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Table of Contents
- The Process
- When to Rebalance Your Portfolio
- How to Export from your Pie
- All Things Yield
- AutoInvest, By Targets, or Self-Balancing?
- Why Your Dividends Haven’t Arrived Yet
- Returns and Conclusion
- Will the Pie Always be Available?
The concept behind The (Almost) Daily Dividend Portfolio is that basically, the more often something compounds the faster it will grow. On top of this, the feeling of getting a dividend (almost) every day is pretty fun!
Watch the video for the full overview of how I made this portfolio and what its designed for!
This wasn’t always easy as sometimes companies don’t pay at regular dates year on year so the first thing to note is that the dates are rough guidelines rather than an exact science. I think it would be impossible to actually make a portfolio that strictly pays every day and sometimes good enough is good enough.
After making the grid of dates I needed to choose the components.
A big problem with a set-and-forget portfolio like this is the fact that no investor wants to be paying attention to the stocks that are actually in the portfolio and seeing what they say on earnings calls etc. So the first criterion I set was that these need to be reliable stocks. In the case of dividends, there are many occasions where a shaky company is still paying out dividends when it really shouldn’t be according to its financial position, and the last thing we want in a complicated portfolio like this is for one of the companies to cut the dividend completely forcing us to rearrange it all again.
Criteria 1 was that these need to be safe, reliable companies with a decent dividend history that weren’t showing any short-term warning signs. Now of course you can’t predict another event like covid19 in the next 5-10 years but I am about 90-95% sure they won’t cut their dividend of the ones I have selected in this portfolio.
The second criterion was actually more important than the first and it was that Trading212 must have the company in the selection of companies. I was actually pleasantly surprised that almost all of the companies that I researched did actually appear in the available database of Trading212 stocks and ETFs.
The Process of creating The (almost) Daily Dividend Portfolio
The next thing I aimed for was to get as many stable monthly payers as I could find as they would offer 12 payments per year and as there is a limit to how many stocks you can hold in a pie. After stable monthly payers, I wanted stable quarterly payers and unfortunately, the USA does both monthly and quarterly payers better than us here in the UK which usually pays semi-annually and occasionally annually. This means that the portfolio is heavily weighted to US stocks.
Finally, I added a few of my favourite stocks that maybe aren’t quite dividend aristocrats but still have a good few years of dividend history and seem like they are in a safe place to keep paying out. That could be based on the industry they operate in or on a case by case basis.
The final total amount of payments that this portfolio should provide 260 payments over the course of the year. That means that it really is an ‘almost daily’ dividend portfolio. Hopefully, we can make it grow and see how it compounds.
- Adding at least £400 to hit the threshold of every company within the pie. You can invest less but it is not optimum as you will only receive some, but not all of the dividends
- Holding for longer-term to smooth out fluctuations in the share price, not buying and selling frequently as you are likely to lose out on any benefit of investing in this pie
- Bearing in mind that the pie is optimised for sustainable regular payments, not the highest yield or highest appreciation in the share price.
The Dividend Dashboard
I have now made a very useful tool for you to track how much you can expect from your level of investment.
You can use The Dividend Dashboard to predict, to a degree, your income from your investment in this pie.
The feedback I have received on this tool has been very positive so far, well worth checking it out!
There are hundreds of thousands of comments on the pie feed and lots of the same questions come up again and again. To save everyone some time I have made a series of videos that cover all those questions that have come up time and time again.
When to Rebalance Your Portfolio
When to rebalance my portfolio?” or “Should I even rebalance my portfolio at all?” are some of the most commonly asked questions in the Trading212 Pie community.
Trading212 doesn’t really do a great job of explaining what rebalancing is or when to rebalance but does a great job of putting a huge button on your screen that says rebalance in all caps, so it’s not really surprising that there is so much mystery and confusion about it.
So I decided to add a section to this post and make a video to try to answer the common question of when to rebalance your portfolio.
What is Rebalancing?
The process of realigning the weightings of a portfolio of assets is known as rebalancing.
Rebalancing is purchasing and selling assets in a portfolio on a regular basis in order to preserve an original or intended level of asset allocation or risk.
For example, the typical, (slightly dated nowadays) conservative portfolio would be something like 60% stocks and 40% bonds.
This is conservative because stocks tend to be riskier so the person building this portfolio is likely to not want to take too much risk and so has a high proportion of bonds in that portfolio too.
Over time the stocks are likely to grow at a faster rate than the bonds if it is a bull market for stocks. This means that the portfolio will go from 60% stocks and 40% bonds to closer to 75% stocks and 25% bonds.
