Weekend Reading – How much cash, Cashflows & Portfolios, new names for emergency funds and more!
Hey friends!
Welcome to my latest Weekend Reading edition of 2021 where I share some of my favourite articles from the week that was across the personal finance and investing blogosphere.
If you somehow missed out on my last edition, including interviews with Mark Noble, Executive Vice President, ETF Strategy at Horizons ETFs about the Horizons ETF line-up and LegalWills on the importance of having a Will – please check out those articles and much more – here you go!
Weekend Reading – New ventures, FIRE is not about retirement, dividend growth stocks and more!
Enjoy these articles and any takes on them – have a great weekend and see you in the comments section!
Mark
Weekend Reads
I agree Tom and financial expert Rob Carrick on this discussion during one of the latest Maple Money shows. There will be years ahead to do the complete autopsy on government programs launched during the pandemic. But let’s cut some politicians some slack, they were trying their best with antiquated processes and systems (that they did not personally design), and they are still trying to do what they can to keep the economy and our healthcare system afloat. I don’t personally agree with all the decisions but I want to support them and abide by them to see things through…
Tom, you mentioned a 12-month emergency fund in your chat with Rob. Interestingly enough, this is where I am trending in a few years – since this is my comfort-level in semi-retirement. I’ll have more on that in a reader question of the week below!
Interesting post about the downside of paying off your mortgage from Financial Samurai. Sam cites one of the major drawbacks in the U.S. is because mortgage interest is treated like a business expense for rental property AND it’s also a tax deduction if it’s your primary residence. “The higher your tax bracket, the more valuable the interest expense” but not so in Canada for your primary residence.
I personally don’t see any major downsides to paying off your mortgage (and having no debt for most people) since if you’re still working, you can redeploy that money for investing and future retirement purposes.
This is my personal stance on the mortgage vs. investing debate
Although I cannot compete with Sam and his outrageous passive income stream (which is over $300,000 USD per year by the way – not a typo), I can say my mortgage rate is lower than his at 1.69% vs. his at 2.125%. I’m even lower if you factor in my CDN <> USD exchange rate. So there!
The Sunday Investor shared some awesome data recently about dividend growth investing. I’ll let you subscribe to Geoff’s newsletter so you don’t mind out on his high-quality content!
Image courtesy of The Sunday Investor.
What I like about Geoff’s recent reports, he has a way of showing the data that aligns to these investing principles:
- If you’re going to skim the ETFs to own the some of top stocks in those funds, like I do, focus on companies that consistently grow their dividend and avoid chasing dividend yield. See my Dividends page for many of the stocks I own and why. Not all of my selections are winners but many do just fine.
- To ensure you don’t get burned by any one dividend paying company, as good as they may seem at the time, diversify – own many companies in many sectors should dividend cuts or worse occur.
- Dividend investing can work for buy-and-hold investors who have discipline. Otherwise, if you are concerned you may trade stocks frequently, then just index invest. I’m doing more of the latter myself.
Here are some great blue chip stocks to consider owning from Million Dollar Journey.
Dividend Hawk released some impressive income from his portfolio and his FI goals for 2021.
Fascinating read about this 30-something engineer who refuses to sell any Tesla stock. I mean, can’t really blame him given his bias for the stock with the glorious returns.
Cashflows & Portfolios!
In last week’s Weekend Reading edition, I hinted about a new venture I’m taking on. Well, that site is now live!
Check out and subscribe to Cashflows & Portfolios.
Although this site is in the very early stages, with many posts, tools, content and services to come, I believe it will evolve to be an essential go-to resource for any saver or investor – at any age. Along with my partner on the site, we aspire to build a site and a community over time that will show Canadians how to build a simple but responsible investment portfolio that can generate wealth over time.
Whether you’re in your 20s or 30s (and just starting out when it comes to saving or investing), we’ll explain the principles we used about cash flow management for investing purposes. There will be tools and case studies and more for you to access, to tailor your own path.
Should you be in your 30s and 40s, busy raising a family or managing a career or both, we’ll outline some of the steps we took (and continue to take) to manage our portfolios such that you can avoid our investing mistakes and go directly to portfolio simplification and wealth-building.
