Weekend Reading – Buffett buying up gold and Suncor, podcasts with beer, asset allocation and more!
Hi All,
Welcome to my latest Weekend Reading edition where I share some of my favourite articles from the week that was across the personal finance and investing blogosphere.
If you missed last weekend’s reading material about some great Aeroplan program changes, how to hit financial independence in your 30s, and much more – check that out here.
First up, thanks to the guys at FI Garage for having me on their podcast. We had fun drinking beer and talking personal finance and investing…
Earlier this week, I reflected on my journey to date to semi-retirement and shared more time is a goal worth chasing after.
What say you? Are you striving for a better balance of work and fun? Do tell!
Have a great weekend and I’ll be back next week to chat about investing the difference and I’ll try and answer another reader question in my inbox.
All the best,
Mark
A good read I found recently was about five misconceptions about Exchange Traded Funds (ETFs).
My favourite from this article above was not all index ETFs are created equal. For sure – as in hardly. Even if you track an S&P 500 ETF that follows the biggest names in the U.S. market, including tech, you have many options.
Personally, to avoid Canadian to U.S. currency conversion charges and to track the U.S. total market I like the iShares XUU fund. (I own that fund.) With XUU you get a fund of funds for a puny 0.07% MER before minor withholding taxes are factored in.
This way, you can ride the current tech wave and not have any individual stock risk! The top holdings in U.S. ETF IVV are as follows:
Then again, you can always use Norbert’s Gambit to move your currency around and reduce brokerage fees.
Did Warren Buffett just bet against the entire U.S. economy? Yes, he did – with these latest investing moves. Based on his moves, I don’t own much gold beyond ETFs but I do own some Suncor directly – sticking to my investment plan as a dividend investor. Thoughts on Buffett and gold buy? Bullish but it could pay off well in the coming years. Oil is very cyclical.
Here is what Buffett said about gold in the past, not exactly loving the asset:
In Berkshire’s 2011 annual shareholder letter he wrote: “if you own one ounce of gold for an eternity, you will still own one ounce at its end” and joked about a big pile of gold that “you can fondle the cube, but it will not respond.”
Ha.
Speaking of betting against the economy and government decisions I wonder what it means here at home with our debt-load further exasperated by COVID-19?
MoneySense with blogger Dale Roberts has some thoughts when he tries to make sense of the markets.
I think a tax on the Canadian wealthy is coming. Increasing the capital gains inclusion rate (from 50% to something higher) is a given for me. Impacting every Canadian though, I could also see a cap/lifetime contribution limit on the Tax Free Savings Account (TFSA) at about $100,000 per individual. To offset those changes, I think our government will (finally) abolish any RRIF minimum withdrawal rules. You’ll simply need to pay tax on any RRIF withdrawals as income (as done today). That would make sense and simplify the tax code at the same time.
Thoughts?
Congrats to Dividend Earner on his July dividend income. Well done!
Nice to hear my friend Bob Lai (Tawcan) on the Explore FI Canada podcast.
While shouting out the EFIC podcast, I want to acknowledge fellow Canadian bloggers/podcasters/content creators up for a U.S. Plutus Awards in the personal finance space. Kudos go out to:
Tom from Dividends Diversify wrote about living off your investments. I was interested in his asset allocation below, again, just a suggestion or rather an example:
- “10% savings products
- 20% real estate
- 20% bonds and preferred stocks
- 50% dividend stocks and ETFs.”
You know, (and listen to the podcast I was on above on this!)…I’ve been giving more and more thought to my desired asset allocation (and location) to enter semi-retirement with in the coming years. So far, without detailed allocations (yet) I’ll likely structure mine something like this:
- Would like to have ~ 1-years’ worth of expenses in cash as an emergency fund, other, to start semi-retirement with (about $50,000).
- Would like to have ~10% REITs in my portfolio – this is where I disagree with a Yale financial expert on this subject since 20% REITs is too much.
- I consider my small future pension from work “a big bond” and therefore I do not hold any individual bonds anymore.
- Our personal portfolio will likely be a blend of Canadian and U.S. individual stocks (about 40 or so), along with a few low-cost, mainly U.S.-listed Exchange Traded Funds (ETFs) for extra diversification.
Physician on FIRE (who also loves craft pints) discussed his year 1 of early retirement.
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Mark
My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I've surpassed my goal and now investing beyond the 7-figure portfolio to start semi-retirement with. 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.
Great post Mark! Your question about increasing taxes on the wealthy is spot-on. There’s no question that we have massive fiscal stimulus to pay for and things like an increase to the capital gains rate are a given. I could actually see it going to 100%, which no doubt would trigger all kinds of people to liquidate holdings and repurchase them to lock in gains at a lower rate.
