Weekend Reading – Dividends in a downturn and retirement crisis edition

Weekend Reading – Dividends in a downturn and retirement crisis edition

Hey Everyone,

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.

I’m looking forward to hitting the driving range today and going for a bike ride. You?

via GIPHY

Earlier this week, I shared this financial goals update. Overall, I’m very happy about how our year has gone to date considering the havoc COVID-19 has triggered. I feel very fortunate overall.

That post comes on the heels of this financial independence update whereby I believe we have an outside shot of reaching one of our major financial goals in the coming year or so – market returns willing of course. Until that day comes, I’ll keep doing the same things I’ve always done when it comes to our portfolio:

1.Keep savings for investment purposes (striving to max out contributions to our TFSAs and RRSPs) automatic.

2. Invest in primarily dividend paying stocks from Canada and the U.S. 

3. Turn on DRIPs for our dividend paying stocks – to earn more shares commission-free every month and quarter. 

4. Rinse and repeat.

Your Money, Your Life Behavior Gap

Although we’ve experienced some dividend cuts of late, this simple process has churned out some great income results over the last decade since I’ve been a dedicated DIY investor:

April 2020 Dividend Income Update

I’ll be posting my May 2020 dividend income update soon.

Until then, enjoy these weekend reads and see you around the site. I look forward to your comments!

Mark

Weekend Reading

Headlining this edition, I thought I would answer a reader question (wording only slightly adapted for the site):

Reader Question

Hey Mark,

I follow your site often. I read a reply a while back about an investor who’s financial adviser might not have him invested at his desired risk profile as he expressed concern about a pending downturn.

Well, here we are!

However, I’m wondering why in that particular reply you did not directly address the question of whether a dividend stream DECREASES in the event of a mild-to-moderate economic downturn?

Could you answer a question or write an article about that? Do you have a “bucket” strategy you are going to employ to buffer any downturn?

In MY dividend investing, I’m using a “bucket” scheme, but a major assumption (and explanation to my partner!) is that while equity will take a beating in a market downturn, my dividends will continue to roll in – or at least mostly roll in with a few cuts now and then – given that my dividend stock choices are in things that people are ‘stuck’ with even in a downturn.

Consider communications, utility bills, gas for the car, food and drugs – or am I wrong?

My equity component CAN take a big beating (for about 18 months!) before I’d worry.

Can you talk about dividend portfolio resilience in a future article?

Thanks very much.

That’s a great topic to write about and I intend to do just that in the coming weeks. Maybe I’ll post a few articles around that theme. Stay tuned!

While the COVID-19 triggered market crisis has been a challenge to navigate, I haven’t sold a thing. Sure, my dividend income is down (a bit) with dividend cuts incurred inside my taxable account and our TFSAs in particular, but overall, our dividend income is UP over last year. 

I attribute that to RRSP contributions and investments made inside those accounts AND the fact that I’m DRIPping almost all my stocks every month and quarter to earn more shares commission-free. 

Do you have a “bucket” strategy you are going to employ to buffer any downturn?

I will, just not fully implemented now in my working years.

In this article I wrote about how much cash we intend to keep to start semi-retirement. I still feel even with COVID-19 impacts that seems to be a great starting point. 

My Own Advisor Bucket Approach May 2019

So, in my financial future, I’m absolutely going to employ some sort of “bucket” scheme to weather any major market storm while protecting my capital.

That said, I do, like you believe while my equity holdings will take a beating in any prolonged market downturn my dividends will continue to roll in – for the most part.

I too, invest in things that people are ‘stuck’ with. I figure:

  • People like the internet, so I own telcos like Bell, Telus, AT&T and Verizon.
  • People like to heat and cool their homes, so I own utility stocks like Fortis, Emera, Algonquin Power, Duke Energy and more.
  • People need drugs and last time I checked, they like their healthcare, so I own Medtronic, Johnson & Johnson, Pfizer and a few other healthcare stocks.

You get the idea!

Here is a recent article about some top stocks to own to weather COVID-19. Let me know your thoughts! 

In the meantime, I will definitely consider some articles about that theme on dividend resilience.

Thanks for your questions!

Here are some great reads

5i Research wrote about the market not being the economy.

Dale Roberts told us the traditional balanced portfolio barely felt a thing during the COVID-19 crisis. iShares XBAL is a great all-in-one product to consider for investors who want some bonds sprinkled-in with some stocks for a balanced long-term no-fuss investing approach. 

You can find my article on the best all-in-one funds to own along with a host of other top-notch ETF articles on this page here. 

While XBAL is one of my top all-in-one funds to own I think if you’re in your 30s or 40s, I would suggest you go for more growth. A balanced fund or balanced allocation is likely more suited for those nearing retirement.

When it comes to growth, in fact, a reminder that iShares just recently released a 100% equity fund (XEQT) to consider:

XEQT MER 0.20%

Image courtesy of iShares.

Retirement Manifesto legitimately wonders if we/the U.S. are facing a major retirement crisis. This stat boggled my mind:

  • 45%

“The percentage of Baby Boomers who have nothing saved for retirement according to research from the Insured Retirement Institute.”

The Dividend Guy wrote about some stocks that might be worth owning given their share price has plummeted. 