Finally, whether you aspire to retire earlier than most, enjoy semi-retirement in your 50s or 60s, or just dive into full-on retirement because that’s your goal, we’ll share tips, considerations, case studies and more on those as well to answer pre- and post-retirement questions.
This site is for information and awareness purposes at any age. We want it this way because we would have wanted something like ourselves years ago…
Beyond just investing and portfolio management, the site will also explore other topics we’re working through in our personal lives from time to time. We’ll do that because we know it’s also important to preserve or pass on any wealth you’ve worked so hard to build!
Although we have lots of things to build and publish in the coming months, we wanted to kick start your subscription to Cashflows & Portfolios by offering up a $100 gift card to one lucky new subscriber.
Check out the site and our first post – why we believe Cash flow is king.
This raffle will be open for the coming weeks as we slowly put up some content up on the site for you to takeaway and provide feedback on. So, please subscribe, be patient, and stay tuned as we ramp up content, tools, case studies, reports, services and more.
I will of course continue to publish my own journey and much more on this site, as I always have. But it is my hope this new endeavour will help anyone cut-to-the-chase so to speak and offer concise and actionable information from beginning-to-end when it comes to helping Canadians save, invest, and manage any retirement money at any age.
Check out the site, and please offer any feedback on what you might expect and what you’re personally striving for. I’m looking forward to your comments anytime – I read every one.
Other reading…
Good stuff and framing by Larry Bates on MoneySense about wealth builders and wealth destroyers. I know for us, I’ve often focused on staying invested since rates of return are largely out of my control.
Hopefully your financial plan includes identifying and setting objectives (including your spouse or partner; agreeing on objectives), whether that be achieving financial independence (perhaps to retire early like I might!), ensuring your kids are getting a good education, and the list goes on.
Nice of Jon Chevreau to feature yours truly on his site when it comes to diversification.
Dale Roberts highlighted how many one-ticket solutions performed in 2020. Amazing results really!
Incredible work by Tawcan who invested a whopping $115,000 in 2020. Jeepers, citing many “winners” and “losers” in this portfolio.
Reader question of the week (Twitter)
Thanks for your question and will reply on Twitter as well!
You’ll read that it’s our desire to have roughly that 50/50 split of dividend paying stocks that deliver mainly income for living expenses and the rest, some low-cost equity ETFs that have a tilt towards growth in our portfolio at the time of semi-retirement. We also strive to have ~1-years’ worth of living expenses when that time comes.
Rob Carrick also recently touched on some potential new names for an emergency fund – because in his recent newsletter he believes the term “emergency fund” is….
“…too tired, too vague and too closely associated with an old school personal finance approach that was based on nagging people to do the right thing. We need better branding.”
I know what I would call it. Will share later as comments roll in 🙂
What would you call it as part of a re-brand? Or, do you still like the name: emergency fund?
Happy investing and see you in the comments section!
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.
A somewhat unrelated post to TFSA’s and Mortgages but one about investing in general that I picked up from Tom Connolly’s site DividendGrowth.ca About going the long route with equity investing. A good read for all committed investors. Perhaps something to focus on now that the mortgage has been dealt with.
https://www.worth.com/from-the-archives-fear-of-crashing/
Thanks for the share, great stuff here:
“Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in corrections themselves.
The first mistake is hedging the portfolio. Anticipating a drop in the market, the skittish investor begins to dabble in futures and options, the kind of investment that will make a profit when stocks decline. People think of this as correction insurance. It seems cheap at first, but the options expire every couple of months, and if stocks don’t go down on schedule, people have to buy more options to renew the policy. Suddenly, investing isn’t so simple. Investors can’t decide whether they’re rooting for stocks to falter, so their insurance will pay off, or for a rally, for the sake of the portfolio.”
Personally, I’m rooting for prices to stay modest for the coming 10 years. If they skyrocket after that I will be happy 🙂
Thanks Andrew.
Mark
Dang, another site! I can barely keep up managing one. What is your secret sauce to managing two?
Thanks for the highlight. The biggest downside to paying off a mortgage early really is the loss of motivation to try harder to make more money elsewhere. The opportunity cost is one thing, but the amazing ability to slack off after life gets easier as another!
Sam
Ha, ya, I’ll find the time.
