Weekend Reading – RRSP tips, why bonds, 4% rules, best decisions, looking to buy stocks and more!
Hey Everyone!
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.
New Reads!
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? |
Why bonds?
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 to draw down a portfolio using Variable Percentage Withdrawal (VPW)
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.
Build Long-Term Wealth using our Diversified ETF Model Portfolios here.
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:
Other Reads!
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…
Awesome list of personal finance philosophies from Morgan Housel.
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.
Norm suggested:
“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?
From Larry:
“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.”
I had an interview with Larry on my site here including how he invests.
Robb Engen wrote a personal finance letter to himself and his family.
Reader question of the week (adapted slightly for the site!)
Hello!
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?
Interesting questions!
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!
Mark
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.
I only spend 6 hours a day reading this blog. LOL Thanks Mark for putting this together. Dumped my two ETF’s (FIE and XTR) and bought TD on Friday. Both have cut dividends and absolutely no capital appreciation. Only lost a couple hundred dollars and plan to hold TD for at least 3 years but likely longer. Hoping for capital upside and continuation/restart of dividends with raises. Should happen once economies reopen.
Reviewed my 3 year dividend plan and made some adjustments at the same time. IPL and REI.UN and XTR cut messed up that planning as I came up 6 months short so reset for two years. That will take us to CPP OAS territory. Another decision and will take CPP early.
No bonds, no way. Considering adding more debt to the mortgage in a few months. See what interest rates do.
What strikes me about retirement planning is that many aim to grow their net worth during retirement. I hope to do the opposite but everyone is different.
If you want to add mortgage, maybe better do it fast. Looks like the interest is going up.
I think most people will have a net worth gradually down after retirement? At least that’s my plan. I want to spend the money to enjoy life while I am still alive. LOL.
Ha Gruff403, yes Mark puts together a good read.
Probably a good move to dump those etfs if bonds and fees are a consideration for you. They both hold fixed income (incl. prefs) 55% for xtr and 20% fie. Concentrating it into one stock is something I’d have some difficulty with. Best wishes with your retirement journey and upcoming decisions.
It wasn’t my aim to add to our net worth in retirement but we have. Its mostly luck with retirement timing and strong markets so far, and spending habits somewhat lower than expected/planned. But I expect markets to change, and our spending may rise with some major purchases here, and travel resuming sometime.
Ya, the challenge with XTR and FIE and some of those high-income funds it there is ROC (Return of Capital) potentially – so you’re getting your own money back! Not ideal.
I personally like TD a lot and plan to hold as long as they pay a dividend.
On the net worth subject in retirement, I suspect ours will gradually decline but I’m going to try and “live off dividends and distributions” for the early years so ensure I don’t mess things up too much with any capital draw down plan.
I hope u loaded up when TD was cheap a few weeks ago. I am well into my retirement (70)managed my trading accounts since I was 33 ( lived on both sides of border ). Bought tons of Enbridge and little less so, Suncor. along with Microsoft and Apple ( Schwab) and many long time well known div names since.
My advice: Like Mark. Buy the very best companies when u are starting out. Preferably dividends and drip the divs Then add as u can, and for God sake, only buy more to avg down your costs.
Hope this pumps your journey.
Thanks Bob – currently DRIPping lots of TD and ENB.
I can’t afford to DRIP MSFT but it’s on my watch list after BLK – would love to own more BlackRock this year 🙂
https://www.myownadvisor.ca/5-stocks-i-want-to-buy-in-2021/
Yes, my goodness, you have owned TD just as an example since age 33 – you’d have a pile of $$ right there!
Will be buying more stocks inside my RRSP later this month!
Definitely pumped my journey. Ha.
When did FIE cut it’s dividend? it’s been paying 0.04 monthly for years including last week. I bought more last year at around $6, it’s now about $7.25 so a decent 20% appreciation. Mark is right that some of the dividend is a return of capital (between 1 and 2% I believe) but with a 7.7% yield dripping in my RRSP and TFSA, I’ll gladly hold on
I always enjoy your weekend reading, Mark! I’m glad to see FMS’s RRSP overview. It was an excellent review. That was an interesting reader question. I honestly spend a lot of my time researching my own stocks as well as new investments to buy during the week. But I rarely ever make trades unless the business changes or for diversification. Personally, I do not hold any bonds in my portfolio at the moment. It is mostly because I have a long investment time frame of over 20 years, so the volatility really doesn’t bother me. I will probably look to diversify more with bonds down the road. Thanks for the reads.
