High dividend yield income funds vs capital accumulation funds in retirement drawdown?

Linton

JohnWinder said:

However us retirees don’t have the luxury of 35 years for things to even out. We need a strategy that works in the medium term when different allocations can behave in very different ways.

Looking at that chart with such similar performances for an all-stock fund vs a dividend focused stock fund, I don’t see why they wouldn’t serve one equally well if it was one’s intention to take the same amount out each year as either dividends, capital gains or a bit of both. But we can test that, and here’s one example of the same funds from which is taken $400 (4% at start) each year. The red one is the ‘dividend’ fund, the blue the broader fund. Of course, this ignores the work required to take capital gains, compared with ‘no effort’ dividend receiving.

Would you really have calmly carried on taking your $400 throughout 2000-2003 when your growth portfolio dropped about 50%?

The graph seems to show that risk management could be a major factor. To achieve a given risk level the growth portfolio requires a lower % equity than the income portfolio which would probably have led to a lower total return. Try 60/40 against 70/30.

PS To make the point in another way, if you were just shown the two graphs which one would you choose for your retirement portfolio?

Your graphing software with log-linear scaling looks very good. Is it free?

JohnWinder

We can’t squeeze too much from these chart, sadly, particularly ‘would you take $400 in 2001?’ Because the portfolio had grown to $60k and dropped to $30k, so $400 is only 1.3%. I set up the chart with a constant dollar not a constant % withdrawal, but you can do that if it helps.

The graph seems to show that risk management could be a major factor. To achieve a given risk level the growth portfolio requires a lower % equity than the income portfolio which would probably have led to a lower total return. Try 60/40 against 70/30.

Yes, a factor, but perhaps not ‘major’. The risk measure of the total market portfolio is 14.9 vs 13.1% for the ‘yield’ portfolio.(standard deviations). Readers be aware, the ‘growth’ portfolio is not ‘growth’ stocks in the usual sense (Facebook etc), it is the whole stock market - growth, value, large and small stocks, the lot.
I think we’d see that reducing the equity risk of the whole market stock fund by adding some bonds would improve returns and reduce risk because bonds had such good returns in recent decades.

PS To make the point in another way, if you were just shown the two graphs which one would you choose for your retirement portfolio?

the blue since it was almost always of a higher value, right to the end. But then we never see the graphs when we choose.
Yes, readers can use portfoliovisualizer free.