Fair point Sam about the loss of motivation. I suspect that does relate to some but not for me. Definitely not you!
Ah, most definitely for me, because I was the one who wrote the post saying I did lose motivation for a while after paying off my mortgage!
But now, my motivation comes from my children. I can’t give up on them!
Sam
Ha. No doubt. I hear those kids can be a bunch of work! All the best Sam and continued success to you.
Stay in touch!
Mark
Congrats on the launch of the new site Mark! Like JL Collins, I like the term F-U Money instead of Emergency Plan. To me, if you have 2 years of expenses saved up and stashed away, you can leave a bad situation (aggressive boss, abusive spouse, whatever) and start fresh on your own runway.
Ha. JL Collins was subtle eh? 🙂
2 years is a bundle just in cash but I can appreciate if you’re really stuck, and should you need to, some folks can always draw on some retirement income although certainly not advised!
We hope to have multiple income streams at some point – investments, blog/business and part-time work in the coming years. We figure that should be good enough!
Great comment.
Mark
Hi Jeff North,
Congratulations on doing well with growing your TFSA. I’m pretty doubtful anyone on here can give you the answers for much of what you’re asking, as we don’t know your details and even if we did we aren’t CRA to decide. We’ve all read about some people fighting with CRA over this but don’t know all specifics of those cases. I think the answer is if you really are worried consult a tax pro, or take your chances you will continue to not be contacted by CRA. It might be worth getting some professional feedback.
YMMV
Good luck.
Evening Mark,
I have a question and need of advice from you or any of the field of financial bloggers.
Interestingly many individuals promote the benefit of placing growth stocks in a TFSA because as we all know those profits grow tax free and any increases will be 100% yours in the future. I also advocate on this account as my safety or slush fund in that I can cash stocks for what others hold as six months of emergency expenses preferring to be fully invested most of the year. Small problem – I’ve realized some crazy gains in this account, cashed out from it, refilled it, maxing it and now have almost doubled the value of it, Even more scary I am sitting on a stock in there that might 2x next month. Now I’m concerned because my account is obviously six figure will I fall under the scrutiny of Revenue Canada. I by no means am a professional trader, engage in advice of any kind or operate a personal business as such. I hold a regular 9-5 blue collar full time job so I shouldn’t be unfairly compared to professionals who may be audited for abuse of this account. What constitutes violation of the rules? It seems quite vague and I’m an individual who focused on maxing this account early and picked all growth stock winners with no losses since it’s exception and the trades I made were to rebalance to purchase something else I wanted to hold. Does a buy and sell of the same stock count as one transaction or two in counting trades made on the account? Do I have cause to worry for sixty trades or more accurately thirty positions. Should I empty 60k out into my RRSP that has room left for that amount to try to mitigate the returns. I really don’t like the idea as I’m already sitting on a LIRA of similar success that’s going to be very difficult to collapse in retirement to minimize taxes. That though was partly due to 2016 purchases of Shopify after I had money come to me from being downsized and got access to my company managed funds.
I found the following content below on the subject. Nobody needs to rub the last line “Seek advice from a tax professional”. I would have to assume based on last years unprecedented gains I’m likely not the only one to have encountered this problem and any insight could be beneficial to all.
Moody says when pressed, a CRA official recently pointed out a document from 1984 that outlines the factors the CRA uses to determine an investment business. They include: volume of trading, the length of ownership of securities, the taxpayer’s knowledge of the stock market, the taxpayer’s profession, the time spent on researching and trading securities, and whether the taxpayer markets his or her ability to trade securities.
“It’s a decent starting point but by no means conclusive nor complete. The problem with this is that anyone who has had some decent ‘wins’ in their TFSA – especially large ones – are presumed to be carrying on a business. That is too simplistic and is leading to great frustration, uncertainty and reassessments” he says.
His advice for any TFSA trader looking for clarity is to talk to a tax professional
If you are indeed trading often, there could be some concerns.
If your TFSA is truly all growth, tax-free growth at that, I wouldn’t worry. The investments inside the investments such as Shopify, Tesla, other that have had MAJOR gains over the many years are all fair game in my book.
Sure, CRA can scrutinize all they want but really, nothing they can touch as far as I’m concerned.
