# revisiting CD vs stocks



## Knight (Oct 9, 2018)

CD vs stocks I am not promoting a stock just trying to show why investing in a solid company that has had a significant drop in stock price can work to a persons advantage. At the time this thread was discussed my post # 43 began with.


"The utility I bought 1000 shares of on 5/17 @$26.75 just went past $28.75 On July 2 @ .41 a share with no reduction in the capital gain the dividend will probably be about 14 share increase. Granted 14 shares is a tiny amount but as I pointed out this purchase is a nest egg for our sons."


In July & Oct. dividends were paid. total was 28.556 shares. Stock price today a few minutes ago the price was $30.56 or a capital increase of $4682.67 in 5 months. As I posted I have no intention to sell. Without investing one more dollar I expect this stock to just about double in shares in 15 years. Each time the dividend is paid the original cost per share reduces, so the capital increase if any will be a surprise bonus for them.


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## KingsX (Oct 10, 2018)

.

Ironic you posted this topic the day before an 800 point drop in the stock market.

As for me... I will stick with CDs... they got me to a comfortable early retirement... and have seen me through 11 years of comfortable retirement stress free.  Life is good.


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## fmdog44 (Oct 10, 2018)

Last Friday my broker urged me to move some $$$ out of cash and into stocks. I objected but gave in. It was only a portion and I knew Oct. would be rough as some predicted yet I agreed on the move. Monday the market went down then up then went bonkers today. Oh, well so much for listening to "pros"!


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## Knight (Oct 11, 2018)

KingsX said:


> .
> 
> Ironic you posted this topic the day before an 800 point drop in the stock market.
> 
> As for me... I will stick with CDs... they got me to a comfortable early retirement... and have seen me through 11 years of comfortable retirement stress free.  Life is good.


25 years retired and our portfolios keep growing mostly because our day to day expenses are minimal  This stock I bought for our son"s inheritance like all stocks do went up yesterday & down some today.


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## Aunt Bea (Oct 11, 2018)

I remember when the Dow hit 1,000 back in November 1972, took a plunge and hit 1,000 again eight years later, today we are over 25,000 plus dividends paid over all of those years.

I like to keep a fair amount of cash on hand to ride out the rough spots but a conservative index portfolio can be a good way to go for the long haul.

Do what feels right for you and your situation.


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## fmdog44 (Oct 12, 2018)

It must be Good Friday as the market is rebounding. This ws and still is a healthy thing for this soaring market.


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## mathjak107 (Oct 12, 2018)

Knight said:


> CD vs stocks I am not promoting a stock just trying to show why investing in a solid company that has had a significant drop in stock price can work to a persons advantage. At the time this thread was discussed my post # 43 began with.
> 
> 
> "The utility I bought 1000 shares of on 5/17 @$26.75 just went past $28.75 On July 2 @ .41 a share with no reduction in the capital gain the dividend will probably be about 14 share increase. Granted 14 shares is a tiny amount but as I pointed out this purchase is a nest egg for our sons."
> ...




however every time the dividend is paid a mandatory roll back in share price by the same amount happens so nothing gained nothing lost from it . there is no magic fairy dust that creates any extra money  or bonus when dividends are paid .  you merely switch pockets .  .41 cents comes off the share price and  goes in your other pocket  at the open and market action is on a reduced balance when it trades again.

taking ppl as an example when it closed on 9/6 it closed at 30.92 . when it opened 9/7 it went ex div and opened at 30.29 which included a .41 cent roll back and .22 cents in market action stacked waiting in the computer ..

if you look at the daily action  on ppl you see there is typically less than  a 20 cent difference between the close and the morning open . when it goes ex div there is an extra .41 cent price reduction in share price plus the market action .

on 6/6 it closed at 25.67  and went ex div on the 6/7 .  it opened at  25.30 , a difference of .37 cents so market action add 4 cents .

in short the dividend only gives you back a piece  of your share  price which already existed .

while cost basis is lowered by the amounts paid out in dividends , the stock value is reduced by the same amount so there is no actual bonus .


heck if there was magic fairy dust here no one would own stocks . they would just buy before the record date and sell after the div .   you can see that accomplishes nothing mathamatically .


