Each month on this blog, I publish my Best 2014 stock picks for both the US and Canadian markets. I always compare my picks to a dividend ETF. When I look at my own portfolio, I do the same thing. Finally, each month I publish my Dividend Stocks Portfolios at Dividend Stocks Rock and compare them to dividend ETFs as well. Some investors don’t do this because they feel good as long as they receive their dividends on a monthly basis and that their portfolio value doesn’t show a negative return. I use a comparison system because it enables me to see how good (or bad) I am.
What is the point of comparing your returns?
The point is quite simple: there are thousands of ways to invest your money and dozens of investment vehicles to package your portfolio. Let’s take my $50,000 invested in my RRSP for example. With this amount, I could invest in many ways:
#1 I could go and see a broker that will manage the money for me
#2 I could buy a good growth mutual fund and never look back
#3 I could build an index portfolio with ETFs and rebalance it once a year
#4 I could invest in a super safe GIC at 2.50% for 5 years
#5 I could buy bonds with pretty much the same result
#6 I could spend enough time on my investments to manage the portfolio myself
The first 5 options won’t take much of my time. In fact, besides the ETF portfolio, chances are that you can spend less than 5 hours per year and have your money managed by someone else… and maybe you can spend about the same time if you build a coach potato ETF portfolio!
Therefore, why in the hell would I want to spend hours managing my own stuff? There are two major reasons for this:
#1 I love investing
#2 I think I can do better than the market
And this is the whole point of comparing: if I can’t beat the market, what’s the point of wasting time on my portfolio? I should just buy ETFs or simply buy a mutual fund and use my free time on something else!
What do you use as comparison?
I also take great pride to see that my portfolio did better than the market but I usually compare my return against a dividend ETF. The point is simple: I like dividend investing as it generates a better stability in my portfolio than other aggressive ways of investing. Comparing a 100% dividend stock portfolio to the market is a bit unfair as it will be killed during a bull market and usually perform better in a bear market.
This is why I use a dividend ETF; because I could use the dividend ETF instead of spending time managing my portfolio. If I can beat the ETF, this means I’m better off spending time on for my stocks. I’m really passionate about investing but if I didn’t have the ability to make good decisions, I really wonder what would be the point of spending time analyzing stocks while I could simply buy a ETF and never look back, right?
Do you compare your returns to an ETF or an Index?
What about you? Do you use any kind of metrics to compare yourself? How do you know if you are doing well or not?
This is a very fair benchmark to use. I do really wish dividend ETFs had better yields, but with 2-3% the norm, I much rather build my own portfolio of 3-5% payers.
I do the same thing with my portfolio. I compare mine to a basket of funds I use to be in with an adviser. IF I can match the returns plus dividends I am happy. So far I am pretty even. Fund average Mers were .75
Hey Julian,
I’m surprised too when I look at dividend ETFs, they are very small! I like to pick stocks in the 3% range. These days, I’m taking also the ones between 2.50%-3% since the market has gone up.
I’m with Asset Grinder, if I can match the returns of an ETF plus dividends (to justify time spent managing my own portfolio) then I am happy.
I do dividend investing because I want to retire with the income from my investment. I don’t believe it’s something you can achieve in the many ways you outlined.
Because of my goals, it doesn’t really matter how it compares to an index or an ETF. Those that say that you could switch to dividends at retirement time are sorely mistaken to think you can just switch and be good at dividend investing. It took me 4 years to fine tune my strategy over time.
However, I do think it is extremely important to have growth targets and to measure them. Both my RRSP and TFSA have provided me with a ROR of 19% and 18% since 2009 and I target 10% just like the stock market average return.
The thing is, RBC Direct Investing gives me the comparison to any index I want and I look at it from time to time and it’s very different quarter per quarter in each account. My TFSA is CDN and my RRSP is mostly US …
Conclusion, I don’t compare to any indexes or ETF, even for an annual check because it’s too short-sighted and it does nothing to achieve my goals. My ROR and target growth is much more important.
Just loving the task is reason enough to do it! I’m sure there are times when you can do better than your management company, so it can also pay off for you in the end!
Why not use an index ETF, as LAH above suggests? We all know the market is a zero sum game; for every person that beats the market one person trails it. An index would give you a better representation of your performance. Some would say apples to oranges, but at the end of the day it’s all about return, be it from dividends or cap gains. Using a div ETF seems like a confirmation bias.