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ETF - talk me off the ledge - navyasw02 - 01-28-2017
I love DGI, been doing it since Oct 2014 and had a healthy return on investment. That said, I just moved and the amount I have to invest in my taxable account will drop due to several factors. With an $8 trade fee, my costs are too high to purchase smaller quantities so I'm thinking about going with one of Fidelity's free trade ETFs. The ones I'm looking at are ITOT, DGRO, and HDV, the last one I have already in my ROTH as a placeholder for cash. HDV has been underwhelming lately so I'm leaning towards the first two.
Anybody else do an ETF? Any regrets? Thoughts?
RE: ETF - talk me off the ledge - ExDripper - 02-03-2017
(01-28-2017, 08:55 AM)navyasw02 Wrote: I love DGI, been doing it since Oct 2014 and had a healthy return on investment. That said, I just moved and the amount I have to invest in my taxable account will drop due to several factors. With an $8 trade fee, my costs are too high to purchase smaller quantities so I'm thinking about going with one of Fidelity's free trade ETFs. The ones I'm looking at are ITOT, DGRO, and HDV, the last one I have already in my ROTH as a placeholder for cash. HDV has been underwhelming lately so I'm leaning towards the first two.
Anybody else do an ETF? Any regrets? Thoughts?
I do own an ETF for Aerospace & Defense. My reason for buying it was the very high cost of individual companies within it and I didn't have enough $ to invest in my top 4 or 5 to make the trade fees worthwhile. In the meantime, it's taken off like a rocket since I bought it so I'll likely keep it.
RE: ETF - talk me off the ledge - Roadmap2Retire - 02-03-2017
Theres a lot of research that suggests trying to stock pick and beating the market results mostly in losses. There are millions of extremely smart professional investors who have better resources than any single retail investor can ever own -- so, the best option to do is actually try not to beat the market via stock picking (which is what we do with DGI) but rather join and get the market returns.
Listen to the Master in Business podcast with Chalie Ellis from a couple of weeks ago -- he makes some good points.
I own part of my portfolio in index funds, part in individual stocks...but as my life gets busier, I intend to move more towards index funds and focus on a smaller group of individual stocks where I can find market inefficiencies.
RE: ETF - talk me off the ledge - Dividend Watcher - 02-03-2017
(02-03-2017, 11:56 AM)Roadmap2Retire Wrote: Theres a lot of research that suggests trying to stock pick and beating the market results mostly in losses.
<snip>
..but as my life gets busier, I intend to move more towards index funds and focus on a smaller group of individual stocks where I can find market inefficiencies.
Sounds like you're talking out of both sides of your mouth.
RE: ETF - talk me off the ledge - crimsonghost747 - 02-05-2017
(02-03-2017, 11:56 AM)tRoadmap2Retire Wrote: Theres a lot of research that suggests trying to stock pick and beating the market results mostly in losses. There are millions of extremely smart professional investors who have better resources than any single retail investor can ever own
While that statement is true, you forget that there is one very very simple difference between us and those people. One small difference that pretty much disregards the argument altogether.
We are interested in making a stable profit over the course of years and decades. All of the pro's who work for banks or investment companies need to provide quarterly or even monthly results. Some private finance houses might be different, but the large majority very much relies on selling their product with "look how well it's done in the past 3, 6 or 12 months". Their job and/or bonus does not depend on what happens in 2037. When they buy a stock at a certain price to be included in the fund they manage, they buy it with the thought that with this stock the next monthly or quarterly report the fund will provide to it's owners will have a + sign before the profit number.
It's a whole different ball game, essentially you are comparing someone who runs a marathon to someone who specializes in 100m sprint. Both can be very good at getting the results they want, but they will never really be competing against each other.
RE: ETF - talk me off the ledge - Roadmap2Retire - 02-05-2017
@crimsonghost, not sure your comparison is apt. I am referring to index fund investing in general (the benchmark itself) and not referring to active managers/professional investors working at banks/hedge funds/other investment firms. The benchmark index itself does not care whether a month, quarter or year's returns are positive or negative. It is what it is.
@DivWatcher. Whatever way you slice it, dividend growth investing is essentially a "stock picking" strategy. As a dividend growth investor, we are betting that this one particular company can perform better than its peers and the argument taken to an extreme -- beat the market. Of course, we are not naive enough to think that, so we hedge our bets by diversifying our picks and mitigating our portfolio risks.
I personally dont think I am smart enough to beat the whole market and while dividend growth investing makes sense, index investing via funds also makes a lot of sense to me -- which is why I follow a a more multi-pronged approach. Part of my portfolio is in DG stocks and part of it in index funds -- so essentially I am hedging my investing strategy.