The Trudeau government has just signaled a shift to the left so I totally expect to see the wealthy pay. In some ways, I can’t really blame them. The educated, salaried workers kept their jobs, working from home while front-line, hourly workers or gig-economy workers got slammed. Without CERB, we’d have a complete social crisis on our hands and the affluent should really think long and hard about how well they survived compared to lower income people.
In this environment, GST/HST increases will be less politically acceptable. We may see renewed calls for universal basic income and other social policies that the affluent will have to pay for. The calls for inheritance taxes or death taxes may gather steam but that may be more than the current government will find politically palatable.
I could definitely seeing a raid on taxable accounts and capital gains. I just hope they give us a heads-up.
Without CERB and/or enhanced EI we are going to be in a VERY messy state. I don’t see enough written about or discussed how much COVID-19 is costing our tax-base and how on earth are we going to pay for it….I want to see a multi-year plan on that now from our government.
I’m rather concerned as a GenXer on this for my future…
Bonds are useless now unless for rebalancing purposes so investors are going to have to learn to live with stocks (including speculative plays) to see major portfolio gains in the coming decades because of this. Even then, stock gains might only be in the range of 5-6% before inflation. That’s what I’m targeting since demographic shifts should force some equity selling. A good reminder to build my cash wedge in 2021 as one of my goals 🙂
Personally would bet on a hike in the Gouge and Screw Tax, commonly known as the GST. It was originally at 7% then got lowered to 6% and then tp 5%. It hits everyone rich and poor however the case can be made that the higher your income the more you spend so the rich pay more tax. When the GST was lowered the QC government increased the PST and so maintained the income tax level we citizens pay. A nice windfall for them. Should I wonder if the QC government will lower the PST if the GST is hiked/ ROFLMAO
Agree that making RRIF withdrawals discretionary could lead to future tax windfall for the governments. I would think that financial planners/advisors would be all over that one and in theory the DIY investor should be able to see that as well and plan accordingly. In some cases, LRIF, it might actually be a benefit if maximums are lifted. You want to minimize your tax bracket while drawing down the most you can ASAP and re-invest those funds in to the TFSA or more tax efficient non-registered investments paying dividends.
Have always said that the governments will eventually alter the TFSA. There will just be too much, in their opinion, money in there growing tax free of cap gains (or losses). Pretty sure finance ministers drool of the thought of somehow getting a slice of that pie.
That is my nickels worth.
RICARDO
Ya, I can see GST on the way up for sure. Is that a given to pay for COVID-19 Ricardo – thoughts?
Abolishing RRIF minimum withdrawals would be smart on their part I think.
Very smart stuff: “You want to minimize your tax bracket while drawing down the most you can ASAP and re-invest those funds in to the TFSA or more tax efficient non-registered investments paying dividends.” Exactly my plan with the RRSP draw downs early!
Mark
GST – Not a “given” Mark but so easy to hit everyone a little bit in stead of pissing off one sector of the population. Remember, the GST started at 7% when it was implemented so which ever government is there just has to say that a little pain (for their long term gain) will help pay down some of the debt. LOL
On the LRIF question it is also subject to a maximum withdrawal rate. So if that was lifted it would help to lower the principal a bit faster as long as you keep within your income tax bracket.
One has to keep in mind that it is the percentage of income tax one pays within an income tax bracket remains the same. So although you will pay more taxes at $80K than at $50K the percentage is the same. The idea is to not go in to the next bracket and therefor more tax. So if you can re-invest that extra $30K in to your TFSA or a dividend yielding non registered account then you can be ahead of the game. Just keep in mind that the non-registered account will increase your income so the withdrawals would have to be adjusted to maintain the tax bracket. Which is why you want to lower the RRIF principal to be able to play with the withdrawals.
RICARDO
Well, I guess I see that as the easiest way to recover from COVID-19 with the GST.
I’ve done some initial semi-retirement planning with a fee-only planner (more to come on that) and they have advised me based on our spending goals to try and keep our combined retirement income to about $75-80K per year – for exactly the same reason as to avoid the higher tax bracket while optimizing the income to enjoy retirement. Those number align directly with where we are projected to be in a few years.
It will be interesting to see how things play out Ricardo. I’m watching 🙂
Yeah, that is my sweet spot as well.
Mark! You are not the proverbial “Big brother” (I’m watching ) are you?
Interesting the financial optics that CV-19 has presented. By delaying my RRSP conversion to RRIF for next year it may be to my advantage as it lowers the amount of withdrawal due to portfolio value as of Dec 31st. I figure it will be lower at the end of this year than at the end of 2019 so that can play to my advantage as I can withdraw less to remain under the approx $90K threshold for the next tax level.
