Asked on 08 Jun 2018
Why choose when we can have both ?
1) Value investing => higher portfolio growth for long term goals
2) Dividend Investing => Regular cash for current / short term use
I think we all want F.I.R.E, so why not while working on a day job, use #2 for monthly cash flow (till it is sizable to quit the day job) and at the same time use #1 for longer term goals such as marriage/housing/retirements etc
I would pick Value Investing for beginner.
Get a ETF which reinvest the dividend distribution.
You save on commission charges and you dont have to do anything most of the time, just rebalance your portfolio every 3-6 months. More time for yourself, less time looking at your portfolio. Let the ETF do the compounding, you are paying them management fees!
With dividend investing, you have to reinvest every quarterly(depends on the distribution), which incur commission charges and your time. Imo dividend investing is more suitable when you are retiring due to the additional cash flow.
Dividend stock tend to be more stable, which isn't what you need at this point of time. You need your portfolio to grow and compound.
Hope to see some really unique answers here with personal experiences being shared!
To everyone reading here, this is some context:
Value investing is a strategy which generally involves buying securities that appear underpriced by some form of fundamental analysis, though it has taken many forms since its inception.
Dividend investing is a strategy that involves building a collection of safer blue-chip or dividend-paying stocks. Investors will then enjoy getting to enjoy the returns in form of regular cash deposits into their respective brokerage account.
You can read more here: https://blog.seedly.sg/dividend-growth-investing/
Personally, I am on the Dividend investing path as I invest mainly in REITS (Real Estate Investment Trusts) which are generally stable and provide between 5 - 7% p.a yield each year. Would recommend this to beginner early investors as it is generally easier to understand and you can actually head down to the malls, or properties to figure out yourself - tennant mix, occupancy rate, management background etc.
The idea is this. For all the stocks in the world, there is always the possibility of going bankrupt, with the difference being how remote it is. Also, all stock prices can go up or down. For a beginner, they may not pick the right stock, or handle the emotions that comes with it. Even for stocks which has an average compounded growth rate would have at some point in time, suffer a huge blow to their prices.
The idea of dividend investing can be seen as
: in the worst case scenario, the stock price stays stagnant, the dividend received would have meant capital can be recovered in X no. of years. Also, don’t neglect to factor in tgethe intangibility of feeling a little bit more secured, knowing that the investment is unlikely to go bust.
Once the beginner is more experienced, s/he can go on and move towards fast growth stocks.
08 Jun 2018
Depends on definition of beginner!
What I did as an absolute beginner during NS (even after reading investment books) is to park 100-200 bucks of my allowances into the ETF RSP by DBS. It feels safe and you can understand how DCA (Dollar cost averaging) really work!
Value investors also do dividend investing when they invest in stocks that earn Dividend Income. However, value investors have various options to assess a stock and the intrinsic value to buy the stock.
The dividend investor could use other factors of stock assessment though.
You need to ensure that you invest in your financial and Investing knowledge, before embarking on both of these investing strategies.
You would need to have the knowledge to evaluate an investment vehicle's Business, Management / Governance, Financials, and Valuation. Financials can look good but the management might be aligned with investor interests.
You also need to know the appropriate price to buy, as buying a great company stock at an excessively high price is a bad investment, as well as the appropriate price to take profits.
Investing time/& money in learning the necessary knowledge could save you time and avoid too many losses when things go wrong.
Don't put your hard earned money in investments that you have partial or little knowledge. You will still pay for the lack of knowledge when you lose your investment funds.
I personally started with value investing (or more like growth investing) before moving to a more hybrid style with dividend stocks recently.
My thought process was that as a young investor, I had all the time in the world for the company to grow into its value. If i was wrong, i also had all the time in the world to make up for the losses. Whats more is that the value investing approach tend to see results quicker than dividend stocks.
The move to build more yield into my portfolio was mainly because the bull market for many years now has driven up stock prices such that it is harder to find value. I also wanted to be more defensive going forward as I see limited capital growth in the next 1-2 years.
Long story short, the choice between the 2 approaches for me is dependent on your age, market cycles and your resulting risk appetite.
Dividend investing with growth in value? Hahaha
Eg. Invest in REITS and use their dividends to reinvest in them. Long run see growth in their value
Why not both. But best way is to determine your risk appetite first. As growth stocks are subject to volatility and high uncertainty. There is no better way and good bloggers like Kyith and AK74 have achieved a high level of income through dividend investing. Unless u know a business very well and its moat. Your proposition for growth stocks should vary proportionately.