Learning to live with stocks

Bond yields are dirt-low.

High interest savings accounts really don’t exist, they are a misnomer.

The reality is folks, unless massive changes are coming (which I don’t foresee) low interest rates are here to stay.

How on earth are you going to fund your retirement?

Learn to live with stocks.

Millennials have it easy; they have time on their side.  40- and 50-somethings striving to fund their golden years do not.

Young investors should likely go as high as 100% in equities in order to maximize their long-term returns.  Middle-aged investors should consider doing the same. This is because typically and historically over many years of investing, idle cash is a loser to inflation; cash sitting around over long periods of time earns less than bonds; bonds earn less than stocks do.

Check out this popular Vanguard page.

I suspect the future is very similar although even equity returns will probably be lower than they are today.

How can you learn to live with stocks?

Here are my suggestions:

  • Embrace bear markets – consider a falling market like a shopping sale. Everyone likes deals.  Consider a falling market like getting a deal.  Stocks that used to cost more may now cost less thanks to a falling market.  When the markets fall, go shopping.  Get your goods on sale.  Consider a Robo Advisor to help you train your investing brain.
  • Keep cash – consider keeping some money out the market – avoid being invested 100% all the time. Consider keeping some cash for investing purposes outside your normal “emergency fund”.  Keeping some cash will allow you to purchase more assets without selling existing assets.  Use this cash to grow your portfolio.  You might have read more millionaires were created during the Great Depression than any other time in history – embrace some market chaos by keeping some cash on hand.  Market chaos hasn’t happened recently but it will happen, eventually, again.
  • Buy boring – consider boring investments. People will bank.  People will use electricity.   People will heat and cool their homes.  People will need healthcare.  People need to eat.  Own investments that won’t go out of style without a huge fight or without a massive shift in our economy.  This means owning banks, utilities, a few pipeline or energy companies, healthcare companies or stocks in the consumer staples sector.  Don’t want to own individual stocks?  No problem – index invest and own ‘em all at once. Again, leverage a Robo Advisor to help you select indexed Exchange Traded Funds.
  • Stay invested – markets will rise and fall. Talking heads will talk (they are compensated to say something important).  (This site is free.)   So far, in the history of investing, the stock market has always roared back.  You just don’t know when.  So, wait as long as you possibly can.  Live with stocks for as long as you can.  Stay invested long enough and ‘this too shall pass’ usually for the better.

What are your plans to hold stocks in your portfolio long-term?

My name is Mark Seed and I'm the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I've grown our portfolio to over $700,000 now - but there's more work to do! Our next big goal is to own a $1 million investment portfolio for an early retirement. Subscribe and join the journey!

59 Responses to "Learning to live with stocks"

  1. What are your plans to hold stocks in your portfolio long-term?

    Well, at my age (56), I’m not too sure what “long term” really is 🙂

    We are probably about 90% equities at this point but we both have modest indexed DB’s to back that up. I look for decent companies that pay decent dividends (3-5% is fine) with a reasonable payout ratio. If the economy slides, the payout should be relatively safe. I have no direct energy stocks. A few utilities but no energy. I also look at what the company I invest in has done in the past. For example, Brookfield and their spin offs are large players for us but they have so many holdings within their control it is pretty diversified. Love banks, have four. Also some retirement and apartment reits. We use TD e-series (both Canadian and U.S.) to park cash. We’re comfortable with our holdings and not likely to change for the foreseeable future.

    Reply
    1. Ha, well, I guess I consider long-term over 10 years. I hope to own stocks for as long as I live.

      90% equities, strong. How many Canadian stocks to you own Lloyd? Do you have U.S. stocks as well Lloyd?

      We have a few U.S. stocks but we also index invest a bit; own VTI for example. We also own Brookfield companies – they own assets around the world so Brookfield provides some nice built-in international diversification.

      Our plan is to treat our pensions as a “big bond” and own dividend paying stocks (40 or so) for income. VTI will be retained for long-term growth.

      Reply
      1. Between 2 RRSPs and 2 TFSAs we have 17 Canadian stocks. The only U.S. holdings we have other than what the Brookfield family have are contained in the TD DJI e-Series fund. There are also a bunch of convertible debentures in there as well. No doubt we are not as diversified as many would recommend but we are comfortable.