I have never seen the TFSA as a “savings” account to me personally, it has been a TFRA (Tax Free Retirement Account) from day one.
I know of many folks that use their TFSA for savings, and that’s fine, I simply don’t see much value in that personally.
The CRA, at the end of the day, is really only concerned with day-trading and other that could potentially generate hundreds of thousands or much more should any trader get lucky. To be honest, I’d much rather have $500,000+ in my TFSA today, and risk a small CRA audit on me making really lucky investments vs. not having that amount of tax-free money. Just saying 🙂
Ya, if someone is making a ton of trades, spending a large amount of time daily with the account that might raise some issues about it being a job, and therefore questionable for a tax free acct. Otherwise picking some winners that run up big time is fine.
Congrats on the new site launch Mark! Very cool stuff that you’re working with Joe. Exciting stuff.
And thanks for the shout out, always appreciate it.
Most welcome Tawcan. Continued success back!
Congratulations Mark on the launch of your new site, it looks great! I love the focus on cash flow, and I wish you and Joe all the best with this new venture.
Thanks Kanwal and stay tuned for some good stuff 🙂
Mark
I am in a DB plan run by AON and I have hit a major issue. I am just about to start my pension as I am 65. They won’t let me LIRA out my voluntary contributions. They say that I am not allowed, yet all my pension books do not mention this restriction. Know any good lawyers?
Ugh, Johnny, very sorry to hear and unfortunately I do not for that particular issue. LIRAs are typically “locked-in” for a certain age but I believe you might be past that age (65)? Check out your provincial LIRA rules to potentially advance your personal case.
Basically what goes in to a LIRA stays in it until you convert to a LIF. So you can not pull out what you contributed. At your years of wisdom you can convert to a LIF and then withdrawals are subject to min/max limits. So you can not deplete the LIF faster than allowed.
A RIF (converted from a RRSP) is also subject to minimum mandated withdrawal percentages but there is no maximum limit. So if you were so inclined you could cash out the whole RIF in one year with the ensuing tax implications.
A simple web search will give you your LIF min/max percentages according to your province of residence.
Just my nickels worth (inflation made me boost it from my two cents worth. Plus the penny was declared non grata)
You might also want to check out if you can not transfer a portion of your LIRA to your RRSP prior to retiring again depending on province. That would lower your LIRA. The caveat is that you would also need to start withdrawals from your LIRA in the year of the transfer.
RICARDO
Yes, the government wants you to spend from your portfolio accordingly – max/min from LIF. I’ve never like that personally. You should be able to take out as much as you want, when you want, but I can appreciate they set it up like a bit of an annuity…
See table, current to 2020 anyhow.
https://www.myownadvisor.ca/what-is-a-lira-and-how-should-you-invest-in-it/
I personally will try and transfer/unlock as much in my LIRA as I can. My balance is rather small, at least in that account.
Good details as always.
Mark
I agree. I think it should simply have same rules as RIF.
Mine has been set up for 3 years now with a minimum annual withdrawal. It just reduces the amount I would withdraw from my RRSP, and I’ve been reinvesting in kind to my unregistered to create more growing dividend income. Even though its not required I have the broker withhold a bit of tax so I have smaller bill owed when filing.
I think min. withdrawal makes sense certainly if you have other accounts to draw down, re: RRSP.
Our Canadian tax system is such an ugly mess. So much could be simplified. Hope to write about that eventually.
Ya, its just a part of automating it and for a number of years my investments there work to move in kind, and reduce moving mostly USD investments in RRSP. Its all a juggling act taking a bit of strategy to keep balance and consider taxes.
Hi Johnny, I don’t know if age makes a difference, but I can tell you about our situation (in Ontario at the time). At age 60, my husband transferred his LIRA into a LIF, and then was able to unlock 50% of the LIF into a self-directed RSP (SDRSP). The annual minimum withdrawal amount for the LIF was set up based on my age (I’m four years younger), giving us more flexibility. One pleasant surprise about the LIF is that with TD Waterhouse, there is no charge for withdrawals. With our SDRSP however, every withdrawal is subject to a $25 administrative fee.
That’s great to know about TD and the lack of LIF withdrawal fees. All brokerages are different for sure.
