Reader Questions – What are you saving for?
Thanks again good readers. I appreciate hearing from you and receiving your saving and investing questions.
Like other blogposts where I answer your questions (or at least offer some perspectives back to you), I want you to know our saving and investing approach might not be suitable to everyone. Heck, there are probably far better ways to save and invest than what we’re doing.
This isn’t a request to stop reading!
What I mean is, overall, I feel we’re doing a few things right:
- We’ve worked hard to get into and keep good paying jobs. We don’t take them for granted. They could disappear.
- We pay ourselves first every year – in January. We put a high priority on maxing out contributions to our Tax Free Savings Accounts (TFSAs).
- We also put a high priority on contributing monthly to our Registered Retirement Savings Plans (RRSPs). (I am out of contribution room now but my wife is not and so we’re working on that).
- We put a high priority on killing our mortgage – there is absolutely a mental side to debt.
- We live our lives. While saving and investing for the future is good, as is paying down debt now, life is short. You gotta enjoy it while you can – so we travel, enjoy experiences, and good food and wine.
Over the last few months I received some emails and questions about various blogposts so I decided to write some responses today. Where I could, I used verbatim wording from the emails. Let me know in a comment if you agree or disagree on these perspectives. All respectful opinions are always welcome here.
Mark, I desperately need to transfer my managed RRSP investment of approx. $200,000 to a self-directed account. I wish I found your site much earlier! I didn’t know how to invest or where for that matter, so I have moved a few times from broker to broker. I’m coming in late in the stage at this point with so much time already wasted, so I don’t have the long-term 20+ years that other people have. I’d like to retire when I get close to 60 which is only 5 years away.
I have a pension plan with my company and have some TFSA of about $25,000. My mortgage should be paid off in about 2 years. I’m considering buying ETFs and dividend stocks. I have been reading/following your posts to try and catch up and learn what’s best. Where do I start?
Well, first of all, congrats on almost being debt-free and having some savings for retirement set aside.
Where to start? There’s a lot to unpack in that email but I would consider taking some time to map out a financial plan before jumping into financial products, not that low-cost ETFs and owning some dividend paying stocks might not fit with your plan. (They work for me.) Rather, I think once you’ve firmed up why you want to invest, what is your money for, how much risk you want to take on for potential financial reward, I believe it becomes easier to figure out what’s best for you. What’s best for others might not be best for you.
There are some good saving and investing rules of thumb out there.
Back to the plan, here are some considerations about what your financial plan should cover. This is not an exhaustive list by any means but a starting point.
My other perspective? Consider buying some books and reading up on what ETFs are, how they could work for you. I’ve got some of my favourite books listed here.
Here are some other free resources and ebooks.
Finally, I have a landing page for some links to various ETF posts. I will be updating my previous articles about my top-ETFs over this summer – at least that’s the plan. Stay tuned.
Hey, I love what I read on your blog but I’m struggling to put it all together. I have my RRSP but it’s just sitting there in cash thus far. Would like to get it invested … I know I want to read your DRIP section a little more! I have mutual funds in my RRSP (which I will probably sell), not much in TFSA (lived out of the country for a while) and want to get started at a later age. I have about $30,000 to invest now which I think will be best in my TFSA along with regular monthly contributions. I know I can do this but just need some help.
I can totally appreciate where you are coming from. I was there…I too started investing using my RRSP (decades ago mind you) when the TFSA wasn’t even a glimmer in the Finance Minister’s eye. I also held mutual funds in my RRSP, for many years in fact, until I made the switch.
For what it’s worth, consider your RRSP one of the best tax-deferred investment accounts available. What should you hold in your RRSP? I can’t tell you but I can list and link to what I invest in and why.
- I hold U.S. listed ETFs for income and growth. I feel I need diversification beyond Canada’s borders.
- I hold about 30 Canadian dividend paying stocks for income and growth.
- I keep my cash balance in my RRSP between $3,000-$10,000 in case there is a market correction, so I can buy more stocks and ETFs “on sale”.
You can read about how I built my dividend portfolio here.
You can read about indexing using low-cost ETFs here.
