[metacritic12]

It seems like this follow up paper clarifies the data's vision a lot more. Notable changes from the previous version discussed in a sister thread here:

- There is no more emphasis on price-only-inflation-adjusted returns. Good riddance: getting rid of dividends makes no sense and is borderline intellectually dishonest just to make the point.

- He no longer argues stocks don't work for the long run, just that bonds were as good in the past. This is a lower bar to meet as bonds in the past, especially corporate bonds as he's included, are actually quite risky!

- Finally there is some argument to be made that bonds are better investments when monitoring technology is poor -- since insiders can steal equityholders' wealth. But the 20th century invented good accounting, auditing, etc to reduce that and drive up equity returns.

[gbasin]

The 3rd one is interesting and something I hadn't considered as much before — may be applicable still in less regulated markets

[coliveira]

Removing dividend does make sense because dividends are taxed. You cannot reinvest all dividends, unless you're using a tax advantaged account.

[MichaelDickens]

This might justify discounting dividends (eg reducing them by 20%), but not removing them entirely.

[nwiswell]

Moreover the more modern approach is share repurchases, which are largely not subject to the tax drag and use the same money that was used historically for dividends.

[ClumsyPilot]

It is worth noting that until 1982, stock buybacks were illegal—deemed as market manipulation

[coliveira]

It is still market manipulation, but made legal by the US gov, like other crimes such as lobbying.

[joshlemer]

And since a few years ago they are highly taxed in Canada.

[NovemberWhiskey]

So are bond coupons, and (within the current regime) at a disadvantageous rate relative to dividends!

[lexapro]

Price increases are taxed as well (eventually), do you also remove them?

[fshbbdssbbgdd]

Stepped-up basis takes care of that. Buy, borrow, die!

[xwolfi]

Dividends aren't taxed where I am, and it skews our investment, even towards US stocks. I find it interesting to include.

[dot1x]

> getting rid of dividends makes no sense and is borderline intellectually dishonest just to make the point

How so? Once you retire, you don't let dividends reinvest. Makes perfect sense.

[Dylan16807]

You should be taking money out at your chosen rate, not depending on how those companies choose to allocate money between dividends vs. buybacks vs. cash piles vs. reinvestment. So treating dividends as reinvested by default makes sense to me.

[metacritic12]

Exactly -- dividends and share buybacks are nearly the same, but the original paper stripped out the first.

[danuker]

Dividends aren't enough to cover living expenses.

If you plan to withdraw 4% per year, so you preserve your wealth indefinitely, you're more than 2 percentage points short when the dividend yield is 1.71% [1]

If you want to live solely from dividends, you'll need more than double the capital.

If you want to die with zero [2], it's impossible.

I'd much rather invest in a dividend-accumulating index fund and sell as I please.

[1] - https://www.multpl.com/s-p-500-dividend-yield

[2] - https://www.goodreads.com/book/show/52950915-die-with-zero

[gkuan]

It may be hard to imagine, but dividend yields were not always this low [1]. Investopedia has it usually something healthy over 4% up until 1990s it seems. Over that 1926- time frame, dividends are said to have contributed 32% of the total return of S&P 500 [2].

[1] https://www.investopedia.com/articles/markets/071616/history...

[2] https://www.spglobal.com/spdji/en/research/article/a-fundame...

[user_named]

US stocks are arguably overpriced leading to low dividend yields. In emerging markets you easily get 5-7%.

[NovemberWhiskey]

You can absolutely die with zero: buy a life annuity and let someone else worry about the problem.

[ghaff]

I think parent is saying that you can't die with zero if you plan to live off dividends. (Because you need to keep owning the stock throwing off the dividends.)

[8note]

I'd expect a good portion of deaths involve very expensive health care for the last few months or years of life.

Live off dividends, then sell to pay for the healthcare right before you die

[rgmerk]

In the US.

In most other developed countries a) healthcare is funded by the government (to a first approximation). b) end-of-life healthcare expenditure is considerably lower outside the US.

[NovemberWhiskey]

OK sure; same's true of bonds or CDs or any other asset type though no? The point is that "invest in equities with dividend reinvestment until retirement and then buy a life annuity" is a totally viable strategy. That's basically the way pension saving in the UK works historically, for example.

[ghaff]

Right. Life annuities may or may not be a good deal. But that's certainly the main way to not be essentially forced to pass on assets. (Modulo real estate you own and are living in.) And, as you say, defined benefit pensions basically work the same way--although, in the US, current ones are fairly uncommon outside public sector--although a lot of people still have them from years past.

Just to add. Bonds and CDs do have durations though so you can essentially do your own actuarial calculations to a certain degree.

[dot1x]

Seems like you agree returns would be even worse since you'd take out more than the dividend to survive.

[Dylan16807]

Once you start selling off your assets, the """returns""" are worse, but equally so no matter what you invested in. It's better to leave that math out of the situation and look at the returns of the actual assets by themselves. Which includes reinvesting.

If you really want to factor in the sell-off, then every dollar of dividend means one less dollar of sold stock. If dividends go higher than withdrawals for a year, then you need to buy more stock to compensate. So the math comes out the same. What you don't do is ignore dividends, or let excess dividends pile up in cash form. Which the original paper apparently did.

[NovemberWhiskey]

Why would you exclude part of the total return on an investment? It'd be like ignoring the principal value of a bond because you expect to live on the coupon. Cashflows are cashflows.

[dot1x]

Because you'd be selling it as you earn it to be able to live on on retirement. In fact, dividends wouldn't even be enough.

[ikiris]

but they still exist and can be a large fraction of the value...

[hartator]

> Once you retire, you don't let dividends reinvest. Makes perfect sense.

You don't let interests from bonds reinvest as well then.

[whall6]

There are enough “cash cow” securities that maintain a same / similar share price by distributing heavily for this to make sense. The price wouldn’t show the whole story and the cash could go much further over 100 years than just sitting in a bank account.

I don’t know many people that spend 100 years in retirement.

[danielmarkbruce]

It's not a chart of "how much money does Jonny have".