My Own Advisor

As I mentioned in my Very Merry Christmas post, my wife and I have lots to be thankful for. For many reasons, 2010 was a good year, one that saw many changes.

It’s amazing how fast 12 months goes…

This past year was my first full year of blogging and a rewarding one at that. I enjoy blogging although I admit it’s a challenge to try and post an article everyday, even every other day!

Kudos to many personal finance and investing bloggers out there, my peers, who are able to a) spend the time and b) develop the excellent content for their blogs, many of you everyday.  I read your articles for inspiration, to find out what makes you tick and understand where your financial journey is headed – to learn from you in hopes of tailoring my own path. I hope you learn something from My Own Advisor too.

As 2010 draws to a close, I want to offer thanks to all my readers, folks who have commented on my blog and the personal finance blogging community at large who have shared their thoughts and opinions with me over the last 12 months. I hope 2011 will be even more exciting.

My sincere thanks, in no particular order, is extended to:

Ram @ Canadian Capitalist

Big Cajun Man @ Canadian Personal Finance Blog

Michael James @ Michael James on Money

Dividend Growth Investor

Addicted2dividends @ The Loonie Bin

Marie & Robb @ Boomer & Echo

Frugal Trader @ Million Dollar Journey

Passive Income Earner

Andrew Hallam

Larry MacDonald

Kevin @ Invest It Wisely

The Financial Blogger

Dan @ Canadian Couch Potato
 
Jason @ Ending The Rat Race

Mich @ BeatingTheIndex

Canadian Financial DIY

Dividend Dollar

Matt @ Dividend Monk

Robert @ DIY Investor

Mike @ Money Smarts Blog

My Journey to Millions

Money Energy

The Money Gardener

The Dividend Blog Guy

Tiny Potato

Youngandthrifty

Preet @ Where Does All My Money Go

101 Centavos

Rob & Melanie @ Canadian Mortgage Trends

Derek Foster

OperaBob from The DRIP Investing Resourcing Centre

Jon from Canadian DRIP Primer

Balance Junkie

(I hope I didn’t forget anyone?  It certainly wasn’t intentional!)

Looking forward…

In 2011, I hope to accomplish many things on the personal finance and investing front. Here are some ideas, goals and fluffy objectives I’m toying with that will be solidified in the weeks to come:

• Grow our dividend income by X percent.
• Optimize our RRSPs.
• Maximize our TFSA contributions for this year ($5,000 each).
• Make X lump sum mortgage payments or reduce our mortgage by X percent.
• Move my blog to Word Press.
• Join the Yakezie Challenge.
• Participate or contribute to a MoneySense, Canadian MoneySaver or Canadian Business Online article.
• Improve my analysis of Canadian and U.S. dividend paying stocks.
• Expand my personal finance body of knowledge.
• Share mistakes I’ve made as My Own Advisor and how I’m trying to learn from them.

Until 2011 with more posts to share, I wish everyone a very Happy New Year!

Cheers!
Financial Cents

I’d like to say Derek shared many personal experiences with me over the phone a few weeks back but I’m not that naive.  Derek has shared his investment experiences (and some failures too) in many National Bestselling Books:

• Stop Working: Here’s How You Can!
• The Lazy Investor: Start with $50 and no Investment Knowledge
• Money for Nothing: And You Stocks for FREE
• Stop Working Too: You Still Can!  AND
• *The Idoit Millionaire (*Latest book, Fall 2010)

However, I think you’ll find a few nuggets from Derek that his books don’t cover by reading Part 2 below.  Even CTV missed some of the goodies I was able to get from Derek.  Now that I’ve got you curious about this TV interview, a link will follow.  Onto Part 2; more from Derek Foster, millionaire dividend investor and early retiree from the rat race…

* * * * * * * * *
My Own Advisor: Thanks again for the interview Derek.  It’s great to finally chat with you.  Ready for the long list of questions?

Derek:   Ready Mark.

My Own Advisor:  We talked before about your investment strategy, you’re still a dividend investor.  I’m curious to know what your portfolio allocation looks like?  I mean, do you have any bond component?

Derek:  I’m 100% stocks, both Canadian and U.S. dividend-paying stocks. I have no bond component. Not that I think bonds are bad, simply, I’m a forty year old Derek Foster and I don’t see why I need bonds right now with my multiple income sources. The empirical evidence is overwhelming about how stocks beat bonds over the long-run, I’m talking 20 or 30 years. I’m working on growing my dividend portfolio over the next 30-some years so this is why I don’t personally follow any conventional bond allocation protocol. Ask the seventy-five year old Derek Foster and he’ll probably give you a different answer about his bond allocation. I’m just not there yet.

