Welcome to my latest dividend income update. For those of you new to these posts on my site, every month I discuss my approach to investing using dividend paying stocks and how reinvesting the dividends paid from the Canadian companies we own are helping us reach financial freedom. You can check out more details about our financial journey here.
From time to time on this site I share some simple (but effective) financial lessons learned from many financial experts and industry leaders, in order to affirm our financial plan. Here’s what the best brains in the business often tell us to do:
- invest for the long-term,
- invest mostly in equities,
- when investing keep your money management costs low,
- diversify your portfolio across companies, industries, and countries, and
- invest in a tax-efficient manner for as long as possible.
Regarding these points, for the purposes of these monthly updates, we invest in a number of well-known Canadian dividend paying stocks that have been paying dividends for generations. Other than these companies, we index invest. The latter ensures we ride market returns and obtain greater portfolio diversification from companies and countries around the world. Like the experts suggest, our investing horizon is rather long-term, meaning, we don’t dare spend the dividends paid to us now or trade anything. Instead, we buy companies (and ETFs) and we reinvest everything paid to us to buy more shares (or ETF units) commission-free every month and quarter.
We keep our investing costs low by buying companies only a few times per year. Using a few indexed funds (such as VTI), this also keeps our ongoing money management fees rock bottom.
We invest in a tax-efficient manner by making contributions to our Registered Retirement Savings Plans (RRSPs), monthly, and filling up our Tax Free Savings Accounts (TFSAs) at the beginning of every year. Although we hold assets in taxable accounts, we are striving to max out all registered accounts first – we are close to doing that.
We invest only in equities. Although there was a time when we owned bonds, we have changed our strategy in recent years to focus on equities exclusively in our personal portfolio. Our reasoning is, we are fortunate to have workplace pension plans that we consider “a big bond”.
The best brains in the financial industry are constantly after investors to keep things simple and rinse-and-repeat a simple plan over time. I’d like to think we’ve listened to them.
This time last year, our passive dividend income was just shy of $11k to fund early retirement. Thanks to new money added and the investing principles above, our passive dividend income is now projected to be $12,500 by the end of this calendar year, probably more as more dividends are reinvested between now and December. This month puts us at 42% towards our ultimate goal – a goal I believe we can reach within the next 8 years.
Thanks for reading and sharing these updates and being a loyal fan of our journey.
Hi mark great job keep up the good work.
This is the first time I ever wrote a comment in any blog or website. But your blog got me, I have been trying to achieve the same goal for my wife and I to financial freedom. My wife and I own a condo in Burnaby BC with 50% left to pay for. I maxed out my wifes and I tfsa and ivested it all in index funds. Also I have 37,000 in a unregistered account that is also invested in index fund. I followed andrew hallams strategy with couch patato investor. My wife and I are 30 years old. So as of now I have
150,000 left to pay off mortgage
93,000 tfsa invested in index funds
37,000 unregistered account in index funds
15,000 in a emergency money save account
15,000 in checking account
25,000 emergency money high interest acc
25,000 checking account
All my investment is through td waterhouse e series and I continue to invest 2200 monthly Sorry for the bible I wrote to you but my question is do you think its important for me and my wife should invest in dividends stocks at our age? Also from what your wisdom are we on the right track to financial freedom?
First up, congrats on your investing progress thus far – well done for 30.
I think indexing is an excellent way to invest, and I do it myself in my RRSP.
I do however believe that owning a basket of blue-chip, established companies that have a history of paying dividends is also a great way to invest to earn passive income. Hence the updates I do. Our plan is to eventually “live off dividends” within the next 8 years – that is our goal – to cover basic living expenses.
My approach takes on more risk. However, I’m convinced this is the best approach for us – focus on indexing in one account (RRSP) and hold Canadian stocks that pay dividends inside the TFSA and non-registered account for tax-efficient dividends.
I think only you can decide if you have the temperament and are willing take on this risk to own individual stocks – otherwise, if unsure – stick with indexing. 🙂
Thanks for reading the blog and see you around here more.
Love the chart too!
I totally agree with the process. It’s mine too 🙂
How far ahead do you forecast? Did you forecast all the way to your $30K goal? I tend to look 1 year ahead … so I might need to forecast a longer window.
Our forecast includes up to 2023. We figure with some good savings habits and some luck, we’ll reach our goal is 7.5 years.
Nice chart there. Just rinse and repeat until you hit your goals
That’s the plan! 🙂 Thanks for the support.
Love that little chart you show. 😀
What’s your plan to tap into your RRSP? Do you plan to withdraw early and take the tax penalty?
I think our plan is to tap into RRSP in early 50s, draw it down over the next 10 years, keeping the dividend income intact (the $30k goal). We should also have pensions at 55 (with reduced penalties) and then CPP and OAS at 60 and 65 respectively.
I haven’t done all the math yet but I will eventually. Thanks for the encouragement.
Regarding the line “invest in a tax-efficient manner for as long as possible”. When I prepare my investment balance sheet I include a line “Provision for future taxes”. To arrive at an amount I use my previous year’s average tax rate x 1/2 unrealized capital gains. I do the same thing for registered accounts. The deferred taxes in these two items can grow surprisingly quickly, becoming very tax inefficient.
That’s smart and I should likely do the same. I have some (small) capital gains in the taxable account to account for, that will grow eventually I know, but I will exhaust the RRSP before the taxable account I think it terms of asset wind-down. Thanks for sharing.
Great work Mark. Income up 13.6% and that will only keep growing! It’s the growing income that will meet your future needs, not the size of the pile.
Thanks cannew. I am optimistic we can hit our goal in another 8 years, hopefully 7 if you go from start of 2017-end of 2023.