Using tax advantaged accounts after retirement

[beanhead]

Perhaps this is because of underperformance in Japanese equities in the last few decades, or the sense that relying on capital gains is "gambling", but in any case, it seems in Japan you've FIREd if have enough "income gain" from dividends to cover your annual expenses. Meanwhile, the whole 4% rule is based on selling down and living off capital gains.

I noticed this too. The Japanese 'early retire' brigade hold lots of REITS and, as you wrote, dividend stocks.

[mighty58]

The chart at Section 3-1 at this link sums up Japanese thinking on this: https://www.musashi-corporation.com/wea ... incomegain.

According to them, a capital gain strategy is:

• high risk, high return
• good for those looking for big returns (think multiples) on their money,
• but watch out(!), you can lose it all too as principle loss risk is high

Meanwhile, an income gain strategy portrayed as:

• low risk, low return
• stable and continuous returns can be expected, up to 8% max
• suitable for those looking for stable, low maintenance investment returns

No mention of the risk of a company suddenly deciding not to pay dividends. When that happens, there are likely to be bigger problems at play, so you'll be looking at a double whammy that hits the stock price as well as your dividend (think Nissan, until recently one of the darlings of dividend investors in Japan), forcing you to sell at a loss and redeploy if you want to maintain your dividend income level. The reliance on single stocks in a pure income gain strategy makes it very high risk. I like the concept of dividends and have no problem with them playing a part in your portfolio, but basing your retirement strategy completely on dividends seems a lot riskier than playing the 4% via index funds.

[zeroshiki]

How do people feel about dividend yielding mutual funds as additional investment? There's a couple ones that have very good returns like Alliance Bernstein. Current price is 12000 JPY and it just gave 300 JPY this month. Thats a 2.5% return in a month! Obviously there's risk of them not giving out the dividends but even if it evens out, a rate of 10-20% return in a year seems pretty amazing. Plus you get the peace of mind of actually receiving the money in dividends instead of the reinvesting that happens with other funds.

[mighty58]

Those funds are not paying real dividends, rather, they are selling off the investor's principal and giving it back to them and calling it a dividend. It creates the illusion of monthly income, but in reality, it's not. Think about it... no stock pays out a 10% dividend in real life, much less 20%.

As long as the market is going up (and we are in a crazy bull market), they can keep "affording" to make high payouts without tanking their NAV price ("dividends" get subtracted from the NAV). But long term, you're just handicapping your own ability to gain from future market rises, because any rise that occurs is paid out to you immediately, instead of being reinvested for the long term.

Look at the graph below (which I assume is the fund you're referring to), the darker orange line indicates performance if dividends were "reinvested". This is real performance minus 20% (dividends would be taxed at 20% before being put back in). The lighter orange line is the actual NAV, post disbursements, which has remained pretty steady despite the bull market.
In other words, if they paid out 2.5% as a dividend this month, it's because the market went up by that much, or more. But had you kept the money in, and not had to pay 20% on the dividends, you would be in an even better position for future growth. So if you're still in the accumulation phase of life, steer clear.
And I won't even get into their ridiculously high 1.7% fees...