Why do never-investor always say "the market took x amount of years to recover"?

GeoffTF

SneakySpectator said:

I'm guessing you're an "older gentleman" if you have 20 years of investing behind you but once I get to the appropriate age I'll probably shift my VWRP growth fund over to a dividend fund because like you say, having that regular source of income without having to actually sell any of your original investment is probably wise to protect the capital you've built up over time.

That is a misunderstanding. When a dividend is paid, your capital falls by the amount of that dividend when the fund (or stock) goes ex-dividend. Income funds are less diversified than whole market funds and have a lower risk adjusted total return.

GeoffTF

dunstonh said:

It physically pains me to see the argument of "in 1929 it took 25 years to recover. In 2000 it took 7 years to recover, then crashed again and took another 6 years to recover etc etc.

That is in nominal terms.  It was much less in real terms.

The Dow Jones took 25 years to recover its nominal value. It would have taken much LONGER to recover in real terms: "The Dow Jones did not return to its peak close of September 3, 1929, for 25 years, until November 23, 1954.[37][38][39]"

https://en.wikipedia.org/wiki/Wall_Street_crash_of_1929

https://www.usinflationcalculator.com/

This time could be worse. They did not have an orange madman in charge in 1929.

Hoenir

GeoffTF said:

SneakySpectator said:

I'm guessing you're an "older gentleman" if you have 20 years of investing behind you but once I get to the appropriate age I'll probably shift my VWRP growth fund over to a dividend fund because like you say, having that regular source of income without having to actually sell any of your original investment is probably wise to protect the capital you've built up over time.

That is a misunderstanding. When a dividend is paid, your capital falls by the amount of that dividend when the fund (or stock) goes ex-dividend. Income funds are less diversified that whole market funds and have a lower risk adjusted total return.

Nor is there any guarantee that dividend levels will be increased annually or indeed maintained. Companies aren't ATM's. 

SneakySpectator

Hoenir said:

GeoffTF said:

SneakySpectator said:

I'm guessing you're an "older gentleman" if you have 20 years of investing behind you but once I get to the appropriate age I'll probably shift my VWRP growth fund over to a dividend fund because like you say, having that regular source of income without having to actually sell any of your original investment is probably wise to protect the capital you've built up over time.

That is a misunderstanding. When a dividend is paid, your capital falls by the amount of that dividend when the fund (or stock) goes ex-dividend. Income funds are less diversified that whole market funds and have a lower risk adjusted total return.

Nor is there any guarantee that dividend levels will be increased annually or indeed maintained. Companies aren't ATM's. 

I saw a dividend index fund called dividend kings or something and it only has companies in it that have never missed a dividend payment in like 20 years. Coca-Cola, Procter and Gamble, MMM etc. And if you look at the stock price of these companies they've even gone up a lot despite being dividend kings. Coca-Cola is near all time highs, same with MMM.  

I know this doesn't negate your guaranteed dividend but it's pretty much the safest most reliable dividend investing you can get. The biggest mistake I see people make with dividend investing is they search for highest yield of like 14% or something but those are the companies you want to avoid. 

Linton

Hoenir said:

GeoffTF said:

SneakySpectator said:

I'm guessing you're an "older gentleman" if you have 20 years of investing behind you but once I get to the appropriate age I'll probably shift my VWRP growth fund over to a dividend fund because like you say, having that regular source of income without having to actually sell any of your original investment is probably wise to protect the capital you've built up over time.

That is a misunderstanding. When a dividend is paid, your capital falls by the amount of that dividend when the fund (or stock) goes ex-dividend. Income funds are less diversified that whole market funds and have a lower risk adjusted total return.

Nor is there any guarantee that dividend levels will be increased annually or indeed maintained. Companies aren't ATM's. 

There is no guarantee on future dividends but experience shows that solid dividend payers are very loath to cut dividends as the shareholders dont like it. They may well have bought that particular equity for its dividend. Such companies are not ATMs, but the need to pay the dividend can be an important factor in how the company is run.

Dividends are very different to capital values in that the latter continually fluctuate because of the wider markets. The arguments that dividends make no difference because they are balanced by the rise and fall in the capital value is not valid in my view since the short term rise and falls from other causes may be more significant.  Someone who needs income has a much easier and more secure life taking dividends than those trying to extract a steady cash stream from equity capital.

Roger175

SneakySpectator said:

Hoenir said:

GeoffTF said:

SneakySpectator said:

I'm guessing you're an "older gentleman" if you have 20 years of investing behind you but once I get to the appropriate age I'll probably shift my VWRP growth fund over to a dividend fund because like you say, having that regular source of income without having to actually sell any of your original investment is probably wise to protect the capital you've built up over time.

That is a misunderstanding. When a dividend is paid, your capital falls by the amount of that dividend when the fund (or stock) goes ex-dividend. Income funds are less diversified that whole market funds and have a lower risk adjusted total return.

Nor is there any guarantee that dividend levels will be increased annually or indeed maintained. Companies aren't ATM's. 

