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    • griffin79
    • By griffin79 6th Dec 17, 10:47 PM
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    griffin79
    Tracker fund yield - is higher better?
    • #1
    • 6th Dec 17, 10:47 PM
    Tracker fund yield - is higher better? 6th Dec 17 at 10:47 PM
    Hi

    I've been researching tracker funds which include dividends. I appreciate the basic priciple behind yield, and the fact that higher means more dividend paid, but if this is the case then is higher always better? If not, why? I appreciate charges are a big factor with trackers, as well as risk appetite and diversification, but is yield just as important when making comparisons between funds even if it's being reinvested rather than used as income?

    Thanks
Page 2
    • bostonerimus
    • By bostonerimus 7th Dec 17, 2:55 PM
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    bostonerimus
    So I'm still not entirely clear why a higher yield isn't always more desirable than a lower yield. Can someone explain the benefits and drawbacks please or provide a clear example?

    Thanks
    Originally posted by griffin79
    You need to look at the investment and understand why it is high, or low, yielding. eg you can have a highish dividend fund that concentrates on large well established companies that might not have the best prospects for capital growth but is pretty low risk......or a high dividend fund that concentrates on risky companies where the dividend is used to entice investment.
    Misanthrope in search of similar for mutual loathing
    • griffin79
    • By griffin79 7th Dec 17, 3:37 PM
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    griffin79
    Much clearer on this now, thanks.

    The ideal fund would have high yield, high current and future capital growth but with low risk and good diversification. Fees would also be at a minimum.
    • bostonerimus
    • By bostonerimus 7th Dec 17, 3:40 PM
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    bostonerimus
    Much clearer on this now, thanks.

    The ideal fund would have high yield, high current and future capital growth but with low risk and good diversification. Fees would also be at a minimum.
    Originally posted by griffin79
    ......and no risk to your capital. Of course it's a balancing act within the parameters of your portfolio.
    Misanthrope in search of similar for mutual loathing
    • Audaxer
    • By Audaxer 7th Dec 17, 4:11 PM
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    Audaxer
    Much clearer on this now, thanks.

    The ideal fund would have high yield, high current and future capital growth but with low risk and good diversification. Fees would also be at a minimum.
    Originally posted by griffin79
    Some of the funds with the highest returns are growth funds with 0% yield, but are likely to be high risk (volatility). These type of funds could see a 50% drop in value in an equity crash, so you need to be happy to take that risk, or have that fund are part of a more balanced portfolio along with lower risk funds.
    • Thrugelmir
    • By Thrugelmir 7th Dec 17, 6:06 PM
    • 56,252 Posts
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    Thrugelmir
    The ideal fund would have high yield, high current and future capital growth but with low risk and good diversification. Fees would also be at a minimum.
    Originally posted by griffin79
    If only investing were that easy...........
    “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble”
    ― Warren Buffett
    • Alexland
    • By Alexland 7th Dec 17, 7:48 PM
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    Alexland
    Yup if you find that fund let us know!
    • EdSwippet
    • By EdSwippet 7th Dec 17, 7:59 PM
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    EdSwippet
    If the guy - talking about an American situation - needs 60 pages to get his theory across, then a simple person - like myself - needs no more than I've posed above.
    Originally posted by le loup
    Then here is the same thing, stated in one or two pages:
    Why do shareholders believe so strongly that a $1 dividend is preferable to a $1 capital gain? Meir Statman looked at this question in a 1984 article called Explaining Investor Preference for Cash Dividends, coauthored by Hersh Sheffrin. He also reviews the idea in his new book, What Investors Really Want, pointing out that receiving $1,000 in dividends is no different from selling $1,000 worth of stock to create a “homemade dividend.”

    Even when this idea is explained to people, most refuse to accept it. Statman suggests that it comes down to a cognitive bias called mental accounting. Investors categorize $1,000 in dividends as income that they will happily spend, but the idea of selling $1,000 worth of stock is “dipping into capital,” which causes them great anxiety. This idea is deeply ingrained in many investors, but it is an illusion, because a company that pays a dividend to shareholders is depleting its own capital.
    Or even more succinctly:
    ... Meir Statman writes, “a dollar labeled dividends is as green as a dollar labeled capital, so rational investors are indifferent between the two.”
    • Audaxer
    • By Audaxer 7th Dec 17, 8:44 PM
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    Audaxer
    The notion of selling down regardless of market conditions would give me sleepless nights, I want a pleasant retirement.
    Originally posted by ColdIron
    I agree with the above, but if equity income funds continue to pay dividends during an equity crash, and these dividends are not reinvested, would these funds generally drop in value more than similar growth funds?
    • le loup
    • By le loup 7th Dec 17, 9:45 PM
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    le loup
    Then here is the same thing, stated in one or two pages:

    Or even more succinctly:
    Originally posted by EdSwippet
    This point struck me as all telling:

    "This idea is deeply ingrained in many investors, but it is an illusion, because a company that pays a dividend to shareholders is depleting its own capital."