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## mathjak107 (Oct 12, 2018)

so as an example  if you have 1000 shares of ppl at 25.67 on 6/6 you have 25,670.00 dollars invested  for markets to compound on at the close .

on 6/7 the stock goes ex div and you now have 25.67 minus .41 cents or 25, 260.00 invested when the opening bell rings and 410.00 dollars in pocket from the dividend .

if the stock goes up 5% over this next quarter it is 5% compounded  on 25,260 because of the dividend payout .

if the stock did not pay out a dividend and there was no set back in price  you would have had 5% compounding on 25,670 not 25,260.00.

it is mandatory by the exchanges that all prices are automatically reduced by the same amount .

FINRA MANUAL :

5330. Adjustment of Orders

(a) A member holding an open order from a customer or another broker-dealer shall, prior to executing or permitting the order to be executed, reduce, increase, or adjust the price and/or number of shares of such order by an amount equal to the dividend, payment, or distribution on the day that the security is quoted ex-dividend, ex-rights, ex-distribution, or ex-interest, except where a cash dividend or distribution is less than one cent ($0.01), as follows:
(1) Cash Dividends: Unless marked "Do Not Reduce," open order prices shall be first reduced by the dollar amount of the dividend, and the resulting price will then be rounded down to the next lower minimum quotation variation.


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## OneEyedDiva (Nov 12, 2018)

KingsX said:


> .
> 
> Ironic you posted this topic the day before an 800 point drop in the stock market.
> 
> As for me... I will stick with CDs... they got me to a comfortable early retirement... and have seen me through 11 years of comfortable retirement stress free.  Life is good.



And the market went right back up in a day or two. That's what happens King. Another irony...it dropped significantly again today.  I consider those buying opportunities. Anybody who has good - excellent investments will see their investments grow if they're in it for the long haul. My investments were down by a little more than $5,000 (during the 800 point drop) then increased by more than $7,000 when the market went back up in a day or two.  With the exception of one or two years over the past decade, my investments have paid double digit returns between 14% and 24% overall which more than made up for those downturns. Even during the infamous crash and subsequent recession starting in 2008, I sold some shares at a net gain. I bought that mutual fund at prices between $17.37 and $20.31. When I sold some of the shares, the price was $44.31 (Yes...I keep detailed investment records..it comes in handy when answering the IRA questions during tax time). Now that fund share price is $51.10.  I'm not saying this to brag, just to show how investments grow for those of us who buy and hold.  BTW I never put another penny into that fund after 1998 (10 years before I sold some shares).

As for you buying CDs instead of investing in the market, ya have to sleep at night. If CDs allow you to do that, then that's what is right for you. I'm sure you've come up with other ways to beat inflation in the event your CD rates don't.


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## OneEyedDiva (Nov 12, 2018)

Knight, yes those dividends and capital gains cause the share price to drop, usually by the amount of the divs and caps. And within days, weeks or months, the share price usually goes right back to where it was before those distributions and even higher.  Several years ago I found a couple of stock tracking spreadsheets that auto tally in Google templates.  Even though they are no longer available in Google, the ones that I use still "work".  One just stopped tallying the last few divs and caps I recorded. But the spreadsheet allows me to see how much each set of shares from reinvested divs/caps have gained or lost according to the market that particular day, which of course is based on the rise or drop in share prices. I've been tracking both my investments and my divs & caps this way having input figures spanning 18 years. Right now I'm waiting until the beginning of next year to purchase more shares of a fund that has paid capital gains of more than $3 and sometimes they're in the $2 range in December. It's like buying on sale.