Now the investor wanted 40% bonds, not 25% because they were concerned about the risk. So, although they didn’t actually do anything, their portfolio is now too risky for their own requirements.
Therefore, they need to balance the stocks and bonds back to their original allocation. This involves selling the stocks that are higher than before and then buying the bonds.
This is rebalancing.
As you can see rebalancing will inherently buy low and sell high – the mantra of every good investor.
If we use the example of the almost daily dividend portfolio, which many of you may already be using already, we can see what rebalancing entails if you invest in individual stocks.
If you have had the almost daily dividend for any length of time you will see that each stock has its own direction and some grow at very different rates from others.
This means that if you don’t keep the portfolio balanced they will all be at very different values after some time.
So Why Would You Rebalance?
As already mentioned, rebalancing will inherently buy low and sell high. If your portfolio has some big winners and some losers, you will lock in the profit of the winners and take advantage of the fall in the price of the losers.
This only makes sense if you still believe in all the stocks that you are holding.
In the case of the almost daily dividends portfolio, if you rebalance you are potentially getting a better yield by rebalancing.
As the relationship between price and yield percentage is inverse or as one goes up the other one goes down, selling stocks that have risen up and using the money to buy underperformers should increase the overall yield.
Of course, this completely depends on the actual stocks being bought but, in theory, you are increasing the amount you will be getting back from dividend payments.
How Often Should You Rebalance?
This is a good question. Now you know the benefits of rebalancing, why not just do it all the time? You would be locking in profits and taking advantage of every market dip right?
Well, the first thing to consider is that even with zero-fee trades you would be facing some loss of portfolio value with attrition every time you rebalance.
This is due to spread on the platform you choose. Spread is just the difference between the immediate buy price and the immediate sell price. For some stocks, this difference will be wider than for others.
The second point is that rebalancing too frequently doesn’t actually improve your returns by any measurable amount.
A study was done on the following rebalancing time periods: monthly, quarterly, semi-annually, annually, and never.
The backtesting simply assumed $100,000 was invested in January 1979, with no further contribution or withdrawal since, and with no leverage applied.
The results of the study on when to rebalance showed no functional difference between monthly, quarterly, semi-annually, and annually.
However, when ‘never’ was compared with the other time periods it significantly underperformed.
If assets are indeed held long enough, the relative weightings of each will become skewed, which will also in turn skew the risks in the portfolio unfavourably. The asset mix will no longer be relatively balanced. This means more reliance on a certain type of environment for the portfolio as a whole to do well.
For instance, if stocks do well over time and become a greater weighted proportion of the portfolio, the portfolio will become increasingly reliant on higher growth, and a higher inflation environment.
So to answer how often should you rebalance a portfolio, the answer is that it depends but once a year is fine realistically.
When to Rebalance your Portfolio?
So we know that once-per-year rebalancing is fine but is there an optimum time of year to rebalance?
Actually, whilst deciding when to rebalance, the benefit (or negative impact)is pretty much based on luck. Corey Hoffstein’s study found that for reasonably concentrated portfolios (100 stocks) with semi-annual rebalance frequencies (which is common in many index definitions), annual timing luck ranged from 1-to-4%.
If you are using the pie feature on Trading212 you can use your initiative when you look at the pie holdings section.
If your pie looks like this it is probably fine, the allocations haven’t slipped too far and it’s still in order.
If your pie is starting to look more like this then it could be well worth rebalancing as that is now pretty far from your intended allocations
So deciding when to rebalance can be too hard to set for non-technical guys like us so it’s better to just set a certain date and do it on that date each year.
This regular scheduling method is a better system than asking yourself when to rebalance each time.
How to Rebalance your Portfolio
If you are using the Trading212 pie feature then it is pretty easy, it will rebalance automatically for you as long as the market is open. All you need to do is click that button I mentioned earlier.
If you use another broker it’s a little harder, especially if you are buying individual stocks.
You will have to calculate your ideal weighting based on the amount of money you have in your portfolio and then buy and sell them all yourself which is obviously a bit more time-consuming.
A tool like Sharesight will help you calculate your portfolio weightings but you will have to do the buying and selling yourself, unfortunately. For those of us in the UK and Europe, I think Trading212 for individual stocks and InvestEngine for ETFs are probably the best for rebalancing and building your portfolios in the first place if you want them to be in a certain % allocation.
Neither of these will update you on when to rebalance exactly… but will give some major clues on whether it’s time to rebalance or how far away you are from your desired allocation.
