The Folly of “Total Return”

Less is More: The Folly of “Total Return”

Mar. 13, 2024

Subscribe to my YouTube Channel HERE.

 

People love to preach about “total returns”.

Their point?

Buying an index fund makes more total money over time than a dividend portfolio does.

And, since more money is the goal, they think they win the argument.

Do they, though?

Which one of these examples would you choose?

Example #1: You own a rental property that makes you $2,000 a month. But every month you might have to make repairs. And every month you definitely have to decide whether to keep your current tenants because this property is always month-to-month. Are you traveling? You still have to make a monthly decision, even if you don’t do repairs. Feeling sick? You still have to make a monthly decision. And this goes on forever.

Example #2: You own a rental property that makes $1,800 a month. And the tenant is automatically billed and your rent income will go up slowly over time. You do zero maintenance and make a decision once a year, if at all. In fact, there’s a good chance you’ll never do anything on this property for the next decade.

Which one wins?

You have to say #1, according to the experts–because it makes more total return.¬†

Which, of course, is ridiculous.

One more quick quiz.

Example #1: You drive to the store in your car and pick up groceries or whatever you need.

Example #2: You pay a monthly fee to have things delivered to you.

Example 1 makes more total return. It’s less expensive overall. But millions and millions of people pick #2.

Maybe total return is a silly pipe dream?

At any rate, here’s a simple portfolio that would hypothetically pay us an income via dividends. And those dividends would grow larger over time.

And we’d theoretically never have to do anything with it for ten years or more (and the overall yield is around 4.6%).

Portfolio:

How did this do in the past ten years compared to an index fund?

It made less “total return”.

But wait a second.

Its worst year was actually 3x better than the index fund. So, if you factor in reward-to-risk, the dividend portfolio… wins?

And it pays a growing amount of money over time.

And you don’t have to sell shares every month for income.

Imagine owning an index fund and it’s time to decide about your income.

How many shares should I sell? That’s up to you.

Am I selling too many? Am I going to run out of shares? Oh boy, that’s a tough one.

What if it’s a Bear Market? Should I sell or wait? Yikes, that’s a tougher one.

Wouldn’t like to be in that person’s shoes.

Would you?

In our next Newsletter, we’ll get a bit crazy.

Talk soon.

Join the free Newsletter list here .

 

Get Robot information HERE.
Visit my Performance Page HERE.
Buy my new book HERE.
The Inevitability of Becoming Rich
is HERE.
My latest YouTube video is HERE.

 

Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.