There are great things you can do with your TFSA and this is a reminder about those options available to you.
Mark, what are you and your wife saving for? By the way – the investing industry makes everything so complex – it’s frustrating. Thoughts?
You have a point. I mean, the financial industry is a massive, no, more like a ridiculously HUGE machine. I can appreciate as a retail investor it seems overwhelming.
The scary, overwhelming stuff aside for a moment, I do believe things are changing for the better. There are more advocates out there (than ever before) striving to clarify the blurred lines between marketing, pushing financial products vs. fiduciary duty.
There are robo-advisors working hard to eat the lunches of established firms, offering more choices and lower cost portfolio solutions. This is good. Get help from a robo-advisor to train your investing brain!
To your question, why are we saving? What is our money for?
- We love to travel and want to enjoy visiting different cities and countries around the world. We need money for that.
- We enjoy experiences, going to local festivals – not worrying about driving after a late night out. We need money for that.
- We enjoy having a home, including a future condo to call “home base”. As we have gotten older and have matured our thinking, we realize we really don’t need as much stuff. In fact, having a bunch of stuff to maintain doesn’t make us happy.
Those are just a few of the reasons why we save.
Image courtesy of Behavior Gap
I’ve often mentioned it’s not the plan that’s important in your financial life but the process of planning (and re-planning) that will help get you to where you want to go.
In that light, here are some elements to consider as part of your financial plan:
- Articulate your money goals. What is your money for? Why?
- Acquire some knowledge about an account (RRSP, TFSA, RESP, other – maybe all of them!) that can help your realize the money goals.
- Determine how much you can contribute to that account. Arguably the more you can save, the more often, the better.
- Determine the products that should be enablers to reach your money goals inside that account.
- Where possible, automate your savings.
- Where possible, over time, once you get into the habit of saving and investing – increase your contributions to accelerate your path to money goals.
- Periodically assess where you are on your journey.
- Re-start at #1 since life, and therefore your plans, will change as will the financial environment around you.
I hope this last answer of mine provided some insight into how I think and behave when it comes to our financial life. I hope you found some words of wisdom in this post or maybe some alternate perspectives for consideration.
Thanks for reading.
Got questions or comments? Share away! I look forward to reading all of them. Mark
We have 2 RRIF, 2 TFSA a Joint NonReg, and two DRIP.’s (but in one we draw down all the div’s). The only account without a bank stock is my wife’s RRIF. We own 5 banks stocks.
You had mentioned in an earlier post that you hold only 12-13 stocks. Just wondering which account you hold your bank stocks in, TFSA, RRSP or non registered? Thanks.
It’s super important to understand WHY you’re saving. Saving can be hard. It sometimes requires some difficult trade-offs. If you don’t know WHY you’re saving, then it’s nearly impossible to make those decisions.
We’re saving for those intangible goals now. We’ve paid off the mortgage. We don’t have any debt. We bought our last car (used car) in cash. Now we’re saving for financial freedom and financial security.
These aren’t quite as tangible as other financial goals but they’re very motivating for us and that helps us make some difficult trade offs between saving and spending.
Well done Owen! We still have mortgage debt but we’re on our way to our other goal ($1 M portfolio) so it’s all about trade offs in your financial life.
Mark you specifically mentioned investing in US listed ETF’s – was curious what are the advantages of these vs Canadian listed US ETFs such as VFV or XUU?
I’m tempted to own VFV myself Dave because I don’t have to worry about currency conversions to USD to buy VYM or VTI or VOO or other from iShares like IVV.
The other benefit of holding U.S. listed stocks is you can actually take advantage of currency fluctuations or conversely, you don’t care about the USD $ vs. CDN $. Lastly, there are no withholding taxes on U.S.-listed ETFs or stocks inside an RRSP. Therefore, the true MER for these U.S.-listed funds is all you pay – not the same case as holding CDN funds that hold U.S. stocks = withholding taxes apply.
Pros and cons to all investing decisions!
Mark: Though I’m not a fan of etf’s, I was impressed that NOBL which lists 53 of the US Dividend Aristocrats, also is invested equally among them (actually 2.16% down to 1.59%), rather than having 40%-60% in the top 10.
