Hi there,
I have just started my journey of investing. Firstly i have updated my already used excelsheet. Then i looked on my expenses while using the mustachian guideline. The cool part of this is, my goal for investing 400 usd monthly is achieved by 50% by just reduce wasting money (muda!).
My first aim was to only invest in VT as it could be called “starter package” in multiple sources in the internet. I made an excelsheet trying to project historic development of growth and dividends to “predict” a possible future. In my created scenario 100% of dividends (after tax) will be reinvested for compounding.
Then slowly there rised the idea of make further use of compounding. I have searched for two high income etf, one for us market only (SCHD) and one for ex us only (VYMI). I didnt spent too much time searching them. So i did the same as i did with VT and made en excelsheet too.
So in the end i am having an equity 3x higher than purely with VT and the total dividends per year are roughly 3.5 times higher in my scenario.
So my question to all of you that have more experience in investments is, is there something that i am missing to prefere this kind of dividend compounding?
This whole idea is setted for a longterm strategy, for at least 35 years. Maybe this will become some kind of generational project.
Thank you for your thoughts
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In theory and all other things being equal, companies who distribute less dividends compound the capital internally and have more growth. What growth assumption have you used for VYMI and SCHD?
Of course, reality can differ from theory and high dividend companies can be structurally different from others.
Part of the things you may be missing are taxes on dividends (which don’t apply to capital gains) and fees that apply when you reinvest the dividends. Hard to know what you might have forgotten without a look at your assumptions.
That’s simply impossible.
The difference between two globally diversified strategies will not be this big.
I don’t know what kind of assumptions you made, but I would re-check those…
Did you not assume price appreciation at all for the funds?
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Here are the total returns for VT, VYMI and SCHD over the last years:
|
1Y |
3Y |
5Y |
10Y |
| VYMI |
24.25% |
8.61% |
8.97% |
- |
| SCHD |
24.03% |
8.21% |
12.96% |
13.38% |
| VT |
31.15% |
7.81% |
12.13% |
9.49% |
SCHD outperforms VT significantly over the last 10 years but that’s probably more the US vs rest of the world effect than pure dividends. Here is SCHD vs VTI (US total market):
|
1Y |
3Y |
5Y |
10Y |
| SCHD |
24.03% |
8.21% |
12.96% |
13.38% |
| VTI |
35.27% |
10.11% |
15.18% |
12.78% |
Nothing in there should justify a 300% difference in favor of VYMI+SCHD. Adding my voice to that of Tony1337 to ask you to check your assumptions.
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I know the thrill of back testing the numbers but it is more important to understand how the companies within the ETF make money and how much money they will make in future. So question for you, do you know what exactly is difference between VT , SCHD & VYMI ?
Everything else is just plotting charts. Try to make sure you understand clearly the difference between these ETFs and where exactly they invest (at least the investing philosophy).
Dividend compounding is just a fancy word for compounding. Every company compounds (or at least the try), some compound by investing in themselves, others pay dividend so that you can reinvest in them. That is all.
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Hello, not going to get into the choice of instruments or investment strategy, you need to find what works for you - it’ll be the best there is (for you). VT is about as agnostic, inclusive and passive as it gets. It can be a good start, and it can also be the only investment you’ll ever need.
Only thing I’ll say is that 35 years is a VEEERY long time, one that guarantees that you, your character, your body, your drivers - all will change dramatically. 35 years ago I was 7 or 8 and the best thing in the world was a chocolate ice cream. In 35 years the best thing in the world will probably be a chocolate ice cream, again, but in the between there are other drivers and needs 
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Welcome, fellow Lean Six Sigma practitioner (judging from your usage of the term “muda”).
A lot of FI is about mindset, i.e. staying the course in bad market times, avoiding greed, utilizing every step of FI to find your Ikigai, mindful decisions what to spend money on. You also might go through major life events or decisions that will require your money to be allocated differently than originally planned.
I think an agile approach to your FI journey might suit you well by looking back on each of the next 35 years and tweaking your approach as required.
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