For a few years now I’ve been inspired by early retirement. It’s something we’re working towards and getting closer to every month. Through running this blog, I’ve been fortunate to meet a number of fine folks who are willing to share their own financial stories with me – many of them rather successful ones. Today’s post is another interview with a savvy investor who has proven passive investing works – and very well at that.
Bio:
- Name: Grant
- Age: 63
- Family status: living with partner
- Retired: not yet (because he loves his job)
- Retirement plans: will “quit when I find another hobby I’d rather do.”
Grant, why passive investing for your approach?
Well, I think I’ve made just about every investment mistake in the book including investing in tax shelters, tips from friends, high fee mutual funds, and employing high fee active managers. Then a few years back a friend of mine sent me the movie “Passive Investing: The Evidence” which really opened my eyes to what goes on in the wealth management industry, and then helped me get set up with a couch potato portfolio of Exchange Traded Funds (ETFs). So now I’m a die-hard passive indexer, but have only been doing this for a few years. I became quite interested in the topic and have read around about personal finance and investing quite a bit in recent years.
What is or was your savings rate, to get to your “comfortable” pre-retirement nest egg?
My savings rate is currently 20%, although it has been higher in the past, about 50% at one point, when my income was higher and I realized I needed to make up for past mistakes. I’m very lucky to have a reasonably high income which can make up for a lot of mistakes and high fees.
Let’s come back indexing. Tell us more about your approach, your stock allocation and this strategy.
Prior to the movie I mentioned above (and you linked to), I outsourced my investing to an active manager. Since I changed my ways, I’ve been 100% indexed. I have a globally diversified portfolio of stocks and bonds with an allocation to REIT’s and a small cap value tilt with a 60/40 stock/bond asset allocation. I invest this way because the peer reviewed financial literature on this topic, which is very wide and deep now, shows that passive indexing will give the vast majority of people the best outcome when compared with other strategies. It also appeals to my personality in that I like to keep things simple. Jack Bogle says “Simplicity is the master key to financial success” and that really resonates with me. If I were setting up my portfolio again, to make it simpler, I think I’d dispense with the small cap value tilt and REITs (Real Estate Investment Trusts), and just use ETFs like these: VCN, VXC and VAB. But to change that now would have some tax consequences for me so it’s fine as is. I don’t have a gambling bone in my body, so I don’t feel the need to have a play account, so I don’t own any individual stocks.
Unlike me! Grant, you’re a reader of this site. You know my hybrid approach my now – dividend investing and index investing. What do you make of it?
I think dividend investing is a very good strategy and will get many people where they want to go, even if it is not optimal from an efficiency point of view. The most important part of investing is behaviour – avoiding behavioural errors – especially the “big mistake” of selling out in a market crash. The focus on dividends helps people deal with the price drops during a crash and stay invested.
I would agree…
….and people like getting a dividend cheque in the mail every quarter. One issue I do see with my dividend growth investor friends (you as well Mark) is they could be poorly diversified, particularly when it comes to US and international equity, so their portfolios are higher risk than they ought to be. As you write about on your site with your investing updates, this higher risk may come with less total return. Total return investing looks at factors beyond yield. Once you look beyond yield, you will likely have better returns over time. That’s the key reason why dividend investing falls short. Nevertheless, it’s very important to choose the strategy you are most comfortable with, as you must be able to stay the course through market crashes that are guaranteed to occur from time to time. I do think, though, that dividend investors should bench mark themselves against the appropriate risk adjusted indexes, or even just the broad market indexes, just to see how they really are doing.
I do Grant. Looking at XIC (S&P/TSX Capped Composite Index) for the last 5-years, that’s been about 2% total return. I’m running triple that.
Time will tell Mark! 5 years is a very short time period for benchmarking. You really need at least 10 years, preferably 20 years to really know you have equaled or outperformed the market. Also, a dividend etf, or large value index is a more accurate, or what is called “risk adjusted” bench mark for a dividend focused strategy. I do think your game plan is a very good one. You are confining your dividend investing to the Canadian market, I think in your taxable account, to take advantage of the favourable tax treatment of Canadian dividends, and you’re gaining global diversification with low-cost ETFs. If I were you, though, I’d ditch the Canadian stocks and roll them into VCN and be done with it! But if your hybrid approach helps you to stay the course, it’s a winner.
