ETFs? Dividend stocks? How should I invest?

Recently, I received an e-mail from a reader: “I'm confused. One week you write about the folly of active management and how ETFs are the panacea. The next week you write about ‘The Best Dividend Stocks You’ve Never Heard Of’ – implying that retail investors should go out and buy the stocks. Where do you stand? First, let me start with exchange-traded funds. I think ETFs are terrific. They provide instant diversification and have much lower costs than mutual funds. If you don’t have the time or knowledge to monitor a portfolio of companies, ETFs are a great solution. In my own portfolio I hold a mix of stocks, ETFs and – for the fixed-income portion – GICs. If I have some cash to invest and I’m feeling lazy or indecisive, I just dump it into one of my ETFs and I’m done.

Why try to time the ups and downs – something I don’t believe anyone can do with any consistency – when I can just hang on and enjoy the fruits of time? This is where dividends play a key role. The vast majority of stocks in my personal portfolio have a history of rising dividends; studies have shown that such stocks outperform those that pay a flat dividend or no dividend at all. But I believe there’s a behavioural benefit from dividends as well: An investor who receives a dividend every quarter, and a dividend increase every year, has a powerful incentive to remain invested.

Source: Globe and Mail

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