The Tale of Two Investors


shutterstock_165348779 shutterstock_149502512

The Initial Facts

Joe and Joanne are both 55 year old investors. They hope to retire in 10 years and they each have $100,000 invested in the stock market.

Joanne invested in a portfolio focused on the highest dividend payers in the U.S. and Jim put his money in a portfolio that tracks the S&P 500 Index, which consists of both dividend paying and non- dividend paying stocks.

We used historically data to show how this would have worked over a live market, but remember, past performance is no guarantee of future results.


The Accumulation Phase

For the first 10 years, both investors did not take any income, but instead re-invested their dividends. Let’s call this the accumulation period.

Joanne‘s portfolio value after 10 years was $386,848 and Joe’s portfolio value after 10 years was $385,118.


The Distribution Phase

For the next 20 years, each withdrew 5% income from their respective portfolios.

Joanne was able to take $718,757 after 20 years and Joe was able to take $569,079 after 20 years.

Joanne’s additional income is over $149,000 more than Joe’s income.


Ending Value

Joanne had an ending value of $906,634 and Joe had an ending value of $691,313. This represents a difference of over $215,000 which represents additional residual portfolio value. Joanne essentially got a total of $364,000 more in additional income and growth from the same initial investment.


What drove the income and why the big difference?

Joe’s withdrawals were made up of about 65% principal and 35% dividend payments, while Joanne’s withdrawals were made up of nearly 21% principal and 79% dividends! This was the key to her end balance and sustainability of her portfolio.



Joanne’s portfolio is comprised of the top 30% of the highest dividend yielding stocks in U.S. listed markets. Joe’s portfolio tracks the S&P 500 Index. Sources: Bloomberg, Kenneth French Data Library. Period from 12/31/1985 to 12/31/2015, with accumulation phase from 12/31/1985 to 12/31/1995. Withdrawal phase from 12/31/1995 to 12/31/2015. Hypothetical example for illustrative purposes only. Does not represent an actual investment.


Discovering the Power of Dividends

Generating income is a universal challenge that impacts most investors. With bond yields at a low point, dividend paying equities can become a income engine for your portfolio.

Since 1926, reinvestment of dividends has been responsible for more than 96% of the stock market’s return, helping a $10,000 investment grow to about $47.6 million-more than $46 million over the stock returns alone.



The S&P 500 Index and data compiled by Jeremy Siegel, Professor of Finance at the Wharton School of the University of Pennsylvania. The S&P 500 Index is an unmanaged index of 500 U.S. large-cap common stocks traded on the New York Stock Exchange and NASDAQ Stock Market, weighted by market capitalization. It was launched on March 4, 1957. Professor Siegel has reconstructed S&P 500 Index returns for earlier years using methods explained in his book, “The Future for Investors.” Unlike a mutual fund, the performance of an index is not reduced by operating expenses, transaction costs and taxes. It is not possible to directly invest in an index. Index performance is for illustrative purposes only and is not intended to represent the past or future returns for any actual investment. Past performance does not guarantee future results.





Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s