Post by Admin on Aug 23, 2021 18:17:49 GMT -5
The short answer is no.
I believe there are only 2 real measurement in investing: performance and risk attributes (SD=volatility, Sharp, Sortino, Max draw) if you care. I didn't invent these ideas, any reasonable book, expert, analyst believe in that.
Higher income stocks do not guarantee higher performance or better protection. The high tech stocks had the best performance in the last several decades without(or little) income. The most important aspect of investing is total return, then risk/SD and then you can look at income if you like. Do you prefer to own T(ATT) or AMZN in the last 10 years? Easy answer
So why investors are obsessed by higher income? the answer is mostly "I collect the income and use it for expenses" which is mostly retirees. The concept is just wrong. You can read my thread about CASH + Emergency fund + how to create monthly cash flow (link).
Retirees who have enough money can make it with 20-80% in bonds or stocks or CEFs or most other reasonable combination. That doesn't mean it's the optimal way to invest per performance or risk-adjusted performance.
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Let's see several options.
1) Option one: at this moment, A 2 million portfolio is worth more than 1.5 million regardless of higher income.
2) Option two: If 2 retirees start with one million each. Both take out the same withdrawals. After 20 years: the first investor has 2 millions and her average annual income has been 2%. The second investor has 1.5 million and her average income has been 4% (or 6%). The first investor is still the winner because high distributions are meaningless, only the end result coming from total return performance matters.
NEXT, we can discuss risk attributes (SD, max loss, Sharpe, Sortino). There are investors who care about it, especially retirees.
3) Option three: If 2 retirees start with 5 million each. Both take out the same withdrawals. Both have 2 goals: never lose more than 20% and have SD under 20. After 20 years: the first investor had 10 million and her SD was 15. The second investor has 7.5 million and her SD was only 7.5 and never lost more than 20%. There is no question the first portfolio is larger, again, income doesn't matter. The second one won based on the 2 goals.
Next, if both don't care about risk attributes, the first retiree is always the winner in all 3 options.
You can claim that income is very important for you, but it still doesn't change the facts.
Sure, both investors finished well, but the first investor portfolio did better, there is no if or buts about it, just simple math.
More, higher income doesn't guarantee better performance or better risk attributes, or even easier to live on. It also doesn't matter if you have 20% or 80% of your portfolio in high-producing income securities.
Suppose a retiree has a portfolio with zero distributions and needs $2000 a month for expenses. She can select any fund and set up monthly a sell order of $2000 on a certain day of the month in about 2 minutes for the next 20 years.
Of course, a smart retiree who owns stocks + bond funds can select to be more hands-on and sell several times annually her best-performing fund, instead of any fund.
I believe there are only 2 real measurement in investing: performance and risk attributes (SD=volatility, Sharp, Sortino, Max draw) if you care. I didn't invent these ideas, any reasonable book, expert, analyst believe in that.
Higher income stocks do not guarantee higher performance or better protection. The high tech stocks had the best performance in the last several decades without(or little) income. The most important aspect of investing is total return, then risk/SD and then you can look at income if you like. Do you prefer to own T(ATT) or AMZN in the last 10 years? Easy answer
So why investors are obsessed by higher income? the answer is mostly "I collect the income and use it for expenses" which is mostly retirees. The concept is just wrong. You can read my thread about CASH + Emergency fund + how to create monthly cash flow (link).
Retirees who have enough money can make it with 20-80% in bonds or stocks or CEFs or most other reasonable combination. That doesn't mean it's the optimal way to invest per performance or risk-adjusted performance.
=========
Let's see several options.
1) Option one: at this moment, A 2 million portfolio is worth more than 1.5 million regardless of higher income.
2) Option two: If 2 retirees start with one million each. Both take out the same withdrawals. After 20 years: the first investor has 2 millions and her average annual income has been 2%. The second investor has 1.5 million and her average income has been 4% (or 6%). The first investor is still the winner because high distributions are meaningless, only the end result coming from total return performance matters.
NEXT, we can discuss risk attributes (SD, max loss, Sharpe, Sortino). There are investors who care about it, especially retirees.
3) Option three: If 2 retirees start with 5 million each. Both take out the same withdrawals. Both have 2 goals: never lose more than 20% and have SD under 20. After 20 years: the first investor had 10 million and her SD was 15. The second investor has 7.5 million and her SD was only 7.5 and never lost more than 20%. There is no question the first portfolio is larger, again, income doesn't matter. The second one won based on the 2 goals.
Next, if both don't care about risk attributes, the first retiree is always the winner in all 3 options.
You can claim that income is very important for you, but it still doesn't change the facts.
Sure, both investors finished well, but the first investor portfolio did better, there is no if or buts about it, just simple math.
More, higher income doesn't guarantee better performance or better risk attributes, or even easier to live on. It also doesn't matter if you have 20% or 80% of your portfolio in high-producing income securities.
Suppose a retiree has a portfolio with zero distributions and needs $2000 a month for expenses. She can select any fund and set up monthly a sell order of $2000 on a certain day of the month in about 2 minutes for the next 20 years.
Of course, a smart retiree who owns stocks + bond funds can select to be more hands-on and sell several times annually her best-performing fund, instead of any fund.