You gotta sell shares to not sell yourself short. Oh, the irony. This week I published a very popular (and unpopular) post on Seeking Alpha. The post showed how a retiree could greatly increase their income by selling shares of the popular ETF – Schwab’s SCHD. A retiree might boost the spend rate by 30% to 50% or more by combining dividends with homemade dividends. By homemade dividends I mean share sales, of course. When it comes to risk there is no difference between a dividend and a share sale. The income producing methods remove value and transfer value in an equal manner – other than for tax purposes. We’re selling shares to create retirement income on the Sunday Reads.
This weeks’ Sunday Reads will bounce nicely off of last week’s effort – Don’t be afraid to take profits. And here’s the post on Seeking Alpha –
Sell shares to create double the retirement income with SCHD.
The current yield for SCHD is 3.3%. If a retiree merely were to “live off of the dividends” they would likely be leaving a lot of money and retirement lifestyle on the table. Whether or not they could double their income would be the call of the total returns of the SCHD fund.
Selling shares while your profit ownership grows
In the live off of the dividends post (above) I used BlackRock as an example where the retiree is selling shares while the risk is totally under control. And remember, dividend payments do not add any benefit to managing sequence of returns risk, compared to equal value share sales.
In the BlackRock example the retiree (that’s me, I’m a holder of BLK) created 38% more income compared to living off of the dividends, they reduced the share count by a measly 2.8%. That said, the share count is irrelevant. During that 7-year period when the retiree created 38% more income by selling 2.8% of the share count, the revenues and earnings doubled. Our personal ownership of profits, earnings and free cash flow increased dramatically. It is the business success (earnings etc) that protects our spend rate and allows us to increase our spend rate over time.
Selling shares of SCHD
In the Seeking Alpha post I showed how a retiree could have boosted the spend rate to 5.0% from SCHD inception. This happened …
The portfolio increased dramatically while creating that generous income. Obviously, the retiree did not spend enough. Now keep in mind that SCHD was launched on what would be one of the most fortunate start dates for a retiree – 2012. The markets roared out of the gate giving the retiree a fabulous head start. Get a bad start date and this could happen …
This is a good time to bring up this post – Why retirees hold bonds, cash and GICs. Yes it is wise to manage the sequence risk.
Managing sequence risk in retirement
In the Seeking Alpha post I closed with …
I favor more defensive stocks for retirement. Defensive stocks were almost twice as good as a traditional balanced portfolio through the financial crisis.
I also manage the sequence of returns risk with ultra-short term bonds (SGOV) and some longer bond (TLT) and bond market (AGG) exposure. Gold (GLD) and Bitcoin (IBIT) are in the mix. REITs (ICF) and international equities (EFA) can be a useful portfolio addition as well.
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And here’s the go-to post and charts on creating retirement income from your portfolio. The tell-all safe spend rate chart courtesy of Norm Rothery, uses a traditional balanced portfolio.
The above safe spend rate chart demonstrates the superiority of U.S. stocks from 2012 vs a global portfolio. Of course, past performance does not guarantee future results.
When I went looking for an SCHD equivalent in Canadian Dollars, I found iShares XDU.TO, to my eye it might even be superior to SCHD. And yes, when the time comes I will be spending dividends and creating homemade dividends from XDU.TO.
Drop your thoughts in the comment section. Are you looking to create greater retirement income? Or do you take comfort in living off the dividends and other portfolio income?
Cut The Crap Investing Retirement Club
I will be starting a retirement investment club in January. It will be a forum for retirees and those approaching retirement. We’ll discuss everything retirement – from the financial aspects, lifestyle, physical and mental health, travel, hobbies and ‘your call’. What do you want to see covered and discussed and investigated? And also, we’ll just kill some time because we are bored as heck on a Wednesday afternoon. Kiddin’ of course. Your retirement is full and rewarding.
There will be a dedicated monthly newsletter and monthly Zoom call with the entire club. I’ll invite retirement specialists as guests. In-person gettogethers are a possibility eventually as well. There will be a modest annual fee – TBD based on your feedback.
If you’re interested contact me (Dale) via the Contact Form. That sends an email directly to me. I will then send you some more information 🙂 And I’m interested in your ideas and feedback on the club.
The Sunday Reads
Banker on Wheels offers the most robust weekend reads posts. He cycles through so many topics each week, covered by posts and podcasts.
In the mix, how to use the monte carlo simulators to gauge retirement portfolio success. And optimists are the best investors, even if the pessimists sound smarter. Over a year ago I offered a different headline on the same theme – Bears sound smart, bulls make money.
Dividend Hawk looks at his stocks, including dividends received and the news that’s fit to print. We shared the Royal Bank of Canada (RBC) bounty.
At Findependence Hub a very interesting post from BMO ETFs. You can turn your asset allocation ETF into a retirement income machine with a 6% spend rate. It pays you monthly, and of course it’s a mix of dividends, bond income and share sales.
The ETF you didn’t know you needed.
That may be a little bit aggressive for a balanced portfolio, so you’d have to keep an eye on that one and hope that you get a very beneficial start date.
Dividend Guy says dividends blind you
Hawk also linked to Mike’s post and podcast – Dividend Investing Blinds You [Podcast]
Bob at Tawcan offers how he invests his own money. Bob has paid the price for an exaggerated Canadian Home Bias. That risk might be more exaggerated these days with economic growth disappearing in Canada, our Dollar collapsing and Trump threatening massive tariffs that would certainly wreck our economy.
And yet, the Canadian stock market says …
The markets are not taking the Trump tariff threats seriously. Obviously, they are a bargaining tool. But higher tariffs may be on the way in some form. A true tariff war would likely cause a North American recession. The Professor adds …
Kyle at MoneySense offered a very good overview on tariffs and trade in Making Sense of the Markets.
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