Weekend Reading – Money in your sleep, #FIWOOT, how much real estate and more!
Hello Readers!
Welcome to my latest Weekend Reading edition that shares some of my favourite articles from the week that was across the personal finance and investing blogosphere.
In case you missed last week’s edition, about juicy dividends flowing into my account, why you should really avoid mutual fund salespeople, learning how to think, the costs of bad DIY planning and more, check that out here!
Enjoy these articles including some of my own and my reader question of the week below!
Take good care,
Mark
Weekend Reading
It was a real pleasure to be on The MapleMoney Show recently with Tom Drake. We discussed the lack of transparency in the FIRE movement, our support to any aspiring entrepreneurs that want to leave the 9-5 race as part of any (FIWOOT) Financial Independence, Work On Own Terms movement, and I discussed a few of my draw down plans/ideas for my portfolio – including why I will likely remain 100% equities for the foreseeable future.
Listen about our Thoughts on FIRE and let me know what comments you have!
While I’m passionate about dividend investing, it’s probably not for everyone. Far from it. Read on if dividend investing is really right for you.
Labour to Leisure is earning more money in his sleep.
My favourite kind of income stream – money in my sleep!!
In fact, I report ours every month and it’s great to know we earn roughly $2.47 per hour of every hour of every day even in my sleep.
Jon Chevreau cited work by esteemed investor and financial guru in this MoneySense post: how much real estate should you have in a balanced portfolio?
His post reminded me of my older article, where I disagreed with David Swensen on asset allocation. I always thought David’s love of REITs was too high at 20%. Over time, he reduced that real estate asset allocation to about 15% I recall, and increased emerging markets.
My target allocation for REITs is about 10% of my invested portfolio given I own a home.
Dividend Growth Investing & Retirement re-issued this post to readers about the number one reason to be a dividend growth investor – it’s a strategy that can help you stick with your plan long-term.
“The #1 reason to be a dividend growth investor is that you can stick with the strategy long-term. That way you are able to take advantage of long-term market returns. Dividend growth investing is better aligned with investor behaviors than other strategies as it is a common-sense strategy that provides natural coping mechanisms for the tough years.”
Congrats to Matthew Freeman with new dividend income highs.
Helpful Sites!
Don’t forget about my dedicated Helpful Sites page that includes FREE retirement and withdraw calculators on demand for your use!
There are also dozens of Retirement stories and essays you can learn from here.
More Weekend Reading…
On Cashflows & Portfolios we highlighted the best savings accounts to own in Canada.
Rob Carrick looked at when parents move back in with their kids. We love our family (who reads this blog) but we hope this doesn’t happen!
Invest in high-cost mutual fund fees at your peril. With thanks, to Dale Roberts from Cut The Crap Investing.
ModernAdvisor provided a good market summary for April including things to watch for in the broader Canadian economy.
Weekend Reading reader question of the week (adapted slightly for the site):
I continue to try and answer many reader questions every week including these editions…
In a previous edition, I answered a reader question about support, after this reader unfortunately lost tens of thousands of dollars despite the recent market run-up.
I answered this reader question about covered call ETFs and split corporation investments.
Here is a new one…
Hi Mark,
You have kindly answered a question for me in the past and I am trying my luck to see if you might have a moment to answer another question. When one has invested the maximum in both a TFSA and RRSP account, what is the next best option in terms of minimizing taxes for an investment? From what I can see, it might be individual stocks that can be DRIP-ped.
I read your page about how you invest here.
I would be grateful for any pointers, including any tax considerations. Thanks so much for your site and all the great work you do on it, it’s an amazing resource.
Jill
Jill, it’s great to get these types of emails. Thanks for your readership. I hope you share my site with others!
Well, I have a few posts to check out on that subject:
I’ve maxed out my TFSA and RRSP. Now what?
Here are some considerations to invest in taxable accounts.
To answer your question more directly, while Canadian dividend paying stocks are in many cases, eligible for the dividend tax credit, depending on your taxable income they may or may not be the most efficient form of taxation.
