Weekend Reading – Excellence and the Stock Market

Weekend Reading – Excellence and the Stock Market

Hey Everyone, 

Welcome to a new Weekend Reading edition about excellence and the stock market.

My inspiration for that theme will come very soon, but first, a few recent reads:

In case you missed it, here is a helpful retirement income case study about a 40-something couple that wants to retire, in a few years, and would prefer to work part-time vs. full-time to get there. Can they do it? How much additional investing would that take to scale back? I have some guidance in that post.

While some might investors invest differently than I do, all good with me of course, I continue to see the benefits of income generation from part of our portfolio that should keep my withdrawal rate modest and fairly predictable in retirement. 

I shared our latest monthly dividend income update here. 

May 2024 Dividend Income Update

Weekend Reading – Excellence and the Stock Market

Excellent take on staying invested, your win rate is pretty much guaranteed over long periods of investing – not unlike the success of Roger Federer over his career.

With thanks to A Wealth of Common Sense. 

Win rate by holding period - Time in Market - A Wealth of Common Sense

Source/attribution to https://awealthofcommonsense.com/2024/06/roger-federer-vs-the-stock-market/

Again, Dividend Growth Investor shared a similar take recently on X/Twitter – avoid market timing – stay invested. @DividendGrowth. 

The cost of timing the market - Dividend Growth Investor

To support readers that don’t subscribe to The Globe and Mail, I found this article very interesting and I hope you do too related to the latest CPP Annual Report. A great read. And don’t be worried about CPP being sustainable:

“The most recent triennial report by the Office of the Chief Actuary confirmed that the CPP is financially sustainable for at least 75 years.”

The Globe article focused on why indexing can be a great way to invest for most including the CPP team:

“The Canada Pension Plan Fund had a bad year last year. You’d never know it to read the latest annual report from the fund’s managers, the CPP Investment Board, which spends much of its nearly 80,000 words boasting how, thanks to the herculean efforts of its employees and the sophisticated investment stratagems of its managers, it eked out an 8-per-cent return on investment for the CPP’s beneficiaries.”

So…

“What does that mean? It means that if the fund’s managers had stopped trying to pick stocks and just bought index-linked ETFs like the rest of us – a strategy, known as passive management, that could be executed by your average high-school student – they would have earned more than twice as much on their investments last year as they in fact did.”

I found Ed Rempel’s advice to a Canadian podcaster / friend of mine (Kornel) pragmatic when it comes to his semi-retirement plan. This includes:

“a) Defer paying tax as long as possible. A good example of this would be using a tool like the RRSP.

b) Or manage your income to always be in the lowest tax bracket once you hit financial independence/retirement. For example, taking advantage of how different accounts like the TFSA and RRSP are taxed, so that you and your partner are always in the lowest tax bracket when living off your portfolio.”

We’ve followed this advice for years.

We max out our TFSAs every year and prefer to do that as a priority. Evidence from my original post in 2012. 

We defer taxes via our RRSPs.

For some investors, like my podcaster friend, it could be wise to withdraw only from non-registered personal investments for your lifestyle (which we intend to do in the coming years) and like Ed mentioned “…plus keep contributing to TFSA & RRSP from non-registered until they are depleted.”

This article pointed to some potential (major) retirement saving-planning shifts that younger generations are making to build wealth.

“While traditional stocks and bonds still top the list of investment options for older wealthy individuals, younger rich investors place six options above traditional investments:

  • Real estate (31 percent)
  • Crypto/digital investments (28 percent)
  • Private equity (26 percent)
  • Personal company/brand (24 percent)
  • Direct investments into companies (22 percent)
  • Companies focused on positive impact (21 percent)

Consistent with that pattern, younger groups of wealthy investors tended to hold more crypto and alternative investments in their portfolios than older investors.”

It will be interesting to see if they are successful longer-term!

Dale Roberts wondered what other perceived mistakes some investors are making. Thoughts?

Common Investor Mistakes - Dale Roberts

Last but not least, a reminder the 4% rule remains a great rule of thumb.

