Tuesday, April 14, 2009

Build Your Own Income Fund

One of the best things about dividend stocks is the income they throw off. Now this may seem obvious, however it is worth repeating as it is that income received from stocks that provide a huge bulk of the return that you and other investors will receive through holding dividend stocks. As I was going through some of my old posts, I was reminded of an article at the Globe and Mail that presents the theory that an investor can forgo the huge fees charged by mutual fund companies and build a fund of their own.

In this article, the author suggests using income trusts, dividend paying stocks, and bonds to build the foundation of your own personal income fund. Not a new concept one something that dividend investors have been doing for a long time. However, what I was reminded of most was that for those of us who use individual stocks in our portfolios (I use both index funds and very select dividend stocks to build my portfolio) we are essentially in the business of building a mutual fund anyway. The bonus is that we have complete control over what goes in and out of that portfolio and most importantly, we have control over the fees that we pay! There are no extra redemptions fees or loads to suck away our returns.

Of course, I think that it is very important to point out that if you do plan on building a fund like this, then you had better have enough money to ensure that you can diversify completely. By choosing one income trust here, a stock there, and then throw in some bonds you are opening yourself up to way too much risk and as the market has shown us in the past few months, the people that have been hurt the most are the ones with too little diversification (true diversification that is).

This article was written by The Dividend Guy. You may email questions or comments to me at info@thedividendguyblog.com.

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