Dividend Income Lessons I Have Learned
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One of the reasons I love the investment process so much is because every time I turn around I realize that I have learned something new. Just when you think you have “the game” down, something comes along and knocks you on your ass. Take those dividend cuts by Bank of America, Citigroup, and General Electric for crying out loud. GE was never ever supposed to have to cut its dividend. But it did and many of dividend investors learned a valuable lesson - never assume that dividend growth, even from the largest of blue-chip companies, is a foregone conclusion. That is the one of many dividend investing lessons I have learned through the years. Here are a few more I came up with.
1. Diversified dividend income is more important that growing dividend income
It does not matter how fast or how high that dividend growth is for a particular company if you are not diversified. As I to some extent, and many others like me learned, in truly awful markets broad diversification through a solid asset allocation is what is most important. No amount of dividend growth will make up for a portfolio that tanks by 75% because of improper asset allocation.
2. The term blue-chip is only a media title, not an investment philosophy
I believe the term “blue chip” has done great damage to many investors. It has created a sense of safety that lead people to drop their guards. This false sense of security creates huge risk in many a portfolio. I have learned not to get sucked into the feeling of safety by media labels placed on stocks. The numbers are what tells me if a stock is good or not (and even that can be a problem).
3. Even the best stock analysis can lead to stupid decisions
Mutual fund companies are very good at convincing us that investing is hard. It really isn’t as hard as they make it sound. The most important things is to ensure you have a sound asset allocation. With that you will be off to a good start. However, really good and reliable stock analysis takes time and even done with the highest degree of rigor can still turn out to be bad calls. At the end of the day it is very difficult for us as investors to foresee what the market will bring us.
Finally, because of these difficulties I have learned that I must form the core of my portfolio with broad based index funds across a number of asset classes. This provides effective diversification that is not tied to guessing what the market will do and not tied to a media label such as blue-chip. I still actively invest in individual dividend stocks, but I am always certain that my core is strong so that the benefits of dividend growth will not be overshadowed by a bad portfolio.
Weekly Dividend Investing Roundup - June 27, 2009
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Welcome to the June 27, 2009 edition of The Dividend Guy’s weekly roundup of posts and articles about investing, dividend and non-dividend related.
As a special note this week, I am glad to announce that I am once again in the running for the Best of the Money Blogs over at the Globe and Mail. Thanks to Rob Carrick for the mention - I personally have learned a lot from him and his articles over the years.
If you know of other blogs that are covering the topic of investing and dividends, please feel free to let us all know using the comment section below.
The Important Benefits with Dividend Investing
Screen for value
Dividend cuts happen due to competition (among other things)
Value Investing Pro is now live
Dividend Growers Beyond Just Large Cap Stocks
Dividends versus Share Buybacks/Stock Repurchases
3 Simple Steps For A Successful Retirement
401K Cuts to Matching Contributions Coming - Time to Exit?
Calculate Maintenance Capital Expenditure in FCF
Best Buy’s been a ‘best buy‘
A June update
The Next Sam Walton
The Articles
New ETFs to ponder over
Four ways to ruin your investments - guaranteed
The dividend reinvestment plan (DRIP) trap
Selecting mutual funds is in your mind
I like free tools
Changes to your investment manager?
Please don’t tax the rich
Sure-fire way to get rich off of investment newsletters
Dividends can fight inflation
Investing based on liabilities
Dividend slashers
How to construct a portfolio
Thanks for reading!
Chopping Stocks to Lessen Your Risk
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As a subscriber to Kiplinger’s Personal Finance
magazine, every once in a while I run across a piece of information that I find really valuable. In this month’s edition, there was an article about hedging your bets and one of the topics was the impact if slightly reducing your equity exposure to reduce the volatility of your portfolio. Sure, you give up some future gains but the difference is not worth doing given the volatility and additional risk more equity exposure gives you.
In the image below, you can see the impact a slight reduction in stock exposure has provided. Pay particular attention to the “Worst” column as that is the thing that can get investors into a lot of trouble. Really bad volatility, and ultimately really poor returns from time to time, make investors act with their emotions and make stupid mistakes. I have done it, have to really try hard not to do it, and will probably do it again. However, I have protected myself slightly by reducing stock exposure (I still have work to do here!).
Click to EnlargeThe rule I like to use to determine the split between stocks an bonds is the simple one advocated by John Bogle - keep the fixed income component of your portfolio equal your age. If you are 35 years old you should have 35% in fixed income and 65% in equities. Easy, simple, and effective in my experience.
Weekly Dividend Investing Roundup - June 20, 2009
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Welcome to the June 20, 2009 edition of The Dividend Guy’s weekly roundup of posts and articles about investing, dividend and non-dividend related.
If you know of other blogs that are covering the topic of investing and dividends, please feel free to let us all know using the comment section below.
Total dividend income
Indicators of our economic future
Why dividend cuts happen
Medtronic increases dividend
Dividend Portfolios – concentrate or diversify?
Intel dividend stock analysis
Five dividend stocks increasing their dividends
Natural gas ETF
Mastech Holdings research
Boring company with solid profits
Oil Bears
Stock dividends and tickers
The Articles
Got gas?
An income portfolio update
Should he sell?
Watch what ETFs can make you become
ETF investing done right
The Dow is calculated like this
Financial software alternatives now that MS Money is toast
High yield does not equal high return
Flexo’s portfolio
iShares Dow Jones EPAC Select Dividend Index
I bike to work
Does buy and hold still work? Yup!
Index funds and efficiency
Dividend lovers take note
Scary financial ignorance
Hold some cash now
Sizing individual stock holdings
How he became a contrarian
Index funds are great
The ultimate mutual fund
Investment win
I am not a fan of Suze Orman either
Investing 101: Forex
The Richest Man in Babylon
Thanks for reading!