Beyond my post, this article in The Globe and Mail (subscription) highlighted the 4% withdrawal rate from your TSX stock market retirement portfolio, in an upgraded 60/40 stock to bond split (vs. the 50/50 mix) from Bengen’s study revealed your portfolio would remain very resilient even during tough times. 

If you are drawing down 6% from your portfolio over time, well, not so much!

4% Rule - 60-40 TSX Globe and Mail June 2024

Stay well, and have a great weekend!

Mark

My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.

18 Responses to "Weekend Reading – Excellence and the Stock Market"

  1. I am not fully aligned with Ed Rempel’s take on RRSP – I actually have too much and I need to do a meltdown to avoid hitting the highest tax rate when my OAS and CPP kick in. I would be subject to a full OAS clawback if I focus on lowest taxes now until I am forced to convert to a RIF at 71. My estate would also suffer. It’s similar with my corporation, I am better paying more tax now (pull more dividends than I need) to save taxes later. Even if I die younger, my estate should also be much better off because I will extract more funds now and move to either TFSA (each year. currently maxed out) or a non-registered account. Otherwise, both the RRSP and corp investments will be taxed and cut in half.

    As you say, investing is personal and depends on an individual’s situation. Blanket statements about maxing RRSP or keeping funds in a corp and waiting to extract as late as possible doesn’t always work.

    Reply
    1. That’s my thinking as well, Sandra, in that I am trying to pay more taxes now vs. later given all the unknowns.

      I’m not a fan of some financial advisor advice sometimes but Ed did hit on a few points that were positive IMO.

      It seems if you can funnel as much as you can into the TFSA from your corporation, now, that is good longer term. I know a few folks slowly winding down their corp. before they are 70 to avoid having RRIF income coming online, with CPP income, with OAS income, etc. and having a very lumpy tax hit. Doesn’t seem good to defer taxation so much in that case.

      “Blanket statements about maxing RRSP or keeping funds in a corp and waiting to extract as late as possible doesn’t always work.”

      I echo that.

      Thanks for your important comment.
      Mark

      Reply
  2. When I look at the 6 investments that the younger generation is buying I get most of them and even use some of them myself. However I don’t get the crypto or digital investments. It’s not like gold which I somewhat understand why it goes up and down in value. Crypto is a complete mystery to me and something I will likely never invest in. If you don’t understand how or why it moves up or down then why invest in it? Guess I’m old school and prefer the more traditional investments.

    Reply
    1. I hear ya, Don – not into crypto myself and never have been.
      I also prefer more tangible and traditional investments but maybe I’m not being “open” enough on these things?

      I dunno – I’ll keep doing what I am doing. So far, so good!
      Have a great weekend,
      Mark

      Reply
  3. Hi Mark ~

    Great post as always, thank you! And as always, I read every word. One question regarding index-linked ETFs: with the usual caveats that it wouldn’t be investment advice, are there any that you particularly like?

    Thank you,
    Barbara

    Reply
    1. Thanks very much, Barbara. Any particular examples in mind?

      I’m more of a fan of avoiding such products but that does not mean some don’t have merit depending on the investor goals, fees/MERs, amount invested (i.e., small %?), etc.

      Let me know and I can offer a take!
      Mark

      Reply
  4. I’ve left behind growth investing in technology at any price since the late 1990’s. Obviously that hasn’t worked out too well for me in about the last fourteen years, but I just plod on buying and adding to our all Canadian dividend stocks in various sectors ex-technology in our taxable portfolio. Even in our TFSA’s it’s all about the dividend. XDG is our only holding and Morningstar shows the largest sector is consumer defensive at around 20% with technology at only just 5.5%. In retirement I just save and re-invest dividends for both portfolios. As far as growth of capital, whatever we get we get, so I’m in probably one in a very small minority who are not interested in the concept of total return.

