The Financial Crisis
Like most people, over the years I had most of my investments in mutual funds. I didn’t know about DIY (do it yourself) investing, and I never paid much attention to my portfolio. But like most people the market crash of 2008 and 2009 changed all that. I became much more concerned about my holdings, and began to take an active interest in my own investments. Dividend Stock investing was the strategy that made sense for me.
Following the crash, 2009 and 2010 were great years to invest in stocks, everything was on sale! It was like a shopping-spree for investors. So it was an easy decision to switch to a discount brokerage, dump most of my mutual funds and buy great companies on sale.
Instead of paying commissions and fees to brokers and mutual fund dealers, I started receiving dividends for being a shareholder.
The Bottom Line
The bottom line is you don’t need to hand over your hard-earned dollars to mutual fund dealers or financial salespeople. The financial industry would have you believe otherwise. Investing in low-cost index funds, and dividend paying stocks is not as difficult as you may think. Here is the bottom line:
The majority of mutual funds are nothing more than dogs, which make money for the fund managers who run them and the brokers who sell them. Commissions, Management Expense Ratios, Trailer Fees, and Under-performance leaves little room for profit in your pocket!
You can do much better with low-cost Index Funds, Index ETFs, and quality Dividend Paying Stocks!
The Dividend Ninja Strategy
The Dividend Ninja does not gamble when it comes to picking stocks, or waste hard-earned money buying commission-based mutual funds. The Dividend Ninja combines a diversified portfolio, with both Passive-Index and Passive-Dividend Investing strategies. The Ninja invests in low-cost Index Funds, Index ETFs, and blue-chip Dividend Paying Stocks.
The Dividend Ninja looks for high quality companies, which are most likely to increase their dividend payment year after year. These are the Dividend Aristocrats. They are companies with highly sought after products or services, and many with global reach, such as McDonald’s for example.
The Ninja patiently watches a predetermined list of stocks for the right time to buy, then strikes without question or concern. When others are fearful the Dividend Ninja takes advantage of opportunity. When others are optimistic the Ninja employees caution.
STEP 1: Asset Allocation
The first starting point is to work out the percentages you want to invest in each asset class, rather than worrying about specific investments. The rule of thumb is to invest the percentage of your fixed income at your age, and the balance in stocks. So for example in my 40′s, I try to invest 40% of my assets in bonds and bond-funds and 60% in stocks.
Too often I see the beginning investor load up on one type of asset, such as penny stocks or high-yield stocks. Putting all your eggs in one basket, and taking undue risk is always a recipe for disaster. You cannot outsmart the market! Diversification is the single most important factor to your investment success!
STEP 2: Build a Core of Index Funds
Instead of buying expensive and under-performing mutual funds, you can buy Index Funds or Index ETF’s that simply track the market. These are no-commission, no-fee, and low MER (Management Expense Ratio) investments. You won’t do any better than the market, but you won’t do any worse either. TD offers the e-series funds for as little as $100 per fund, $25 month, and MER’s less than 0.4%. It’s that easy to get started!
STEP 3: Invest in Dividend Stocks
Once you have a core of Index Funds and ETF’s, of around 30K-50K, you are ready to begin adding Dividend Stocks with your own brokerage account. Stick with big name brand companies you are familiar with! These big blue-chips, give you money back (dividends) for owning them. They are household name-brand companies that pay dividends of 3% to 5% per year. Instead of a mutual fund charging you a commission, you get that money back as a dividend for becoming a shareholder!
The Dividend Ninja Philosophy
- Ninjas know their enemy – they cannot outsmart the market
- Ninjas don’t buy Mutual Funds
- Ninjas don’t buy Penny Stocks
- Ninjas do buy low-cost and low MER Index Funds and Index ETF’s
- Ninjas do buy Blue-Chip Dividend Stocks, and hold for the long-term
- Ninjas know their stocks before they buy them
- Ninjas buy stocks when others are fearful
- Ninjas never buy stocks trading at 52 week highs
- Ninjas stick with their plan
The Dividend Ninja Lessons
A list of investing strategies the Dividend Ninja has learned over the years: