What's the Worst Mutual Fund in the World? Hint: its an index fund

Stop Over-paying Sign - IsolatedMicheal Johnston from Fund Reference believes he has found the worst mutual fund in the world. Over your lifetime this mutual fund will cost you $114,000 extra in fees!

Micheal writes:

"...the Worst Mutual Fund in the World is not an absurdly expensive fund run by a manager pursuing some exotic strategy. It’s actually an index fund that seeks to replicate one of the most widely-followed benchmarks in the world. Wondering how such a product could be the target of such scorn from a fan of indexing? Easy: charge investors 60 basis points to track the S&P 500."

Johnston calculates that the Great-West S&P 500 Index Fund (MXVIX), which charges 0.6% a year will cost an investor $114,000 more versus a comparable fund charging 0.1% over 30 years.

Johnston concludes:

"If you think I’ve been unfair to MXVIX, you’re right. It’s not the Worst Mutual Fund in the World, though it’s certainly an awful product. But it’s actually quite a bit cheaper than several other S&P 500 index funds that insurance companies and other firms offer to 401(k) participants."

Beware of index mutual funds that carry high fees. Better yet learn how to invest for yourself by yourself and avoid paying mutual funds fees all together.

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Want to Invest in the Hottest Stock?

commodore computerDo you want to invest in the hottest stock right now? Are you craving to find out which stock will triple in price in the next 10 days? Of course you do, it's human nature to want the latest, greatest, sexiest, thing (which in this case is a stock). Nobody would turn down the opportunity to make money fast. But pause for a moment and think about the risk. Is there a chance this hottest stock could drop in value?

History has shown that fads and trends come and go, remember these?:

  • Sony Walkman
  • VCRs
  • Betamax
  • Commodore Computers
  • Beanie Babys
  • Fanny Packs
  • Napster
  • Netscape
  • Altavista Search Engine
  • Tape based Camcorders

At the time it seemed like investing in these products was the wise thing to do, after all "everybody" wanted one. But history has shown otherwise.

As an investor what's important, and what do you avoid? Kelly Wright has the answer:

"So what is the enlightened investor to do? The first thing is that you have to understand is that value is enduring. Fads and manias will come and go but what has always stood the test of time is good value. Yes, sometimes you have to have the patience of a saint while a position goes markedly sideways, but that is okay. You see as long as the company maintains its dividend, or in the case of the vast majority of our Select Blue Chips consistently increases its dividend, you are receiving a return on investment.
At the end of the day return on investment is the sole purpose of investing; putting money in your pocket to spend on your needs or to reinvest for compounding your return.

Avoid investing in fads and manias, forget about the latest hot stocks. Invest in companies that produce products and services that'll be in demand for the next 20-30 years. When it comes to investing patience pays."*

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* Kelly Wright, editor Investment Quality Trends, p.16 June-First 2015

What’s Your Biggest Fear in Investing?

investing_fearWhat is your biggest fear when it comes to investing? For most people it is the fear of losing their hard earned money. It is the fear that they’ll make a mistake and make the wrong investment. The solution is to invest wisely and not haphazardly.

The investors who have the most to fear are the ones that:

  • don’t know what they are doing
  • focus too much on the media noise (internet, radio, tv, magazines, newspapers)
  • take “hot” stock tips from friends and co-workers
  • blindly hand over their money to mutual fund sales people to invest for them
  • are looking for “get-rich-quick” stocks

Wise investing is simple and before you invest in any company answer the following questions:

1. Will people still be using this company’s product or service in 20 years?
2. Does the company have a history of consistently increasing earnings over the last 10 years (check the earnings per share “EPS” values)?
3. Does the company have a history of consistently increasing dividends over the last 10 years (check the dividend per share values)?
4. Does it have a low P/E ratio?
5. Does the company have low debt (check the Long-term Debt-to-Equity Ratio)?
6. Is the company’s current dividend yield greater than its average dividend yield?

The above 6 six questions can save you from making mistakes and losing your hard earned money. The above questions are simple but powerful, in essence they help you find companies that are:

  • Essentially recession proof
  • Consistently profitable and consistently return cash (dividends) to shareholders annually
  • Carrying low debt
  • Undervalued

Understanding what you are buying will help to alleviate your fears about investing.

Focus on quality companies when they are undervalued, and you’ll minimize your risks and increase your gains.

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What Companies Should You Invest In?

stock investment or bank invest fund market growthWhat type of companies should you invest in? The answer is simple: "good" businesses.

Think about this for a moment when you purchase anything, be it clothing, smartphones, TVs, furniture, cars, or a home you strive to purchase the best. You are probably not going out of your way to purchase mediocre products. The same is true for stocks, don't purchase mediocre investments, focus on good companies to buy.

