Dividend investing - ETF v's Building your own portfolio


#21

Thanks for the clarification. What I’m puzzled about right now is the fact that if I actually FIRE in the future I would prefer to have distributing funds in my portfolio and not accumulating ones. So that I don’t have to sell as much to actually receive the 4% payout to live from. With that in mind it would not make sense to invest in accumulating funds and then change all those funds into distributing ones at the time I retire. That would only cost money. Or do I get something completely wrong?


#22

In Switzerland the advantage of a non dividend stock is that you get richer without cash flow and you avoid income tax that way. The ETF that reinvest the dividend offer no fiscal advantage as the reinvested dividend is taxable as income.
One option for not paying dividend is to buy shares back. This scenario is usually not very efficient, companies are bad investors. The shares buy back ends as some buy high (when the cash flow is good) and sell low (when we urgently need new cash) exercise.
In the case of Berkshire Hathaway the case is a bit different. BH is a holding company. BH can reinvest the dividend without buying their own shares. The legal status (a company and not an investment found) makes that the reinvested dividend is not, for the taxman, a dividend and is not taxable.


#23

This could make a difference if you’re with a Swiss broker and if you trade on European stock exchange. Because then you need to pay stamp duty 0.15% and European stock exchange fee 0.10% (or potentially more), so a total of 0.25%.

What I’ve read is that many large S&P 500 companies have been buying back their own shares recently. The explanation why is interesting: according to that article, it’s a “pump and dump” scheme. So the top executives of corporations are paid partially in shares. They feel that the numbers are bad and that it will be hard to keep that growth. So they decide for the company to buy its own shares and spike the price, and they’re the ones on the selling side.


#24

This is getting off topic, but imo it’s just a more tax efficient way to return money to shareholders (in most countries capital gain is taxed less than dividend).


#25

Yes, a bit offtop, but your explanation sounds way less like a conspiracy theory, and I like it.