ETF 'No-Dividend vs Active' – Who Wins? Ruan Mu-Hua Reveals His Long-Term Investment Strategy: For Dollar-Cost Averaging, I Only Choose This Type

Taiwan's stock market has recently continued to retreat, causing many retail investors to be shaken out by extreme volatility. However, for long-term and dollar-cost averaging investors, the key lies in holding investments consistently over time. On the 27th, financial expert Ruan Mu-Hua analyzed his selection strategy for dollar-cost averaging, emphasizing one crucial point: 'I only choose no-dividend funds.' While he doesn't need dividend income, the primary reason is that 'no-dividend funds offer better long-term principal base compounding.'

Ruan stated on Facebook that while he does invest in various ETFs, in his investment philosophy, ETFs are tools for 'trading market swings,' not for 'stock accumulation.' For long-term wealth building, he prefers funds where profits are continuously reinvested, allowing the principal base to grow larger and generate stronger compounding effects. Of course, this assumes 'I don’t need dividend income.' For retirees needing monthly or quarterly passive income, or those relying on dividends to subsidize living expenses, the strategy would differ.

Ruan has long advocated dollar-cost averaging as the optimal method for long-term wealth planning—using time to profit from market fluctuations. By consistently investing over time, both principal and investment returns accumulate, increasing the principal base and amplifying compounding benefits.

For example, if an investor accumulates NT$1 million through dollar-cost averaging and then stops investing, the strategy becomes equivalent to a lump-sum investment. At a 10% annual return, the absolute gain would be NT$100,000. Under the same conditions, if the accumulated principal were NT$10 million, the absolute return would grow to NT$1 million. Thus, one key to dollar-cost averaging lies in risk management after the principal base expands—though that’s a topic for another discussion.

Ruan noted that many ETFs emphasize high dividend yields, which is understandable in Taiwan’s super-aging society, where retirees and young investors alike often rely on dividend income to cover living costs. However, to generate high dividends, some ETFs may sell their highest-performing holdings to realize capital gains for distribution. While not inherently bad, Ruan finds this 'a bit regrettable.'

He pointed out that for investors who don’t need dividend income, receiving cash dividends often leads to idle capital—most people don’t immediately reinvest the dividends back into the ETF. This capital inactivity reduces compounding potential. For investors like himself who neither need dividends nor want idle capital, choosing no-dividend products makes more sense.

Ruan compared the performance of no-dividend ETF 009816 with several actively managed ETFs, including 00981A. From May 22 to July 22, 009816 rose 5.9% in price, while 00981A declined 4.9%. During this period, 00981A distributed a dividend of NT$0.63, reducing its ex-dividend price gap from -NT$1.47 to -NT$0.84. However, its total return, including dividends, remained negative at -2.8%.

Ruan acknowledged that whether 009816 can outperform active ETFs in the long run remains to be seen, as the fund was only listed on February 3, and long-term performance data is still limited.