Weekend Reading – Market predictions for 2020, reasons for FI, ETFs for your 2020 TFSA 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.
The end of 2019 is near…
What are your reflections?
What did you accomplish?
What did you want to accomplish but you’ve put that on your to-do list for the next decade?
I know I intend to write answers to those questions myself in the coming weeks. I put together some of my financial reflections from 2010-2019 here.
Quite recently, I posted our success stories (and failures) in this 2019 goals update.
Will we reach this major financial goal in 2020?
Can we kill our mortgage debt in the coming years to start semi-retirement?
I’m just as curious as you are to find out!
With my last Weekend Reading edition for 2019 now published, this is great opportunity to thank the nearly 900,000 pageviews this site had in 2019. I appreciated every reader comment, “like”, and counterpoint to my thinking. You make this site enjoyable to run.
I wish you and your family a very Happy New Year with good health and happiness along the way.
Always interesting to read predictions of the past, and see how they actually turned out. I found this article that suggested our TSX should return 8% for the coming decade (article posted in 2010). In fact, for the 10 years ending December 20th, I read the S&P/TSX Composite Index posted an average annual gain of 3.9%. By contrast, the S&P 500 in the U.S. rose by a whopping 11.2% on average. It will be interesting to see over time if there is a reversion to the mean when it comes to these U.S. gains. Regardless, I will continue to own more U.S. stocks and ETFs for more diversification beyond Canada’s borders. I’ve been buying more U.S. stocks and ETFs in my portfolio since about 2010. I recall Johnson & Johnson (JNJ:US) was my first big purchase.
How did my Canadian dividend stock portfolio compare to that 3.9% reported 10-year TSX gain to date?
My non-registered account has delivered over 8.8% annualized over the same period.
My TFSA posted a return of just over 8%.
My wife’s TFSA posted a return of 7.5%.
My secret? Own the same top stocks the big funds own and reinvest all dividends paid. That’s my strategy. In one sentence.
Dividend Earner compared discount brokerages.
Some leading economic strategists are predicting the following for the Canadian market in 2020. Here are some highlights:
- From Bank of Nova Scotia: TSX will end up at 18,500. “The S&P/TSX even ends up outperforming the S&P 500. The U.S. dollar will weaken once global growth rebounds, he said, and the number of investors looking towards the U.S. markets as a safe haven will decrease. That will push some towards Canada.”
- BMO Capital Markets are calling for the TSX to finish at 18,200.
- National Bank strategists are more cautious, the TSX will finish at 17,900.
I’ll reconcile my 2019 predictions in the coming weeks.
Stop Ironing Shirts asked: do I want my boss’s job? I enjoy my new boss at work very much but I also know my answer to this question.
The Fioneers shared their reasons for financial independence.
Good advice from the financial planner not to cash out the RRSPs to kill the $385,000 mortgage in this financial facelift article. I’ve always considered cashing-in any tax-deferred assets as borrowing money from your future self. It’s really not wise to do since you can never get back the compounding time ever again. Thoughts on borrowing from your RRSP?
I’ve been reading a bunch of articles that talk about people killing debt in 2020, as a major New Year’s Resolution. That, and better eating habits and more exercise too. You know, the usual stuff!
A reader recently wrote to me after a post on my site, referring to my “bucket” approach for semi-retirement in a few years. Here is that post.
In the coming years I wrote about my plan to “live off dividends” to a degree, spending the dividends and distributions earned from our portfolio to the tune of about $40,000-$45,000 per year. I also mentioned I plan to hold “a bucket of cash savings”; as in one year’s worth of savings as part of my overall portfolio.
Here is what the reader wrote to me about his approach:
I have read many financial blogs and advice columns about the need to keep cash on hand as an emergency fund. Pretty sure you have also mentioned this as part of your own “Buckets” strategy. But I have an issue with the logic of keeping too much cash on hand.
I hate (I mean HATE) having dead money not generating income (preferably dividend income of course!). Rather than keep a bucket of cash in a low interest savings account, why not deploy all your invested funds in a properly diversified portfolio and if an emergency occurs, use your line of credit to fund your expenses in that emergency?
