Weekend Reading – Frugal NFL players, robos managing money and building wealth in Canada
Welcome to my latest Weekend Reading edition, the first one of November as the end of 2017 draws closer…
Earlier this week I got a chance to chat with Navid Boostani, CEO of ModernAdvisor – he demystified a number of things when it comes to using a robo-advisor to grow your portfolio. A reminder you can get $50,000 managed FREE for one year with this firm. To take advantage of this offer simply open your account with ModernAdvisor using my link.
A few days ago I also shared our latest dividend income update. This month, we passed another milestone – so now it’s on to the next one! It has certainly been a slow and steady journey to date but the way I see it that’s probably a good recipe for success.
Enjoy the rest of these articles and see you here next week – when I intend to post a review of Doug Hoyes’ well-written book Straight Talk on Your Money.
Interesting to read about Tim Stobbs, a personal finance blogger who I met many years ago, who has exceeded his investing objectives and has since quit his job. I do wonder as busy as he was when he might work again though. Well done Tim reaching your goal.
Thanks to Build Wealth Canada and the host Kornel Szerjber for having me on his podcast. We talked about my investment journey to date and I answered these following questions and many more!
- Why did I decide to be a hybrid investor?
- What is my process for selecting stocks?
- When do I believe is the right time to buy stocks?
- And more and more…
Big Cajun Man clarified the RDSP.
CreditCardGenius listed some popular credit card insurance coverage.
Pretty cool article about this ex-NFL player that still drives a 20-year-old Nissan Maxima his brother passed down to him in high school (even though he made millions playing football for a living).
A reminder about some deals for you – for daily banking and investing!
Don’t forget about my Deals page where you can save hundreds or even thousands of dollars over years with better saving and investing solutions. It’s your money – get more out of it!
Kerry Taylor warned about extended warranties. Where possible, we try and self-insure. We also use a credit card that provides some extra warranty protection. In our terms and conditions “warranty coverage automatically doubles the original manufacturer’s warranty for up to two years.” Pretty good.
Big investors are taking some big bets on bitcoin.
From a reader:
I was wondering if you’ve thought of doing a blog about your plans to delay taking your pension and using up some of your RRSP’s during that time? Thanks!
(I’ll get working on some content this fall/winter). Readers, what are your thoughts on that?
All the best,
Mark
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.
“just want to understand your reasoning.”
Sorry Mark I didn’t see that comment. Due to changed circumstances, I’ve decided that having an absolutely safe investment that will not be subjected to any market correction will not in any way be a detriment. We still have over 900K in the market DRIPping away. The annual income generated falls from 66K to 60K, no big deal. We could lose everything in the market and we’d still have more than enough when these GICs are combined with our pensions and government benefits.
Extremely well done Lloyd and very well reasoned. You’re in a great financial position. And of course as a gentlemen hobby farmer you’ll have that to fall back on if you want!
I suspect you’re one of few that truly understand what you “need” to keep you happy and feeling secure and actually act on it to lessen risk. Kudos.
Thanks RB (I’m just gonna call you RB if that’s okay). I’ve also recently had to take over a rental property so I’ve got that as well.
Call me whatever you want sir.
Sounds like your life is just to busy making money! Soon you’ll have to hire someone to figure out how to spend it or give it away.
Nice problems!
The “plan” got changed. I didn’t intend for this to be like this.
Got it. I’m sure it will all go well for you Lloyd.
You’ve got to be good to be lucky and you’ve got to be lucky to be good…..or so it is said.
Those are significant equity assets. Very well done. You are I are the same with the DRIPping away mandate.
You seem to be following the adage: only take on the requisite amount of risk and nothing more. That’s good given you have pensions and government benefits flowing in as strong fixed income.
It sure is. And some significant FI assets now as well as the equity assets, and pension stream.
I think for many the “requisite amount of risk and nothing more” path is a hard thing to choose.
Totally agree.
I certainly struggle with it, after having taken the more conservative path for the last 5 years. Hindsight (recency bias) has a way of creating a different perspective but not always for the best. Need to stay with the plan.
