Weekend Reading – ETF battles, a stock market crash, millennials can’t buy a home, selling losers and more #moneystuff

Weekend Reading – ETF battles, a stock market crash, millennials can’t buy a home, selling losers and more #moneystuff

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.

Earlier this week, I published this:

This was an epic 2,000+ word interview with a former U.S. economist, now blogger who is enjoying a well-deserved, fulfilled retirement. We discussed why the “4% rule” just doesn’t work.

What are your thoughts on that?

Here are some snippets from the article:

On advice to others to achieve financial success:  “Automate not just your savings but also your investments.”

On the subject of when to invest: “A lot of folks do a great job at curbing consumption and saving money but then never dare to invest the cash for fear of catching the market peak right before the next bear market. I know people who said the S&P 500 was overvalued at 2000 points. Years later and missing out on 50+% returns they are still waiting for a correction!”

On what is a more realistic withdrawal rule: “We have a spending target of around 3.25% of our portfolio value.”

Smart stuff.

Any plans this weekend?

I have some much needed final Christmas shopping to do this weekend but otherwise, I’m very much ready for the holidays and looking for some downtime. Can’t wait. I hope your plans are coming together as well!

Holiday cheers, see you here next week.

Mark

Weekend Reads

Congrats to Robb Engen for all the accomplishments in his decade in review. I hope to publish my decade in review soon as well.

Frugal Trader wrote about the battle of the all-in-one ETFs: Vanguard vs. iShares vs. BMO. Personally, I think any of these low-cost solutions are great when compared to pricey mutual funds. That said….I think for most investors with a multi-decade investing time horizon on their side, they should consider investing in VEQT in their RRSP or TFSA or both. Why? VEQT is:

  • A very simple all-in-one equity ETF – that provides instant diversification into > 12,000 stocks.
  • It’s a fund of funds, with about 40% titled to the U.S. market, 30% to Canada and the rest to around the world. No re-balancing required by you.
  • The management fee is a skinny 0.22% to pay someone else to do the work for you, a fraction of the cost of tradition funds.

While 0.22% is great, here is what I consider the best ETFs for your RRSP. These are not all-in-one ETFs specifically but there are ETFs with fees as low as 0.03% in my list!

I’m not a HUGE online shopper but many people are. For those that love to shop, and online, Canadian Budget Binder has an ultimate guide for cashback online shopping here.

I enjoyed reading on Jon Chevreau’s site about some great retirement planning programs.  I hope to take a more detailed tour of these programs, including potentially Cascades, in 2020.  

Will the stock market crash in 2020?  Money In Your Tea wondered that too. What do I think? We’ll see what happens but I think we’re bound for a small correction. I’m cheering for it. I like my stocks cheap.

Justin Bender helped answer the question: should you sell your losers?  As always, I think the answer is “it depends”. I’m fortunate (I guess?) that I have very few “losers” in my portfolio. I have a capital gains problem in my future. Some of my Canadian stocks are up almost 100% – and I’ve been buying some more shares over time to reduce my adjusted cost base. Anyhow, I definitely think you should consider selling “losers” (including ETFs) if you are striving to become more tax-efficient with your portfolio. Otherwise, you should be very strategic and attempt to sell losers (if you have them) to offset major winners over time.

Dale Roberts wondered if the 60/40 equity/bond portfolio is dead. I doubt it myself yet I have a different plan. I’m 100% dividend paying stocks + a few low-cost ETFs + some cash.  That is my portfolio.  I’m optimistic just from my non-registered account and our TFSAs (x2 accounts) in 2020, the income stream from those three accounts alone will be > $20,000 per year.  

Should you invest at all-time-highs?  Yes, so says Can I Retire Yet?  Agreed. 

Rob Carrick discussed what happens to millennials if they never get into the housing market?  Probably some considerable wealth building. Millennials need to remember this point that Rob made, one that I make all the time on this site:

“Frankly, homes are overrated as a retirement asset because they’re illiquid.”

A home is a place to live. If it appreciates in value, over time, great but don’t expect it to provide any windfall.  A home is also an expense with rising maintenance fees, property taxes and more. Choose wisely!

Tom Drake from Maple Money reviewed TD e-series funds. 

Roadmap2Retire shared three interesting new buys. 

GenY Money doesn’t want women to be financially dependent on a man. From her post in discussing raising her young daughter: “I want her to choose a good man who will respect her as a woman, and not see her as his emotional punching bag, or see her as his property where he can verbally abuse her at his whim at a check out line at No Frills.”  

Reader question of the week (adapted for site):

Hi Mark!

I am new to investing and found your site. Thank you for the helpful articles, it’s very well written. I’m particularly interested in dividend stocks. I’m wondering if you could help provide some clarification regarding investing in Canadian dividend paying stocks in a maxed out TFSA. I’m unclear whether the payout of dividends affects a maxed out TFSA to me?

I mean:
1) How are the dividends paid out within the TFSA? Does it get re-invested automatically?
2) Are there any tax implications regarding the dividend payouts inside the TFSA?

Thank you so much!

Another awesome set of questions. Keep your emails coming folks!

OK, I’ll try and clarify as best I can. 

  1. How are dividends paid out within the TFSA?

They are paid out as cash unless you decide to reinvest those dividends paid into more shares. I do that for all of my stocks actually – I reinvest all dividends paid. It’s called a DRIP (Dividend Reinvestment Plan). Now, not all “DRIPs” are created equal which is why I wrote a comprehensive series on my site here.