Same Graham – I did spent time researching stocks but I don’t any longer. My portfolio has been largely on autopilot for almost a decade now. Same basket of boring stocks although I’ve made a handful of changes over that time period.
No bonds here. I have a workplace pension so I consider that a “big bond”.
I might just own more cash in the coming decades, maybe GICs, but I will keep a large % in stocks/equities because I need the growth in semi-retirement too.
Thanks for the kind words! 🙂
While I support a gliding equity path in retirement this guy wonders if some equity luv and bond hate doesn’t come from a crazy bull run and market highs – recency bias. Its euphoric. Mostly driven by governments with QE, unsustainable govt, corp and public debt at record low interest rates. Are the signs lining up for a correction with enormous increases of DIY investors, new accts and trading activity, high price multiples, TINA etc.?
Gus, I own those utilities and like them too but IMHO they’re in no way bonds. They will also get hurt in an equity market sell off and also won’t like a rising rate environment, which is inevitable. But if you need “steady” income from them now then they will probably deliver.
Of course each of us will have to decide if and how bonds could work in a portfolio. I like the stabilizing affect, ability to re balance to cheaper equities, easy access to cash if needed with a bond etf. Staying short in duration may blunt returns but also reduces downside. Am considering some TIPs and RRBs if it looks like inflation is coming.
Very valid point about the ability to rebalance to cheaper equities – liquidity with a bond ETF.
It will be interesting to see how I manage the next correction. It’s coming, eventually… Ha.
Ha, eventually is right. Maybe it will be years or months or a decade. LOL Who knows. Not my crystal ball.
You’ll sail through, as you’ll likely still be working and saving – and a sale will be welcome.
Thank you RBull,
I guess like you said i have to keep reminding myself why i do hold bonds of course for stability and for market corrections as well.
Yes, bonds can help you save yourself from yourself!
Hey Gus, I got my email notification on your reply but I can’t see it on the site, but here goes anyhow.
To be clear its just my opinion. Food for thought on the rationale for holding or not holding, and then a check to see if something worthwhile has changed from your original plan.
Thanks for letting me know RBull. Hopefully you can see your comment above re: Hey Gus – now 🙂
Mark
Yes, its good now!
Thank you RBull , I appreciate your time and thoughts and respect it.
And Mark thanks for fixing that tiny glitch on the site .
You are welcome Gus.
Best wishes with your real estate and your investing. You’re doing very very well.
Indeed Gus is!
Very valid and insightful points as always, RBull, thanks. No stocks can work as bonds for sure, even FTS and EMA. If one decides not to have bonds, one has to be aware of the risk. Especially somebody like us don’t have any pensions. That’s why I am still debating with myself what I should do with the remained 20% FI. As I am not retired yet, I feel maybe that’s some risk I am able to afford.
That seems aligned with my thinking May re: taking on equity risk now while working. It could be a different issue when I’m done working 🙂
You have pensions so no worries at all.
I actually have a very high bonds allocation in my kids’ RESPs. 55%, And no intention to change it. It’s money will be used in full in less than 10 years, so protection is more important than growth.
That makes a lot of sense May re: RESPs and monies needed you don’t want to risk.
I suspect once you are a year or so out of using RESPs, likely 90-100% bonds.
Thanks May.
I was 100% equities until about a year before retirement. I started retirement at 50/50, so a huge change. In hindsight it was extremely conservative but I did that understanding the first 5 years of returns in retirement were important from a protection point of view, so went safe. We LUCKILY sailed through that but could have done much better with more equities. I would probably enter it at 60-65% equities now. Now I’m approx 66/34%. It would be much higher equities now with the rise in markets but I sold (the only time) a big block of an international etf a while back. My aim is to let equities rise over the next 6-7 years or so until I have an amount of FI approx equal to 5-7 years worth of spending needs, instead of a percentage. But market returns will play a big part there. I just like the idea of not having to tap equities or even dividends, and/or being able to buy equities when they’re down with FI stash. We also have my wife’s pension that has been approx 50% of our avg spending over the last ~7 years of retirement. Our annual avg withdrawal rate has been 2.37%. Delaying CPP, OAS until 70 will give us another big shot and I may/likely let equities run even higher then with a lot of “guaranteed” income. Probably a very conservative approach but we’re living well, and I think we will have a bad spell ahead so trying to be more prepared now. But my crystal ball is very cloudy.
