Invest in Moderation: Dollar Cost Averaging & Dividends

Dollar cost averaging is the act of investing on a regular basis instead of putting a lump sum at one fixed point in time.  For example, if you had $12,000 to invest, with dollar cost averaging, you may choose to invest $1000 each month instead of the $12,000 all in one go.  This is a post explaining my investing strategy: To Dollar Cost Average ETFs and also invest in individual stocks that pay dividends.

Investing in Moderation: Dollar Cost Averaging and Dividends Approach

The Dollar Cost Averaging Strategy

I dollar cost average on a monthly basis with ETFs (exchange-traded funds), which are basically a basket of companies (and some ETFs can be a HUGE basket) that may be created to track the index.

Despite research according to Vanguard and the Globe and Mail showing that lump sump investing trumps dollar cost averaging, I am proud to be part of the dollar cost average club.

Just like I have a fixed mortgage instead of a variable mortgage because I am one of those people that can’t sleep at night knowing I have a variable mortgage (even though variable mortgages are proven to be more economical over fixed mortgages).  I don’t like to time the market all the time.

The Dividends…

Even though ETFs are a huge part of my investment portfolio, they do not comprise all of my investment portfolio.  Many people (including me!) recommend just indexing 100% because selecting individual companies to invest in is much riskier (and more costly if you are dollar cost averaging using simple US dollar accoutnts)

I like to be a little risky- must stem from my Scratch and Win days when I used to go buy scratch tickets even though I was under the age of 19.  The most I won was $2 but the adrenalin was addictive.  Hence, there are a few reasons why I dollar cost average with ETFs in addition to buying individual stocks.

Like many things in life, I like to do things in moderation.  Therefore it makes sense that I also like to invest in moderation.  A little bit of adventure (individual stocks) with a lot more safety (indexing and ETFs).

I have just over 67% of my portfolio in ETFs and the rest is in individual stocks.  Ideally, I would like to have 70% in ETFs and 30% in individual shares.

Stocks vs ETF portfolio composition

The Allure of Individual Stocks is Just too Powerful

I started off with individual stocks and even though the peaks and valleys of individual stocks are FAR greater, the allure of individual stocks is just too powerful.

I take pride in being a shareholder of individual companies and even though I am technically a shareholder of Apple… it doesn’t feel the same even though I own Apple within my ETFs (I don’t actually own Apple individually, I have missed that boat).

You just feel a bit more invested.  Pardon the pun.

I Like Big Dividends I Cannot Lie

Another reason why I still have individual stocks in my portfolio is that I like dividends.  I like big dividends I cannot lie (please sing it to Sir Mix-A-Lots Baby Got Back tune).   I am a HUGE FAN OF DIVIDENDS.  It is my favourite form of passive income, and they are so reliable and consistent, just like the ocean waves (usually they are reliable).  With ETFs (well, many of them) you just don’t get the same percentage yield of dividends as you would from an individual stock.

Take, for example, XIC (iShares Core S&P/TSX Capped Composite Index ETF).  The distribution yield is 2.64%.

XIC Distribution Yield
Source: Blackrock

The top ten holdings of XIC includes a lot of financials.  For example, Royal Bank is trading at $100.60 and the dividend yield is 3.74%.  If you had bought RY.TO (Royal Bank) at a lower price let’s say $80 in August 2016, your dividend yield would be even higher today because of the dividend increases (namely 4.7%).  There have been three dividend increases from August 2016 to June 2018.

XIC Top 10 Holdings
Source: Blackrock

If you bought XIC in August 2016, there has been a slight increase in the dividend yield (2.85% estimation compared to 3.0%) though in one quarter (in 2018) the yield was quite low compared to the other distributions.  The distribution varies with ETFs.

For the Complete Guide to Canadian Dividend ETFs, check out Dividend Earner’s comprehensive post.

With individual stocks, you also get to cheer when you get a dividend increase announcement.  In fact, dividend bloggers cheer each other on when they get dividend increase announcements and it’s a great way to keep up to date with the increases!  You don’t really get the same excitement when you say “I got an increase from XIC today!” compared to “Royal Bank increased their dividend by 9% again!”.

Related:  The Ultimate List of Canadian Dividend Investing Blogs

Keepin’ It Real with my Investment Contract and Dollar Cost Averaging

I signed an investment contract to myself years ago to invest a certain dollar amount every month.  I got the idea from reading The Intelligent Investor and a version of an Investment Contract is included in the Young Money Bootcamp eCourse.

I keep the dollar cost average contributions consistent and it prevents me from putting my EGO into investing so that I can continue to be disciplined, unemotional, and rational about my money.  It provides a bit of stability when the rest of the world is screaming “we are at the top of the market, the bears are coming!”  It helps me ‘keep it real’ with myself and my investment portfolio.  Then with the rest, I can use a bit of the fun money to invest in individual stocks.

