Welcome to another Weekend Reading edition, where I share some of my favourite personal finance and investing articles from the week that was.
Earlier this week I shared our latest dividend income update which is a big part of our financial freedom journey and I got a chance to talk to David Barber from First Asset Management about smart beta ETFs.
Ready for Christmas yet? I hear ya. I’ve got work to do as well. Whatever your plans are, enjoy the weekend…
Thanks to Media Planet for including me in their financial literacy campaign.
John Heinzl and I share a similar philosophy – dividends help us stay the course in good months and bad months.
Here is some great financial advice gift wrapped into one solid post from ModernAdvisor.
In these nine quotes you can find some genius in John Bogle – indexing guru. I personally like this one: “time is your friend, impulse is your enemy.” That’s a life lesson there.
Barry Choi doesn’t always feel in the mood for money.
Ben Carlson reminds us that diversification is no fun but it’s important. To paraphrase – diversification is tough because market cycles are unpredictable. Nobody could have accurately predicted this latest run up and nobody knows when it will end. “Investors are a fickle bunch.”
Young and Thrifty offered advice when it comes to mortgage broker or big bank. Over the last 10 years I’ve always gone mortgage broker myself and happy to do so.
Mark Goodfield has some tax loss selling advice for 2016.
Mark
My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.
“We don’t buy gifts…”
As I drove circles around the mall parking lot Saturday afternoon, I smiled at the complete chaos and insanity of the situation known as ‘Christmas Shopping’.
It’s funny that PF bloggers should rail against materialism and debt so vehemently, yet it’s exactly those things which are keeping their net worth afloat. If everyone was as frugal and cautious, we’d all be poorer. PFers should be cheerleaders for unbridled consumerism!
In the name of Betty & Wilma…CHARGE IT!
Ugh, shopping this weekend was a nightmare!! One more weekend of things to get and running around for me….then done 🙂
If nobody spent money, how good would that be for an economy? Not good…
Mark:” I’ve always felt they are simply two sides of the same coin.”
Both are a result of increased company earnings, but dividends are less subject to market influence, therefore more stable.
“…dividends are less subject to market influence, therefore more stable.”
Do you mean ‘dividend stocks’ and not the actual dividend?
A few points:
This is only barely true. The variance of volatility between payers and non-payers is not immensely significant.
Volatility (I’m assuming you mean volatility when you speak of “market influence”) shouldn’t matter at all to buy-and-holders; it is a risk (of permanent loss) facing only those who must sell at some point. If all you care about is collecting a growing dividend payment, then price oscillations shouldn’t matter. Dividend investors usually need to hold for a long time to make the pay-off vs non-payers highly effective.
Stock price is not the company. I would much rather have a stable company with a volatile stock price than vice versa (my oil investments are a great example).
“Both [dividends and capital gain] are a result of increased company earnings”: true. However, as previously mentioned, one has to consider the source of the earnings, and as has been the case in recent years (~1985-present), the source of the dividend (e.g. debt-based “special” dividend payment, ect). I would also question any management which defends its dividend over that of the company itself (e.g. employee lay-offs to support dividend growth). Most importantly, you better hope those earnings never falter.
The reason “dividends are less subject to market influence” is because they are delivered to outside the market. In a sense, management is getting rid of the cash because they can’t find any better utilization for that money. That non-influenced money is now outside the market but will most likely immediately return to the general market, if not into that specific stock, thus being subject once again to ‘market influence’. And if you spend that dividend cash into the general economy, esp at a public company, that dividend will eventually, once again, be subject to market influence a la earnings (e.g. spending a Royal Bank dividend at Walmart).
I enjoy dividends just as much as the next guy, however, I don’t believe they (dividend paying stocks) are the ultimate silver bullet and perhaps many dividend chasers don’t fully understand the constructs behind a dividend (i.e. buy what you know, right?).
SST: ” If all you care about is collecting a growing dividend payment, then price oscillations shouldn’t matter.”
That’s me!
You make some good points and it only when I stopped trying to buy & sell to grow my pile & switched to holding & adding to a small group of DG stocks, for the income they produced, did I achieve financial independence. Others may reach their goals with other strategies, faster & better, but I don’t believe I would have by concentrating on the growth route. I’ve managed to obtain a level of dividend income that I’d still be ok if every one of the companies cut their dividend in half. Which didn’t even happen during the 30’s with the companies I hold.