Dividends Diversify highlighted UPS as a stock to own.

On Financial Independence Hub there was a good reminder about withholding taxes not driving the investing bus.

Speaking of reminders…a final, last-minute one..if you haven’t already done so you need to file your tax return!

Just for being a fan of My Own Advisor I can offer you the following 15% off discount to every single reader using TurboTax Canada this year. Grab that deal now!

TurboTax 2019 discount

Be sure to check out my other standing Deals here:

Happy Investing!

Mark

My name is Mark Seed and I'm the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, we're inching closer to our ultimate goal - owning a 7-figure investment portfolio for semi-retirement. We're almost there! Subscribe and join the journey. Learn how I'm getting there and how you can get there too!

13 Responses to "Weekend Reading – Dividends in a downturn and retirement crisis edition"

  1. Hi Mark.

    Just a heads up.
    This week I opened a TFSA, RRSP and Corp trading account with BMO for my wife. I tried using your BMO promo codes but they didnt work. When I tried to use them it caused the sites to freeze up. I ended up working around it but was unable to receive any promo deals.

    Reply
    1. Thanks for letting me know. I’m going to pass your name off to the Marketing Manager I deal with at BMO, if you want (?) to see what they can do.

      I know one promotion just ended (from BMO InvestorLine) but hopefully they can do something. Happy to help. Let me know if you want me to proceed.

      Mark

      Reply
    2. FYI – I followed up with my Marketing Manager for you Anthony. They suggested you contact their call/contact centre for BMO InvestorLine and they can enquire for you. In the meantime, I have forwarded this email to the Marketing Manager to see if they can do anything.

      Between your follow-up and my reach out, worth a shot.

      Take care,
      Mark

      Reply
  2. Hi Mark,

    My wife and I are retired for the last few years and now just keep it simple as far as the investments.

    ZBAL in the TFSA’s and RRSP/RRIF. We also have a small amount in TD Balanced Index Fund to collect the distributions from ZBAL.

    All Canadian individual dividend growth equities in the taxable account. I always expect a few dividend cuts over the years, but that’s just part of investing and expected if you’ve been doing it long enough. Hopefully, not too many more cuts and suspensions this year. We’ll see.

    Aside from an emergency fund in a HISA, that’s about it.

    I literally had to learn the value of simplicity when it comes to investing. A bit more difficult to do when I first started investing well over three and a half decades ago.

    I enjoy reading your blog. Thank you for your efforts.

    Reply
    1. Graham,

      I’m doing almost the same thing as you, using ZBAL in my RRSP/TFSA although I also have an allocation to ZSP in my TFSA to counteract home bias in balanced ETF’s. It also provides some balance against all my Canadian individual equities in my taxable account. I setup all my registered accounts to DRIP though, so all distributions from ZBAL get reinvested at no cost. Why use the TD Balanced Index Fund? It appears to just complicate things and you’re paying a 0.89% MER with a heavy home bias.

      Reply
      1. ZBAL is a great fund. I’m considering owning something of the sorts for my wife in future years so she can manage the portfolio easier should something happen to me. It’s actually in our IPS (something I want to post on the site this summer).

        I think CDN equities in a taxable account make great sense. I keep mine there.

        Aren’t DRIPs the best? More shares or ETF units commission free? Just amazing. 🙂

        All the best Tim,
        Mark

        Reply
      2. Tim,

        I didn’t think my brokerage allowed DRIP’s on ETF’s, but searching further on the internet it’s a good possibility that they do. I’ll have to phone in one day and ask to see if ZBAL would be eligible for a DRIP. If so that would eliminate the need for the TD Balanced Index Funds in the accounts to scoop up the quarterly distributions.

        Thanks for jogging my mind.

        Reply
        1. TD should allow you to pretty much DRIP anything. Same goes for RBC and BMO, although for BMO I recall there was a time they did not allow DRIPs for any U.S. stocks but that might have changed.

          All brokerages are definitely not created equal. Let me know what you find out 🙂
          Mark

          Reply
    2. Like I wrote to Tim, ZBAL is a great ETF for all-in-one investing. I might so with something similar in the coming years for part of my wife’s portfolio.

      I too, always expect a few dividend cuts now and then but these days are really unprecedented. So far, only 3 cuts in my portfolio which stings but is not the end of the world.

      I will likely start building our cash wedge in the coming year or so. The goal is to have $50K so we have a long ways to go yet 🙂

      Thanks for the kind words about the blog – great to read that stuff 🙂
      Mark

      Reply
      1. You’ve done better than me Mark. I’ve had 3 cuts (CSW.A, IPL, LNF) and 2 suspensions (CAE, RCH). Twenty four other Canadian companies in our portfolio have not have any cuts………..yet.

        Reply
  3. Hi Mark, Thanks for mentioning the UPS review! Like you, I believe essential service providers will help sustain an investment portfolio during the tough times. I’m not sure the tough times in the stock market are over. Overall valuations seem a little overly optimistic to me right now. So, I’m sitting on a little more cash than normal especially with interest rates so low. Tom

    Reply
    1. I don’t own UPS myself but I could see this business thriving with all the COVID-19 mess. Hard to say if valuations are too high or not but they do seem frothy!

      All the best Tom,
      Mark

      Reply

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