    Reply
    1. CJ (57, will retire at 59) · Edit

      DividendsOn,

      I switched from a growth to income portfolio many years ago. I set my goals as follows: 1) a 4.5% overall starting yield, 2) a reasonable amount of dividend growth, 3) only sell a stock if the underlying business changed, 4) in the very unlikely event I needed to sell a stock to fund my retirement, to sell it for what I paid for it. Although I do look at my total return on occasion, my focus is on a steady and slowly growing income stream. I fully admit I’ve missed out on other market opportunities, but to each their own.

      I also focus on Canadian Dividend Stocks, complemented by dividend ETF’s (XDIV and XEI).

      CJ

      Reply
    2. Ya, I mean, woulda, coulda, shoulda with just a tech focus.

      Low-cost XAW approaching 10% of the portfolio and my tech-focus with QQQ is about 2% overall.
      Otherwise, it’s a mix of mostly dividend paying stocks from Canada and the U.S. for higher income and some growth over time.
      So far, so good. I hope to crack $46k in the coming months!

      Totally get the reinvest dividends part, doing that in our TFSAs and no intention of stopping.

      Thanks for your comment,
      Mark

      Reply
    3. Totally Enjoying Retirement · Edit

      My thoughts exactly. We invest in Canadian dividend stocks in our non-registered accounts and TFSA’s and in our registered accounts we have a S&P 500 index fond at 70%, 2 bond index funds with 10% each and 10% in a HISA that pays 4.75%. Our company will be out of funds next year some time and then we might up the percentages of the bond funds and HISA then.
      I guess that after the company runs out of money, we’re officially retired. Last year, I didn’t work and the last 8 years before, I only worked the winters. That helped getting money out of the company and also helped big time with the retirement transition.

      Reply
      1. That sounds very solid, Totally! 😉 = Canadian dividend stocks in non-registered accounts and TFSAs and then focus on more S&P 500 stuff in your RRSPs; HISA that pays 4.75% is a solid safe, interest rate.

        I assume your drawdown plan has your RRSP/RRIF assets going first?
        Mark

        Reply
        1. Totally Enjoying Retirement · Edit

          That’s correct. We built our house 30 years ago and the registered accounts can pay for some upgrades and the non-registered account and TFSA’s along with CPP & OAS gives us a really good living. We’re not looking for total return. Just a growing income and enough to pay for some extra services as we get older and may require help to stay in our house.

          Reply
          1. Amazing.

            You, like some other readers, seem to fully understand and reap the benefits of RRSP/RRIF drawdowns sooner than most; balancing that with non-reg. tax-efficient income from CDN stocks.

            I have no doubt based on your comments that “growing income” is the goal so along with CPP and OAS – seems like you’ve nailed it.

            Kudos.

            I hope to follow in your steps, other readers here who have done exceptionally well with similar strategies. Our plan is coming together month-by-month.
            https://www.myownadvisor.ca/may-2024-dividend-income-update/

            Cheers!
            Mark

            Reply
            1. Totally Enjoying Retirement · Edit

              Many thanks Mark. I also follow Daryl Diamond’s advice about layering your income and I think we have a solid plan. We will start this plan when all the company money is depleted and will also start our CPP & OAS then. All the best.
              Enjoy your blog and good luck with your portfolio. 😊

              Reply
  5. Lloyd (64, retired at 55) · Edit

    Not to be a downer but I have issues with a couple of things.

    First, the “% of time S&P 500 is positive”. If being in a positive state is the sole criteria, one could make the case that a portfolio of GICs over the same time period would be positive for 100% of those time frames.

    Second, it is silly to contemplate that an investor could possibly cherry pick out the best days. It might be *somewhat* more revealing and relevant if they had also eliminated the same number of worst days for each time frame. Although it would be just as silly. No one could be that good/bad to have missed just those particular days.

    I comprehend that reasonableness doesn’t always generate eyeballs on stories.

    (maybe I need more coffee?)

    Reply
    1. Not a downer at all, Lloyd.

      But…the graphic just tries to make the strong point that missing the top stock market days can be very damaging to your portfolio wealth-building power.

      I know you don’t have that issue because you’ve remained invested in your mix of equities and fixed income for years!
      Mark

      Reply

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