The last sentence in my previous post refers to a small subset of microcap companies that are not tracked by index funds. If there were indexes that could track it, I would do it...but until then, I am happy to pick stocks
RE: ETF - talk me off the ledge - rayray - 02-05-2017
The best investment strategy is the one you feel most comfortable doing, in other words, there really isn't a right or wrong way of investing. Personally, I have invested in ETF's, passive managed funds, active managed funds, mutual funds, sector funds, and various types of dividend and non-dividend paying stocks. When I was younger I liked dividend paying stocks such as XOM, PAYX and VZ; however, I did not realize how much I preferred that type of investing until I sold those stocks and went strictly to various mutual funds/ETF's. It took me years to move back towards individual stocks. Today, I use a mixture of mutual fund/ETF type investments in my 401k-plan, because I have no choice of the matter, and my ROTH, IRA and Individual Brokerage account consists of all individual stocks with three non-dividend paying stocks (BRK.B/MKL/SWIR) and one suspended dividend paying stock (CALM). CALM pays a dividend of 1/3 of the profits, if the profits are not up to par it will suspend until profitability is sufficient to resume, basically, CALM is like a commodity. When I retire, things might change, but I will most likely be 100% in individual stocks, it's what I like and what I enjoy doing. My strategy might not be right for most but it seems to work for me, and that's the only thing that matters.
For instance, here are some of my investments and their returns not including dividends:
Railroads:
NSC +32.11%
UNP +19.91%
CNI +11.37%
Auto Industry:
F +3.41%
GM +17.75%
MGA 14.12%
Banking Industry:
TD +26.82%
BMO +36.35%
BNS +27.52%
CM +26.85%
RY +27.22%
WFC +19.40%
Why did I invest in these particular company's? Well, let's look at banking, I had no investments in banks, something I wanted to add to my portfolio when I got back into DGI. Through research, Canadian banks were really interesting and proved to be solid investments but I couldn't seem to find the ONE to invest, so I picked what came to be the top five Canadian Banks and divided that money between them instead of investing in just one, everything pointed to BNS or TD at the time but I just didn't feel comfortable allocating all the money into just that one stock, so, the money got equally divided. I added WFC after the account fiasco, it worked out. Same goes for the auto industry, my favorite is MGA. And railroads, same thing, couldn't decide between UNP and NSC, all my research pointed to UNP but once again, I couldn't muster the gonads to put all my money into UNP so I divided equally to UNP and NSC, then added CNI last year. For the most part, my due diligence would have left me lagging if I invested in the "One" company. I'm not saying this is the way to go, but it works for me and it's what I feel comfortable with doing at times...I don't do this with every industry.
RE: ETF - talk me off the ledge - crimsonghost747 - 02-05-2017
(02-05-2017, 09:08 AM)Roadmap2Retire Wrote: @crimsonghost, not sure your comparison is apt. I am referring to index fund investing in general (the benchmark itself) and not referring to active managers/professional investors working at banks/hedge funds/other investment firms. The benchmark index itself does not care whether a month, quarter or year's returns are positive or negative. It is what it is.
Yes if we are talking strictly about index funds then you are correct. I was referring to your comment about there being millions who do this for a living and have ample knowledge and resources... the very large majority of them invest for different goals than we do.
Further discussion related to beating the benchmark: Profit correlates with risk. So if you build a safer portfolio than the benchmark index you are comparing to, then you'll most likely also make less profits over the long term. In fact I'd say that the easiest way to beat the index is to invest in a single company... hundreds of companies that beat the index on a permanent basis. Two of my top 3 companies would have beaten the index on almost any stretch of time between 2007 and now. (10 years. Way before I even started investing) And the one that misses is a REIT which I bought for the high yield and monthly payments.
My top company (RTN) would have generated more than TWICE the profits of the S&P500 in the past 10, 5 or 2 years while the profit for the past 1 year would have been lower. (those 4 time scales are what yahoo gives me straight off the bat.) But it's all about the risk / reward ratio. Overall my portfolio is dragging behind the S&P500. I don't compare to it though but I did take a look just for the purpose of this post. So would I be currently better off if I had put it in index funds? Yes. Would I be as safe as I am now? I don't think so.
What if I put it all in RTN? I'd be rolling in money like Scrooge McDuck but that would have happened with way more risk than I was ready to take.
Like I said I don't even compare to any index, simply because my goals are more geared towards limiting downside and increasing dividend income.
And those goals probably mean that I won't reach the profit of S&P500 over the long term because I have chosen a less risky method. I guess what I'm saying is that it's more about finding a good risk/reward ratio for myself rather than comparing my results with a set benchmark.
RE: ETF - talk me off the ledge - Roadmap2Retire - 02-07-2017
(02-05-2017, 11:28 PM)crimsonghost747 Wrote: Further discussion related to beating the benchmark: Profit correlates with risk. So if you build a safer portfolio than the benchmark index you are comparing to, then you'll most likely also make less profits over the long term. In fact I'd say that the easiest way to beat the index is to invest in a single company... hundreds of companies that beat the index on a permanent basis. Two of my top 3 companies would have beaten the index on almost any stretch of time between 2007 and now. (10 years. Way before I even started investing) And the one that misses is a REIT which I bought for the high yield and monthly payments.
Overall my portfolio is dragging behind the S&P500. I don't compare to it though but I did take a look just for the purpose of this post. So would I be currently better off if I had put it in index funds? Yes. Would I be as safe as I am now? I don't think so.
What if I put it all in RTN? I'd be rolling in money like Scrooge McDuck but that would have happened with way more risk than I was ready to take.