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## mathjak107 (Nov 12, 2018)

It still is the same deal . Even if the stock doubles and goes up 100% after paying the dividend it is up 100% ON A LOWER BALANCE AFTER THE REDUCTION FROM THE DIVIDEND .

if 100k in stock pays out a 5% dividend you have 95k left compounding and 5k in pocket . If the  market action pulls the stock up 100% the 95k  is now  190k invested plus 5k in pocket .that is only 195k.

If the stock paid no dividend and saw the same 100% appreciation you would have 200k.

let that sink in. There is no magic money. You can’t pull money out in dividends and get the same compounding regardless of the market action.

pulling the same amount out of a non dividend payer with the same appreciation is the same thing .


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## Knight (Nov 12, 2018)

mathjak107 said:


> It still is the same deal . Even if the stock doubles and goes up 100% after paying the dividend it is up 100% ON A LOWER BALANCE AFTER THE REDUCTION FROM THE DIVIDEND .
> 
> if 100k in stock pays out a 5% dividend you have 95k left compounding and 5k in pocket . If the  market action pulls the stock up 100% the 95k  is now  190k invested plus 5k in pocket .that is only 195k.
> 
> ...


If the example you used of 100 k turns into 190 k regardless of the dividend then I'll take that gain any day. Probably overlooked was the concept of buying stock in a quality company that was oversold. Until it is sold it's all on paper. But like OneEyedDiva points out buying on sale getting the capital gain for me beats a CD every time. The dividend for me in the instance of buying for inheritance purposes the stock quantity will double in less than 20 years. Just about the time when our kids could use a money boost.


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## mathjak107 (Nov 12, 2018)

Knight said:


> If the example you used of 100 k turns into 190 k regardless of the dividend then I'll take that gain any day. Probably overlooked was the concept of buying stock in a quality company that was oversold. Until it is sold it's all on paper. But like OneEyedDiva points out buying on sale getting the capital gain for me beats a CD every time. The dividend for me in the instance of buying for inheritance purposes the stock quantity will double in less than 20 years. Just about the time when our kids could use a money boost.


Just so long as everyone understands it is only about total return  and it does not matter how the total return is arrived at . But the important thing to remember is taking that dividend out is no different then taking the same dollars out of your portfolio.

the return and balance will be the same whether you get a 4% dividend or have a portfolio of non dividend payers and pull out the same dollars .


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## OneEyedDiva (Nov 13, 2018)

mathjak107 said:


> It still is the same deal . Even if the stock doubles and goes up 100% after paying the dividend it is up 100% ON A LOWER BALANCE AFTER THE REDUCTION FROM THE DIVIDEND .
> 
> if 100k in stock pays out a 5% dividend you have 95k left compounding and 5k in pocket . If the  market action pulls the stock up 100% the 95k  is now  190k invested plus 5k in pocket .that is only 195k.
> 
> ...



Mathjak...every time this type of discussion comes up, I get the impression you are assuming people are taking out those dividends via distributions. That is not always the case. You don't factor in what happens when dividends are reinvested and stay invested. Let's see your example of that scenario using that same $100K/5% example. I have accumulated thousands of dollars from dividends left invested in addition to growth due to share price increases (as my example in a previous reply indicates).


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## mathjak107 (Nov 13, 2018)

reinvesting is zero sum .it is a wash .

you have more shares starting out its compounding at a lower price .

a 100k with a 5% dividend is 95k with 5k in pocket . Reinvest the 5k and you have the same 100k in stock back  Only now you start out with the 100k made up of more shares at a lower price then prior to the ex div . If your 100k doubles it is the same 200k as if the stock did not pay the dividend and just doubled.

It is mandatory that the stock is reduced by the amount paid out so all compounding starts out at the lower price after ex div . More shares x a lower price if you reinvest is the same 100k.

there is nothing extra you get  or money created out of the air with dividends .  It is identical to you getting the same total return on non div payers. If you reinvest you have your same amount back , if you don’t reinvest then you pulled money out and the compounding going foraged is on less money .