How to Rebalance and Export from your Pie
This will be useful for everyone whose pie is no longer linked, but remember if you want to know when a company has been replaced in the pie the first place I notify will always be via the email as obviously that’s way quicker than making a whole video about it. So you will know exactly when I replace something and why without waiting several days by signing up for the email list.
Ok I only want this to be a quick video so let’s get started.
We will do this example with the weekly update pie as you guys asked me to do it so I thought, hey, might as well kill two birds with one stone.
So first go to the pie tab at the bottom of your app and find the pie you want to edit.
Then after you select the pie that you want to edit, you will need to go to the second tab at the top named holdings. It will show all the stocks you have in the particular pie and the next step is the press that big blue button there at the bottom of the screen.
In this example, we are going to remove 3M as per the most recent update and add Agree Realty in its place. So scroll down until you find 3M or whichever stock you are going to replace then click the x in the top right corner of the specific stock and it will ask you if you are sure about removing it.
Now that it’s removed you can see that there are only 49 slices left now and only 98% of the pie is allocated, or in other words, it shows only the 49 stocks with 2% each. That means there is some available space for you to add something else.
When you want to add the next stock, you press that big blue plus symbol on the left-hand side just under the pie and before the holdings.
It then brings you to the list of stocks you can replace the one you removed with. In this example, we are going to replace it with Agree Realty or the ticker symbol ADC. So I searched ADC in the search bar and then selected Agree Realty Corporation from the list here.
Now you can add it to your pie, it will come with the standard 10% but you can shrink this down to 2% just by sliding it across and back down. You can’t go forward past this point unless you change all the stocks so that the total amount is equal to 100%.
Once you get the required amount of the total stocks up to 100% then scroll all the way down to the confirm button at the bottom.
Now even when you have done this the pie won’t change automatically the two stocks will not be replaced and sold until you either rebalance the pie or withdraw money from the pie so that it can sell and all balance out. Rebalancing is the easiest way here and it could be a good time to rebalance your pie anyway if you haven’t done that. I have a video overview on rebalancing and I will add that to the cards for you to click on in the top right-hand corner if you want to find out more about when and why you should rebalance.
If you choose to rebalance it will show you everything that will be bought and sold in the two screenshots and you can check through but essentially the main thing will be that all of the 3M will be sold and ADC or Agree Realty will be bought.
Now one of the biggest questions I see on Trading212 as a whole is “why this rebalancing isn’t going through?”
This is almost always because one or more of the markets that the pie components are traded on is not open. You can only buy and sell the pie holdings when the market is open so if it’s a weekend or the time of the day is not yet opened in the US yet or it’s already closed in the UK then the full rebalancing won’t go through until it’s open.
This also means that you could wait over 2 days for the rebalance because of the way the market opening and closing don’t necessarily overlap nicely for it to be a smooth process. Most importantly don’t worry – it’s not stuck it will just take a bit longer.
Once that all goes through you are done and it’s all taken care of, and you can follow along with the pie as normal and along with everyone else.
But there is also another problem, what if you want to remove it from the pie and follow along with the pie but you don’t want to sell it for whatever reason and just want to keep it alongside the pie?
There is another option and that is to export the stock that will be removed and hold it separately as an individual investment. It does seem like some people in the chat have been reluctant to rebalance for whatever reason so I will also explain how to export a pie too.
I have already taken 3M from the pie now so I can’t do the real example of how to do this part… so what we will do is use Trading212’s own example of how to export a share from a pie to hold it individually.
So there we have two ways to change the pie if your pie is not linked and you didn’t get the notification. We have had that issue a couple of times now so hopefully, this video and article will be useful in the future if the situation occurs again!
What Is Yield? How Much Dividends Will I Get?
At the time of writing the Pie Yield is 3.69%.
In this section I want to address some of the most common question I get on the trading212 pie such as:
If I invest this much into the pie how much will I get in dividends?
How much do I need to invest to get this much per day?
And in fact, this can all be explained using the same formula but first let me give you the background fundamentals for those of you who are completely new to dividend investing.
What is a yield?
The percentage of a company’s market price per share that is distributed to shareholders in the form of dividends is determined by the dividend yield formula.
So if we break that down to a very simple example.
We have a stock that is worth $100 (or pounds or euros whatever but I don’t have the pound or euro symbol on my keyboard for whatever reason so let’s stick with dollars) Let’s call this stock X-arm PLC
This stock, X-arm PLC pays its share holders $1.25 every quarter so every 3 months that’s 4 times per year. Doing some quick maths that means it has a $5 annual or yearly pay out to everyone who owns the stock.