Bought Some More Fixed Income For My Portfolio
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In my struggle to bring my fixed income asset allocation in line to my target allocation, I did some buying in May. It was not a huge transaction, but essentially it took me from only 10% fixed income to a whopping 12.4% fixed income. As I wrote about a month ago, I had been focused on buying equities with the market down from October to January and the fixed income got away from me.
The security I purchased was one I already held in my portfolio - the iShares CDN Short Bond Index Fund (XSB). This fixed income fund has a nice low MER of 0.25 and an average weighted term of 2.93 years. I have chosen to go short in my portfolio due to research and analysis from William Bernstein that shows that there is similar returns for much less risk. As I am not looking for the bond portion of my portfolio to generate huge returns, I went very conservative in order to balance the volatility of my portfolio while letting the equities provide me with the growth.
That being said, I am still too light when it comes to fixed income and will still be putting additional funds into fixed income assets. I want to have 36% of my portfolio in fixed income and will not stop until I am done!
Weekly Dividend Investing Roundup - June 13, 2009
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Welcome to the June 13, 2009 edition of The Dividend Guy’s weekly roundup of posts and articles about investing, dividend and non-dividend related.
If you know of other blogs that are covering the topic of investing and dividends, please feel free to let us all know using the comment section below.
Don’t believe the numbers
Why dividend cuts happen
Pan Asia Dividend Aristocrats
Risk Tolerance and Smart Investing
Where are the ideas Microsoft?
The art of selling stocks
Drug stocks
Mutation of Capitalism
Cleanin’ up with the dividends
Retirement income
The Articles
Clorox dividend upgrade
Improve your financial situation
Emerging market funds - watch out
Lump sum or dollar cost averaging
Curse of the Dow
Expense sensitive brokers
The next quarter’s plan
Closing a Canadian Shareowner Investment account
Select a GOOD advisor
A meeting with a portfolio manager
Oily ETFs
Experts - why we a drawn to them
A list of investment books
International dividend stocks
A May net worth update
Stocks are for losers
The Black Box Theory of the market
Buffet and Bogle
These dividends don’t stand a chance
Mad about Madoff
Thanks for reading!
Knight Kiplinger’s Investor’s Manifesto
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I digitally subscribe to Kiplinger’s Personal Finance Magazine through the Zinio Reader (affiliate link but I really do love it!) and there was a pretty good article by the magazine’s founder, Knight Kiplinger. In this article, he outlines what he calls his investor’s manifesto or rules he lives by in his investment life. Here they are, with some of my own comments added.
Click to EnlargeI am an investor. I do not trade my assets frequently. That’s speculation, not investing.
I am also a saver, fueling my investments with continuous savings from current income.
I am an investor. I do not trade my assets frequently. That’s speculation, not investing.
I know that every kind of asset entails risk — even cash, which can be eroded by inflation.
I know that higher returns entail higher risk, in every kind of asset.
I accept those risks, but I mitigate them by owning a diversity of assets.
I regard my home as a place to live, not as an investment. It is not a substitute for retirement savings.
I have an investment plan and a plan for asset allocation, in consultation with a financial adviser.
I invest regular amounts every month, in both rising and falling markets. I know I cannot gauge market tops and bottoms. If I receive a windfall — a bonus, bequest or gift — I gradually feed it into my regular investment mix.
I don’t pour more money into hot markets nor completely cash out of plunging markets.
I spread my investments among several asset classes, in a mix fitting my age and risk tolerance.
My share of bonds roughly equals my age. I will allocate to stocks a declining portion of my financial assets as I get older.
I rebalance my portfolio every quarter. If the stock market plunges, pushing my stock allocation way below its target percentage, I sell bonds and use my cash to buy stocks.
I force myself to sell high and buy low by periodic rebalancing-just what is temperamentally difficult for most investors to do.
I know that stocks are risky in the short run, so I hold in equities no money for which I have a likely need in the next three years.
But stocks are not too risky in the long run. They have outperformed all other commonly traded assets over periods of 15 years and longer.
Foreign stocks account for at least 15% of my stock allocation. I believe that developing economies will enjoy much higher growth than the U.S. in the decades ahead.
I never borrow against my stocks. Margin calls could force me to sell good assets at a bad time.
I stick with my game plan. I do not check the value of my investments every day or even every week.
I try to keep my cool when other folks are losing theirs.
I remind myself often: I am an investor.
Let me know what you think about this list - do you agree with it all?
Weekly Dividend Investing Roundup - June 6, 2009
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Welcome to the May 30, 2009 edition of The Dividend Guy’s weekly roundup of posts and articles about investing, dividend and non-dividend related.
If you know of other blogs that are covering the topic of investing and dividends, please feel free to let us all know using the comment section below.
Redusing risk
Why dividend cuts happen
Peter Lynch videos
Future stock market returns
Replacing sold dividend stocks
Money is still benched
May portfolio update
Always reinvest your dividends
Refinance your mortgage?
When to sell stocks
The mind of Wall Street
Net worth history
The Articles
Basics of portfolio design
Index funds versus mutual funds
Why bother diversifying
International diversification is as crucial as ever
Index investing via ETFs or individual stocks?
Target date ETFs
Dividend income favorites
Stock dividends 101
Balanced passive investing
Mutual funds suck
Best investing newsletter
Is the rally sustainable
Early retirement and your personality
Examine the whole
Drip, Drip, Drip…
Emotional spending
Royal Orchid income opportunity
Debt myths
May portfolio update
Couch potato investing
Stock market returns by country
Companies raising dividends
Thanks for reading!
