Weekend Reading – Legendary investors, plans, Boomers killing the stock market and #money stuff

Weekend Reading

Welcome to my latest Weekend Reading edition.  How was your week?  My week included a visit to the dentist office. Ah, I love that place.  (No, I really don’t.)  Do you have any anxiety about the dentist?

Here were my writings from this past week:

These are my top international dividend ETFs.

Here are some simple ways to save money on hydro this summer.

Enjoy your weekend and see you here next week!

Nest Wealth offered advice to prepare for bear markets.  I certainly agree with them:  while you can’t control the markets you can control how you’ll react to them – therefore make a plan and stick to it.

A phenomenal interview with legendary investor and billionaire Stephen Jarislowsky by Preet Banerjee is here.  Where Preet finds his time to do all his work I have no idea…

Michael James on Money liked the book entitled Nudge.

Canadian Budget Binder has some tips to avoid high grocery expenses.  I have mixed thoughts on grocery expenses.  On one hand, we need to eat.  It’s always good to pay less.  On the other hand, we also want to eat well.  Your body is only as good as what you put into it.

A Wealth of Common Sense believes Baby Boomers won’t destroy the stock market in retirement.  I’m personally optimistic they will sell their assets, creating some corrections, allowing me to buy good stocks at cheaper prices.  Get selling Boomers!

Interesting new tool by Capital One, a Credit Keeper, a credit tracking tool that provides customers with free access to their credit score – a first among banks in Canada.  (I recall when I last checked my score was over 835 and I hope to keep it there through good credit management.)

From the oldie but goodie file, how are you going to open the investment taps to fund your retirement?  We have our plan – what is yours?

My friend Million Dollar Journey liked Ten Roads to Riches by legendary investor Ken Fisher.  This is on my nightstand now.   Stay tuned for a review and book giveaway in the coming weeks from me.

Boomer and Echo discussed pension buybacks.  Are they worth it?  I think it depends.

Neil Macdonald from the CBC says Canadians need a consumer backbone.  Probably not wrong.

Budgets are Sexy shared his net worth.  He’s doing well.  I have considered reporting my net worth on this blog but I shy away from that; I already share a great deal including these dividend income updates.  I hope to have a new update next week.

5i Research told us when dual class shares don’t work.

MoneySense has some tips for how to invest in your 40s.  I’m there now.  Although a big part of that article focused on pensions (most Canadians don’t have one) I think the biggest thing most 40-somethings should have by then is a financial plan.  Plans come before products.  Thoughts?

Mark Seed is the founder, editor and owner of My Own Advisor. As my own financial advisor, I've grown our portfolio from $100,000 to well over $500,000. Our next big goal is to own a $1 million investment portfolio for an early retirement. Come follow my saving and investing journey by subscribing to my site. Enter your email address: Delivered by Subscribe to My Own Advisor by Email

17 Responses to "Weekend Reading – Legendary investors, plans, Boomers killing the stock market and #money stuff"

  1. Nest Wealth offered advice to prepare for bear markets. Overall a good article, except for his final recommendation:

    “That’s why we suggest a passive approach to investing. We’d rather follow the markets by investing in ETFs than try to outsmart them by betting on the next Apple IPO, because the data overwhelming shows this approach tends to win in the long run.”

    I much prefer Stephen Jarislowsky’s advice from his book The Investment Zoo:

    “I am an advocate of investing in individual, high-quality stocks, provided you take care to avoid certain pitfalls.
    – Trading leads to commissions, ergo the less you trade the less you pay for that function.
    – Money over a lifetime is best made by the principle of compounding growth.
    – Typically you should avoid new issues and any expensive products such as mutual funds with high management fees.
    – But to me, gold is a symbol of fear that reaps few benefits over time
    – You only need a few of the best species to build a good diversified portfolio that will provide sustainable, low-risk, high compound earnings.
    – My rule is to invest only in top-quality, largely non-cyclical growth stocks that have a predictable rate of earnings and, hopefully, dividend growth.
    – However, buying an index fund won’t enable you to meet your long-term objective of outperforming the market.
    – So to me dividends are important.
    – The crux of your success will be selecting leading companies’ stocks and then holding on to them for many years.

    Reply
  2. I’m curious, what do you think of the moneysense 40s article argument that if you have a pension, you should allocate less to canadian stocks. I haven’t heard this before.

    Reply
    1. IMO most Moneysense articles stick with the generally accepted, centre line of 60/40, Passive etf’s, and increase ones fixed investments as they age. Nothing wrong with that/those approach(s), but each to their own. We didn’t have a pension plan so had to find a strategy which would provide a growing income stream during retirement, which we found in DG investing.

      Reply
      1. I’ve also read cannew about investors increasing their equity allocation as they age. I think there is merit to that.

        I think DG investing is as close as you will get to an income-oriented pension-like plan. Dividends are more tangible than capital gains. Which I like. I wrote about that here:
        http://www.myownadvisor.ca/september-2016-dividend-income-update/

        In a perfect world, all businesses would allocate capital in a way to perfectly maximize the return on that capital. This would be done so reinvested money would go back into the business in way that pays off immensely for the shareholder (by increasing returns over time AND by continually reducing the company’s tax burden). As you know, we don’t live in a perfect world.