        Reply
  2. I’m 66 and retired for about 5 years. I currently have 35 stocks and small holdings in 3 mutual funds in my retirement/dividend growth investment portfolio. My mix is about 2/3 Cdn and 1/3 US with 99.8% in stocks. That equates to a 0.2% fixed income content but if I include my company pension, CPP and OAS incomes to my current dividend income my fixed income becomes 50% of my income streams. That said, I have yet to spend any of my investments. So far my wife and I have been living comfortably off my pensions and her working income.

    IMO one has a much lower risk of running out of money in retirement if they’re able to live off dividend income without selling stock than if they had to liquidate capital at the mercy of the market. There is far less risk with lower volatility in dividend growth/sustainability than there is in capital growth.

    Reply
    1. Well done Bernie.

      I’m now 43, own about 40+ stocks from Canada and the U.S. I own only 3 ETFs. No bonds. We consider our 15-year DC and DB pensions, a “big bond”. We hope to have at least 20 years into each plan before we leave the workplace. We figure that would give us about 30% bonds in our total portfolio, which is plenty.

      Like you, I also believe and have believed for many years, a diverse basket of dividend paying stocks is an excellent way to invest. This way, you can strive to live off dividends vs. deplete your capital if you’re forced into it.

      “I have yet to spend any of my investments. So far my wife and I have been living comfortably off my pensions and her working income.”

      That is excellent and most Canadians could only imagine your great position and financial flexibility.

      Mark

      Reply
    2. Bernie, while true you will not run of money if you only spend dividend income in retirement, you will also have to save more money (or retire later, or spend less in retirement), compared to a total return approach, and you will also die with a whole lot of money – fine if you want to do that for the kids or a legacy, but many of us don’t see much point in ending up being the richest guy in the graveyard.

      You are not liquidating stock at the mercy of the market – in a crash you stop selling stock and live off your cash/bond reserves. Btw, if you fail to reinvest your dividends in a crash, this has exactly the same effect on your investment as selling a $ equivalent amount of stock.

      Reply
      1. Grant,
        Not sure what you mean by needing to save more money. DGI’s invest/save until they have the needed amount of income streams to fund their retirement. A well diversified portfolio of many quality dividend growth stocks should adequately take care of inflation. Most DGIs feel it’s in our best interests to have the extra capital in our accounts should there be an emergency where we may need to sell some stock. Others like me want to ensure their younger spouses are well looked after with a legacy.

        Taking cash dividends instead of reinvesting them only has the same effect on one’s investment as selling a $ equivalent amount of stock at the time of the transaction. Thereafter, the dividend holder will see a small drop in the stock price at the beginning of the ex-div date equivalent to the cost of the dividend but this dip is very brief and usually made up quickly. End-all, the one taking cash dividends still is left with the same amount of stock paying the same dividend while the seller has to deal with less capital in their portfolio, ie; they own less stock.

        Reply
        1. For what it’s worth, I feel we need a $1 M portfolio whether that’s full of VTI and VCN and VXUS or 40+ dividend growth stocks.

          So, either I live off the distributions of my Vanguard products (maybe up to $25k per year) and sell off more assets as I get older (to get the income I need) OR I live off the dividends from my portfolio (likely up to $35,000 or $40,000 per year) and also sell off assets as I age.

          I feel the yield from dividend growth stocks is generally more than the distributions from ETFs, which should allow me to a) earn more income and b) save more capital. Regardless, the total return of each approach is hopefully the same – IF – the stocks I own return roughly the same as the index.

          I appreciate as an indexer, there is no IF to worry about. Herein lies some of the risk I am taking with individual stocks.

          Reply
          1. Mark,
            I often look at how my portfolio compares to an index equivalent. It always amazes me how volatile the index is compared to my performance. To get the same sort of volatility I’m experiencing with my low beta dividend stock portfolio in an index portfolio I would need to add a large fixed income content to it. When I do this in theory back testing shows my performance would drop off considerably and my income would be much less than what it is now. If I suddenly had to convert over to an index portfolio I would not be more comfortable or worry less or feel it is less risky.

