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Should I invest in ETFs or individual stocks? Here’s how to decide

When do you advise buying dividend exchange-traded funds versus creating and managing a portfolio of individual dividend stocks?

There are many factors to take into consideration.

How much money do you have to invest?

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If you are starting small – say you have a few thousand dollars to invest – ETFs are probably your best bet. That's because an ETF will allow you to achieve instant diversification, which isn't possible with one or two stocks. If you have a larger chunk of money to invest – say a sum that's at least well into five figures – then you may wish to consider individual stocks.

How much expertise do you have?

Are you comfortable reading financial reports and investor presentations? Do you understand dividend yields, cash flow and payout ratios? Can you tell the difference between a low-risk business with a solid long-term outlook and a speculative investment? If you have any doubts about your ability to manage a portfolio of individual companies, you are better off buying ETFs.

How strong is your stomach?

Stocks occasionally tumble – even good stocks. With a portfolio of individual companies, you may be tempted to sell when one of your holdings hits a rough patch – and live to regret it if the setback turns out to be temporary. The beauty of owning ETFs is that it eliminates – or at least controls – such "single-stock risk." You can't sell the individual constituents of an ETF, which will reduce the temptation to do something rash that you'll later regret. On the other hand, if you can roll with the ups and downs of individual stocks – and stay focused on the long run – then managing a portfolio of companies may be for you.

How cheap are you?

Say you have a $1-million portfolio of dividend ETFs with an average management expense ratio of 0.5 per cent. On an annual basis, your costs would be $5,000 – a significant chunk of change. A portfolio of stocks, on the other hand, would have no continuing costs apart from an occasional $10 trading commission. For some people, the cost savings alone are a big reason to own individual securities. For others, the MER is a small price to pay for the benefits of owning a diversified portfolio that doesn't require a lot of monitoring.

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How much time do you have?

If you're a busy person who has no time to read the financial news or company news releases, an ETF might be the better choice. But if you have time on your hands and, perhaps just as important, you enjoy learning about the companies you own, then owning individual stocks could be for you.

Where to next?

For a survey of Canadian dividend ETFs, read my columns at and If you're considering a portfolio of dividend stocks, check out my Strategy Lab model dividend portfolio at for some ideas. Remember, too, that you don't have to choose one strategy exclusively; you can own a combination of individual stocks and ETFs, and even a few low-cost mutual funds.

I am a BCE shareholder and the next dividend payment is scheduled for Oct. 15. However, that is a Sunday. When will I actually get my money?

Someone at BCE must really like the number 15, because since 1973 the company's dividend payment dates have always been on the 15th of the month – specifically Jan. 15, April 15, July 15 and Oct. 15.

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Inevitably, some of those dates fall on a weekend or a holiday. In such cases, the dividend is paid on the next business day. However, the money might not actually land in your account until one day later, because some brokers – mine included – don't immediately credit you for the cash.

BCE isn't the only company with fixed dividend payment dates. Fortis and Enbridge, for example, always have dividend payment dates of March 1, June 1, Sept. 1 and Dec. 1. But other companies, such as TransCanada, tweak their payment dates to avoid coinciding with a weekend or holiday.

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