FIRE seems to get everyone all hot and bothered (to me, FIRE can mean different things for each person), congrats Tim Stobbs on achieving freedom at 45! I think everyone is different. For me, I calculate my own and don’t include my husbands. Achieving a $1,000,000 net worth is no small feat, and ideally having it all invested in liquid assets would be great, but takes some time. Just like MDJ/ Frugal Trader, he achieved 1,000,000 net worth and now is focusing on achieving enough passive income to support FIRE.
re: FIRE can mean different things for each person
Sooo…it’s a meaningless wishy-washy term that anyone can warp to their own circumstances?
re: Achieving a $1,000,000 net worth is no small feat…
Actually it is. I know a good number of people living in Vancouver who have achieved a million dollar NW simply by having a job, paying a mortgage, and saving nothing. A great example of why ‘net worth’ is a fairly useless concoction.
SST, I always respect your comments on Mark’s post but a million dollars is a million dollars no matter how it is accumulated. Give me a million dollars and I’ll do summersaults. I understand the people in Vancouver are worth a million dollars but can’t access it unless they sell and then what?
re: I understand the people in Vancouver are worth a million dollars but can’t access it unless they sell and then what?
Exactly. So then why should any other citizen in any other city count their primary residence as a part of their net worth? Should a FIRE marketer/blogger in Sask. be able to include his house in NW if we aren’t allowing a house-rich Vancouverite to do the same, and claim the same “millionaire” status? Remember, “a million dollars is a million dollars no matter how it is accumulated”…the Vancouverite accumulated it very passively by investing in location — they let the market do all the work; a FIRE marketer accumulated it by actively saving a large portion of income (presumably) — they had to do all the heavy lifting.
Assets are assets but with a house, you can’t derive income from it. Herein lies the challenge. If my house was a rising in price by 10%+ every single year for the last 8 years or so I would absolutely be tapping the HELOC from it and investing more aggressively.
Then, you can sell the home, pay off the HELOC and have a kickass portfolio to do whatever you want with it.
Net worth should be (ideally) calculated the same. Apples need to be compared to apples. It’s a math thing to create a baseline. Just my $0.02.
re: Assets are assets but with a house, you can’t derive income from it. Herein lies the challenge. If my house was a rising in price by 10%+ every single year for the last 8 years or so I would absolutely be tapping the HELOC from it and investing more aggressively.
Then, you can sell the home, pay off the HELOC and have a kickass portfolio to do whatever you want with it.
Yup so would I. But therein lies the rub.
1) it will cost you X% to access your own money. Could you imagine the outrage if banks charged you 3% to use the cash in your savings account? Paying to use your own money sounds more like a liability than an asset.
2) you can sell you house…but then you immediately loose all function of that asset and it cannot be replaced; I can buy and sell IBM stock all day long for the next 50 years and it’ll be the exact same asset.
3) you can derive income from a house by renting out a percentage of its square footage, but as above, income replaces full utility of that asset. As opposed to say dividend stocks, where I can actually “rent” them out via options, collect the premium as well as the dividend — I retain both full utility and the extra income.
I guess primary residence is an asset, it’s just a really bad asset.
Crazy when you think of houses going for far more than $1 M in Vancouver and Toronto. There are houses I saw in Toronto a few weekends ago going for > $2 M. It was a 2-bedroom home!!
If one is going to count items such as residence, pensions, etc then a million dollar net worth isn’t all that difficult. The debate arises when different folks use different accounting techniques, or fail to take things into consideration (taxes eventually owing on RRSPs for example).
Bringing up fees again, cuz I really would love an answer…from the ModernAdvisor fee schedule:
“Up to $100,000 [Tier 3] is 0.5% per year, $100K to $500K [Tier 2] is 0.4% and clients with over $500K [Tier 1] pay 0.35%.”
Fees:
The jump from T1-T2 is 14%.
The jump from T2-T3 is 25%.
The jump from T1-T3 is 42%.
Within the scope of retail investing, there is little difference in the complexity or challenges of managing $100,000 vs $500,000 vs $1,000,000 — the market will easily support these measly sums. If you are dealing with a broker who utilizes the same small handful of ETFs for every client…I fail to understand why it costs 42% more to manage a smaller sum of money.