The good news is, assuming you have no other income to report, dividend income is VERY tax efficient – more so than capital gains around about $50,000.
You pay little to zero tax!
Check out my friends and their awesome site at TaxTips.ca for more details!
Now, before you rush out to buy Canadian dividend paying stocks in your taxable account to take advantage of the dividend tax credit, know:
- It would be very rare to earn $50,000 per year in dividend income (and have no other income sources of any kind for tax filing reporting e.g., employment income, pension income, withdrawals from RRSP, etc.)
- To generate $50,000 per year, you would likely need a taxable portfolio in today’s value close to $1 million = big bucks. Something to aspire to though! Ha.
- To benefit from “no tax” you have to be in a lower tax bracket. You can see from the table above that the more $$ you make, including dividends, the more you will be taxed although dividends remain tax-friendly.
The punchline is: the dividend tax credit can provide very low effective tax rates for individuals in the lower marginal tax brackets. Otherwise, investing purely for lots of growth and for capital gains are tax efficient.
Happy Investing!
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.
Speaking of FIWOOOT I noticed this comment on Quota about early retirement
Here’s what I did after retiring at 41 (which I consider a young age, at least): I spent about a year sleeping in as late as I felt like, playing golf whenever I wanted and basically achieving my all-time record for low blood pressure. But it got a little boring, so I ramped up the time that I was spending on my other hobby: volunteering at an elementary school tutoring kids in math. Now, five years into retirement, I go into the school five days a week and LOVE it. I rarely get there when school starts at 7:45; I’m usually still in a bathrobe and on cup of joe #2 then. But I work about 25–30 hours a week and it’s just the best. I’ve started coaching the math team for grades 5–12 and set up a math club for precocious students to participate in over the summer.
So take time off and get away from the grind. Completely recharge, get that huge grin on your face that just won’t go away. Then get bored, try a few different things, pick out one or two that you really like — that you’d really have done all your life if money were no object — and dive into it!
Not much I can add.
That’s a great comment. A nice way to give back!
Here we’re talking about David Swensen above and I hadn’t even realized he’d passed away on May 5th at the age of 67 after a long battle with cancer.
Very sad news.
Yes, very sad. He certainly gave a good portion of his life to educating others.
Hi Mark!
another weekend and another great read! I sense a lot of love for AQN because you mentioned it in few posts and who can blame you green energy company that helps to keep our planet greener 🙂 I have it in both TFSA and RRSP and I’m happy with it specially now with a bit of discount and increase of 10% in dividends what’s not to love about it and here I have two question for you Mark ,
1- would you let a stock pass the 5% allocation of your total portfolio and we’re talking about a stock not an ETF of course, like AQN for example 🙂
2- what are the five Canadian dividend stocks that you would hold forever and if you can pick one from each sector if it’s possible.
hope everyone had a great weekend , here in Vancouver we’ve been blessed with unusual early Summer like but I’m praying for some rain to keep the grass green.
Yes, big fan of AQN.
1 – 5% max. Humm, well, I have a reader question to answer about that but yes, is the short answer, if I believe in the company strongly. So I would allow a stock to pass the 5% allocation in my portfolio as long as I had conviction in it. A few examples include RY, CNR, BLK, etc. of what I own.
2 – five stocks? Well, I wish I could predict the future but I think the following are companies I want to own more of over time: FTS, RY, CNR, AQN, and Telus. Honourable mentions go to TD, EMA, CAR.UN, BEPC, BIPC. 🙂
All the best Gus!
I manage my husband’s TFSA, there have been a couple of recent dogs in there, but overall it is doing quite well.
I was pleased to see that the annual dividends generated in that account are higher than the annual contribution limit and not all holdings are dividend payers. Pretty sweet!
My TFSA (which was managed by an advisor for a number of years) isn’t worth anywhere near my husbands, sad to say.
“I was pleased to see that the annual dividends generated in that account are higher than the annual contribution limit and not all holdings are dividend payers. Pretty sweet!”
Indeed Barbara.
Are you holding CDN banks and other stocks in there or U.S. assets or other?
