Different investors of different ages will have different goals, depending on who you are.
Younger investors (those in their 20s to 30s) would prefer to go for growth because they are young, and they do not need the cash urgently. Older investors, or investors who are no longer working (those who are in their 50s and 60s), may want to get their hands on dividends so they can take it out to spend as cash.
Investing in the U.S.
As a young investor, I am more inclined to concentrate my money on stocks that have little or no dividend distribution, especially those stocks that I hold in the U.S. Why? I would like that money to compound uninterrupted. After all, I am blessed that I know about value investing early. Because I am young, it means that I have a long runway ahead of me, giving me the opportunity to compound wealth for a longer period of time.
If I were to invest in stocks that pay a huge dividend, the U.S. government will tax me 30% on the dollar on those dividends. This leaves me with only 70 cents for every dollar that I earned! As we all know, 30% tax in one year may not mean much, but if I get taxed 30% for 10 or even 20 years, the compounded amount would be a lot more. It could mean the difference between riding a bicycle versus driving a brand-new Toyota (TM, Financial) to work!
Berkshire and Markel
So for instance, if I am investing in Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial), I would be happy to let Warren Buffett (Trades, Portfolio), the second-richest man in the world, and his team of experienced investors grow my money for me. If I were to invest in Markel (MKL, Financial), I would be getting Thomas Gayner and his team to grow the capital that I have entrusted to them. I do not have to worry about where I am going to allocate the dividends these companies pay out because they do not pay out any dividends at all.
All I need to do is relax and make sure that I have bought shares in their companies at reasonable prices. Then, it is just a waiting game, letting these pros compound the money while I sleep peacefully at night.
American REITs
This is in contrast to if I were to invest in REITs in America. If I get a $50,000 annual dividend from a REIT, 30% of it would be taxed, leaving me with $35,000. I could have bought a new Toyota with that taxed money! Now, I am not saying that investing in American REITs is a bad thing. It could be good if you are not being heavily taxed.
Singapore REITs
For instance, in Singapore, REITs are a very popular investment choice. I am invested in some of them. The reason why REITs are popular is because land here is scarce, hence the costs of renting and buying property are incredibly expensive.
Also, in Singapore, we have malls near every train station. When people get off work, they usually pop by these malls to have dinner and shop for groceries before returning home. REITs own many such malls here.
This means that investors in REITs have a high yield on their capital. Also, in Singapore, just like in America, REITs are required to distribute 90% of the cash that they make. One reason I invest in Singapore REITs or any other stock here for that matter is because the government does not tax capital gains or dividends. Yup, you heard that right; basically whatever I earn on my investments here is 100% mine to keep. If I earn $50,000 through my REITs, I am allowed to keep all $50,000 of it.
Conclusion
“I’m no genius. I’m smart in spots – but I stay around those spots.” – Tom Watson Sr., founder of IBM (IBM, Financial)
I am not exceptionally smart, but I think that I stay in spots that give me the highest utility for my money. And that is to invest in stocks without paying too much in taxes. In America my stocks give me capital gains; in Singapore my stocks give me capital gains all well as dividend gains, all while minimizing the taxes I pay. I am very lucky to be living in a time where I can purchase shares from halfway across the world with just a click of a button.
Disclosure: I am currently long Markel.
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