So, all we need to find the yield is those two numbers:
The stock’s price $100
And the stocks annual payout $5
Now we can divide the payout ($5) by the stock’s price ($100) and we get 0.05 or in other words 5%
So X-arm PLC has a dividend yield of 5%. Easy
One thing we should notice is that the stock price changes every day that the market is open so as one side of the equation changes the result will change too.
That means the yield actually changes every time the market opens.
So two investors can buy the same stock and it yields a different amount on their original investment depending on what time and price they bought it at.
Another point to make is that sometimes companies increase the amount they payout – lets go back to our example of X-arm PLC. This company sounds like it would be in the industrial sector maybe arms manufacturer or something. So let’s say that the US decided its going to increase its defence budget this year and they agree to some lucrative contracts to X-arm PLC.
X-arm PLC makes more profit this year due to these contracts and wants to pay it out to shareholders in the form of dividends. Management makes an announcement that they will now pay $1.50 each quarter (so every 3 months, 4 times a year).
This means they now pay $6 dollars a year, so if the stock price is still $100 that means the yield is now 6%.
Perhaps investors see this rise in dividends and the lucrative defence contracts with the US government and think they want to be part of the company and invest.
If there are more buyers than sellers the price of the stock will rise.
So, if the stock rises to $120 due to investors excitement about the prospects of X-arm PLC.
Now the stock has a dividend pay out of $6 and the price of the stock is $120 so we divide 6 by 120 and we are back at that yield of 5% for X-Arm PLC.
How to Calculate the Yields for multiple stocks in a portfolio?
So that all makes sense for one stock but what about when we are buying a basket of stocks an ETF or a Trading 212 pie or calculating for an overall portfolio?
It gets a bit more complicated when more than one stock is involved.
Let’s say we have an equal weighted so 25% each dividend portfolio of 4 stocks (just to keep it simple for now) and these stocks are:
- Stock A which pays 2% per year
- Stock B which pays 8% per year
- Stock C which pays 4% per year
- And Stock D which pays 6% per year
So 4 stocks with varying yields – how can we find the overall yield of this portfolio?
What we have to do is multiply the weighting of the portfolio by the yield of the individual stocks. Then we can sum them all up to find the overall yield.
So in this case we need to do:
- 0.25 x 0.02
- 0.25 x 0.08
- 0.25 x 0.04
- 0.25 x 0.06
Use a calculator if you want to save time or if you a maths pro you can do it in your head but either way you should come up with a total of 0.05 which translates to a 5% overall yield.
Now if the same investor decides Stock A and B have lost their way and wants to sell them to invest them into Stock C. So now the portfolio is 75% Stock D which pays 6% and still has 25% on Stock C. So do the calculations again:
- 0.75 x 0.06
- 0.25 x 0.04
And if you sum up the total of this one you will reach a yield of 0.055 or in terms of yield 5.5%!
Obviously this gets more complicated the more stocks you hold as there are more calculations you need to do, but the principal is the same – even for those 5000+ stock ETFs.
What’s the yield of the (Almost) Daily Dividend portfolio?
The last time I did this calculation shown above it was about 0.0369 or 3.7% or close enough with some rounding. As we saw earlier the yield actually changes slightly every time the market is open due to the changes in share price of all the stocks.
Right now as this video could have been made a while ago and you are only just watching now the calculation could be slightly different and you are welcome to use the above method to calculate the exact yield right now of the portfolio.
Alternatively, there are some software and portfolio trackers that can estimate your forward looking yield or calculate your yield from payments that I sue and recommend. Check the link in the description for the most updated recommendations as again they may change depending on how long ago this video was made and how competitive the offerings are.
How many dividends will I get if I invest this much?
Now we have the yield of the portfolio we can use this to answer the common questions that appear on the chat feed for the pie.
If I invest 1000 into this pie how much can I expect in dividends?
Now we have the yield this one is easy – we bought 1000 worth of stock so we just multiply it by the yield 3.7% or for the calculators – 1000 x 0.037.
So if you invest $1000 you can reasonably expect $37 of dividends per year. Then to work out how much per month you just divide by 12 so in this case $3.08 per month on average – though its important to remember that the payouts won’t be equal each month as the pie components vary how much each one pays out.
Now the slightly harder question – I want $50 dollars a month, how much do I need to invest?
We need to reverse engineer the equation now as we have the payout and the yield but not the original amount invested – that’s what we are trying to find.
