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carrick on money

I knew that many dividend stocks were struggling when I compiled the Canadian dividend fund installment of the 2018 Globe and Mail ETF Buyers’ Guide recently. But I was still surprised at how poor the returns from dividend ETFs have been in recent years. I’m still a believer in dividend stocks as foundational investment, but I wonder if people have unrealistic expectations about them.

Check out this comment/question sent by a newsletter reader: “My adviser put me in Canadian and U.S. dividend stocks that seem to keep losing money every week. I’m wondering how to safe-proof my portfolio as every year. It is losing money and not gaining, which leaves me with less money from my RRIF this year compared to last. I need my portfolio to keep growing to last into my 90s.”

Dividend stocks don’t always go up, even though it seemed that way for many years following the last stock market crash. Some dividend stocks are vulnerable to the sort of rising interest rate trend we’ve seen since last summer. Others are in volatile resource sectors, where commodity prices have a big impact on stock prices. The lesson here is that dividend stocks are not special – they’re not a way to “safe-proof” a portfolio.

If you own dividend stocks, you have to be able to ignore daily, weekly, monthly and even annual price declines. Stay patient to take advantage of long-term total returns based partly on dividends and partly on share price appreciation.

This reader appears to have conflicting investing goals – safety and growth. The solution might be to combine dividend stocks with conservative bonds or GICs in a way that delivers modest growth and a degree of safety. Dividend stocks themselves are not safe, though. They just looked that way for a while.

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Rob’s personal finance reading list…

What to ask your aging parents about their finances

A wide-ranging, fun Q&A with personal finance writer and educator Bruce Sellery. Find out what he has in his investment portfolio and how he suggests you discuss money matters with aging parents. Profanity alert.

A hidden benefit of SUVs

The 10 vehicles most likely to be still be on the road after 322,000 kilometres, or 200,000 miles. Almost all are trucks or SUVs.

How much should you spend on an engagement ring?

A roundup of different rules on how much to spend on a ring. Some say millennials aren’t buying the idea that engagement rings need to be expensive. Here’s one woman’s explanation of why she doesn’t have a ring. My own rule is to never go into debt paying for an engagement ring or a wedding. Budget accordingly.

Talk to your kids about money

All about a financial literacy initiative designed to help get teachers and students talking about money.

The decline of the hotel minibar

Good news here from the personal finance point of view. Minibar sales have plummeted, which means fewer people are succumbing to the obvious cash grab of selling booze and snacks at hugely inflated prices.

Today’s featured financial tool

The Bank of Canada’s next interest rate announcement comes Wednesday. Here’s a look at how the central bank’s benchmark overnight rate has tracked in the past couple of years.

Ask Rob

Q: “I’ve been thinking of closing my accounts at my big traditional Canadian bank. I’ve had accounts there since I was seven years old. But at 28 and making just under six figures, I’m tired of the fees. Is there any reason why I should keep a brick-and-mortar account/credit card/line of credit I don’t use, besides nostalgia?”

A: I’ve used both a virtual bank and brick-and-mortar bank as my main financial institution. The virtual bank was great, but there were a couple of times when my client card was compromised and I had to wait a week or two to have a new card sent (I had other accounts I could rely on for that week). I rarely visit my brick-and-mortar bank, except to use its ATMs.

Do you have a question for me? Send it my way. Sorry I can’t answer every one personally. Questions and answers are edited for length.

Featured Video

Carrick Talks Money: Do I choose a robo or real adviser?

In case you missed these Globe and Mail personal finance stories

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  • Sold your home? CRA may penalize you if you fail to report it
  • Should you bypass bonds while waiting for interest rates to rise? (for Globe Unlimited subscribers)

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