Retirement Mistake No.15: Investing in Dividend Growth Instead of Dividend Income
Posted In: Retirement Planning for Entrepreneurs

A long time ago I came to know an investment strategy that has stood the test of time in Canada. It is investing for income, in particular dividend income. If the dividend increases over time then so will the income. So often investors find themselves chasing growth funds when they really want consistency and stability and sometimes regular income. This is the case with dividend funds.

What is a Dividend Fund?

A dividend fund is a portfolio of companies or securities that pay dividends, or profits from companies, to shareholders like you and me. You see, most dividend funds are more or less stock funds that are not designed for retirement income. Some have marginal dividend payouts but boast big returns.

What to consider

Do you want growth or income? Do you want high returns or a steady stream of cash flow and stability?

Planning your retirement income can be confusing when you are reviewing your options. Dividend funds can hold a combination of stocks, bonds, preferred shares, income trusts, and income-related securities. Even the names can be confusing. Some are income funds, yet the income is marginal.

Finding the top-performing dividend fund does not mean you are going to receive monthly income either. If your goal is to look for tax-efficient dividend income, carefully sort through the category of  funds and look at the types of holdings, not the past performance. You will always find a dividend growth fund performing better than a dividend income fund. But if stability of your money and cash flow are important to your retirement income plan, ignore the high-returning growth funds and look to consistent, income-performing, funds or portfolios.

It is always safer to know what you own than to rely on the fund manager. He or she will never sit down with you to find out your goals, and to see if you need income or growth. A recent survey shows there are more than 160 different dividend funds. When it comes to dividend funds, check the prospectus and annual report or ask your financial professional the details of income or growth.

Don’t let go of  your dreams. If  you have determination and belief  in your dreams, you will succeed in spite of  your desire to let go. – Catherine Pulsifer

Most of  the important things in the world have been accomplished by people who have kept on trying when there seemed to be no help at all. – Dale Carnegie


Published with permission from Grant Hicks

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