So what we need to do is find the annual payout required – $50 dollars a month would be $600 a year.
Then we dividend the annual payout by the dividend yield.
In this example, it would be 600/0.037.
If you put that in your calculator it should come to 16,216.
And there you have it! You can replace any of the numbers used here with whatever numbers you are looking to find as it’s just a case of rearranging the formula and plugging it in once you know the required amounts.
AutoInvest, By Targets, or Self-Balancing?
When you go to copy a pie, any pie not just the (almost) daily dividend pie, even pies you make yourself it will ask you how you want to invest in it.
Auto-invest or Manual Investing. Learning the difference between these two options will help you set up your pie optimally to your preference.
Let’s look at the two options – AutoInvest & Manually.
The first is Auto-invest – this is the hands-off approach where money will be automatically deposited into your account from your bank at set intervals. This means that you don’t need to worry about the market, you just add to your portfolio on a regular basis.
The other option is to invest Manually – this option is for those investors who aren’t sure if they can allocate a certain amount of their budget each month to investing or want to be more flexible about when to deposit.
What’s the difference between Auto-Invest and Manual?
There really is no big difference between these two options other than Auto-Invest will take care of it all on your behalf, whereas manual gives you a bit more flexibility in how you want to add to your portfolio in the future.
You can also change your mind later if you don’t want to keep making deposits on Auto-Invest or if you are in a more stable financial condition and want it taken care of for you now.
Another feature of Auto-invest is the investment plan which comes in Step 2 after you have selected Auto-invest.
Setting up your investment plan will be your next step if you decide to remain with the AutoInvest option.
To create your ideal investment period, deposit size, and deposit schedule, use the sliders. If you’ve already had a lump sum to start with, increase the figure for the “Initial deposit.”
You will see a prediction of your pie’s potential growth at the top of the screen based on the investment plan you’ve set up and the pie’s historical average yearly return rate.
This estimation is obviously not a guarantee because it is based on past returns.
Talking of the estimated return (Average Annual Return or AAR) – this is how Trading212 calculate that, and you can see that you may need to take it with a pinch of salt.
Using the annualized return of the previous 5 years is flawed in that past experience does not indicate future returns but equally, it’s impossible to accurately predict the real returns that you will actually get in the future.
Adding Money to the Trading212 Pie
Another question that is coming up more and more is once you have started the pie, and deposited the minimum recommended amount of 400 pounds into the pie – what do you do when you want to add to a pie?
You are faced with three options here:
- By Targets – this means that as you add to the pie it will add in the same weightings that were set in the original investment of the pie. In the case of the (Almost) Daily dividend portfolio, this means you will be adding to each stock by 2%. It doesn’t matter how much they have gone up by (or gone down by).
- Self-balancing – this means that as you add more to the pie portfolio it will add more money to the ones that have gone down by and add less to the stocks that have done well. This aims to move the allocation back to the original weightings over time.
- Custom – this just means you can add to whatever you like however much you like.
Fund Distribution – Which Choice Should you Make?
As always I don’t really like general ‘Shoulds’ because people’s finances are all in different states and situations but here are my thoughts on those three options.
I would pretty much ignore this option, if you are thinking of doing it this way you are probably overcomplicated with something that should be made as simple as possible (automated investing).
If you are tempted to be custom allocation each time – why not just hold the stocks you like individually and just buy more of them when you think they look overvalued? I don’t really see a scenario where it makes sense to be custom investing each month.
If I was copying a pie I would start off with doing self-balancing, early on while your portfolio is still being built up, the deposits you add will have a big impact on the overall allocation.
For example, if you start with 400GBP and add 100GBP a month, that first deposit you are adding is a 25% increase in your portfolio size just in the first month.
This means that the deposits you add will have a significant enough impact on the balancing of the portfolio you most likely won’t need to do pie rebalances outside of when you add to the pie.
At first, I would just go with the self-balancing option as I add to the pie. It just keeps it simple and is less of a manual effort for the investor.
Once your portfolio reaches a level where the additions you are making are not significantly changing the pie total then you can switch to adding by targets and then manually rebalancing (as per the time frame set out in the section about rebalancing.
If we go back to the example earlier, where adding the 100 pounds was an additional 25% of the portfolio total, obviously this becomes less and less of a percentage over time.
After 3 years, following the same amounts, you might have reached a portfolio of 4000GBP.
This would be 400 GBP as a starting amount then 100 a month multiplied by 36 months and still want to contribute your regular 100 deposit.
