2021 Financial Goals – May Update
Success….time to go and get after it!
For years on this site, I mean many years, we’ve set financial goals to keep ourselves accountable.
In 2021, that tradition continues…
Our goals were rather simple in early 2021, but goals don’t need to be complex. These goals are actually just a snippet of My Financial Independence Plan here.
That’s right from my/our plan as we works towards semi-retirement in the coming years.
So, in 2021 our goals are to:
- Max out contributions to our Tax Free Savings Accounts (TFSAs).
- Max out contributions to our Registered Retirement Savings Plans (RRSPs).
- Continue to pay off our mortgage.
- Initiate a larger emergency fund to start semi-retirement with.
2021 Financial Goals – May Update
1. Max out contributions to our TFSAs.
Done!
By investing in low-cost, diversified ETFs inside these accounts (along with our existing Canadian dividend paying stocks) we hope to gain both growth and diversification beyond Canada’s borders.
We invested in iShares ETF XAW inside our TFSAs for 2021. This was done to reduce our Canadian home bias – one of my lessons learned in diversification from the pandemic.
Once more TFSA contribution room in January 2022 opens up, we’ll invest inside this account once again.
A reminder since TFSA account inception, these are the annual and cumulative limits assuming no withdrawals over that period were made:
| Year | TFSA Annual Limit | TFSA Cumulative Limit |
| 2009 | $5,000 | $5,000 |
| 2010 | $5,000 | $10,000 |
| 2011 | $5,000 | $15,000 |
| 2012 | $5,000 | $20,000 |
| 2013 | $5,500 | $25,500 |
| 2014 | $5,500 | $31,000 |
| 2015 | $10,000 | $41,000 |
| 2016 | $5,500 | $46,500 |
| 2017 | $5,500 | $52,000 |
| 2018 | $5,500 | $57,500 |
| 2019 | $6,000 | $63,500 |
| 2020 | $6,000 | $69,500 |
| 2021 | $6,000 | $75,500 |
Decades from now, those TFSAs should be worth a small fortune! The same can happen for you too!
Check out this and many more FREE calculators on my handy Helpful Sites page.
2. Max out contributions to RRSPs.
Done!
Even though we both have workplace pensions in our future (mine is defined benefit (DB), my wife’s is defined contribution (DC)), we believe having RRSPs full of investments will provide some of that desired financial flexibility we’ve been working hard towards for the last 20 years.
So, after the TFSAs were maxed in January 2021, RRSP contributions were next up.
We worked hard, saved hard, and now those RRSP accounts are also fully maxed out of any available RRSP room. We’ll need to wait until 2022 to invest more.
3. Continue to pay off mortgage.
I mean, we have to right? Goal in-progress folks.
In the coming 3-4 years, without any mortgage debt, we’ll have financial options… I think our last mortgage statement had us being debt-free in 3 years, 5 months. That’s assuming there are no additional mortgage prepayments made between now and end of 2024. We may or may not make those later this year.
4. Initiate a larger emergency fund to start semi-retirement with.
Goal in-progress folks.
This goal may be controversial on the site but do share your thoughts with me.
For years, we’ve kept our emergency fund at this steady amount.
However, in the coming years, we’ll want to grow that fund. There are a couple of reasons for that:
- As we age, $hit will happen. I know the last thing I want to do, as I get older, is go back into more debt if or when a major financial emergency hits.
- A reminder to readership we are 100% equity investors. No bonds. No fixed income. No GICs. Nada. This means if the stock market goes down, in bunches, our portfolio value is likely to dive down with it. That said, I want to have some money on hand to invest when market calamity hits. I’ve trained my investing brain to buy more stocks when they are on sale. You should too.
How much cash should you keep?
- Our goal is to have ~1-years’ worth of basic living expenses “banked” for semi-retirement. I figure if we’re getting closer to working on our own terms, or at least making full-time work a decision point that we want to continue, then might as well be as financially ready as we can… #FIWOOT and not FIRE people!
“There is a close logical connection between the concept of a safety margin and the principle of diversification.” – Benjamin Graham
You got it Ben!
