Dear DTA,
I found your site a few weeks ago. Love it. Thanks for the information. I’m ready to start investing. But I have a question about stocks. Should I buy stocks on my own? Or should I stick with ETFs?
-Benjamin H.
Hi, Benjamin.
Glad you found the site. Thanks for writing in!
Your inquiry really comes down to a fundamental choice.
Buy stocks on your own, or go and buy a fund.
I’ll give you some perspective on this.
But keep in mind, it’s ultimately up to you to do what you feel most comfortable with.
Regardless of what you end up doing, I want you to remember something.
A stock fund is simply a collection of stocks, be it one you create yourself or one you pay someone else to create for you.
I’ll give you an example of what I mean.
My personal stock portfolio is what I refer to as the FIRE Fund.
It’s a collection of high-quality dividend growth stocks that generates the five-figure passive dividend income I live off of.
Indeed, this fund allowed me to quit my job and retire in my early 30s.
I lay out how I accomplished this, in my Early Retirement Blueprint.
My portfolio looks a lot like any number of funds out there that focus on high-quality stocks that pay growing dividends.
That’s because I created it and filled it with stocks you can find on the Dividend Champions, Contenders, and Challengers list.
I’m a dividend growth investor who invests in world-class enterprises that pay growing cash dividends to their shareholders.
Now, I went out and created my own fund.
But I could have bought an ETF, an index fund, or any other fund that’s already been fabricated.
Take the S&P 500 Dividend Aristocrats ETF (NOBL), for instance.
This fund concentrates on high-quality dividend growth stocks that have increased their dividends for at least 25 consecutive years.
I could have just bought that, instead.
But check this out.
Some of its holdings include AT&T Inc. (T), Johnson & Johnson (JNJ), and McDonalds Corp. (MCD).
Guess what?
My portfolio includes these stocks, too.
I don’t need the management behind NOBL to buy these stocks for me. I’m perfectly capable of buying them myself.
Meanwhile, NOBL has an expense fee, meaning they charge you a recurring, ongoing fee to own this fund.
My Fund carries no such ongoing fees.
And NOBL has a yield of approximately 2.0% right now, while my Fund is yielding closer to 3.4%.
Now, I’m not saying NOBL is bad. I’m not saying it’s wrong.
Like I noted earlier, it’s ultimately up to you to invest in a way that best suits you.
But I think it’s important to keep perspective here.
A stock ETFs isn’t magical. It’s just a collection of stocks.
Except you’re paying someone else to pick that collection of stocks.
And these people want to get paid.
If you’d prefer to pay them the fee and go about your life, go for it.
There’s absolutely nothing wrong with that.
But if you have an interest in investing, and if you’re motivated to educate yourself, you might be better served to just build your own collection of stocks.
A fund you build yourself could better fit certain parameters (considering aspects like taxes, yield, and fees) and save money.
By the way, you can find plenty of resources here on the site that are designed to empower individual investors.
The educational opportunities are all around you.
Fellow contributor Dave Van Knapp penned an excellent series of articles that explain the entire dividend growth investing strategy.
His Dividend Growth Investing Lessons reveal what this strategy is, why it’s so great, and how to successfully implement it.
Plenty of rich information there for you to dive into.
Once you feel ready to put capital to work, make sure to check out my Undervalued Dividend Growth Stock of the Week series.
I publish a new article for this series every Sunday.
Every article features a high-quality dividend growth stock culled from the aforementioned CCC list, and they’re only presented when the fundamentals, competitive advantages, risks, and valuation warrant serious consideration from the investment community.
Nobody can tell you which way is the “right” way to go.
That’s because there’s no right or wrong way to approach it.
If you want to just buy a fund and move on, this is very easy to do. It’s no problem.
But if you’d rather build a fund that’s customized to your needs, this is not a particularly difficult task.
No matter which way you go, Benjamin, I’ll leave you with one last piece of advice.
Get started today.
I wish you luck and success.
Jason Fieber
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