Sorry for making a new topic for this but I am an active user of the forum and im looking for some opinions from you all.
I have been with Freetrade now for around 4 years and have managed to build a £30,000 portfolio (+£6,000). I did start off with a mix of index funds and dividend stocks, but now im tempted to go 90% into VWRL. 5% in S&P500, and 5% in treasuries.
Reasoning: i currently hold quite a few stocks and it’s hard to track. I think i am also underperforming vs VWRL and i read an interesting article that made an argument that dividends are essentially pointless as the stock price drops on the ex-dividend date equal to the dividend amount:
So i am at a reallocation crossroads and I am looking for the opinions of this forum.
Stick with what I am doing and just top up the index funds each month.
Sell all individual stocks and go just into index funds + treasuries.
Sell the gains from my current stocks and put that into the index funds and treasuries (lock in the gains).
Context: I am 30 years of age and invest around £550 per month. I am a long term investor. Thank you for any tips / tricks on this as I am at that cross road point that i think most investors go through…
Not financial advice, but if you are 30, focus on growth. Forget dividend investment. At age of retirement, rethink as income from dividends could provide a good way to pay for expenses.
When I said scrap dividend investment, I don’t mean don’t invest on companies that pay dividends. Dividends are usually a good indication that the business is mature and with good cash flows, just don’t base your decision on the yield.
My portfolio exploded when I started focusing on growth stocks. Nothing risky, just blue chip stocks such as Apple, Microsoft, Visa,.etc…
If you have the time and patience to attend earnings call, create spreadsheets with some stock comparisons and some common sense about the trajectory of the business, go for single stocks, otherwise just choose ETFs. I use discounted cash flow models and reverse cash flow models, but to be honest, looking at Free-cash-flow graphs is already a good indicator if the company has a sustainable growth.
Treasuries are only good for this period where yields.are high. Once they reach 4%, put the money in stocks. Bonds at 30 are just dragging you down. Create a emergency fund instead.
No one knows the future, and I could underperform the market in the next years, but so far worked for me.
My dividends are still growing, and this year they are 25% higher than last year.
bit of a hogwash argument really. Price action on ex-div day is usually temporary. I’ve seen prices recover before the day is out and long term price will track earnings. I wouldn’t sweat the VWRL thing either. Ive had periods where my boring dividend stocks have outperformed it handily and periods like now where i’m underperforming. As long as im hitting my income targets its not that important as I don’t intend to sell shares.
Having a separate SIPP focused on growth could be a way round this, then potentially simplify the dividend portfolio. Good luck.
It’s great that you have come to this realisation and are actively trying to learn more and continuously.
You will definitely not outperform buy&hold of a world index ETF. I’d switch to that.
Technically, it is also correct what you have read about dividends, but I’d argue more on the side that companies paying a dividend are saying ‘hey we don’t have a way to productively invest this money in great growth, please take it’.
As dividends can be psychologically valuable for many people, it’s your call.
Maybe do a world index with some smaller ‘play’ investments into dividend ETFs or stocks of your liking.
At your age, total return is the aim of the game, not getting too hung up on dividends.
VWRL already invests heavily in the US and the S&P 500 so not sure the extra 5% is needed.
My current strategy is to build up a significant stake into VWRL and then look into satellite investment trusts. Keeps the fees low and then allows me to have a small dabble at individual stocks in my ISA with the loose change.
I personally keep the core of my portfolio as VWRP and then invest in a few US high growth tech stocks and a small number of UK stocks that have done well for me, some of which pay higher dividends.
Up until earlier this year I had a alot of home bias and although I still think the UK market is generally undervalued, since changing my strategy my returns have improved significantly. I’m up over 45% in two years, nothing groundbreaking but still beating the market as a whole by a few percentage points.
If I would have had the opportunity to invest when I was 30 I would definitely keep it 70-80% all world and 20-30% individual high growth / higher risk stocks.
Not really, the point is as a shareholder you own that money that they pay you as a dividend whether they pay it or not. If they decide to hold onto the cash and not pay a dividend, you still own a share of that cash as part of your shareholding. When they pay a dividend they are literally reducing the value of the company by the amount that they have paid out. It took me a while to get my head round this. It starts to make more sense when you think of yourself as part owner of the company, which as a shareholder you are.
I’d still says dividend stocks are a decent investment if the company is a mature profitable company.
Excess cash on balance sheet does not generate value and Capex requirements are usually far less than free cash flow and so paying out a dividend does not reduce the value of a business. Ultimately dividends are a component of total return which the article above tries to claim otherwise and is total garbage.
More investors need to have this honest conversation with themselves. It’s important to actually compare your performance to VWRP or VUAG. If you’re not beating the index, why bother?
And, even if you are ahead, is it worth the headache? I’ve beaten VWRP in recent years but eventually came to realise it wasn’t worth the opportunity cost.
I could have spent that time increasing my earning power, which would have a far bigger impact on returns, or doing something I enjoy more than reading annual reports etc.
Here is my performance vs VWRP. I was beating it, but it came back to get me.
Coincidentally, i started underperforming vs VWRP after i stopped spending 2 hours every Saturday on excel analysing stocks… either that, or I am the textbook example of someone may beat the market short term but its very difficult long term…
Happy to take the time and stress off my plate anyway. And i’m glad youre beating the market!
Depends on what you after My GIA and ISA on Freetrade are totally different, but so are the aims. The ISA is under performing, but i have £760 each week in the Treasurys as emergency cash. its aim is to be stable and pay dividends. Where as the GIA is risk on.
Had to create some sort of automatic visuals to pull together the funds and Berkshire. It breaks down each fund into exactly where it invests. For example VWRL is 65% USA and 5.6% Japan etc… so it breaks each fund down into individual countries and then pools them back together to present overall portfolio concentration.
It pools together the money invested and then visualises it on a world map. All automated so that if I top up 1 fund but not others, it will automatically update the map.
It is useful for looking at global concentration to highlight areas of non-concentration i.e., latin america.
@MJRInvests I’ve enjoyed your dividend income updates but it’s not surprising to see you question your strategy. You have a long investment horizon ahead of you and as others have said, focusing on growth is probably the way to go.
However, as @sebReitz says, dividends can be psychologically valuable for many people so do not ignore what it is that motivates and encourages you to invest in the first place. Did you end up ditching all your income paying individual shares?
I’m further down the road investing-wise, my dividend portfolio is only 25% of my entire portfolio, the rest is in growth equities (mostly VWRL/VWRP), with a bit in bonds/treasuries.
I changed strategy this year and sold my dividend stock and buy some growth stocks. Tesla. Palantir and now Cleanspark. Been also watching a guy on you tube called micro 2 macro - Interesting to watch. Once I’ve made enough to retire I may switch some back to dividend stocks for safety
It was a SPAC that jumped mostly. I’m wary of high gain stocks as I always think they could drop just as quickly. I view dividends a de-risking of an investment and then deploy them elsewhere. Maybe it’s because I’m over 50, and i dont have time to wait, and the ISA is my plan if I need to reduce my hours at work.
My GIA is a mix of Growth and Dividend Stocks. I’m gradually selling down the Dividend Stocks and moving them to my ISA when the opportunity arises. To try and reduce the Tax liabilty on dividends received.
