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.