What will your income sources in retirement be?
My partner and I will have income from Canada Pension Plan (CPP), Old Age Security (OAS), Registered Retirement Savings Plans (RRSPs), Tax Free Savings Accounts (TFSAs), and taxable investing accounts. My partner has a modest government pension and I will have my CCPC (Medical Corporation), which will also provide income. My partner is retired already, and financially I could retire also, but I really like my job. So, the plan is to continue with it for a while yet, likely becoming more part time in future years. My job is really my hobby now. I’ll quit when I find another hobby I’d rather do.
30- and 40-somethings today struggle with the mortgage paydown versus investing debate – often. As someone who is financially free and working because they love it (not because they have to) what is your advice to us?
I think it’s important to take a balanced approach on this, paying down some of the mortgage and putting some towards retirement savings. I think it’s a mistake to ignore retirement savings when you are young as you are missing out on many years of compounding which is very valuable. I like the 50/30/20 rule – 50% of after tax income on needs (food, shelter, transport), 30% on wants, fun things, and 20% for retirement savings. Buying a house is difficult now without the help of the Bank of Mum and Dad, but resist buying more house than you can afford. As for the TFSA/RRSP, for incomes up to about $50,000 use the TFSA. For higher incomes use the RRSP, and put your RRSP-generated refund back into the TFSA. Always save and invest the RRSP refund though.
I’m leaning on some sort of cash wedge approach to fund our retirement Grant. What are your thoughts on this, safe withdrawal rates and more?
We plan to use a total return approach with a cash wedge along the lines as described in Dan Bortolotti’s article “A better way to generate retirement income”. We plan to spend up to 5% a year, rising with inflation, depending on how the market performs known as the guardrail approach as described in this video.
The 4% rule, which came out of Bengen’s research in 1994, covered the worst case scenario, so that all the other times you’d end up with money left over, sometimes a lot, when you die, so you could have spent a lot more. We like the idea of spending more earlier in retirement when we are healthy enough to enjoy it. We ‘d like to leave some money to nieces and nephews (we have no kids) and to charities, but as Allan Roth says, it makes no sense to be the richest guy in the graveyard.
Great point, you can’t take it with you. Any final words of wisdom for aspiring retirees?
I’d say, spend less than you earn, invest the difference in a globally diversified portfolio of index funds/ETFs, stay the course and avoid debt. Simple but not easy, but those are really great financial rules to live by.
There’s an interesting concept in finance called the marginal utility of wealth. That means that as your income increases your happiness goes up, but it levels off at a certain point after which a higher income does not result in more happiness. It turns out the research shows that this level of income is about $75,000 per year. With a higher income you can buy more toys, but not more happiness. As Charles Kingsley, an English priest, University Professor, historian and novelist, and friend of Charles Darwin said “We act as though comfort and luxury were the chief requirements of life, when all we need to make us really happy is something to be enthusiastic about.”
Lots of wisdom in this post and I want to thank Grant for sharing his investing story with My Own Advisor – thanks for being a fan of the site and continued success with your hobby. I wish you well.
Got any comments for Grant? What do you make of his investing choices? Share a comment below.
Mark
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.
Grant: Thank you very much for an extremely helpful reply. I’ve heard it said many times that one shouldn’t let the tax tail wag the investment dog, but it’s surprisingly hard to look beyond the short-term considerations of taxes, MERs, etc and at the long-term benefits of being diversified. I guess one reason may be that it is easier to quantify the former than the latter. That may also be a reason why there is a debate on whether to focus on dividend income vs total return – the former is more concrete in the here and now. Regardless I will definitely be taking your advice into serious consideration moving forward, as much of it resonates with what I have learnt about myself from an investing perspective over the last several years.
Thanks to Grant, I learned something new. I did not of this site before.