How we “need” to invest plays an important part for me vs. what we might do trying to maximize returns. We also have no heirs to consider so that’s different from many. I don’t know if that helps anyone but there it is.
Smart with your children’s RESP allocations.
Wow, 2.37% is a very low withdrawal rate. I think you need to worry about leaving a big pile of money as a legacy. 🙂
I did a quick calculation, we could survive this withdrawal rate only if we could keep expenses as the year 2020. Which is obviously not possible. Most likely, after COVID, we will spend more than before, seeing the inflation would be high with all the money printed.
It’s been fairly low so far but things will likely change. I doubt a big legacy will happen here.
Yes, higher inflation is definitely a possibility. Higher provincial and federal taxes are also something we can probably expect with so much debt and higher interest rates.
You’ve obviously
LOL To finish May:
You’re obviously thinking through everything very carefully and are in a great position for a stellar retirement, with a lot of assets, and good income flow. If you can stomach a potential 40-50% dump for a sustained time then all equities is for you. Its been a while since we’ve had that as Covid March was just a short term smaller teaser.
Thanks for your kind comments.
I also see inflation coming soon. More money will be printed again.
Yes, I would agree. Some inflationary and other bad days might be coming.
re: “Probably a very conservative approach but we’re living well, and I think we will have a bad spell ahead so trying to be more prepared now. But my crystal ball is very cloudy.”
Smart investors don’t take on more risk than they need to, to meet their goals.
Thanks for the kind words Mark.
Retirement isn’t a straight line, like the rest of life. Needs, plans, means and outside influences evolve so paying attention is probably a good thing. Your site content and reader commentary helps.
Yes, not easy to navigate sometimes for sure – life has many curveballs!
Regarding Katie’s comment: ” it’s hard to make good decisions when you’re too busy to think. ”
I agree with that. When I need to think clearly, I have a special spot where I sit and work. Other than that, I might be on my computer anywhere in the house or outside. It is kind of a Pavlovian response in me now, that I can’t do any serious type stuff unless I am at that desk.
For that reason, I never did any buying and selling of stocks while I was away from home or on holiday. I was away in Mexico for an extended time last year during the pandemic crisis, so didn’t feel I could make any decisions. If I had been at home, I may have done things.
Yes, your environment is very important when making any decision. I often find a neutral place is a good idea.
Thank you for mentioning Mark–the Blunt Bean Counter–‘s new series of posts on retirement saving/income. I am a big fan of his blog, but most of it is not meant for people like me, so I don’t check in all that often.
I very much enjoyed working through his 2014 series, I found it extremely helpful in providing me a framework for retirement savings. After reading that and tracking spending for a year, I was able to breathe a big sigh of relief.
Looking forward to reading this new series, thanks Mark!
No doubt you’re in fine shape Barbara based on previous comments!
Mark that bond dilemma is a killer , always asking myself if i should keep it or not I’m 50yo and hold 18% in bonds i know it’s not anywhere near the recommended percentage of owning your age in bonds and I’m honeslty thinking of selling them and buy utility stocks because each utility stock from EMA to AQN to FTS way outpaced VAB the bond etf that i hold in performance so i’m not sure if i should pull the trigger on that or not yet.
My bond allocation is also nowhere near what “experts” say it should be. I have 0 as no bonds at all. Been this way for years.
I those same utility stocks and hold all 3 – in various quantities. I will be buying more of each over time too!
I’m in the camp of Utility Stocks as fixed income. Emera, Fortis, are in my portfolio. Canadian Banks are also almost like that. Never had bonds and dividends are the way to go for us.
Love all those stocks!
I always feel people like cannew and you have very high confidence and courage. Not sure whether or not I could be so brave. I guess I will only know at the time I retire.
My response to your Reader Question of the Week is “Get A Life!”. Anyone who is retired and spends 10 hours a day looking at stocks need to review not their portfolio but their lifestyle and what they want to get out of life. What is the purpose of accumulating wealth if you aren’t going to spend it?
Life is too short to waste this amount of time on what should be a hobby at that stage in life. There are many things out there where one can contribute time and energy and dollars to improve our society. Step up and volunteer to organizations you are interested in. Connect with loved ones, family and neighbours.
Ha. Good one. Life is very short Roger.
Thanks and have a great weekend!