What confuses people is reinvesting gives them more shares but because each reinvestment just sets you back to the same dollars you had payouts are neutral .


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## mathjak107 (Nov 14, 2018)

An easy way to think of it is with a dividend the company sells off a piece of your share price and gives it to you. You can spend it or reinvest it back thereby giving you the same amount invested as prior . Only the same value is broken up differently .

now you have more shares at a lower price . Like a stock split it is a non event , you still have the same amount regardless of the number of shares since the price Is always adjusted to match .

total return is what we invest for . That  can be all dividend growth , all capital appreciation growth or a combo of the two . There are pros and cons of the mechanics of one way over another but  they would all yield the same results assuming the same returns


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## Knight (Nov 14, 2018)

Agreed return is the goal. 


As it happens the 1000 shares of stock I bought in May @ 26.75 had two dividend pays bringing the share amount to 1028.85 Not a big deal. Long term the goal is for the stock to double in amount by reinvesting the dividend only. At that time share amount times the stock price will serve as a nice nest egg. Stopping the reinvesting will give them a nice little fun money amount to blow.


The CD conversation back in may was the cd rate was an annual rate of 2.85% Using the same $26,750.00 the if held to the one year maturity the return will be $762.38


Meanwhile the stock closed today @ $32.18 recovering the cost of the dividend. In 7 months if capital gain was the goal. I could have been sold today for an increase of $6358.39. 


It's all in goal and comfort level. I'm not interested in selling/promoting any stock, the intent all along has been about presenting something visual for those that have a decent time frame to check out what what might work best for them.


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## mathjak107 (Nov 14, 2018)

stocks always recover the cost of the dividend if they go up .. but compounding when it recovers will ALWAYS BE ON LESS MONEY INVESTED THEN YOU HAD  if you don't reinvest the dividend . if you did reinvest then it is the exact same return as if you never got the dividend . the dividend is a neutral event . it merey switches what you have to different pockets . it gives you nothing you did not have the night before  in value . period.

it is not like interest . interest is on top of your principal . the bank does not give you interest  and reduce your principal .

a dividend hands you a piece of what you closed at ,  back in your hand  and subtracts it off your principal so to speak . you can put it back in reinvesting it but that only puts back what you already had . it is like saying no thanks , keep it . it just sets you back to where you were .

that is a separate issue then the stock going up .   you can see if you keep the money handed to you even though the stock goes up you have less invested in the stock  .  if you reinvest then you have the same amount in the stock you had and your balanmce will be bigger since you kept the dividend invested too


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## Knight (Nov 14, 2018)

That point has been beat to death. Between Stocks & a CD it comes down to what each is comfortable with. 


I prefer stocks with a dividend, mainly because we've had success in what we have chosen. A point not mentioned and an underlying reason for preferance is the way stocks owned have split 2 for 1 and came back to above the split price. Capital gains along with share increase IMO beats low interest every time. 


When working for a quality company my wife used a major portion of her after tax wage to invest in the company stock via ESOP. Employee Stock Option Plan. She accumulated 1600 shares that way at a 5% discount. As you pointed out stock can increase in value. Her stock split 2 for 1 came back. That company merged and the offer to sell or get 2 for 1 she took the 2 for 1 with no loss in price. The merge was disolved and another company came in and offered the same cash for shares or 2 for 1 She took the 2 for 1. It took about 2 years for the stock to reach a point where the stock split 4 for 1. 


The stock pays a decent dividend 
Annualized Dividend $ 2.50
Ex Dividend Date 11/15/2018
Dividend Payment Date 12/14/2018
Current Yield 4.63 %


We live well off those dividends that are no longer reinvested. That and other income. This isn't about how well we did it's about explaining that for us stocks with a decent dividend accumulated over time could be what motivates someone else to do research and possibly insure for themselves a comfortable retirement.