2021 Financial Goals – May Update
Two goals down, two more to go in 2021, and paying our mortgage is really a given.
I’ll keep you posted on our progress towards saving up that cash wedge for semi-retirement as well as any new stock purchases beyond the ones I’ve got planned in 2021. You can read about those stocks I want to invest in, this year, along with any low-cost ETFs in the coming months ahead below:
5 stocks I want to buy in 2021.
Thanks for reading and let me know what comments or questions you might have about our plan.
Happy to answer them as best I can and include a few more new ones on my dedicated (and growing) FAQs page.
I’ll update our progress as the year moves along.
Stay well, stay invested!
Mark
Mark
My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.
I’m a complete neophyte to the world of investing. I decided to open a self directed RRSP. I bought VYM, VYMI and XIU. I going to buy VTI and XAW next. My question is can I buy stocks and keep them as part of my RRSP?
You bet. You can own stocks, and ETFs, bonds, etc. inside any self-directed RRSP.
https://www.myownadvisor.ca/tax-deferred-investing-rrsps-101/
Those ETFs are good IMO and likely going to deliver both income and gains over many coming years. Just know that VTI is more diversified than VYM. VYM is more of an income ETF, VTI is more growth-oriented so VTI might deliver (??) better long-term gains. No guarantee, but it might based on history. I’m a big fan of VTI and XAW and own both (full disclosure).
Thanks for your readership Sam, nice to get to know you!
Mark
Must mention Canadian Banks.. .. boring sure, but +25% past yr and divs. So many kitchen investors get way to ahead of themselves too soon. Don,t ya think?
Bob, what is kitchen investor?
Yes, those CDN bank dividends might be pretty juicy later this year Bob!
Salivating here. LOL
Salivating too. I am heavily allocated to Canadian banks.
Not too heavy here but plenty for me. About 10% of overall portfolio and just under 14% of total equity. Enough I guess that say a 6% raise or special dividend would give a nice little bump. It certainly seems affordable.
LOL. Don’t worry, your dividend increases are coming 🙂
Mark
2 down and 2 more goals to go, indeed. I mean, mortgage payment, you really can’t complete that goal until the end of the year, haha.
Ha, yes, indeed. A good goal all the same IF we decide to put some lump sum payments down with any extra funds. I would rather invest though now even with market highs. I only have my taxable account left unfortunately!
We have an emergency fund. We’ve had to use some of the cash in there at least twice over the years, so it can come in handy. Even paid cash the last time we bought a new sub-compact car in 2012. Then from savings we replenish the cash spent. We also have a LOC that’s been dormant ever since we bought the house over twenty years ago when we had just turned fifty years of age. My wife and I are both debt averse.
Today, for the non-registered account we had some extra cash savings combined with dividends so I bought our 30th equity for the all Canadian dividend growth portfolio. Since we paid of the house mortgage eighteen years ago I’ve been building a conglomerate allocated to seven sectors purchasing only listed stocks on the TSX. So far, so good, especially with some of the dividend bargains I picked up in 2020. Now with the bull market, not so much fun, but I’m not very good at market timing so I don’t bother trying. I’ve invested through every bear market since going through the 1987 crash, so I’m used to the financial storms.
Cash seems very handy for any bear market – to buy more equities / bolster the Canadian dividend growth portfolio. I like it!
“I’ve invested through every bear market since going through the 1987 crash, so I’m used to the financial storms.” No doubt if you have owned dividend paying stocks for about 35 years you’ve done very, very well 🙂
Mark
I used to have 3 years of cash expenses sitting in the account, now I have changed the strategy only having one year cash in the account. The dividend income covers 75% of the expenses, the rest 25% will be drawn from the cash account. I also set up a HELOC which shall be treated as a cash buffer to compliment the shortfall. If the market goes down, I can access to growing dividend income, cash account and HELOC for living expenses. If market goes up, I will just liquid 1-2% equity to bring the cash account to one year’s expense.
Different stage in life brings different approaches, cash management is very important to make sure risk-adjusted return is achieved with peace of mind, but not any wasted cash sitting doing nothing.