Glenn Greenberg a famous value investor defines "good" businesses as:

"They [Glenn Greenberg and his team] want to buy "good" businesses, by which they mean those that are unchallenged by new entrants, have growing earnings, and are not vulnerable to being technologically undermined, and can generate enough free cash flow on a regular basis to make the shareholders happy, either through dividends, share repurchase, or intelligent reinvestment."*

Basically avoid "bad" or mediocre companies, they do nothing but increase your risk and lower your returns.

Focus on buying quality business when they are undervalued and you will do very well for yourself.

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*p. 241, Value Investing From Graham to Buffett and Beyond, by Bruce Greenwald

Should you buy the bank or their mutual fund?

Where to invest hand writing with a black mark on a transparentShould you buy the bank (stock) or their mutual funds? Great question and one that has already been answered by Tom Connolly recently.

Mr. Connolly reported that in 2004 the RBC Monthly Income Fund was paying out $0.56 a unit. In 2014 the disbursement grew to $0.57 per unit. Can you imagine only a $0.01 increase in ten years! Mr. Connolly goes on to say:

"You might as well call this fixed income [refering to the RBC Fund]. It's a bit more bother, but we buy quality individual dividend growth stocks for a reason…growing income. And, as the dividend rises, so does the price of the stock. We believe: fund buyers get suckered."

How does the $0.01 increase in ten years compare to owning Royal Bank of Canada (RBC) stock (RY)? Mr. Connolly concludes:

"The dividend growth on RY's stock itself, naturally, is far superior. From a $1.01 dividend in 2004 to $3.08 now. RY's dividend up 205% in ten years or 11.8% CAGR income growth. Buy the bank, not their fund."

Would you prefer a 205% increase in dividends or a 1.79% increase in disbursements? Take charge of your investments and you will reap the benefits.

Buying quality dividend paying stocks is easy and I can show you how simple it really is.

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What is the Key to Riding out Downturns and Thriving in the Long-Term?

Save DollarsEveryone wants to know what's the key to riding out stock market downturns, and thriving in the long-term. Fortune magazine recently published an article tackling this important question.

Fortune writes that Don Kilbride who manages the $24.6 billion Vanguard Dividend Growth portfolio has an answer: "he's now convinced that dividend growth is the key to riding out bad markets and thriving in the long-term."

Fortune magazine continues to write:

"Investors have treasured dividend growers for ages, of course, and their recent performance has justified the love. Since the beginning of 1999, the S&P 500 Dividend Aristocrats index—made up of companies that have increased their dividends for at least 25 consecutive years—has returned 314%, more than double the broader market. (Even with dividends excluded, they trounce the S&P 500.)"

As a dividend value investor for over 16 years, I've come to appreciate the power of growing dividends. Growing dividends provide an increasing stream of passive income which also protect you from inflation.

Fortune also interviewed Katherine Nixon:

"Katherine Nixon, who oversees $224.5 billion as chief investment officer of Northern Trust Wealth Management, is steering clients into dividend growers like 3M (which boasts 57 years in a row of increases) and Target TGT (43 years). Their stability and reliable payouts reassure shareholders, Nixon says: “When investors are sailing in white water, there’s something very comforting about a buoy.”

The answer to our title question is simple: invest in quality undervalued stocks which pay growing dividends

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Are triple digit returns possible?

Business Graph Output Growth Of Silver BarsI’ve been asked many times what stocks I hold in my portfolio. I have now published the entire list of my holdings on my website (click here to see the list).

As you can see there are a number of stocks in my portfolio that have exceeded 40% in return. But the focus of today’s article is to look at stocks with triple digit returns:

Canadian National Railway (CNR) 164%
Empire Company Limited (EMP.A) 157%
TransCanada Corporation (TRP) 439%
Walgreens Boots Alliance (WBA) 143%

CNR was founded in 1922, and has had 18 years of consecutive dividend increases. In January of this year CNR announced a dividend increase of 25%, the largest increase in the company’s history. It engages in rail and related transportation businesses in North America.

EMP.A was founded in 1907 and has had 31 years of consecutive dividend increases. The company owns or franchises approximately 1,500 retail stores in 10 provinces under various banners, including Sobeys, Sobeys extra, IGA extra, Safeway, Thrifty Foods, IGA, Foodland, FreshCo, Bonichoix, Les Marchés Tradition, and Lawtons Drugs stores.

TRP was founded in 1951 and has had 15 years of consecutive dividend increase. It operates as an energy infrastructure company (Natural Gas Pipelines, Liquids Pipelines, and Energy.) in North America.

WBA was founded in 1901 and has had 40 years of consecutive dividend increases. The company operates a network of over 8200 drugstores in the United States.

Keep in mind this is not a buy list, you should only buy quality companies when they are undervalued.

The purpose of today’s article was not to brag about my results, but to show that consistent and patient investing in quality stocks can yield spectacular results. I’m no different than anyone else, if I can invest successfully so can you.

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