My Own Advisor:  What’s your take on index investing?

Derek:  I think index investing is very safe way to go. The problem I have with index investing personally (and maybe you can help me on this since I read your blog, you own some ETFs don’t you?) is the cap weighting associated with some index funds or index ETFs. At one time, Nortel and JDS made up something like 30% or more of the TSX, that’s major over-representation if you ask me.

My Own Advisor – Yes, but you can invest in index funds or an index ETF like XIC whereby each constituent of the fund is capped at 10%, avoiding the overemphasis.

Derek – True, I know about those products but you are still overweighted in the “hot” sectors. But let me ask you this. Do you think your dividend-payers with your dividends reinvested, compounding over time, dividend increases plus stock price growth, stock splits, etc. will do better in the long-run than those capped index products or worse?

My Own Advisor – I think my index ETFs will never hit the proverbial home run but I also know I’m always going get market returns, on the equity side of between five to seven percent over time. That’s good. If my dividends get reinvested, dividends increase over time and I hold my dividend-paying stocks long enough I should get at least that. That’s provided I own the right companies though.

Derek – That’s precisely my point. Investors can. Not to discredit index investing, I think it’s a good strategy. I think it’s good for those who don’t have or want to take any time to analyze stocks, but I like my strategy. It’s worked out pretty well for me so far.

My Own Advisor:  Tell me your top three all-time favourite investing or personal finance books.

Derek:  Good question, wow, there are so many. Can I tell you my three favourite authors?

OK, well I love the Peter Lynch ones, his “One Up on Wall Street” and “Beating the Street” – two of my all-time favourites and he pretty much covers everything in those books.

I also really liked “The Future for Investors” by Jeremy Siegel (who also wrote “Stocks for the Long Run”). I mean he says so many great things that just make sense – and he backs it up with loads of empirical data. Have you read it?

My Own Advisor – Uh, no.

Derek – You should. I think it’s a must.  I guess the last one would be “The Warren Buffet Way”. What else can I say? He’s the greatest investor of them all.

My Own Advisor:  Have you learned more about investing from your successes or failures and why?

Derek:  That’s a good question.  For me, failures because I think I question myself so much more. As an investor you can take failure as an opportunity to reflect on what didn’t work and what could be better next time. I think sometimes many investors are blinded by their success because they fail to recognize the degree that luck was involved with their result. That mindset can have painful consequences.

Derek:  Ha, I have no idea. I mean, I could say this and that but I’m probably going to be wrong. I really have no idea. What about you?

My Own Advisor:  I don’t know either. I’ve never been good at predications.

Derek:  Maybe we’ll see our dollar go to $1.50? That’s NOT a prediction, but I mean who knows? If our dollar goes that high I know I’ll be buying more U.S. dividend-paying stocks. This past year has made some companies like Johnson & Johnson a great buy.

My Own Advisor:  Final question and thanks for hanging in Derek. Will the Ottawa Senators make the playoffs this year?

Derek:  To be honest I don’t watch much hockey. I’m really an Oilers fan. I thought it was kind of cool when a few years back, both the Oilers and Ottawa made their respective runs back to back and it got interesting but for the most part I don’t follow it until the playoffs start. I guess you could say I’m a fair weather fan.

My Own Advisor:  Thanks for the interview Derek. I hope we can do this again sometime?

Derek:  No problem Mark.

Again, whether you’re a fan or a critic of dividend investing, Derek’s experiences and financial journey are in my opinion inspirational one and something that can be learned from.  He’s had success but he’s also had his share of failures and mistakes.  Not everything has been rosy and Derek has made some sacrifices to get to where he is today.  His journey and approach is not to everyone’s liking, which is fine because everyone is entitled to their own opinion; not to mention investing style, risk tolerance and comfort level.  In the end, what I respect from Derek is this – kudos for working hard to see your dream(s) come through – leave the rat race on your terms and then some.  Investment timing, luck, skill or a combination of these has made Derek Foster a household name in Canada and good on him.  He’s a fortunate guy, he knows it and he’s not afraid to say so.

I give Derek many thanks for taking some time to chat with me about dividend investing and answering my questions.  I hope we can converse again in 2011.

Learning is like rowing upstream: not to advance is to drop back. ~ Chinese Proverb

I hope you enjoyed my interview with Derek Foster.  Click here to see how the professionals at CTV did their interview with him just before Christmas.

