The Weekly Lineup: Index or Dividends?

Canadian Couch Potato

The Couch Potatoes

Last week, Dan at the Canadian Couch Potato began a series of posts related to dividend investing. There is one fact in life. Put an Index Investor and Dividend Investor in the same room for a few minutes, and you are going to have some lively debate!

Index Investors point out you cannot beat the market, so just invest in the market itself – they are right! Dividend Investors believe you cannot beat the growth and stream of dividend income from high quality dividend paying stocks. They are right also! Personally I like the idea of combining both Index and Dividend Investing. As usual Dan provides excellent research and the diversity of opinion and responses is enlightening. He posted about four articles since last Friday, and they are all worth reading:

I’m Contemplating the Couch

I’m not talking about my sofa (or your sofa for that matter). I’m talking about the Canadian Couch Potato and Index Investing.  Can you see a Potato hanging out with a Ninja?

I’ve been contemplating Index Investing since last year, but the recent posts at Couch Potato have got me thinking.  I’m hardly ready to give up dividend investing, far from it!  I Love Dividends! – this could be a new t-shirt 🙂 But I also think there is merit to passive index investing. I’m planning  to setup a separate TFSA with TD, and then give the Couch Potato a try. I think Index Investors have done well over the last few years because of climbing markets. But it will be interesting to see which portfolio prevails in 2011: the dividends with fixed-income (active) or the couch potato (passive).

More to come!!

And now for something completely different:

  • Last week I discussed the merits and tax benefits of contributing to your TFSA instead of (or before) your RRSP. Many people still don’t understand the basic rules about the TFSA.  Jaymus at Realized Returns follows up nicely on this with 10 Facts on Tax Free Savings Accounts and with 4 Popular Uses of the TFSA.
  • Another interesting post at Horan Capital Advisors, on where we might be in the economic cycle:  Sector Rotation and The Economic Cycle.  If as Horan Capital points out we are indeed in a delayed early-cycle, that could signal interest rates may be going up sooner than later.
  • Following his posts on Canadian Banks, The Passive Income Earner looks at TD Bank.
  • Andrew Hallam loses part of his brain in Will Your Child Be As Lousy With Money.. No really he doesn’t, but you can read the article and find out (since the article is about having to work for something to value it).
  • And lastly, some shameless promotion and honed in marketing skills at Realized Returns! Jaymus is giving away a free Kindle. You can get the contest details at Read my Drivel, win yourself a Kindle.

11 Responses to “The Weekly Lineup: Index or Dividends?”

  1. i think deep down I know passive investing has its merits, it’s just so.. passive.. and I’m just so.. not.

    I think I’ll be buying in to more ETFs this year and moving away form jumping in and out of stocks. I hope to increae my total investments this year and as the stakes go up, my desire for safe/stable will too… couch potato may end up being a big part of that strategy.

    p.s. shameless is my middle name.

  2. Thanks for the mention! As you probably saw, I was participating in the index and dividends debate.

    For me, dividend yield is tangible and I can calculate growth from it so I know what to expect 🙂

    Index investing is a very good option too. I usually recommend that to anyone starting to invest anyways.

  3. The Dividend Ninja

    Jan 20. 2011

    @Realized Returns
    I think the passive element is the whole point. It takes the whole exercise of subjectivity out the window when you rebalance each year- except for what you pick in the first palce. Sure you have to have faith in the index, but I also have to have faith when I buy stocks 🙂 It’s going to be fun to take it for a spin (while I collect my dividends 🙂

    Yes stocks do have consistent dividend yields, but the increase and decrease in share value is not predictable. I keep U guys posted.

  4. Canadian Couch Potato

    Jan 20. 2011

    Ninja, I would be proud to hang out with you any time. 🙂 Thanks for the mention and for contributing to the discussion, which I have enjoyed immensely.

    A number of people have said they use a combination of passive and active strategies, which I think is a perfectly good choice.

    As for the “I Love Dividends” t-shirt, someone beat you to it:

  5. The Dividend Ninja

    Jan 20. 2011

    @Canadian Couch Potato
    Thanks for dropping by! I think I will now have to find a new career path other than printing t-shirts.

  6. My Own Advisor

    Jan 21. 2011

    I LOVE dividends as well. I’m now over $4,300 per year thanks to Canadian banks, telcos and utilities. Great site BTW.

    I really enjoyed the discussion on Dan’s site this week. More to come for sure.

    I’ve added you to my “Blogs I Follow”.

    Stay in touch more in 2011.

    My Own Advisor

  7. The Dividend Ninja

    Jan 21. 2011

    @My Own Advisor
    Hey thanks for dropping by and the compliments 🙂 Yes its been a great week to discuss dividends, let’s keep in touch!

  8. SigmaSwan

    Jan 26. 2011

    I’m a passive- aggressive type guy. In my Roth, I plow about 60 percent in an index fund of funds, called fidelity four in one, FFNOX. I like this approach because it gives me some exposure to bonds, international, and smaller caps all in a cheap index. The rest I invest in individual stocks. I started parking my money in the index fund with the idea that I would sell shares whenever I needed money for individual stock purchases but I have found that I never do that. It’s nice to have the option though, I guess.

  9. Dividend Monk

    Jan 28. 2011

    A key piece that’s generally left out of these sorts of discussions is that with passive index investing, investors typically give up their voting rights. It’s not all just about whether one beats the market or not.

    By owning individual companies, the portfolio is small enough for someone to keep an eye on management and make shareholder decisions (after all, they are owners of the company), and they get to keep their voting rights rather than handing them over to institutions.

    The concept of people handing over all of their voting rights while complaining about their nation’s corporate affairs baffles me endlessly.


  1. Weekend Reading 1/29/2011 — Dividend Monk - January 29th, 2011

    […] Index or Dividends? The Dividend Ninja discusses the comparison between indexing and dividend investing. […]

  2. Rob Carrick's Guide (Part 1 of 2) | The Wealthy Canadian - September 4th, 2011

    […] Ninja highlights how apparent this is with his post, “The Weekly Lineup: Index or Dividends?” and cites a truly excellent series by Canadian Couch Potato, “Debunking Dividend […]