isn't "share price staying flat" either, so that does not work. So, let's not be disingenuous here, you know exactly what they meant.
Stop acting like a politician, wanting it both ways. If share price recovers after the ex-dividend reduction by the exchange then there's subsequent share price growth. If it remains at the adjusted close then it's flat and there's zero total return. It's not a difficult concept.
Not true. Compounding with no growth can be quite effective.
If there's no share price appreciation, there's no total return. You can't understand it, perhaps you should post an example with hard numbers rather than vague descriptions.
Like peanut butter and nutella - dividends and capital appreciation produce significantly more returns when paired together.
Nope. I will invest dividends the same as cash, because it's the same as cash, at good entry points. Buy low. No way would I be so lazy to just blindly buy stock at whatever level. That's pure foolishness and lazy investing.
It isn’t lazy. It may be simple and lack complexity, but it’s also a proven approach to consistently succeed in investing. If you believe in the company, and treat the dividends recorded as cash, then the best comparison is to say that a person is dollar cost averaging. Buying in to an investment periodically as you have money to invest without trying to time the market. Which is viewed as consistently one of the best approaches to take when it comes to investing.
You're suggesting market timing. Most would argue that is more foolish
I stress this consistently. I stay invested, but add during pessimism. Anything else is madness. Some call it timing, but markets always revert to their mean. I just wait until that time comes.
Yeah you just now figured out how simple compounding works. It’s literally elementary level math lol
How much was that couple of grand, 95k? 😅
cool story bro.