          2. I haven’t backtested my portfolio to see what it would have done vs. another asset allocation model, or indexing. I do however compare my portfolio now and again with a broad indexed ETF like XIU or XIC. So far, amongst the CDN only stocks I own in a taxable account and inside my TFSA I’m keeping up with the index because most of the blue-chippers I own ARE a big part of the indexed ETF.

            YTD non-reg. is close to 16% return. 5-years over 10%.

            I have no problem avoiding bonds right now. I would recommend no bonds to many young investors for the same reason – learn to live with stocks!!

        2. Bernie, indexers can draw 4% from their portfolio. It’s pretty difficult to get a portfolio yield of 4% from dividend only stocks – or if you do do the universe of such stocks is quite small so you would have a very concentrated and therefore high risk portfolio. Therefore to draw the cash equivalent of 4% from an index portfolio you would need to save more money for a DGI portfolio.

          No, you are not correct with regard to your comment about taking cash dividends instead of reinvesting them. When a dividend is paid, the stock price drops by an equivalent amount and stays there compared with what is what it would have been (and this is the point of common misunderstanding). Sure, the next moment market forces taken over and the stock can go up, down or stay the same. But, forever, it remains that little bit less than what it would have been because the dividend is removed. It must be so, when you think about it, otherwise dividends literally are magic, which we know cannot be the case.

          From the point of view of two investors, one taking a cash dividend and one selling a $ equivalent of stock, the one taking a cash dividend has the same amount of stock that is worth a bit less than it would have been had he not taken a dividend, and the one one selling a $ equivalent of stock has less stock, but it is worth more. Both investors have the same $ value in their investment plus dividend/$equivalent of stock sold.

          Btw, I recall you commented on another popular blog, some time back, that you had “crossed the Rubicon” and become an indexer. Do I take it at the you have “recrossed the Rubicon” to become a DGI investor again?

          Reply
          1. Grant,
            There’s no doubt the two investors in your example will have the same value in their investment following their transactions if they have equivalent investments. I should have explained further in my comment. An index investor doesn’t typically have an equivalent investment to the dividend investor. I would agree to your comment if they did hold similar investments. However I’ve noticed over the years that dividend stocks recover back to their pre-div ex stock price much quicker than do dividend ETFs. This phenomenon is more apparent with the blue chippers and other popular dividend stocks. I’m not naïve to believe there’s any magic here. I believe the quicker recovery is mostly due to value buying a quality stock at a slightly depressed price. The buy/sell volumes on the ex-div dates tend to support this phenomenon.

          2. Grant,
            As for your argument regarding getting a 4% dividend yield, there are many quality dividend growth stocks in the Canadian & U.S. stock universe to choose from to achieve this yield. When I sort the Canadian Dividend All Star list by yield and eliminate all those below 2% I am left with 66 candidates that collectively yield 4.28%. When I sort the U.S. Dividend Champions List in a similar manner and again eliminate the <2% yielders I am left with 287 candidates that yield 3.70%. It's also a fact, and I've mentioned this to you before, dividend aristocrats have outperformed the broad index by an average of ~2.5% annually over the past 44 years.

            Grant, you're mixing me up with someone else. I've never owned any index securities. I was with a financial advisor from 1999 to mid 2008. Before that period I was all in mutual funds which I managed myself. Post-advisor I've been all in DGI.

          3. @Grant:” It’s pretty difficult to get a portfolio yield of 4% from dividend only stocks – or if you do do the universe of such stocks is quite small so you would have a very concentrated and therefore high risk portfolio.”

            My very small portfolio of stocks, currently 17, are providing me just under 6% yield in dividends. I don’t own any high yielders or risky stocks, as they have performed well over the past 12 years I’ve owned them (some much longer). Most have consistently increased their dividend and I was fortunate enough to add to my positions during the financial crisis, which considerably increased my yields.
            Who cares if the price goes up or down when dividends are declared, paid or any other time. I just care the they continue to pay and increase the dividend. As I don’t have a company pension, I do live off my dividends and expect that I will never have to draw from the capital unless I wish. I won’t be the richest in the cemetery and I also won’t ever have to worry about not having money when I might need it. If my family benefits after, fine.