I can’t say I recommend this way for you, it’s just what has worked for me (after investing for over 15+ years and making a TON of mistakes in the meantime, I finally figure what works for me haha) and what I prefer.  What works for someone can be completely different for another.  I also don’t have it all figured out too!  We all think that we do just because the market is churning out cash right now but we may think very differently when the next bear comes, and it will come!

Related Post:  My Tell All: Investing Mistakes in My 20’s

If you’re interested in checking out my dividend income journey, check out my recent dividend income updates here.  If you would like to download a free dividend yield spreadsheet to track your passive income, feel free to download it!

Here are some other Canadian personal finance blogs that have different investing approaches.

For a list of books to get you started on dividend investing, check it out here.

What do you do for your portfolio?  

Do you have 100% individual stocks or do you have some ETFs mixed in your investment portfolio?

Get the Young Money Bootcamp PDF FREE

Free Dividend Yield Spreadsheet Tracker Download and Blog Updates

36 thoughts on “Invest in Moderation: Dollar Cost Averaging & Dividends”

  1. Hi, GYM, I like dollar cost averaging, the slow and consistent approach. It requires patience to do so. Dividend stocks are great, investors just have to pick and choose the good ones. For mortgage, yeah, I’m a fan of fixed-rate mortgage.

  2. I like DCA too. It’s just easier especially now that I’m nervous about the stock market. I could put $12,000 in my 401k in January, but I didn’t want to. I’d rather have some cash in the bank this year.
    About 15% of our investment is in individual stock. The rest is in low cost passive funds.

    • @Joe- Oh wow, you have a lot of passive dividend income for 15% in individual stocks. Glad you like DCA, that means I’m on the right track to retire by 40 too!

  3. Well said, and not just because I am a believer in this approach as well. =)

    I did deviate slightly a few months back when starting my DGI focused portion of my portfolio, as I had received a lump sum and went all-in to get things started. However, since then I have been using DCA to add regular monthly contributions plus keeping a stash of cash that I had thought about using to pay off our mortgage to add in if/when I find any really attractive values. In addition, I have a portion in ETFs, well an ETF–VYM–and then individual stocks. My 401k and a couple of IRAs are all in index funds.

    • @DivvyDad- The one problem with too much DCA for dividend individual stocks is the transaction/commission fees. I limit myself to only invest in individual stocks if it is at least $1000 otherwise it’s not worth it for the $4.95 comission fee. Maybe your brokerage in the US doesn’t have commissions fees, but we have them up here.

      • Right now I’m enjoying 300 free trades that I received from Fidelity when I opened my account. However, even with that I still try to only make buys of $1000+ if possible which will be my strategy once those trades are used up.

  4. This is a great strategy. It’s sort of the best of both worlds really.

    Investing in a CCPC and the new tax rules have made dividend investing a bit less attractive. Many physicians would be better served with ETFs that pay less dividends and avoid the 50K/ year passive income limits. Especially during their accumulation years.

    If I used a taxable account. I would seriously consider your approach due to the tax benefit of Canadian dividends.

    • @Dr. MB- Yes, that’s true! The feds have changed the rules and the passive income in the corporation is making it not enticing to have some much dividend income (which is a shame really because dividend income is amazing!!!!!).

  5. My portfolio is about 80% individual stocks 10% index ETF and 10% options. As time goes by, I would like to increase my index ETF to about 50% and decrease my individual stocks to 40%. I still want to keep my options weighting the same.

    Dividend investing is great and I love it. Once your portfolio size get to about $500k the dividend will be very noticeable on a monthly basis and you will be very excited to wonder what you can do with the income. For me, it’s the choosing what to buy with your dividend income.

    • @Leo- Thanks for sharing your portfolio Leo. It’s so interesting to see the variance between everyone’s portfolios. I’m excited to get my portfolio to $500K. I am almost 2/3 of the way there. Yeah, when i see more cash balance in my portfolio I am very happy when I know I didn’t deposit that money in there, the dividend paying companies did! 🙂

  6. I do this strategy for my retirement accounts regardless of how the market is doing. I mean I can contribute the lump sum and max out my contributions but spreading them by contributing once a month provides me with available cash in case I need it.
    In my portfolio I have about 40% of individual stocks with the rest in index funds.