Indeed. NOBL is a good one for sure. I’m considering switching out my HDV for that one.
Sam, you can try using JStock to track your dividends received. I haven’t gotten around to using it yet, but I’ve heard good things. It’s open source so the cost is free!
” the investing industry makes everything so complex”……sometimes I think it’s done on purpose, confuse the population so they’ll have to hand over their money to the industry. Investing isn’t complicated, there’s just a few basic things you need to understand. Once you understand them you can avoid the paying the hefty fees. It’s so simple a 9 year old could understand it, in fact both my kids started their stock portfolios when they turned nine.
Just tried JStock and found nothing in the program for recording dividends. Provided good info on current stock price, change vol, etc, but nowhere was there any info on dividends. Uninstalled it.
@Bonnie: You should show her the past history of the bank’s dividend. Other than during the financial crisis (where they kept the dividend the same), the banks have all increased the dividend annually and are currently increasing them twice a year. As she does not need the money fore expenses, she should ignore market price changes and concentrate on the growing income.
Thanks cannew. It was sure nice to get some raises from these banks and I will continue to invest in them long term as long as they pay a dividend. Ideally, a growing dividend every year is good. We own many of the same stocks but your portfolio is churning out more income 😉
Always enjoy reading your blog and similar questions from your readers that I have. This weekend, my mother asked me for advice on opening up a TFSA (finally). She’s 75, widowed and she has most of her investments with Assante as she doesn’t feel capable of self-managing like her smart daughter 🙂 She doesn’t want to let her advisors invest her TFSA as they will take their percentage cut of her total investments. Her plan is to put my brother and I as her beneficiaries on the TFSA, as she doesn’t need the money and this is her way of giving us a little extra when she’s gone. I gave her my mini verbal course on self-directed investing with a brokerage account. She wants me to help her set this up with her bank. Then……she wants me to help her invest $57,500 into her TFSA. She wants a “guaranteed” 3% that she says she can get with a savings account at her bank. I explained that investing in bank stocks (RY, BNS, TD, etc.) is NOT guaranteed and she’s skiddish about the fluctuating markets. She’s used to seeing her statements from Assante that fluctuate, so I”m not sure why a self-directed TFSA would be any different. My question is: would it be wise for me to just divide the $57,500 between bank stocks and hope for the best with dividends and hopefully growth in the horizon…….she is very healthy and likely will be with us for awhile.
I know if it was me, that is what I would do (have done) in my TFSA. But the guarantee request scares me a bit.
@Bonnie: Open an Investment account with her bank and invest the entire amount in the Bank’s stock.
Div Price Yield
BMO 3.72 100.82 3.69%
BNS 3.28 76.91 4.26%
CM 5.32 112.86 4.71%
NA 2.4 61.73 3.89%
RY 3.76 98.94 3.80%
TD 2.68 75.18 3.56%
If I was 75, didn’t need the money ($57.5K) nor the income, and my intention was pass this on to children, I would not invest in equities. I’d go with GICs knowing that what the kids did with the money after my passing is up to them. Having said that, I’d be certain I’d have exhausted any potential for RESPs for grand/great-grand/great-great-grand kids first. Investing in education, taking advantage of any government top ups would be a very high priority for moi. (plus I’d sleep better)
My choice would be opposite regarding to TFSA. Knowing I might live a very long life, at 75, it probably will be a investment horizon more than 20 years, I might put everything in equities.
I agree with you regarding to RESPs. It would be a very nice gift for grand parents to contribute for grand kids’ education.
@Lloyd: I’m 76, 100% equities and sleep fine.
“She wants a “guaranteed” 3%”
She is obviously not as comfortable as you are.
“as she doesn’t need the money”
Warren Buffett: It’s Insane To Risk What You Have For Something You Don’t Need
@Lloyd: GIC’s don’t guarantee 3% forever. Most of the banks have paid a dividend of 3% or more for over 100 years, no guarantee but I’d bet on the banks will grow their dividend much faster than any GIC interest.