          4. cannew,
            “My very small portfolio of stocks, currently 17, are providing me just under 6% yield in dividends. I don’t own any high yielders or risky stocks, as they have performed well over the past 12 years I’ve owned them (some much longer). Most have consistently increased their dividend and I was fortunate enough to add to my positions during the financial crisis, which considerably increased my yields.”

            Nicely done! Just curious, what do you mean about increased yields? I realize stock prices were down during the recession which translates to inflated yields but the yields on those stocks would have come down as their prices recovered. Is the 6% portfolio yield you state your current yield or yield on cost? It just seems rather high for a dividend growth stock portfolio. Mine is 4.8% and I consider that rather high even though I managed to achieve 15.35% dividend growth over the past 12 months. My average annual DGR increase over the past 8 years is 8.4%.

          5. @Bernie:” what do you mean about increased yields? I realize stock prices were down during the recession which translates to inflated yields but the yields on those stocks would have come down as their prices recovered. Is the 6% portfolio yield you state your current yield or yield on cost?”
            During the crisis prices dropped so if I bought $25k of a stock which was providing a 4% dividend before the drop, or $1,000, but if the price drops and with no dividend cut I get 8% dividend with the same $25k, than I’ll receive $2,000. If I owned shares of this company before the drop, than my income on invested dollars will increase. It’s not just yield on cost but yield on my average cost which will go up (or drop if the market just goes up).
            Some say you should only look at Current Yield, but as you invest more money in the same stocks its your total investment, including the reinvested dividends, that is what one should say is their cost. If over the years you invested $100k and your receiving $6,000 in dividends than I say my yield is 6%. Based on the current price the yield may only be 3.5%, but that figure will change every day. The $100k may be worth more based on current price, but if your not selling then its worth $100k till you do.

          6. cannew,
            OK, gotcha. I rarely look at my YOC. I prefer to track DGR and TR for measure of performance. Bottom line is how much my $ income stream and it’s growth is not the size of my portfolio. I’m easily meeting my goals.

  3. Central banks have driven overnight interest rates to record low levels (and even long term rates for the first time ever) by printing money out of thin air in a largely failed experiment to stimulate economies, and boosted stock markets in the process. Trillions of dollars have not been paid for GIC, term deposit because of low rates. Money that could have been spent on real goods and actually boosted economies. Banks worldwide have weaker balance sheets due to low rates and smaller net interest margins. Governments have borrowed at unimaginable levels, and the general public may have as well. The race to zero and below is doing much more harm than good and will have to change.

    In many parts of the world bonds are actually the riskiest investments around, especially in Europe, Japan, emerging markets and of the high yield variety. Asset classes are seemingly upside down considering risk vs. historic norms and it can’t last. Rates are likely going to jump significantly globally, likely causing an exodus into some equities, and huge losses for bond holders. I’m much less certain low rates are here to stay, but “low” would have to be more clearly defined. Markets ALWAYS change. To me the sooner we get all the upcoming inevitable ugliness over the better.

    Those historical charts from Vanguard look like heaven. I think ALL future returns will be lower. We will be fine with 40% of the historical return shown on the higher equity end of the balanced portfolio. Anything better is gravy and worse means belt tightening with less for discretionary spending.

    LOL, that’s it for my soapbox and crystal ball stuff!

    Back to the question: My plans are to increase exposure to equities as opportunities present, since we are overweight cash/fixed income, and also over time as govt pensions arrive. However, I will always keep some cash or equivalent for at least 5 years expenses, as well as other fixed income. For 30+ years I learned to live with 100% stocks. Now I am learning to live with a balanced portfolio.

    Reply
    1. I think you could make an argument and say that bonds are far riskier than stocks long-term. This is because your money typically erodes with bonds over time and you have to play the interest rate game.

      Like you, I believe the next crash is going to hurt investors. I believe as equities slide, there will be no safe haven with bond yields where they are. Folks who have a disciplined plan to keep some cash, and stay the course in equities, will be well rewarded out of the next trough.

