You don’t need perfect timing to build wealth with dividends – The Globe and Mail

I have been following your model Yield Hog Dividend Growth Portfolio for a few years, but only now do I have the money to invest. I am considering some of the stocks in your portfolio such as Enbridge Inc. (ENB), BCE Inc. (BCE), Telus Corp. (T), Fortis Inc. (FTS) and Emera Inc. (EMA). However, they are all trading at or near all-time highs. Should I be waiting for a better entry point to invest in these stocks?

The problem with “waiting for a better entry point” is that it might never come. If the stocks you’re watching continue to rise, you’ll have to pay more for them, not less. What’s more, while you’re waiting for prices to decline, you’ll miss out on the attractive dividends these companies pay.

The fact that a stock is trading at or near a record high does not, in and of itself, tell you anything about where the price is heading next. Yet many investors tie themselves into knots because their biggest fear is that they will buy right before a pullback and “lose money” on paper.

But would that really be such a big deal? If you have a long investing horizon – which you should if you are considering stocks – a short-term drop in a stock price should matter little to you. Your goal as an investor should be to identify solid companies with growing revenues, earnings and dividends that will reward you over the long run – say five years or more. As the old saying goes, it’s time in the market, not market timing, that builds wealth.

So, instead of trying to pick your entry points perfectly – which nobody can do consistently – I suggest you focus on building a well-diversified portfolio, keeping your costs low and reinvesting your dividends to make the most of compounding. These are things you can control. As an alternative to owning individual stocks, you may wish to consider index exchange-traded funds. ETFs will give you instant diversification and help to limit the regret and anxiety that some investors experience when an individual company they own falls in price.

In a recent column, you said that when shares have dropped in value and they are transferred to a tax-free savings account, the investor cannot claim a loss for tax purposes. What about a situation where stocks that have gained in value are transferred to a TFSA? Will capital gains taxes be avoided in such situations?

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