As the world of business gets more and more competitive, companies are cutting costs wherever they can. One of the biggest victims has been the retirement of regular employees.
Most companies just can’t afford to give anyone but senior executives a defined benefit pension. Instead, they’re opting to top up their employees by giving RRSP matches. These employees are then left to use a third-party wealth manager to pick their own investments.
There are plenty of issues with this, including high fees and non-experts being forced to make asset allocation decisions. One of the reasons why corporate pensions are so popular with workers is because employees didn’t have to worry about anything. Someone else took care of it..
Some investors say these folks can easily build their own pension using dividend growth stocks, a select sampling of investments that have a record of paying steadily increasing dividends.
But investors should be somewhat skeptical of this plan. Firstly, dividends aren’t guaranteed. They can be cut at any time. Also, many pundits fear dividend stocks are overvalued as more and more investors have flocked to them.
At the same time, yields from traditional income investments like GICs and government bonds are lower than ever. Many investors just can’t afford to live off the cash flow spun off by these investments.
Ultimately, dividend growth investing has its positives and negatives. Knowledgeable investors could easily have success at it, but rookies may be better suited for products like annuities or ETFs that allow them to transfer management to a third party.
