Weekend Reading – BlackRock soaring, how Canadians invest, paying off your mortgage and more!
Well hello!
Welcome to the weekend!
Welcome to my latest Weekend Reading edition, a Masters edition if you will, highlighting some of my favourite articles from the week that was across the personal finance and investing blogosphere.
A reminder, in case you missed last week’s edition you can find it here including my contributions to the Best ETFs in Canada for 2021 with ETF experts and the team from MoneySense.
This week, I have some articles and thoughts about BlackRock (BLK) stock soaring to new heights, how Canadians invest (or not), why paying off your mortgage might be mistake and much more.
Where to begin?
The Masters?
Earlier this week, I told my wife Jon Rahm would win. I have no idea if that will happen of course but I like his chances still as he hovers around the leaderboard at the time of this post. I love The Masters. I know what I’ll be watching ALL weekend…!
Have an awesome weekend whatever your plans are and enjoy them.
Be safe, thanks for reading!
Mark
Weekend Reading
I enjoyed a recent take about paying off your mortgage from Physician on FIRE, despite that approach not always being the smart financial thing to do. It’s a financial mistake for the blogger profiled but one they do not regret.
From the article:
“I think most of us would agree that money gives us security. With enough money, you don’t have to fret about the little things, and you can freely make spending decisions. However, more specifically, I believe that being debt-free gives me a heightened sense of security.”
I would agree. We’re now into the 5-figures with our mortgage debt and once that debt is gone, it will be extremely liberating. Beyond ongoing expenses such as condo fees and property taxes, food and then minor transportation costs (we barely drive our one car anymore now that we live in the city), the money we’ll make is the money we’ll keep and/or spend as we wish. We’re getting to our Crossover Point soon.
Actually, we’re getting to the point whereby we don’t really need to save too much more for retirement. We will however, continue to maximize contributions to our TFSAs and RRSPs for the coming 4-5 years. After that, we’ll have some decisions to make!
It’s all part of our Financial Independence Plan revealed here. Read it and let me know what thoughts you have in a comment please. I’m curious to hear from others! I’ll try and update that plan later this year for readers.
When it comes to paying down your mortgage, or investing, of course there is the emotional answer above and the math answer. Here is the math answer:
The definitive answer to paying down your mortgage or investing
My recent posts:
While I continue to believe benchmarking has some merit, I definitely don’t think you should obsess over it. Read on for those key reasons.
A big thanks to Robb Engen for sharing his path to Retire to Entrepreneurship here. Certainly a worthy goal for anyone to work on their own terms. Long live #FIWOOT!
Financial Independence – Retirement
Speaking of FI, FIRE, FIWOOT and more, as part of my ongoing commitment to share some financial independence, early retirement or retirement articles from the blogosphere, here are some links!
On Cashflows & Portfolios we highlighted how you can retire by age 50 – taking advantage of a hot housing market. For this 30-something couple, that’s part of their plan.
This couple has less than $800,000 (although still amazing) in the bank. With a decent company pension they wonder if they can retire at age 52. Read that article to see if they can make it work and see how you might compare with your needs and wants…
As always, ensure you check out my dedicated Retirement page where I have case studies about “how much is enough”, how other successful retirees are managing their portfolios and much more. They’ve been inspirational to me and shape where I want to be…
I’ll have more case studies on my site soon!
Other Reads….
According to this new BMO study, highlighted by Henry Mah, this is how Canadians are investing their money.
From Henry:
“Too bad, as I believe that most investors are missing out on an opportunity to obtain much higher and more reliable investment income, as well as capital growth, by following the Income Growth Investment strategy.”
Dividend Earner made some changes to his portfolio, including getting out of Enbridge (ENB), TC Energy (TRP) and Telus (T). It was interesting to read his mistake:
“One mistake in portfolio management I have realized over the past few years is that selling your winners is a mistake. Taking profits from your winners is a mistake. My winners have been Apple, Microsoft, Costco, Visa, and Canadian National Railway for example and I took profit from time to time and I should not have. I would have more money now.”
Interestingly, I continue to own all three of those Canadian companies and have no intentions to sell them. They churn out a few thousand dollars per year in my portfolio.