I think once my wife gets to an age whereby she/we can unlock her DC pension (move from LIRA to LIF), we’ll probably take the minimum withdrawals as well. Should no later than age 55 for her.
I’ve conservatively estimated her DC pension should payout about $16,000 per year for 20-25 years. We will likely unlock 50% as soon as we can and move that into her RRSP when the time comes.
Laura, I assume you needed to work with the bank/brokerage to unlock 50% into RRSP before assets were moved into a LIF?
Hi Mark, yes, we worked together with a financial advisor from the bank, who in turn sent in all the necessary paperwork to TD Waterhouse. I looked back into my notes, here are the steps involved in the unlocking for our situation. The bank took care of most of the work, we just had to sign the paperwork.
1) Open a LIF.
2) Transfer the Locked-in RSP into the LIF.
3) Request 50% unlocking of the LIF and transfer the unlocked portion to a personal RSP.
Note: We didn’t want to cash-in our investments, so requested an “in kind” transfer. We provided a letter of direction (LOD) to the bank indicating which stocks/ETF’s and any cash to transfer.
Yup, makes for that process and seems consistent with other retires from DC plan to LIRA (optional!), from LIRA to LIF, and then unlocking part to RRSP.
1) Open a LIF.
2) Transfer the Locked-in RSP into the LIF.
3) Request 50% unlocking of the LIF and transfer the unlocked portion to a personal RSP.
Smart to do the in-kind I think since the brokerage would also charge fees for sales.
I have no doubt when the time comes that I will not unlock 50% as well and move that to my personal RRSP. The sooner I can collapse the LIRA to LIF in a tax efficient way, the better. With my wife’s DC pension however, it will take a couple of decades. Good problem to have! Ha.
Nice Mark congrats and best of luck with the new site.
Emergency fund isnt a bad name but like liquid said we kinda call it a slush fund. we dip in it from.time to time and next cheque top it back up.
cheers
I don’t mind the emergency fund name actually. It is what it is. You need money, right away, fast, well, that seems to signal some sort of urgency or emergency.
If I had to pick a new name = JIT $$ (Just In Time Money).
Thanks for the kind words about the site. It will take time to grow but I think it will be very interesting to many. 🙂
Hi Mark, I quite like a term you used in your Jan 23 weekend reading: “Reserve”. It brings to mind gold bars 🙂
Ha, good! 🙂 All the best Laura.
Congrats on the new site launch Mark. I like it’s overall clean interface. Looking forward to watch how it grows over time. Is it mostly you or Joe that will manage the social media account/s? I don’t have a strong opinion on emergency funds either way. I don’t mind calling it an emergency fund. I think a slush fund is a good label too. Or liquidity fund. 🙂
I quite like the term “emergency fund,” but that’s not really what it is for many people. It’s more like a “life buffer” or “surprise fund.” A true emergency is when your car breaks down, or you lose your job, or someone in your family has a health crisis. Often it’s (mis)used for daily expenses or vacations when your regular bank account gets a little low. I know I’m guilty of that, and so I like the name “emergency fund” since it accurately describes what it’s SUPPOSED to be used for. Regardless, I’m curious to hear Rob Carrick’s and your thoughts on the subject!
Life buffer. Interesting 🙂
I don’t mind emergency fund either. It’s very apt.
My suggestion: JIT $ (Just In Time Money). ?
I suspect you keep a bit of emergency money?
BTW – solid work on the RRSP vs. TFSA post. I will be including in a Weekend Reading edition soon 🙂
Wow, thanks, Mark. I really appreciate you considering me for your Weekend Reading. I think that means I must be doing something right!
My wife and I like to keep 6 months of mortgage payments on hand – about $16k. The actual amount we keep around is slightly higher than that. Our jobs are relatively stable, so we don’t feel the need to keep 6 months of total expenses.
Ha. Good stuff. I’ve always believed any Canadian should max out TFSA. Seems very simple why. To your points in the post, the RRSP is a tax-deferred account and so it must be framed that way. This also means, the most important part of RRSP wealth-creation over TFSA is reinvesting the RRSP-generated tax refund. That’s the most important part in this debate.
https://www.myownadvisor.ca/managing-the-refund-well-is-the-linchpin-in-the-rrsp-vs-tfsa-debate/
Will be on your site soon 🙂
Mark