“There’s a resource called CDS Innovations, http://services.cds.ca/applications/taxforms/taxforms.nsf/Pages/-EN-LimitedPartnershipsandIncomeTrusts?Open “. Great info if you own any Income Trusts. (But, so far, I’m having trouble trying to print all columns on one page.)
Helen:
If you Block the text with your mouse, then press Ctrl C, to copy.
Open Word and Ctrl V to paste.
Word will make the document fit onto the page correctly for printing.
Jinn, while tax efficiency is important other issues such as behaviour (staying the course through market crashes), asset allocation (including adequate diversification), fees and security selection are more important. Eg. there is favourable treatment for Canadian dividends in a taxable accounts, but you also need to be adequtely diversified outside of Canada as the Canadian stock market is only about 4% of global market cap. ETFs are an easy way to do that.
It’s not at all complex or onerous from a tax point of view to own ETFs. There’s a resource called CDS Innovations, http://services.cds.ca/applications/taxforms/taxforms.nsf/Pages/-EN-LimitedPartnershipsandIncomeTrusts?Open , that you can get all the tax information from (return of capital, reinvested capital gains etc) which you can then track for free by opening an account at ajustedcostbase.ca. Alternatively, you can give the T3s etc to your accountant who will do it for you as likely with a corporate account you will be using an accountant for filing that tax return.
A corporate account is just another account, this particular one allowing you to defer taxes on business income until the capital is taken out as non eligible dividends. All investment income is taxed at your personal marginal rate. One issue to keep in mind is that the foreign withholding tax is only partially recoverable in a CCPC, so if you do have a personal taxable account, that is worth considering, but that is often not the case as it is better to keep money in the CCPC than to take it out.
Of the ETFs I mentioned above, I’d keep VCN and VXC in your corporate acount. Depending on your asset allocation I’d keep VAB in your RRSP. If you don’t have enough room in your RRSP (or don’t have an RRSP) for the bonds you need, as VAB is tax inefficient in a taxable account due to holding many premium bonds because of falling interest rates, you can use either GICs or ZDB, a discount bond fund that is more tax efficient.
Canadian couch potato is a great resource for passive indexing investors. Using the search feature on the site you can find information about anything related to indexing and much more.
Great reply Grant.
I guess I continue to focus on dividend paying stocks in my non-registered account and TFSA, and indexing inside my RRSP – largely because for the non-reg. account at least, I’m creating my own index fund per se with no money management fees – only capital gains to worry about.
I would agree though for ETFs – keep VCN and VXC in any corporate acount. I would keep (if I had any fixed income), ETFs like VAB inside my RRSP. I would focus on keeping Canadian equities inside my TFSA. All this for decent tax efficiency.
Yes, I agree, a TFSA is a good place for Canadian stocks. If you own Canadian REITs, they ought to go in the TFSA because they are both tax inefficient and have a high expected return, but otherwise a TFSA is a good place for Canadian stocks.
Indeed Grant. All Canadian REITs are inside TFSA and a couple are inside RRSP. Only Canadian dividend paying stocks eligible for the dividend tax credit are left non-registered. Indexed funds inside RRSP. I think I have a decent tax-efficient asset location. Thanks for your comment.
Grant: Thank you for your post in support of index investing. I have been largely engaged in dividend investing, mainly because I am investing primarily through my CCPC (medical corp) which is a taxable account, and it seems that this is the most tax-advantaged way to invest in a non-registered account. I also definitely like the idea of a steadily growing and quantifiable passive income stream, which is independent of short-term market fluctuations. However I do find that DGI for me at least, still involves expending a fair amount of emotional energy and time (in choosing stocks to buy or sell, and entry and exit points), and I am not sure that it is the right strategy for my makeup as an investor – so am toying with the idea of moving towards indexing.
Your article suggests that you are index investing even in your non-registered and CCPC accounts – can you share your thoughts on (1) the importance of tax-efficient strategies, and (2) whether or not it is complex or onerous to calculate and file investment tax returns on ETFs? I have found very little written elsewhere about the pros and cons of index investing in taxable accounts.
Grant: Found no links to “academic research or seminal papers”. Did find comparisons of Active Fund to Passive Index fund investing which most would agree the with opinions.
