I’m on X, formerly known as Twitter, and often the app randomly shows me tweets from financial planners or advisors. Most of the time, these advisors are trying to steer people away from dividend stocks. They claim that DIY investors lack the business acumen to understand that dividends are subpar. It’s frustrating when someone doesn’t see the same things you do.
Financial advisors will never encourage you to buy an individual stock. They are salespeople first and foremost, which is why it’s important to learn how to invest on your own. The unfortunate part is that people aren’t interested or don’t have the time and feel that it’s easier to hand their money over to an advisor.
It shocks me to know how many people put their faith in complete strangers, but forget that these same strangers (advisors) are earning a commission or fee for their services. Payment comes with bias towards specific products that help the advisor save for their own retirement not yours.
I’ve been an investor for almost 30 years and have never purchased a fund. We had a financial planner come to our house a few times over the years, and he was eager for us to invest with him. We never did because I could tell immediately he didn’t have the same view on investments as we did.
Here’s some of the reasons why I’ve stayed away from funds all these years:
A fund’s return is based on the purchase price - what you pay when you buy it. You hope that one day, likely in retirement, you will sell it for more than what you paid. Markets go up, down and sideways, so there’s no telling where that price will be 30 years from now.
There are usually hundreds of stocks in a fund that range from excellent blue-chip companies to ones that are far less than stellar. The blue-chips are the ones that usually keep the fund going and have the highest weighting within the fund. The rest is filler.
Not all companies in the ETF pay dividends. Not all dividend payers in the ETF grow their dividend annually. This results in a lower yielding dividend paid out by the ETF than if you were to own the dividend growers outright.
The fund managers don’t buy and hold for decades, they are constantly tweaking investments within the fund in order to stay on target with the benchmark they follow. This creates excessive trading or commissions fees that further reduces the overall return for shareholders.
Funds come with fees, like the ones mentioned above, but also operating costs for employee salaries and marketing. There are many ETFs today that charge low fees as compared to the old-style mutual funds, but it’s still a fee no matter how small and it will eat away at your returns over time.
The advisors who promote the funds, and the fund managers who run the fund, don’t know you. I’ve never understood the urge to give a stranger your hard-earned money and hope they make good decisions with it?
“Fund managers like to suggest “Invest and Forget” and why not? They’ve convinced millions of investors to contribute trillions of dollars to their funds, which in turn provides them with millions, if not billions of dollars of income. Those fees, no matter how small they may seem initially, are the portion of your retirement income that you are losing.” From Henry Mah’s blog: risingyieldoninvestments.blogspot.com
To build wealth, you must learn to invest yourself. It’s a lot easier to set up your own direct-investing account, purchase some of the highest quality Canadian dividend growing companies, and build an increasing retirement income, as compared to having an advisor steer you towards hundreds of funds that will, at best, be average.
Last month, in my newsletter, I provided a chart on the companies I follow that showed how much their annual dividend had increased over the span of 10 years. All but a few had a dividend increase of well over 75%, with most being over 100% or more. Imagine having an income that doubled every 10 years without having to buy any additional shares?