Student Comment: Is Buy and Hold the Same as Taiwan-Style Dividend Stock Saving?
The reply compares buy-and-hold index investing with Taiwan-style dividend stock saving and argues index funds have better long-term total return.
[Student comment] Easy Investment Chat CLEC Investment Channel. Post date: May 26, 2020
Question 1:
Teacher, is your investment philosophy of buying and holding the same concept as what some books in Taiwan teach as dividend-stock saving?
Answer 1:
It is somewhat similar, but people who save stocks treat stocks like bank deposits. They buy high-dividend stocks and treat dividends as interest. So promoters of dividend-stock saving usually recommend buying high-dividend concept stocks, such as bank stocks, food stocks, high-speed rail, and other high-dividend stocks.
Our concept uses higher-growth index funds such as QQQ, so the focus is stable growth. This is different from high-dividend traditional-industry stocks.
But the same concept is buying and holding long term.
Question 2:
I understand. Buying an index is also more diversified, so you do not worry about a single industry having problems, right?
But buying an index does not create this monthly cash flow from dividends. Is that also a trade-off?
Answer 2:
Besides the benefit of diversification, buying an index still has better long-term return than high-dividend investing.
For example, Taiwan 0050 has better total return than the high-dividend index 0056.
High-dividend share prices are less likely to rise.
Index investing rises more than high-dividend individual stocks, has higher capital gains, and has higher total return. If you need money, sell however much you need.
Long-term total assets from investing in U.S. index funds are better than investing in high-dividend stocks.
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