Early retirees require reliable cash flows to fund their living expenses. To achieve this, two popular schools of thought exist: Dividend Growth Investing (focusing on high-quality companies that increase dividend payouts) and Broad Index Investing (buying the entire market and selling shares as needed).
Dividend growth advocates argue that living off dividends prevents having to sell shares during market crashes, avoiding sequence of returns risk. Indexing advocates highlight that focusing purely on dividends results in poor sector diversification and potential tax inefficiency in many jurisdictions.
Ultimately, total return is what matters. A balanced approach combines a core index portfolio with a minor allocation to high-quality dividend ETFs to smooth out cash flow volatility. Model your income distribution preferences in your portfolio sandbox to find the ideal balance.