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@Catch22 and others have been mentioning this very thing, I recall. Makes sense. I had been operating on an "old school" basis. 36% stocks now, 58% bonds. Goal: up to 65% bonds. But I won't be putting in much effort to get there. Looking 5 years out and trying to estimate profit, particularly now, would be a wild guess. Nevertheless, my "go-to" page is still Morningstar. They're telling me via X-Ray that my particular mix of funds will get me a 5-year yield that's 44% better than the Index they're using. As for cap gains, measured by EPS growth over 5 years: 31% better than the S&P500. But maybe that's just wishful thinking, based on normal times, anyhow. Covid-19 changes everything. Anyhow, the dividends I get monthly are not nothing. If I need to start collecting them--- after we move in the Spring to a bigger place, maybe--- they will be a big help with utilities, for example. Lots of solar here, though. If we're fortunate, we'll grab one of those.
@Catch22 I remember that you've made the point with me, in this low interest world, that total return is my best friend, so to speak. THAT'S the goal. Nevertheless, I cannot complain about how much my own bond funds are spinning off to me, month after month. PTIAX RPSIX and PRSNX.
Cash is cash. Principal and dividends are fungible. If I buy a bond at $103 and it pays $2 in interest (coupon) for three years until maturity, what have I really gotten? $6 in interest and a $3 loss of principal. It is any different from buying a bond at $100 that pays $1 in interest (coupon) for three years until maturity?
IMHO it's all the same, even if one feels "richer" with the $6 in interest.
Same idea with these funds. PTIAX cost $22.81 per share on Jan 2, and was worth $22.59 as of last close. It paid 32.5¢ in divs over that period of time. But like the bond, it declined in value. The net (total) return was less than one could have gotten in a bank. (But bank accounts have no upside potential.)
(Before I go and read your link:) One's situation and specific circumstances do matter, of course. Our expenses are higher, here. But so is net income. And expenses will get HIGHER next year. People are willing to do a great deal with and for people they love. Having the monthly dividends may prove to be a necessity, when the Spring of 2021 comes. Part of this picture is simply personal preference. Monthly dividends help to cover monthly expenses. Meanwhile, my well-chosen EQUITY funds will grow, over the long-term. Of course, there are no guarantees. I could be dead tomorrow. Did you say, "Jerry Gallo?" .... Yes, I did..... "Jerry Gallo's DEAD!"
I provided the comment and the link about premium bonds because I thought I might have sounded like I felt that there was something wrong with paying up for a higher coupon. (In a sense part of the coupon comes out of principal.)
I was trying to make clear that this is fine, and in fact there are good reasons for paying a premium for a bond. The link just summarizes the advantages of paying above par for a bond.
I understand your desire for a higher cash flow.
One can pay a premium for a bond (or a bond fund). It will generate that higher cash flow (which is why it costs more). What I'm trying to show, apparently with little success, is that this is the same as paying par for a bond with a lower coupon and selling off some fraction of the investment to generate that desired cash flow.
Whatever. A couple of decades ago, when I was young(er) and naive, I walked into a Dreyfus office. I commented that I saw no difference between a growth fund that didn't pay quarterly divs, and a G&I fund that did, so long as their total return (growth plus divs) was the same. The response was that some day I would see the difference.
+1. And I understand there are zero-coupon bonds, and bonds which pay monthly or quarterly. The div has to come from somewhere. I once owned a foreign "zero," denominated in USD, and when it paid, after 10 years, my money was nearly doubled. I recall the rate on it was about 5.68%.
Comments
Thank you.
Catch
Cash is cash. Principal and dividends are fungible. If I buy a bond at $103 and it pays $2 in interest (coupon) for three years until maturity, what have I really gotten? $6 in interest and a $3 loss of principal. It is any different from buying a bond at $100 that pays $1 in interest (coupon) for three years until maturity?
IMHO it's all the same, even if one feels "richer" with the $6 in interest.
Same idea with these funds. PTIAX cost $22.81 per share on Jan 2, and was worth $22.59 as of last close. It paid 32.5¢ in divs over that period of time. But like the bond, it declined in value. The net (total) return was less than one could have gotten in a bank. (But bank accounts have no upside potential.)
BTW, I love premium bonds.
I was trying to make clear that this is fine, and in fact there are good reasons for paying a premium for a bond. The link just summarizes the advantages of paying above par for a bond.
I understand your desire for a higher cash flow.
One can pay a premium for a bond (or a bond fund). It will generate that higher cash flow (which is why it costs more). What I'm trying to show, apparently with little success, is that this is the same as paying par for a bond with a lower coupon and selling off some fraction of the investment to generate that desired cash flow.
Whatever. A couple of decades ago, when I was young(er) and naive, I walked into a Dreyfus office. I commented that I saw no difference between a growth fund that didn't pay quarterly divs, and a G&I fund that did, so long as their total return (growth plus divs) was the same. The response was that some day I would see the difference.
That day has yet to come.
Two thoughts:
(1) Like Bartleby, the obstinate law clerk, in Melville's Bartleby, the Scrivener ... "I'd prefer not to."
(2) A contrary opinion might be "Get 'em while they last." - as you now have some serious bond buying competition.
https://markets.businessinsider.com/news/stocks/federal-reserve-begins-individual-corporate-bond-purchases-secondary-market-relief-2020-6-1029309910