  7. we dollar cost average in about $2k increments. trades cost me 7 bucks right now so i don’t like to trade less than a grand at a time and usually more. that’s just for the american roth ira’s and taxable accounts. i’m 42% individual, 15% preferred etf’s, 40% indices as the only option in the work account, and 3% cash. i turned off drips earlier this year so i could buy what was “on sale” or add to successful positions when the cash balance got high enough. i might just let cash accumulate until it’s closer to 10%. we’re not too far from retirement and i’m willing to sacrifice some return for 1.8% in a savings account.

    people think individual stocks take 10 hours a day to manage but i threw together a 40 stock bulletproof portfolio earlier this year as an experiment and it’s doing quite well vs. the s+p. dividend growers help you sleep at night.

    • @Freddy Smidlap- $7 is still pretty good. I DCA because my ETFs are free to purchase. But for individual stocks they cost $5 a pop. That’s interesting that you turned off DRIPs. Did you have a lot of DRIPs in your account? I like having cash accumulate too but I do have two DRIPs set up. Wow good to hear you have a 40 stock bulletproof portfolio! Did you invest in all of them this year and are the portfolio holdings on your website? 🙂

  8. the bulletproof portfolio is on the website. i don’t own all of those but only some. i was trying to make a point that it was possible to pick winning dividend growers and beat the s+p500. my real portfolio is mostly i only list the top 11 holdings but hold 35 names in total.
    the bulletproof one is here:

  9. I definitely embrace both!

    For my me and my wife’s IRA’s, we do our best to fund them via lump sums at the beginning of the calendar years. For our brokerage account, we dollar cost average into a total stock market index fund.

    Definitely not the same adrenaline rush as investing in individual stocks, but the dollar cost averaging route into the index has worked well enough for us!

    • @Sean- Good for you! 100% DCA in the index is touted by many to be the way to go (including Warren Buffett). I still enjoy a bit of the portfolio to be individual stocks because I like the adrenalin rush haha… and it feels great when a company you invest in announces a 14% dividend increase and a payout of $0.80 a share from $0.70 a share!

  10. I usually invest whenever there is money available that I don’t want to keep in cash 🙂 Sometimes that means lumps (when there’s bonus income) and sometimes it means investing monthly with salary income. My husband likes to contribute to his 401(k) every month for the simplicity of it but I like front loading it so it’s checked off at the beginning of the year. I think for now other than retirement accounts, we are going to stockpile cash though to see how small we can get the new house mortgage when that happens!

    And all of our stuff is in index funds. I think I was scared off of individual stocks with how volatile my tech employer stock was, haha.

  11. Money/investing is so much more about psychology than just numbers. DCA feels better than doing lump sum, so I DCA. It’s better than freezing up.
    I mostly index, but this year I bought Enbridge stock for the dividend. The yield is so awesome.
    I think I will allow myself up to 10% asset allocation as play room for individual stocks. I just need to invest through a bear market first to see how I’d behave before adding more risk to the portfolio. I could be a complete mess of a irrational investor for all I know. Then it’s probably best to stick with sthg like VGRO, where I can freak and tweak my asset allocation.

    • @Jeannie- I like DCA too, I can sleep at night. And it allows me not to time the market. All it takes is discipline and that’s easier to do than trying to time the market. 10% asset allocation for individual stocks is good. It is best to have the majority as index. I don’t have Enbridge, but their dividend yield of >5% is definitely juicy! VGRO is very popular, I’m very happy that Vanguard created something like that for Canadians.

      • I was so happy about the VGRO/VBAL products for Canadians. Now Wealthsimple Trade is also coming, we’re finally catching up to our American neighbours a bit!

        • @Jeannie- Like with Robinhood? It’s interesting that Wealthsimple trade is only offered for Canadians. Also, it is only for non-registered accounts right now. AND they seem to limit the amount to $1000 per trade. AND they make money on US and Canadian currency exchange. This is what I gleaned from looking at their product. Seems like a lot of excitement for everyone though- they are good at marketing. Which is why $POW did a good job investing in Wealthsimple!

  12. I am reading this 2 years later but it is interesting! Our way of thinking is very similar. That’s why I have the registered accounts in QuestWealth account. I know the 0.2% sucks but this way I just set up daily (YES daily) contributions and the Robots do the rest. I find it is the best way of doing things with the crazy crappy market going up and down. So basically I divide my TFSA contribution room $6000 by 250 (That’s the working days when market works during the year, I think). Then I set up daily transfers. Yes, they don’t invest it daily but it is how I have been doing it. Same for RRSP and RESP accounts.
    For non-registered I do my own thing in ETFs with DRIPs enabled. For stocks, I use Wealthsimple as there is no fee (You know that of course).

    Have you had any strategy change in the past 2 years? Maybe you can update this article!

    • @UltimateTraveller- Wow, daily that’s awesome! That is DCA to the max. Not too much for strategy change, though now I am even more heavily into stocks, 40% stocks and 60% ETFs. I am trying to deviate away from Canadian stocks/ allocation but the dividends are just too attractive. Sure I’ll think about updating it, thanks!


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