The links I referenced above refer to acknowledged research studies, not opinions. Again, I’m not suggesting DG is better or right for everyone. I do say that it does not have to be Active investing and it will produce positive results by generating a growing income and portfolio over time.
Cannew, you can usually find an article or two in support a particular point of view or opinion, but what I am referring to is the academic research published in the peer reviewed literature. The evidence on this is very substantial. This article has a link in it that takes you to some of seminal papers on the subject.
http://www.evidenceinvestor.co.uk/wheres-the-evidence/
Cannew: Thanks for sharing this!!!
Cannew, yield on cost ignores years of compounding. It’s the current yield, and of course total return, that is important.
Grant: We’ve expressed that difference before, and we’ll have to be happy with what we each feel is important.
@Grant: Interesting Returns comparison site:
http://www.taxtips.ca/stocksandbonds/investmentreturns.htm
My dividends are currently returning just under 6% or 70% to 80% of the TSX’s long term returns. Guess I’ll stick with less diversification and accept the higher risk.
Cannew, same type of rules, yes, but the difference is that a dividend growth portfolio is less diversified, and therefore higher risk – and the evidence shows that that results in a lower chance of the optimal outcome that comes with indexing. Again, I’m not saying that one can not get to where one wants to go with dividend growth investing.
@Grant: We seem to be applying the same type of selection rules but used for different choices. When you look at stocks your choice is to choose cap weighted that matches the market index. I prefer stocks that only pay dividends & grow the dividend. With that criteria my selection choices become few, and even less when I narrow the choice to those that offer DRIP & SPP (actually 11). Once the stock selection has been made ” fixed allocation and rebalancing in a rules based manner” would follow.
Cannew, when constructing a portfolio of course some active decision must be made – the percenatge of stocks vs bonds depending on risk tolerance etc, – otherwise we would have portfolios based on the current world market cap of different asset classes. Generally speaking, people can choose cap weighted, broad market portfolios that are globally diversified. There are model portfolios out there such as can be found at the Canadian Couch potato. Some people like to overweight drivers of return, such as small cap and value, by adding ETF’s that overweight these stocks, because of their higher expected return, but that just adds another layer of complexity. I agree that there are hundreds of fancy ETFs out there, some actively managed, that I’d never touch. The focus ought to be on cap weighted broad market ETFs that cover the global markets such as VCN, VSC and VAB. I guess you can define active any way you want, but owning broad market ETFs in a fixed allocation and rebalancing in a rules based manner is very different to deciding which stocks to buy.
Although there is a risk of permanent loss of capital with individual stocks, for all practical purposes this risk does not exist for broad market ETFs, unless one feels Canada might end the capitalist system and become a communist state. In other words the risk of permanent loss of capital of individual stocks can be diversified away by buying the whole market.
Not so. I may be forced by circumstance to sell at lower levels than when I entered the market, thus permenantly losing capital (either gains or initial).
Yes, of course, things can go wrong, but if you plan for your liquidity needs (appropriate allocations to bonds/cash), that shouldn’t happen to any significant degree.
I’m sure plenty of people (and funds) who thought they had a plan for their liquidity needs and “appropriate allocation to bonds/cash” experienced permanent capital loss in 2008-09…and 1929.
I feel certain in saying that Time is the only risk-free asset. That, in combination with perhaps the only free lunch, diversity (aka indexing), is going to be the Golden Ticket. The longer you wait to invest, and the longer you wait to invest in index funds, the more your risk grows (it’s probably some inverse of compound interest, e.g. if you are 64.9 years old with no savings and you are retiring at 65…the lottery is your only option and that comes with an almost guaranteed risk of permanent loss!).
Lawn mowing time.
I would agree with that: “the risk of permanent loss of capital of individual stocks can be diversified away by buying the whole market.” as long as the time horizon is decades out. Thanks for the contributions. There are some passionate investors and readers here 🙂
Maybe not as much as decades, but you do need to pay attention to liquidity needs. I like the way Nick Murray puts it “Permanent loss in a well diversified equity portfolio is always a human achievement, of which the market itself is incapable”.
