Weekend Reading – Canadian Compounders
Well hello – and Happy Long Weekend!
Welcome to a new Weekend Reading edition about Canadian compounders.
First up, a few recent reads and reminders…
And…
I updated this post about my Top-5 stocks in our portfolio that pay dividends but also offer some growth too. I enjoyed the comments from other DIY investors about what they own, why, and how much income that generates for them! Amazing stuff. 🙂
Weekend Reading – Canadian Compounders
Inspiration from this Weekend Reading edition came from the guys who manage the **Canadian Investor Podcast about Canadian Compounders. @cdn_investing
“From garbage collection to real estate services, there have been some TSX listed stocks that have been favourable to shareholders.”
Indeed.
I own a few of them and have been adding those stocks to my portfolio over the last 10 years – although not every single one below. The guys would certainly want you to listen to their show to reveal all 30 stocks in their personally ranked Canadian compounders list but I’ll share a few stock tickers that caught my ear. (Disclosure: I do own a number below.)
- CNR
- CNQ
- NA
- CP
- EQB – podcast sponsor**
- IFC
- Brookfield – BN, BAM or BIPC
- ATD
- WCN
- WSP
- DOL (including what the guys believe is the “dream retail concept…”)
- CSU
Check out the podcast for more to add to your DIY shopping list!
This list is filled with Stocks with Moats. Something I remain a fan of:
Mike @TheDividendGuy shared his updated list of 10 amazing dividend growers too.
I enjoyed this list from Savvy New Canadians about the best money quotes of all time! @SavvyCanadians
A few favourites from me from my posts on this site from the past:
On the best investment = your investing behaviour from The Single Best Investment:
“Emotions influence investment decisions like the moon directs the tides, and to succeed over the long term you’ve got to do more than open a brokerage account and keep your records. You’ve got to tune in to who you are, what you want, how you behave in various conditions, the kinds of change you might be capable of and the kinds you are not.”
From The Investment Zoo:
“Much of our savings in Canada literally goes to waste. Keeping money in cash or bonds accomplishes little in the long term after tax and inflation.”
“Clearly for investors, all things being equal, the fewer fees you pay the more your total wealth is maintained.”
And select others, including the power of marketing:
“Many a small thing has been made large by the right kind of advertising.” – Mark Twain.
Incredible, the greatest investor of our times continues to roll…
(Disclosure: Berkshire shareholder here but I may not be a shareholder for long….)
“….And this week, Buffett received perhaps the best birthday gift he could ask for: Berkshire Hathaway $BRK.A reached a $1T market cap. The company has had a stellar year, rising 29% YTD, far outpacing the S&P 500’s $SPX 18% gain. Over the last five years, Buffett has continued to outperform, with Berkshire returning 130% compared to the S&P 500’s 91% return. Zooming out even further, Buffett’s legacy is unparalleled. Over nearly six decades, from 1964 to 2023, Berkshire Hathaway returned an astounding 4,384,748%, crushing the S&P 500’s 31,223% overall gain.”
Source: https://x.com/carbonfinancex/status/1829522597580599767/photo/1
With thanks to Dividend Growth Investor @DividendGrowth here are 94 investing lessons learned from this legend.
Avoiding big investing mistakes has been one of Buffett’s keys to investing success… On a much, much, much smaller scale, the same applies to us. My friend Tawcan highlighted a few ETFs to avoid.
Congrats to Joe at Retire by 40 – his financial independence journey is rolling along very nicely. Part of his key to long-term success? Measure what matters.
“The key is to review the spreadsheet monthly to track your progress. That way, you can see which goals need extra attention and work on them.”
Dividend Daddy continues to stockpile and grow this dividend income stream by making many strategic purchases throughout the year. He’s also a big fan of low-cost XAW to add to his portfolio for extra diversification. His portfolio, including with XAW, now churns out a whopping $80,000+ per year to fund his lifestyle including a very healthy travel budget. Incredible.
You can follow him and his purchases online here – source: https://x.com/DividendDaddy1/status/1825527135064428781
Save, Invest, Prosper – Have a great, safe, enjoyable weekend.
Mark
I love XAW and it has been one of the best performers in my RRSP, now a RRIF. I’m starting to decumulate my RRIF over the next few years to avoid more taxes later, and I want to know if it would be a bad idea to buy XAW in my non-registered account with some of those funds, or would it be taxed too highly?
Hi Deb,
If you are referring to the 15% withholding tax on US dividends that gets waived in an RSP account, but not in a NON-RSP account, that only applies when the holding, XAW, is held in U.S. dollars. An example would be VOO. This fund benefits from not be subject to the 15% withholding tax in an RSP because it is a U.S. ETF. XAW is a Canadian ETF.
As such, no matter where you hold XAW, the fund is subject to the 15% withholding tax, even in an RSP.
In a non-registered account XAW would be subject to tax on dividends and the tax on capital gains, but both of those are generally better than the withdrawal from an RSP where it’s all treated like income.
Also, as I am reminded from time to time. It’s often best not to let the tax tail wag the dog.