I guess what I mean is, you typically have high dividends but low capital appreciation; the inverse is true. Of course dividends are part of total return (the entire coin) – and dividends I like very much 🙂
Bogle: I wouldn’t consider him a genius in the classical sense of the word, but the more I think about how game-changing his invention is, the higher I rank him among true innovators. I always like to pit Bogle against Jobs, creator of another Big Idea of our time — the smart phone. Jobs’ invention, as wide spread as it has become, isn’t necessarily a great innovation. When you think about it, it’s merely a bundling of already existing technologies into one mobile device; think electronic Swiss army knife. It’s become a globally utilized device simply because it makes things easier (and more entertaining). Bogle’s invention, however, was actually something new (discounting the index mutual funds already in play) and it made life materially better for all of us. The smart phone probably demands more of our resources, the index fund allows us to keep that much more of our resources (even for those who don’t own any stocks/funds).
Perhaps the most important point from the Bogle article: “More than 99% of the activity on Wall Street essentially amounts to pushing poker chips around the table [speculation], with less than 1% aimed at creating new poker chips [capital formation].” Too much to say about this fact as it effects every aspect of our lives.
Dividends: to those who feel unjustly safe in owning a portfolio of un-diversified dividend stocks…read the above quote again. And again. What’s the true reason why, say over the last 10 years, dividends have been unwavering? What happens when those conditions cease to exist? I’d be much more inclined to diversify across business/management practices than just simple sector. Don’t fool yourself, ‘dividends’ and ‘capital growth’ are the same thing, they are merely allocated differently.
I think Bogle by definition is genius – exceptionally creative. The index fund is a great product and every time I write that – I think I should be using them more 🙂
I really liked your comment about dividends and capital growth. I’ve always felt they are simply two sides of the same coin.
Ready for Christmas. Yes. We don’t buy gifts or do anything special beyond a turkey dinner and time with family. Easy, cheap and good fun.
Congrats Mark on your media planet column. Very well thought out and written.
John Heinzl column isn’t accessible without Globe subscription(maxed my freebies). From your description- Yes, keeping growing your dividends!
John Bogle – plenty of genius there! Yes.
Modern Advisor column- lots of sage advice there including yours Mark.
Barry Choi- stick to the plan. Yes.
Ben Carlson- for the vast majority of investors who are ultimately after total return or total yield on investment – absolutely yes.
Young and Thrifty- some good information there but it was important to read the replies for some corrections and additional helpful info. When I had a mortgage 20+ there wasn’t the amount of options available compared to today.
TBBC was chock-a-block full of investor/trader advice. Good reminder.
Yeah, sorry about the John Heinzl article – I forgot it was subscribers only 🙁
Thanks for the kind words about the Media Planet article. I put a great deal of thought into that one.
Hope you’re having a good weekend. Drop me a line any time.
Mark
Happens a lot with your Globe links unless readers have subscription or haven’t accessed Globe much- 10X in 1 month?
You’re welcome.
Sure thing.
There is a way to the Globe subscriber-only articles: download the Globe & Mail app on your smartphone and use the search feature. I just did that entering “John Heinzl” (without the quotation marks) which resulted in several recent articles he has published, including the one referenced here.
Good workaround Russ. I also recall if you read an article from a social media share – it won’t count as part your “magic 10” per month. I have the unlimited subscription and I use that cost to offset any minor blog income.
I know….I think I can link to x10 freebies in one month, and I do have a subscription but I forgot this one was “Subscribers Only”.
Ben Carlson reminds us that diversification is no fun but it’s important.
I disagree, unless capital growth is your main objective. I’m not diversified and market changes, up or down, isn’t and has not been a concern. Dividends received and dividend increases are what I’m interested in and by sticking with a select and small number of stocks I’ve been receiving both in up & down markets.
Well, I think for most investors as you know, diversification is important because unlike you, I think most investors don’t have the emotional fortitude to stick with their plan – you certainly do. At least with hundreds or thousands of stocks, yes, while you are getting “studs” and “duds” you don’t need to be selective and figure that out on your own – taking on that risk.
That said, I continue to believe the Canadian market is somewhat easy to identify good dividend paying/growth-oriented companies but it’s not a perfect science and it does take a great deal of investing discipline!