How to earn a Salary for Life

How to earn a Salary for Life

Want to know how to earn a salary for life?

Some cash for life??

Geez, who wouldn’t!

Effectively that’s what many dividend growth investors are after for part of their portfolio. Yours truly included!

I’ve been a fan of designing a portfolio of ever-growing income, and creating that income stream for semi-retirement, for almost 15 years now. We’re getting very close to realizing our dividend income target in fact – something I update every month.

In Your Ever Growing Income, you might have already read about Henry Mah’s passion for the disciplined, dividend-oriented path he learned from Tom Connolly, a retired teacher in the Kingston, Ontario area, who describes his own wealth-creation journey using dividend paying stocks in The Connolly Report (a long running publication about dividend growth investing since the early 1980s). 

To quote many-a-Connolly Report, that investing path is all about the following:

“If a company does not pay a dividend, don’t buy it. If it doesn’t grow the dividend don’t buy it either.”

Ha.

A discipline of Tom’s in many respects, Henry Mah has produced a new book entitled Salary for Life – For You & Future Generations about wealth-building using Canadian dividend paying stocks and highlighting investing lessons learned for all ages.

While money might not grow on trees, Henry does believe that with small initial and ongoing investments, given the right elements, the right amount of time and investing fortitude, your portfolio can grow big and strong to provide income for generations.

I reached out to Henry to find out what his motivations were to write yet another book, learn why this one is different, what’s in his portfolio now, and what advice he has for Canadians as they age – including plans for his own income portfolio.

I’ll of course offer a copy of Salary for Life to giveaway below to one lucky reader after this interview.

Henry, welcome back! You’ve been busy!

Thanks for having me on the site again Mark, always a pleasure to talk investing with you.

Henry, maybe an obvious question but I’ll ask it anyhow. Why did you want to write this book? Second part, what makes this book different from the others? 

My initial focus was a retirement book, but I quickly realized the topic was well covered and the subject matter varied a lot. Then I realized that most retirement books started at about age 50 and ignored or didn’t feel that younger people should be concerned about retirement. That’s when I decided to suggest planning for retirement at all ages. However, I didn’t want to use the word retirement. After several name changes for the book, we chose Salary for Life, and built the book around that.

The recommended investment strategy is the same, but I address the topic to specific age groups and then I deal with the end of life differently than most.

Great stuff. Retirement and/or income planning should really occur in your 20s and 30s in my opinion. Why they don’t teach this stuff in schools I will never know…

The title of your book Salary for Life naturally resonated with me because dividend growth investing is a major part of my semi-retirement plan and has been for well over a decade. In fact, I have a plan to largely “live off dividends” in the early part of my semi-retirement. 

Further Reading:

https://www.myownadvisor.ca/why-my-goal-to-live-off-dividends-remains-alive-and-well/

In your book you wrote:

“We learned that you can’t assume the stock market will go up every year. In fact, I learned quickly that that’s the problem; you can’t predict how the market will react at all, or which stocks will do well, which will go down, or when to get rid of stocks before they go down, and neither can those so-called experts.”

Can you re-explain to readers and investors who visit this site, your process for selecting companies to produce your desired salary for life? Why does that process work so effectively?

For me the answer to your question is almost too easy. But many brush-off investing in just dividend growth stocks, and think they should be part of one’s portfolio. That’s where I differ, because I believe you’ll do better by investing exclusively with just the best dividend growth stocks. I’ve always suggested that one should invest for income (dividend growth, if you prefer), and ignore capital growth. And I do mean that they ignore it totally. Not because one can’t make money concentrating on growth, but capital growth can’t be predicted, or growth may not occur every year. Income investing will almost certainly grow your income every year, and I feel confident recommending the strategy.

I believe every investor should do their own stock evaluation, analysis, and come up with their own list of stocks to consider. Then they should only buy the stocks on their list, which provide a reasonable yield (income). Don’t look at other stocks, other investment products and don’t seek market growth. Bold I know!