Back to Dividend Earner, I too have done that and it’s all part of managing the emotional game when it comes to investing. Then again, I’ve been very good to hold onto a few winners and add to them over time. BlackRock (BLK) is one such stock. BlackRock (BLK) is just one of the 5 stocks I want to buy more of this year.
Last but not least, blogger Chris Istace pointed me to this impressive (older) essay entitled How Not to Build a Country citing a housing crisis amidst a lack of innovation issues in Canada. I personally blame prolonged low interest rates. They are terrible for our economy including our housing market overall. Just my take.
Reader question of the week (adapted slightly for the site)!
On the subject of stocks, last week, I answered a question about Fortis stock.
A reminder that I also post some of the burning (and great) reader questions on this dedicated FAQs page here.
Hi Mark, I enjoy and thank you for sharing your knowledge and journey. My question is in regards to dividend investing within a RRIF. As you know, using a RRIF we are forced to withdraw a set amount. That amount doesn’t matter where the money comes from (e.g., dividends, interest, selling stocks or ETF units), it has to be withdrawn.
Assuming pre-RRIF, my portfolio earns/pays about 5% and say at age 70 I start my RRIF. (I used your RRIF table for reference and ignored the changes to RRIF withdrawals for COVID-19 during 2020 tax year for my scenario.)
(Mark: The minimum required withdrawal for all types of registered retirement income funds (RRIFs) has been reduced by 25% for the year 2020. Individuals who have already withdrawn more than the reduced 2020 minimum amount will not be permitted to re-contribute the excess amount back into their RRIFs. Tax will only be withheld if you withdraw more than your unreduced minimum amount.)
OK, so age 70 requires a 5% withdrawal rate. In another 10 years, my RRIF minimum is 6.82%.
My real question is: wanting to keep the principal and take only cash from dividends, how likely is that?
It seems increases in RRIF withdrawals from ages 80-90 are even more onerous, but starting at age 70, I figure a 10-year plan is reasonable for me to get that income out.
I would appreciate any thoughts you have on this including your future!
Thanks for your question!
First of all, good forward thinking on your part, planning what may or may not be needed well ahead of when you need to make a decision. I think that’s great to consider the pros and cons in any major decision.
Secondly, I need to highlight that I’m not honestly sure how I will manage my own RRIF in the coming decades. I have some ideas I’ll share below but I’m still in my 40s. Simply, so much could change between now and then – including government RRIF rules! On that note, for a quick rant, it is truly my hope the government abolishes any RRIF minimums or maximums and simply leaves the RRIF as a tax-deferred account that you can no longer contribute money to.
In fact, I hope our tax system can become a major election issue eventually. It’s terrible.
OK, so my thinking is, once converted from an RRSP to a RRIF, contributions to any RRIF in my financial dreamland cannot occur but you can keep assets there as long as you want until death/as per your will. That would simplify our tax system and estate planning decisions but I doubt I’ll get my wish….the government loves to make the simple complex…
Finally, here are my thoughts and personal plans for any context!
When it comes to RRIF minimum withdrawals, I believe you are largely correct. While the combination of dividends, interest and growth from assets inside a RRIF could be around 5% for some investors in their early 70s, it may be far more difficult to have their RRIF returns exceed RRIF minimum withdrawals, especially as people age into the 80s and beyond.
Source: MD Management.
Recall this is done by design: the RRIF is a tax-deferred account and the government wants their money back as you get older!
When it comes to our plan:
- We intend to make strategic/periodic withdrawals from our RRSPs in our 50s and 60s, and only leave some RRSP/RRIF assets until our 70s. This way, we can defer CPP and OAS and get the maximum available income from those government benefits.
You can read about when to take your CPP benefit including a case study here.
- We will withdraw from our RRSPs earlier in life to avoid RRIF headaches later in life. While most of our RRSP/RRIF money gone by our 80s for almost certain, along with our taxable dividend income stream, that will leave only TFSA assets and government benefits “until the end”. By moving any RRSP/RRIF money to our taxable account over time, or just spending that money, that money will not be subject to minimum withdrawals and we can incur capital gains (an efficient form of taxation) as needed. With any TFSA money, it’s just that: tax-free money.