Point taken Grant 🙂 I will be paying attention to liquidity needs as I get older, and create an appropriate Cash Wedge.
SST, if someone doesn’t start saving until their 40’s or 50’s, I wouldn’t think it a good idea to adopt an active strategy that will almost certainly underperform the market. There really is no other choice at that point to either save more, work longer or spend less in retirement.
That’s the challenge with starting late when it comes to retirement planning. You have to make more sacrifices or take on more risk. Neither one is a good thing!
Especially when the risk is two-fold: permenant loss of capital and/or loss of purchasing power (not getting a high enough return).
Those starting early almost always only face one type of risk, loss of PP.
So starting late and having to choose a possible higher return coupled with higher risk is now even riskier than just the investment itself.
If only 1% of Canadians has achieved the tried and true $1 million retirement benchmark with all tailwinds of the last 50+ years, it’ll be interesting to see how younger generations approach saving, investing, and retirement as they face headwinds of higher costs of living, lower market returns, and higher interest rates.
Perhaps indexing is catching on because people are realizing all the hype pushed by the financial sector is mostly unattainable and have adjusted their views.
I realize this more and more as I get older. Starting early was a key for me. Not that we can retire now but at least the snowball is rolling now thanks to good habits in my 20s.
I figure, as you know, we need at least $1 M saved outside of our home, and pensions, for retirement. That will put us in good shape.
I think indexing is catching on because it is simple and the academic research is overwhelming. It unto itself does not guarantee any financial success though.
I couldn’t help but notice that Grant did not get to where he is financially by indexing, so I find the title of your articleand and associated hype a little misleading.
At this point in his life Grant probably doesn’t care if he outperforms the market. Just a return that will preserve his capital
is all that is required now.Indexing may suit that purpose well. Although , it may still be bumpy ride.
Personally, i ownly use etf’s for diversification.
As a matter of interest a number of “expert’ investors , who made their fortunes by methods other than indexing,
now in their later years recommend indexing for you and me , but they can’t be bothered with it. Perhaps their time
horizons at this stage in their lives are not adequate.
Len, that’s true as I’ve only been indexing for a short time, but I would have been where I am now much much earlier if I had been indexing. Prior to changing, my returns were way way below the market. Now I get market returns.
It’s also true that I don’t even want to try to outperform the market because I now know that that pursuit is extremely unlikely to be successful. I’d much rather accept the certainty of market returns, than the remote possibility of outperformance, and the highly likely probability of underperformance.
Thanks for this reply Grant. If you’re willing to accept market returns – indexing is great.
Thanks for the comment Len. Grant’s story is more of a case for indexing; that passive investing approach can lead to success.
We own a few ETFs for diversification, then own dividend stocks for passive income. That plan is coming along nicely. It’s a get wealthy eventually strategy. Your point about ‘expert’ investors is interesting. I’ve often thought of that myself.
“5 years is a very short time period for benchmarking. You really need at least 10 years, preferably 20 years to really know you have equaled or outperformed the market.”
That’s a problem for those who use benchmarks instead of establishing their own required rate of return. Five years is too short, but if you wait 20 years and find out you have underperformed…well, it’s kinda too late to do anything about it.
“There’s an interesting concept in finance called the marginal utility of wealth. That means that as your income increases your happiness goes up, but it levels off at a certain point after which a higher income does not result in more happiness. It turns out the research shows that this level of income is about $75,000 per year. With a higher income you can buy more toys, but not more happiness.”
It would be good to qualify that income level as $75,000 per year…in North America.
Micheal James and I had a discussion about this recently (http://www.michaeljamesonmoney.com/2016/03/short-takes-downside-to-going-cashless.html) and last week Ben Carson had a take on this on his website, A Wealth of Common Sense (http://awealthofcommonsense.com/2016/04/personalfinance/) — a question was posed to men, “How much money do you think you’d need to have the life you want?” The man earning $7/hr said $50-60,000/yr; the man earning $1 million/yr said about $25 million. A final point, the 80-year Harvard Grant Study, studying the life span of men from all socio-economic levels, concludes that the basis for happiness is “Quality of Relationships”, regardless of income level (I may have mentioned that somewhere on here before).