        This means shareholders have over time demanded a dividend – for the purposes of “optionality”.

        The link I provided above tells us shareholders like optionality – and dividends provide that optionality – to give them the choice to increase or decrease their exposure to the business. Reinvested dividends therefore, take advantage of that optionality, to increase exposure. Dividends taken as cash, do not. The former is something I do, often, although there are never any long-term guarantees about the success of any business. This is why regardless of what you do with your dividends you must diversify across companies and sectors and countries if you want to hold individual stocks. Otherwise just learn to live with stocks for a low fee via index investing and be the market; owning good and bad stocks and everything in between.

        Cheers,
        Mark

        Reply
    2. Hey Christina,

      I’m on the fence with this. While you have exposure to Canadian equities as part of your pension, that’s fixed income. So, I think there’s merit in going with a 33% split still outside any pension (i.e., 1/3 Canadian, 1/3 U.S., and 1/3 International equity).

      I treat my pension at work (very lucky to have one) as a ‘big bond’.
      http://www.myownadvisor.ca/got-a-defined-benefit-pension-plan-consider-yourself-lucky-then-consider-it-a-big-bond/

      http://www.myownadvisor.ca/revisiting-the-need-for-bonds/

      So, I focus on equities only. Outside my workplace pension I’m 100% dividend paying stocks and equity ETFs. Doing so however, I will need to stomach a 20% or 30% future market decline. It will happen. The sky will fall eventually. But I need to stick to my plan.

      I’ve read something like this before but I don’t subscribe to it – I guess is what I’m saying! 🙂

      Reply
      1. Hey Mark, I thought it would be interesting to look into this again:

        Re your 20-30% drop comment from reading I’d done (and I just went back to check it) – one source for example from PWL Capital referenced back to Morningstar with 100% equity portfolio, equally split between CDN, US, Int. (expected risk of loss)

        The 1 year number is: – 28%
        The cumulative drop is: – 44%

        With 60/40 portfolio it is:
        – 14.2%
        – 23%

        This would seem to suggest a balanced investor could have to “stomach a loss” in the lower range of your suggestion but a full equity investor much higher. An investor that has planned and is prepared for this “should” do fine, as some of us have already experienced!

        Reply
        1. Thanks for sharing. I fully expect to lose 20-30% of my portfolio value at some point but this will only hurt badly if I sell assets at that time.

          I don’t intend to. I do expect when those days come I will continue to collect dividends. So, if the hypothetical portfolio is $250K today and that churns about $12,000 per year, even with a 20% drop to $200K value I still collect the same $12,000 in dividends. So, this means I expect in a future (2008-2009-like) crash the same companies I owned back them will continue to pay dividends going forward.

          Fixed income (60/40) as you well know helps cushion the blow when equities do tank. I could also see where bond yields have been so low for so long, the only place to invest is with equities going-forward. I feel for investors/retirees who still believe in a age-matches your bond allocation formula. I think that’s just plain wrong in today’s world. I mean who knows, maybe bonds will be stars in another 10 years. I just don’t see it myself.

          Reply
          1. You’re welcome.

            You seem to be betting the data is wrong and aren’t expecting to see 44%. I am much less sure of that. A big drop could be a welcome reset for those working and in the investing/saving stage, although less pleasant for those without employment income, larger asset bases, less time to recover etc.

            I hear you on dividends likely carrying forward through a bad spell, which I too count on to a large and increasing degree. I also don’t intend to sell equities during bad times either but it will be a challenge if there is a prolonged drop unlike the deep but short one last time.

            I feel for all investors/savers seeking more safety from FI with the challenges of prolonged low interest rates in this rather upside down investing world. I agree that age matches bond allocation probably isn’t a good choice and as you know I expect to “buck the trend” increasing equity exposure over time (already started). Although bonds have been a reasonably good place to invest for many years now, the future if at constant low levels or with arguably more potential for rising rate environment would be less attractive. As you know lots of potential solutions- take on some more risk with equities, put more focus on dividends, invest in higher yield/riskier bonds, save more, work longer, plan for lower returns – to name some. I know where you stand and I think you know where I do!

            Who knows where anything will be in another 10 years…equities, bonds, rates??? I don’t.

          2. I think a 44% equity drop would be disastrous for many people. Retirees especially. It could happen but you’re right, I’m betting it does not 🙂

            Worse case in retirement (again the future is always uncertain) I think many companies would cut back, scale back staff, before cutting their dividend in a prolonged bad equity market.

            I think you’re very smart to “buck the trend” increasing equity exposure over time. I recall you have fixed income to rely on already and CPP and OAS to look forward to, so you can afford it – literally and practically!

