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Dividends - Quicken for Windows - Lifetime Planning Feature

dkinsella1023

What's the most accurate way to enter assumptions for dividends in the planning tool.

It's seems as though I can do it through expected annual rate of return or by entering as income.

I tried both ways and they yield substantially different results.

When entering as income, I also don't understand why there's such a big difference between checking the boxes for "use to pay expenses" vs "use for investments." In my situation, dividends are used to pay some expenses and the balance goes to investments.

Thanks for any insight you can provide.

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mshiggins

Just confirming, your question is about the Lifetime Planner feature in the Planning tab?

dkinsella1023

correct

Scooterlam

https://community.quicken.com/discussion/7940931/dividends-quicken-for-windows-lifetime-planning-feature

My recommendation is to estimate your overall portfolio RoR using either 1. a forward-looking estimates from expert guidance or 2. a historical back-testing of your portfolio using a tool like Portfolio Visualizer. See the references linked HERE. They are the same as the ones I provided to your in another post on this subject. They provide insight to there methods regarding dividends, dividend growth and P/E growth over time. A bit of crystal ball gazing so I prefer also to back-test my portfolio as well.

Be sure to use a portfolio weighted RoR. That is, if you have say stocks, bonds and cash, then use the sum of (asset class weighting x asset class forecast %) to come up with an overall estimate. See the reference linked HERE.

If I understand you correctly, your proposal as an alternative way of calculating RoR, would forecast your portfolio's RoR by first modeling dividends as income in LTP, then inflate those dividend by some growth estimation and finally, estimate the remaining price growth of the underlying security using RoR assumption? Hmmm….Not sure I would dive that deeply into a growth model for the next 20, 30 or 40 years. If you want, have a look at some of John Bogles thoughts on predicting future stock prices linked below. Perhaps there are some ideas on how to model your alternative. Are you retired and taking dividends now? As opposed to reinvesting them?

https://alphaarchitect.com/2021/03/predicting-stock-returns-using-a-simple-model/#:~:text=Mr.,in%20the%20P%2FE%20multiple.

You don't provide detail on the differences between your two "dividend approach" (assumptions and results) but I would say that modelling it and deciphering the results would not be trivial. While there is a lot you can do with "other income" assumption in LTP (time frames, tax rate, growth rate et al), personally, I think it would be additional source(s) of error in both modelling and assumptions in your plan v. using an RoR forward-looking estimate or back-testing approach, described earlier. I can see there being tax modelling errors that could increase your expenses and thus reduce your end of plan balance. There may be others.

Regarding your last question, I have not looked at how LTP model applies "income to investments" v. "income to expenses". Reference image below. I would expect that income applied to expenses is immediately used, in that time period, to defray expense and only after this income is exhausted, LTP draws against an investment to cover the expense fully. This is how I would apply it but hard to say how LTP models it. You can have a look yourself making a couple of simple test cases and inspecting the plan result table the plan year in question.

Good luck

dkinsella1023

Thank you!! I'm going to stick with ROR estimate as you suggest. I have a good handle on it since all our investments are in etrade and they have an estimator for income from investments based on actual dividends.

I just want to say how extraordinarily helpful this community is! I really appreciate everyone who takes the time to understand the question and provide detailed answers and information. Thank you!!

Scooterlam

Glad to help. If you like Lifetime Planner and want to see it further developed, there is a list of ideas, below, you can review, comment and vote on. Many of the ideas provide insight on current functionality as well. Have a look.

https://community.quicken.com/discussion/7713110/lifetime-planner-bug-and-idea-list-make-yourself-heard