CV-19 has, I am sure, shown many of us just how much money is really needed for the necessities. Fewer restaurants, no vacations, less travel so less gas, etc.. The younger generations may have spent more on staycations or renovations. For those of us in the older generations we probably just spent money on just what we needed for three meals a day and keeping the house warm/cool. So it cut down my expenses. Starting to ramp back up now but this year will be less money spent as much less travelling. How about you? Spend more? Or less?
RICARDO
I figure we can live off about $40-50K per year (after taxes of course) (assuming no debt in the coming years) rather easily if we don’t have any international travel at all. We have one car (and we’ll buy a newer one before semi-retirement to last us another 10 years).
Our condo fees + Ottawa property taxes + utilities (including our cell phones) amount to $2K per month.
I figure we can eat and still have fun on another $1-2K per month.
That’s our $4K per month to live from.
We are planning to earn/spend about $70-$80K in retirement starting in another 5-years which includes part-time work throughout our 50s to pad the nest egg and to keep our minds and bodies active.
If we don’t travel or travel very much, we don’t need nearly as much $$ saved up for semi-retirement or retirement so we are dearly interested in seeing COVID-19 contended with for many reasons.
Thoughts?
Mark
A little adjunct to the value of GST to the government coffers.
11.7% OF GOVERNMENT REVENUE IS FRONM THE GST
Other taxes and duties
Goods and Services Tax 36,751 in millions of dollars
SO a 1% or 2% increase to the GST would be several billions of dollars
https://www.canada.ca/content/canadasite/en/department-finance/services/publications/annual-financial-report/2018/report/_jcr_content/par/section_0_64/panPar/img_0_2_1/image.img.png/1568412803653.png
RICARDO
A few billion is going to matter very, very soon! Good stuff.
Mark
I struggle with wrapping my head around this topping up RRSP withdraw strategy. Do you have any articles or a good resource on it? Here’s why I struggle. I am aware of my marginal tax brackets but look at average tax per every dollar in retirement. Using Alberta Marginal tax rate of 30.5% for Ricardos’ example, there would have a tax bill of $30 000 x 30.5% = $9150 leaving $20 850 after tax to move into TFSA or non registered. In order to get back to the original $30K you would need to grow the $20 850 by 44%.
By removing the $30K you also pull up the average tax rate on every dollar before the 30.5% bracket. Thoughts?
I haven’t written any specific articles about taxation on any RRSP withdrawal strategy but I intend to since it’s something I’m going to face. My goal is to draw down my RRSP balance, slowly, in my 50s and 60s such that all RRSP funds are likely gone by age 71 or at least in my 70s. I figure I will likely withdraw about $10K from each RRSP in the early retirement years (5-10) and then increase those RRSP withdrawals in my 60s to deplete the account.
I believe it would be smart to withdraw RRSP funds to the extent that it does not keep bumping you up to the next tax bracket unnecessarily – therefore smoothing out taxes over time.
“I think a tax on the Canadian wealthy is coming. Increasing the capital gains inclusion rate (from 50% to something higher) is a given for me. Impacting every Canadian though, I could also see a cap/lifetime contribution limit on the Tax Free Savings Account (TFSA) at about $100,000 per individual.”
I’ve been worried that a change has been in the works for years and only some push back by some in cabinet has prevented it. With the new finance minister and the liberals needing a supporting party (NDP) to stay in power your thought is likely to come true.
Also a tax on luxury goods is also likely. So if I want to upgrade my motorhome I’ll be hit with a tax. But of course they won’t go after second homes I.e. cottages worth hundreds of thousands as that might hurt their voting block,
So the money we’ve worked hard to earn and grow through (usually smart) investing can be used to fund never ending programs – I worry the pandemic is going to be a convenient reason to implement costly structural programs which will be exceedingly difficult to remove or scale back when the day of reckoning arrives.
Too pessimistic I know, but I’ve seen this story before.
Regardless, I enjoy reading this site and have gleaned many ideas from it.
Keep slogging on.
Thanks Brad. Will be interesting to see what they (government) do.
Infrastructure is also badly needed in Canada.
Thanks for the kind words and stay well in MB!
Mark
Hi Mark,
RE: “What say you? Are you striving for a better balance of work and fun? Do tell!”
I’m actually toying with the idea of becoming location independent and financial freedom. Once I have my existing debts paid off, I’m looking into buying a house in Canada (so I have a fallback home if I need to), and renting it out to cover the mortgage and utilities (and hopefully have a bit left over). As it pays off the mortgage, I’m looking into the smith maneuver to help convert it into additional income generating assets.
I was looking overseas and the cost of retirement over there is much cheaper (I can retire currently in a country near Singapore and live a fairly comfortable, if basic, life). I’m leaning towards more being able to travel on the cheap (once this pandemic is over) while working remotely and building my assets at the same time. Napkin math says it could be cheaper than renting a place in Ontario. Thinking really hard about it.
