A savvy millennial’s journey to early retirement

A savvy millennial’s journey to early retirement

For a few years now I’ve been inspired and motivated by early retirement.  I’ve also been inspired by other investing stories.  You can read some of those stories here.

When it comes to our financial journey in general we’re just ‘not there yet’.  We are however, I believe, on a decent path – saving, investing and killing mortgage debt at the same time.  Using this site to chronicle our financial journey I’ve been fortunate to meet a number of fine folks who continue to share their stories with me. Today’s post is one of those stories, from a savvy millennial investor no less.

Bio:

• Name: Dan Kent
• Age: 27
• Family status: Living with girlfriend, no children
• Retired since: Still working
• Retirement plans: Freedom 45!
• Retirement worries: Simply not having enough

Dan Kent is the owner of StockTrades.ca but he wasn’t always a financial site owner or blogger or an investor at all.  Dan “was a farm boy” who was raised about 50 km outside of Calgary, Alberta. With no aspirations of taking over the family farm he graduated from high school in 2008 with the intentions of getting into the oil and gas sector. The price of crude oil was sitting around $140 a barrel in May of 2008 and Alberta was going crazy to say the least. Tradesman in northern Alberta were making more than double the average salary in Canada, so for Dan, being a tradesman was a no-brainer.

Good times never last long so when crude plummeted in September of 2014, jobs were scarce and Dan was forced to look for other potential career paths.  Before investing for the long-haul Dan ended up playing semi-professional and professional poker for the better part of two years.   He told me it paid the bills but his enjoyment for the game faded to the point where he picked up another electrical job in northern Alberta again.

Dan, that’s quite the introduction for 27 young years.  Thanks for taking the time to be on the site.  Let’s get into it – as a millennial how did you get started in investing?  Who helped you out?

I’d have to say my grandfather played a large part in my investing ability and in general my frugalness. He taught me from a young age to save, and spend money on things that will develop and grow, instead of materialistic goods. He talked the talk and walked the walk, and is now enjoying a very prosperous retirement because of it.

My first investment was a townhouse at the age of 21 years old.  (Geez, that’s young.)

I had known I wanted to start investing at an early age, but my main goal was always to own a rental property. At the time, the first time Home Buyers’ Plan was a new thing and I knew if I maxed out my RRSPs along with my company matching a percentage of my contributions I would have the cash in no time.   (Link to my thoughts on Home Buyers’ Plan.)

Being debt free due to the fact I didn’t have to attend post secondary, I had saved up a 10 percent down payment on a property relatively quickly working in the oilfield.  I purchased a 4-bedroom townhouse in September of 2011. Within a month of owning the property I had all 3 bedrooms rented and had officially deemed myself a landlord. I moved out of that townhouse in 2014, purchasing another property. Thus, real estate has been a staple to my investment portfolio.

What was your investing journey to this point?  Did you ever own mutual funds?  ETFs?  Bonds?  Other investments? 

My journey up until a couple of years ago was rocky, with stocks at least. I can say this much, besides a compass RRSP portfolio with an Alberta Treasury Branch comprised of mutual funds, I have always managed my own investments. Did I always provide adequate returns year in and year out that I could probably achieve giving my money to an adviser? No, but I am better off now for not doing it. I look back now at all of the nonsensical things I did investing wise and know they are just lessons learned.

I was a typical 20-something investor I guess, I tried a little trading, that didn’t work.  After I moved on from trading, I was constantly trying to find huge value stocks that would skyrocket my returns, labeling me one of the very few that could beat the chumps only making 7%. That habit took a bit longer than the trading to get rid of, but I eventually moved on.

As of right now, I’ve settled in to owning Canadian dividend paying stocks. I’ve got some speculative stocks, which I allocate a certain percentage of my portfolio to and not a penny more, and some blue chip giants that I suspect (like Mark) are going to be paying shareholders for years to come.

I also invest in some ETFs, but only to expose my portfolio to the American economy. I’m young right now, so as far as bonds go they have never appealed to me. I am looking to maximize my returns at a young age when I am able to take the risk.

Seems rather though out Dan.  How would you describe your investing approach today?  Why?

I take a semi-aggressive approach to investing. The reasoning behind this is simply because I am young enough now that I can take educated risks with my capital to maximize my returns at a younger age. If I lose, or make an incorrect decision I have plenty of time to recover. I cannot say I would have the same comfort investing so aggressively at the age of 50.

I have speculative stocks in my portfolio because I feel they will be worth far more than they are now in the future. That being said, the large majority of my portfolio is made of up blue chip dividend stocks and a single ETF. My account is set up to DRIP on every dividend stock I own (which as of right now, is every single stock in my portfolio).  Like you Mark I realize reinvested dividends can create a snowball effect.