In essence, our plan is to move tax-deferred money (RRSP/RRIF) into tax-efficient money (taxable account for dividend income and capital gains) and also into tax-free money (TFSA) before age 70 where we can.
Happy saving and investing folks and enjoy The Masters!
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.
As long as you cannot escape the RRIF sold out and taxed at the highest marginal rate when you passed away, I donot think eliminating RRIF minimum withdrawal rate actually do any good to people with large size of RRIF.
Without pension and average (or even less) CPPs, we expect to live on RRSP/RRIF withdrawals majorly for more than 10 years before age of 70. We want to melt down our RRSP/RRIF so that we will have no more than 1M in our RRIF at age of 70. And hopefully clear it out while we are still alive. Anything we might not need will just go to TFSA accounts and then non registered.
I just see eliminating those mins and maxs as providing more financial flexibility and less bureaucracy with such accounts. There are no mins or maxs with RRSP withdrawals – you’re simply taxed. I think the same should apply to RRIFs or LIFs – you simply cannot contribute them. They are a take-out only kinda deal.
That said, I hope to clear out most of my RRSP/RRIF by age 70 or so. Definitely by age 75 for sure. This way, I’ve moved the tax liability out and funded the TFSA to the max. That’s just our plan of course!
Question – i think im well into a healthy retirement fund, already reaching that 7-digit mark! I still have another 15 yrs to fully amortize my mortgage and with continued investment ~25% of income I am starting to wonder if im too aggressive in savings and retirement (im 37 so lots of working years to go) ? Do you have resources on the best way to plan for “enough for retirement’. I also wonder if its wise to think about a vacation/retirement property now vs. waiting until I’m an empty nester and downsize?
Yes, I have some ideas CDNInvestor. re: best way to plan for “enough”. 7-digit mark is outstanding at 37. Well done.
Have you figured out your expenses/forecasted expenses for retirement? That’s the first major step. I figure our basic expenses are about $30-$35K after tax per year.
https://www.myownadvisor.ca/dividends/
Additional expenses likely $20K or so past that.
As for a vacation property, we might consider one but prefer to rent/leave since the liabilities and tax headaches are with the owners vs. us 🙂
Thoughts on that?
Mark
I like your idea of rent and leaving the headaches for the owner… it does also give us flexibility to move around vs. stuck to one investment.
I guess determining basic expenses required for retirement feels difficult to me given i have a young family and probably have the highest level of expenses right now. Assuming i dont have a mortgage and lower food, extra curricular spend and leaving enough for travel and/or car maint/payments im thinking id need about 70k after tax? Maybe im a poor judge of future basic expenses?
That’s just my thinking of course CDNInvestor. I mean, sure, capital gains can occur for real estate but then you also have foreign fees/taxes/property management, etc. to deal with. It needs to be worth it.
No doubt with a young family your expenses are high!
My brother site with my partner (Joe) has a pretty good cashflow worksheet you can download for FREE and try out. Happy to take any feedback on that spreadsheet of course. Might be interesting see what you add up today / what your current expenses are vs. what they may be in the future without any mortgage, etc. Should be less? 🙂
https://www.cashflowsandportfolios.com/
Thanks for sharing the weekend reads, Mark! As always, I enjoyed that reader question. That is some good forward thinking on their part. I haven’t entered figured out how I will use my RRIF payments either. I hold all USD stocks in my RRSP, because there is no tax on the dividends. So, I always figured I would withdraw the dividends to live off. But there is the forced amount. So, I have also considered living off my RRSP first before it becomes a RRIF. That way I can continue to grow my TFSA and non-reg accounts. I still have a long time to think about it. This gives me more to consider. Enjoy your weekend!
FWIW Graham, this is what I do, since age 55 and just about 7 years into retirement.
Ya, I figure I have at least 10+ years to figure out any RRIF. I know for us Graham, small, strategic withdrawals from our RRSPs are likely to occur in our 50s and the ability to “live off dividends” from my taxable account will occur throughout my 50s. I will of course draw down the capital in my taxable account over time but the first 5 or so years of retirement I’m not planning to touch my capital very much just in case. It is my hope from my taxable account alone I can earn enough dividend income to cover Ottawa property taxes and condo fees + utility fees. Likely $1,500 per month. (Ottawa is not cheap for property taxes….some houses in my area have taxes around $1,000 per month.)
