Dividends4Life: Dividend Growth Investing And Modern Portfolio Theory

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For the past couple of years, an active discussion or debate has been going on between proponents of dividend growth investing [DGI] and proponents of modern portfolio theory [MPT]. I have been in the middle of some of those debates. I often wonder whether the two strategies for portfolio construction can be reconciled. MPT intrigues me, and I have made many efforts to compare the two paradigms of investing. MPT's main principle - that it is possible both to decrease the volatility and increase the total returns of a portfolio by investing in uncorrelated asset classes - strikes me as both non-intuitive and very much supported by most of the data and many studies

I am troubled by the absolutist nature of what MPT has become, which is dogma in many pockets of the investment advice industry. Most troubling is that MPT is focused on a single objective - maximizing total return for a given amount of "risk" - when many investors have other objectives or are looking for solutions to specific problems. In particular, many investors desire to build reliable growing income streams for retirement, income streams that they can live off without selling the underlying assets. MPT does not address this goal directly.

Source: Seeking Alpha

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