Weekend Reading – Debt, tech boom, 4% rule, how to build a dividend portfolio and more!
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.
On the heels of the big tech boom highlights (making many people wealthy) that I shared in last week’s Weekend Reading edition, here I found a few good articles about debt and how to get started with investing.
Here goes – and enjoy your weekend!
On The Personal Finance Show, host Beau Humphreys talks about debt and wonders – how does someone get into debt anyhow?
Beau is right – debt is “a big deal”.
When it comes to some forms of debt, I’ve always been a believer that “life happens” and sometimes it’s not for the best for many of us. Healthcare crises, family emergencies, unplanned job loss or more can be crippling and life-altering changes that can leave many people, most people, in a massive long-term financial mess. Even the best laid plans can turn out horribly wrong through no personal wrong-doing. Thoughts on what Beau said in his podcast or my points above?
Another young reader asked me how I built up my income stream after reading about my July dividend income update. Well, full disclosure, this income stream took decades in the making! I’m saving and investing as part of my get wealthy eventually strategy.
But, more importantly maybe…I pointed her to this comprehensive post about just starting to invest – that includes a FREE ebook. I encourage all parents of millennials (and millennials themselves) to check out this post and download a copy. Let me know your thoughts on what the author mentioned!
Well done Matthew, a millennial busy staying invested and growing his dividend income stream. I also appreciate him being a big fan and strong supporter of this site on social media!
Respected financial writer Jon Chevreau wrote about the 4% rule on MoneySense recently. He reached out to a few other experts on this subject and concluded while the 4% rule is fine to some extent, the bigger challenge is “retirees need to get more comfortable with risk and tilt their portfolios a little more in favor of equities. With near zero returns on bonds, more capital is required to deliver comparable incomes…”.
To Jon’s point, I wrote some time ago that investors should be learning to live with stocks for just that reason. I think a bias to more equities in your portfolio vs. fixed income, even in retirement, is going to be rather smart for the decades ahead. Let me know your own thoughts on that…
Continuing with this theme, Ben Carlson wondered why would anyone own bonds right now?
Ben cites a few reasons but my favourite is in bold below with my reasoning:
- Bonds can help your investing behaviour – riding out stock market volatility.
- Bonds can be used to rebalance your portfolio; keep your portfolio aligned to your investing risk tolerance, and help you adjust it back to its target asset allocation (i.e., keeping a balanced mix of stocks and bonds).
- Bonds can be used for spending purposes – where some fixed income is “king” for major, upcoming expenses or spending.
- Bonds can help protect against deflation – since inflation is a killer for bonds long-term.
The main reason I would keep any bonds (and I don’t right now) in my portfolio is if you’re saving for a major purchase in a few years and would like rely on some form of fixed income between now and then to help with that purchase. Otherwise, an interest savings account in the short-term will do that. You should own more stocks than bonds for wealth generation…
Boomer and Echo wrote about past performance and your investing returns. A good complement and reminder to Ben’s post above on asset allocation and your risk tolerance:
“If you can’t stomach the idea of stocks losing 30% or 40% in a short period of time, then don’t put 80% or more of your portfolio in stocks. A balanced portfolio of 50% to 60% stocks and 40% to 50% bonds will lower that volatility and smooth out your investment returns over time.”
Good stuff by the guys hosting the Rational Reminder podcast to have DIY investor, author and public-speaker Andrew Hallam on their show.
I interviewed Andrew for my site a few times about how best to invest, how he invests (and why) and much more here – and I should have him back at some point. I will put that on my to-do list and see if he is game!
Dale Roberts from Cut The Crap Investing took at look at BMO’s stellar low-volatility ETF ZLB.
Last but certainly not least, a nice shoutout in advance to the guys at the FI Garage for having me on their podcast. Thanks for that. That should drop in another week or so and I’ll link to the podcast on my site so you can hear what I had to say.
Reader question of the week (adapted slightly for the site)
I’m sure you get asked this type of question a lot, and I know you have discussed similar topics on your blog. However, I have not seen anything that’s similar specifically to the situation I’m in.
I have some large contribution room that remains in both my RRSP and TFSA. Based on your site, I feel the focus for me has been to maximize the TFSA as quickly as possible although there’s still about $20,000 to go; I think it should take less time to maximize this account than my RRSP. Fortunately, I’m in a good position to put all savings into investing for retirement now. I hope to continue with this goal in mind for about the next 8 years by making good and sound decisions.
However, is it prudent to move everything from TFSA to RRSP (in order to maximize my contribution room) only to start over again with the TFSA? Or, is it better to strike more of a balance between contributing to each account?
Your thoughts are much appreciated.
Great questions and personal case studies – keep them coming!
First off, all personal finance plans are personal. What might work very well for me might not be ideal for you.
That disclaimer aside, I continue to write on my site given the TFSA contribution room is available to any working Canadian (and can be a tremendous account to build wealth), I think all Canadians should strive to max out that account first, above and beyond any available contribution room inside the RRSP.
My thesis on this is simple:
- Owning, saving and maximizing contributions to a TFSA every year is admirable for any income-level; RRSP accounts tend to favour higher-income earners through the tax-deferral feature.
- Unless you are diligent in reinvesting the RRSP-generated tax refund, every single year, you might be better off using the TFSA.
So, (and again, this is my own thinking since you asked!) I suggest all Canadians work hard to max out their TFSAs, first, then focus on the RRSP contributions. That’s what I do. It could work for you too. I do this because I want my tax-free money (TFSA) working right away. I feel tax-free money compounding is better than tax-deferred money (RRSP).
Also, if you can easily max out your TFSA first, every year starting January 1st when contribution room opens up it probably means:
- you’re probably making decent money to contribute to your RRSP anyhow, and/or
- you’re disciplined enough to contribute to your RRSP and not waste the refund to appropriately maximize the tax-deferred RRSP account benefits.
If you can max out TFSA contributions and RRSP contributions in the coming years, 8 years or otherwise, I think you’ll be well on your way to realizing some great financial goals.
Good luck and happy investing to all.
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