Passive and active investing can exist in retirement harmony

Passive and active investing can exist in retirement harmony

Dividends matter.

Dividends do not matter.

The best way to invest is via low-cost funds that track a reputable index.

The list goes on…

If was given a nickel every time I heard some of these phrases, I would be ridiculously wealthy.

The fact of the matter is, personal finance is personal.  If you feel otherwise, this site is not for you!

For example, some investors like the “optionality” that dividend income provides from investing in dividend paying stocks from Canada and the U.S.  I am one of them.

In fact, much to some financial experts displeasure, I intend to “live off dividends” to a degree, and I’ve listed a few reasons why here.

This does not mean I’m against owning low-cost financial products that offer additional diversification through ownership in many companies, within many sectors, from many geographic areas around the world.

Low-cost ETF or fund investing is generally good for investor because it can decrease an investor’s portfolio risk – depending on what they own of course.

Therefore, some passive and some form of active investing through some buy-and-hold stock selection can work well for investors long-term. It doesn’t have to be all or none.

I’m definitely not the only investor that feels that way – enter in financial writer, author, Victory Lap semi-retiree Jonathan Chevreau.

Victory Lap Retirement

Passive and active investing in practice

I got a chance to chat with Jon recently about his investment journey over the years, leading up to how he invests today and why in his sixties, and his thoughts/advice for folks on the FIRE (Financial Independence Retire Early) movement.

Jon, thanks for coming on the site.

My pleasure Mark.  I enjoy following it.

Jon, tell me about your career.  I really only know you as a financial writer, author and now blogger running your Financial Independence Hub.  What was your career and when do you get started with investing?

My formal post-secondary education began with studying science at the University of Toronto, and then I went to grad school for my Masters in Journalism (University of Western Ontario, MBA 1979). Based on that academic start, it seemed natural to start my journalism career as a tech reporter. After a few years in the trade press, the Globe & Mail (G&M) hired me as their (first!) high-tech reporter, but I quit after four years, went freelance and tried public relations.  I ultimately re-entered journalism at age 40 with the Financial Post.

Mark – that’s where I started to follow you…

I gradually lost interest in high-tech as a journalistic topic and shifted to personal finance at the Post, first via a mutual fund column and the annual Smart Fund books I co-authored between 1995 and 2000. I didn’t really think much about money until I left the G&M (in 1984) and took the commuted value of my defined benefit pension – that became my first RRSP contribution at age 31.  I was married, had the mortgage, had my kids (only one, actually) by my mid-30s.

Did you have a money mentor?  If so, who?  Who told you to invest like you did?

Not initially. I stumbled into an Equion free financial seminar early on and ended up in a bunch of deferred sales charge (DSC) mutual funds.

(Mark – I’ve written about those terrible products, thankfully they are slowly dying off, albeit with some kicking and screaming…)

Eventually I decided the very title Smart Funds was an oxymoron, at least as it pertained to high-fee retail mutual funds. More aware, I later switched to a commission-based advisor with more of a focus on individual securities: Pat McKeough, now of The Successful Investor, but he got out of the business to start his newsletters and investment counselling firm.  So, I used his successor at the brokerage of the time, and ultimately ended up with the person I use now: a true fee-for-service financial planner who taught me how to become a DIY investor and open and manage discount brokerage accounts. I still use him today, but he prefers not to be publicized.

Your journey does not seem uncommon for folks who grew aware (and smart) that high-fee fund products are not in the best interests of investors.

That brings me to this:  index investing using low-cost, broadly diversified Exchange Traded Funds (ETFs) has emerged to be great way to invest.  What’s your take?  Do you feel that way?

Yes, for sure Mark.

I’ve invested in many ETFs.

My 1998 book The Wealthy Boomer: Life After Mutual Funds was one of the first Canadian books critical of high-fee funds, and among the alternatives it surveyed was a section on indexing written by a co-author, before ETFs really took off.

Initially my idea personally was to use ETFs to invest where I didn’t have any knowledge: EAFE and Emerging Markets, and small- or mid-cap North American stocks; like you, I figure I can invest directly in the household-name U.S. and Canadian large-caps, dividend payers and FANG stocks (Facebook, Amazon, Netflix, and Google).  That early tech career probably influenced me there.

I still use ETFs to drill down on certain sectors where I really don’t know the secondary and tertiary players: cloud stocks, for example, or biotech. And lately, I have started to retrench and invest in the Vanguard asset allocation ETFs in preparation for when I go ga-ga in old age. The ultimate danger is to become a Destroy It Yourself investor and I figure the Vanguard asset allocation ETFs will protect me and my wife from that in old age.

You can read more about some of the Vanguard all-in-one funds, along with iShares and BMO products now available for investors – to make investing super simple – here.

