Welcome to some Weekend Reading friends. A stressful week for us this week, our cat has not been well and we continue to monitor her health after what was almost an overnight stay at our local animal hospital. We hope she is on the mend and of course we only want what is best for her. It sucks when your beloved family pet is sick…
Earlier this week I shared some of my favourite takeaways from The Retirement Income Blueprint and there are so many things wealthy people do better than me.
I’m a fan of the Financial Facelift series in the Globe but the math is certainly suspect for the affluent couple profiled in this article.
Holy Potato wrote about non-registered investment tracking.
This article says oil could hit $20 per barrel.
For dividend investors, how many stocks to buy and hold? Check out what The Dividend Guy and other bloggers think (including yours truly).
Millennials, and even other generations, will get rich slowly by following the advice in this book.
Peter Hodson, CFA, CEO of 5i Research Inc. shared his biggest financial mistakes with The National Post recently. You can find more huge investing mistakes to avoid here.
Our Big Fat Wallet chose a variable rate mortgage for his next term. I think this is a good move given rates would need to climb at least 50 basis points to be competitive with a 5-year fixed rate mortgage.
Here is a good sector overview of Canadian banks.
Big Cajun Man said don’t be afraid to live with your parents.
Boomer & Echo reviewed Let’s Get Blunt About Your Financial Affairs. I’ve started to read this book myself and hope to giveaway some copies later this month.
Here is some great advice from Brighter Life about prostate cancer screening. I guess I’m getting to that age…
Want to know more about the party platforms in the federal election?
Read about what consumes your mind controls life, from Blonde on a Budget.
Money We Have wrote about factors that affect your life insurance premiums.
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.
Mark:
Read the Real Retirement, Hmm. There is some good information in the book and it does bring up several good points regarding how much money one can live off of (meaning one can live off less the norm 70% of working income). But… I’m not sure what country he figured out the Income Tax on retirement income? $83,500 income with $8,900 tax? Probably more like $12,500.
Taking a very very conservative on investment and not one mention of dividends. Sates that if one has less than $500,000, mutual’s or etf’s are your best choice. Over $500,000 call an advisor! Then towards the end of the book he suggest annuities (not that those may not be a good choice for some), where you turn over your money to an Insurance company and get a FIXED INCOME for the remainder of your life.
Good discussion on Real Return (after 2.5% inflation, which I think is low. I like 3.5% to 4%). Suggests 3.9% is possible on a 70/30 stocks\fixed.
I also found some of the math off in the book but that’s just a small quibble. Lots of books have errors I find…
I also find a bias for every book written by an advisor or financial professional says to consult an advisor or financial professional. 🙂
I don’t think anyone under age 70 or 75, from what I’ve read about annuities, should consider them. Especially at today’s rates. Maybe I don’t know enough about annuities yet!
I’m planning for a 4% real return on 100% equities. That might be conservative but that’s my nature.
Thanks for the comment as always Henry.
Great set of reads, thanks
Most welcome Steve, thanks for reading.
Hi, I don’t mean to complain, but I can’t access half of the links in your post. I don’t have a subscription to the Globe and Mail or Financial Post, and I would think that is true of many of your casual readers. In the future could you please link to more sources that don’t require a subscription? Otherwise keep up the great work, I do enjoy reading the free content 🙂
You are not complaining and this is a good reminder for me. Thanks for raising this issue I apologize for the headache.
Henry, I doubt that couple will follow that plan in any case. They’re too smart and will seek other advice.
Mark, I read The Real Retirement maybe a couple of years ago. This reinforced the conservative expectations I had already set for our portfolio.
As to people a little younger than me retiring when I did, they and you will be fine, if wanting it enough and staying focused. I think you know, as stated in my profile within a couple of years of your age I did not save anything going forward due to career related circumstances. I actually took significant money out of the portfolio. Astute people like you can also now take the savings on the low mortgage rates, and invest it or pay off all debt even more quickly.
I guess the likelihood of lower investment returns is the new reality for future retirees, current retirees, pension managers etc. However 1-2% returns on bonds will likely force people into other options- many that will likely have higher risk. It probably won’t be acceptable for me either.
I look forward to reading more about OAS and seeing some opinions on it and perhaps offering mine FWIW.
If one can buy low-sell high your bound to make money. Trying to pick ones which meet that, or making the most out of it, is difficult. There are great growth stocks and many have the knack and talent to pick them.
Identifying good DG stocks, even if they are the ones you own, and determining when they are reasonably priced is much easier and you are almost certain on what you will get, a growing income. That’s why I stuck with so few and don’t bother with any others. I’d rather own a lot of a few great stocks, than a bunch of stocks just to cover the market sectors.
