Finance/econonomics question: Can we all (mostly) live on dividends?

El_Machinae

El_Machinae

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Suppose I'm way prescient, lucky, hardworking, and clever.
Say I've arranged to accumulate enough capital (in the stock market) to live quite comfortably purely on the dividends.
Post-tax, that is. I even have enough for reinvestment and a fairly respectable charitable donation.

So, other than burning through TV too fast, my life is pretty set.

How expandable is this? Can a clear majority of citizens do this?

Of course we'll still need workers, but we're becoming increasingly automated. And there will still be upper-level management making decisions and raking in mad cash. But if I can live purely on accumulated capital, can nearly everyone? I'm asking if it's scalable, if only in theory.
 
I guess you could, but there are a few issues.

For one, fewer and fewer companies offer dividends. Many companies in fast growing, innovative industries do not offer dividends because the management sees those funds as being better used for capital expenditures, growth, and to buy down debt.

Even those companies that do pay dividends do not necessarily do so on a regular basis. Many companies choose to offer dividends once in a while rather than on an annual basis. This can create cash flow issues.

Finally, consider that the wealth you have invested in the stocks for dividends may be better served in another investment opportunity. There are almost assuredly better ways to have your wealth work for you with little labor on your part than by getting dividends.

If you are looking for a no-worry assured way of earning a regular sum from your investments, you may want to consider bonds instead. Of course bonds are kind of depressed at the moment, but I bet you can get a good rate on Detroit municipal bonds.
 
Yes, of course, depending on who you include.

I was born in '58. In ten years' time I will be selling all the bits of paper I have been saving for decades. A huge hunk of Americans, the Baby Boom will be doing the same, and we all hope to live off the proceeds.

While the next generation will be buying stuff up to save for their own retirements, there are darn few of them. We will have to sell our stocks and stuff to the Chinese, or some other outsider. In ten years or less, expect huge sales of American land, trademarks and companies to foreigners.

I see no way around it and no real problem with it.
 
BvBPL said:
I guess you could, but there are a few issues.

For one, fewer and fewer companies offer dividends. Many companies in fast growing, innovative industries do not offer dividends because the management sees those funds as being better used for capital expenditures, growth, and to buy down debt.

Even those companies that do pay dividends do not necessarily do so on a regular basis. Many companies choose to offer dividends once in a while rather than on an annual basis. This can create cash flow issues.

Finally, consider that the wealth you have invested in the stocks for dividends may be better served in another investment opportunity. There are almost assuredly better ways to have your wealth work for you with little labor on your part than by getting dividends.

If you are looking for a no-worry assured way of earning a regular sum from your investments, you may want to consider bonds instead. Of course bonds are kind of depressed at the moment, but I bet you can get a good rate on Detroit municipal bonds.
Click to expand...

Oh, I have no question that *I* can do it, it just requires a certain combination of luck, acumen, and initial capital. I was just wondering if it was scalable.

Here's my thinking, we're pushing to a world of increasing automation. We're already mimicking this by offshoring jobs. What this means is that a few people get very, very wealthy and a whole host of people cannot get work. But, the dividend payments are just fine. In fact, if my company can automate-out even more jobs, my dividends will continue to rise (and so will the paycheques of a very small few).

There will always be work available. Right now, I'd pay someone 50 cents to clean out my basement. But, as you can see, the guaranteed work is not guaranteed to pay a livable wage. The lowest wage I can truly work for is about 2000 calories per day, and after that, I'm subsidizing my wage with another source of calories.

So, I'm currently (let's pretend) living off of dividends. I'll soon be able to take an automated taxi to a grocery store, shop, and then pay for my stuff at an automated teller. There're obviously low-income workers in this supply chain. And there are a very few amazing-income people in the supply chain, too.

So, the question is entirely not whether today's world can have everyone living off of dividends, it cannot. It's whether (given enough robots) such a world is financially viable. We all use our dividends (from a handful of companies) to create the customer base for the hundreds of companies whose products we consume. And the CEOs get mad cash, and the robots get paid in electricity and maintenance.
 
I think it would mean all of the world's product is generated by capital (equipment and stuff) and none of the world's product is generated by labor.

I do not know if this is desirable. The question that comes to mind is, how do I generate capital for myself so that I can live on the dividends? I suppose I can use my labor to start generating capital and therefore have enough capital to live on dividends. However, in this world where everybody is living on capital, it is likely that the work produced by capital is infinitely more valuable than the work produced by my labor.

Somebody with a better understanding of economics will chime in, I am sure. :)
 
El_Machinae said:
We all use our dividends (from a handful of companies) to create the customer base for the hundreds of companies whose products we consume. And the CEOs get mad cash, and the robots get paid in electricity and maintenance.
Click to expand...
Sounds in principle workable to me. Seems like an interesting solution to the issue if only a fraction of the population is required to provide the entire population with the goods and services actually necessary for a good life.
Harv said:
I do not know if this is desirable. The question that comes to mind is, how do I generate capital for myself so that I can live on the dividends?
Click to expand...
I don't ever see this happening naturally. Rather, I think this would have to somehow be institutionalized. It would have to be designed that way. At some point we would have so say "Alright, the work a majority of the population does nowadays isn't worth it anymore in terms of quality of life" and then we would have to make them company-owners. In principle, just like that.
If we were happy with a rather simple life, we probably could already do something like that. In theory.
 