Jon, you might already know I’m a hybrid investor.  That means I invest in many individual dividend paying stocks for income AND I use a few low-cost U.S. ETFs for extra diversification.  With all the chatter that dividends do, do not matter and beyond – what are your thoughts given your experiences and what you currently invest in?

In fact, here is one of my recent dividend income updates – highlighting my progression over time thanks to sticking with a plan I believe in.

Dividend Income December 2018

I use a quite similar hybrid strategy, even though I have a few years on you.

My feeling is you don’t need an ETF to invest in the big Canadian banks or Google, Microsoft, Apple and the like, and you may as well save a bit of management expense ratio there.  As I said above, eventually I will fire myself on the individual stock or bond front and rely mostly on asset allocation ETFs and maybe some GICs if they ever start to pay a decent real return.

I’ve written about the clear lack of consensus on any retirement withdrawal strategy.  Rightly so, since I believe personal finance is personal.   What’s the order of your portfolio drawdown plans to derive your necessary retirement income?  Why?

I’ve written about the three major packages I’ve played with in the last year or two on my site:  Cascades, ViviPlan and Retirement Navigator.

For my wife and I, they tend to suggest:

  1. Withdrawing first from non-registered funds from ages 65 to 71, then
  2. Registered, and
  3. Later in life TFSAs.

Based on my own assessments, we’ll probably do a bit of both (registered and non-registered withdrawals) in the next five years approaching age 70 to “top up to bracket” so each of us deregisters from RRSPs enough to receive the lower-taxed dollars (i.e. anything less than 46 to 50% top marginal rate) while falling just below the Old Age Security (OAS) clawback zone.

Mark – here are some facts about Old Age Security you need to know.

Depending on growth, it’s likely that as the Registered Retirement Income Fund (RRIF) withdrawal minimum rises in one’s 70s, that eventually the OAS clawback will rear its ugly head. And despite all the attention lately given to middle-income seniors qualifying for the Guaranteed Income Supplement (GIS), I don’t think the game is worth the candle of restructuring everything for 5 or 6 years of possible GIS payments that in any case weren’t really intended for people like us.

Sounds prudent Jon.  Any thoughts on the FIRE movement?  I’ve determined while FI (Financial Independence) appeals to me greatly, I couldn’t care less about the RE (retire early part in the traditional sense).

Like several other Canadian financial bloggers, including you I know, I’m a bit skeptical about the kind of FIRE described by many American FIRE blogger-millionaires (or “thousandaires.”)

At 66, I’m financially independent but still not fully retired, so I can’t claim to have been an early retiree. And I don’t believe FIRE bloggers in their 30s are retired either: they’ve merely left corporate employment and wage slavery and exchanged it (at least some of them) for an entrepreneurial career that makes money by selling the FIRE dream: typically by monetizing their blogs, writing books and maybe holding seminars telling everyone “how they did it” at such a tender age.

Like you, there is nothing wrong with the FI part of the acronym (Financial Independence or what I call Findependence), but the RE (Retire Early) part of it is a bit of a stretch. No one should “retire” in the classic sense in their 30s: they can shift careers, go back to school, become philanthropists or whatever but even though you can now watch streaming services 24/7 I don’t think that’s what life all is about. While it doesn’t make for as snappy an acronym as FIRE, I’d describe my approach as Semi-Retired, Work Optional.

Closing thoughts Jon.  Any mistakes you want to share and what aspiring retirees should avoid?

Mistakes, I’ve made a few! Bought Apple early around the time of the iPod and sold it way too early. Should have remortgaged the house and backed up the truck to buy Microsoft when they were a client in the 1980s and I first saw the Windows 3.0 sneak preview. Tons of stuff like that but that’s an all-too-common story.

I’d advise aspiring retirees to first figure out what it is they think they’re going to retire to: just “escaping” work is not a sufficient reason to abandon a career and the job market. You should have a good handle on your most significant life partner and whether you’ll be on the same page together in retirement: finances, travel, family, hobbies, etc. Finally, realize that money is only one aspect of retirement: just as important are health, hobbies, community, spiritual life, family and the whole package.

Mark – great perspectives Jon.  Thanks for sharing.

With various income streams, using a blend of passive and active management approaches, and some sensible forecasting towards the benefits of asset allocation ETFs, Jon seems to be enjoying his victory lap retirement after a well-earned full-time career.  Congrats Jon – thanks for being on the site and sharing your thoughts.

Got questions for Jon Chevreau and this retirement essay?  Want to find more retirement essays and learn from folks who have “been there, done that”?

Look no further than this dedicated Retirement page on my site to learn more, save more and tailor your own financial independence path.

Thanks for your readership.

My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.

