Lately on this sub I have been seeing the ridiculous notion that dividends are a "waste" and "horrible" for taxes, which simply isn't true.
Let's start with taxes.
2018 Capital gains taxes are as follows: Long-Term rates: 0% for up to 38,600 for single, 77,200 for married filing jointly 15% for 38,600-425,800 single, 77,200-479,000 20% over 425,800 single and 479,000 married Short term capital gains are taxed as ordinary income rates, the tax bracket you fall under for your yearly income. I won't list each income range, but rates are 10-12-22-24-32-35-37%.
The key difference to keep in mind is what falls under long term rates and short-term rates as well.
Long Term: qualified dividends, dividends from stocks held longer than one year. Holding a stock for greater than one year, then selling. Dividends from stock index funds and ETFs as well. Short Term: interest income, bond interest, REIT dividends, Peer-to-Peer, CDs, high-yield savings, selling stocks/mutual funds/ETFs shorter than a year.
Majority of us have access to some type of 401K/403b/457 and a Roth IRA. That would give you 18,500 and 5,500 a year for tax-advantaged growth. Double that if you are married and max it out. After that point, you will have to put money in taxable accounts.
Keep in mind, there are risks and downsides with strictly putting ALL your money in tax-advantaged accounts that nobody seems to discuss. The tax code can change in 30 years, your tax rate is concentrated at one point of your life rather than a smooth average, less flexibility with your money, high fees and poor options offer by your job's 401k, you may never get to enjoy it (death or extreme illness).
Having a taxable account with TAX-EFFICIENT investments is not a waste. Qualified dividends, individual stocks, and Municipal tax-free bonds are all great taxable investments. A rate of 15% is very fair and low compared to what people get paid as income to use their actual bodies and time. No FICA taxes either. Once you pay taxes, it's your money, and do not have to have the government telling you what to do. For every 1,000 you earn in dividends, you'd pay 150 dollars. Someone working as a laborer making 60,000 a year could pay as high as 15% in federal taxes.
Dividends have accounted for as low as 25% to as high as 60% of the TOTAL RETURN of the S&P 500, depending on which time frame you select to use. To all the religious "time in the market, beats timing the market" followers, this is the large reason why it matters, the compound effect of reinvesting dividends, not the price change of the index.
A dividend is real money given back to the owners, you the shareholders, as you see fit. It's not a waste. If you bought a pizza business, you would want to enjoy some of profits rather than continuing to invent different kind of pizza dough. If you rented a home, you'd want to enjoy some of that monthly rent, not keep painting and upgrading the rental. So why wouldn't you want the same from companies you own?
Not every company is Amazon, Facebook, and Netflix, where you have 50% year after year change in price. Many companies cap out on their rapid growth and mainly have to focus on a dividend growth strategy. The FANG stocks will at some point as well, only so many ways to reinvest their capital. Apple had so much cash and no other ways to rapidly grow, they had to give a dividend and buyback shares rather than keep hoarding from shareholders.
91% of Warren Buffets stocks are dividend paying stocks. His top holdings are all dividend paying stocks as well.
TL;DR Taxes and dividends are not bad if you use a buy and hold strategy.
Submitted February 16, 2018 at 09:06PM by KissmyASSthmaa http://ift.tt/2C4IaaI
