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harrison_wintergreen t1_iyf9ct3 wrote

Reply to comment by Werewolfdad in Is adding dividends to your Roth a good idea to hedge against inflation? by Flameboy465

>What’s wrong with the three fund portfolio?

  • indifferent to valuation, at least as commonly practiced, and valuation is probably the most critical part of long term ROI. if one chose to follow John Boggle's advice they would boost bond allocation above Bogle's minimum 20% as Shiller p/e gets elevated and would thus take some action based on valuation. but this part of his advice is commonly ignored from what I've seen on reddit and the Bogleheads forums.

  • it's dominated by large-cap growth, when small cap and value stocks tend to give the best long-term results over long periods.

>Dividends aren’t anything special

on the contrary

>In the full dataset [CRSP database of US stock returns 1928 to 2017] there have been 71 periods of 20 consecutive calendar years. Table 2 on the following page shows how the six portfolios measure up on annualized returns and standard deviations over the 20-year periods. Similar to the full 90-year sample, we find a direct relationship between dividend yield and total return. And again, volatility for dividend paying portfolios was lower than that of non-payers. https://www.heartlandadvisors.com/media/Insights/White-Papers/Dividends-A-Review-of-Historical-Returns.pdf

or

>To demonstrate the power of dividends and their impact on performance, consider some research done by Professor [Jeremy] Siegel in his 2005 book, The Future for Investors. Professor Siegel broke down the performance of the S&P 500 dividend-paying stocks into quintiles, illustrating that focusing on only those stocks that provided the highest levels of dividends had a dramatic impact on performance—and risk.

>As you can see in figure 1, the highest quintile outperformed the broad S&P 500 Index by over 1.3% per year, which turned into nearly 141% outperformance over time. And it did this with a lower beta. Even the second quintile outperformed the S&P 500 by over 1.5% per year, for a total of more than 159% outperformance over time, with less risk.

https://www.wisdomtree.com/en-gb/-/media/us-media-files/documents/resource-library/whitepaper/the-dividends-of-a-dividend-approach.pdf

but what does one of the top finance professors at one of the top business schools in the world know?

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Werewolfdad t1_iyf9gyn wrote

Oh hey buddy, where you been?

>As you can see in figure 1, the highest quintile outperformed the broad S&P 500 Index by over 1.3% per year, which turned into nearly 141% outperformance over time. And it did this with a lower beta. Even the second quintile outperformed the S&P 500 by over 1.5% per year, for a total of more than 159% outperformance over time, with less risk.

>but what does one of the top finance professors at one of the top business schools in the world know?

I mean his chart shows that three of the five quintiles underperform the sp500.

This begs the question then, if its so easy to beat the market by picking dividend paying companies, why doesn't every (or at least many) fund manager(s) beat the market?

I'm not saying eschew dividends, I'm saying that whatever most retail investors do is probably going to be wrong, so go with the least wrong option (buying the market)

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