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Carrick on money

Where can I find a low-risk dividend fund? You can't Add to ...

I’m starting this edition of the newsletter with a reader question. “We are approaching retirement and want to downscale our exposure to equities,” a couple from Mississauga, Ont., writes. “What are good low-risk funds to replace equity ETFs that can generate a stream of dividends that you could withdraw from your RRSP annually?”

The reason I’m highlighting this question is that it reflects what appears to be widespread misunderstanding of dividend stocks. In no way are they a safe way to be in the stock market. Dividend-payers can be among the most stable and well-established of companies, but they are still vulnerable to corrections and crashes. Here’s a reminder that dividend stocks in sectors like utilities and consumer staples are also vulnerable to rising interest rates.

But let’s be clear about risk and dividend stocks. There’s certainly a risk that the price of a dividend ETF can fall. But the risk of dividend cuts is minimized because you’re well-diversified and getting dividend income from many companies. If you’re an income-focused investor, the security of dividend payments matters a lot.

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