Hi Mark, based on your advice and reader experiences you’ve highlighted, we retained a fee-only financial planner and its the best money we’ve spent in years! We retired (sort of) last year when we returned to Canada from living and working in the US for 20 years, and had already established the three-bucket system, but hadn’t really planned out more than the first 18 months of spending in retirement. The Planner has been great, and showed us how all our investments, pensions and savings can work together to fund a comfortable retirement.
One question that I have yet to ask our Planner and one I’ve never seen answered on your site is what strategies to ACTUALLY convert those investments into cash in your bank account? We often read about the ‘rules’ – when to convert to a RIF, for example – but after years of carefully choosing and acquiring long term investments, we don’t see much guidance on DISPOSING of investments!
There must be some smart and practical ways of converting one’s hard-won investments into a series of period cash flows, without getting sideways in a down market, or blowing an opportunity on a rising one. Can you comment on this topic?
Great to hear William and congrats on the comfortable retirement 🙂
re: I have a game plan for our retirement and I’ve linked to a few articles below.
https://www.myownadvisor.ca/my-financial-independence-plan/
https://www.myownadvisor.ca/overlooked-retirement-income-and-planning-considerations/
I will be absolutely writing more about this because I need to figure it out for myself 🙂
Generally speaking:
1. “Live off dividends” in 50s and 60s from taxable.
2. “Live off dividends and distributions” in 50s and 60s from RRSPs/draw down RRSPs slowly in 50s and 60s as needed.
3. Work part-time in 50s.
4. Draw down taxable assets in 60s+
5. Stop working part-time in 60s?
6. Kill off RRSPs + taxable in 60s and 70s.
7. Take x2 CPP and x2 OAS in later-60s or defer to 70?
8. Keep TFSAs “until the end” 🙂
“Remember why we own them (bonds)”. If one is seeking capital appreciation and concerned that their share prices will drop, I guess it makes sense. However, Income investors look forward to price drops, so there is no need to hold bonds. Bonds would lessen our potential income.
I used to own bonds many years ago but decided to favour my pension as a “big bond”. Otherwise, 100% equities.
https://www.myownadvisor.ca/got-a-defined-benefit-pension-plan-consider-yourself-lucky-then-consider-it-a-big-bond/
I think if bonds help investors stay the course, that’s great and a good idea to own them!
I had a 40% FI to begin with, but I am on a sliding path right now and might end up with 100% equity portfolio. There are a few reasons behind it:
1. I am more comfortable with market volatility and more confident with my equity purchases after a few years of investment practice.
2. We might end up with a portfolio size larger than we expected to retire on. That should provide some buffer for a down market.
3. Bonds yield is so low now and although up fast recently, still do not see it will be high enough to beat the inflation. Feel holding bonds is actually losing buying power for the long term.
4. We consider the HELOC as an extra buffer in case of emergency happened at the bottom of the market and not a good time to sell any equity.
This year my investment goal is to get fully invested in equity. I am trying to become a more disciplined investor. Still not confident enough to have a concentrated portfolio like cannew though. I might end up with a core portfolio of more than 20 bluechip stocks from Canada and the US which I will buy and hold, plus some small positions here and there.
The majority of my core holdings will be dividend growth stocks, but I do plan to buy some growth stocks like amzn, goog, techy. I think I am not a pure dividend growth investor.
Also, I feel completely not timing the market might be too hard for me, although I already know I am a very bad market timer. So I will have some stocks not for buy and hold, might be for mid-term swings. For example, right now I hold CNQ and SU, but I don’t plan to hold them forever. These strong cyclical stocks are too volatile for me. As both are still undervalued, I will hold them for a while before switching to some of my target core holding stocks.
As always, thanks for the mention, Mark. Very kind of you to share! Lots of other great content here for me to check out.
Regarding your reader question: I used to think that countless hours of research was what I needed to be successful at investing.
It wasn’t until I discovered index investing that I realized I could still be successful, even with very little time spent.
If your reader enjoys spending 10 hours a day on investing, I guess why not? I’m just jealous that they have that much time in their day!
Great stuff Chrissy and happy to share.
Have a great weekend!
That’s funny May , I started the same with 40% bond and now I’m like 18% and I’m debating if I should sell them and go 100% in equity , I have a rental income that to me i consider as a bond 🙂 because it’s a steady income and also like you said a heloc is another option , so I’m considering to sell my bonds and buy some utilities stocks which are stable and consistent income generators and like the dividendguy call them ” Deluxe Bonds” .