h1. Starting to Invest

• re-read and revised in places in February 2012

1. You can invest yourself. In fact, you must learn to invest yourself. Here's one mighty powerful reason: if you had bought Bank of Nova Scotia common shares in 1990, you would have earned a total return of 31.6% per year up to the end of 2005. Of this, 14.2% was dividend yield on the original investment and 17.5% in capital appreciation. Thirty two percent a year. As they are required to say in mutual fund ads, the past is not … However, with dividend stocks it's different: dividend growth drives price growth. More on that topic later.

You need to 1) open a discount self-directed account at a major bank, 1b) Do not let them ask you to do a risk profile questionnaire (your goal: growing equity income) 2) transfer your funds into that account ((they'll help you) and 3) Think about which common stock you'll buy first.

The average broker/advisor has some 300 clients. How much attention will you get if you deal with a broker? And the broker is in business, realize, to sell the ETFs his firm wants him or her to sell. These are most likely not good dividend growth stocks. It's your money. You alone are motivated to manage it best. At the most, you are only going to buy a dozen common stocks with growing dividend in your lifetime. And you'll hold them for the rest of your life (The Investment Zoo page 104, 94). In a way, it's quite simple. You are going to save a lot of money. By not being in mutual funds with a 2.5% annual fee, you'll save $625 a year for each $25,000 you have invested. These fees add up. For instance, if your portfolio is $100,000 and earning 10%, and using an annual fee of 3% (wrap accounts fees are in this range), over a period of 25 years you would save over half a million dollars by investing yourself: yes that's $540,730.

Have faith in your own abilities. Consider this from a column in August 2000 Fortune magazine…just as the bubble was bursting. Among their list of “ten stocks to last a decade” were Nortel and Enron. So much for this financial press.

How to Start? Some ideas and assistance for those who don't give a damn about investing, don't know a thing about it and don't even want to learn…but would like to retire early and well off.

If you have a financial planner, you must consider getting rid of him or her. Most do not know about dividend growth investing. Probably they want to sell you the wrong products…funds. That's how they make their money. If the planner is a friend, ease out of the relationship, but do it. You have to, you must. Stop the automatic withdrawals. Take charge of your own money. Once its set up, the dividend growth strategy required very little time, a few minutes a month…perhaps. You are going to have to do it on your own, but it will be worth it. I realize you don't know a thing about it. The motivation: you will be ahead at least tens of thousands of extra dollars, probably hundreds of thousands in a decade or two, depending upon what you start with. Believe it. Do it. Sever the tie with your financial advisor or broker. You must!

Look at it this way; You are going to make a deposit, but not in a bank, rather in a company. And, as the company grows, your money will too. The company will pay you income (called dividend, not interest) four times a year. If the company does not pay a dividend, don't buy it.

If you don't already have some money, save up a few thousand dollars, or sell one of your mutual funds. Then you have two choices. 1) Set up an account for yourself at a discount broker, or 2) find a friend with a discount brokerage account who will buy your first fifty or 100 shares for you.

There aren't many more than two dozen good dividend growth stocks in Canada. That makes it fairly easy: you only have to follow a few stocks. In my own little RRSP, I have only four common stocks now valued at about $25,000 each. I started my RRSP in 1996 with a retirement gratuity of $32,000. You should be able to double your capital in a decade too…proving you stick to dividend growth stocks and don't have a broker or financial planner. It's easy…really it is if you have patience, common sense and control over your own behaviour. Anyway, say you select a common stock which is selling for $45. Fifty shares will cost $2,250. If a stock is selling for $30, then perhaps you can buy 100 shares for $3,000. I usually buy in board lots like that, but you do not have to anymore. It might cost you $25, maybe $10, to buy it through your own or your friend's account, depending on the size of your friend's balance.

REGISTERED: If you are buying through a friend's account, once the shares are purchased, you want to have them registered in your name. That way you get the official piece of ownership paper mailed to you and the shares come out of your friend's account. And, once the shares are registered, you receive the dividend cheques four times a year. You would not normally register the shares (get a paper stock certificate) if you bought the shares in your own account.

The average annual return of Canadian common stocks that increased their dividends at least once a year since 1996 was 19.8%…that's per year, notice. In the same period, stocks that did not pay dividends lost and average of 2.3% a year. (Report on Business, May 4 2007 John Heinzl) Do not buy stocks which do not pay dividends. And, unless you make more than about $60,000 a year, dividends are not really taxed…depending on the province, about 7% tax on Canadian dividends if your income is between about $30,000 and $60,000 (in the July 1 2009 R.O.B., John Heinzl covered the dividend tax credit).

Does the yield remain the same when you buy a stock? When you lock into a GIC, the yield remains the same for the duration, say five years. With a stock it could be different. If the dividend increases, as BCE's did in 2009, up by 11.8%, your yield, income from the stock, will increase too. Or, the dividend could be reduced. This is a rare event if you buy a stalwart common stock with a long record of dividend payments. This century there have only been two dividend reduction among the list of stocks I follow. Telus in 2002 and Manulife in 2009 when the dividend was halved down from 26¢ to 13¢. Unlike bond interest, dividends are not guaranteed, but

• “The simple fact is that long-term distributable cash flows from large, publicly owned companies don't vary much from day to day.” (The Strategic Dividend Investor, Daniel Peris, p.153) This 2011 book is a terrific book on dividend growth investing.

Inside this site there is more information for novices. Stock selection 101, for instance, and, under 'The List' a page more on how to select using yield, Graham value and C.A.P.E. (cyclically adjusted price/earnings ratio).

• NOT BETA - “The riskiness of an investment is not measured by beta…but rather by the probability…of that investment causing its owner a loss of purchasing power over his contemplated holding period. Assets can fluctuate greatly in price and not be risky as long as they are reasonably certain to deliver increased purchasing over the holding period. Warren Buffett 2012