Weekend Reading – Juicy dividend stocks, commuted pensions, bad news for actively managed money, and more #moneystuff

Weekend Reading – Juicy dividend stocks, commuted pensions, bad news for actively managed money, and more #moneystuff

Welcome to my latest Weekend Reading edition where I share some of my favourite articles from the week that was across the personal finance and investing blogosphere.

This week, I found some FREE retirement income calculators and reviewed one in particular with some fictional data to see where my wife and I might end up in a few years. Check that out and leave a comment on what you think!

Here is a reminder I posted my latest dividend income recently approaching a new milestone inside our TFSAs and non-registered account. Very exciting stuff!

I hope you enjoy these articles that I checked out, or was identified in, and you have a great weekend.

See you on the site!

Mark

The Dividend Guy believes the Canadian market can be a safe haven for stock pickers – even beyond banks and telcos like Telus and Bell.

Here are two stocks that have just increased their dividends – again.

ModernAdvisor provided a brief overview comparing commuted values for pensions vs. keeping the pension.  When looking at the lump sum commuted value or income stream for life, I usually ask myself:  how much would I need to have invested to deliver a comparable income stream?  Example from post:

Pension – An annual pension of $38,570 starting at age 55.
Commuted value – A lump sum amount of $488,562.34.

On the surface, I would argue it would take much more than ~$500,000 invested to deliver ~$38,000 as cash for life (30+ years).  What do you think?

Andrew Hallam shared why it’s not looking great for actively managed mutual funds.

Tom Drake reviewed Questrade. 

Roadmap2Retire bought these stocks, a couple that I own actually, and one in particular I’ve been purchasing for a few years now for great income and long-term growth.

Speaking of growth, I’ll share my latest dividend income update in another week or so – stay tuned!  In the meantime, this was my chart from last December, a milestone we’ve long since surpassed.  Stay invested, stay boring!

Dividend Income December 2018

Reader question and email this week (information adapted slightly below):

Hi Mark,

I think I first heard you on the investing for beginner’s podcast and discovered your blog after. I really like your approach to investing using ETFs and dividend paying stocks. I am starting my investments with $8,000 in each; RRSP and TFSA.  My questions are:

  • How do you recommend to start for each account?
  • Do I have enough to start with dividend paying stocks in my TFSA with $8,000? Should I just stick
    to ETFs for now?
  • Finally, how much is really enough to start investing and how would you start all over again?

Thank you!
Kate

Thanks for your email and questions Kate.  Lots to unpack there!  I will do my best for you since I can’t offer direct investing advice.

How to get started with investing

Well, in terms of how to get started with investing – a reminder that Rob Carrick from The Globe and Mail was very kind to include my article in his Carrick On Money column recently about getting started with investing – “Ideal intro for millennial and Gen Z investors.” 

You can find more support to getting started with investing, how millennials can get wealthy eventually; how you can open your discount brokerage account; how you can get started with investing using dividend paying stocks on this page here.

In terms of a specific way to get started for your TFSA and RRSP, although there really isn’t one best way (!) I would suggest you consider setting up pre-authorized monthly contributions to those accounts.  This way, your money is siphoned towards investing and you’ll never miss the money! Spend and enjoy what is leftover…

I would also caution you about the RRSP contributions right away.  I mean, it’s a GREAT retirement savings vehicle but depending upon your income (say less than $75,000 per year) I would argue it’s best to try and max out every single available contribution penny to your TFSA before your RRSP contributions are made. Once your TFSA is filled up with contribution room and you’ve invested all the money into long-term growth stocks or ETFs, then you can consider using your RRSP.

Here’s why the TFSA can be a better, long-term retirement account than the RRSP – based on this comparison table here for investors just starting out.

Do you have enough – is $8,000 in each account enough to get started?

Absolutely!  Well done!

I wish I had that kind of money when I was younger.  I wish I had low-cost ETFs to invest in when I was younger as well.  I recall I started contributing just $25 per month to my RRSP in my late-teens and early 20s.  I put that money into big bank mutual funds that were very expensive.  I learned from that.

Looking back, I’m glad I made some big financial mistakes like these ones because it crystalized that I needed to take financial matters into my own hands – becoming My Own Advisor.

How would I do it all over again?  Should you just stick to ETFs?

I think for any younger investor, including anyone at any age just starting out with investing, I would make a strong case for investing in low-cost ETFs.  This way, you avoid any stock market speculation and you’re not as susceptible to tinker with your portfolio.  As you develop more investing knowledge, you can then consider some “exploring” for your “core” ETF portfolio; you can better understand the risks involved with stock investing (along with any healthy rewards).

