Weekend Reading – DIY investing, Smith Manoeuvre, Canadians not saving and more

Welcome to some fine Weekend Reading friends.  The blog was busy this week – I managed to post three articles:

This one about our 2016 financial goals

This post about starting our journey out of pricey mutual funds and into low-cost Exchange Traded Funds

This other post about changes sweeping through the financial industry about better disclosure and transparency for investors.

Any big plans for the weekend?  Ours include connecting with family and enjoying some downtime from the office.  Whatever you are up to – enjoy.  See you here next week.

Mark

Preet Banerjee did a stellar job with this 0% car financing video – explaining it can cost you more money to take the 0% car financing “deal” from the dealership than taking the cash discount offer, and getting your car loan from somewhere else.

Money We Have shared the pros and cons of Do It Yourself investing.

Million Dollar Journey (MDJ) answered some questions about the Smith Manoeuvre.  I’m personally not a big fan of this approach – leveraged investing using the equity in your home using a Home Equity Line of Credit (HELOC), so by borrowing to invest, the interest on the HELOC is tax deductible.  It is however hard to argue with MDJ’s discipline and success.

The Blunt Bean Counter continued with his “best of” posts as he improves his golf game.  My golf game needs work but it’s getting better.

According this article and recent survey, nearly half of working age Canadians are not saving for retirement.   That won’t end well…

Here’s what my friend Som Seif learned from his investing mistakes.  Don’t trade to beat the markets, avoid hot stock tips, stop your fear of missing out, and let go of investing regrets (when selling assets) top his list.

Here’s a list of benefits for life insurance.   This is the best reason (in my opinion):  debt elimination at an important time.  “If you have debt, do your loved ones a huge favour and provide them with greater financial security by paying off your debt with life insurance proceeds when you’re gone.”

Financial Uproar shares his approach for buying dividend paying stocks.

A reminder to please vote for yours truly at the Plutus Awards!

John put some time and thought into this calculator – the GTFO of the GTA calculator.

Tawcan shared some financial independence assumptions.  Thanks for the mention.

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7 Responses to "Weekend Reading – DIY investing, Smith Manoeuvre, Canadians not saving and more"

  1. @Canadian Savings: doesn’t surprise me one bit, for a couple of reasons. First might be a the unending steep rise in living expenses versus stagnant incomes, thus people have nothing left at the end of the day to save (remember, at least half of all working Canadians make less than $35,000/year gross). Second, why “save” when all you’re going to get is 1%…but the inflation rate is 2%? Better to buy stuff with today’s money so it doesn’t cost you more with tomorrow’s money. The only other option is the stock market, but who can figure THAT out! And I don’t want to lose what little money I have saved. Perhaps thirdly, people might read headlines like Canadian banks selling negative rate bonds (but not understand the concept) and say “Why bother even trying?”.

    Yup, current retirees are “happy”, but they’ve also ridden the back of two great bull markets and era of asset inflation. Won’t be as easy for all ensuing generations. Perhaps the author of the study, HSBC, could create a low-cost money laundering fund for Canadians, it seems to have been quite profitable for them. 😉

    @Tawcan: can we please, once and for all, eliminate the phrase “financial independance” from the PF lexicon! There is no such thing, it does not exist. ‘Financial optionality’ would be a better, and more precise, choice of words. We cry for clear and transparent communication from the professional side (e.g. CRM2), yet the amateurs still demand on using nonsensical verbiage to hype the glamour. It does nothing, perhaps even exacerbating the condition of my first comment (saving rate).

    @Smith Manoeuvre: best to have a 25-year time-line if you want to attempt this (e.g. get a 25-year mortgage and start the SM on Day One). Although, when this strategy was “invented” and popularized, it was during a prolonged era of declining loan rates, meaning it was easier (less risky?) to implement. I can’t see rates jumping materially any time soon, but a low-rate environment might be the worst time to initiate the SM — there’s very little money at play, it grows substantial, obviously, closer to the end…15+ years in the future when rate could be substantially higher than they are now. The question is, will dividends (and cap gains), be high enough in 15 years to cover the cost of borrowing? Think very logically and very seriously before taking the leap. (Full Disclosure: I Smith Manoeuvre…with a twist.)

    Of interest: This week private company Dollar Shave Club was bought by public company Unilever…for $1 billion. Massive return for the investors and founders of DSC — $900 million, or 78%/yr annual return. Not bad for only 4 years of “work”. Guess we’ll have to think up new lyrics for the old ditty, “Shave and a hair-cut…waaaaay more than two bits!”

    Reply
  2. Enjoyed the Nelson article. Comments like:
    “I’m just opposed to the very specific form of dividend growth investing that’s sprung up today. Basically, these folks limit themselves to a certain number of stocks with a history of growing the dividend annually.
    There are a few problems with this strategy. Firstly, it’s very crowded. Everybody knows Coca-Cola, Johnson and Johnson, and Fortis are great dividend stocks. Investors have flooded into them which has pushed valuations higher than your average 2am visitor to 7-11. There’s very little value in traditional dividend growth stocks today.”
    Agree that most of the good DG stocks are expensive because people are seeking an outlet from low interest rates (and there has been many articles listing the advantages of them). That will change, especially if there is a correction and the price of these stocks drop. Many will panic, switch to etf or the passive indexing route or just seek higher growth stocks. For me I’ll be adding to my holdings and hope the price continues to go down.
    But I disagree that one should avoid those stocks, rather I suggest that one pick the time to buy those “certain number of stocks with a history of growing the dividend annually.”.

    Reply
    1. I will be more than happy when people don’t buy or they start selling Coca-Cola or JNJ. Cheaper prices for me long-term.

      I do agree with Nelson that you don’t HAVE to limit yourself to blue-chip DG stocks, but I have bias for large-caps, although I have a few smaller cap stocks that pay dividends for potential upside, like him.

      Reply
      1. Mark: “I do agree with Nelson that you don’t HAVE to limit yourself to blue-chip DG stocks,”

        You know I’m down to 18 stocks with a fairly large portfolio, and looking back 15 years I wish I’d limited it to 15 of my stocks. Your still a few years from your goal, but if your interested, why not put together a list of 15 of your stocks you consider core holdings. Set up a worksheet with just those and after 10 or 15 years compare how they have done against your entire portfolio (even if you add other stocks) and the etf’s.

        Reply
        1. I might just do that. I have 40 stocks, 30 from Canada and 10 from US. That’s probably plenty outside of my ETFs. If anything, the indexers will say I have 40 stocks too many!

          Reply

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