Revised follow-up paper https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3805927
- 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.
How so? Once you retire, you don't let dividends reinvest. Makes perfect sense.
I don’t know many people that spend 100 years in retirement.
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
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.
Just to add. Bonds and CDs do have durations though so you can essentially do your own actuarial calculations to a certain degree.
I've noticed them mostly in the form of charitable trusts (which can offer the benefit of basically shielding large asset gains from taxation). But it doesn't seem to be a widely-used investment strategy in general. Maybe it's more common if someone doesn't have an interest in passing down any money.
I haven’t read anything about it yet but a lot of them must be in pretty awkward straits because most aren’t fully indexed to inflation…
Live off dividends, then sell to pay for the healthcare right before you die
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.
[1] https://www.investopedia.com/articles/markets/071616/history...
[2] https://www.spglobal.com/spdji/en/research/article/a-fundame...
You don't let interests from bonds reinvest as well then.