19 Responses to "Passive and active investing can exist in retirement harmony"

  1. Great post Mark and Jon. Im 65 and surprisingly have identical investment history to Jon. Which means Im a DIY investor now and have been that way since 2007 and was 50/50 in 2000. I got burned over 5 years by using a franchise advisor who put me into deferred fee mutual funds that poorly performed. Fired him. I now hold mostly dividend paying stocks in non reg and reg accounts with only 15% US content using etfs. 15% cash wedge, stocks are 30% financials, 20% utilities, 10% pipes, 15% tech, 10% misc. I’m also going to lose OAS age 71+ and I have intense fear of myself destroying it due to dementia creep or dying and leaving a mess for my wife. The biggest challenge is to find a planner/advisor who is as competent as myself and who is not focused on their return. The advice out their by journalists to delay OAS and CPP for enhanced benefit at age 70 is TOTALLY WRONG! Never spend your own accounts until you have to. The unpaid taxes grow earning at least 50% after tax income one day when you are forced to realize the income. Further, the years building up of RRSPs to supposedly be taxed at a lower future tax rate is a TOTAL MYTH for those of us who grew it so large that we reach OAS CLAWBACK and the highest marginal tax rate. I am likely going to pay a higher tax rate, on average, than when I made the contributions. For those of you hung up on wanting enhanced CPP and OAS later, Im taking it age 65 and investing it in dividend paying etfs or stocks and by age 82 that first 5 year portion will have grown 150% and paying a dividend almost equal to the enhanced CPP alternative but Im much farther ahead with an estate legacy or cash if I need it. So in closing, Jon identified a problem. We will be our own worst enemy once our cognition and health declines. Many financial errors will be made. Miscalculations, input errors on SELLS or BUYS. Forgetting to pay the Visa bill. Where do we find an advisor thats not going to fleece us or make worse errors or simply be lazy or negligent? The top advisors want just 50 to 100 clients. If they work 200 days a year, of which 40 days are in training and meetings, that leaves them 150 days or on average 1.5 to 3 days a year per client. I know my portfolio takes me 20-30 days a year. If I only do cashflow and tax thats 10 days a year. Do not be surprised if your advisor only spends 2 days, once a year on a quick review, rebalance, and tax filing. Do not be surprised they forget things you will notice. So the big challenge for older DIY investors is transitioning to an advisor and trusting the economy and markets that your investments will always be there doing what they were doing when we were in charge. Are some of my assumptions wrong? Can an Investment Counsel Team be the answer, I suspect so. Can you do a blog on how we wont end up losing it all to Madoff like scandal? How can we be sure a broke firm doesn’t steal it all.

    1. That’s quite the story Steve-O….my goodness.

      Glad you fired him. Seems criminal to be honest….

      “The biggest challenge is to find a planner/advisor who is as competent as myself and who is not focused on their return.”

      I can consider writing a post about that…how to manage stuff as you age.

      Nothing wrong with taking any CPP at age 60, 65; OAS at standard age of 65 – rather, folks must know their options that’s all.

      Investing and aging don’t typically go well together and I will consider posts on that subject, how to go about it all…

      Thanks for your important comment.

  2. Great post, thanks Jon and Mark. I really like the honesty in the approach and reporting on that FI. I also and not retired. But have some form of FI. I am in England now as Jon is in South Africa.

    We can ‘work’ from anywhere and get some help from our portfolios.

    Jon was certainly a trail blazer.


  3. Great guest interview Mark. I find it interesting to read about other retired or semi retired individuals and their strategies to compare to my own.

    Similar to other comments I have enjoyed reading Jon Chevreau’s work and I’m sure many others have also benefitted from it too. He has obviously done well in his career and with his own investing journey.

    Well done Jon.

  4. Very good interview, I’m a big fan of Jon’s work. Nice of him to share his draw down strategy. That’s something I’ve been paying a lot more attention to lately and my own conclusions were similar – draw down RRSPs up to a managable tax hurdle and use non-registered for anything extra.

    1. Great to hear. I suspect no drawdown is the exactly the same but there are certainly tax efficiency considerations that are common – one theme I’m seeing is to get rid of RRSP assets before taking CPP or OAS or defer those benefits for higher fixed income.

    1. Indeed. I’ve always been a fan of FI (as you know) but calling yourself “retired” and still working or hustling for income makes absolutely no sense to me.

  5. I’ve always enjoyed reading Mr Chevreau. One of the best Canadian sources for financial information. This interview reinforced my opinion. Well done Mark and Jon.

  6. If one achieves their goal, regardless of the strategy, good for them. One won’t get to that point without saving and continually working to keep on track.
    Having said that, I have trouble with statements like:
    “I still use ETFs to drill down on certain sectors where I really don’t know the secondary and tertiary players”:
    Investing in things I knew little or nothing about, or markets I don’t understanding, was one of my own mistakes.
    Now, instead of owning anything I don’t understand, I agree with Jon that:
    “My feeling is you don’t need an ETF to invest in the big Canadian banks or Google, Microsoft, Apple and the like, and you may as well save a bit of management expense ratio there”.
    If that’s the case, in my opinion why own anything else and pay any fee at all.


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