“why it costs 42% more”
Obviously it does not. I suspect that these numbers were almost just drawn out of a hat. The proprietors of the business set .50% as their base and dropped the rate as people had more invested assets. A bulk purchases kind of program. One could just as easily ponder why there is not another Tier for >1000K. Doesn’t really matter to moi as I ain’t paying that kind of coin to do what I can do just as easy myself.
re: A bulk purchases kind of program.
Bring up a valid point — the ETFs this brokerage uses are most likely bought en masse and then distributed to fill client ratio needs, be they clients with $50,000 or $500,000. Doesn’t cost more to buy the products for different AUMs, doesn’t cost more to manage the products for different AUMs, they use the same algorithms for all AUM levels, just different no-cost inputs…so why the different fee structures?
If I had $10,000 with them I’d be mad that they were charging me nearly double the percentage they charge someone with $1,000,000.
If I had $1,000,000 with them I’d me mad that they were charging me $3,500 vs $50 for the same thing they give someone with $10,000.
And if I read the other blog entry correctly, there is still the ETF fees that are intrinsic within the funds themselves. It’s probably a decent program, it’s just not for me.
“considering value of liquid assets less ”
Me too. I used to think in terms of total worth but since reading here I’ve swung over to the “what can it earn” train of thought. Over the past few months I’ve begun to change my thought path again to “how much do we need”. If we’ve surpassed what we “need” is it necessary to keep growing that income?
It’s very interesting to reflect on the changes one goes through with all this. I think about what we need often, and as it relates as a driver of our asset allocation & investment choices. Growing income for me will probably always be a driver to the extent it covers inflation and the lifestyle we actually will need/want/use etc. with some buffer.
I also consider the effect of taxation on our RRSPs. I record it at face value but I keep in mind it is likely to loose at least a third to taxes. When it comes to RRSPs, a million dollars may not in fact be a million dollars.
True, although tax amounts will vary by income. I have no pension (yet) and this is a main cash flow source to me (plus dividends) – although no where near 33% tax.
Like you I consider it at face value but know taxes are applicable, as they are on all of our cash flow from pension, dividends and eventually capital gains.
I’ve found myself considering value of liquid assets less and focusing more on the cash flow (gross and net) it generates along with other income source(s).
Absolutely. I think if people don’t think about the tax liability associated with their RRSPs they have a huge shock coming to them.
We’d love to have about $500k in RRSPs (combined) at time of “retirement”. We are striving for that. If/when we reach that number, I figure that value should yield close to $20k in dividends alone prior to tax liability.
http://www.taxtips.ca/calculators/rrsp-rrif/rrsp-rrif-withdrawal-calculator.htm
If we reach that goal I’ve assumed that should generate about $30k in pre-tax income per year without fail with the following assumptions until about age 80 or 81 (when the account is fully dry):
Balance in RRSP or RRIF at beginning of year = 500,000
Start RRSP withdrawals = 55
Start (mandatory) RRIF withdrawals = 71
Estimated rate of return = 6%
Annual inflation = 2%
Withdraw = $30,000 per year inflation adjusted.
We might even withdraw as much as $35k or $40k per year in our 50s and 60s and delay OAS until age 70.
Lots of combinations to consider.
Back to your point, $1 M is still a big chunk of money but it might not be that much when you consider the tax consequences. Most folks don’t think about that…you do 🙂
Good plan Mark on the RRSP withdrawals. We’ve been retired for 11 years and with that same structure and withdrawal rate and our portfolio has stayed pretty well the same. I know we’ve been riding a bull market for most of that time but we’re prepared for correction as our government pensions cover all our expenses and we keep a little nest egg of cash for the next crash. I sometimes wonder if a future inheritance should be considered in retirement planning? I can’t recall this issue being addressed.
” wonder if a future inheritance should be considered”
Giving or receiving (or both)?
Good point Lloyd. I guess both but more on the receiving end in my case.
I think so. It would be gratifying to be in the position to do something positive for loved ones.