    Company managers are very happy to deplete the capital of the organisations they run by spending the capital on their own aggrandisement, in particular but not restricted to, taking over other companies to the detriment of the long term health of their companies.
    • firestone
    • By firestone 7th Dec 17, 10:20 PM
    • 32 Posts
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    firestone
    We know people pick funds for different reasons and that can be determined by age,risk level,an IFA, could even be whats in vogue at the time as seen over the last decade from EM,Absolute return,trackers,Bio tech among others(bet the bitcoin Etf is hot this week!)
    But the idea of "mental accounting" and fear of "dipping into gain" will be a strong one for some people.While the past is no guarantee is true,people will buy a dividend hero or solid income fund hoping for peace of mind.They get steady income or can compound it, but the idea of selling shares/units that have gained will be followed by the thought what happens if the market goes down for the next 1 or 5 or 10 years you will have less shares to carry on with,take longer to make up your loss and may even need to sell more so in someways not all Dollars are as Green
    • Thrugelmir
    • By Thrugelmir 7th Dec 17, 10:25 PM
    • 56,252 Posts
    • 49,621 Thanks
    Thrugelmir
    This point struck me as all telling:

    "This idea is deeply ingrained in many investors, but it is an illusion, because a company that pays a dividend to shareholders is depleting its own capital."

    Company managers are very happy to deplete the capital of the organisations they run by spending the capital on their own aggrandisement, in particular but not restricted to, taking over other companies to the detriment of the long term health of their companies.
    Originally posted by le loup
    Different times to 1984. Nowadays share incentive schemes abound. Buybacks inflate the price of the remaining stock in issue. Often made with borrowed money. Financial engineering to whose benefit?
    “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble”
    ― Warren Buffett
    • phillw
    • By phillw 7th Dec 17, 10:26 PM
    • 1,041 Posts
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    phillw
    ... Meir Statman writes, “a dollar labeled dividends is as green as a dollar labeled capital, so rational investors are indifferent between the two.”
    Originally posted by EdSwippet
    Rational investors would look at any tax differences between the two. One would be income, the other a capital gain.

    Most experts will advise you to buy and hold the stock and never sell it, because they want you to drive the price up so their can sell theirs. If all the muggles sell then the experts will never make any money.
    Last edited by phillw; 07-12-2017 at 10:32 PM.
    • bostonerimus
    • By bostonerimus 7th Dec 17, 10:33 PM
    • 1,228 Posts
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    bostonerimus
    Rational investors would look at any tax differences between the two. One would be income, the other a capital gain.