Caveat: All of this assumes you have enough credit to be able to get a line of credit. As well, I know HELOCs can get out of control in a hurry, so this strategy is probably only suitable for people with a good disciplined savings and debt/mortgage repayment plan.
My main arguments against this approach for us are the following:
- A major emergency is the wrong time for me to get stressed about money. I would rather have the cash on hand (than go into more debt) in any emergency.
- With a “live off dividends” approach I would like some buffer if any stocks do lower their dividends and/or the ETFs I own may lower their distributions in a bad, prolonged market.
Readers, what works for you?
Boomer & Echo highlighted ways to make savings a priority in 2020. I think the simple step of making savings automatic is one the easiest and best things you could ever do.
Dale Roberts wrote 2019 was the investing year everything worked out well. Indeed it was an outstanding year for stocks.
Reader question of the week (adapted for site):
Mark, I hope you are doing well and enjoying your new place. I have been following you for a while now and enjoy reading your posts.
I am here looking for some guidance for my RRSP and TFSA. I have been reading books and your blog wanting to get more knowledge about investing but there is so much to absorb and learn
which will take time. My biggest dilemma is that I have about $50,000 in my RRSP and $30,000 in my TFSA with a leading brokerage which isn’t making me anything. It’s been over two years now and I really need to put this money into good use.
My reason for contacting you is I know you know so much about low-cost ETFs, and dividend paying stocks, I figured you might have some suggestions. My holding period is for the long term so I don’t have to switch every year.
Your blog is full of expertise but sometimes it’s hard to make the leap and gain the confidence to invest.
I have talked to a couple of financial advisers but I always feel they are suggesting what’s best for them.
Being a single mom, I do have RESPs for my kids but not sure if I should switch that now because my daughter just started her first year of university; seems OK to keep in my 2020 target date mutual fund.
I know you are a busy man but any help will be appreciated and thanks so much!
Lots of questions and things to consider there! Thanks for your email and questions.
First, I won’t comment too much on the RESP since you’re right, 2020 is pretty much here and that fund is likely re-balanced to ensure you’re not owning too much equities (therefore stock market risk) this year if your daughter needs the money intact for her schooling. As a rule of thumb for me, best to keep any money you need in 1-2 years in cash or in a guaranteed form (e.g., GICs) that is readily attainable.
When it comes to low-cost ETFs (thanks for the kind words by the way….) I believe if you’re unsure, simple is better. Heck, simple is usually better any day. What I’m getting at is to consider an all-in-one ETF that will allow you to invest in companies and countries from around the world. This will provide you with tremendous equity diversification; allowing you to participate in long-term growth. Based on the fund you choose, it can also provide some “protection” from bad markets using some bond allocation. Finally and maybe most importantly, the fund can also re-balance its stock and bond split for you. All you need to do is to contribute money and make some ETF purchases a few times per year.
What are my favourite all-in-one funds? Check out this post. In the post, I’ve even included some considerations about the best of the best to own given your risk tolerance and investing time horizon.
Certainly $50,000 (in your RRSP) and $30,000 (in your TFSA) is a lot of money that “isn’t making you anything”. So, consider an approach whereby you invest in one of those all-in-one funds and get that money working for you. Be sure to ask your brokerage to reinvest all ETF distributions/ask to enroll the fund in a DRIP (dividend reinvestment plan). That way, money that makes money, can make more money next time when ETF distributions are paid!
There are absolutely hundreds of other ETFs you could consider investing in, but I’ve distilled my favourite low-cost ETFs to own in these posts below:
When it comes to buying and holding various dividend paying stocks, well, that’s very subjective. That said, I believe there are only about 50-60 companies ever worth owning in Canada outright for their dividends. The reason I say this is because there are only a few dozen established dividend-paying companies in Canada, companies that have proven they can reward shareholders in good times and in bad over many investing years. I’ve outlined how I built my Canadian dividend portfolio (and how you can too) in this post here.
Thanks for your reader questions and I have another 5-6 in my inbox I will get to, I promise!
Happy investing for 2020.