      “Those historical charts from Vanguard look like heaven.” Ha, yes they do. I figure anything more than 4% real return now is great. That’s what I focus on, about 3-4% real return. The only way you can get that is to live with stocks. 🙂

      I think your plan to increase equities as you age is sound, unconventional to some, but smart. So is your cash wedge.

      Reply
      1. Hey Mark,

        Thanks. I almost always agree with what you’re saying but not so sure about “your money typically erodes with bonds over time” or that “bonds are far riskier than stocks long term” statements. Perhaps this is recency bias? The Vanguard chart you provided shows 100% bonds (which no one I know would advocate) returned 5.4%. Using this table if my math is correct I calculated that inflation over those same 90 years averaged ~3.05% leaving a real return for bonds of 2.35%. http://www.usinflationcalculator.com/inflation/historical-inflation-rates/
        Do you have information showing something else that might sway me into more aggressively raising my ratio of equities to bonds or am I missing something? The 60/40% ratio I aim for shows 8.7% vs. 10.1% for 100% stocks with less volatility, and fewer down periods. I think everyone needs to live with stocks. That has never been an argument. The difference is with the percentages chosen based on many factors for each individuals needs and risk tolerance.

        Regarding bonds being “far more risky” I suspect you would have much argument from academics and professionals working in finance, given they are used to reduce risk in a portfolio typically (and provide a net real return over time) as I am certain why they are in your very own work pension and others like my wife’s. In terms of looking only at needs for a real return of 3-4% being riskier that might be more true, but if one were needing a real return of 1% (my plan) or perhaps even 2-3% a balanced portfolio with bonds is unlikely to be considered “far riskier” by a professional, or when broadly considering the underlying assets and long horizon for both. I think it is also important to point out there is a difference in the type of bonds and duration chosen that impacts yields/returns and risk. I would agree certain types of bonds and in certain geographical areas hold an unusually high amount of risk now. That was really my point in the last post that this is abnormal- upside down really and is almost certainly going to change with a lot of ugliness involved.

        I suspect if interest rates are considered a game it could be equally argued that investors in the stock markets also are playing a game – a gamble. One that has become alarmingly and increasingly intertwined and dependent on government low interest rates, QE policies etc.

        I do agree there seems to be no safe haven. Short term bonds (with risk of some capital loss if/when rates rise), low rate GICs or cash at 2% best is all there is other than just weathering whatever comes with equities. Looking elsewhere in the world however we could do a lot worse. And a key consideration is losing 50% takes 100% to recover as we know from the last 8 years.

        Yes it is unconventional to increase equities as one ages. Hopefully this along with a good cash wedge proves to work. This blog is great in that it helps to create dialogue and thought to work through and confirm plans. I appreciate the comments.

        Back of napkin scratches….
        Of gross income (spend+tax) Right now work pension = 55%, equity distr/div 23%, fixed income/ interest 22%. (fixed income total = 77%, with no capital drawn)
        At age 65 current gross income projected in today’s dollars also with no capital drawn – pension(s) =
        80%, equity/distr. = 23%, FI/interest =22% (fixed income total =103%, or 135% of total current income with no capital drawn)
        This gives me a clue as to raising our equity stake and our “draw” at some point, especially since we don’t want to leave an inheritance.

        Please give me an email reply to my most recent one whenever you have time.

        Reply
        1. Hey RBull,

          I guess by the bonds erode over time, inflation eats at bonds more than stocks. In a low-interest rate environment I would be concerned about bonds barely keeping up with inflation. To Grant’s point, you really don’t own bonds (IOUs) for growth. You own them for safety; to avoid a significant loss of capital.

          What I mean by bonds having long-term risk is, because they have little hope of returning as much as stocks do, long-term, you are compromising your portfolio’s returns and reducing potential purchasing power. I recall Warren Buffett wrote about this a few times.

          I tend to agree with “the game” – interest rates, stock market, currency – there could all be considered a gamble. Unfortunately we’re all in it and increasingly so because of artificially low interest rates, QE policies etc.