This will now only constitute 2.5% of the overall portfolio and is borderline whether it will be enough to truly rebalance the pie – depending on how volatile your chosen investments are.
So in short – self-balancing is fine, if you do it by target allocation you will need to rebalance manually yourself and after a certain portfolio, size self-balancing won’t be enough to balance anyway.
What is Diversification? Is the (Almost) Daily Dividends pie on Trading212 Diverse?
What is Portfolio Diversity or Diversification?
Now, what a lot of people get wrong about diversity is that they think that just having a load of stocks means that it becomes more diverse. This is only true to some degree as we will discover later in this section, but the basic premise of this goes as follows.
If you have just one stock that means you are 100% invested in one company, basically you ride or die with that one company’s fortunes.
If that company goes up by 20% that means your portfolio goes up by 20% – that’s nice… but it’s only nice if it goes up. If that company gets into some trouble and falls 50% then unfortunately that means your portfolio does too.
Now if you decide you want to spread your bets a little and buy 2 companies 50% each. Now if that company gets into trouble and falls 50% that’s a much lower 25% down that your portfolio will be.
Now as you can probably figure out if you add another stock into the mix the overall impact will be lower and lower.
This is the essential principle of diversification, in other words don’t keep all your eggs in one basket, it’s an idiom that has been passed down the generations for a good reason.
Now, this all makes sense but we come into a few problems when you extrapolate it too far.
Let’s say you have 100 stocks in your portfolio, the overall impact of adding the extra 1 stock at that point is marginal almost ineffective. Then when you reach ETF portfolios in the 1000s the additional extra is probably unnoticeable at that point.
So how many stocks are enough to have a diverse portfolio?
There is no one proper answer to this problem, despite many sources having an opinion on the “appropriate” quantity of companies to purchase in a portfolio.
There is a lot of discussion on this exact topic of how many stocks you need in your portfolio.
The widely used guidance is that 10 stocks are enough to have some benefits of diversification, all the way up to 30. After that, your portfolio essentially has market-level risk so the benefit of the additional stocks doesn’t really warrant you adding them to the portfolio.
In fact, it could make it worse as you are either spending extra time to research the additional stock or adding it without research, both of which will impact you negatively either through your own wasting of time or your portfolio returns.
The other issue with diversifying your portfolio by simply adding stocks
Is that the stocks that you have added may just be affected by similar factors?
In our earlier example, we saw that if we had two stocks, Stock A and Stock B both split 50% across the portfolio.
And we also saw that if Stock A fell 50% it only hurt our portfolio by 25% on aggregate across the whole thing.
The chances are that if something is affecting Stock A it may well have an impact on Stock B.
When you diversify you want to avoid the risks that affect your whole portfolio, or you are not very diverse at all.
For example, let’s say you have Pepsi and Coca-Cola stocks in your 2-stock portfolio. The government decides to put an 80% tax on sugary drinks. Your whole portfolio is going to tank, you might have two stocks but they are both going to get hurt by the same event.
Therefore in my opinion you should aim for 3 types of diversification:
- Sector diversification
- Geographic Diversification
- Asset Diversification
But what are these? Let’s take look at an overview of each of these types of portfolio diversification.
First Sector Diversification – If we go back to our Pepsi and Coca-Cola stock portfolios these are not only in the same sector but for the most part in the same industry, not very diverse at all. There are 11 Stock market sectors that stocks can be classified as:
- Healthcare Sector
- Materials Sector
- Real Estate Sector
- Consumer Staples Sector
- Consumer Discretionary Sector
- Utilities Sector
- Energy Sector
- Industrials Sector
- Consumer Services Sector
- Financials Sector
- Technology Sector
Both Pepsi and Coca-Cola are classified as consumer defensive so, ideally, we should add some companies from other sectors too. For example, the sugary drink tax we used to demonstrate earlier would have no impact on a mining company so the portfolio would become more robust by adding from different sectors and industries.
Secondly, Geographic Diversification – This is usually a bigger problem for people who have smaller local markets. While the US has the S&P 500, the UK has the FTSE 100 the Portuguese stock market has the PSI 20. Much fewer stocks in there and the capitalisation of the market is way way smaller.
If all your portfolio is stocks that operate in one particular country then something that impacts that country, maybe a war a government change or something geographic or even a natural disaster will impact your portfolio heavily.
One mistake that people make here is that they think they just need to buy a lot of stocks from all around the world and it has geographic diversification. It’s more important where the company does business and gets its money from. For example, the UK-listed Unilever gets 60-70% of its revenue from emerging economies.
