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Lessons in Active Management

Originally Published on March 13, 2012
Taken from March 2012 Dividend Gems
Most dividend investors make the mistake of using a buy-and-hold approach. Rather than being concerned about their total account value, they focus on their stream of income from cash dividends. As a result, most dividend investors remain fully invested. This is the wrong approach.
While it is certainly important to focus on the dividend income, it is perhaps more important to focus on risk. This mandates that investors understand many variables that allow them to forecast the stock market. But there is no specific formula that can be consistently utilized to understand and measure risk. 
By having reasonable estimates of market forecasting, valuation analysis and other variables, investors can make prudent asset allocation decisions in accord with their risk tolerance, investment objectives and skill level.
This means that there will be times when investors will be majority invested in to the stock market and times when they have a good deal of cash.

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