I saw a dividend index fund called dividend kings or something and it only has companies in it that have never missed a dividend payment in like 20 years. Coca-Cola, Procter and Gamble, MMM etc. And if you look at the stock price of these companies they've even gone up a lot despite being dividend kings. Coca-Cola is near all time highs, same with MMM.  

I know this doesn't negate your guaranteed dividend but it's pretty much the safest most reliable dividend investing you can get. The biggest mistake I see people make with dividend investing is they search for highest yield of like 14% or something but those are the companies you want to avoid. 

I think you're referring to 'dividend heroes', which tend to be investment trusts. These are a very different thing to owning a basket of high yield shares, although many of the same companies may be held. I actually do have money in a few of these trusts, but mainly for the times when I've wanted to invest a bit of money but haven't had the time to properly research individual shares.

Mostly agree with your last point and individual company shares should be carefully researched taking account the various fundamentals. Sometimes companies paying a high yield actually are the ones to go for, the dividend (in % terms) can be distorted by other factors, but I get your point and one should not necessarily just consider the yield. 

thegentleway

SneakySpectator said:

TheBanker said:

SneakySpectator said:

It physically pains me to see the argument of "in 1929 it took 25 years to recover. In 2000 it took 7 years to recover, then crashed again and took another 6 years to recover etc etc.

The act like every investor only buys once with their entire life savings? Seriously who takes £100,000 and just buys once and doesn't do anything for the next 25 years? No investor I've ever known that's for sure. 

So why do all these never-investors use this as some kind of argument to back up why they don't invest? Almost every sensible retail investor I've ever spoken to buys every month, or at least every month they can afford to buy. 

It's called dollar cost averaging, or pound cost averaging for us Brits. 

I think in their mind they think investing is about buying one time and selling one time. So they place so much importance on getting the timing right, that they never actually end up buying at all?

I guess some people will just invest a one-off sum, e.g. an inheritence. Even if they then add a monthly investment, the one-off is likely to represent the lion's share of their portfolio. 

A lot of people confuse Trading and Investing. The current crop of apps has not helped - in the olden days when you had to phone a stockbroker the distinction was much clearer. 

Oh cmon the amount of people making those arguments are not inherent of their grandpappy's life savings. They're youngsters who think investing is taking £10,000 you've got in your 2.5% interest savings account and dumping it in an individual stock and waiting 25 years and hoping you magically have £500,000 at the end of it. 

I'm not saying that's the majority on these forum, but certainly on Reddit. I treat my monthly investing contribution like a bill, like a direct debit the same as council tax or water or energy. It's just something that I pay every month no matter what. 

 

I invested most of my savings in a lump sum in my thirties. I was doing B2L and cash savings before that. Even once I'd decided to invest in S&S, the fear of markets crashing soon after I invest was definitely a big factor in delaying my decision to take the plunge.

Investing £10k into volatile markets when that's all you've got saved up isn't that easy. Much easier to start pound cost averaging from the onset but most people do not get good financial education. 

EthicsGradient

SneakySpectator said:

phillw said:

SneakySpectator said:
I treat my monthly investing contribution like a bill, like a direct debit the same as council tax or water or energy. It's just something that I pay every month no matter what. 

 

If you like just putting money into something that you never know whether you will see a return, then you can set up a standing order and transfer the money to me. You can think of it like a utility bill if you like.

The difference is my monthly investment should generate on average 9% per year before inflation. Write up a contract where you'll give me 9% per year and I'll happily send you my money each month.

Didn't think so

Well, if we're looking at investing myths, "should generate on average 9% per year before inflation" is quite a bad one. There's no "should" about it, and 9% before inflation is above most long term averages.

FWIW, you may think that regular investing keeps everything both safe and profitable, but even then, it sometimes takes over 10 years. I have the monthly total return data for the F&C investment trust from 1994 onwards (as good a proxy for an international tracker as we can get, going back that far, I reckon), and there are some ten year periods over which a regular investment of an amount (uprated with inflation) would have returned less than inflation. Increase the investing period to 15 years and all periods do return more than inflation - the worst is you get back about 11%, in real terms - ie about 1.5% per year after inflation.

dunstonh

GeoffTF said:

dunstonh said:

It physically pains me to see the argument of "in 1929 it took 25 years to recover. In 2000 it took 7 years to recover, then crashed again and took another 6 years to recover etc etc.

That is in nominal terms.  It was much less in real terms.

The Dow Jones took 25 years to recover its nominal value. It would have taken much LONGER to recover in real terms: "The Dow Jones did not return to its peak close of September 3, 1929, for 25 years, until November 23, 1954.[37][38][39]"

https://en.wikipedia.org/wiki/Wall_Street_crash_of_1929

https://www.usinflationcalculator.com/

This time could be worse. They did not have an orange madman in charge in 1929.

The Dow excludes dividends.   With divs included and reinvested and inflation adjusted it recovered by Nov 1936. 

But then fell again (a bit like Dot.com recovered and fell again with credit crunch) and didn't permanently recover until Jan 1945.