Investing for Income or Total Return?

I recently wrote an article for Advisor Perspectives that examines the tradeoffs between investing for total return vs. income investing, in which one emphasizes assets that generate dividends and interest payments.  In theory, if the markets are reasonably efficient, investors should not care whether they live on income generated by their portfolios or they sell assets to provide their income.

My article starts by looking at a study by Vanguard that compares income investing to total return investing.  The Vanguard study concludes that a total return approach makes more sense.  I find that the study’s results unfairly penalize income investing strategies and ignore certain important ‘real world’ effects.

I do not find that income investing is necessarily superior, but I do conclude that there is not reason for investors who are inclined towards an income-focused approach should be discouraged.

Your thoughts?

This entry was posted in Income Investing and tagged , , on by .

About Geoff Considine

After earning his Ph.D. in Atmospheric Science, Geoff worked for NASA for 3 years, leaving to become a quantitative analyst developing trading and portfolio management solutions for an energy trading firm. In 2000, Geoff became a consultant focusing on quantitative methods in portfolio management. Geoff founded Quantext in March 2002. Geoff has published commentary and analysis in a range of publications. Quantext is a strategic adviser to FOLIOfn,Inc. ( ( Neither Quantext nor Geoff Considine is an investment advisor.

6 thoughts on “Investing for Income or Total Return?

  1. Drew

    I’ve not read the Vanguard study, however, one should become aware of Prof. Aswath Damodaran work in this area. One of his books “Investment Fables, Exposing the Myths of “Cant Miss” Investment strategies. Chapter Two of his book details the robustness of investing for dividends. Used copies of his work may be found at for a pittance. His website features updates on dividend investing.


  2. Nanette Byrnes

    Drew — thanks for the link and the information on Prof. Damodaran from NYU’s Stern School. I hadn’t come across his work and look forward to digging into his blog and research.

  3. Geoff Considine Post author

    I am not sure of what your point here is. I certainly don’t present income investing as a panacea, but simply am pointing out that my research does not suggest that income income investing is inferior to a total return strategy. Vanguard proposes that income investing is inherently inferior for long-term survivability, which I believe is incorrect.

  4. Drew

    Indeed, we’re on the same page. Investing for income is not a panacea, nor is any investing discipline, be it value or growth in many of its hybrid forms the holy grail.

    Simply stated, as per the work from Dr. Damodaran, within a test period from 1952 to 2001, stocks with a higher dividend yield outperformed its lowest dividend yielding brethren.

    However, Damodaran also points out that this is not a blanket methodology for all types of weather, clement or inclement(my paraphrase). Lower dividend stocks outperformed their peers during the years of 1971 to 1990. Damodaran suggests that higher yielding stocks do not perform well in an inflationary environment.

    Thank you for the thoughtful article.


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