Hope you had a great weekend and thanks for all the social shares 🙂 Let me know posts I can help you out with in a comment or an email. So hard to find the time to read everyone’s content these days!
Mark
I recently learned of the advantages of naming a successor to your TFSA instead of a beneficiary like you must for an RRSP. Essentially the successor takes over the account and the tax free benefits instead of just the assets. That’s potentially a biggie for advanced age tax free bucks. Being firmly in the accumulation phase, it’s become clear that the real alchemy happens in the de-accumulation phase. Happy planning!
Thanks for your comment Andy. Make sure you check out this very comprehensive post.
https://www.myownadvisor.ca/beneficiaries-for-tfsas-rrsps-rrifs-and-other-key-accounts/
Beneficiaries are very important!
All the best,
Mark
Great post Mark !
as for paying off mortgage early or invest? I always believed that you can take a hybrid approach when it comes to those two pay extra on your mortgage and invest whatever you can afford to invest this way you get benefits from both sides a peace of mind and putting your money at work.
as for TRP and T and ENB , i used to be 100% invested in etfs but lately i started shifting my canadian holdings into blue chip Canadian stocks and i bought T and TRP and like you always said buy something that we need and we need our internet and phones as well as our gas to heat up our homes 🙂 so I’m sticking with those two and holding.
About selling the winners i hold a big chunck of VUN for years now and every year it keep on climbing and i personaly don’t see a reason to punish it by selling some of that because it contains a lot of good US companies from all industries that keep on growing so yeah i’m just going to keep it grow.
Thanks Gus. Actually, I do both 🙂 I have to pay down my mortgage and I also strive to max out x2 TFSAs and x2 RRSPs every year. All accounts are maxed out and will continue to do so. I can see why Dividend Earner did that but I won’t be selling those three.
Holding a chunk of VUN beyond your established dividend payers seems very smart to me!!
Honestly Mark now i see the merit behind owning good Canadian dividend stocks specialy when the market takes a dive , few weeks ago i sold all my bonds holding ( I know this may go against some investors believes but to me the way i thought about it is since we have a big monthly rental income that could be our buffer when the markets crashes during retirement ) and bought few Canadian stocks
I bought 4 Canadian banks stocks TD RY BNS and CM
1 insurance company MFC
2 teleco BCE and T
3 utilities AQN FTS and EMA
1 energy TRP
most of them will drip this month and I’m kind of excited about that plus those companies are really solid ones too , as for the rest of my Canadian holding i left in VCN to get exposure to other companies as I’m not planing on adding more in dividual stocks at least for now because my screen is getting a bit crowded 🙂 VUN for the US exposure and VIU and VEE for international and emerging markets .
when i first started reading your posts on this blog i thought it would be hard to build a portfolio beyond etfs but it isn’t .
Thanks for all you do !
Gus, I’m a big fan of those companies you listed but I’m a bit biased of course because a) I own them, b) I get dividends from them, and c) I also get some growth from these companies. As long as these companies remain near the top of fund XIU – I figure I can “skim” that XIU ETF and own those companies directly without any money management fees.
I truly believe in a era of non-existent bond yields and bond growth (that run is over for the rest of my life???) I think the only key place you are going to get returns is from stocks or real estate.
I almost own my own home and have no intentions to own another property, so, that’s my real estate.
The rest of my portfolio beyond some cash will be in stocks for the long-run.
VUN, VIU and VEE are great funds to invest in beyond Canada’s borders and likely a very simple way to own international diversification!
Thanks for your kind words!
Hi Mark,
Which account do you have BlackRock in?
Always own my U.S. stocks and my U.S. ETFs in my RRSP and LIRA. There are no U.S. withholding taxes inside those accounts.
https://www.myownadvisor.ca/dividends/
Not advice of course, just what I think it tax efficient.
Mark, I also bought CNR (as well as CP) during last year’s March dip. I always was interested in these railroad companies – and finally was able to get in during the pandemic lull. CNR at $110 and CP at $299 – both have done extremely well since and I plan to hold onto them for a LONG time!
