Mark Seed recently wrote in his blog, My Own Advisor, that his thoughts on his dividend investing style haven’t changed. This was actually a rebuttal of the post by our own Robb Engen, aka Echo, who described why he switched to an all ETF portfolio a short while ago.

It’s apparent that readers of both blogs are still vigorously defending their own investing style – whether they are investing for dividends or in index funds – and tend dismiss anyone who has a different strategy from their own.

However, most interesting to me was that the majority of commenters – regardless of their strategy – have only been investing for a few years, since 2008/2009, and consider themselves excellent investors enjoying double-digit returns.

When you take into account that at the end of 2008 the S&P/TSX closed at 8,988 and as of this writing it’s a little over 14,600, you would have had to have made some really bad decisions to not have turned a profit during this time.

I am still a dividend investor

Becoming a dividend investor

In 1990, as a bank employee with a brand new license to sell mutual funds, I sold them to myself. Only a few years later I decided that investing in dividend stocks would be more likely to help me reach my retirement goals since I had no pension plan.

With a few mistakes along the way (but, surprisingly not that many), I settled into my current portfolio which comprises of dividend paying shares from good quality companies that I feel will continue to be profitable well into the future.

My dividend payments started with post-dated cheques of about 18 cents (which I usually set aside and forgot about). I currently receive an average of about $1,000 per month in dividends on portfolio assets in the mid-six figures.

I think I have done fairly well considering:

  • I have never earned more than $42,000 a year.
  • I have been the sole, or at least the main, source of our family income for more than half of my married life.
  • I stopped contributing to my RRSP in 2005 due to my low income.
  • I simultaneously saved for my children’s education.

The last several years I have been managing my accounts and reinvesting my dividends. In the near future the dividends will become part of my regular income stream and I don’t see myself cashing out the capital, at least for quite some time.

Staying the course

There have been several studies done on behavioural economic theory which show how psychological factors tend to make people behave emotionally and irrationally.

What will happen when the next market crash occurs? Yes, the best investing style is the one that works for you, but the true test is when the rubber hits the road, as they used to say. Looking into my crystal ball, I’m predicting another crash early in the new year.

I have experienced four or five major market dips/crashes and I agree with Mark that dividend investors are more likely to continue with their strategy than someone who abruptly sees their portfolio drop by 20% or 30% or even more. A loss like that is a bit easier to take when you’re getting a regular income stream, whether you reinvest the dividends or take the cash payments.

Final thoughts

I’ve read all the arguments, together with references and white papers, proving why one investment style works better than any other.

Who I really would like to hear from are investors who have been investing for, say, at least ten or fifteen or more years.

What investment strategy do you use?

How has that worked for you in the long run?

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7 Comments

  1. gary on October 5, 2016 at 7:58 am

    i am so glad that your strategy is working so well for you marie. my story is much the same as yours except i stayed in mutual funds until 2006 when i got sick of the fees and moved everything into 3 year gic’s until i could decide what i was going to do. turns out i look like a genius but it was just blind luck! we have now been retired for 10 years and our portfolio (mid 6 figures) is doing ok — 75% dividend stocks and 25% an etf monthly income fund. i try to keep 1 year in cash just in case your prediction comes true. i’ve been buying stocks for over 40 years — kids education, retirement etc. i too worked my first 7 years in the banking industry. my starting salary was $2,800. per YEAR so i know where coming from. good luck to you and your hubby for a wonderful retirement; you certainly deserve it! (you can always go live with rob — lol!)

  2. John on October 5, 2016 at 8:43 am

    You wanted to hear from investors that have been investing for 10 – 20 years or more. I have been investing in individual stocks (mostly domestic, with some US multinationals) since 2004. This has worked out well for me.

    Before that I was invested in an unorganized mixture mutual funds and individual stocks, trading erratically, trying every new style of the day. While this didn’t financially destroy me, it still went nowhere.

    There seems to be a debate over investing for dividends vs. growth. That puzzles me a little. I invest for earnings and cash flow. But, now that I am older (70) and retired I prefer that the earnings and cash flow (dividends) be passed on to me.

    I am also predicting a crash. These things have been happening on a regular basis for the last 2,000 years. What I don’t know is when it will happen, how deep it will be, or how long it will last. But it is going to happen.

  3. boomer on October 5, 2016 at 9:40 am

    Thank you Gary and John for sharing your stories and investment strategies.

    I’d also like to hear from successful long-term index investors. Anyone?

  4. Marko Koskenoja on October 6, 2016 at 11:49 am

    Good for you Marie! You have done well.

    I am 57 and mostly retired with $900K (Cash, RRSP, TFSA and LIRA) in Vanguard and BMO ETF’s based on the Canadian Coach Potato and MoneySense recommendations – VAB, VSC, VCN, VXC, VDY, ZDB and ZPR.

    I was with TD mutual funds for decades and later RBC mutual funds for 5 years. I was unsatisfied with the advice and returns I received for the 1.5 – 2.0 % MERs I paid.

    I then went to a DFA adviser and while the returns were OK I didn’t get any advice at all – just access to DFA Funds @ $1.5% . My funds were held with TD Institutional Services and when they sold that business to National Bank TD convinced me to try their Strategic Managed Portfolio at .9% management fee + .5% MER. I was paying $1000 per month for non-existent service and advice. I couldn’t afford such fees in retirement so I decided to change one last time.

    In early 2015 I considered various robo-advisors but elected to go the DIY investing route using TD Direct Investing and the ETF’s I referenced earlier. I am happy now and will consolidate a bit by selling VDY and VSC by the end of the year.

  5. Jambo411 on October 7, 2016 at 6:10 am

    Got out of mutual funds starting 2000 and bought shares through Computershare and others. We didn’t have much money and ability to do share purchase plan plus the DRIP got us on our way. All in DW name as I have a pension. Over the years we stopped the DRIPs in our unregistered account and let the cash build up to top up our holdings (when they are on sale). Much less paperwork this way.

    DW has not made more than $45,000 so here in BC her dividend income puts her in a negative tax situation. This is much more tax efficient than capital gains. The crowd that insists on indexing only and selling for income needs should acknowledge that that is only a factor for incomes over $50,000.
    In retirement we hope to get DW’s income to $36,000 or so with a mix of dividends. CPP, OAS, and topped up from her RRSP. Due to the dividends this should be very tax efficient.

  6. Financial Canadian on October 7, 2016 at 7:14 am

    Wow- our investing journeys started out much the same, as bank employees who eventually applied what they were learning to their personal portfolios.

    I identify as half-value investor, half-dividend-growth investor. So I like companies that are paying strong, growing streams of dividends but also trade at good valuations. Right now, examples include TD, Brookfield Asset Management, and Enbridge (but of course, this is always changing).

  7. My Own Advisor on October 11, 2016 at 8:45 am

    A good read. Thanks for including the link to my post Marie.

    I think this speaks volumes: “I currently receive an average of about $1,000 per month in dividends on portfolio assets in the mid-six figures.” You can start withdrawing your capital on your own terms regardless of what the stock price is or is not.

    I’m a hybrid investor – mostly CDN stocks and then some U.S. stocks but also two U.S. -listed ETFs (VTI and VXUS) for long-term growth and international diversification. I’ve been investing for 20 years now and for the last eight years I’ve been happy with the DIY results/hybrid approach.

    Before going the DIY route, I’ve held big bank mutual funds that cost me a lot of money in lost portfolio returns. Never again 🙂

    Keep up the good work Marie,
    Mark

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