A Solution for Index Investing Where You Only End Up Staring at Numbers in Your Account
Even when my securities account balance increased, my life didn’t change, and I thought, ‘In the end, I’m going to have to gradually sell this off myself, aren’t I?’
I got really into Tsumitate NISA, assuming I’d use my salary, and although I started index investing and reached a certain amount, it doesn’t feel like my life has changed.
In fact, since I’m investing more every month than I would just by saving, the reality of my daily life feels slightly worse.
The following is a summary I had GPT create regarding the structure I clarified through talking with GPT, and the solutions derived from it.
The conclusion is simple, as follows.
Maximum efficiency in financial engineering (meaning if you eat bean sprouts every day and cut your own hair in the bathroom, the asset amount in your account will grow with maximum efficiency) is a different story from maximizing the richness of your life.
I have two proposed solutions.
‘Go out of your way to increase the hassle of receiving dividends and then using those dividends to buy new index funds or stocks yourself.’
‘Enjoy shareholder perks’ (sorry, I made this part paid content).
Below is a summary by GPT.
Summarizing today’s discussion in terms of structure, the central theme is the trade-off between ‘maximum efficiency in asset formation’ and ‘the feeling of owning assets’.
I envy the ‘dividends received this month’ posts I see on TikTok.
First, the starting point is reinvestment-type index funds vs. dividend-paying assets. Reinvestment-type index funds are highly efficient in terms of financial engineering because profits are continuously reinvested internally. No decision-making is required, and it is easy to maximize compound interest. On the other hand, even if assets are increasing, no cash flow is generated, so it is easy to feel like ‘money I’m not using is just increasing in the account.’ Ultimately, unless you sell it yourself, it will never be converted to cash in your lifetime.
Theoretically, the total asset amount does not change between index reinvestment and dividends.
From here, the discussion moved to reinvestment vs. cash flow. With dividend assets, the company periodically pays out a portion of the asset value as cash, making it easier to get the feeling that ‘assets are producing assets.’ Economically, since corporate value decreases due to the ex-dividend date, it is not essentially much different from selling a portion of an index fund. However, psychologically, it is very different. Selling an index fund feels like ‘chipping away at your foundation,’ while dividends feel like ‘the fruit has fallen while the tree remains.’
Automation is the strength of index reinvestment, but if there is no tangible feel or sense of reality, it is the same as having nothing.
Therefore, one of the important takeaways from today is that maximum efficiency in financial engineering and the satisfaction of asset ownership do not necessarily align. Reinvestment-type index funds are strong for maximizing asset amounts, but that does not necessarily maximize overall life satisfaction. If the purpose of holding assets is not just to ‘maximize the final balance’ but to ‘feel how much capital is supplying value to your life,’ then dividends and shareholder perks have a clear utility.
Even the ‘dividends this month’ on TikTok, if you don’t end up using it all to buy stocks or index funds, your compound interest efficiency will naturally drop.
The moment you think of dividends as ‘money you can use for your standard of living,’ you’ve lost.
On the other hand, there was an important self-realization here as well. The moment you recognize dividends as ‘money that has come in and can be used,’ you are moving away from maximizing compound interest. If you reinvest the dividends as they are, you can maintain compound interest, but if you think it’s okay to spend them because they are dividends, your asset growth potential will weaken by that much. In other words, the idea that ‘dividends are fine to spend freely because they don’t reduce the principal’ is not entirely correct economically.
Method 1 for feeling the tangible sense that ‘assets are producing necessary assets’ without lowering compound interest efficiency
However, what is interesting here is the meaning of intentionally going against automatic reinvestment. With reinvestment-type index funds,
Assets → Profits → Automatic Reinvestment → Assets
is completely closed.
With dividends,
Assets → Dividends → You receive them → You choose whether to reinvest or consume
a step is inserted.
This process of ‘going out of your way to receive them’ is unnecessary if you only look at efficiency. However, in return, you can visualize ‘how much your assets are producing annually.’ In other words, dividends are not just cash flow, but also a visualization device for capital productivity.