Why fool ourselves? There is no better life on that end.

Money does not make us happy. Vocational pride makes us far more fulfilled than de-linting our belly buttons and support unscrupulous businesses for short term profit. By the definition of market economy we may be a sucksess but by the definition of value to our people, community and mankind we will be an absolute cancer and a tragedy.
 
To be blunt - it is simply ridiculous that paid work-life was the only way to find pride. You can also do stuff without getting a paycheck. And there will be plenty of people having the time to do it together with. And you will actually be free to pursue what truly gives you value. But ey if you only have pride once there is monetary expression (sounds rather sad, but okay) - the idea is not to outlaw work.
 
I said no such thing. I adore artists that make value - sometimes for noting. The sickening part is profiteering of others work. Which you seem perfectly fine with.
 
If doing your possible part to help society progress is suffering to you but greedily rob others of the fruits of their labour is not then OK, fine. Want some comfortable slippers with that delusion?
 
Work is very much more than having a job, or paid employment.

In fact, everything you do, all activity, is work.

And I see no fundamental reason to have money at all.

No one can "live" on money, whether it comes from dividends or paid employment. We live on food, which at the moment we usually buy with money.

It (the buying of food with money) hasn't always been this way, it isn't this way for everybody, and there's no reason to think it will always be this way.
 
PupzHaze said:
If doing your possible part to help society progress is suffering to you but greedily rob others of the fruits of their labour is not then OK, fine. Want some comfortable slippers with that delusion?
Click to expand...
See what you label "robbery" is my idea how society can progress the best. Better lives is progress to me. Nothing else. And we are talking about a scenario where "only that is mine which I can get by some kind of trade" stands in the way of such progress. Simple as that. And your ideology robs people of that possibility.
 
What better lives? You just drink from the fountain of market economy delusions. How many times can you wake up from that comic book and plant flowers?
 
PupzHaze said:
What better lives?
Click to expand...
The better lives created by being freed from the logic of economics enchaining us nowadays. It really is not a difficult concept to grasp. I don't know what makes it so unbearably hard for you.

Other than this question I have no idea what you just said.
 
What I said is that you just harp on about things you have heard without knowing what you say. Like a parrot.
 
El_Machinae said:
Suppose I'm way prescient, lucky, hardworking, and clever.
Say I've arranged to accumulate enough capital (in the stock market) to live quite comfortably purely on the dividends.
Post-tax, that is. I even have enough for reinvestment and a fairly respectable charitable donation.

So, other than burning through TV too fast, my life is pretty set.

How expandable is this? Can a clear majority of citizens do this?

Of course we'll still need workers, but we're becoming increasingly automated. And there will still be upper-level management making decisions and raking in mad cash. But if I can live purely on accumulated capital, can nearly everyone? I'm asking if it's scalable, if only in theory.
Click to expand...

Whatever output we create, we can distribute however we can. If we make a system in which we have enough automation that peoples needs can be met without labor, and we choose to finance it with accumulated financial assets, then that's how we do it.

The problem is that if it's a for-profit system, and everyone's living off accumulated financial assets, and if there's any scarcity of stuff then prices are going to rise (because the demand is there and the supply isn't) and the poorer investors are going to have to work again.
 
Toy Model

Let's say we have 5% annual interest, and it costs $50/yr initially to live with 3% inflation consider these six people with the following net worths

A: $1000
B: $1500
C: $2000
D: $3000
E: $4000
F: $10000

After 1 year the net worths are

A: $1000
B: $1525
C: $2050
D: $3100
E: $4150
F: $10540

After 10

A: $916
B: $1731
C: $2545
D: $4174
E: $5889
F: $15576

After 25

A: $155
B: $1848
C: $3541
D: $6928
E: $30632

After 50

A: (bankrupt as of year 27)
B: (bankrupt as of year 48)
C: $5226
D: $16693
E: $28160
F: $96965

C will bankrupt year 84, D, E, and F are sustainable

Also note the increasing disparity between D E and F
D used to be 30% of F, E used to be 40% of F
Now D is 17% and E is 29%

Basically because the larger investors can reinvest a larger percentage of their dividend they will slowly accumulate a greater percentage share of total wealth. The rich get richer, the poor and middle class left behind. One would need government intervention to keep things from collapsing.
 
Perfection said:
Toy Model

Let's say we have 5% annual interest, and it costs $50/yr initially to live with 3% inflation consider these six people with the following net worths
Click to expand...

A 5% return with 3% interest is effectively a 2% return. If you need at least $50/year you need to have an initial investment of $2500 to live on the capital sustainably.

Here's what I want people to remember, there's no doubt that any specific individual can get enough wealth to live entirely on the dividend. What I am wondering is if this is scalable with increasing automation, if the financial system would be able to handle such a thing.
 
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