Thanks very much for your comments, James – and yes, taxation is usually a secondary investing consideration to investing asset allocation objections/goals which is #1.
Mark
Hi Deb,
Thanks for your comment. Not tax advice but XAW can be a good home for your taxable account but you have the complexities dealing with and tax filing around foreign withholding taxes owning XAW in that account there – you can however apply for the tax credit.
I do know many DIY investors that have maxed out their TFSAs, RRSPs/RRIFs, etc. and own XAW or other similar ETFs in a taxable account.
More reading:
https://www.moneysense.ca/save/investing/etfs/watch-out-for-foreign-withholding-taxes-on-etfs/
Others:
https://www.myownadvisor.ca/then-and-now-xaw/
https://milliondollarjourney.com/the-real-mer-on-etfs-foreign-withholding-taxes-on-etfs.htm
I own XAW as well and love it and always buying more of it here but I do only own it in my TFSA and RRSP = to avoid tax-time complexities since those accounts are registered accounts.
I think a good candidate for non-registered accounts, is a Canadian-listed ETF that owns Canadian stocks such that the fund is eligible for the Canadian dividend tax credit. XIU is one great example. Not tax advice.
Pros and cons with any investing choice!
Hope that helps a bit with your decision-making.
Mark
Thanks for the great info and additional resources, Mark! I wish we weren’t forced to withdraw from our RRIFs. The government is going to get their tax money from you now if you take it out, or they’ll get it from you when you die if you leave it in. They get it either way. My RRIF is largely XAW and VCN, smaller amount of ZAG for bonds, and I later added XIU, which I agree is a good fund. There were no all-in-one funds when I set up my RRSP. TFSA is largely XEQT plus some VDY. Non-registered is HBAL, HSX and HXT. Also cash in high interest savings accounts and GICs. I wish we were allowed to put more into our TFSAs. If so, I’d just move most of the RRIF money there when I have to withdraw it. Maybe I’ll use some of the RRIF withdrawal to buy more XIU in the non-registered account as you suggest. A lot of moving pieces on this chessboard! Enjoy your long weekend, Mark!
Correct: RRIFs and LIFs = forced withdrawals. IMO, best to be strategic and get $$ out of RRSPs when you can in your 60s with more flexibility.
RRSPs/RRIFs in general are a huge tax liability.
https://www.myownadvisor.ca/watch-out-for-rrsp-and-rrif-taxation/
Those are great funds: “My RRIF is largely XAW and VCN, smaller amount of ZAG for bonds, and I later added XIU, which I agree is a good fund.”
XEQT is great for TFSA – a bit of set, add and forget until you need TFSA withdrawals.
Non-reg. is very tax efficient with that: “HBAL, HSX and HXT.”
You are quite tax-savvy 🙂
Again, not advice but XIU is rather tax-efficient since all XIU distributions should be eligible for the Canadian dividend tax credit. You also get some 3% yield to spend if you don’t want distributions reinvested…cashflow from your portfolio! HXT, HXS would be even more tax-efficient as you know already…
All my best and let me know what you decide,
Mark
I really appreciate your feedback, Mark! I manage my finances and taxes on my own and it’s nice to have someone to bounce things off of! I have been reinvesting dividends in my RRSP and TFSA (DRIP). If I buy XIU in my taxable acct, would reinvesting dividends result in complicated adjusted cost base calculations? HBAL changed their structure last year and started issuing distributions monthly, which I’ve just been taking as cash as I don’t want to deal with that. Disappointing. I’ve been drawing down RRIF the last few years before starting gov’t benefits, which I deferred to 70, which I’m glad to see you agree with. Have to be strategic as I have no option for tax-splitting and no company pension.
Sounds like you’re doing a great job, Deb!
Personally, I avoid DRIPping stocks in my taxable since while compounding is good there of course, tracking the adjust cost based on many stocks is simply not worth my time. 🙂 I let all dividends come in as cash and decide to make a few purchases from there. Same would apply to XIU or any asset in a taxable account as well.
Yes, any fund company can change the rules on a whim…so generally speaking, taking cash in a taxable account if you get paid any dividends or distribution is usually good to simplify tracking at least.
Our plan has us deferring CPP to at least age 65 and if not age 70, and potentially taking OAS at age 65 but also considering deferral to age 70 as well. Not quite there yet but more to navigate in the coming decades!
Mark
About BRK total return: I checked in portfoliovisualizer. CAGR of SPY was better over 5 years, and also 10 years. I also checked in testfol.io for total return since Jan 2009, since that was the time that my DIY investment life began, and you would have been better off holding SPY. Admittedly the differences in all this figures are small.
The point is that in my investment life so far (+/- the last 15 years) it did not matter much if you held BRK or SPY.
So all the thousands of percent outperformance since 1965 till 2008 was not available to me.
I think it always depends on what time period you are looking at, for any stock / ETF comparisons.
I think it’s clear that over long investing periods, BRK has been a stellar stock choice which has been better than most.
Will the trend continue longer term as well? Hard to say but my hunch is BRK will continue to perform just fine.
Thoughts? Thanks for your comment.
Mark