Weekend Reading – RRSP tips, why bonds, 4% rules, best decisions, looking to buy stocks and more!
Welcome to my latest Weekend Reading edition, highlighting some of my favourite articles from the week that was across the personal finance and investing blogosphere.
Just in case you missed last week’s edition you can find it below!
“RRSP season” articles!
First up, a few RRSP season articles and resources as the RRSP contribution deadline for the 2020 tax year looms:
My own primer this week – RRSP facts I believe you need to remember this year and beyond.
From Family Money Saver, check out this epic and ultimate guide to the RRSP.
On the subject of the RRSP, definitely some interesting data about how Canadians are feeling based on this recent Questrade-commissioned study. Based on respondents:
- “69% of respondents with an existing RRSP plan to contribute the same amount as last year (or more) to their RRSP this year, showing an unwavering commitment to their retirement
- The number is even higher amongst those with a TFSA, with 85% planning to contribute more or the same amount to their TFSA as last year
- 50% of those polled said given the impact and uncertainty during the pandemic, they are more likely to invest for the long term/for retirement
- 44% of respondents are actively seeking lower fee options this RRSP season
- 39% are investing more this year, to get better returns.”
How are you contributing to your RRSP this year? Or not? Are you making withdrawals during this pandemic? I personally like the bias to folks using their TFSA above.
Well done here by Chrissy from ESB FI showing some parallels between Canadian and U.S. investing and government benefits. Beyond taxable accounts which are just that, I always remember the key accounts this way:
|U.S.||Canada||MOA Memory Jogger|
|Traditional IRA||RRSP||RRSP is older than TFSA, more “traditional” way of investing.|
|Roth IRA||TFSA||Less “traditional” way of investing – tax-free baby!|
|401(k)||Group RRSP||Alphabet soup – always lots of forms to complete for any workplace or Group RRSP right?|
I’m a big fan of The Sunday Investor and Geoff who runs it – who highlighted some bond ETFs are sometimes helpful for those who need some antacid to stomach any stock market volatility. I would agree.
Dale Roberts was back to try and make sense of the markets recently on MoneySense. On the subject of aforementioned bonds – he wrote:
“But it’s no time to run away from bonds. Remember why we own them. They are risk managers for stocks. They are a key portfolio asset that should/could perform in a deflationary environment as well.”
Continuing with this theme, Ben Carlson previously wondered why anyone would own bonds right now.
Ben cites a few reasons but my favourite is in bold below with my reasoning:
- Bonds can help your investing behaviour – riding out stock market volatility.
- Bonds can be used to rebalance your portfolio; keep your portfolio aligned to your investing risk tolerance, and help you adjust it back to its target asset allocation (i.e., keeping a balanced mix of stocks and bonds).
- Bonds can be used for spending purposes – where some fixed income is “king” for major, upcoming expenses or spending.
- Finally, bonds can help protect against deflation – since inflation is a killer for bonds long-term.
The main reason I would keep any bonds (and I still don’t have any right now) is if I was saving for a major purchase in a few years (e.g., secondary residence?) and I would like rely on some form of fixed income between now and then to help secure that purchase. Otherwise, an interest savings account in the short-term will do that.
Financial Independence – Retirement
As part of my commitment to share some ongoing financial independence, early retirement or retirement articles from the blogosphere, here is some stuff including more on infamous 4% rule.
I’ve been following Mark Goodfield’s How much do you need to retire in Canada series with great interest. In Part 3, he shares some takeaways that have aligned with my own DIY thinking for quite some time:
- Retirement income planning, first and foremost, always starts with your expected cashflow needs. (I’ve kept track of mine for years and will keep doing so.)
- Leverage any 4% rule to determine what you might need to fund your retirement. (Fee-only planner Steve Bridge and I collaborated on that post actually and we’ll have more collaborations about 4% rules and more in the future.)
- Should the markets go haywire, for extended periods of time, consider what expenses you can cut in retirement. (On this note, I think you should also consider some Variable Percentage Withdrawal (VPW) approach since spending before retirement and during retirement, is likely going to be very dynamic and not require any straight-line withdrawal method. Life is not a straight-line!)
How do you even get to making any juicy retirement withdrawals?
On Cashflows & Portfolios – we shared some of the best, low-cost, diversified ETFs to own in some model portfolios. We even highlighted some of the funds we own and why.
As always, ensure you check out my dedicated Retirement page where I have case studies about “how much is enough”, how other successful retirees are managing their portfolios and much more. They’ve been inspirational to me and shape where I want to be…
Here is an example:
Always great to read how simple but effective leaders put some words in practice. Take swimming superstar Katie Ledecky. I found this quote from her recently, from one of my favourite newsletters and blogs, Farnam Street.
“When it comes to making decisions, your environment matters. Just as it’s hard to eat healthy if your kitchen is full of junk food, it’s hard to make good decisions when you’re too busy to think. Just as the kitchen influences what you eat, your office influences how you make decisions. … Most of us make decisions in an environment where it is very hard for us to behave rationally.”
Some good tips the next time you need to make an important decision…
I have this same philosophy although I enjoy my current job and coworkers very much:
“I value independence more than anything else in finance. Doing what you want, when you want, with whom you want, for as long as you want, is the most incredible thing money offers that too often goes overlooked. Viewing every additional dollar of wealth as “Haha, there’s a little bit more independence and a part of my future I now own” is a fun way to think about it.”
Good insights from Norm Rothery about where things stand in Canadian dividend land – should you have a subscription to The Globe & Mail.
“Investors looking to add a few dividend stocks to their portfolios can peruse the accompanying table for potential bargains. It highlights the 20 stocks with the highest yields in the S&P/TSX 60 Index, which contains 60 of the largest stocks and trusts in the land. (Full disclosure: I own many of them.)”
More fine work by Beat the Bank author and advocate Larry Bates in this article about 7 key questions to ask your personal financial advisor. With all the low-cost, simple, all-in-one DIY funds available – a fee-only planner might deserve more attention.
That begs my 8th question to Larry’s list: do you need a financial advisor?
“Your choice of investment advisor can have a significant impact on your ultimate investment results and future financial well-being. Take the time to ask the right questions and get straight answers. Once again, make sure you get those answers in writing! The same goes for any clarification you request.”
Robb Engen wrote a personal finance letter to himself and his family.
Reader question of the week (adapted slightly for the site!)
I am retired but spend 10 hours a day looking at stocks to buy. I buy or sell several times a week. Should I call myself an investor? Any tax advantages?
First, spending 10 hours a day looking to buy stocks (or trading) seems excessive to me but that’s your time!
Second, sure, I guess you could say you are an investor but that seems to fly in the face of any standard definition I personally use: any person who commits capital with the expectation of long-term financial results. You certainly don’t need to have the same definition as me or anyone else.
Third, are there any tax advantages – to what you are doing? Other than keeping for your winners for capital gains – not that I can see but I don’t know what you are investing in or why so I can’t really comment.
I wish to you well of course, and thanks for your readership.
Happy saving and investing folks!