The Coles Notes version is this: unless you instruct your discount brokerage otherwise, dividends will be paid out in cash and sit as cash in a portion of your TFSA. What I’ve done is I’ve called my brokerage and instructed them to please enroll the entire TFSA (including all current and future assets inside the account) for automatic dividend reinvestment.  That way, for any stocks that I currently own (or intend to own), once enough dividends are paid out to buy one or more whole shares each month or quarter when dividends are paid, that happens automatically and commission-free (i.e., it doesn’t cost me a cent). Reinvesting dividends automatically is a big reason why my portfolio value is where it is!

You can check out my dividend investing approach that is helping me reach financial independence in more detail here.

2. Are there any tax implications regarding the dividend payouts?

Inside the TFSA? For Canadian stocks? No way!  Isn’t that awesome?!!

Why is that you ask?

A TFSA is made with contributions with after-tax dollars. You’ve already paid tax on that money before you make the contribution to the account. Now that the money is inside your TFSA, it can compound and grow tax-free! Any earnings or growth inside the TFSA (including juicy dividend income) is also tax-free! TFSA withdrawals will be – you guessed it – tax-free!

Isn’t this amazing? 

Now, there are withholding tax considerations for assets held outside of Canada inside a Canadian tax-free savings account. You can read more about some withholding taxes on my Dividends page under “What to invest where“.

Of course for the TFSA a reminder I’m biased. I’ve been maxing out my TFSA for a decade now. In doing so, it has grown to a six-figure portfolio. Your TFSA can get there too.

Check out my TFSA 101 post here for additional details.

Here’s why the TFSA is totally worth it.

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BMO InvestorLine - January 2019

You can find other saving, investing, credit card and mortgage deals on my Deals page here.

See you here again soon!

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!

15 Responses to "Weekend Reading – ETF battles, a stock market crash, millennials can’t buy a home, selling losers and more #moneystuff"

  1. Tax Loss selling: These always refer to selling a stock which has depreciated in value (price) and it is now worth less than you paid for it. So you sell to take a loss and get to deduct the loss from any other sales you’ve made which you’ve had a gain in value.
    Selling is not high on my agenda, especially after taking the time to evaluate which stocks to buy, having owned them for years and they’ve paid and grown my income. However, there are times I might consider selling, but it’s not usually to take a hit on the price, in fact it’s the opposite. If a stock was not providing the income expected then I might consider selling when the price of the stock is up, not down. Then I could either hold the funds and wait for the market to drop or look to buy a stock on my list which is offering a reasonable yield.

    Reply
  2. Hi Mark,
    It is possible to have tax consequences on dividends paid in a TFSA if they are not from a Canadian company, i.e., withholding taxes.
    Cheers,
    MG

    Reply
    1. Yes, you and Dave brought up some great points so I updated my post just in case. The email question to me was from CDN dividend paying stocks but I don’t want to mislead folks MG. Thanks for catching that.

      Mark

      Reply
  3. I like the 4% rule. Not necessarily because of being exactly 4% but because it creates a sort of baseline to work from. You certainly don’t want to run out of money, and at the same time, no use dying with all sorts of money. Each of us has to calculate their own “rule” for withdrawal. And, I think, it has to be recalculated almost yearly.

    Reply
    1. I don’t mind it either to a point. Early Retirement Now is withdrawing just north of 3% from his portfolio so +/- 1%, for each person depending if they have a pension or other income streams, about 4% withdraw is a good starting point as long as your portfolio is mostly stocks. Anything less than 60/40 stocks to bonds or even 70/30 I would be concerned.

      Mark

      Reply
  4. I currently withdraw approximately 2.5% of my portfolio for my living needs, partly because I am one of the fortunate few to have a defined benefit pension plan. I reinvest the rest of my portfolio income, which is approximately 1.8% of my portfolio. The annual reinvestment is part of a plan to allow me private assisted living care, should I need it as I age. Otherwise, it will pass to my heirs. I don’t deprive myself, and I feel very fortunate to be in this situation, as I had no assets other than my paid-off house and my pension when I was 40 years of age. I invested a lot of my income from the time I was 40 until my retirement, living frugally during those years. I have always invested in dividend bearing stocks, which were also dividend growers.

    Reply
    1. Just 2.5%? Wow. That’s very good. A defined benefit pension is definitely an enabler for a conservative drawdown plan in retirement. Well done and lucky you jk.

      I too (as you might know?) have a bias to dividend paying stocks and dividend growers. Got a few raises recently which was great!

      Reply
  5. When I first heard about financial independence (FI), everyone was raving about the 4% rule. Now as I learn and read more it doesn’t seem so black and white. Originally we were using a 4% rule but had inflated our annual expenses so it wasn’t a true 4% of our actual annual expenses. Now we are focusing on income-generating assets so that it is less of an issue. Although we invest our RRSP and TFSA’s we also hold a bulk of our retirement portfolio in investment real estate. Yes, I think the 4% rule is a good target, but for us, it is not the be-all end-all.

    Reply
    1. I think it’s a great starting point Maria but I struggle with it as a hard and fast rule.

      With your assets in RE, I suspect you could likely enjoy some rental income and draw down your portfolio as you please.

      Reply

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