Weekend Reading – Five years in cash?
Hey Folks,
Welcome to a new Weekend Reading edition, with a reminder that despite market calamity our annual dividend income remains on the rise reaching a new, projected all-time-high.
Weekend Reading – Five years in cash?
Inspiration for this headline arrived via Rob Carrick’s article (subscription).
Rob didn’t hold back when he mentioned:
“First, check your timelines. If you need your money within the next five years, get it out of the stock market immediately and put it in a bank savings account or similar products offered to investors. Only by committing for at least five years, and much preferably 10, can you be confident that stock market ups and downs will net out in decent returns.”
He’s probably not wrong, cash or similar products.
I mean, given the current calamity, without any end in sight along with more doom-and-gloom on the horizon in the coming weeks with more tariff announcements I also think it would be prudent to maintain a decent amount of safety outside stocks.
While we work on more, in my case though, I’m going with at least 1-years’ worth of spending in cash/cash equivalents but not quite five years worth. I will also have other, small income streams too.
I’ll share more news / details when I update this post below in the coming weeks, but suffice to say we’ve been saving up cash/cash equivalents for some time now – building a bit more brick-by-brick since 2023.
I’m not sure we will “get it (money) out of the stock market immediately”, in fact, I might even buy some stocks or ETFs in 2025 if I can afford to do so but with both of our workplace transition plans now approved and in place, investing for retirement is no longer a priority. Sounds very odd to write that…
In recent weeks, I’ve also read many conflicting articles on asset allocation including geographical diversification.
Recently I read an article that mentioned:
“A more reasonable approach is to keep a toehold in U.S. stocks, but tilt your portfolio in other directions. Canadian dividend stocks have growing appeal. So do Canadian government bonds, guaranteed investment certificates and gold. Investors should also consider the case for more radical diversification. European stocks have been surging and there is a strong case that they have more room to run after the German government signalled it will ease up on its notorious debt brake and spend more freely on defence and infrastructure.”
Yet less than a year ago, the same author had the headline and content related to:
Source: G&M.
I dunno folks, wild times. Definitely a trigger for portfolio review and assessment. No question. But it doesn’t mean you have change much, if anything.
Personal finance and your risk tolerance is very personal.
I’m personally not going forward with any radical diversification as some headlines suggest. I haven’t changed many holdings since COVID began 5-years ago now although I have sold off a few individual stocks in our portfolio to simply things. Those decisions have been smart to date since the portfolio value has grown considerably since then while simplified as well for asset decumulation – less moving parts.
Only in hindsight do I know if I made the best decisions…we’ll see how these recent ones turn out!
Despite current market conditions, I will:
- Keep my low-cost ETF QQQ for a small tech-kicker if/when tech stocks come back into favour. Why sell when this ETF is down in price? QQQ is a low % of my portfolio value anyhow (<3% now).
- Keep my low-cost ETF for ex-Canada diversification that dominates our RRSPs in particular: XAW. That ETF includes international stocks beyond the U.S. already – thank goodness.
- Keep my basket of Canadian stocks for income and growth, and buy more when I can afford to do so.
- Keep growing my cash/cash wedge balance for near-term spending.
That’s essentially it.
How are you doing out there? Keeping more cash? Buying more stocks? Are you pursuing some radical diversification?
More Weekend Reading – Beyond five years in cash
Congrats to my friend Dividend Daddy, @DividendDaddy1, reaching a well-earned retirement:
Source: https://x.com/DividendDaddy1/status/1895826626061222016
An excellent reminder about our recent market volatility. What you sign up for when investing in stocks since there are costs in trying to time the market with reference to Visual Capitalist:
Reader question of the week (adapted slightly for the site):
Mark, I read your 60/40 post with interest. I have considered for a while now moving all my registered, RRSP investments into VBAL and have recently done so for a better mix of growth and safety for retirement income planning. My plan is to sell off VBAL units every year or so, fund my cash wedge, and live off that for RRSP withdrawals. Thoughts? Seems aligned with your data in that post and seems simple enough to do too.