If your investment income can grow each and every year, and I like to see an average minimum income growth of 10% each year, then over the long-term, income compounding will produce your Salary for Life, which is almost guaranteed.

Investing for income vs. growth is a touchy subject but I know where you are coming from – you are seeking more dependable income.

Let’s walk through Salary for Life a bit. Chapter 1 is all about helping parents understand the power of initiating a salary for life. Can you share some highlights from this chapter for readers here?

Additionally, Henry, I was curious about what you think of putting just Canadian dividend paying stocks inside an RESP for any financial future? Is that too risky? Why or why not?

Parents with children have a lot of responsibilities and life is expensive, which means saving for their own retirement is probably at the bottom of their list of things to be concerned about. Starting a saving plan for their children would be even further down the list, except for possibly an RESP. But I think starting an investment portfolio for a newborn or youth should not be overlooked, even if you don’t think you can afford it. I’m not suggesting thousands of dollars, just what one can afford. Start a plan which will generate income, regardless how small, and where you’ll see the income grow, each quarter and each year. Then you’ve started a process where you can teach your children about income, how it can grow and that it almost grows all on its own. Children may not know anything about investments, but it doesn’t take them long to understand what income or money is, and seeing it grow, will have meaning.

As mentioned in the book, for short-term RESPs, avoid stocks, but if you have five years or more before they will need the money, then I believe investing in stocks, especially dividend growth stocks are a viable choice. Dividend growth stocks are usually among the largest and safest of companies, and one should stick with the companies they believe are the best. Even if there is a market correction, their income should continue to grow, and the price of quality dividend stocks will usually recover faster than growth stocks.

If capital growth is your main goal, then you must rely upon and play the market. The greatest worry about investing for capital growth is a major market correction. This is where I differ from some investors. If you invest for income, a major market correction will make you the happiest. Your only concern is a dividend cut, which will be minimized by sticking with the best companies on your list.

Chapter 2 is about focusing on young adults and helping them invest better, smarter, including compounding their returns. In this chapter, you compare capital gains vs. income investing. I’ve included the table below for reference:

Reference: Salary for Life, page 52. 

For all the talk (and expert advice) about low-cost ETFs, meaning why bother with individual stocks, what perspectives do you have for young investors who may hear that investing in individual stocks is fraught with potential underperformance?

One word, Mark: “income”. You’ll earn more income from investing in individual dividend growth stocks, than investing in any ETF in my opinion. On my blog I record a small investment portfolio where I’m buying shares of dividend growth stocks and comparing my results with the VDY ETF each month, as a benchmark.

(Mark to readers: Vanguard FTSE Canadian High Dividend Yield Index ETF seeks to track, to the extent reasonably possible and before fees and expenses, the performance of a broad Canadian equity index that measures the investment return of common stocks of Canadian companies that are characterized by high dividend yield. You can find VDY from Vanguard here.)

In fact, the seven stocks I’ve invested in make up 23.9% of the VDY weighting, and after five months, my individual purchases are providing 27.7% more income, than had I invested the same amounts in the ETF.

People who worry about underperformance are concerned with market value. If you can grow your investment income, regardless of market value, then why worry about value or comparing your investment growth to other benchmarks.

This chapter also talks to those who are low-income earners and shows that saving for their future is not an impossibility.

I think there are folks out there that might want to debate the total return vs. income approach but I’ll let you handle those debates! 

Henry, I’m a fan of dividend stocks and there is no need to convince me otherwise on that part of my approach. I also firmly believe that maxing out one’s TFSA is essentially “better” over the RRSP, for pretty much any Canadian.

Further Reading:

https://www.myownadvisor.ca/managing-the-refund-well-is-the-linchpin-in-the-rrsp-vs-tfsa-debate/

https://www.myownadvisor.ca/ill-continue-to-maximize-my-tfsa-first-because/

What’s your take on this debate?