Right now my focus is to maximize my RRSP and TFSA contributions.  After that, my goal is to simply invest wisely, not looking to crush the market as so many do (and fail). When my current rental condo contains enough equity to sell and split into 2 rental properties, I will be doing that to expand my reach in the real estate sector.

Index investing using low-cost Exchange Traded Funds (ETFs) seems to be a sensible way for most investors to invest.  What’s your take on that?

I do not have many ETFs inside my portfolio myself as I like to control every single position I am investing in. That being said, ETFs are a great way to be exposed to market diversity and not individual stocks within it.

The fees when compared to mutual funds are tremendous as well, often costing less than half of a mutual fund. But I often have to explain to investors looking to get into ETFs that it is not solely about your expense ratio. A fund making 9 percent with a 2 percent ratio is still more profitable than an ETF making 5 with a 1 percent ratio.

All in all, ETFs provide a cheaper path to a diversified portfolio and generally are more flexible than a mutual fund. I am looking to add more to my portfolio in the near future, but as of right now the Russell 2000 ETF is the only one I own.

Although I’m a fan of dividend investing myself there are more risks involved. Do you agree?

For an uneducated or misinformed investor looking to get into dividends, I wholeheartedly agree.  People can get into trouble when they get tunnel vision – looking at just dividend yield. A solid dividend yield does not mean a solid company. It is important to analyze a company’s stability and growth as well as their yield. Diversification is another struggle.  You will see some of the best paying dividend stocks, at least in Canada, heavily weighted in the banking and utilities sector.

One key to reducing dividend investing risk is to simply pick companies that have a solid history of increasing and paying dividends. I also believe that there should be room for growth investing in every portfolio, and a portfolio comprised of both methods of investing is one that may pay the healthiest returns.

Our big hairy audacious goal is to have an income stream of $30,000 per year for an early retirement, outside of any workplace pension plans or RRSP withdrawals for income.  What’s your goal?

I’m fairly young, so in terms of financial numbers I haven’t really crunched them yet. I would like to be considered retired by the time I am 45, 50 at the latest.  My focus now is to maximize every single penny of contribution room I have in my TFSA and RRSP while saving money for potential rental properties.

I am a huge fan of real estate investing. Not necessarily for the capital appreciation, but for the cash flow of rental properties. Having multiple real estate properties providing consistent passive income into my late 40s and retirement is a huge goal for me. This combined with a solid combination of dividend and growth stocks will allow me to call it quits early and do things I really enjoy.

There is a lot of debate in the personal finance community on investing using the TFSA first vs. RRSP first vs. simply paying down your mortgage.  As a young investor, what’s your take?

I would tell Canadians that if they can afford to, maximize both the TFSA and the RRSP and forget about paying down your mortgage early. The TSX has provided returns of over 9 percent for the last 50 years, and banks are giving out mortgages at a ridiculously low rate right now (I have a variable rate on the home I live in that was, up until the prime rate increase, 1.8 percent).

In terms of the TFSA vs. the RRSP, I think Canadians in a higher tax bracket utilize their RRSP first for the maximum benefit possible. If you are in the lowest tax bracket, the TFSA may be more beneficial.  Stockpile your RRSP contribution room until you are paying more income taxes to gain the maximum benefit.

Another factor that probably most do not realize is the ability to withdraw the money. If you are in a position where you are just starting to save I would suggest creating a cash cushion in your TFSA before you contribute to your RRSPs.  This way the TFSA can easily become liquid (depending on what you invest in) and pulled out tax free to cover emergency expenses.

Sounds like you’ve done several great moves at a young age.  Any other thoughts?  Advice for fellow millennials maybe?

It’s never too early to start.  I believe when I look back during my early years of retirement I will be able to say my early 20s was the main reason for my success. I am 27 years old.  Other than a 2015 Jetta that should be paid off by the end of this year, I have never been in one dollar of consumer debt. This isn’t to say I have lived my life under a rock, I just always had the money before buying things instead of placing them on a credit card or line of credit.

To my fellow millennials I will say it’s fairly easy to get caught up with the spend, spend, spend society we live in now. The newest gadgets, the best televisions, the fancy wireless headphones. The truth is you probably don’t need any of this.  If you’ve already started saving and investing, that’s great. I feel it’s an endless cycle of adjusting and learning. There may come another time like the dot-com boom where I read growth stocks were exponentially more profitable than dividend stocks. There may be a time where, depending on interest rates, bonds should take up the majority of your portfolio. You need to stay on your heels and always keep learning.

Impressive stuff.  I want to thank Dan for sharing his investing journey to date and I wish him well going-forward.  Keep me posted on your progress Dan; I appreciate you being a fan of this site.  Stay tuned for more investor profiles on My Own Advisor.  It is my hope you learn from everyone to help carve out your own profitable financial path.

Got questions or comments for me or this savvy millennial?  Got a profile or story you want to share with me?  Email me. Thanks for reading and sharing as always.