With regards to The Real Retirement, they may well be correct but for me it doesn’t it matter? Stick with DG and your capital growth will follow, regardless of the economy, eventually. If the firms continue to generate profits and increase dividends, the price has to follow at some point.
My yield is returning just under 6%, so why would I care that they are projecting equity growth of 5-6% (which is really year to year price growth). I want at least 5-6% Div Growth!!!
Oh don’t worry, I’m sticking with my stocks for sure. No plans to sell anything, only buy more and continue DRIPping what I have. I suspect investors who are banking on 7-8% return on a 60/40 stock portfolio are going to be very disappointed in the coming few decades. Just a guess of course. DG stocks that have the opportunity to raise prices, will be good investments in my opinion.
On another note, I have a post coming out tomorrow – personal finance issues that should be election issues. One subject is very controversial: OAS. I look forward to your comments on it 🙂
Mark:
My wife made a great gain on SU when she sold. I bought on what I thought was a dip, but it kept dropping (that was just before they bought PetroCan and I thought it would go up). I’ve ignored all energy stocks since, including IMO. For me they are just not reliable growth stocks with consistent dividend growth. Stick with ENB.
Got a few hundred shares of ENB Henry. That was actually my first dividend stock owned and still own it. Not plans to sell and happily DRIPping a few shares every quarter. I am tempted to buy more SU and CNQ for TFSA in 2016. Not a good call?
Deane:
Just jazzing him. As you say, not enough information on how he could arrive at that amount. Is he projecting much higher contributions, riskier stocks or reits to raise the yield, etc? The figures don’t seem reasonable unless he provides more detail.
Even if he did his analysis for free, I’m sure he would expect them to go with his recommendations and than he’ll get a fee, at least till his projections don’t pan out, or he’s much smarter than me and they do (with the 60\40).
Henry, I guess I’m wondering how they came up with their number. Maybe I’m missing something.
I hear what you’re saying but In this case we don’t know if there is a fee involved since the the Globe “asked’ the planner to “look at their situation”. Even if there is a considerable fee involved for overall management this shouldn’t relate to or result in a suspect plan, with very optimistic assumptions and projections, with the fee being a further drag. To me this would be a most unsatisfactory way to justify a fee. It’s highly unlikely this planner will achieve consistent market out performance. Again, unless I/we are missing something significant.
Deane H:
” It’s interesting to me this award winning planner sees a MUCH MORE positive outcome for their retirement assets. I wonder how.”
How else can they justify their fee?
I agree the couple in the Globe story have done very well to date, and are to be commended.
Regarding the planners rosy outlook for their financial future I’m much more in doubt. A key take away from my past experience is use conservative projections for your savings and nest egg. It’s easier to retire earlier or with more than adjust with much less or work longer than planned.
I interpreted their investment horizon to retirement as being 15 years since it is stated they are mid 40’s and their goal retirement ages are 60 and 62.
Virtually anything I read suggests historical averages for stock returns are expected to be lower going forward. Also its likely that fixed income will under perform at least for the foreseeable future. IMHO, a possible return would be 5-6% range for them – or somewhere
between 2.5% and 3.5% real return, although there are experts out there with lower projections than that (my assumptions).
Using a calculator by dinkytown I assumed 15 years to retirement, a starting balance of $1M, contributions of $2220/mth (1500 TFSA, 360+360 matched pension), annual compounding. These monthly contributions may rise in time with wage increases and cessation of child education savings but I found no way to easily consider this. $360/mth pension contribution (2% of income) seems like a small percentage compared to typical DC, unless a lot of income is performance related and not eligible for DC pension matching. (my own experience)
Using 7.4% target yield this generates assets of $3,635,660 (20 years to retirement would generate $5,355,739)
Using 5.5% target yield this generates assets of $2,847,083 (20 years to retirement would generate $3,874,096)
Using 12.7% target yield this generates assets of $7,131,624 or very close to the planners number (20 years to retirement would require a yield of 9.1% to generate $7,153,476)
DIYer’s will do their own research and make their assumptions accordingly. It’s interesting to me this award winning planner sees a MUCH MORE positive outcome for their retirement assets. I wonder how.
I have the same assumptions for our portfolio Deane. Actually, I’m counting on only 4% real return going forward, that’s 100% equities.
I just finished reading The Real Retirement authored by some very smart actuaries. They are predicting basically 1-2% growth for bonds for the next 30 years. That’s just striving to keep pace with inflation. They also state equities going forward for a number of reasons will only generated returns in the range of 5-6% for the next 25 years.
People my age only have a few options to retire when you did: save more, spend less or work longer or all three.
