Cameron Passmore CIM, FMA, FCSI

Portfolio Manager

Benjamin Felix MBA, CFA, CFP

Associate Portfolio Manager
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Does income investing really increase your income?

January 5, 2018 - 2 comments

“You’ve got to have money to make money,” or so the saying goes. Maybe that’s one reason loading up on dividend-yielding stocks is so appealing to so many investors. There’s just one problem: Dividend stock investments don’t really work the way most people think they do. 


Bulking up on dividend-paying stocks may seem like a handy way to generate cash flow, but it’s more like a mental accounting trick than an actual source of “extra money.” Plus, it gets in the way of several equally important investment goals, such as tax efficiency, global diversification, and earning risk-adjusted market returns. 

Fortunately, a shift in focus to total return investing incorporates all of these goals at once, and fits right into Common Sense Investing. Find out more by watching today’s video, and to keep my stream of videos flowing, subscribe here

By: Ben Felix with 2 comments.
  18/01/2018 10:17:40 AM
Benjamin Felix
Mike, your question is driven by one of the common misconceptions about income investing. If an investor has a declining portfolio that is paying dividends, the value of the companies will decline further each time that a dividend is paid. They are not protected from further losses by not having to sell. As far as having an affect on the price, dividends behave in exactly the same way that a sale does. The difference is that you have control over the sale, but not the dividend. A suitable solution for an investor who requires income is to build a well-diversified portfolio focused on total returns, and use Monte Carlo analysis to determine how much capital they need to survive through a downturn.
  13/01/2018 9:48:39 AM
Mike Peddie
Thank you for the very informative presentation. For investors that do require income, investing in a basket of low cost domestic and international etfs, and then selling units for income and paying a lower tax rate on hopefully capital gains. However, if the investor requires a steady rate of income and sells units of the etfs during a market downturn his capital base may be reduced significantly. What may be a suitable solution for this investor?

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