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:
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.
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:
- Spend as much time as possible before retirement planning for your life after work.
- 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.
- Focus on your physical fitness.
- Populate a list of bucket list of things you’d like to do in retirement.
- 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 100th episode!!
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
Thinking about that psychology of money is becoming more and more important to me. The numbers are easy to understand but the psychology behind our choices makes it more difficult.
Whether it be traditional retirement or early retirement I think sometimes we focus so much on getting there that we don’t think about what happens when we do. Phia provides a great reminder to focus on the why and not just the how.
I’m reflecting on this more and more Maria…the psychology of money is simply an overwhelmingly body of knowledge compared to the math.
Whether it’s FIRE or semi-retirement or early retirement or other, I don’t think the majority of people really put enough thought into the behaviours with money and what money (as a tool) can do. I can say this with personal experience because I run the blog and I don’t even focus on the mindset enough since I haven’t yet optimized my own decision-making.
When a person directs their bank to do a money transfer, but then doesn’t like how it turns out, I cannot understand how this is the bank’s liability? You would think that by his age and with his background he wouldn’t have acted so irrationally. Now wanting to pin the blame on others.
Ya, I don’t know all the details but there must be more to the story than just the bank’s transaction.
One thing I was surprised to discover was that, if you own more than $60,000 in U.S. assets and you die, your estate has to file a U.S. income tax return, even if no taxes are owing. Many people confuse that amount with the complete a form notifying Revenue Canada if you own more than $100,000 of non-Canadian assets. I have also heard that your estate also has to obtain a U.S. social insurance number before filing the U.S. tax return and that it can really delay the probate of the estate. Please read to the bottom of this link regarding the tax filing requirement: https://www.pwc.com/ca/en/services/tax/publications/tax-insights/estate-tax-update-us-tax-exposure-canadians.html
If, however, you own U.S. assets via an ETF listed on the TSX, even if that ETF holds only U.S. stocks, it is my understanding that there is no need to file U.S. taxes, nor to complete paperwork informing Revenue Canada that you own those assets, as they are considered to be Canadian assets. It is probably a good idea to consult a qualified accountant I’d you own a sizeable amount U.S. assets.
Very interesting points JR. I wrote about foreign income reporting on this site some time ago actually:
https://www.myownadvisor.ca/note-to-cra-foreign-income-reporting-doesnt-need-to-be-a-foreign-concept/
When it comes to estate planning and U.S. estate taxes, I wrote about that here although the rules have changed and I will update this post in the coming months:
https://www.myownadvisor.ca/death-and-taxes-and-taxes-in-death-u-s-estate-taxes/
Both conditions must apply related to paying U.S. estate tax; again, based on my understanding:
https://www.rbcfinancialplanning.com/us-estate-tax.html
That said, I believe you remain absolutely correct that regardless of estate tax, if you die, and you have > $60,000 USD in the bank in U.S. “situs” assets then a U.S. tax return must be filed with or without tax liability.
Very important stuff to think about and thanks for raising!!
Mark
I am planning to live until 100 and beyond. My grandma died less than half year before her 100th birthday, without any illness. My mom is in her mid 80s and can still take care of herself for the major part. So it’s in my genes. Also considering my standard of living is better than them, and medical science keeps advancing, the chance I will live even longer than my grandma is pretty high.
I guess one has to look into the family history. But who knows, genes mutate. I would assume it’s prudent to plan to live to 100.
At 78 I’m getting closer and hope, provided I’m not stuck in a chair or bed, that I’ll enjoy it.
Enjoy all your money now canwew! You’ve earned it 🙂
Well, it would be nice to know in advance, wouldn’t it?
Both my mom’s parents lived into their 90s, in their own home. My granny was still making holiday dinners for a large crowd into her mid-80s when my mom had to put her foot down to stop it. We used to joke that Swedes lived an average of 10 years longer (after the Volvo commercials). But my mom died very young, just a couple of years after her own mom. Mind you, one of her sisters is still around in her early 90s now.
Into 90s? Impressive. Sorry to hear about your mom Barbara but definitely a reminder to me based on recent family events that life is meant to be lived; we are only here once, and while a long life is desired isn’t certainly far from guaranteed.
Best of health to you!
Mark
Re: Cut-the-crap article, Living off dividends: Like everything else, talk is cheat and usually the best talk happens in hind-sight. Unfortunately, not too many investors really understand or follow a strategy long enough to obtain the goal of living off their income.
There is either a lack of knowledge, commitment, or the persistence to continue to follow the strategy long enough to reap the benefits of dividend/income growth investing. It is a slow and steady process which won’t happen over a year or even many years. It requires one to ignore many of the conventions that are ingrained and one will have lots of opposition or at least criticism.
Is it possible, definitely. Is it easy, yes. Is it for everyone, obviously not.
Excellent point…”not too many investors really understand or follow a strategy long enough to obtain the goal of living off their income.”
Investor behaviour is certainly a challenge – myself included!