Dividends4Life: Another Advantage of Dividend Investing

Another Advantage of Dividend Investing

Posted by D4L | Monday, November 09, 2015 | | 0 comments »

One of dividend investing’s most attractive attributes is its simplicity: you buy a stock, you get paid. Because of that simplicity, dividend investors can enjoy an advantage that eludes those choosing more complex and sophisticated investments: low costs. The issue of investment costs is the subject of an excellent column by Elliot Blair Smith on Marketwatch.com. Smith writes: “Quite often investors end up paying for nothing, when…promised services aren’t performed; or overpay for average returns and underperformance. Some drags on earnings include management fees based on inflated asset values, valuation methodologies that change opportunistically midstream, and layers of unnecessary, or non-independent, experts that become conduits for…“back door” fees. Alternatively, when capable investment managers do beat the market, sometimes they allocate much of the benefit to themselves.”

In one famous example, Harvard professor David Laibson asked MBA students, undergraduates and university staff to select an index mutual fund from a group of four real S&P 500 index funds. Despite choosing from identical funds, none of the subjects minimized fees, which was the only difference among the funds. Dividend investors generally sidestep the quirk in human behavior that leads us to avoid being rational when pricing financial services. If you maintain a discount/low-cost brokerage account through which you buy dividend stocks and rarely trade, you will not only have the best chances to earn a decent return on your money but also save a bundle by avoiding high-cost investments in which you can’t even tell what the costs are.

Source: Dividend.com

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