Very smart Mikey!! I just wish I had more cash to buy more. Ah well, I will save some $$ this year and if I can find some for taxable investing I will 🙂
CP at $299??? Nice call. I might buy some post-split. Going 5-for-1 soon. Well done.
Thanks for the mention Mark.
As for Dividend Earner’s mistake, my philosophy is to try and identify winners before the fact, rather than after. Once I’ve chosen them, I never sell as long as they continue to provide me a reasonable income.
Yes, I have no plans to sell those three companies either. I’ve owned them all for over a decade now.
If you look closely at the RRIF chart it is actually very possible for dividend income to match and even outgrow the required annual draw downs. 6.82-5.0 = 1.82. If your dividends grow at an average of 2% annually you are ahead of the game. Rarely does the required annual RRIF draw down increase by 2%. I absolutely agree that winding down the RRIF within 15-20 years is the way to go. The challenge occurs when dividends are cancelled, frozen or cut.
The other consideration is how the RRIF is taxed upon death. Remember that upon death of second partner the RRIF gets tax whacked as it all comes into income for that year. You could easily lose 40-50% of the RIFF to taxes. Our RRIF should be empty by 70. I want Rose to finally win. I might lower myself to watch golf since Canada is out of World Curling. LOL
“very possible for dividend income to match and even outgrow the required annual draw downs”
Probably only if the net value of the portfolio does not increase too much or not at all. The RRIF prescribed factor is applied to year end value.
Yes, RRIF factor is year end. I have advised my parents actually to take any RRIF withdrawals early in the year. Can move to TFSA as needed.
Your math is off. Your dividends would need to grow 36% in order to match the increase in withdrawal rate (6.82/5.0=36.4%) over that 10 year period (withdrawal rate differential between age 80 and 70).
Or in other words, if your portfolio was generating $5K p.a. in income, a 2% increase annually over 10 years compounded only gets you 21.9% increase in income. Short of the 36.4% increase you’d need to match the withdrawal rate
Apologies for the math mistake, thanks Martin. 6.84-5.0 = 1.84/5 is 36.8. No more math before caffeine. That’s still achievable.
Well, here it the good news with the RRIF:
https://www.myownadvisor.ca/beneficiaries-for-tfsas-rrsps-rrifs-and-other-key-accounts/
…make sure they are “successor annuitant”.
“A difference between RRIFs and RRSPs is that for a RRIF, a spouse or common-law partner can be named as a “successor annuitant”. In that fine print, following the death of the RRIF holder, the account stays open and the spouse becomes the new owner and will continue to receive the RRIF payments.
When we establish our RRIFs this is what my wife and I intend to do: name each other as a “successor annuitant”. In doing so, there will no need for my wife (or I) to collapse the RRIF, no paperwork to deal with, and in the case of my wife she will simply take over RRIF payments from me.
If for whatever reason your spouse is not a “successor annuitant” but the RRIF beneficiary, the RRIF will be collapsed in the name of the deceased; investments are sold. Then as the beneficiary the surviving spouse or common-law partner can have monies rolled over to their RRSP or RRIF.”
I picked Jon Rahm to win but I won’t be disappointed to see Corey Connors win!!! I like Rose as well. Quite the player.
Great read Mark! As a longtime ETF investor, I recently starting diverting funds from my divided ETFs to individuals stocks.
Ended up opening positions in ENB, T among others. Didn’t think I’d be getting into individual stocks when I first started but here I am.
Nice. I know a few CPAs that do a bit of “core and explore”. I certainly don’t think that’s wrong but I’m biased since it suits me and my investing style. You can see my holdings here:
https://www.myownadvisor.ca/dividends/
Actually, ENB was my first stock I bought! Own a bunch 🙂
https://www.myownadvisor.ca/now-enbridge/
WS has made it easier for me to start picking dividend stocks with 0 commissions, I’ve been documenting this new portfolio on my channel as well 🙂 We have many similar holdings
The MER on the Canadian Dividend ETFs was getting a bit too much for my liking. So now the goal is to transition into Hybrid Investing with ETFs still being the main core but now building around those Indexes with CDN Divi Stocks!