Finally Asset Diversification – sometimes there are unavoidable risks that can impact the whole stock market. For this reason, investors may wish to hold other assets outside stocks too. Think along the lines of bonds, Real estate, commodities such as gold or silver, and more recently things like cryptocurrency.
Overall different areas and sectors will have different strengths and weaknesses.
For instance, more than 50% of the world’s stock markets are located in the US. Approximately 75% of the whole US market is represented by the S&P 500, which monitors the 500 largest US corporations.
A large portion of the S&P 500 is made up of US tech companies too, being home to big household names like Apple, Amazon, Google-parent Alphabet, Netflix and Meta (Facebook). These alone make up nearly 16% of the S&P 500.
The UK is a very different selection of top companies than those from the US. More emphasis is placed on financial services and oil and gas enterprises.
You must examine what you are holding more closely to ensure that you are not overexposed to the same things, even though certain places may appear more fascinating than others. For instance, if you own a worldwide fund, a fund that monitors the US stock market, and a fund that covers tech businesses.
Is the (almost) Daily Dividends Pie Diverse?
A cool feature of the tracking software Sharesight I am using to maintain this pie is it diversity report
Let’s take a look at the sector breakdown:
The biggest sectors that they are using to classify are:
If we go by their grouping of the industry we can see a pretty even split – the biggest here are:
Let’s check out the country listings. Now remember this is the country of listing, not where they obtain their revenue from so overall its not super relevant but still interesting to look at.
Very heavy US weighting here and that’s down to the fact that the US pay quarterly dividends and is more favourable for the pie for this reason. If you are wondering why Ireland is so high this is because Vanguard funds register in Ireland (and I think that is to avoid taxes but don’t sue me bro if that’s not the main reason please). Then a tiny little bit in the UK too.
Next, let’s look at the types of investment classes.
So mostly ordinary shares as expected. The Exchanges traded funds will have the bond funds in there too. Overall not really a surprise here.
So overall what do you think is the Almost Daily Dividend Pie diversified or not? I would say it’s pretty diversified when it comes to sector or industry but not when it comes to assets. However, that’s not really a big deal in my opinion in this context. Geographic diversification is a little harder to quantify without deep research but overall I would imagine it’s fine as a lot of the companies in the pie are multinational conglomerates operating in many different countries.
Final thoughts on diversification
While diversity is crucial for investors, we shouldn’t always adopt a “more is better” mentality since there is such a thing as having too much of a good thing.
Over-diversification is a real possibility. Diversification, on the one hand, lowers the risk associated with having too few investments. On the other hand, owning too many assets might make it difficult to monitor their performance and increase the likelihood that you are holding a lot of the same item if your funds have similar objectives.
The second and third funds you add to your portfolio will provide considerably more marginal benefits for diversity than the twentieth, and that’s just the nature of how it all works according to the law of diminishing returns.
In order to be diverse you should have a range of sectors, geographies and assets in your portfolio.
The almost daily dividends portfolio holds up pretty well when measuring the diversity despite that not even being a factor taken into account when choosing the stocks.
Why Your Dividends Haven’t Arrived Yet – 4 Dates You NEED to Know Before you Buy a Stock
Which Should You Invest In? Almost Daily Dividends or The Dividend Experiment?
In today’s video we will address the final video on the Trading212 Almost Daily Dividend pie most asked questions of all time – why are there two portfolios?
Which is better and what’s the difference between the two?
I will go through each main function or facet of the portfolios and then give you a comparison.
I would just like to say before we start that I don’t ‘recommend’ either of them to you, I don’t know you, your goals or your current financial situation. If you do end up copying either then that’s great for me but not recommending them.
All I am doing here is giving a description of the two portfolios to the best of my ability and you can use that information to make your own decisions!
Ok, let’s get started:
So why are there two portfolios? Why not just stick with one?
Something that a lot of people who discover The Dividend Experiment via the pie on Trading 212 mistakenly think is that the pie = The Dividend Experiment.
Actually, the Almost daily Dividends pie was just a fun idea I came up with when Trading212 launched its pie feature as I thought it would be a cool way to use the tool.
Now, this pie has over 42 thousand people copying and has vastly even outgrown my YouTube channel so it’s understandable that people may think it’s the main thing I am about.
But actually, The Dividend Experiment is my attempt at building a portfolio in that the payments cover all my bills using a simple set of rules to buy stocks. That’s the experiment – will the rules I use to choose work to build a portfolio like that
So, in actual fact, the eToro portfolio is the demonstration of The Dividend Experiment and how I would incorporate the rules into building a portfolio.