That’s that.
Thank you, SST.
You expressed my main objection to passive investing very well in this paragraph.
“That’s a problem for those who use benchmarks instead of establishing their own required rate of return. Five years is too short, but if you wait 20 years and find out you have underperformed…well, it’s kinda too late to do anything about it. “
Except that my objection is with benchmarking, not indexing.
You don’t like benchmarking SST?
Len, given the evidence that you are highly unlikely to outperform, I wouldn’t want to wait up to 20 years to find out either. It is rather too late to do anything about, so I wouldn’t take that risk and just go with indexing.
Thanks for the comments. 5-years is rather short but I believe my returns will be good going-forward. That is my plan!
SST, it’s fine to establish your own required rate of return, but that is a different issue to performance against the market benchmarks. I think you’d want an efficient strategy, so you don’t have to save as much in order to achieve your own required ate of return.
Grant, thanks for stopping back in for replies, always helpful to further the conversation.
It’s not always going to be about saving more in order to reach your personal benchmark. For example, if a forecasted index strategy will give me a 6% return, and I require a 10% return, but cannot save any more (i.e. my savings rate is maxed out), then I have to adopt some other type of investment strategy other than indexing (yes, that includes adopting the attached risk).
If I have no idea what my personal rate of return needs to be and just forge ahead with indexing, in 20 years time my portfolio might keep pace with the index benchmarks but fall short of my requirements.
Guess it comes down to maxing out your controllable savings rate, and then allocating those savings to the best non-controllable risk-adjusted assets, index funds.
SST, I think you are not going to able to get more than what the markets are going to give, unless you add risk such as leverage to a 100% equity portfolio, or embark on an active strategy that has a high risk of not beating the market.
However, if you invest a reasonable percentage of your income each month, start saving for retirement as as soon as you are earning income, and invest it in a sensible, low cost way, you are going to have more than enough to retire very comfortably on. It doesn’t need to be anymore complicated than that.
Grant — we know the oodle of research which shows index investing wins over “active” investing. We also know the oodles of research which shows that people do not invest as they should, as you outlined: “invest a reasonable percentage of your income each month, start saving for retirement as as soon as you are earning income, and invest it in a sensible, low cost way”.
The above is a nice theory, to which even you never adhered.
If someone doesn’t start saving or investing until their 40’s or 50’s (as many North Americans) then indexing will not fulfill their retirement needs. So they do take the active and riskier route, simply because they don’t have a high enough income to increase their saving rate (most people are poor) and it’s mentally easier than having to face the reality of severely downgrading their living standards in retirement due to lack of funds.
It only took about 40 years for index investing to achieve a solid market share, might be another 40 before people (read the great-grandchildren of Boomers) adhere to sound investment theory.
@SST: “If someone doesn’t start saving or investing until their 40’s or 50’s (as many North Americans) then indexing will not fulfill their retirement needs.”
Probably the case for 90% and it refreshing to see many who rely here that are much younger and are planning for their future.
My granddaughter (18) just took over her DRIP my wife started for her and she plans to add $50 a month and increase the amount if she can. It’s just one stock, and I don’t think she’ll add others till she has a full time job. By that time she’ll understand the power of dividends & compounding (hopefully) and continue the strategy. She is planning to open a TFSA and transfer the stocks when the amount gets larger.
That’s my plan Grant: save early, save often, keep my fees low and rinse and repeat as much as possible.
FWIW, we try and keep our personal savings rate >15% for retirement savings alone. When it comes to risk, we try to minimize it as much as possible. After the emergency fund is established, I have a strong belief in dividend paying stocks and index funds are the best selections for us.
Thanks for the links.
Benchmarking is only good for a point or points in time. Hindsight bias is always there.
Yes, I know of that concept. Interesting. I largely agree with it, only so much money will make you happy. There is more to life than money.
I would be very happy to retire early with $75,000 per year and no debt – that’s the plan actually.
Really enjoyed that, thanx Grant!!
Thanks for reading Ashley.
