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I’m wondering if there’s data on how much dividends for total market or S&P500 go up or down on average during bull vs bear market. As a retiree, I rely on my dividends and interest for my living expenses. It seems somewhat arbitrary to just hold 5-7 years of total living expenses (minus SS/pension) when in fact, dividends would like still happen even in a market downturn?
We hold 5-7 years of living expenses because past performance is never a guarantee of future, in dividend payouts or in market prices. Our world, including financial markets, is driven by randomness. Expected returns are heavily influenced by rare, “long tail” events. There is no way to predict what future crises will look like. And the lucky few who guess at one will not guess right at the next.
Having said this, dividends tend to move far less — up or down — than prices. But as we saw with ex-US dividends during the pandemic, they can still drop more than long-term average declines for typical business cycle recessions.
Thanks, good to know about ex-US dividends.
That seemed to be a unique outcome. Every other decline I looked at was different from the pandemic’s dividend drop with respect to US v ex-US.
much appreciated
This isn’t quite the answer you were looking for, but I think it’s a useful data point: At one juncture during the 2008-09 Great Recession, the dollar amount of dividends paid out by the S&P 500 was down 25%.
thanks, that is helpful. much appreciated.
Why not sell and take some gains? There is no rule that says you can’t use principal for expenses.
Why sell your principal for expenses? There is also no rule that says you cannot live solely off interest and dividends. The author has simply chosen to play a different game.
Over the last 20 years the average yield is 1.89%. For the SP500
Low was 1.23% High was 3.11% and the Mode was 1.76%.
I would budget on 1.23%. You would likely do Okay to budget 1.76%
20 Years of Dividend Yield (%)
2004, 1.63
2005, 1.76
2006, 1.76
2007, 1.87
2008, 3.11
2009, 2.00
2010, 1.86
2011, 2.13
2012, 2.17
2013, 1.94
2014, 1.92
2015, 2.11
2016, 2.08
2017, 1.89
2018, 2.00
2019, 1.82
2020, 1.58
2021, 1.33
2022, 1.69
2023, 1.23 (approx.)
Change in yield wouldn’t necessarily provide a good answer, because you’re measuring a ratio if prices plummet, it’ll raise yield, but if rate goes down, it lowers total return even while yield goes up.
Exactly. The yields you should care about are cost-basis dividend yields, not market price yields.
I don’t know the answer, but I would assume that dividends are more dependent on the individual companies performance rather than stock and stock market performance. My stocks have been through many market ups and downs and dividends never declined or increase during major market swings.
thanks for sharing your thoughts. I didn’t clarify that I hold total market or SP500 ETFs, not individual stocks. I supposed I could just assume a 25-50% drop overall during a downturn.
This is true but companies can suddenly cut dividends, that often also lowers prices (if you’re not a diamond dividend or dog of the dow, you suddenly drop out of some ETFs). It’s good that you’ve never experienced the downside, but it definitely happens.
I think this is close to the answer as one mihht get. Down makets typically indicates the companies are not doing well or not growing and some of them will cut their dividend. Take GE for an example prior the split when the lofty dividend was cut to a penny. Dividends can go up and.sown, although with a well balanced portfolio, it shouldn’t affect things too much. Keeping some cash as a buffer still make sense although 5-7 years might be a bit much.
yes, I had thought to bring it down to 5 years worth at a minimum