Yup, I killed off most thoughts of owning Dividend ETFs from Canada a long time ago 🙂
https://www.myownadvisor.ca/why-i-dont-invest-in-canadian-dividend-etfs/
Welcome to hybrid investing = a mix of Canadian stocks (and some U.S. as you wish) for income (and growth) and index everything else for purely long-term growth. Have fun!
Been my plan for 11+ years now and will be for another 30-40 years. Thanks for your readership and stay in touch. Let me know when you discuss this on your channel!
haha yes! I was running some numbers and realized that I’m better off holding CDN dividend stocks directly instead of paying MERs for them. It’s not like we have a vast selection of Dividend companies in Canada like the US, so even by holding a select group, you can replicate any Canadian Dividend ETF.
I have dedicated a new playlist to talk about these various stocks I’m adding 🙂
https://www.youtube.com/watch?v=KylCOVa1EvU&list=PLXhGXQTvcccwjZohOpfDXjaV6ho0FUG70&ab_channel=DanishGhazi-PersonalFinance
Good stuff. Will check out!
Yup, you can create your own dividend ETF in Canada rather easily and avoid the fees. Just posted!
https://www.myownadvisor.ca/march-2021-dividend-income-update/
Mark
Hi Mark,
I’ll be doing my first government mandated minimum annual lump sum withdrawal from a RRIF this coming week. The proceeds from the withdrawal will just go towards a high yield Canadian dividend growth company in the taxable account. My wife’s turn will be next year. I don’t find it an issue with the RRIF and I’m always willing to pay any taxes due.
Gee, selling stocks like ENB, TRP and T. I don’t think so. No plans to do so. CNR became a multi-bagger over the years for us, and as it represents well over 6% allocation to the taxable portfolio that’s more than enough for me. Now that I’m getting older I’m starting to stay more focused on adding to the stocks for “widows and orphans”.
I agree with you on letting your winners run and not selling, unless there is material change in the company. Why take profits and incur capital gains when you don’t have to?
I believe that Dividend Earner is making the same mistake he did in the past by now selling ENB, TRP, Telus. These are all winners in my opinion given that pipelines are not being built which makes the existing pipelines even more valuable. Telecom will continue to grow in the future due to 5G and technology upgrades to phones etc.
With regards to RRIF’s I believe in moving the tax payable on them as far into the future as possible, until the last spouse passes away. We are earning tax sheltered income within RRIF’s which is not available anywhere else except TFSA’s which are already topped up. Yes the tax bill will be large but I don’t really care because I will not be here anyway!
“Why take profits”
There may be situations where it can be an idea. In my RRIF (obviously no capital gains issue) I sold all by BEP.UN at $61.60 and went into XEI at $20.20 for greater yield. Still have some BEP.UN in wife’s RRSP. Again, obviously no guarantee the distributions/dividends will be sustained but between XEI and PPL the minimum withdrawal is covered leaving AQN, FTS and RY dividends to accrue to cash.
I can see that, re: take profits. You need or want the money. I know I will eventually draw down my portfolio and therefore “take profits” but I intend to live off dividends for a few years in semi-retirement as you know; likely the first five years in semi-retirement. Big fan of BEP.UN or BEPC and those other ones too (AQN, FTS, RY). Buy and hold and buy some more!
“You need or want the money.”
Ya if that is the case. In my case, I took the large profit on BEP.UN within the RRIF and converted it to higher yield with XEI and a bit of PPL.
I’m holding my BEPC. I could see this one hitting $100 per share in another 5 years. Remind me when I’m right 🙂 Ha.
Ya, I have no plans to sell these three stocks myself FWIW.
I have advised my parents if they don’t need the RRIF money, they should move it to their TFSA every single January.
Thanks for that practical / real-time experience. Good to know. I advised my parents to move any RRIF money they don’t need to spend now into their TFSAs.
I think moving tax-deferred (RRIF) into tax-efficient (CDN stocks, taxable) is very smart since you can actually earn about $50,000 per year, in Ontario, in just dividend paying income (without many other income streams) and pay $0 tax. Incredible really.
Big fan of CNR. I will try and nibble more this year!!