          I suspect in my future, I will have at least 1-2 years of cash (cash wedge), some GICs – similar to your plan to weather market drama. Add in our basket of equity ETFs and dividend paying stocks for income and we’ll be good. We’re now pushing $13k per year in cashflow from taxable accounts and TFSAs alone. That’s > $1,000 per month, cash for life. If we could ever get that cashflow to $2,500 per month excluding our RRSPs – we’ll be rockin’ 10 more years we hope, more saving to do, and then we’re done – the accumulation years will be complete.

          Reply
          1. You’re in great shape so far towards your goals, and it would be a relief to see more people as serious about their own finances. Your future situation could be very simple from what you’ve described. Just keep several GICs in your RRSP’s to withdraw annually to spend or contribute to TFSA, which it sounds like you may be considering. Rinse and repeat. I’m doing this.

          2. It’s coming along nicely. Not quite sure how to play the RRSP yet. Maybe withdraw $10,000 from each RRSP account, at the beginning of each year and spend that money prior to CPP and OAS income? I would like to keep the non-reg. and finally the TFSA portfolio intact for as long as I can – since it’s tax efficient income.

            You’re correct, the GICs would likely go in my RRSP and not TFSA.

            Contributing to the RRSP seems to be the easy part, struggling with exactly how to wind down this account tax-efficiently.

  4. 74 going on 75 and 100% stocks. Hopefully I’ll still have another 10, 15 or a few more years. That’s long term for many.
    Bonds provide no growth or inflation protection!

    Reply
    1. cannew,
      “74 going on 75 and 100% stocks”

      Question: Do you have a survivor plan for your investments? My wife has no clue on how to manage a DGI portfolio or any kind of investment strategy for that matter. I’ve suggested she sell all the stocks and buy Mawer Balanced Fund then withdraw 1% of fund quarterly. My thought is 4% withdrawal yearly from a fund that has a lifetime annual TR of 8% should be quite safe.

      Congrats on getting to 74! My Dad just turned 91 and Mom 86. I hope to get there too but one never knows.

      Reply
      1. Bernie:
        My wife would not be able to manage our investments, but there really is nothing to manage. The dividends come in and are automatically reinvested. I’ve left details with my son-in-law on how to access extra money if she needs more than the RRIF withdrawal. There is also a schedule which tells him which accounts to take the money and provides different options. It’s fairly straight forward and allows for 10% increase of the income per year. If the money is not needed the % can be reduced or just left in the savings account. If she never sold any of our holdings I doubt there would be any market crisis that would affect her income (certainly the market value), but the income would have to be cut by 50% to cause a problem.

        I’ve also provided a distributions of the stocks to family members should she pass away, which is included in our wills.

        Reply
        1. cannew,
          Thanks for sharing your legacy plan.

          I’ve given a lot of thought to my/our survivor plan. I definitely don’t want to have an advisor handle it. IMO they’re not worth the money they charge. If there was a dependable investment savvy relative in the family I would definitely want to do something along the lines of your plan. All things considered, I just feel Mawer is our best option…for now.

          Reply
  5. Mark, you don’t own bonds for return (you own stocks for that), you own bonds to prevent permanent loss of capital by reducing portfolio volatility (and return), thereby reducing the chance of panic selling in a crash. If you don’t need some reduction in portfolio volatility (which most people do), then 100% equities will give the best return. One of the advantages of dividend growth investing is that with the focus on dividends it can be easier to stay invested in a market crash, although there is a price to be paid for that over the long term, as we have discussed!

    Reply
    1. Totally agree Grant with the bonds comment, and I should have been more clear in my post – bonds by design aren’t for growth, they help you avoid significant capital losses.

      I do find this is where DGI or income investing helps my brain, the cashflow comes in with my portfolio and I don’t have to worry about selling in a stock market correction – there is a psychological benefit of seeing the income. It helps me stay the course. This is a good thing of course. Less tinkering with the portfolio as well.

      Reply
      1. Mark:”Totally agree Grant with the bonds comment, and I should have been more clear in my post – bonds by design aren’t for growth, they help you avoid significant capital losses.”

        Bonds do not hold their value and why hold them if you don’t need to worry about selling. That’s theory and as in many cases does not work in practice.