@cannew….I’d not take that bet as I believe you are correct but I am basing my opinion on the parameters given. As proven in our conversation, changing an elderly person’s point of view is not likely going to happen, ergo it is easier to just give them what they desire and keep them comfortable and happy. I see no reason to subject a person to the *thought* of a possible 20-30% correction given the stated parameters. I suppose some might be willing to deceive an elderly person and claim nothing but gains could ever happen but that ain’t for me.
@cannew: It can be stressful when you see your investments dip by 30% (e.g. 2008 – 2009), especially when you are in your 70’s. The simplistic approach is the formula 100 – age to estimate your exposure to equities. With baby boomers living longer, some have revised the formula to 110 – age.
Like you, I am a baby boomer but have not gone all in on equities. Slightly over 50% are in equities, and the balance in fixed income and GIC’s. In fact, GIC rates have increased, and EQ Bank has recently increased their rates (2.76% – 3.5% for 1 -5 years terms). A common strategy is to invest equal amounts in laddered terms, and on maturity if conducive, one can renew it or deposit it to a savings account, if otherwise. Currently, EQ savings account is 2.3%.
EQ bank is a leader is higher yield accounts and GICs. I think GICs definitely have a place for many investors. As they say, it “depends” on many things you want or need from your investments – GICs might be ideal for many investors depending on those decisions.
@Sam: During our accumulation phase I was lucky enough to discover the Income (DG) Investing strategy and now that we are fully retired, our div income far exceeds our expenses. We now longer worry about market corrections of 30% or 50%, as long as our Income is not affected. With the stocks we hold, cuts are very unlikely (yea, but not impossible). That’s been our success, a growing income even now we don’t add funds.
It’s a fair comment about GICs but personally, I think everyone is different when it comes to their goals, risk tolerance and long-term objectives.
Honestly, if some folks are more “comfortable” with GICs (and that is helping them realize their goals) then that’s the perfect product for their plan for them. It wouldn’t work for me right now but I can see the appeal of of GICs and I intend to write about it soon enough.
@Sam: Rising interest rates, mean rising inflation and GIC’s don’t usually keep up with inflation.
@Lloyd I think I would answer Mark’s question first: what am I saving for? Or what am I investing for? If I don’t need that money for retirement, if my TFSA will be inherited by my descendants, then I would like a better chance that they will get more buying power in 20 years. The market might go down 50% couple times during those 20 years, but the chance it will be back and up is very high. On the other hand, the GIC can at least keep up with inflation is not a high possibility. $57,500 may not even have the buying power of $57,500 with GIC in 20 years, especially if inflation rate is high.
Yeah, I just wrote that above. GICs are not “guaranteed” other than your capital.
@Mark In my mind, I think GIC is for short term safe keeping. One of my friend asked me how to invest money that they might need in five years, and my answer is GIC. GIC equals to cash essentially. In my retirement, let’s say if I want to have 5 years expense as cash at hand, then they might go to a GID ladder.
I would agree that any money needed in the short-term, i.e., <1 year should be in cash. Maybe even 2 years. 2-5 years GICs are good although they could be losers to inflation. Anything beyond 5 or more years, likely equities are the way to go. That said. you can have a decade where the stock market is fickle. Look at the CDN market returns. Not great over the last 10 years really when compared to USD.
I consider investment products to be similar to a toolbox. The investment vehicles themselves can have similar or different intents. As an example, a person can use an RRSP for things other than retirement (buying a home, education, funding a work sabbatical, etc) and TFSAs can have many purposes including retirement.
The products available within those vehicles are just tools. It behooves one to know what they are trying to accomplish and which tool might be better or best to use even though many may very well work. If one needs to remove a screw they are best advised to use a screwdriver even though a steak knife might work (it also might cut off your finger). If preservation of capital is the prime directive then equities might not be the better/best tool. And yes, one has to keep in mind that even the best tool for the job might entail some risk (the screwdriver may slip and damage the wood).
I see it the same way…tools in a toolbox. Some tools people don’t need. Other tools, like equities, almost all investors need at some point in their life.
“It behooves one to know what they are trying to accomplish and which tool might be better or best to use even though many may very well work.”