Extremely interesting article! I myself have begun to think about how to begin simplifying my investment portfolio for the future years. I’m still a beginner investor in that I have struck out on my own after being with an Investment Advisor at RBC-DS. While I no longer pay fees to an Advisor, I do now have a part-time job of monitoring my own portfolio, and making investment decisions on my own. This takes up a lot of my time and energy: researching stocks, monitoring my holdings, reading tons of blogs, and articles on SeekingAlpha.com. I spend many, many hours per week reading. I’ve learned a lot in these last 2 years. However, I’m beginning to think, “Can I keep this up into my 70’s and ’80’s? And, do I want to?” I am 63 years old. .
I too have made a lot of investment mistakes; not sold some stocks when I should have, continue to hold mediocre stocks due to not wanting to take a capital gains tax hit in my non-registered account.
I thought DGI (dividend growth investing) was the way to go; liking the idea of dividend paying stocks providing me a passive income “pay cheque” monthly or quarterly. But, it does require constant monitoring. Things change; some companies to cut dividends.
So, ETF’s are starting to look more appealing as a long term strategy for my retirement years. Also, one seasoned investor has suggested that one should look at a quality mutual fund such as Mawer Balanced Fund (MAW104). He did an analysis of this fund versus 3 ETFs: VTI, VEU, BND vs MAW104. The Mawer fund, by itself, has outperformed the collective 3 ETFs 5 out of 8 years, by 3.33% annually and in all 1-yr, 3-yr, 5-yr & 7-yr annualized time frames. So, I’m looking into this fund as an option for at least part of my portfolio.
Thanks Helen.
We don’t have an advisor, as you know. Our portfolio doesn’t take too much work I find, barely any. The indexed products we have follow major benchmarks. The stocks we own are major blue chip companies that have paid dividends for decades or generations. I suspect our portfolio in our 60s will be simplified – less stocks, same ETFs, maybe a few new ones.
I will continue to hold the stocks I have because our returns on these stocks are greater than the TSX over the last 6+ years.
MAW104 is excellent. 🙂 Big fan of VTI.
There have been several articles here covering different investment choices. There is no one best and each person much do their own research and decide on what suits them best for the goals they’ve set. We chose DG, Grant prefers Passive Indexing and Mark likes a combination of both. Regardless of which option you choose (or even other strategies), you should not have to spend much time monitoring your portfolio, unless you’ve decided to be an Active Investor, buying and selling.
Our portfolio’s (2 RRIF, 2 TFSA, Joint & DRIP’s) consist of 19 DG stocks (with only 2 US in RRIF) which we’ve held for years. I have made two trades (sold some shares) in the past 3 years. My recordkeeping consists of recording the dividends received, the re-investments of dividends, any dividend increases when they occur and the transfers from my RRIF each year). .Once a year I record the market price, but it’s the increase in my dividends for the year I enjoy!
“We chose DG, Grant prefers Passive Indexing and Mark likes a combination of both. Regardless of which option you choose (or even other strategies), you should not have to spend much time monitoring your portfolio, unless you’ve decided to be an Active Investor, buying and selling.”
🙂
Count me out of active buying and selling cannew. I’m very happy with a few ETFs and the rest, stocks that provide income. We don’t spend barely any time monitoring our portfolio or worrying about the future of the markets. What will be, will be. We save, we invest and we enjoy what is leftover.
Thanks for your ongoing contributions to the site.
Mark
Mark: Appreciate the opportunity of expressing my opinions. Try not to be too bias because I know what worked for me may not suit others, but it’s a strategy which many overlook or feel it requires a lot of talent(stock picking) to achieve success. I’ve found just the opposite, by sticking to a smaller group of DG stocks I don’t get the big growth or large losses. It just keeps growing slowly and steadily as has our income.
That’s the thing. If it’s working for you and meeting your goals – don’t fix it 🙂
Another excellent article Mark – thanks to Grant for the good advice
Great to hear from you Marko. Yes, I enjoyed Grant’s perspective as well.
