Welcome to my latest Weekend Reading edition. Time for The Open Championship! I’m looking forward to watching the action from Royal Troon this weekend, with fond memories of visiting Scotland last summer and watching The Open live – it was a great lifetime highlight for me.
Earlier this week I shared our latest dividend income update – our journey to financial freedom. We are 42% of the way there. I also think people, bloggers in particular, obsess too much over net worth.
Enjoy your weekend and see you here next week!
Do you know if your financial advisor is robbing your blind? Here are 11 signs to find out (and how to stop it).
John Heinzl told us the anti-RRSP arguments are just urban legends. I tend to agree. John writes: “People love to complain about the tax on withdrawals because it looks so large, but it’s really just the original tax they deferred plus the growth of that tax over time. As the example above showed, even after paying tax on withdrawals, the RRSP investor still wins. If an investor’s marginal tax rate is lower in retirement, the benefit of RRSPs is even stronger.”
Mr. Money Mustache has some advice for you and all visitors to his site: “If you’ve been poking around here on this site for a while and, still find that major change and plentiful surplus money is in short supply, stop struggling and start by slowing down.”
Dividend Pipeline is thinking of dumping Pfizer.
From a recent Scott Adam’s blogpost: “If you didn’t believe me that I endorsed Clinton for my safety, perhaps the recent shooting of police officers changed your mind. That’s the sort of tragedy you expect to happen when Team Clinton frames the national debate as a race war.”
Please vote for yours truly at the Plutus Awards!
Michael James on Money provided a review of Tim Dempsey’s book, No Fear: Tales of a Change Agent, mainly for its alternative title, or Why I Couldn’t Fix Nortel Networks!
Big Cajun Man cites his daughters’ degrees as great investments. I would agree.
Dividend Growth Investor shared a few attractive stocks.
Are Millennials really not using credit cards?
Mark
My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I've surpassed my goal and now investing beyond the 7-figure portfolio to start semi-retirement with. 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.
Pre-TFSA era, if a person had a decent salary, investing through the RRSP was a no-brainer. In the mid 80s I once made a comment at work that anyone who does not use the RRSP as a financial tool, either does not know about them, or does not know enough about them. I was not a popular person that day. Now that there is the TFSA and the OAS “recovery tax”, there are more things to consider. Unless one has a crystal ball and can accurately foretell where they will be in the future, I’d still go with RRSPs if one is in a higher income tax bracket during their working years. It’s nice having options when that work cheque stops coming in.
I have no crystal ball but I have no issue using RRSPs now, even with my pension at work. My workplace job is not guaranteed so I need to invest on my own – and take care of myself.
Having options as you age will make life more enjoyable 🙂
Congrats on reaching the 42% Mark.
My vote was registered!
I chuckled reading MMM’s column. I also especially liked the anti RRSP urban myth piece. A few comments were stupefying. From my personal experience contributing maximums during my working career and now in the withdrawing stage the RRSP has been an incredible gift. The more recent TFSA is very good but in our situation the RRSP wins hands down.
Thanks RBull.
I think you were smart to contribute your RRSPs for years. You are now reaping the benefits of your investing discipline. I remain convinced the TFSA is great for every adult, the RRSP is excellent for most adults.
Thanks. Yes the TFSA is great for anyone with money to invest. The RRSP can be even better for those with higher working incomes and with expectations of lower incomes in retirement. Of course both the TFSA and RRSP rules along with tax rates may change in the future.
If I was still working F/T I would max out both TFSA and RRSP. I really like this statement from Lloyd – “It’s nice having options when that work cheque stops coming in.”
Now in full retirement we withdraw RRSP funds at much lower tax rates and we reinvest some of this to max out our TFSAs.
That seems like the right thing to do – w/d from RRSPs and what you don’t need, right away, you max out your TFSAs.
Congrats on the 42% dividend coverage! If your dividend income doubles, you would be pretty much at your dividend crossover point.
Thanks for the mention. Some of those ideas I talked about are controversial – such as active fund managers BEN, TROW, EV. The indexing phenomenon weighs on valuations there. If everyone becomes an indexer, the AM business could be toast. That being said, even a business that goes toast could deliver pretty good returns to shareholders over time. And if it doesn’t go toast, the returns would be pretty good.
“If everyone becomes an indexer, the AM business could be toast.”
Seems like a logical assumption, but it’s incorrect.
I am all ears – please elaborate 😉
Yup, another link to Cullen Roche’s Pragmatic Capitalism (no apologies, he’s an intelligent fellow):
What If Everyone Indexed?
http://www.pragcap.com/what-if-everyone-indexed/
“The bottom line is, most passive investing means there will be greater demand for active managers in the form of market makers and arbitrageurs…So, if everyone indexed then that much more active market making would be required. End of story.”