Thanks for your question!
For reference, here is that post:
And while I cannot provide financial advice directly to you, yes, this is what 60/40 or related stock/fixed income portfolios are designed for: you sell off ETF units, every year or so, and live off that.
When it comes to simplicity – leveraged from Christine Benz recently at Morningstar, on X/Twitter:
“I don’t really get when people hunt around for the best cash yields, assemble CD ladders, etc. My bias is to buy a federal money market fund from a very low-cost provider that pays you the lion’s share of prevailing yields. Cash holdings should be simple and low-stress.”
Source: https://x.com/christine_benz/status/1889828274429370676
Good stuff. 🙂
Have a great weekend!
Mark
Might be worth re-reading Carrick’s note:
” If you need your money within the next five years…”
Doesn’t say keep 5 years worth in cash. He’s saying whatever major purchase is being done, it should not be invested in the markets because the outcome is uncertain, so it’s logical to keep in safe instruments.
Yes, my headline alone was a bit misleading but I do have in my post:
“He’s probably not wrong, cash or similar products.”
and…
“While we work on more, in my case though, I’m going with at least 1-years’ worth of spending in cash/cash equivalents but not quite five years worth. I will also have other, small income streams too.”
I get the 5-years or not in stocks but that doesn’t always apply to everyone which is the thesis of my post.
Thanks for your comment!
Mark
I have been retired for 7.5 years now. I haven’t changed my investing style much over the years. Currently I have 45% in Canadian dividend paying stocks, 45% in S&P500 ETF and a couple of individual US stocks. I have cash/GICs to cover 3 years worth of expenses in case I need it. My investment horizon outlives T’s presidency.
That’s very reassuring as I have a similar portfolio and have just embarked on a trial pre- retirement sabbatical with 2 years worth of spend. Our dividend income generates 70% of our spend (100% of non- discretionary spend). The plan is to curtail discretionary spend (travel) in case of a major downturn spanning more than a couple of years. Perhaps I should increase it to be closer to 3 years or even more.
Excellent: “Our dividend income generates 70% of our spend (100% of non- discretionary spend).”
We have the same long-term plan, hopefully never needed: cutback travel in case of a major downturn spanning more than a couple of years.
What is your mix of stocks and ETFs or what key stocks in your portfolio do you own?
Curious!
Cheers,
Mark
TBH, I have borrowed from yourself, Tawcan and a few other bloggers who have shared so many insights. You are unlikey to be surprised by what I own.
Current Portfolio (includes spouse)
TFSA: VT
RRSP: SCHD/VT
LIRA: VT
Taxable
– Dividend stocks: Usual suspects- 4 Big Canadian banks, 2 lifecos, 2 telcos, utilities, energy et al) + WCN, FFH, IFC, CNR, ATD, EQB
– non- Canadian: VGG,VGT, XEF.
– I have some opportunistic buys when S&P was high and I was able to get some good deals on Google, Meta and Salesforce
There is room to simplify my taxable portfolio and I plan get to it once I am in retirement proper and have a lower Capital Gains in my taxable.
Thank you so much for making me, and I am sure so many others “My own Advisor” !
Great stuff!
Those are great funds, really like VT for the global growth. Up over 100% in the last 5-years. 🙂
FFH has been flying in recent years. So well done on that one. 🙂
Buying anything this year, 2025? I have my eye on more BN if/when I have the money.
Mark
At this time, I am not buying anything and am focused on building cash and some bond reserves for the next few years. I plan to first burn my individual stocks except for the core Canadian dividend stocks so if I do buy anything, it would be only ETFs.
The maths seems to be ok, but am still nervous as I get into the deaccumulation stage.
Good stuff, building up some cash/cash reserves seems smart during these trying times.
Mark
Very smart, Jan. Seems you’re in a great financial place!