Back to the article, any financial advisor predicting a penny more than 8% annualized long-term returns for any portfolio should be shot.
Mark:
With energy, there is the possibility of capital growth if one buys at the right time and gets out in time, but for long term growth why not stick with what you have and buy those when value priced. Cyclicals don’t have good div growth history, because they often cut when prices drop.
I’m seeing that now…especially with O&G stocks hit so far. So you wouldn’t own CNQ or SU? Even with these depressed prices?
Interesting read from the Dividend Guy survey. Clearly there is no consensus for each question, but they all seem to have their own objectives and clear direction. Seems like the # stocks ranged from 24 to 100. I think for US one has a greater selection of good stocks, where as here in Cdn we have less to choose from.
I’ve stated it before, my portfolio is over 1M and I hold only 20 stocks and would like to cut it to 15. I monitor dividends, dividend growth and periodically check company financials (basicly cash flow and payout). I do not rebalance or sell. YTD this year the market value of my holdings are down $90k (not below my invested value), but my dividends have increase $7.5k, so I’m happy.
I found that interesting as well. No consensus amongst us. I can’t see myself owning more than 50 stocks. I’ll probably trim that number as I get older. In Canada, I own all big banks, telcos, energy and utilities. We also own a handful of REITs that are getting hammered but will hold.
I do rebalance but not often. For Canadian stocks, I simply try to keep my sector allocation in line with the TSX Composite Index. I rebalance by buying a trailing / lagging stock in a sector that is out of favour. This means over the next year or so I hope to load up on SU, CNQ and other companies.
You have the portfolio we’re striving for Henry: $1 M – that’s our big goal!
As Deane states:
“They have about about 1M in assets now in mid 40’s and they’re going to have 7.1M in their early 60’s with their current savings rate? And they fear the current stock market? Annual 7.4% target yield for a 60/40 portfolio. This is from a professional? Geez.”
At a 8% growth for 20 yrs, $1m grows to $.4.316m, If they get 10% for 20yrs – $6.116m at 11% for 20yrs – $7.263m. Not impossible but not with a 60\40 for 20 yrs.
I could see annualized returns for a 60/40 being about 6% going-forward. Probably closer to 4% real return. That’s being realistic I think.
My portfolio is 100% equities and I’m hoping for 4% real return. The math in that article didn’t add up at all…
Cheers Henry,
Mark
I agree with your comment on the Globe Financial Facelift.
They have about about 1M in assets now in mid 40’s and they’re going to have 7.1M in their early 60’s with their current savings rate? And they fear the current stock market? Annual 7.4% target yield for a 60/40 portfolio. This is from a professional? Geez.
That math doesn’t add up for me Deane. Outside of that, they need to be congratulated for doing so well into their 40s.
The ‘money we have’ article on life insurance that you link to is better left unread.
First, cholesterol and HBP meds today mostly do not impact your life insurance premiums. The article states the exact opposite. Half my clients over 50 (making up numbers here) are on HBP meds, and they get standard rates almost the time.
Same thing with family health history. The article indicates that family health history is likely to impact your premiums. The truth is almost always the exact opposite. My mother had quadruple bypass surgery, my father has other health issues. I get standard rates.
Aaaaand he wraps up his final word with more nonsense. If you ‘top up’ your insurance coverage at work, they very well may require a medical exam. Again, the article states the opposite. Then he states that if you leave your employer you may have become uninsurable. Except that if this actually happens, regulations dictate that you have 30 days to exchange your work coverage for an individual policy, no medical exam required.
Geez louise. You’d think a personal finance expert and member of the professional media would do a bit of fact checking before publication.
I read the article as well Glenn, and certainly I found some flaws. Unfortunately I have been there with the odd article on my site, I have trusted people to do some fact-checking and it burned me in the end since readers found many flaws in those article contents. It’s very disappointing when that happens.
I can only hope Barry clarifies the content and addresses the issues in the comments section.
On the subject of family health history – this had no impact on my insurance policy – so I agree with you. I’m being insured, not my family.
Thanks for your comment Glenn as always. You are a strong proponent of fact-checking and you’ve helped my site on that, so that is appreciated.
NO I DIDN’T!!! Well, that was the title at least. Enjoy your weekend.
LOL. Enjoy!
Thanks for the mention Mark, variable rate mortgages are crazy low right now and I’m looking forward to saving even more every month on lower interest costs
All the best Dan. Variables are low now and likely will be for years to come.
Thanks for the mention, Mark. Appreciate the support and glad you liked the Cdn banks sector overview.
Have a great weekend
R2R
All the best!
Thanks for the mention, Mark!
And as long as I’m here, don’t forget about the directory of fee-only planners!
Nice plug John 🙂