Reader Questions – Monthly Dividend Income Updates
For the last few years on my site I’ve posted monthly dividend income updates like these. From these articles I receive a number of emails and questions from readers regarding my DIY approach to saving and investing. Today’s post will tackle a few of those so let’s get into it.
(Questions are in bold, my answers follow!)
Mark, I’ve been reading these updates and it seems the income is going up every month. Is this all because of reinvested dividends and distributions or you are making new investments as well?
Great question. Yes and yes. The income is on the rise largely because almost all dividends paid by the companies I own and report on are being reinvested every month or quarter. Same goes for the Exchange Traded Funds (ETFs) I own, distributions paid are being reinvested as well. I am also buying more stocks every 3-6 months if I can save up the money to do so.
Are you spending any dividends or distributions paid?
No, largely because a good portion of the income is in a Tax Free Savings Account or what I call my Tax Free Retirement Account (TFRA).
When you put money into a TFSA you probably know you do not get any tax deduction (unlike an RRSP) for doing so. While this sounds bad the major upside is investment growth and income earned inside the TFSA grows tax free. I keep a few Canadian dividend paying stocks in this account.
Aren’t you worried that your portfolio is not keeping up with market returns?
Not really.
My stocks have done rather well, in Canada and the U.S.
I believe I’m on the right path: indexing mostly in registered accounts and keeping the Canadian stocks I have for passive dividend income and capital appreciation in taxable accounts and inside my TFSAs.
I can also take advantage of the dividend tax credit for non-registered investing.
When do you think you’ll reach your financial goal (for passive income)?
I don’t know for sure, since dividend increases, distribution increases, and stock returns are totally out of my control. If I had to guess I would say as long as a number of things don’t change (meaning we can continue contributing to our accounts at the same rate, dividends and distributions are paid remain roughly around the same rate, and other variables stay constant) the timeline is likely another 10-15 years.
In closing, I’ll be the first person to acknowledge my saving and investing approach is not for everyone but I believe in it and we’re making progress because of it. Thanks for every reader question on this subject. Keep your comments and feedback coming.
Any questions for me? Drop me a comment or send me an email via my About & Contact page.
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.
That being the case Mark why do I see a 4 year old post when I click on the link?
I ‘m new to your service so perhaps I’m missing something.
This post was established in February, 2015, how is this an update?
Got lots of content after 2015 Paul – happy reading!
I meant to add Paul – it’s not too much of an update but rather a reflection in how I’ve tried to stick to a consistent re-balancing plan for my CDN stocks.
I really don’t worry about rebalancing my RRSP since I’ve gravitated to owning more low-cost US ETFs and I simply buy more ETF units when I have the money to do so 3-4 times per year.
I hope that helps!
Mark
Indexing is excellent and so easy for anyone like me to invest and make great returns. I am recently purchasing individual stocks and I found that it is easier to pick undervalued stocks at the moment. So I will keep indexing for 70-80% of my net worth and watch for undervalued stocks.
I think indexing works for most investors, although like you, I have a small bias to passive income via dividend paying stocks. I will probably always hold a few stocks but indexing makes too much sense not to invest this way.
Nicely answered! Do you buy indexed only through ETFS?
Hey Dividend Guy, yes, I only own indexed ETFs outside my stocks.
@Mark
Is it not possible to partially convert an RRSP to a RIF?
If you withdraw directly from an RRSP you get dinged with taxes right away. If you withdraw minimum amounts from an RIF you do not have to pay any income tax at withdrawal time .unless you want to. You obviously need to file your income tax report each year but then you owe them money which is a better position financially than having paid the taxes up front…IMO
Seeing you are considering early withdrawals (prior to 71yrs) from your RRSP(s) I would do a partial conversion to an RIF to obtain the desired cash flow including the taxes due when filing.
Yes, it is possible to partially convert an RRSP to a RRIF. You can do this anytime.
If you withdraw directly from an RRSP you get dinged with taxes right away, yes, taxes are due on the income you withdraw when you file your tax return AND there are withholding taxes right away.
If you withdraw minimum amounts from an RRIF, there is no withholding tax unless you go over the RIF minimum but that’s still taxable income. You have to start withdrawing money from your RRIF in the year after you open it. The federal government sets the minimum amount you must take out of your RRIF every year. It’s based on a percentage of the value of your RRIF.
I am definitely considering starting a RRIF in my 50s, just not sure how it might all play out years from now…but that consideration is on the table. Thanks for your detailed comment.
Thanks for sharing and the updates, Mark. I like your approach of calling it Tax Free Retirement Account. Its so much more than a savings account – which is what ppl are treating it as.
Best
R2R
I hear ya. Tax-free income is eventually going to be a great thing. 🙂
I think it’s better when talking about RRSPs to talk about ‘tax deferments’ rather than ‘tax deduction’. RRSPs have phantom money in them at the risk of hyperbole. People who retire with 250K in an RRSP are in a very different financial place than those who retire with 250K in non-reg and TFSA money.
I’m not sure how much the average Joe and Jane appreciate that. Wording can matter.
Great post Mark!
Thanks none, I appreciate that distinction. Depending upon the tax rate I’m in, I would much rather have those amounts non-registered and inside a TFSA vs. a RRSP – you are correct.
Cheers,
Mark
Mark I’m assuming that you’re investing in RRSP as well. Are you planning an early RRSP withdraw or planning to convert all to RRIF later?
For sure Tawcan, investing in the RRSP is a big priority for us. I am planning on an early RRSP withdraw, potentially $5k per year per RRSP in our 50s for early retirement.
Mark,
That is interesting to know as that is my plan as well. Withdraw $5000 a year pay a 10% withholding tax will hopefully help minimize the tax burden when it turns into a RRIF later on.
Yup, exactly my game plan in another 10-15 years.
That’s what our plans are too I think. I really don’t like RRIF’s withdraw rule..it’s way too restrictive.