However on the receiving side I would need to be very sure of something before I actually made some changes to my existing plans based on what “might happen” and it would have to be enough to make a real difference, otherwise not. I think there’s a ton of moving target factors to consider in this regard.
You’ve got a great wave to ride and the ride ain’t over yet!! Absolutely your estate plans should be considered in financial/retirement planning. You can’t take it with you. What are you considering?
Nice projections.
RE RRSPs mine is all equity ETFs int/US with tilt to dividend payers and generates at the rate of about 3.1% so the equivalent of $15K plus for your projected $500K. Coincidentaly our overall avg on all accounts that I looked at only a few days ago (div/distr/int) = 3.18% For my 2 registered accts I’m pulling out what will last me to age 94, with amount reducing by CPP amount at age 65 onward- using 2.5% infl & 3.5% rate of return. Maybe I need to also bump withdrawals up by OAS amount from now to age 65. Or consider bumping even more up to age 70 and delaying OAS & CPP till then, and reduce RRSP/RRIF draw accordingly after that.
Yes, lots of combinations to consider. I’m hard at it with these CPP and OAS projections and overall cash flows projections!
1M is a good chunk but the part that’s free and clear is where the value is of course. That’s why the considering part is so important both during accumulating and decumulating stages. I have good aquaintances that made major mistakes on the first part of this. I made a few too, but not major.
RBull….I’ve said several times that having options is good. In reading over your “dilemma”, I get the impression that your choices are of the good, better, best categories. Even if one pursues the “good” one, there really is no worry. Well done.
I’ve recently sold off a lot of our equities in the RRSPs and intend to build a GIC ladder. We have enough and leaving an estate is no longer a consideration.
Haha, thank you Lloyd. From following your situation I think you are in the exact same boat. Very, very nicely done yourself.
I agree wholeheartedly that having options is a very good thing. We are thankful.
I read your comment on the other thread and made a reply. I think you’re very wise indeed to evaluate your needs, the current market/long bull and take the risk that is appropriate and comfortable for you. With a sizable $$ amount for the GICs have you considered 10 or more tranches over 5 years so you have some renewals every 6 mths or less. We were 100% equities all of our savings years up until about 5 years ago when I went 80/20 roughly and then sold off a big load of equities 3.5 years ago when I retired putting us at 50/50 EQ/FI. Equity growth has taken this to our current 60/40 and I’ll maintain it in that range for a while. I may raise this some if the opportunity makes sense.
RBull…I’ve given it some thought and I think with two of us I’m going to arrange it so that the ladder will have three month “rungs”. I’ll just start my six month building three months after I start DW’s. A bit excessive perhaps.
On your ladder will it be 1 through 5 years which if 3mths would mean 20 purchases? Or are you planning for shorter duration than 5 yrs or simply skipping some of the shorter durations?
I haven’t decided on the “how to” yet. I’ll probably buy staggered terms and make sure I change them to 5 year terms at maturity. My goal is to have no more than three months passing between maturities. I doubt interest rates are going to go goofy and this is probably excessive but what else do I have to do with my time. 🙂
That comment made me laugh 🙂 Staggered terms might not be required is you already have the ladder. Extra cautious? Thoughts? Not saying it’s wrong – just want to understand your reasoning.
I think having more staggered dates is smart. That’s what I was suggesting earlier.
Most people build a ladder with a gic maturing in each of the next 5 years. That way after year one passes you’re only ever buying a 5 yr one. In your case you’re doing this but the purchases are deployed every 3 mths. (1/4 of total or 1/20 for each individual GIC, so after 9 mths you’ve bought all your GICs, if I understood what you were planning for. The cash waiting to be deployed can be kept in different HISA’s 100k max each for cdic reasons. G/L
I’m not yet sold on any GIC ladder but rather a decent cash wedge of about $50k.
https://www.myownadvisor.ca/cash-wedge-opening-investment-taps/
I’m sure my thinking will change but if we have dividend income + pensions + RRSP withdrawals then I don’t see the need for a huge cash buffer. Maybe my rose-coloured glasses remain on after a 8-year + bull run!!
