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.
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.
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?