        Reply
        1. I think bonds are great for those investors who worry constantly about the stock market falling. That means they have too many equities and likely need bonds. Bonds cushion the blow from falling equity markets.

          For me though cannew, I think you know this, I don’t have bonds because I’m fortunate to have fixed income via a workplace pension AND I’ve learned to celebrate falling markets by buying more dividend stocks.

          Reply
  6. Mark RE:
    “It’s coming along nicely. Not quite sure how to play the RRSP yet. Maybe withdraw $10,000 from each RRSP account, at the beginning of each year and spend that money prior to CPP and OAS income? I would like to keep the non-reg. and finally the TFSA portfolio intact for as long as I can – since it’s tax efficient income.

    You’re correct, the GICs would likely go in my RRSP and not TFSA.

    Contributing to the RRSP seems to be the easy part, struggling with exactly how to wind down this account tax-efficiently.”

    Probably too many moving parts and time to go to figure it out now. You’ll have to look at all sources of income when you’re closer to reaching your goal, and also do some calculations for future @ ages 60-65+ to see best scenario tax wise. You could consider transferring some to a RRIF withdrawing a minimum in Jan, delaying tax payment for ~15 mths, but it means money has to come for life so may not work for you. I am using the order as you suggested, just that my RRSP is largest account by far so may have to be more active with withdrawals early on than you, while building TFSAs, unregistered and dripping etc. I’m close to establishing a LIF now.

    Reply
    1. When I get close to 50, definitely going to be number-crunching.

      I see huge advantages of moving out all RRSP funds, i.e., spend the money or moved to non-reg. and/or TFSA, before CPP and OAS in that 60-65 age range.

      “…just that my RRSP is largest account by far so may have to be more active with withdrawals early on than you, while building TFSAs, unregistered and dripping etc. I’m close to establishing a LIF now.”

      Great problems to have RBull.

      Reply
  7. Cannew, Bernie: Certainly, concentrated portfolios can do well over long periods of time, but the further a portfolio gets away from the market portfolio, the greater the dispersion of expected returns. Because a particular concentrated portfolio has done well in the past doesn’t mean it will continue to do well in the future. Investing is about aiming for the highest probability of the optimal outcome. A globally diversified portfolio of index funds gives you that.

    Reply
  8. Grant: All clichés work in theory and probably do occur sometimes. What Bernie and many others are expressing is that they/we have followed a strategy for some time and found what worked and what did not (not necessarily the same strategy). Now that we have been retired for many years we are expressing an opinion on what worked for us and should likely work for others. Mark has had several other guest posts that have also achieved success using different strategies and are happily retired and their strategy is still working.

    I know you are in your 60’s and if Indexing is working for you, great. When you do retire and it continues to work for many years, I’m sure many will appreciate knowing that it has continued to meet your expectations as the other strategies are working for us.

    Reply
    1. Cannew, I wouldn’t say my comment is a cliche. In fact it comes from the academic research on the subject. Also, I’m definately not saying that dividend growth investing is a bad strategy. Take the story of the 92 year old man who has accumulated a $5 million portfolio of blue chip stocks. Would he have done “better” if he had invested in index funds? Probably, yes, but hardly relevant in that situation. If you have a higher income than you need and save more than you need, you will get where you want to go with many strategies. But for those with lower incomes it’s important to at least know about what strategies are most efficient and have the highest probability of the optimal outcome. For others, too, it may open other choices such as changing to a more satisfying but lower paying job, retiring early, spending more in retirement or leaving a larger legacy. With that knowledge you can then add in behavioural elements/biases and choose the strategy you are most comfortable with.

      Reply
      1. Grant:”In fact it comes from the academic research on the subject.” “But for those with lower incomes it’s important to at least know about what strategies are most efficient and have the highest probability of the optimal outcome.”

        Your missing the point, the above are just your opinions or passing along someone else’ opinion. Who really knows which is the most efficient or provide the highest optimal outcome? There are too many factors, things change over time and very few follow a single strategy over the long term.

        For you sticking with Passive Indexing will achieve it, but how long have you been following the strategy and have you compared it to the other strategies?

