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You Need More Than Dividend Stocks
Date posted: 08.28.2013 (3:00 am) | Write a Comment (0 Comments)
Diversification Does Have Benefits
It is fairly basic financial theory. When done right, diversification can give a higher expected return for the same amount of risk. That is why most portfolios include more than 2-3 names or several industries.
When I look at many dividend portfolios, I often see high concentration of North American companies in a few different sectors. Yes, such a portfolio is somewhat diversified. But I don’t know why you would not want to add more. The benefit seems rather clear.
Which Assets To Add?
Several asset classes or types of assets can be added fairly easily. How? ETF’s of course. By combining 5-6 ETF’s to your dividend portfolio, you’ll be able to add more dividend income but also greatly diversify the entire portfolio. What would I add?
–International dividend stocks: It’s true that some foreign companies also trade in the US as ADR’s. But there are others that don’t. Big companies such as Nestle, Samsung and others choose to list on other exchanges. If you’re only trading US stocks, you are missing on many opportunities. Of course, the tax, conversion and legal issues in trading overseas make it more complex but there are several high quality international dividend ETF’s.
–Bonds: While right now might not be the best time to buy some specific bonds, it’s hard to argue with the diversification benefits in adding some local and international bonds (government, corporate, high yield). It used to be difficult to find high quality names but there are now several high quality ETF’s that offer solid alternatives. You might probably argue that one reason for buying your own dividend portfolio is to avoid paying fees. I disagree as I wrote a few weeks ago but I also consider the diversification benefit to be much greater than any fee you’d end up paying.
–Preferred Shares: Some other assets such as preferred shares are very difficult and costly to trade for individual investors but offer significant value. Buying an ETF means having a more structured and diversified way of getting exposure to asset classes such as prefs.
–Gold or other metals: Not everyone will end up wanting to own physical assets such as gold or silver, especially if things such as inflation and financial collapses come back in the conversation.
Do You Own Dividend Stocks? If so, do you think that is enough or do you complement your dividend portfolio with other assets?
If you liked this post, you can consider subscribing to our free newsletters hereThis entry was posted on Wednesday, August 28th, 2013 at 3:00 am and is filed under Commentary. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.