Thursday, June 10, 2021

Why the Switch from Dividend Stocks to ETF's?

Some of you may be wondering why I decided to switch from trading individual dividend stocks to ETF's. Here are my reasons.

The switch occurred in 2020 due to the COVID-19 pandemic, which created an unstable economic environment. Individual stocks became too risky, since there was no way to tell how badly the companies would be impacted. So, that was the original reason to switch to ETF's. More diversification and less overall risk.

Since then, I found that trading ETF's was a lot less work.

With individual dividend stocks, the universe of potential stocks was in the hundreds. I had to develop and maintain customized software to download and analyze dividend stocks and their options, and then screen for potential trades. I also had to analyze each potential company's financial statements, and check each for news, ex-dividend, and earnings announcements occuring before expiration. This was a very time consuming process.

With ETF's, especially trading the major market ETF's like DIA, IWM, QQQ, SPY, and the XLx SPDR Sector ETF's, the universe is very small. There's no need for customized software, instead I use Thinkorswim scans to find potential trades. There's also no need to worry about earnings announcements, and only a few news worthy economic events that have the potential to move the market. These ETF's also provide less risk, since they're diversified, are extremely unlikely to fall to zero or go bankrupt, and have a long term bullish bias.

As I approach retirement at the end of July, making the switch to ETF's made even more sense. It takes a lot less time to establish and manage ETF positions, therefore providing me with more free time to enjoy my retirement. Will I ever return to trading individual dividend stocks? Maybe, if circumstances change, but until then, I'll continue trading ETF's as long as they continue to meet my income goals.