Mark
The last 5 years have shown us many challenges, Covid, hi inflation,Trump, to name a few. As a DIY investor and retired, part of the DIY is to have a plan for “what if” scenarios. We have flexibility in our portfolios to allow for bad market returns and once we start to receive gov pensions the back up plan is simpler. We have considered annuities and have read Fred Vettes’s book but have not gone that route yet. Our back up plan, without getting into too many details includes, cash, GIC’s, TFSAdividends (spending) instead of reinvesting, and delaying major purchases if need be. Our RRSP’s usually have a two year buffer so we don’t need to think about enacting an alternate plan until after a full year.
Looking forward to hearing what others are doing to consider if we can consider the same.
Thanks for the thought provoke blog Mark!
I enjoy your comments, Steve.
I’m kinda wired to save and invest like a pessimist but be also somewhat optimistic about the future.
For example, we could live off about $5k per month but would prefer in semi-retirement/retirement to live off $6k per month. Ideally, good markets willing in a few years out, maybe we can actually increase our spending or inflation will do that for us, spending about $7k per month.
https://www.myownadvisor.ca/financial-independence-budget/
I would only consider annuities if you want to pensionize part of your portfolio, which can work well with say 25-50% of your portfolio if needed in your 70s+. That said, CPP and OAS are pension-like income and even the best kind since they have inflation-protection built in.
Very similar to where we are trending…”Our RRSP’s usually have a two year buffer so we don’t need to think about enacting an alternate plan until after a full year.” We hope to have eventually two years’ full of RRSP withdrawals ready and waiting for us all the time as part of a cash wedge approach.
Have a great weekend,
Mark
I have been DIY now for over 25 years. 100% equities, 80 Cdn, 20 US. All but two are dividend stocks. Been retired now for 7 years and not making any changes. Our backup plan is that OAS, CPP, and a small pension will cover all essential expenses. In the mean time will try to reduce RRIF accounts first and leave TFSA’s to grow. No cash wedge, no emergency fund, just dividends and a LOC if an emergency should arise. It has worked very well for 25 years. We know there will be a lot of issues now with the US administration. But for now we are staying put. I try not to listen to all the noise out there. There is always someone ready to tell you what to do. But you must find your own way, that works for you.
Wise words from a successful approach, including not fixing what isn’t broken.
Mark
Definitely not holding 5 years of spending in cash! For us, that would be $800,000 only making 2-4%. We are both retired and have 3 years in cash/GICs and that is plenty. Markets will be higher in 24 months than they are now.
I’m with you. Thanks for your comment.
We have Year-1 of RRSP withdrawals ready to roll in cash/cash equivalents now and we hope to have Year-2 ready; for 2027 (?) sometime later this year.
Cash/GICs/money market funds have opportunity costs but can be very handy if/when the market tanks 10-15% for many investors.
Curious, how is your portfolio constructed?
Cheers,
Mark
As I’ve been saying for years, nothing that happens in the overall market will ever change a thing for us. We continue to hold and add to our 100% equities portfolio of 12 TSX listed dividend income/growth stocks (ENB,KEY,PPL,TRP,CPX,EMA.BCE,T,BMO.BNS,RY.TD).
We keep minimal cash and at the beginning of each month, we buy shares of whichever of our holdings looks the most enticing at the time.
I’ve been retired for almost 12 years without any company pension (my wife was stay at home), and our plan has worked like a charm.
Amazing, Don. You’re a case study for CDN stocks and some cash holdings and basically sticking to a concentrated but disciplined plan.
Any bias in those 12 stocks? i.e., more than 10% in a few of them or most equal weight per se?
I continue to own every single one of those stocks you do, except KEY.
Beyond what you own, I also own some growthy stuff that has done well like WCN since 2017, EQB since before COVID and BN (Brookfield).
Surprised you don’t own CNQ in your list? Steady payer/grower.