That’s exactly what I’m thinking. A little more work to set up but when rates rise I’m no more than 3 months from a renewal. Again, these will be secure funds that if everything goes for crap in the markets will be there and sufficient for our needs. The remaining equity investments (RRSP and TFSA) are still DRIPping so those will be gravy. I’ll be using a local credit union so the full funds are insured. Next step is to re-write our wills. Some Foundations are likely gonna get a lot of assets.
Nice plan Lloyd. More rungs = more access if ever needed and with rates going up probably gives you better renewal choices.
Sounds like you have more than you need and your generosity will be appreciated at some point. Great. Our wills are up to date and several charities may also benefit at some point – no other beneficiaries.
In lieu of charitable donations we’ve elected to set up memorial funds through the Winnipeg Foundation or our local one, Interlake Community Foundation. These are set up in perpetuity and will provide funding for our specified charities. We just recently set one up in our daughter’s name and have decided to set others up for our parents and probably even one for ourselves.
That’s outstanding…
Mark
Impressive Lloyd.
Nice job on the podcast Mark.
Re Tim Hobbs – don’t follow him so not up to speed there but after a cursory look: Seems like a small nest egg to be “retired” on at a younger age-lots of years of ups and downs/unknowns ahead. Or is there employment income from a spouse and future pension there to fill in? I agree that including your home value in net worth isn’t pertinent for purposes of considering “retirement”. It’s a place to live – an expense – not a liquid cash flow generator. Some areas have also had crazy run ups in valuation that provide a “false” impression you’re doing great net worth wise. Using pensions in net worth also might not be overly appropriate either. There’s a good chance if the pensioner dies the survivor will see a significant drop in their net worth and cash flow, if considering pension “value”.
We consider my wife’s DB pension in our cash flows (not net worth). Our home gets considered if we look at total net worth. However I haven’t paid attention to this for many years since paying off mortgage – it’s only what’s liquid and what generates cash flow to us that’s important. If we didn’t have our home the proceeds would be used to pay for other shelter such as renting an apartment.
Re pro athletes living very frugally: Not a bad thing if that’s what it takes to keep them grounded financially, when seemingly so many others do exactly the opposite and have a remaining life of misery and/or regret.
Well thanks 🙂
In terms of using a house as part of your net worth, that is correct, but I certainly would never use it as a “retirement plan”
https://www.myownadvisor.ca/why-using-your-nest-as-your-sole-retirement-egg-is-a-bad-idea/
I like to always think about how much income can my portfolio generate for me/us – to cover expenses. Our goal is about $50k to be generated from our portfolio. I am hopeful close to $40k can come from dividends and distributions alone without touching the capital. Our goal is to “live off dividends” but it’s more of a saving mindset. Of course we will draw down our portfolio in the years to come.
As you know, we’re at just over $15k now per year (thanks to our latest dividend income update) inside TFSAs and non-reg only.
https://www.myownadvisor.ca/october-2017-dividend-income-update/
If we add in RRSPs, etc. that number is closer to $27k although there is a major tax liability with the RRSP withdrawals looming. Forgetting tax for a moment, $27k is certainty not enough to live from – we need about double that ideally. Then our pensions and government benefits will kick in our 50s and 60s. That will certainly be “enough” money for us if we achieve our $1 M portfolio value and paid off home + more full-time work for the next 5-10 years. Everyone’s burn rate and plan is different though.
When I hear of FIRE folk “retiring” at age 30- or 40-something, and knowing the assets they have compared to ours – I have no idea how they are doing to sustain it (without working at all) long-term with all costs continuing to go higher. Could be just me!!??
That’s a very good $ income goal and savings mindset. I believe you’re working on the same thing we are actually doing now. So far 3.5 years retired we’ve lived on pension and investment “income” generated. (not capital) But it is certain we will utilize capital probably beginning within a few more years as we approach 60, but probably delay CPP to 65.
