A.I.M. Users Bulletin Board

[ls7550]

Hi Steve

GIEW is at 40% cash as of today, and I'm thinking of liquidating or reducing some of my programs.

That's quite close to the 43% average cash that a non dividend equal weighted set of stocks would typically need to average to compare to 100% all dividend paying stocks (total gains).

Kenneth French's data since 1928 indicates non dividend paying stocks had a 21.2% yearly (simple average) but with a massive 45.6% standard deviation

Whilst all-dividend paying stocks averaged 16% with a 25.8% standard deviation.

Leveling to the same standard deviation (volatility/risk) = 57% stocks, 43% cash. After discounting reinvestment of dividends costs, taxes etc provided cash earned the 1 year interest rate, and allowing for some 'rebalance benefits' from holding 57% very volatile stocks, 43% cash, that broadly compares to the annualised gains from 100% dividend paying stocks total gains (accumulation/dividends reinvested).

My understanding is that your GIEW is (broadly) reasonably close to being a non dividend paying, equal weighted type collection of stocks. Typically such growth stocks tend to do very well during rising markets, worst than average during volatile/down markets. With AIM/vWave helping you to navigate through such cycles !!!!

There seems to be considerable bias towards dividend stocks in more recent years - often being proclaimed to provide better risk adjusted rewards. Many however seem to overlook the overheads from such stocks. If for instance a ETF holds individual stocks from around the world each of the countries might levy a withholding tax on dividends, which is absorbed by the fund. Dividends when paid/reinvested incurs a taxable event sooner rather than later, together with other associated costs (broker, market maker fees etc). Whilst the gross pre costs/taxes gains might appear to be mathematically better than non dividend paying stocks, on a actual risk leveled after costs and taxes basis the overall differences are minimal. My guess is that in time when interest rates (and dividend yields) are higher the opaque costs of dividend paying funds/stocks will become more noticeable and some might be swayed to dump ETF's in favour of holding a smaller weighting to low/zero dividend stocks directly combined with cash (and periodic rebalancing).

Regards. Clive.