Long term investors know the value of staying invested. In order to achieve the dividend income we wanted for our retirement, we bought dividend paying companies and re-invested all dividends for more shares, or shares in different companies for diversification of the portfolio.
A recent article by Tom Bradley, the chairman and chief investment officer at Steadyhand Investment Funds, talks about portfolio creep. The article was in the Financial Post on April 24th, 2021. “Don’t fall victim to portfolio creep. Going with trends can pose higher risk.”
“Is your portfolio creeping? Does it reflect the plan you put in place, or does it fit more closely with what’s dominating your newsfeed?” We see current trends in the news and want to participate in these trends. And if you get the timing right you can make a lot of money. But that timing is exceedingly difficult to get right over a long period of time. Remember the tech boom at the end of 2000? Nortel, Blackberry, come to mind. Oil was $100+, and Oil & Gas was doing well. Were investors able to move to the next trend before it crashed?
The fear of missing out is a term often used in investing circles and is real. We see the markets doing well and want to be part of it. So how do we do it? I do not want to say one method over an another is better but believe very strongly that you must have a plan and stay with it. The markets over time have always gone higher. This is one reason to always be in the markets. In the past (and for many still) most investors bought Mutual Funds. This gave them the diversification they needed all in one place. The problems with mutual funds are the high fees charged by managers, as well as the rotation in sectors when they anticipated market changes. This is just like the individual investor trying to time the markets, with much the same results. Returns could be good sometimes, but mostly they were mediocre at best. When people started catching on, these managers came up with ETF’s (Exchange Traded Funds). You can buy these funds for broad markets, or any specific areas you want to invest in. For example, Invesco QQQ Trust 1 (XNAS: QQQ) covers the Nasdaq, which is mostly technology stocks. ETF’s can be a good alternative to individual stocks if you are not confident picking stocks yourself. But I believe a better solution to just buying ETF’s, is to buy some individual stocks, and ETF’s only for the sectors where good companies are more difficult to identify.
As a Canadian dividend investor for our retirement, our plan was and still is to have enough dividends to cover all expenses during retirement. Now after 21 years with this plan, and over 3 years into retirement, we are still staying the course. Mainly we bought dividend paying companies, both Canadian and US. 80% Canadian, 20% US. For a long time, we had all individual companies. The only non-dividend payer was Berkshire Hathaway. BRK is one of the largest companies in the world and run by legendary investor Warren Buffet. Lately we did buy some QQQ, for the tech content. But we did have some tech with individual companies already.
There have been stock market crashes over those years but staying the course has really paid off. We stayed with our plan and stayed invested. If you stick to solid companies, especially ones that have a long track record of paying dividends, there is no reason to panic when volatility hits the markets.
There is no reason not to tweak your plan from time to time, but you must have a plan to be successful.
Stay the course and prosper.