            Who knows where anything will be in another 10 years…for sure…the future has a way of surprising us all the time 🙂

  3. re: high grocery expenses…eat well…Your body is only as good as what you put into it.
    — so is your mind. I would put mental health first and physical health second at the top of any “Wealthy Life” list. Without one, enjoying your money will be a chore; without both, you won’t be enjoying anything. It only makes a tiny iota of sense to sacrifice health (of both types) by eating low value food (a la Sean Cooper) in favour of money is when you are young (<25 yrs) and your body can recover from the hit. Make it a lifestyle and all the money in the world won't be able to save you.

    re: Baby Boomers won’t destroy the stock market in retirement.
    — probably not. And when they die, it will simply be wealth transfer, not necessarily vast amounts of selling. On the other hand, probably a good idea not to own any 'P/E 200' stocks in the next 20-30 years as they will be the ones taking the largest sell-off hits.

    re: Neil Macdonald…consumer backbone.
    I like Neil, he's got some very transferable experience. As for consumer backbone…unfortunately, I think the Canadian market (airlines, telcom, banks, etc.) is far too small, monopolistic, and influential with government for we the consumer to have much power. Especially if it's a disjointed and fractured effort; we would ALL have to not fly, not bank, not phone, etc — basically not consume — for an extended period in order to effect price/policy change. I can't see that happening. Ever.

    re: While you have exposure to Canadian equities as part of your pension, that’s fixed income.
    — True. But don't forget even though your pension acts like fixed income for you, it's source of returns (excluding contributions) is equity based and the components are diversified. E.g. the CPP holds a mere 5% in Canadian equities and 47% in foreign equities. Your provincial/corporate pensions are probably structured in similar ways. Thus, there's not a great deal of logic behind "if you have a pension, you should allocate less to canadian stocks".* Yes, it's being DELIVERED by a Canadian company/government, but that doesn't mean the money/return is coming from Canada/Canadian stocks. You'll have to read your pension's literature to figure that out.

    *(“Our jobs is here, CPP is here, we own houses here – it’s hard to diversify these types of things,” Paul Wheaton, CFA and investment counsellor with Mawer Investment Management. — This is a nonsense statement (and another reason why 99% of money managers can't consistently beat the market). I've just shown CPP to be VERY diversified outside of Canada as probably are most other pension plans.)

    Reply
    1. Good point about mind. It’s a muscle that needs good exercise as well!

      If the Boomers do sell assets I’ll be buying them likely via a low-cost ETF. Most of my Canadian stock portfolio is on autopilot now.

      I have no issue with how CPP is structured:
      http://www.myownadvisor.ca/boring-follow-canada-pension-plan/

      The reality is as well, many Canadian companies derive their earnings/income from around the world. They aren’t just domestic players. As much as people want you to believe, “experts” included, there is no perfect portfolio – only in hindsight to own this, that, more of this, less of that 🙂

      At the end of the day diversify across companies, sectors and around the world. In what exact % and for how long nobody knows what is best.

      Reply
  4. “I think a 44% equity drop would be disastrous for many people. Retirees especially. It could happen but you’re right, I’m betting it does not 🙂

    Worse case in retirement (again the future is always uncertain) I think many companies would cut back, scale back staff, before cutting their dividend in a prolonged bad equity market.

    I think you’re very smart to “buck the trend” increasing equity exposure over time. I recall you have fixed income to rely on already and CPP and OAS to look forward to, so you can afford it – literally and practically!

    Who knows where anything will be in another 10 years…for sure…the future has a way of surprising us all the time 🙂”

    44% – disastrous for some – for sure, probably for many and retirees would definitely take it hard. Will it happen again and when would that be? Who knows. But I think “expected risk of loss” means we should expect it. I hope it doesn’t cut that deep either, or even worse go on for a long time.

    Yes, for dividends in a tough economy there would be numerous options including a hold before a cut. We may find out again.

    Thanks. We’ll see about smart. We’ve planned for low returns, and our divvys/interest/workplace pension still provide a decent life and is all we’ve taken so far in first 3 years of retirement. However, there is a lot of years ahead and as you say the future is always cloudy. Yes, we currently have ~36% FI (lower end for my range due to recent equity run-up) and as our additional OAS, CPP “big bond” approaches in 7+ years I see our equity position rising.

    Reply
    1. Well, the fact you have pension and FI, plus you can live comfortably off your portfolio WITHOUT CPP and OAS tells me two things.

      1) you saved enough money
      2) you’re a good planner.

      A bit of column 1) and a bit of column 2) means you’ll be more than fine even with a market collapse.

      Reply
  5. I should have added above re disastrous: if it would be “disastrous” there is no way a person – especially a retiree should be investing that way-100% equities.

    Reply
    1. Agreed. All retirees should likely have some form of fixed income (bonds, cash wedge, CPP and/or OAS, or both, pensions, other). To be 100% equities with everything (I don’t think) would be wise.

      If I forecast our workplace pensions against our dividend income, those pensions without CPP and OAS put us at about 30% FI around age 60. That’s pretty good.

      Reply
  6. Appreciate that. We’ve been fortunate to date.

    Yes, ideally a combination of income streams that would prove not “disastrous” overall (less reliance on equity capital) to bridge a potential big and/or prolonged market dump. Time will tell if we have that combination ourselves and enough to cover inflation.

    For sure, you will be in fine shape with that combo and target amount of income. You’re proving to have # 2 yourself and are well on your way to #1. G/L

    Reply

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