Question about this nasdaq table

Question

I'm a complete amateur when it comes to investing  but lately I have been thinking of investing my money so I did a little digging. I've found out about dividends and I want to  achieve some long term earnings from it. I came across an article from NASDAQ and I saw this table but have no idea how it works:

Assuming the investor retires at 65 years old, has a 100% allocation to equity securities (I don't know what this means), and the stocks he owns provide a 2% annual yield, wouldn't his portfolio size on the second year be $18,180?

Bob Baerker · Accepted Answer

9% of $9k is $810 so the total after two $9k  contributions and one year of growth is $18,810 not $18,180.
The article also has a math error in that it cites  25 years of growth but the chart only goes out 24 years.

The S&P 500 has returned ~9% annualized on a long-term basis.

The article implies that you earn 9% annualized, long term, as well as 2% from dividends.  Dividends are counted as part of total return, not because they provide total return but because it's far more complex to explain adjusted close for historical performance.

Their final portfolio value of approximately $722 thousand will generate passive income of $14.4 thousand annually from a very reasonable 2% portfolio dividend yield.

This is one of a long line of web articles that implies that dividends are income.  They provide zero total return.  Reinvested dividends enable compounding but they are not the cause of compound gains.  Only share price appreciation provides portfolio growth.

At age 65, the investor will have a common stock portfolio of nearly $850 thousand, which generates income of approximately $16,800 completely passively with a portfolio dividend yield of 2% (very attainable). The investor can withdraw more if they are willing to reduce the capital base of their portfolio.

Again, the error:  Receiving $16,800 of passive income from dividends means that the value of your equity positions decreases by $16,800, assuming no change in share price.  Your portfolio value remains the same.  If you withdraw that $16,800 then your capital base is reduced by that amount. Withdrawing more than $16,800 decreases your capital base even more.

TomTom · Answer

Assuming the investor retires at 65yo, has 100% allocation to equity securities(I don't
know what this means),

It means that 100% of his portfolio is in stocks. Instead of asking, you would do good to look up word definitions first in a dictionary / wikipedia / investopedia - not knowing the definition of a word is a SERIOUS problem in understanding something.

and the stocks he has grants a 2% annual yield, wouldn't his portfolio size on the
year be $18,180?second

There is ZERO correlation between portfolio size and dividend. If I own a million on stocks, a 2% dividend yield would be 20.000 USD. Period. It does not mean my portfolio then is a million and 20k - because the stocks can go up and down. Also dividend yield can vary over the years - just because as tock goes up does not mean the company pays more dividend, and dividend is NOT defined as percentage but as absolute number (i.e. 10 cents per share) because the value of a stock has no direct correlation to the finances of the company.
Without having an second graphs showing how the NASDAQ performed you can not go from "contribution" to "portfolio size". It is quite possibly that the change in portfolio size is quite attributed to change in price of the securities. Also - depending on stock type, a 2% dividend yield is either fantastic high or stupidly low. A lot of tech and growth stocks (and that make up a lot of of NASDAQ) pay NO DIVIDEND. Companies paying dividend are mostly large old established companies that have no better use for their funds.

mhoran_psprep · Answer

Assuming the investor retires at 65 years old, has a 100% allocation
to equity securities (I don't know what this means), and the stocks he
owns provide a 2% annual yield, wouldn't his portfolio size on the
second year be $18,180?

During the years they are investing and working, the author assumes the value of the investments is growing  at 9%  It is stated in the assumption earlier in the article.

The S&P 500 has returned ~9% annualized on a long-term basis.

For simplicity's sake, I will be assuming investors have a 100%
allocation to equity securities. I will also be assuming each
investor's net income is $60,000. Further, the assumed retirement age
will be 65.

That 100% allocation to equity securities is stocks. The author mentions specifically the S&P 500, which is a major stock index. There are many mutual funds and ETFs that follow that index.
The 2% rate is what they assume will happen after they retire. They assume the investments will produce 2% from dividends, and that the investor will never sell any of their investments, but they will take the dividends as cash to live on.
During their working years the stocks are also paying dividends, but they are reinvesting them to buy more shares. That is part of the 9%.
The article is trying to show that you should invest early and often.

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