I enjoy learning about your income progress. Amongst you and others, you are an inspiration of what is possible.
Mark
Hey Mark
Thanks as always on the reply.
There’s actually quite a story on two separate fronts behind not owning CNQ (or any O&G producer). We got absolutely torched by owning Surge, Long Run, and Baytex back in 2013-2015 and it was made even worse by being in our TFSAs. I had read in a number of places that a person should put growthier stuff in their TFSA and then all the capital gains would be tax free. Of course, the flip side is that if they get creamed, you also miss out on the capital losses.
We have slowly recovered by still now only have $155k in each TFSA account. I hope there’s a lesson in there for a few people to just buy the steady eddys in your TFSA. If there’s a place for ETFs, it certainly is the TFSA.
The other part of the story is that I was still working on developing our investment strategy at that time. I had already decided that we were going with the dividend income/growth strategy and the O&G producer dividends were high at that time. The stock price hammering and dividend cuts led to me deciding that we would never invest in anything that was directly related to a commodity – no mining. gold, O&G producers, consumer, etc. At the same time, I decided tech stocks were not for us.
As to any bias – yuppers, big time. We only own 12 TSX stocks in 4 sectors so very little sector or geographic diversification and then no fixed income on top of that. This means some big percentages – EMA, ENB, KEY, and PPL are all between 10.6 and 11.3% and the midstream sector makes up 41% of our entire portfolio. We are totally happy with how this has worked out and have no plans to sell/trim anything.
Take care
Don
Ya, thanks Don – makes sense in that some stocks in your key 12 holdings are > 10%. Just the way it would likely work with stock prices running higher for some while others lag a bit.
I’m a fan of CNQ and will continue to own it. In my top-10 holdings pretty consistently after XAW ETF (XAW always been #1 holding for the last 5+ years) but then after that a mix of RY, FTS, ENB, TD, and Telus, amongst EMA, TRP and a few others.
I do like growthy stuff inside the TFSA since total return matters for most, big fan of ETFs there for that reason for lazy investing.
I have no doubt your $155k per TFSA will grow with “steady eddys”.
Stay in touch!
Mark
I’m with you Don (ahem, Sarge) 🙂
Our key list of stocks is similar, but longer: ARE,BCE,BMO,BNS,CM,CPX,CNQ,CPX,EMA,ENB,MFC,POW,PPL,T,TRP and TD. At some point down the road I will sell ARE in our registered accounts for something with a better yield.
We also allow a 15% allocation to split funds / CC ETFs: (EIT.UN, ENS (yes, duplicative of ENB), FTN and HDIV). The downside for those is, other than HDIV, there’s little chance of a dividend raise – but that’s why I have the 15% allocation rule. They get us to retirement sooner, but we’ll have to mind the budget as they lose pace with inflation.
I almost fell off my chair when I saw the 5 years in cash……I understand the safety factor, but it’s not for me.
Don, I’ve been following you for a long time and you are a great example of how focusing on solid businesses that pay a reasonable dividend is very successful. Thanks for chiming in here once again.
~James (dileas)
Hey James
Always great to hear from you and thanks on the nice comments. Sounds like your retirement plans are coming along wonderfully and the big day keeps getting closer. Keep up the good work!!
Of course, I love your main list of stocks. I was a bit curious about the split funds but never did do enough research on them and don’t quite understand all their workings so have avoided them.
Take her easy and all the best
Don
As you know I made the switch into the gratifying new index fund called;
ABUS > “Anything But the United States”
My choice was to sell all of XAW and put it into VIU as well readjust to a 70/30 asset allocation. As for Rob’s comments, I have been building up my cash savings account to a full year taking advantage of an awesome 4.75% bank account promotion. Overall I’m doing a more balanced investment approach lately but 100% a Canada first priority. Home bias all the way for me 🙂
I like that ETF symbol. Ha. Will leverage.