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## mathjak107 (Nov 15, 2018)

what is total return ?


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## mathjak107 (Nov 15, 2018)

it ends up getting beaten to death because the mechanics of these dividends is something few understand . they think it is like interest and it is a totally different thing .   the concept that you get money but it is a wash is hard to grasp for most .

they also fail to understand that chasing yield is very dangerous .  nor do they realize that getting as an example a 4% dividend is the same thing as just taking a 4% draw from a portfolio that may get no dividends .


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## Aunt Bea (Nov 15, 2018)

I agree with Knight that it boils down to what a person is comfortable with.

I have both growth and dividend investments.  Like many people, I compartmentalize what my various investments contribute to my retirement.  I have an investment that I take the dividends from and reinvest the capital gains on to help boost my income.  I have a growth investment that I _harvest _from every few years when I need a new car or other large purchase.  

Sometimes you're an egg farmer and sometimes you're a chicken farmer.  The important thing is to keep on farming!

_"A chicken for its eggs, bees for their honey, a cow for her milk and a stock for its dividend."
.
_


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## mathjak107 (Nov 15, 2018)

i was getting quite a bit in dividends , but through the years i realized in retirement , tax wise that was hurting me . i had no control over the flow and that entire dividend amount was taxable . it actually hurt me getting an aca  rebate when i was  trying to insure from 62-65 .

if i get a 4% dividend that entire 4% is taxable to me . if i draw 4% out of funds that spin off little in dividends but have the same or better total return then i am only taxed on the gain portion not the entire 4% like a dividend , yet at the end of the day your balances would be the same pre tax .

dividends are convenient as far as an income stream since the company does the selling off of the share price for you rather then you doing the rebalancing , so they are not a bad thing ,.

but their is no magic fairy dust that creates any extra value other than the total return .

retirees get burned because they think dividends are a proxy for interest from fixed income .  no they are not the same thing and the risk is quite different .one does not replace the other . stocks are always stocks , dividend or not and there should never be a thought that a 4% dividend is the same as 4% in interest from fixed income as an example . a 4% dividend is in lieu of a piece of your share price , interest is on top of the share price or balance .

how many have been licking their wounds from  chasing dividends with the ge's , gm's  or kinder morgans  of the world , a lot!.

dividend payer or not stocks are stocks and they will behave like stocks. look at the punishment AT&T  holders have had over the years .  so bottom line is never think for a second a stock and a cd are a proxy for each other


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## Knight (Nov 15, 2018)

I'm going to post this more as conversational because overall I think all this is moot. Either most are to old or already have what they feel comfortable with in place.  It comes down to early in life to planning, planning & planning. Then adjusting the plans as circumstances dictate then planning some more. 

It's good that you bring up taxes, taxes may be overlooked by those planning for retirement. That and market fluctuations which can nose dive when needed. I look at planning as not being something started when you are in your late 50's or early 60's. 


There are recognized problems, not everyone can set aside money, and those that could have didn't. Toss in lower paying service jobs, robotics & technology impacting jobs and the future looks kind of bleak to me. 


Time makes a difference. You mentioned GE. In 1996 GE could be bought for just under $6.00 a share. in 2008 $29.00 and change a share. Never really a high dividend return and IMO a long time to build capital value. BUT as part of a self directed IRA the gain untaxed until forced to draw on is welcome. Building capital inside an IRA never hurts. Planning for the tax bite should include having a percent of an MRD distribution tax with held. Same goes for a traditional IRA. Can't say what happens with a ROTH IRA since none are owned. 


Health is the elephant in the room, but the good news is Medicare. Not fun is having the entire cervical part of your spine rebuilt. Out of pocket cost with the most expensive part being the co-pay for the ambulance of $180.00, of the $720.00.  Not really an out of pocket expense since having a company paid retirement benefit of a health spending account covers all that. 