“Different stage in life brings different approaches, cash management is very important to make sure risk-adjusted return is achieved with peace of mind, but not any wasted cash sitting doing nothing.”
Very good point Angela. I know that while we are still working, we appreciate having a small emergency fund. You never know. As we get older, and likely not working full-time (part-time only) and relying on our portfolio income for living expenses, I suspect we’ll check more cash on hand. Probably ~ 1-years’ worth and then the rest will be held in most equities. I might own some GICs at some point but we’ll see. A higher interest savings account is good enough for now.
Hey Mark,
I’ve been living off dividends for a couple of years now, and basically sharing your same philosophy: hybrid investing (my ETF holdings are much less than yours) and dividend paying stocks. I’m wondering what you use to track your portfolio, returns and sector allocations; I’ve got a ridiculous spreadsheet that takes a lot of time to download and update, but haven’t seen other options that seem comprehensive enough. My online stockbroker has tools, but they are woefully inadequate.
I’m enjoying reading your newsletter, and keep up the journey!
Thanks DivGuy – great to hear from you. I really believe hybrid investing can benefit so many investors. It will make financial advisors suffer but I’m not worried about that 🙂 Fee-only planners are best anyhow IMO!
Great to know re: “I’ve been living off dividends for a couple of years now….” I love reading that from folks like you and others. Very inspirational. Not that I don’t know this can’t be done, rather, it’s nice to see others live it out!!
Gosh, I keep a very sophisticated spreadsheet that I barely have time to maintain, then I keep a super basic one. I think I put an older version on my Helpful Sites page here and happy to discuss more….maybe I need to build a better, free tool for folks and include in my newsletter.
https://www.myownadvisor.ca/helpful-sites/
I don’t worry too much about sector allocation. I try and keep mine for stocks, in CDN at least, aligned to TSX although I’ve always owned more telcos (BCE, Telus) and pipelines (ENB, TRP) than what the TSX did. That never made sense but it’s a cap weighted index as you know. 🙂
https://www.myownadvisor.ca/reader-questions-how-do-you-rebalance-your-portfolio/
Hope that provides some insights – thanks for the kind words.
Mark
We feel better with a larger cash bucket, four or five years worth of total normal spending. Plus about twice that invested in bond funds. The remainder, over 50% of the total, is invested in index funds and stocks. I don’t see much incentive to chase returns now since we have more than we need. But there is no doubt math supports keeping as much in equities or real estate as you can, if you can handle the emotional impact of extreme volatility on the stocks.
Steve, that’s an impressive amount of cash depending on your spending levels. It is certainly interesting to see how others’ manage their money and personal finances. A well established blogger in the U.S., we has been on this site to share why he feels the “4% rule” is useless, claims an emergency fund has no meaning either.
https://earlyretirementnow.com/2021/05/26/the-emergency-fund-is-still-useless/
https://www.myownadvisor.ca/the-proven-path-to-early-retirement-ignoring-the-4-rule/
I hear smart investors only take on the risk they need to get the returns they seek, and nothing more. I suspect with 4-5 years’ of spending in cash and twice that in bonds, plus other assets, you have little fear that anything might disrupt your portfolio. That’s awesome. Something for others like me to aspire to!
Mark
We’re also in that same ballpark between cash, bond funds, GICs. This is an allocation balance that meets our financial needs, gives us some comfort and allows rebalancing in market swoons.
I am getting rid of the emergency fund. Actually, I still have more than one year’s of expenses in cash, but I am aiming to invest all that money.
Here is my plan for emergency fund: I have recently transferred my taxable account to Interactive Broker. One of the reasons is that the margin rate there is extremely low. It’s not like I want to invest on margin, but if I need to, like in an emergency situation, I can borrow on margin and utilize that low interest rate. How about margin call? Well, as I have paid off the mortgage already, I have a HELOC which has a zero balance now. I can also always transfer money from HELOC to pay off the margin.