Is there a right way to invest? I don’t think so. Examples of some successful long-term investors:
– Benjamin Graham, founder of Value Investing,
– Warren Buffett, perfected value investing to an art,
– John Bogle invented Mutual Funds in 1975,
– John Templeton used global diversification mutual funds,
– Bill Staton, founder of America’s Finest Companies Investment Plan in the late 1970’s,
– John Bart founder of ShareOwner Investments in 1984 following select growth stocks,
– Tom Connolly of the Connolly Report since 1981 sticking with a select group of Canadian dividend growth stocks (my choice).
I’m sure there are many others who have been successful using other strategies as there may be many who will be successful sticking with etf’s, but the ones mentioned were or have been successful for well over thirty years following their own path.
I haven’t researched or compared any of the above but I would guess a common theme is that they selected solid companies (or funds with solid companies), bought shares when price was low, held those shares for long periods, avoided excessive trading and monitored their investments over time.
— George Soros, trading based on reflexivity, science, politics, and more
(His Quantum fund crushed Buffett’s Berkshire…but Buffett is more media friendly so we pay more attention to him.)
And being a stickler…Bogle invented the index fund, not the mutual fund. 🙂
Cannew, I agree that you can be successful with many investing strategies. But the research now indicates that the highest probability of an optimal outcome results from passive indexing. Because behaviour is so important you have be comfortable with whatever strategy you choose. Someone who likes active investing is not going to be happy with a 100% passive strategy, (and vice versa), so likely won’t stay the course during difficult markets.
So it’s important to know yourself, but also be aware of the research, so you are aware of the trade offs when choosing an investing strategy.
@Grant: I agree that one would probably do better with Indexing or Passive Investing than Active Investors. But I don’t ever recall suggesting Active Investing. I’ve always preferred Dividend Growth investing but only with solid companies which have a long history of paying and growing their dividend. Buy, hold, add to those positions over time, re-invest the dividends and monitor the status of company financials for the safety of the dividend. Selling is rarity.
Like you I made tons of mistakes early on, but only found success when I started following the Dividend Growth strategy.
I’ve been retired for many years now and no longer add to my portfolio, other than re-investing most of my dividends. My measure of continued success is the increase of my income each year, which has continued to grow even when markets go down. On Dec 31, 2015 my portfolio value had dropped by $150k since the beginning of 2015, but my income had grown by $9,260. Would I have seen that type of income growth with Passive Investing, I doubt it.
Cannew, passive investing is buying the market, so any strategy that selects individual stocks is active. Of course, I know you buy dividend stocks and mostly hold them for the long term, so that’s a fairly low level of “active”, but any strategy that involves making decisions about individual stocks is not passive.
Growing income is a comforting element of income focused investing, but with total return investing in retirement the focus is on cash flow, made up of dividends and capital gains. During times when equities are up, that capital gains comes from selling some equities, and from bonds during times when bonds are up.
@Grant: ” passive investing is buying the market, so any strategy that selects individual stocks is active.”
Do all ETF’s cover the entire market? I don’t think so and how many ETF’s are there now to choose from? Selecting the right etf or group of etf’s might also be considered active.
Active to me is buying stocks to sell in the future and repeat the process continually. Active is constantly looking for new stocks or stocks to buy due to changes in the market or economy in an attempt to take advantage of current situations.
Those who buy stocks as investments, add to those positions and intend to hold those stocks for the long term, I don’t consider Active investors.
I did not mention that even though my Market value dropped in 2015 my overall value was still up. I did not need to sell or resort to bonds to meet my income needs.
This is where I struggle: “someone who likes active investing is not going to be happy with a 100% passive strategy…” – I can’t seem to get there.
Maybe over time I will but not now.
The reasons grant has to keep working are really amazing: he loves his jobs and will only stop when he finds a better hobby. It is good to read that Financial Independence can exist with RetireEarly. It is a super application of Freedom: do what you want.
The idea of having a mix style: dividend and ETFs is my plan as well. The article mentions to have a home bias on dividend stocks…why not. Due to the double tax treaty, they are less taxed in Belgium. A lot of these companies operate at a European or global level, so that is nice as well. And then there are some holding that also do private equity… I like the idea each time a little more.