Life is good after I post this it's off to M casino for a spa day for my wife, and gambling for me until she is done. Then both off to Green Valley ranch for gamboling together and a good meal later at Hank's. Hoarding money is not what we do. 


BTW that stock that went up over $5.00 in 7 months the last I looked today it dropped $1.47 a share. That is the kind of thing risk adverse people dread.


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## mathjak107 (Nov 15, 2018)

Knight said:


> I'm going to post this more as conversational because overall I think all this is moot. Either most are to old or already have what they feel comfortable with in place.  It comes down to early in life to planning, planning & planning. Then adjusting the plans as circumstances dictate then planning some more.
> 
> It's good that you bring up taxes, taxes may be overlooked by those planning for retirement. That and market fluctuations which can nose dive when needed. I look at planning as not being something started when you are in your late 50's or early 60's.
> 
> ...


What risk adverse people fail to realize is that even after these drops the balances over time are still far higher then hiding under a rock in fixed income .

A hypothetical 100k in the fidelity insight growth model which I use , since 1987 is now  2.7 million without another penny added . On the other hand using the fixed income model all those years you would be at a fraction of the amount . That model started in 1991 and is 380k.

So yeah more aggressive models fall , but they fall to leveles you would likely never ever be near if you were very very conservative.

good luck at the casino ... we just got back last night from checking out the villages in Florida . What a massive development .


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## mathjak107 (Dec 23, 2018)

ppl is not down much this year . but then again including dividends the stock lost money the last 3 years so i guess like they say you can't get hurt jumping out the basement window .


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## KingsX (Dec 23, 2018)

mathjak107 said:


> What risk adverse people fail to realize is that even after these drops the balances over time are still far higher then hiding under a rock in fixed income .
> 
> A hypothetical 100k in the fidelity insight growth model which I use , since 1987 is now  2.7 million without another penny added . On the other hand using the fixed income model all those years you would be at a fraction of the amount . That model started in 1991 and is 380k.
> 
> ...





Thanks to God,  being smart with my money and my "hiding under a rock" CDs enabled me to retire comfortably early at age 55.  Now, eleven years later,  my CD nest egg is much larger. 

Those three decades long stats you quote will not help an older person whose stocks may have lost money at a critical time he personally needs all his money to support him in retirement and he can't afford to wait years to recoup the loss.

.


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## Trade (Dec 23, 2018)

"I am more concerned with the return  of  my money than the return  on  my money."

Will Rogers


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## Knight (Dec 23, 2018)

KingsX said:


> Thanks to God,  being smart with my money and my "hiding under a rock" CDs enabled me to retire comfortably early at age 55.  Now, eleven years later,  my CD nest egg is much larger.
> 
> Those three decades long stats you quote will not help an older person whose stocks may have lost money at a critical time he personally needs all his money to support him in retirement and he can't afford to wait years to recoup the loss.
> 
> .


I thank my wife. She set our early retirement plan in motion when we were in our mid 30's. She retired in her 40's I retired early at age 54.  24 years later the same as you our portfolio has grown. Not super wealthy but able to live in retirement as we had envisioned.


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## mathjak107 (Dec 23, 2018)

Trade said:


> "I am more concerned with the return  of  my money than the return  on  my money."
> 
> Will Rogers



will rogers never had to live up to 30 years in retirement and battle inflation and mega buck health and dental expenses .

he also said buy land  , they are not making anymore of it . boy he was wrong about that too . battery park city in lower manhattan sits right where the water used to be . they created more land right in the water ....

he had all these nifty sayings which sounded so good but really turned out wrong   ha ha ha


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## KingsX (Jan 4, 2019)

.

Today,  I am taking out a new 5 year CD at 3.75% interest.

This type of investing works well for simple frugal me.   I get a decent return to help with my living expenses while my money is safely FDIC insured and I can put a different POD [pay on death] on each CD which enables that money to go immediately to that specific heir after my death without going through probate.

.


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