As always, I welcome your feedback and your comments!

To all my readers, followers and friends – Happy Holidays!
Financial Cents

Before I acknowledge all the great articles I’ve read over the last week or so, I want wish my readers a very Merry Christmas and Happy Holidays!

2010 was a great year for my wife and I and we have lots to be thankful for. I guess like many folks at this time of year, I find myself being very reflective, which is a good thing in my opinion. Over the last 12 months, I started this blog, met some respected bloggers in the Ottawa area like Canadian Capitalist, Big Cajun Man, Michael James and Larry MacDonald, got married and had an amazing honeymoon, travelled to foreign countries, saw my sister-in-law beat cancer, bought and moved into a new house and watched some of our close friends start families with happy, healthy children. It has been a very rewarding year.

My guess is as good as yours what will happen in 2011 but I must say I’m looking forward to what that might be


Over the next couple of weeks, chances are you’ll see some random posts. I do hope to post Part 2 of my interview with Derek Foster before the calendar turns to January but other than that, no promises. I’m going to take some time to unwind, settle into the new place, catch up with family and friends and simply enjoy the holidays.  The red wine is calling now…


Whatever your plans are this holiday season, I hope they keep you safe, happy and healthy. I look forward to sharing more of my financial independence journey with you in 2011.  I think it’s going to be a great year!

Merry Christmas!
Mark

Here are just a few of the excellent articles I read this week.

Mich continued on his quest to Beat The Index.  Find out what he bought and why.

Kevin from Invest It Wisely wrote a detailed article (and timely for me at least) – how to avoid getting sucked into borrowing more than you need for your mortgage.

While December might be a great time to transfer your TFSA, Mike from Money Smarts Blog tells us to be cautious as well.

Robert from DIY Investor discussed his process in meeting with clients. Pretty upfront. I’m impressed.

Dividend Monk highlighted his 39 (yep, 39) stock analysis reports for 2010. Great work Matt! Check out his reviews for many companies, from 3M to Waste Management and almost every other big U.S. blue chip in between.

Big Cajun Man from Canadian Personal Finance Blog reminded folks about banking hours – they are cut short during the holiday season.

Canadian Financial DIY discussed the proposals (some good, some awful) for Canada Pension Plan reform. (I guess this mess we’re moving into is why I’m primarily a dividend investor.)

Canadian Couch Potato wrote about perennial NHL scorer Mike Gartner and how holding index funds or ETFs can be your long-term investment stars.

Andrew Hallam asked if a frugal person can live harmoniously with a spendthirft?  Good question but it begs another one – what if you’re both the same?

Balance Junkie had a good post about an economic cycle first proposed by Nikolai Kondratieff, updated by Ian Gordon based around the four seasons. (Neat cycle but Nikolai apparently had lots of time on his hands.)

Back in September, Derek was a busy guy.  I found out he completed an interview with MoneyTalk host Patricia Lovett-Reid, he was preparing for a speaking engagement in Toronto at Canadian MoneySaver’s Investment Conference, he was putting the finishing touches on his new book and as always, he was helping raise his five kids.  I don’t know about you but that seems more like a year’s worth of work, let alone one month.

For those of you who don’t know who Derek Foster is, here’s a quick bio (courtesy of his website):

• Derek was born in Ottawa in 1970.
• Derek was able to become a millionaire and leave the proverbial rat race at the age of 34 by using various investing strategies, many he believes any investor can emulate.
• Derek, ”Canada’s youngest retiree” is a well-known Canadian author and has shared his personal investment experiences and strategies in his National Bestselling Books:
  • Stop Working:  Here’s How You Can!
  • The Lazy Investor: Start with $50 and no Investment Knowledge
  • Money for Nothing: And You Stocks for FREE
  • Stop Working Too:  You Still Can!
  • *The Idoit Millionaire (*Latest book, Fall 2010)
• When not writing books or giving speaking engagements, Derek spends time with his wife and five children in Ottawa (in my old neighbourhood no less).

For a couple of years now, maybe like some of you, I’ve been both entrigued and somewhat skeptical of Derek’s investment journey.  I’ve read a few of his books (Stop Working:  Here’s How You Can! and The Lazy Investor) and to be honest I’ve been more inspired than skeptical of his success.  Sure, he may have had some great timing on his side and some risker investments paid off, but sometimes you make your own luck as well.  I know others don’t feel the same and have written so.  That’s fine because everyone is entitled to their own opinion.