I agree 100% that your TFSAs (for you and your spouse) should be maxed out before any contributions should be made to an RRSP. Having said that, I’m undecided whether investing in a RRSP makes sense at all, especially for those who can maximize out their RRSPs. If you can contribute the maximum to an RRSP for 20 years or more, likely you’ll amass a large amount, and I doubt that your retirement income will be less when you retire, which means that every dollar withdrawn will raise your taxes all the more. I’m talking from personal experience and am currently looking at how best to close out our seven figure RRIFs, and minimize our taxes (no easy task).

For those still in the accumulation phase, maybe directing a portion of money allocated to a RRSP, to a non-registered account, might be a happy medium. Taxes on qualified dividends are much lower and if you don’t sell there are no capital gains.

I’ll let readers check out Chapter 3 for themselves (about the best stocks to own), but I must say, my favourite part of the book was Chapters 4 and 5. In those pages, you highlight how much you need for retirement and more. A few questions Henry because I’m curious!

1. How much income does your portfolio generate following your own approach? 
2. What stocks are you holding and why? 
3. Finally, is that enough to meet your income needs and wants?

I usually sidestep these questions because I don’t want people thinking I own the best of stocks. In fact, I wish for a third of my holdings (four of twelve) that I had invested in some other stocks during my accumulation phase. Still, our investment income is well over $100,000 per year now and has always exceeded our retirement expenses. Our income has dropped the past few years, because we are gifting shares to our kids and grandkids.

I’ve always resisted listing the stocks I own, in the quantities we own for sure, because I prefer that any investor decides what stocks to own themselves. The stocks we own are easily recognized so I will reply this way:

• We actually only own 11 companies in our accounts, but I added two new stocks at Wealthsimple so we own 13 stocks in total.
• Those companies include 4 banks, 2 telecommunications, 3 pipeline, 3 utilities and 1 consumer sector stock.

I should also highlight for your readers that based on our approach, there is no need to invest in funds, no ETFs, no REITs, no U.S. stocks or any fixed income products.  We do continue to maintain a healthy cash account (you call it a cash wedge Mark) for personal and emergency needs.

Last but not least Henry, what’s next? Is there another book on the way? Do you have any plans to change how you invest in the coming years as you get older? What might be some predictions you have for this investing year?

I thought Income Investing Explained was my last book, and now think this one is. But who knows? As for my investment strategy, why would I consider any changes, as long as my income continues to grow, or doesn’t drop significantly from my withdrawals. Even when it does drop, it quickly begins growing again.

As for 2022, I predict my income will grow by at least 12% over 2021.

I also predict Henry’s income stream is likely to grow in 2022 – thanks for this Henry.

Clearly folks, Henry Mah has conviction when it comes to investing and I believe some of that passion and decision-making is helping Henry realize some ever-growing income goals. Henry has already built his Salary for Life and is now helping his family build even more wealth via gifting.

Whatever your wealth-generation plans might be, Henry’s approach to investing might be one you want to learn more about or at least confirm the plan you’re on works for you.

Even though Henry and I invest a bit differently, and share some different investing perspectives (e.g., I certainly hold more stocks and some ETFs for extra diversification) I do enjoy trying to build my own Salary for Life for my semi-retirement dreams just like Henry has achieved.

Good luck with the giveaway and thanks again to Henry for his time and sharing his perspectives.

Mark

Further Reading:

My goal to “live off dividends” and why is outlined here.

Why the TFSA comes first before the RRSP. 

Learn from Henry how to make your TFSA work harder so you can retire sooner!

Henry Mah wrote about building Your Ever Growing Income:

Check out the U.S. edition.

A Canadian edition.

I wrote about some ETFs and dividend stocks built do last.

Keeping cash, beyond income paying stocks too, is a great way to manage any market calamity.

The Cash Wedge – Managing market volatility

Enter the Salary for Life giveaway! 

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Good luck!