Reader Questions – How I built my dividend portfolio
Thanks good readers, I appreciate hearing from you and receiving your saving and investing questions.
This week’s reader question is all about how I built my dividend portfolio. Read on and enjoy!
Yes, I love dividends
If you’ve been following My Own Advisor for a while you’ll know I’m a hybrid investor.
That means, for the passive part of my portfolio I’m happy to own a few low-cost, diversified Exchange Traded Funds (ETFs) to grow my portfolio value over time. I like (and own) these ETFs for their low-cost, transparency, ease of use and growth performance.
For the rest of my portfolio, I use dividend growth investing. This approach by some might be considered another animal altogether but I would argue the high-level objectives of a dividend growth investor are similar to a passive investor:
- The mandate to buy and hold the same assets (dividend paying stocks) for many years on end – stay passive and do not trade.
- With dividend investing I’m striving for stock price growth but also growing income for my retirement needs. Dividends paid from my portfolio can compound over time; paying out more dividends each month or quarter.
- By owning the dividend growers I get paid to own these companies almost regardless of their stock price. I avoid panic selling and other bad investor behaviour gaps.
Since the start of my journey, I’ve received many reader emails and questions about my approach. Let’s get into them!
I like your articles Mark. It’s great to see you so passionate about investing. I prefer ETFs myself. With all the benefits that come from low-cost, ETF investing or being an indexed investor, why dividends still? Do you have an article about how you built your portfolio and why?
I get it. Not everyone loves dividends as much as I do. Things makes personal finance, well, personal. Here are my top reasons I still like dividend investing:
- Dividends remain easy to understand. I invest in these stocks, I stay invested, and I get paid for doing so and I get raises. Pretty simple. Dividends remain tangible money I see coming into my account. This is money (thanks to dividend reinvestment plans) that keeps growing higher and higher every month.
- Dividend raises are helping me fight inflation. As consumer prices rise, the cost of living rises. Rising dividends can help combat the higher cost of living. Don’t believe me? Well, my home heating gas bill (Enbridge) continues to go up year after year. Thankfully with all these Enbridge dividend raises in recent years, we’re now earning enough from Enbridge dividends to pay for that heating bill!
- Canadian dividend paying stocks remain tax-efficient. With my RRSP full of mostly U.S. assets (I have no more contribution room in my RRSP), I tend to keep Canadian dividend paying stocks in my TFSA and inside my non-registered account. Although I prefer tax-free dividends (I have no more contribution room in my TFSA this year), in a taxable account Canadian dividend paying stocks are eligible for a dividend tax credit from our government. This means taxation on dividends are favourable, it is a lower form of tax; lower than employment income and interest income. This lower form of taxation will be even better when I’m not working!
For more details:
Don’t get me wrong reader, ETFs are great. Especially the low-cost, diversified ETFs you can buy and hold.
Mark, I’m considering money that should be used for retirement (and not for any short-term period of time), in 100% equities. Is that too aggressive?
Well, I would say “it depends”. It depends on:
- What are your financial goals?
- What is your tolerance for risk and volatility?
- When do you need the money?
- Can you stomach to see your portfolio value down, possibly, by tens of thousands of dollars at any given time? Will you be tempted to sell equities when you see that?
Personally, before investing in any financial asset like any stock, bond, GIC, mutual fund, ETF or otherwise – put a financial plan in place first. Here are some initial tips on what your financial plan should cover.
Mark, we’re thinking of using a robo-advisor for the convenience it provides. But if I were to go DIY (do it yourself like you), I am also considering an all-in-one fund like Vanguard VGRO or iShares CBN. Is that sensible?
I wish I could tell you exactly what to do and how it could work out for you, but I can’t because honestly, I don’t know what the future holds for any investor – including me.
I can tell you that using a robo-advisor is an excellent choice for at least some of your portfolio because not only do you get low-cost products to buy and hold, you also get some built-in money management advice with the service. Slaying your investing demons (bad investing behaviour) is not easy, and I fight it. I think getting professional investing advice AND assurance you’re in the best financial funds to suit your financial objectives is value for money.
Have a read of these articles below about robo-advisors to help you make a decision.
Should you still want to DIY investor, without the help of a robo-advisor, consider all-in-one asset allocation funds.
The markets are acting iffy nowadays. Should I wait a while before making the plunge? I keep hearing a correction might occur – maybe it’s best to hold out investing until then? Buy low right? What are you doing Mark?
Here are my thoughts:
- I have no idea what the market will do tomorrow, or next week, or next month, or next year.
- I have no idea how big or how small a market correction might be.
- I have no idea how long any market correction might last; could be a month, many months, a year of “down markets” or even more.
- I have no idea what the short-term investing future holds.
- I do have confidence that, over many years of staying invested in equities, stocks should perform better than bonds; bonds are likely to provide some small return over cash; cash is good in a savings account for emergencies and other “what ifs” in life.
What I am doing?
- We hold a small emergency fund, so that when $hit hits the fan we have some money.
- We set saving and investing goals every year and we stick to them as best we can.
- We live our lives and don’t worry about the markets blowing up.
We also live our lives. Life is not all about saving and investing.
Here is a picture we took in Portugal last fall. I enjoy a nice glass of port now and then too!
I hope that provides some insight.
Here are some other reader questions I’ve answered over the last couple of years:
To all readers, keep your questions coming and I appreciate your support.