Nothing wrong with a more balanced 70/30 or 60/40 – you have to do what you must to meet your investing objectives and income needs, although with any capital preservation plans. I know some DIY investors that have been very succuessful with 70/30 since that’s all they need – sell off 3-4% per year of that and live their lives accordingly.
It is amazing how much home bias is ramping up of late.
Have a great weekend, Chris.
Mark
I’ve posted this before on this site but I’ll do it again to reiterate and drive home a point while encouraging newbie readers. For those who never invested in more than GICs or other safe equivalent because the stock market is “too risky” consider this TFSA portfolio … and we are 72 and 66. Since the start of the TFSA in 2009 our all dividend growth equity portfolio has grown thru peaks and valleys. Without withdrawing a penny and mindful of maximum contributions while reinvesting all dividends paid they have grown to a combined $540,000. According to Rob Carrick in an October, 2024 column this is better than 99.8% of all CRA registered TFSAs. Here’s the kicker – we never did anything wildly risky. At present we hold just two stocks – Enbridge and Scotiabank. At first it seemed laughably tiny but as the snowball rolled down the hill our income – if we need it – is presently over $33,000 and growing. A payout of $5000 at the beginning of March (ENB) went right back into the stock at 6%.
Wow, my calculations for a TFSA invested in XIU is around $200k balance, shows the difference a higher dividend can make. Mine is under that since I made the mistake to be conservative back in 2009 and just invest in interest bearing securities for a few years, it seemed pointless to invest with so little cash compared to my RRSP. Obviously a big mistake looking back. Now I mix dripping dividend payers like ENB and BNS with Nasdaq 100 ETF for growth. Paraphrasing Cher, if I could turn back time, doo-too, if I could find a way, doo-too, investing in my TFSA, doo-too … Congrats on that achievement!
That’s a combined 2 x TFSAs – one with $240,000 and the other at just over $300,000 (mine). I was “less risky” with my wife but when I saw the trajectory I engaged hers in my portfolio style as well. She allows me because she trusts my judgement knowing that she is more jittery when it comes to market ups and downs. Zack, f you have $200,000 in one TFSA youhave done extremely well as per Carrick’s October column. Not sure if you have access to the Globe and Mail but this newsletter refers to it and thus the CRA info on total value of all TFSA holders. https://www.steadyhand.com/personal_investing/2024/11/21/the-eye-opening-difference-of-using-your-tfsa-for-investing-vs/
I would agree, Barry. Thanks.
https://www.myownadvisor.ca/whats-in-your-tfsa/
At the time of that post:
“Earning 6% on average inside your TFSA since inception would deliver a portfolio value today worth close to $160,000.
Did you earn 7% annualized? Well, you’d be closer to $175,000 inside your TFSA.
What about 8%? You’d have closer to $190,000.
And finally, have you earned 9% or more? Your TFSA value should be north of $200k now.”
Any couple north of $400k inside their TFSAs, or like yourself, more than $500k has done exceptionally well.
Kudos. Pedal down.
Mark
In 2009 when the TFSA was created our CEO called our entire office staff into the boardroom to explain this new opportunity. I was already well on my way with buying good Canadian dividend payers and just did the same in the TFSA’s. Always contributed all we could and now they are at 800K combined. Best investing opportunity our government has ever given us.
Totally agree with your sentiment re. TFSAs. They’re a gift if used properly. When you’re young with a couple of kids RRSPs may make sense but in your seventies the withdrawals are taxable although one can mitigate the pain before you withdraw. Don’t ask me how as that’s what my downstairs neighbor is doing.
Everyone has a different profile.
In my case I never had kids and spent years overseas so RRSPs were not an option and quite frankly I never really considered it. When I lived here again and an alternative was introduced in 2009 I was right on it. Moreover my non registered investing account income is taxed at an obscenely low rate using all the available combined provincial and federal dividend tax credits which happen to be one of the best here in BC. You would think the NDP government would have changed that since their election in 2017 but it mysteriously remains untouched.