I don’t have any USA assets in my husband’s TFSA. I did initially, which is when it ran up quite nicely. But a few years back I thought the US had peaked and moved it out of US indexes. Of course I was very wrong.
The biggest dividend generator in there is Capital Power, a big chunk of that, which also has a 57 percent gain. Some foreign indexes. No banks, But BIP.UN, Enbridge (bought it low) and some REITS. Several holdings are paying 7-8 percent dividend on cost (which is how my brokerage shows it) and my favourite REIT pays 10.5 percent, that was bought when things were down last summer.
Yes, CPX has been flying for sure. I’ve been dragged down (a bit) with some REITs in our TFSAs but they are coming back. A good lesson in patience!
I was so happy to hear you on Maple Money this week. I listened to your episode not once but twice! Please try to get on more podcasts this year – you’re a great guest!
Wow, thanks very much Loonie. Kind words 🙂
Yes, actually, I’ll have links to two more coming soon. Jessica Moorhouse was kind to have me on her show and I’ll be on Explore FI Canada in the coming week or so!
Doing the tours talking about different stuff! Stay tuned to this channel.
All the best, stay in touch.
Mark
Oh, yea! I can’t wait. I’ll keep an eye out!
Awesome!
Enjoyed the podcast Mark.
Also regarding David Swenson I tried the idea in 2007 of having an allocation of 15% in REIT’s. 5% each in Canada, U.S. and International. The rest of the RRSP was diversified among U.S. and international dividend ETF’s. Going through the financial crisis the whole idea turned out to be a disaster. Even with all the turmoil our individual Canadian dividend growth equities in the taxable account held up way better. When I first bought the REIT’s this century I’d forgotten about the the awful mess I witnessed with commercial real estate here in Canada through the late 1980’s to the mid 90’s. Now I keep far away from REIT’s along with tech stocks where I got burned badly at the turn of this century. I let other investors pay “any price” for them. For the technology stocks it’s just whatever’s in the indexes and I leave it at that.
By 2010 the RRSP was completely converted to a mix of TD e-Series index funds and index ETF’s. The TFSA’s were allocated the same. Now in retirement both sets of portfolios for my wife and I are in an all-in-one global balanced index ETF.
The taxable portfolio I’ve continued adding savings and cash dividends to our individual Canadian dividend growth stocks. That’s been working out great.
Great detailed comment.
I have considered VNQ for my U.S. REITs but I’m already around 10% or so REITs from Canada so I’ll just go with that and use any combination of VTI, QQQ and some CDN-listed XAW for most of my U.S. and international stuff. I might eventually ditch VTI longer-term and just own a bunch of XAW. I’ll continue to own QQQ for a small tech-growth kicker.
My TFSAs and taxable are all CDN dividend paying stocks. I hope to add to the taxable account in a few months, including if CNR and AQN stay lower.
Completely agree with dividend investing is easy to stick with. When the market is up, I look at the total value of my portfolio, but when market is down, I look at the expected dividends I will get and the larger number of shares dripped in my account. Feel like always winning hahaha. I think it’s a very comforting feeling in retirement knowing the dividends income can always cover the basic expenses and no need to be too scared of a market crush.
I began with dividend growth investing and along the way I realized it has certain fallbacks as it’s difficult to diversify enough if only investing in dividend growth stocks. Will always hold dividends stocks as the core of my portfolio but will consider other higher growth stocks too.
Yupper – I or we get paid all the time (assuming you and I hold a basket of stocks and not just a couple) to ride markets higher, lower or sideways. It really helps my psychologically, to stay invested, and buy MORE stocks when things go on sale per se. AQN and CNR are a couple I wouldn’t mind adding to in another month when I have more $$ saved up.
I will be interested to see what CDN banks and financial do with their dividends this fall after not raising for so long. Could be a small windfall of money flowing to shareholders….. Just a guess but also hoping!
Great podcast on Maple Money!! Working on FIWOOT myself.
Very nice of you to listen – I had a good time catching up with Tom. He’s a great guy.
How close are you to FIWOOT and working on own terms Jim?
About 60% 🙂
Good stuff.