    Most people will advise you to buy and hold the stock and never sell it, because they want you to drive the price up so their can sell theirs.
    Originally posted by phillw
    This won't be an issue for many investors with the vast majority of their money in ISAs, SIPPs etc. sales are either tax free or the proceeds are income.
    Misanthrope in search of similar for mutual loathing
    • Audaxer
    • By Audaxer 7th Dec 17, 10:34 PM
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    Audaxer
    but the idea of selling shares/units that have gained will be followed by the thought what happens if the market goes down for the next 1 or 5 or 10 years you will have less shares to carry on with,take longer to make up your loss and may even need to sell more so in someways not all Dollars are as Green
    Originally posted by firestone
    But if the market goes down after you have sold some shares/units, I would think that you would be glad you had sold some when they the price was high? If you had made say a 10% gain on a fund during the year, I don't see anything wrong by selling say 4% for income, or if you didn't need the income you may want to sell a small percentage anyway to rebalance your portfolio.
    • firestone
    • By firestone 7th Dec 17, 10:58 PM
    • 32 Posts
    • 7 Thanks
    firestone
    But if the market goes down after you have sold some shares/units, I would think that you would be glad you had sold some when they the price was high? If you had made say a 10% gain on a fund during the year, I don't see anything wrong by selling say 4% for income, or if you didn't need the income you may want to sell a small percentage anyway to rebalance your portfolio.
    Originally posted by Audaxer
    Would agree and the idea of taking profit can be compelling so if you have been in say Bio tech over the last 5 years it may make sense.But my point was that some people look at it as sitting on their shares or trust as it could be that the 10% gain for 1 year is a 50% loss over the next 5 with no guarantee of getting it back and if they have sold they now have less shares to earn div's on.
    Off track but my big worry with trackers is (and i own trackers & etf's ) that if the people i work with are any guide to go by..When my company started a pension a few years back i heard the likes of "i know nothing of investing or shares but these trackers look good they have gone up lots of late"so it may not be a case of explaining yield more like explaining they could go down to the average person sold them by the likes of banks & BS
    • firestone
    • By firestone 7th Dec 17, 11:53 PM
    • 32 Posts
    • 7 Thanks
    firestone
    I agree with the above, but if equity income funds continue to pay dividends during an equity crash, and these dividends are not reinvested, would these funds generally drop in value more than similar growth funds?
    Originally posted by Audaxer
    Think its that mental accounting idea and what peoples investment plan is.But if you start with 10,000 shares at the start of the crash and you end it with 10,000 shares and you have had income you have spent or reinvested then you don't feel worse off.
    It may be an illusion as mentioned when a company depletes its capital to pay income but its not as noticeable as when you deplete your capital which is what i think worries people
    Last edited by firestone; 08-12-2017 at 12:02 AM.
    • bostonerimus
    • By bostonerimus 8th Dec 17, 1:00 AM
    • 1,228 Posts
    • 685 Thanks
    bostonerimus
    Would agree and the idea of taking profit can be compelling so if you have been in say Bio tech over the last 5 years it may make sense.But my point was that some people look at it as sitting on their shares or trust as it could be that the 10% gain for 1 year is a 50% loss over the next 5 with no guarantee of getting it back and if they have sold they now have less shares to earn div's on.
    Originally posted by firestone
    Retirement income has to be generated for perhaps 30 (even 40) years. Most people don't have a pension pot large enough to rely on just dividends, yield, interests etc and so they are going to have to sell something to make up the difference. This can be difficult if you concentrate on the short term and act tactically rather than strategically. Many people that use trackers do so because they feel they can use the statistics of past markets to make pretty good assumptions about performance over the next 30 years. They will have understood the principles of asset allocation, safe withdrawal rates, sequence of return, the probability of success and the necessity to apply a total return approach if they cannot generate their income solely from fixed income sources.
    Last edited by bostonerimus; 08-12-2017 at 1:58 AM.
    Misanthrope in search of similar for mutual loathing
    • Eco Miser
    • By Eco Miser 8th Dec 17, 2:06 AM
    • 3,226 Posts
    • 2,989 Thanks
    Eco Miser
    ... Meir Statman writes, “a dollar labeled dividends is as green as a dollar labeled capital, so rational investors are indifferent between the two.”
    Originally posted by EdSwippet
    However selling growth shares (or units) leaves me with less shares, worth more each, than taking an equal income from the dividends of income shares. Eventually there will be no shares left. Or before that point, the value of a single share is more than the amount I want to take.

    Although I suspect that for dividend generating shares with the same total return, I'd have the original number of shares but a depleted value.
    Eco Miser
    Saving money for well over half a century
    • firestone
    • By firestone 8th Dec 17, 8:31 AM
    • 32 Posts
    • 7 Thanks
    firestone
    Retirement income has to be generated for perhaps 30 (even 40) years. Most people don't have a pension pot large enough to rely on just dividends, yield, interests etc and so they are going to have to sell something to make up the difference. This can be difficult if you concentrate on the short term and act tactically rather than strategically. Many people that use trackers do so because they feel they can use the statistics of past markets to make pretty good assumptions about performance over the next 30 years. They will have understood the principles of asset allocation, safe withdrawal rates, sequence of return, the probability of success and the necessity to apply a total return approach if they cannot generate their income solely from fixed income sources.
    Originally posted by bostonerimus
    Not sure the average person who has not invested before but has moved into trackers because they have been told they are easy and a good way to step on the investment ladder will be as up on the principles as you think but hope so.And hopefully a mix of income and growth would be ideal & selling for income if needed is not wrong.But not sure i agree on it being a clear cut investment plan(or can see why it troubles people)to say a Dollar gain can be treated as a Dollar dividend when that seems like all your eggs in one basket needing that gain
    • ColdIron
    • By ColdIron 8th Dec 17, 10:19 AM
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    ColdIron
    I agree with the above, but if equity income funds continue to pay dividends during an equity crash, and these dividends are not reinvested, would these funds generally drop in value more than similar growth funds?
    Originally posted by Audaxer
    Obviously a fund that pays out dividends will be at a disadvantage regardless of conditions but I'd say that it depends very much on the fund and the nature of the 'crash'. I suppose you could say that they tend to have big cash rich companies so might perform better than mid or small caps, fags and pharma will differ from miners and financials. As ever diversification is your friend here so you don't need to make too many of these judgements
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