Incredible work, Div.
Given assets double in value (give or take) at 7% returns every decade then your TFSA if left untouched to compound away could be worth a whopping ~ $1.6M then. That would be some incredible tax-free income.
We all live and learn and adjust moving forward, Zack.
I like the mix of Canadian stocks and low-cost ETFs I have. I could see a time whereby I might only own XAW, QQQ and some BRK.B potentially for ex-Canada and international assets, and just ramp-up any Canadian holdings to keep things very, very simple in my portfolio.
I’m sure Barry has made a few mistakes, and it forced him to gravitate to buying a holding a few Canadian dividend payers for income and growth.
Mark
Lots of peaks and valleys in our TFSAs over the years as well, Barry, but I have to confess, not quite at your level inside the TFSAs!
That is incredible.
We hover around $400k, we also own ENB and BNS inside our TFSAs but not as much as you apparently. 🙂
I enjoy your comments related to income investing.
Mark
Thanks … just my propensity to engage and encourage others who may be lost in “The Investment Zoo”.
Yes – indeed. Good book too. 🙂
We have five years’ worth of cash, GICs, and bonds, supplemented by dividends, interest, and even credit card cashbacks. It’s reassuring to know we have a long runway before needing to sell assets at a loss or, worse,
cut back on retirement plans and living expenses.
As we know, it takes discipline to stay invested in equities during down markets, but I can assure you that it also requires discipline to remain invested in safe assets during rising equity markets. I’ve learned that sizing our fixed-income portion to a level I’m comfortable with (five years) and allocating the rest to 100% equities, regardless of the proportion of our portfolio, works extremely well for us. So much so that I gleefully campaign against the U.S. companies I’m invested in as my part in ending the Trump tariffs and the 51st state BS.
Edit: “I gleefully campaign” would be better stated with “I willingly campaign”, because I’d rather things be as they were before Trump.
Gotcha!
Very good position, Bob, wow – great.
Very much my plan as well, if really needed: “…cut back on retirement plans and living expenses.” For us that we could international travel.
You have to do you.
Continued success and I appreciate your comments.
Mark
A nice thing about MOA comments is that I can go back into the archives to see what I think I thought in the past. 🙂
Mr Carrick is certainly not wrong, there is merit for some folks to maybe considering a transition to some safety given the situation we seem to have been put in.
Our portfolio has had some evolution to safety in the past eight years or so. We’re not uncomfortable with where we are now.
Ha, same! Always interesting to look back and see what I wrote, invested in, etc. 10-15 years ago.
I generally like Rob’s stuff, very pragmatic in how he sees things. I believe in a margin of safety outside of stocks and always have and in recent years, realized if stocks do go sideways, I can and should have some cash for spending. Wasn’t a huge deal when I had a job. I would just make more money to spend but when the paycheck is coming from the portfolio, and that portfolio of stocks is volatile, then it makes sense to keep cash for near-term spending.
I will likely get into details in the coming months for extra clarity on the site. 🙂
Have a great weekend.
Mark
“I generally like Rob’s stuff”
Me as well. And this was a good article, but I fear that some are not comprehending who the target audience is and what he has said in this article.
You’re probably correct. Who do you think that article is designed for, retirees? Certainly anyone starting out on their investing journey shouldn’t have 5-years in cash or equivalents. That seems nutty to me.
It’s pretty clear to me that *this* part of the article was aimed at *anyone* that will need this money in the next five years. This isn’t really about long term investing, it is about preservation of savings that will required in the short term.
He does talk about more generic “basic strategies” later in the article (subscription).
To paraphrase former British Prime Minister Margaret Thatcher from many years ago, “To those waiting with bated breath for that favourite media catch phrase the u-turn I have only one thing to say, you turn if you want to, this guy’s not for turning”.
Some U.S. equity, some EAFE equity in ETF’s, but mostly individual Canadian all-dividend stocks.
Good stuff. 🙂
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