Like I said I don't even compare to any index, simply because my goals are more geared towards limiting downside and increasing dividend income.
I dont think I understand your thought process. Your portfolio is dragging behind the S&P500, but you choose to ignore it because you dont like to compare and contrast your investing methodology with others. Especially when the alternate (index fund via ETFs) provides with a lower cost, and lower risk (via instant diversification). If you are investing for the fun, I get it....researching companies and making stock picks that end up as winners gives us a huge rush that is not possible via index funds.
Also, when you say that you could have made much larger returns by putting in all your money in one company, that contradicts your statement that you are taking lower risk. You are taking a *much larger* amount of risk.
I am not saying that index funds are the perfect method to invest. There are lot of faults and problems with index funds -- In fact, I have beef with how the indexes are built -- be it DJIA (based on stock price) and S&P500 (based on MktCap), which is inherently a flawed method to build your yardstick. This is why other alternate indexes are being built and something like factor-based investing is getting more interesting...but for now, it remains an experiment and I will be keeping an eye on it until we get some more performance data.
RE: ETF - talk me off the ledge - crimsonghost747 - 02-07-2017
(02-07-2017, 09:05 AM)Roadmap2Retire Wrote: I dont think I understand your thought process. Your portfolio is dragging behind the S&P500, but you choose to ignore it because you dont like to compare and contrast your investing methodology with others. Especially when the alternate (index fund via ETFs) provides with a lower cost, and lower risk (via instant diversification). If you are investing for the fun, I get it....researching companies and making stock picks that end up as winners gives us a huge rush that is not possible via index funds.
Also, when you say that you could have made much larger returns by putting in all your money in one company, that contradicts your statement that you are taking lower risk. You are taking a *much larger* amount of risk.
(well at between $0.3 and $0.5 per trade, I never worry or care about the costs. But this is just me, I know this doesn't apply to most)
I think the part you are missing is that you assume that the S&P500 is a safer bet than my portfolio. But why do you define the S&P500 to have lower risk? Just because it has more companies in it doesn't mean that it's less risky.
The S&P500 is, in my opinion, riskier than my portfolio. That is to say that if there would be a large scale dip, I *think* that my portfolio would lose less of it's value. I did check for January 2016 (I'd say that was the last smaller dip) and I was +1% (excluding dividends) whereas the s&p500 was -5%. And I'd imagine many of us having similar results as some of the DGI companies certainly went up in price because of the stability they offer. Of course the only way to know for sure is to wait until the next dip inevitably happens. But like I said, I imagine my portfolio to be safer and as such I'm ready to accept a lower profit.
Then there is the dividend part. I haven't made any exact calculations but my portfolio is currently yielding over 4%. And seeing as this is a DGI forum: I expect 14 of my holdings to increase their dividend this year, 4 of them to keep the same, 1 of them to cut dividend and the remaining two are not paying a dividend at all. From a dividend point of view, I think this far surpasses what the S&P500 has to offer. Not to mention the fact that I receive dividends in 3 different currencies, (EUR, USD, CAD) something I find to be pretty crucial piece of diversification for me as I don't use USD for my daily bills. (and the idea is to, someday, pay all those bills with dividends)
So there is a bit about why I've chosen to build my own portfolio instead of grabbing the S&P500. And about why my portfolio is a much better fit for my goals than the s&p500 is. Unfortunately I can't predict the future nor do I consider myself to be any sort of stock market genius... and therefore I can't have everything. So yes, I'm fine with the fact that my portfolio has had a weaker performance than the s&p500 in these past years. As I said in the earlier post, profit correlates with risk. And I find my portfolio to have the right ratio for me... even if that means less overall profit.
As for the part about one company beating the index, that was a hypothetical thought just to prove a point: it's relatively easy to beat an index as long as you are willing to take more risk than the index.
RE: ETF - talk me off the ledge - cannew - 02-07-2017
Why not select a good DG stock and DRIP. Find one with no fees and one where you can invest small amounts for no commissions. Should be quite a few to choose from.
RE: ETF - talk me off the ledge - Dividend Watcher - 02-09-2017
(02-05-2017, 09:08 AM)Roadmap2Retire Wrote: @DivWatcher. Whatever way you slice it, dividend growth investing is essentially a "stock picking" strategy. As a dividend growth investor, we are betting that this one particular company can perform better than its peers and the argument taken to an extreme -- beat the market. Of course, we are not naive enough to think that, so we hedge our bets by diversifying our picks and mitigating our portfolio risks.
I personally dont think I am smart enough to beat the whole market and while dividend growth investing makes sense, index investing via funds also makes a lot of sense to me -- which is why I follow a a more multi-pronged approach. Part of my portfolio is in DG stocks and part of it in index funds -- so essentially I am hedging my investing strategy.
The last sentence in my previous post refers to a small subset of microcap companies that are not tracked by index funds. If there were indexes that could track it, I would do it...but until then, I am happy to pick stocks
R2R, I was not knocking your strategy. If you look at what I quoted -- and what I omitted -- it seemed more contradictory than complementary. Your last sentence does expound on your strategy and I understand the logic.