By Mark Seed

Special to the Financial Independence Hub

Fans of the My Own Advisor site, including many long-time readers and investors who enjoy this site, continue to tout the benefits of low-cost investing to others.

And you know what? They are right and they should!

That’s because when it comes to investing you often get what you don’t pay for: better returns usually come from a lower-fee fund structure.

That means when it comes to money management fees matter.

One way to reduce your investment fees is to own lower-cost dividend ETFs.

Here are some of the great benefits that come from investing in dividend ETFs beyond just distribution income:

Transparency: Within a few clicks of a mouse or few swipes on my tablet, I can see what every single holding is in these funds. I can also read up on the fund’s prospectus to learn how fund turnover is managed and how often.  Portfolio turnover within the fund costs money: someone needs to get paid!  That brings me to my next point below.

Modest fees: You might recall active fund management costs more because money managers are paid to perform. A pay-for-performance mandate encourages the mutual fund money manager to buy and sell stocks frequently in an attempt to beat the market or the index they are tracking.  Buying and selling frequently incurs costs, and those portfolio costs are passed on to you. Instead of all this trading, I think investors should strive to invest in a low-cost ETF that follows a reputable, established, broad market index such as the S&P/TSX Composite Total Return Index or for dividend investors in Canada, an established dividend-oriented index such as:

• S&P/TSX 60 Index, or

• S&P/TSX Composite High Dividend Index, or

• FTSE Canada High Dividend Yield Index

Lower effort: If you’re going to invest in some individual stocks, you need to spend some time understanding these companies and understanding what you own, why you own it. I read annual reports every year and follow metrics like yield, payout ratio, earnings per share, cash flow to name a few.  Dividend ETFs don’t have this complexity: they bundle all these companies together for you.

There are certainly many benefits to owning Canadian dividend ETFs … but I still don’t invest in any of these Canadian funds.  Here are my reasons why:

1.) I thought about building my own Canadian Dividend ETF: and so I did, and I’ll continue to do so!

Many years ago, I learned there is merit to owning the same Canadian stocks the big funds own: so I started that process.  I’ve never looked back.

I went so far as to say Canadian dividend stock selection could still be made easy.

Here is one quick example: Look at this RBC Canadian Dividend Fund in 2011:

And now the same fund’s top fund holdings as of April 2017:

Lots of differences eh?  (Images courtesy of RBC’s site.)

Let’s look at another example and pick on BlackRock – XIU.

Now, again, if you don’t want to buy and hold certain stocks, nor try and create your own Canadian Dividend ETF like I have, then no problem.  This fund is arguably one of the best ETFs to own in Canada!!  (I recall iShares XIU was one of the world’s first ETFs.) Continue Reading…