Overall, I’m happy for Derek because he had a dream, saw it fulfilled and then some.  Investment timing, luck, skill or otherwise, he’s a fortunate guy.

I’m glad I got the chance to chat with Derek for almost a couple of hours a few weeks back.  Here’s what he had to say in Part 1 of My Own Advisor interview.  I hope you enjoy the read.

*     *     *     *     *     *     *     *     *

My Own Advisor:  Thanks again for the interview Derek. It’s a busy time of year for everyone and I’m glad you got back in touch with me. It’s great to finally chat with you – enough email already!

Well, onto my questions.  Ready?

Derek:  Fire away Mark.

My Own Advisor:  You’ve just released the latest book in your Stop Working series entitled “The Idiot Millionaire: You Can Become Wealthy!” What inspired you to write this book?


Derek:  To be honest, it was largely because of the 2008-2009 economic downturn. Because my personal situation had changed since I originally left the rat race at 34, (I was earning an income from other sources such as book sales, etc), I wanted to switch my portfolio to higher growing dividend-payers as this would save me tax and generate better returns over the long-term. BUT I wasn’t as smart as I thought I was; hoping to sell my stocks at one price and trying to get back in at a lower price. In some cases, it worked. I bought businesses like JNJ, Shoppers Drug Mart and Phillip Morris at reasonable prices. For other businesses, it didn’t work. For example, I waited too long for Canadian bank stocks. I missed the bottom and their subsequent run ups in price. Admittedly I missed that boat. I would buy some if prices to crept lower. I guess the title of my book really applies to me, kind of tongue-in-cheek.


My Own Advisor:  What makes this book unique in your Stop Working series?

Derek:  More so than any of my previous books, this one discusses a company’s competitive advantage. I describe what I mean by this and how investors would do well to invest in those companies that have it and it also offers a list of those companies.


There are many companies out there that are worth owning, companies that pay dividends but they do not have any economic moat around them. This is important because ideally you want to buy companies that not only pay dividends, but that increase their dividends over time and also have great growth opportunities because of their advantaged products and services. My new book includes a pretty good list of these companies in Canada and the U.S. In the U.S. for example, Coca-Cola quickly comes to mind. In Canada, Enbridge.

My Own Advisor:  Switching gears a bit, tell me about your investment strategy. Still a dividend investor?


Derek:  Absolutely, but my approach or maybe should I say my focus has changed. Before I was more focused on higher yields for income generation, maybe slower-growing stuff but now my needs have changed. I mean the books generate income which was an unexpected surprise (because being an author or a writer is not usually the path to riches). Really though, I’m fortunate to have some other income streams with no debt and so things are different for me at 40 than 34 when I wrote “Stop Working” (Here’s How You Can Too!). Geez, that was six years ago. I’m now more focused on companies that have their “moats” and good long-term growth prospects. I try to explain that in plain language in the new book.


Also, the reality is many folks don’t retire from the workforce at 34, or even 40 or 50. They are working their way towards retirement bit by bit and hopefully this book will provide them with a more complete list of companies to help them out.

My Own Advisor:  A short time ago, when the market was falling (in 2008-2009) you sold all your dividend payers. I read a few articles about that. You took some heat. Can you walk us through that decision?

Derek:  I was an idiot but at that time, I sold my shares in early February 2009, I thought I could get back in later and at cheaper prices. Turns out I did and I didn’t as I told you before. I managed to buy a lot of stocks much more cheaply – but a large part of this was luck. I benefitted from put-option premiums and the incredible strength of the Canadian dollar. After I sold my stocks, I remember humming and hawing for a couple of weeks – should I say anything to the media? The books encouraged folks to do the opposite; buy and hold dividend-payers for income. I didn’t want to be hypocritical but I can see why some people were a little put off, you know what I mean? In the end, my approach did save me money and I came out ahead but not on everything; I missed the boat on those Canadian bank stocks and some other companies I would like to own.


The book (The Idiot Millionaire) actually includes some of this stuff and I’ve got some details in there about my prices when I got back in.


My Own Advisor:  Made any recent purchases?


Derek – Yeah, I bought Strayer Inc (a for-profit university) at a pretty reasonable price. It just made sense with our Canadian dollar being so high and the recent stock price weakness due to pending potential changes to loans for students. I’m very comfortable with this holding but I realize there are potential risks. The stock price had dropped from over $250 earlier this year to under $140 where I bought it. This is even cheaper than at the March 2009 low of $159 – and the Canadian dollar is much stronger now, so the stock price is actually 30% below the March 2009 bear market low (in Canadian dollar terms).


