Weekend Reading – Financial privilege, living off dividends, dark sides of retirement and more #moneystuff

Weekend Reading – Financial privilege, living off dividends, dark sides of retirement 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:

Here is a 2,000+ word, detailed case study that identifies if this couple in their 50s can retire on $1.2 million without any workplace pensions whatsoever. 

What do you think?  The answer is not so simple.

Ultimately, like anything you want to tackle in life, I think you’ll find that understanding the problem (clearly) will be your key to success. In work, that’s understanding clearly the scope of what you want to do, where you want to end up, and with whom. At home or in your personal finance life, it’s all about understanding your goals, what you want to spend, and where those secure income sources are coming from. I hope to post more case studies on this site over time to help you tailor your own financial path.

You can read almost a dozen retirement case studies and stories from people who have “been there” and successfully “done that” here.

As always, I look forward to your comments and engagement on the site for any post. 

Enjoy your weekend and this Weekend Reading material 🙂

Mark

Weekend Reads

Financial Independence Forum interviewed an early retiree, Phia, who discussed her path to financial independence and more choice that comes with it. Interesting to hear her discuss the emotional and psychological side of any early retirement:

“And I think that that is honestly my biggest takeaway from now being in a position of financial freedom is that knowing that why is such a huge component. And I think sometimes we do get lost in just the goal of reaching it and we forget about what comes after. And we certainly did. We thought we were taking care of that component, but I think we didn’t realize just how much thought and how big of a transition it was going to be to make that change. And so knowing your why and having a solid wise, I think, I think it’s an integral part of the overall plan.”

Ken Kivenko highlighted yet another mutual fund fraudster reported through the Mutual Fund Dealers Associations of Canada. Terrible. 

From terrible to absolutely sickening…a retired lawyer from Calgary said he was “sick to his stomach” after learning his bank wired more than $800,000 of his savings to fraudsters despite security red flags. I would absolutely lose my mind…

Dale Roberts from Cut The Crap Investing challenged the approach to living off dividends – to a point.  He summarized his post by saying: 

“I like the strategy of juicy Canadian dividends plus quality and total return potential for US holdings. I also feel it’s important to manage that sequence of returns risk.”

Physician on FIRE highlighted it might be time to stop working when your portfolio makes more money than you do.  He should know. That happened to him. Incredible as a U.S. anesthesiologist. From his post:

“If you want your money to work for you, put in the work yourself, save a substantial chunk of what you earn, build a diversified portfolio, and reap the benefits.

Eventually, your hard work will pay off, and you won’t have to work so hard to grow your net worth. Your days of pulling weeds and filling the watering can are over. You can sit back and watch your garden grow.

Compound interest is a wonderful thing.”

Retirement Manifesto wrote about the dark side of retirement.  These are his keys to a successful retirement plan, beyond the money:

1. Spend as much time as possible before retirement planning for your life after work.
2. Develop an alternative means to replace the socialization and self-esteem that work brings, and begin that development as early as possible in your retirement planning process. 
3. Focus on your physical fitness.
4. Populate a list of bucket list of things you’d like to do in retirement. 
5. Do some real soul searching – what really matters to you.

Great advice and something I’m already starting to give some thought to since I hope to start working part-time in another five years, at my current employer, my current employer willing!

Why can’t some folks realize financial independence?  One reason has always been very clear to me and it’s highlighted here: so many people spend WAY too much borrowed money to buy an expensive depreciating asset. Let that sink in for those that still own cars this way. You are using borrowed money, to buy, a significantly so depreciating asset. Your call!

Cool podcast from Beau Humphreys about financial privilege.  A huge congrats on his 100^th episode!!

Boomer and Echo said don’t make this life insurance mistake – as you leave your workplace or group benefits at work. I agree with Robb that a good needs analysis for life insurance should consider things like your survivor’s income and spending needs, years of income replacement, personal and household debt, children’s education, non-registered assets, and final expenses. Another factor Robb should consider, is really the lost income or time away from work to deal with anything with such a catastrophic loss. When my wife and I sat down and factored everything in, including some downtime away from work if we really needed it, we found many years ago we wanted $500k of life insurance, each. Our term life policy remains this amount today and is actually up for renewal in another 18 months.  

I’ll probably reach out to a life insurance broker to weigh my options on that policy in the coming year. In fact, I got some support from Brian So on this subject – what to consider when your workplace benefits are disappearing.

Reader question of the week (adapted for site):

Hello Mark,

Hope you are doing well. I am a big fan of your site. I have some questions for you, if you don’t mind?

I started investing through the Wealthsimple platform since they started operating in Canada. I have two accounts (1 for me and 1 for my wife) that we contribute to biweekly. I have a TFSA that I contribute to weekly and the holdings are all Canadians (half stocks and half ETFs).

When they (Wealthsimple) introduced the RRSP account, I opened one for my wife and funded it but didn’t buy anything as of yet.(I mean, I didn’t move her RRSP account that she has with an advisor). Instead, I just started funding it from scratch because she still has some room to contribute.

My question to you:  is it better to purchase Canadian or U.S. stocks inside your RRSP account?

To help you with your feedback to me, here is the information I have on file as an example:

• Our Canadian contributions will be converted to USD $$ currency first before we make a purchase.
• Wealthsimple will take their cut (1.5%).
• If I take the example of purchasing WM (Waste Management, Inc) @ $112.22 USD that will cost me $148.28 CAD + $2.22 CAD fee = $150.50 CAD.
• That will translate as if I purchased WM @ $113.93 USD (at the time of purchase I’m already down almost 1%).

So, with currency exchanges to deal with do you really think it’s worth it to hold U.S. stocks in her RRSP?

Thanks so much and I really appreciate your blog.

Wow, lots to digest!  I will do my best to be succinct but answer your questions clearly.

Q1: Is it better to purchase Canadian or U.S. stocks inside your RRSP account?

I wish I could tell you! 

All I know is, more and more, I’m using my RRSP to hold more U.S. listed assets (like U.S. stocks and ETFs) instead of CDN stocks to increase my U.S. exposure and diversification.  

From Charles Schwab:

“Our estimates show that, over the next 10 years, stocks and bonds will likely fall short of their historical annualized returns from 1970 to 2018. The estimated annual expected return for U.S. large-capitalization stocks from 2019 to 2028 is 7.4%, for example, compared with an annualized return of 10.2% during the historical period. Small-capitalization stocks, international large-capitalization stocks, core bonds, and cash investments also are projected to post lower returns through 2028. However, the expected annual return for international large-capitalization stocks is 7.8% over the next 10 years, which is higher than the expectations for U.S. large-capitalization stocks.”

Personally, I have enough Canadian bank stocks.

So my plan is to diversify away from that over time. 

Q2: So, with currency exchanges to deal with do you really think it’s worth it to hold U.S. stocks in her RRSP?

Like my answer above – you bet. 

I intend to keep buying more U.S. dividend paying stocks and ETFs in my RRSP for years to come. 

When it comes to U.S. stocks and currency exchange approaches, check out these posts:

I believe these are some of the best ETFs for your RRSP.

Here is how to use Norbert’s Gambit to exchange CDN to U.S. dollars for less.

You can earn U.S. income from owning these Canadian dividend paying stocks.

Investing Deals – looking for a U.S. dollar RRSP?

Here are some options to consider when it comes to DIY investing or support for your investing journey based on my partnerships with Bank of Montreal – some great deals can be found here!

Happy Investing!

Mark