For your RRSP’s if you “retire” early with little or no other employment income, and preferred dividend income (at least until pensions etc) you may be able to plan the sequence of withdrawals to change the “major” tax liability to a much more modest one. Perhaps heavier withdrawals early on and then a long period with minimal amounts. The heavier withdrawals initially could be equal to your future pensions or even more if this makes sense after running the whole scenario. I know you’re already seriously considering all this.
I agree with you on the FIRE folk and assets. No it’s not just you. I wouldn’t dream of truly retiring that early or even when we did at 52 and 55 if we had such low assets or such modest expense plans. In reality they’ll be back at work F/T or doing some kind of gig to “earn” income in addition to investment income. That’s why often I think it’s bogus making the claims or selling the dreams some FIRE folks do.
Drop me a line whenever you have a chance.
That’s exactly what I am thinking about – creating our own pension for the early retirement years and then leveraging the defined benefits (of my pension) for ages 60+ along with CPP and OAS.
A lot will depend on a) our ability to rid (mortgage) debt at a decent age and b) how our portfolio as a whole performs. I am confident the $1 M portfolio + paid off home + workplace pensions of ~20 years each will be “enough” money in our 50s and beyond – as long as we don’t go nutty with spending. That is not our lifestyle anyhow although I did feel nuts when I paid $16k for a newer 2014 car in cash this year! Damn that was a big dent in our savings.
(Better than a car payment though and we are hopefully “go to go” for the next 5-10 years without any car payment.)
As for FIRE, great idea but they all work. I don’t know of any 30- or 40-something that does not work, who has achieved FIRE, for some compensation. They have definitely “retired” from their one job only to move to another. Nothing wrong with that but people need to be more clear on the math where possible to help readership understand.
On this site, although I don’t show my numbers and never intend to, I can back up with 100% confidence the income (and debt load) we have.
Yes, I owe you an email 🙂
Wise plans for the early “on your own” years before pensions.
-Your mortgage burning party is getting close. You’re fine!
-The portfolio performance is whatever it is and you can invest longer (or less), work P/T longer etc as needed. You’ll still have excellent options.
-Spending habits from all your insight posted etc are more than fine! Read the next comment:
-LOL on the 16K for car. Peanuts in the overall scheme of things for something you will utilize for another ~10 years and your good financial habits. From your comments and the number of times referenced that spend really shook you up. Now that’s a tight*** indicator that you’re totally focused on savings with no spending issues!!! I should have been so wise and frugal with my vehicles!
-100% right on the FIRE thing. As you know from my posts on this I agree completely- it’s fine but be clear to others what is really going on.
I think you know I have absolutely no doubt that your journey and all of your personal claims are factual and accurate. I expect anyone that follows MOA can see the transparency and objectiveness.
“I think you know I have absolutely no doubt that your journey and all of your personal claims are factual and accurate.”
That’s the plan. 🙂
Not everyone will agree with the content but I like writing and/or posting it. Sometimes the content from others might be controversial but that’s OK from time to time. It provokes thought. This site is trying to do that including challenging my own assumptions.
Thanks for the inclusion, I was just clarifying some flawed statements I made. I am in contact with a better source of information, so will hopefully not mis-speak in the future. Thanks for the inclusion this weekend, looks like Golf season (in Ottawa) is over.
Yeah, sadly golf is gone. Oh well. All the best.
re: robo — $500K pay 0.35%…
About their fee structure (as well as every other broker’s fee structure)…why charge those with less wealth more fees, and those with more wealth less fees?
re: Tim Stobbs
Claims his net worth to be >$1 million yet includes his pension and his primary residence in the calculations — neither of which is accessible wealth. In true PF/FIRE form, the numbers are “fudged”, once again, to create an attractive headline. He is retired but he is not a millionaire.
I don’t think Tim has “enough” to stop working for the next 40-50 years but maybe he has other assets and his wife will continue to work? Again, hard to make some sense of FIRE stories with not all the numbers.
If a couple is involved, does the net worth have to be divided by half to reflect that it is two people? I usually speak in terms of our household but I don’t know what others do. Just curious.
Good point Lloyd. We speak in terms of household.
FWIW we speak as one in this house – what is mine is my wife’s and vice-versa. All couples are different (?)
Marketing.