Agreed. Otherwise you might have a fool with a tool 🙂
Mark, I agree with you on GICs.
They may or may not have a place in someones portfolio based on risk tolerance, needs, goals etc. If they do the extend to which is the next biggest question.
Some can’t live with seeing any drop in their savings that took them a long time to grow and they don’t care that they could “likely or potentially” do better being in equities, dividend growers or whatever. Some are comfortable with 100% equities even well into retirement. Both are fine if it’s working to meet their needs, they understand the pros and cons, and they’re satisfied.
At this stage earlier in retirement I like balance. Equities put the meal on the table and FI lets me sleep.
In my opinion Bonnie needs to have a more definitive conversation with her mom before making a decision. We don’t know what her present portfolio allocations are, does she ever need to use this income or capital, exactly what her goal is ie is 3% a total return goal, does guarantee mean no absolutely no risk of capital loss, what her risk tolerance is etc, what is the investment time horizon and will this account/assets be “gifted” and do the investment preferences of the potential inheritants matter at all? It seems another good frank conversation would be useful especially since Bonnie seems to have significant DIY experience and knowledge.
Based on a strict “guarantee” and no risk desired GIC’s are it. Growing income isn’t mentioned but is it a priority? On the other hand if there is some acceptance of equity risk, and investment window is long, dividend paying CDN blue chip equities would almost certainly exceed the 3% in yield and offer potential upside both growing income and capital.
Perhaps a blend of equity/GICs is appropriate or something even matching current asset allocation.
Well, nothing is “guaranteed” as you know but of course you’re right that investments with Assante (or anyone else for that matter) will fluctuate.
Your case study is interesting because I also know if it was my money, I would do the same, and I have done so. 🙂 I invest in bank stocks and telcos and utility stocks and REITs inside my TFSA(s) but for my parents, who ask me the same questions as your mother asked you, I’m not sure if I would do that given I understand how they invest. So, what have I done?
I have put 60% of their RRSP in XIU and the other 40% in a TD Bond e-fund. Blended together, it’s low cost, it’s something they understand; they won’t tinker with it and they are likely assured to get about 2-3% real return over the next decade if they don’t exhaust their RRSP in their 70s (they are entering that decade now).
Is that the perfect portfolio? Probably not but it’s far better than higher cost alternatives!!
Just my case study for what it’s worth.
I have followed your posts and know that you are big on dividend investing. How do you keep track on the dividends paid by each stock, and the dividends paid on your total portfolio? I am using excel for this purpose and find it is becoming onerous as the portfolio gets larger.
I hear you Sam but having a fat portfolio to require you to use Excel is a good problem to have.
Check out my Deals page and the first link is a simple dividend tracking tool I use. You can modify to meet your needs 🙂
Hopefully that helps!
@Sam: We use two sources. In our Accounting program we record every transaction in each account. It must balance with the cash in the account. When div’s are received we code the entry to the Co Div acct for that transaction (which might be RRIF, TFSA or Non Reg).
We also have an Excel worksheet specifically to record div’s rec’d. For each account (2 RRIF’s, 2 TFSA, 4 Non-Reg) each stock is listed and we enter the actual amount received in the appropriate month. It totals at the bottom for each month and year.
@cannew: Thanks for the info. I have a sheet for each stock (filed by accounts), and enter the actual dividends received and any other transaction for that stock. This is then entered into the Excel Spreadsheet where all the stocks are listed. I find this cumbersome and as Mark has mentioned this is a good problem to have.
I would think that there is a investment software that will mirror the manual entry of the individual dividends to the respective stocks and similarly post the dividends to a control account to add up all the dividends received for the year.
@Sam: Are you “linking” the worksheets, so the entries from one automatically show up on the other?
Currently, I am doing this manually. The Accounting program that you use might work better than linking the worksheet to the individual stocks.
The Excel worksheet lists all the stocks which are sorted alphabetically, and primarily to record dividends received, with month and year totals. I have included secondary info as I needed.
So far, this has worked fine for me, and given lots of info on how the investments have been performing.
This may help some of you : I found this helpful, and not super excel savvy and i was able to follow the steps successfully.