        I did not follow one strategy the whole time. It was only when I switched to DG and the Connolly strategy did my investments begin to produce what I wanted. I’m not saying it was the best or only or someone couldn’t have done as well or even better. It doesn’t matter, what does matter is that after MANY, MANY years and being retired for 12 year the strategy continues to do and surpass what I hoped for. I will even be able to know when and if the strategy stops working or is not producing the growth it has in the past, without waiting for 5yrs, 10yrs or longer. If my income does not grow as fast each year than I’ll know why and can decide if I want to do something.

        Our grand daughter owns just ONE stock and is adding $50/mo to it. Not diversified, 100% risky, SWITCH TO INDEXING IMMEDIATELY! Not likely and she’s not worried that she’ll loose her money or what the market is doing or if she’s matching the market. If I was going to be around for another 20 or 25 years, I’d bet she’ll beat the market and end up having more income than if she invested it in an index. Ok, that’s just an opinion and I guess we’re all entitled to our own.

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        1. Cannew, actually, academic research is not my, or anyone else’s opinion. It produces the evidence. Just as the world of medicine has a body of academic research that forms the foundation of the practice of medicine, so does the world of finance have a body of academic research.

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          1. Grant: I assume the research you refer to is based on Past History and therefore the findings will not necessarily be the same when looking to the future, as you’ve reminded so often.

            I don’t assume my dividends will grow or not be cut, but each quarter I get confirmation of the fact.

    1. Will check it out. I know I like them but I’m also worried from time to time about dividend cuts, and those are not good at all – hence I need to continue to diversify over time.

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      1. Mark,
        The percentage of dividend cutters is quite low in the U.S. dividend aristocrat space. For safety you could arm yourself with many positions to cushion the “blow” should it happen OR you could just buy the U.S. Aristocrat Index ETF (NOBL) if you’re ok with a 1.9% yield.

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        1. I’m not ok with 1.9% yield 🙂 I own a number of Canadian and U.S. stocks that have paid dividends for decades and in some cases, generations. I do at times worry about dividend cuts but there are usually a number of raises to offset the pain if and when it happens. I don’t own any stocks that do not pay a dividend.

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          1. I can understand not owning NOBL if you’re focused on income but if you’re focused on growth, I feel NOBL is a better choice than owning the broad US market (ie; VTI or SPY). IMO SPHD would be a better option for income growth. It’s on my watch list.

    2. Bernie: Nice charts and impressive growth figures, but again it’s looking at the size of the pile. There probably is now easy way to determine how ones income would have grown over the same periods, with & without reinvesting the dividends.
      Our grand daughter is starting out with a bit over $10k and with only a 5% div growth, reinvesting the dividends and adding no funds, we estimate in 40 yrs she’ll be receiving close to $8,000 per Qtr. If she adds $1,000 per year it goes up to $14,500 per Qtr and with $2,000/yr $30,000 per Qtr. These are much more realistic numbers when talking about the future and will have more meaning. As Mark shows us, each Qtr one can see the income grow regardless if the value is up or down.

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      1. cannew,
        It’s wonderful that your grand daughter is initiating a dividend growth strategy so early in life. You didn’t say which stock she’s invested in but if it’s one of our big five banks she should have no concerns with a dividend cut. TD, BNS and CM have never had even one cut in their 150+ years of paying dividends while RY and BMO last cut in 1942. She should also have no problem with maintaining a 5% DGR. If she stays the course the DGR should climb much higher over time through exponential compounding from reinvesting the dividends. Kudos to grandpa for educating his family on the wonders of compounding!

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        1. Bernie: Credit to Nana, she started contributing to the DRIP’S for both grand kids back in 2006 (I just bought the stocks, 1 each and had the accounts set up) Grand daughter is contributing $50/mo even though she’s still in university. At some point she’ll open a TFSA and transfer some of the shares, but that’s a ways off as shes not making enough money to worry about taxes.

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      2. cannew,
        “There probably is now easy way to determine how ones income would have grown over the same periods, with & without reinvesting the dividends.”

        Agreed, there is no easy way but if historical prices, dividend distributions and exchange rates are known it can be done.

        Reply

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