What I like about it is that the copying is a sustainable model that has regulations for the popular investor and incentives and is more transparent for people copying as to what they are likely to get out of copying that portfolio.
So you can literally see how well it’s going on a month-by-month basis as it has been tracking it since I began.
Purpose and How I Made Them
As I said the purpose of the eToro portfolio is to be an example of a portfolio that can yield a very reasonable 4% or more and fully demonstrates the whole process of how I have been building it.
It is a ‘normal’ dividend portfolio as in its not some speciality focus on a certain amount of dividend CAGR or certain high yield or even an investing theme. Just a regular dividend portfolio that you can copy yourself or get inspiration from.
The Almost Daily Dividends portfolio I originally made as a fun idea and my initial thoughts would be that it’s a good alternative to a low-yield bank account as you can easily put some spare change in there and get some money back every day/ It is a fun concept and the rewards come almost daily.
On top of that as it’s been around for a couple of years now it has held up pretty well and works as a more serious portfolio too.
Who is it designed for?
The eToro portfolio is designed for beginning investors or people who don’t have the time or interest to build their own portfolios to generate income. It is also for those people who want to take risks with their investments but also keep a firm footing with their wealth – see the metronome video for more explanation on this concept.
The Almost Daily Dividend portfolio is kind of like a gateway drug into dividends, this wasn’t my evil plan to get people hooked on the dopamine high of getting that notification almost every day but that does just seem to be the way it worked out.
Yield and payments
The almost daily dividend portfolio yield is about 3.2% which means if you invest 1000 pounds into it will return 32 pounds in dividends each year. This is divided up by all the payments from each company so that you get the payment almost every day.
The eToro portfolio targets 4% per year so is a higher yield straight off the bat. Now if you do some calculations yourself you might see that the portfolio yield is actually higher than that.
So, what gives?
The portfolio yield is higher than 4% if you bought all these stocks directly. However, the way the dividends work is that they pay out to you when I withdraw from my etoro account to my bank. As I withdraw 4% a year you get 4% paid.
The difference between these two figures I reinvest. I think this is the optimum solution as many people are at different stages of their investing timeline so many will be reinvesting it automatically anyway.
So how does paying 4% work?
The issue is that, as people can copy at any time, on a normal stock the yield amount would change. As it went up in value the yield decreases and that is due to the calculation that I mentioned earlier in the section on yield above.
So, in order to address that I pay out 1% of the total portfolio value every 3 months, which means around the 15th of January, 15th of April, 15th of July, and the 15th of October I pay out 1% of your total holdings.
This actually works the opposite way to a standard yield as, if the portfolio rises you actually get more in dividends.
I was going to post the returns of each of the portfolios for this year but then I thought that this could be incredibly misleading and cause certain expectations. Especially as this year could have been better or worse than average and now the bar is set at a certain % return.
Instead, I will tell you where you can see the returns. I am transparent with both, as I said I am not recommending you invest in either but just giving the facts for you to make a decision if it’s right for you.
To find the eToro returns that is very easy you can just go onto my profile using the link here and it tells you the month-by-month as well as annual and 2-Year returns for the portfolio. You can see the drawdowns too so it’s a pretty detailed overview of what you can expect
To find the returns of the Almost Daily dividends portfolio it’s a little more complicated as Trading 212 doesn’t display this data on their app so I have been tracking myself each week. You can see the weekly updates on the channel and I have linked the playlist so at certain milestones, I will show a graph of the performance, for example at the year mark.
It is also important to consider that returns were never explicitly in mind when designing this portfolio but instead just frequency of payments and attempting to make sure that the payments don’t overlap.
So, there we have it. those are the main differences between the two main portfolios. Just to summarise:
|The eToro portfolio yields 4% paid in quarterly intervals
|The Almost daily dividend portfolio pays, well as you may have guessed, Almost Daily
|Who is it for?
|The eToro portfolio is designed for beginning investors or people who don’t have the time or interest to build their own portfolios to generate income. It is also for those people who want to take risks with their investments but also keep a firm footing with their wealth
|The Almost Daily Dividend portfolio is kind of like a gateway drug into dividends
|Clearly displayed and updated live on the etoro platform
|Bit harder to find but important to consider that optimizing for returns was not the goal of this portfolio.
If you want to check out the eToro portfolio then you can read more by clicking here.
Will the pie always be available?
If you are concerned about whether the pie will be available in the future you are welcome to help support the pie (as well as use all the other benefits) by joining The Dividend Cult