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.

Looking for lower cost investing solutions this year?

Make sure you use my promo codes on my Deals page here.

See you here again soon!

Mark