Here is my ETFs page where I list some of my favourite low-cost ETFs to own from around the world.  There are links on this page about how many ETFs are enough, in what accounts you might want to own certain ETFs, and much more!

There is also this post about an average approach to wealth building using dividend stocks.  

The author also wrote a book related to this subject and that post is here.

Happy investing!

Got a question for me?  Send it along.  I read every comment on this site and every email.

Mark

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BMO InvestorLine - January 2019

My name is Mark Seed and I'm the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I've grown our portfolio to over $700,000 now - but there's more work to do! Our next big goal is to own a $1 million investment portfolio for an early retirement. Subscribe and join the journey!

8 Responses to "Weekend Reading – Juicy dividend stocks, commuted pensions, bad news for actively managed money, and more #moneystuff"

  1. I love the Brookfield family (parent and children), have a significant portion overall within the portfolios. My previous FA got me into it (thanks Matt) and said at the time I’d never go wrong holding their stuff. The only one I no longer have is BBU. Not for any reason, just never got it beyond that special distribution.

    Reply
    1. You had a good FA then 🙂 Big fan of BIP, BEP, and BPY for my portfolio. All DRIPping at least 4 shares each every quarter in my account let alone what my wife owns. I own very little of the parent (BAM.A) at this time but I might buy more at some point. I want to buy more U.S. healthcare this year actually. Looking at MDT in particular. We own ABBV (down a bit), JNJ and PFE.

      Reply
  2. Enjoyed Modern Advisors excellent article on commuting pensions. Nearly commuted mine but decided not to for the following reasons: There would be a very large tax bill. I didn’t want the stress of managing a large chunk of money (I frett over the small amount I self manage now). Let the pros handle the investment risk. The plan is solid and is 93%+ fully funded and that gap is closing. The plan has grown by over 2600% since I started paying into it. I could never save the base amount of money that I withdraw from annually(I would have had to save over 35K per year on a single salary). It is partially indexed.
    Consider commuting if there is any question as to solvency or if there are two DB pensions in the family. By commuting one you can create a legacy fund.

    Reply
    1. Lots of solid considerations for sure. I will eventually write a post about a similar subject using myself as a case study!

      Interesting angle about the stress of managing a large chunk of money. I suspect some folks don’t DIY for that reason? I recall you own a healthy basket of stocks still though?
      https://www.myownadvisor.ca/should-you-own-a-mortgage-in-retirement-how-you-can-retire-even-with-debt/

      “Our current income streams are a rock solid DB pension, one CPP income, some income from a Registered Retirement Income Fund (RRIF), dividend income, some rental income and a bit of part time work.”

      Is that still the case? What’s the game plan for you folks going-forward; anything changing?

      Mark

      Reply
  3. I too enjoyed reading the piece from Modern Advisor. Lots of considerations in making a decision on commuting a pension.

    I agree Mark that one needs a big pile to generate 38.5K for 30 years. For interest sake I inputted the 488.5K into VPW, used default assumptions, 30 yrs, 60/40 portfolio and it suggests a withdrawal of $26,382. Big difference. Using these parameters it takes $712K to generate 38.5K annually.

    I also agree for a young investor an index ETF is a fine way to start, for simplicity, low costs, hands off approach, especially while building an investment knowledge and experience base.

    Reply
    1. Ya, I was figuring it would be close to $750k to arrive at $40k per year for 30 years via VPW or similar calculators. Massive difference. I have a pension statement from December 2018 now and I figure with that statement, the real value of that pension should be approaching (conservatively) $500k which is quite a bit higher than some of my previous assumptions.
      https://www.myownadvisor.ca/financial-freedom-target-age-50-may-2019-update/

      If I was to take that value, add that to our personal assets, we’d be in very, very good shape IF we didn’t have any debt. That said, I know we’re paying it down while striving to max out TFSAs (x2) and RRSPs (x2). I figure once those 4 accounts are maxed, as we approach no debt, we’ll be good financially.

      I appreciate your comments for the young investor via ETFs. I think it makes so much sense for many reasons.

      Reply
      1. Choices. You’ll have. A very good thing!

        I figure your comments are very right. Carry on confidently and successfully! I can recall doing those pension option “real value” calculations nearly 8 years ago with my wife’s retirement. The decision ended up being fairly easy. $ plus psychological
        factors and a good blend between personal assets and pension.

        Agree on young investor ETF path. I would add I think its a good one for many investors to continue/pursue since few possess the interest, knowledge and behaviours for a more complicated DIY, and certainly its way better than high fee funds at traditional financial outlets.

        Reply

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