Of course, if by “everyone”, you mean only individual investors…let’s not forget that individual investors own a very small portion of public equities, with funds of all stripes owning everything else. Thus, even if all individual investors went-a-indexing, it would still be an almost exclusively active stock market thanks to all the “professional” money.
If companies like BEN, TROW, EV manage to differentiate their offerings and keep the money under management, or even get some inflows, their shareholders would be happy. But it is possible that they lose out assets under management, because their core clients switch to say indexing or move elsewhere where they can get the things you described. I also do not believe that everyone will be an indexer, though this is what most believe today.
I’m optimistic if we simply keep our hands off our investments for the next ten years, even if we couldn’t or did not contribute another cent, I think in 10 years the portfolio value and likely dividend income will double – which puts us still in a solid position for early retirement (i.e., before age 55).
I think there will always be active management. Just like there will always be some form of gambling even if the house wins more often than not.
I’ve tried to counter the anti-RRSP nonsense as well, but it just bounces off some people. Even some well-known authors make mistakes analyzing choices related to RRSPs. Thanks for the mention.
You’ve done a great job over the years keeping things simple and demystifying the complex – including RRSPs.
Enjoy the weekend.
First off, condolences to the survivors of the insane events in Nice.
Scott Adams: a good demonstration on why I despise politics and politicians — anything for the win. A US prof did some analysing and calculating of all US elections and concluded that if the election came down to Trump and Clinton, Trump would have a 95% chance of winning the presidency. I feel for our neighbours to the south, having to choose either a zealot or a corrupt criminal as their leader. As an outsider, I my perspective is very different.
Millennials: good for them. But they still pay the most in bank fees.
Degrees as Investments: currently, perhaps, but there’s a trend to discount the degree. Although very much in its infancy, it has been adopted by very big players, such as “the third largest professional services firm in the world”, Ernst & Young, who cite: “Academic qualifications…will no longer act as a barrier to getting a foot in the door. Our own internal research…found no evidence to conclude that previous success in higher education correlated with future success in subsequent professional qualifications undertaken.” So…there’s that.
Have a good one!
Ironically, in order to work at companies at Ernst & Young or any of the other big 4 firms and to grow there, you need to have a certification that is obtained if you have a masters in accounting or 150 credit hours that allow you to sit for that CPA exam .
Not so. As mentioned, the trend to discount the customary degree is growing, again, with yet another Big Four firm:
KPMG’s new auditors don’t have accounting degrees
http://www.afr.com/business/accounting/kpmgs-new-auditors-dont-have-accounting-degrees-20151208-gliczy
(link may not work?)
“KPMG [Australia]…hired 42 graduates without a business or accounting degree…Ten per cent of [KPMG’s audit graduate intake in 2016] have no formal commerce, economics or business degree.”
I applaud the trend.
You are wrong.
Thanks.
What i mean is – the ext audit profession is regulated in the US – to get your foot in the door, you need the degrees. To advance at the firm at manager and above you need to become a CPA ( which requires 150 credit hours including some courses that are only available in college)
So I am not sure why you believe you can become an auditor at EY or the other big firms without a degree.
If you want to, feel free to reach out in my email, which is my user name as one word at gmail dot com, so i can share more personal details and avoid spamming this thread.
Horrific events in Nice. So sad.
Yes, anything for the win – the Presidential race will be close I think. Which is scary (re: Trump). Both are power hungry. I feel for our friends Stateside. If Trump wins it might start a world war.
Well, on a more positive note have a great weekend!
One thing the RRSP article author didn’t consider is the effect of increased income in retirement. By raising your income with larger RRSP withdrawals in those years you are both raising your marginal tax rate and possibly reducing your Old Age Security payments. I would still go with the RRSP over a non-sheltered account, but you definitely want to split things up between the TFSA and the RRSP so you can balance those withdrawals in retirement to keep your income artificially lower for tax purposes.
Thanks for linking to my Financial Advisor article.
I’m at the point whereby I need a taxable account to invest, which is a good problem to have, but certainly I would advise everyone to max out their TFSA and RRSP first, before taxable investing.
Happy to link to your article. Thanks for the mention and reference Stephen.
That RRSP article is very interesting. What’s more interesting is quickly reading the comments. The idea of government created the RRSP to get more money from you is just ridiculous. Invest in a regular account or invest in RRSP? 99.9% of the time it makes more sense to invest in RRSP. Have a great weekend Mark.
The account is simply a great way to defer taxes…that’s the essence. Every other tactic (Home Buyers Plan for the biggest example) is borrowing from your future self. Use the RRSP where you can and when it makes sense.
If I hadn’t invested in my kids’ education the danger would be they might still be living in my basement! Thanks for the inclusion this week, have a great weekend.
That’s why it’s a great investment…get them out of the basement and into their own apartment!
Enjoy.