My Own Advisor:  Something more fun now. What’s on your Christmas list for 2010?


Derek:  Well with five kids in house, Christmas is really for them, not me. I’ve never been one to covet stuff, I’m not materialistic. I finally got a GPS this summer for our trip out West and I’ve got a laptop computer. During our trip, once the kids were in bed and all the chatter had stopped for the day, I pulled out my laptop and wrote a couple of pages (for the new book). Honestly, I’m a cheap guy. If a burglar came to my house, he would quickly leave in disgust as my material possessions are not really worth stealing (except perhaps for my Sienna minivan). When I look at stuff, I always ask myself, is this really going to add any value to my life? If the answer is no, I don’t buy it. I guess nothing Mark. I don’t even own a cell phone. I guess I don’t consider myself important enough to need one.


I had to laugh at this last response. I mean, with five kids, how can Christmas NOT be all about them?

It was great to chat with Derek.  He’s a bright and funny guy.  Foster’s fast track to early retirement through  savings and diligent investing in Canadian and U.S. dividend paying stocks may not appeal to everyone but I think it’s inspirational.  In the end, we’re all trying to achieve financial freedom and regardless if you’re a fan or a critic, learning something from Derek Foster can and should be done.  That doesn’t mean you need to follow his path or emulate what he did.  Knowledge is always different than the application, but learning what works and what doesn’t for you is important.  I’m trying to build my investment knowledge and application all the time because in my opinion, continuous improvement is critical to success. 

In Part 2 of my interview, you’ll hear more from Derek about his portfolio allocation and his stock market predictions for 2011.  Stay tuned for that blogpost after Christmas.

I hope you enjoyed Part 1 and as always, I look forward to any comments!

Cheers,
Financial Cents

I don’t know about you, but applying for a mortgage can be frustrating and time-consuming. From our perspective, we were just another number applying for a bunch of numbers. Insert a great mortgage broker into the equation.

Here’s a short (but not inclusive) list of great things a great mortgage broker can do you:

Give you customer focus – Unlike banking representatives, mortgage brokers are not tied to any one bank. Sure, they might have some favourites, but great brokers canvas the full field. Our guy was looking out for the customer (us), our terms, conditions and pre-payment options. He was working to find a product that fit our needs and situation, not his agenda. In brief, our mortgage situation is not ideal, we have a hefty penalty to pay if we break our existing mortgage and go with another lender within the next two years. (This is a reminder to look at the detailed print of your mortgage agreement before you purchase a new home.) In our case, a great opportunity arose and sometimes you simply can’t pass those up regardless what the fine print says – life happens, choices need to be made and chances need to be taken. Back to my point, you can certainly make a strong argument that mortgage brokers work for themselves, not you, however without attention to personal detail, they wouldn’t be in business. Our broker put our needs and requirements #1. He was always very responsive. He never said he didn’t have time for us or needed to take another call.

Save you money – No doubt mortgage brokers are compensated by the lenders they strike the deal with but a) that means you don’t pay them and b) as long as the rate and conditions of the mortgage are better than what you could have obtained – you’re saving money. Potentially lots. Like I mentioned earlier, our broker worked hard to get us a good deal. He knew his stuff and actively monitored bond yields for us. We more than appreciated that because without our new great rate and its associated terms, we wouldn’t be coming out ahead over our hefty mortgage penalty. We’ve taken our lumps and learned from them. My advice? Don’t take a five-year mortgage term if there’s even a chance you might move within that term period. Sure, you can sometimes port your 5-year fixed term to your new home (it doesn’t cost anything but the mortgage appraisal and sometimes a small discharge fee) but that wasn’t ideal for us. In hindsight, we should have taken a shorter fixed term a few years back or instead, given historical research, a variable rate. Click here to read more about variable mortgage rates and how more often than not, you come out a winner over a fixed rate mortgage.

In closing, mortgage brokers can be a tremendous resource, if you have the right one. We’re glad we worked with our guy. Actually, we still are.  He’s still checking in with us to ensure all the rebates we were able to take advantage of are coming our way, including one for the mortgage appraisal.

I know if I have mortgage question going forward, I’ll drop him a line. He’ll take my call, he’ll listen, he’ll provide good customer service and objective feedback. I don’t mind sharing who we used because the experience was very positive.

Thanks very much Rob!!

Click here if you want his contact information.

Do you agree or disagree – what a great mortgage broker can do for you?
Any positive or “other” experiences you’d like to share?

Cheers,
Financial Cents