For the interview segment, I’m joined by Larry Bates, a former investment banker who has become an outspoken advocate for Canadian investors. Larry is the author of a new book called Beat the Bank, which lays out a strategy he calls Simply Successful Investing, with a focus on education, long-term thinking and low costs.
A few years ago, Larry created the T-REX score, a way of measuring the portion of an investor’s long-term gains that are lost to compounding fees. For example, assuming an annual return of 5% over 25 years, an MER of 1.5% would eat up 43% of your total gains. Drop that fee to 0.25% and you’d lose just 8% over the same time period. Use the T-REX calculator on Larry’s site to run the numbers for yourself.
Even diversified dividend ETFs were slaughtered during the crisis: the iShares S&P/TSX Canadian Dividend Aristocrats Index ETF (CDZ) holds only Canadian stocks with a history of rising dividends: it lost about 44% of its value in the six months following September 2008. In the US, the Vanguard Dividend Appreciation ETF (VIG) also lost about 40% over the same period.
Dividend-paying stocks are wonderful, and they’re likely to be appropriate for just about any portfolio (as part of broadly diversified index funds, of course). But we need to let go of the idea that they are “low risk,” and that they’re a suitable alternative to GICs and bonds for income-focused retirees.
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