Ya, we’re working on being debt-free and keeping the condo as a “home base”. We hope with eventually, closing in on our $1 M portfolio goal (outside of pensions) should be good money to semi-retire on. We figure we could live abroad on about $20K per year rather nicely. Hopefully in a couple of years. Life is short!
You sound like you have a plan which is great – keep at it and keep me posted.
Mark
Hi Mark;
I like your blog and follow you weekly… and I’ve appreciated (and bookmarked) much of your advice over the past year or so that I started to begin conscious, mindful, disciplined investments management.
HOWEVER, I want to flag the following quotes as MISLEADING (at best).
Recalling the old adage, ‘if it seems too good to be true….”, 5Is is NOT FREE…
As anyone clicking onto their site via your link can also read,
They offer a one month free trial,
but after that, they charge $176.95 per year.
“As a My Own Advisor reader you get full-access, for FREE, to all of 5i’s research reports, all the model portfolios, top companies and best ETFs to own.”
“An annual 5i membership is $176.95, no matter how large your portfolio is.”
Their services may indeed be worth that money… but you are promoting them as being “FREE”… and that’s just not the case… (unless there was a glitch when I clicked on your link to their site?).
As they say several times on their site “and we don’t care if we offend a company with an “F” grade.” I on the other hand apologize for having to contradict your statement with this evidence, but I think your readers need to be given the correct information… at least I hope you think this also should be cleared up.
Thanks again for all the good information and advice you have communicated… it has helped me… and many others — judging by their comments.
Stay Well!
Toby.
Toby, that’s good of you to point that out and with recent updates to the site (on this page) I could have been more clear. My wording has been adjusted so thank you!
“As a My Own Advisor reader you get full-access, during your free trial, to all of 5i’s research reports, all the model portfolios, top companies and best ETFs to own.” The trial is absolutely free via me for a month. The ongoing subscription is not.
How are you investing these days?
Hanging in with your plan during COVID-19?
You too, stay well.
Mark
“think our government will (finally) abolish any RRIF minimum withdrawal rules. You’ll simply need to pay tax on any RRIF withdrawals as income (as done today). That would make sense and simplify the tax code at the same time.”
That would be a very smart money move on the governments behalf. This for the simple reason, if people aren’t forced to withdrawal money from their RSP they won’t. Imagine the executor who faced having to tell the kids that the Government is getting lions share of the estate!
Yup. I think it would be very smart of them. 🙂
Hi Mark, one of the nice features of bonds is that they can be sold at a favourable price to take advantage of stock market price declines. Otherwise, you can only rebalance slowly using dividend income.
Very true Stuart. I don’t own any bonds anymore but rebalancing can be a very useful reason.
Hey Mark great episode on the FI Garage podcast. And we’re so humbled to be nominated for two Plutus awards – pretty surreal and we are with amazing company. Quick edit above – you mention XUU is the Vanguard Canada fund that tracks the overall US stock market but XUU is iShares, not Vanguard. Vanguards equivalent would be VUN. Cheers!
Ugh, sorry about that mistake, I mean, I even had the iShares’ screenshot there for readers 🙂 They won’t be happy with me!!
That’s what you get for rushing a post before leaving for the day.
Congrats on your nomination – so great for that type of press!!
Cheers,
Mark
Hey Mark—thanks for the shoutout! It’s an unbelievable honour to be nominated for the Plutus Awards. The nice thing is, no matter who wins, we’ll be thrilled since we’re all friends anyway!
I loved your interview with FI Garage. It’s always nice to hear your story and learn a little more about your investment and drawdown strategy.
Regarding taxes on Canada’s wealthy—your thoughts sound very reasonable and fair, given the current situation. It’ll be interesting to see the tax changes that are inevitably coming. We’ll have to pay this pandemic tax bill somehow!
Thanks for the kind words Chrissy – it was fun doing the podcast and I’ve probably done a dozen or more over the years.
It will very interesting to see how our government manages the changes to respond to COVID-19. As a taxpayer, they have my attention 🙂
Again, CONGRATS to you and the team at EFIC. Well done.
Mark
Another great round up Mark. I like your pint about your pension being one big bond. I have never thought about it like that but totally agree.
Personally we don’t hold any bonds in our portfolio. I don’t believe they keep up with inflation and therefore you’re losing money being invested in them. Is this risky? Maybe. But as Ed Rempel has pointed out, it could be riskier to miss out on equity gains.
That’s just my opinion and strategy and know it’s not for everyone.
I hear ya and you also have a quite a bit of real estate I recall to manage so for gains and cash flow and both – not sure beyond probably a healthy cash wedge why bonds would be needed for you assuming you keep some personal investments (i.e., TFSA, RRSP) as well.
Continued success and will be over to your site soon to get caught up!
Mark