That said, I guess we probably will still have at least half-year expenses in cash once we retired. It’s not for emergency, it’s just that we don’t need always to look into the bank account to ensure we don’t overdraft.
I think that could work May – we all have different tolerances for risk. Doesn’t make it bad or better, just that risk must be managed.
We still have a mortgage for a few years, and given things can happen with our jobs, you never know – I figure having a small cash emergency fund is smart. Given we will be 100% equities or near it as we enter semi-retirement then having a 1-year cash wedge is good risk management for us.
Who knows, I might change my mind!
Mark
Hi, May,
You mentioned to invest on margin in an emergency situation, can you define “emergency” here, such as March of last year? I have margin setup at 2.65% rate, but never use it. The broker said that the margin call can happen anytime when the market goes down 10%, 20%, 30%. Thus, this invest on margin feels quite unpredictable, or you will simply invest for short term. I wonder whether investors who uses this strategy invest for long term holding blue chip stocks.
Thanks,
Sorry I didn’t state it clearly. NO, I don’t plan to invest on margin. What I plan to do, is in an emergency case, where I need a big amount of cash but didn’t have. For example, if I need to pay my kids’ tuition fee but the market is low and I don’t want to sell, then I can borrow on margin from my margin account at IB. If I do that, a margin call is certainly of concern. The current margin rate at IBKR is 1.637%, which is one point lower than my HELOC rate at 2.65%. I want to pay a lower interest if possible. In order not to trigger a margin call, if I have borrowed on margin, I will monitor it closely and transfer money from my HELOC to my margin account if necessary.
This is just a plan to handle unpredicted situations which I wish I will never encounter.
I still don’t make up my mind whether or not I want to invest on margin. As most likely I will have a very low percentage of cash and have almost all my assets in equities, which means I am already taking more risk than normal retirees, most likely I won’t take extra risk with leveraged investment. If I ever want to do that, I guess will be only a very small amount and with very attractive opportunities.
Thanks, May, for your reply.
I thought Margin account set up at the brokerage can only be used for equity investment, not knowing that actually you can use it for other purposes. Your plan of treating it as an emergency fund makes senses, cash goes to work, margin account and Heloc account are cash buffers to deal with emergencies and attractive opportunities, I think this a well-planned approach under the conditions of carefully monitoring the market.
Margin available to you at your margin account essentially is the same as your HELOC. HELOC is using your home as leverage, and margin is using your equities in your margin account as leverage. Just as you can borrow on HELOC for any purpose, you can also borrow on margin for any purpose. You can not deduct the interest if not borrow to invest.
In theory, if you have borrowed on HELOC and the value of your house is down a lot, the bank can call the HELOC, similar to a margin call. It’s just that rarely happened. But margin calls happen all the time.
That is a very clear explanation. I think that I will leave it for now. Using HELOC has more control than the funds in the margin account.
I would agree with that Angela, although HELOC can be ‘called’ per se by banks – meaning, they can ask for their money back at will.
I recall most HELOC agreements state the lender can ask for any outstanding loan to paid back at any time for any reason.
It would be rare, but it could happen.
When I was still working we always had a LOC loan for investing. for over 20 years. I would pay the loan down slowly from work income, then borrow a lump sum again to buy more equities. The dividends on the equities we bought were higher then the interest rate on the loan. When kept to a small percentage of your portfolio I think its a great tool to accelerate your portfolio growth. We are retired, 100% equities, and living on dividend income. The LOC is now the emergency fund.
We are using this strategy too (HELOC on the primary residences). Plus the interest expenses on the LOC is tax deductible.
Boring is good when it comes to the financial side of things Mark. 🙂
Ha, yes, my friend, boring is always good when it comes to investing. Sorry to disappoint! 🙂
Boring.
But boring is good when it’s because you’re continuing doing all the right things to achieve your goals.
Bigger cash wedge isn’t controversial with this guy.
Ha, not, not likely with you. Cash and cashflow in retirement better still is king!
Well I always to plan to have enough of both.
I don’t doubt you do too.
And I meant to comment on the Benjamin Graham quote. Seems smart to me.
Good stuff.