Weekend Reading – Tech stocks or nothing, millionaire migrations, you don’t need alpha 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.
Off to the cottage soon! But not before this list of Weekend Reading material is out the door for friends!
Before the articles, I mean, whoa. Tech stocks. Can you believe the run?
Here is a 5-year chart for Apple:
Here is a 5-year chart for Microsoft:
Closer to home, here is the 5-year chart for Shopify:
I mean, absolutely incredible. Right???
Comparatively, here is the 5-year chart of the TSX 60 (as measured by low-cost iShares ETF XIU) and the U.S. Total Stock Market Index (as measured by popular U.S. Vanguard product VTI):
It makes me wonder if it’s a dozen tech stocks and then everything else to invest in these days.
Certainly if you didn’t have Canadian juggernaut Shopify ($SHOP) in your Canadian portfolio this year you would be under-performing the TSX Index year to date. There is really little way to compete otherwise.
When it comes to my portfolio, I will continue to own my dividend payers (in Canada and the U.S.) and hope the market does what it always does – reverts to the mean with time. This means today’s darlings will eventually come back to planet earth and the dogs that nobody wants to invest in will shine again…
If that doesn’t occur, I’ll be even more convinced the market is not nearly as efficient nor rational in the long-run as some investors think it is.
In looking at my portfolio recently, I calculated we’re now DRIPping more than 150 shares each quarter across our portfolio, commission-free, with dividend payers and a couple of low-cost ETF funds (for extra diversification). With that compounding machine running our portfolio is largely on autopilot to start semi-retirement in a few years.
For the curious, some of our top-DRIPs include the following at the time of this post:
- Algonquin Power (>10 shares per quarter)
- Telus (>10 shares per quarter)
- Enbridge (>10 shares per quarter)
- Emera (8 shares per quarter)
- TD Bank (8 shares per quarter)
- Brookfield Renewable Energy (5 shares per quarter)
- Brookfield Infrastructure Partners (5 shares per quarter)
- Royal Bank (5 shares per quarter)
- Bell Canada (5 shares per quarter)
- And more and more…
You can see most of the stocks we own on this page here.
At the end of the day, as I was saying to a friend of mine recently (for a podcast I will link to in the coming weeks by the way!) our plan has gotten us this far so I’m not going to change my approach now.
Thoughts on the latest tech sector boom? Owning lots of tech? Just a bit of tech like me?
Enjoy these articles from the personal finance and investing blogosphere and we’ll see you in the comments section below and on Twitter @myownadvisor should you want to chat online there.
Have a great, safe weekend!
With a reader question in mind, from my inbox, I told investors to leave DSC funds for good. Read on why and what to think about when it comes to any potential asset drawdown plan.
Fans of this site 5i Research wrote about the BEP and BEPC split and special stock distribution for shareholders. I am one of them.
A reader asked about the 4% rule this week so I pointed them to these great posts for some different views.
Great stuff on MoneySense by Dale Roberts once again – trying to make sense of any markets.
Cool infographic I found on the global migration of millionaires.
On Financial Independence Hub is value investing still of value?
Partnerships and Deals!
Thanks to my passion for personal finance and investing, some great companies reach out to me and provide reader offers. I’m happy to share those below from my Deals page:
- As a My Own Advisor reader you get full-access, for FREE, to all of 5i’s research reports, all the model portfolios, top companies and best ETFs to own.
- You can use my promo codes when you invest with BMO to save hundreds of dollars right away!
- You can get $50,000 managed free with ModernAdvisor.
A reader asked me if I would sell any stocks given recent dividend cuts. My answer remains the same in this post here with Mat Litalien – who holds an MBA, is a Certified Health Executive professional, and is a diverse and respected blogger for Motley Fool, Seeking Alpha and a newer site to the Canadian investing scene Stocktrades.ca.
Just wondering how one gets free access to 5i Research as a subscriber to your site. Each time I click on the link, it wants me to subscribe at a cost for the 5i site access.
Sorry you’re having trouble Cliff. My partnership is for one 1 free month. Did you get the link on my “Deals” page? It should direct you to the free-month sign-up page:
If that doesn’t work, contact them directly and mention my site and let them know you want your free month trial via my site.
Hope that helps!
I think synthetic DRIPS make a lot of sense and provide more flexibility than regular DRIPS. After using DRIPS for many years, I decided that going to cash dividends provided the flexibility I was looking for. When I was new to the stock market, I started investing in dividend producing stocks (most of the common names mentioned on this site) and used DRIPS where ever possible since it was easy, provided automatic dollar cost averaging, low cost and I could just “let it ride” and forget about it. But as portfolios grew, commission rates became more competitive and I learned more about the stock market, I found that depending on the timing of a dividend payment and the company/economy performance at the time of the dividend payment, that re-investing the dividend into the same company was not always the best use of my dividend money at that time. I subsequently dropped all the DRIPS and went to cash dividends. I now pool the dividend dollars across dividend producing stocks and decide on the timing and what I want to buy (if anything) depending on market conditions. It means I have to pay more attention to the market but I could let it ride if I wanted to and on a regular basis use the dividend pool of cash to purchase a much larger number of shares of my core dividend producing stocks when I see a dip in price. Given the current market volatility, having the flexibility on timing stock purchases from dividend cash can work in your favour and in many cases will out-weigh the financial benefits of a DRIP (at the expense of more of your time).
Going to cash dividends, plays into a longer term plan to generate sufficient cash flow within registered accounts to fund minimum withdrawals (at a later date) to reduce the need to sell stock at a bad time solely to meet minimum withdrawal requirements. For now, I pool the dividends across stocks and decide what and when to buy additional stocks (mostly dividend producing but some growth). It is more work than just letting the DRIPS ride but I have always had a keen interest in the markets and I enjoy doing the research and following a core group of companies. If you don’t want to spend much time in the markets, I think synthetic DRIPS is a good way to go which gives you a bit of both worlds (stock purchases + cash). My 2 cents worth.
I appreciate your input! I think for now, trying the synthetic DRIP will be a good way to gain some experience until I get better with timing. Thus far, I think I’m a bit too impatient with wanting buy stocks and grow my portfolio rather than waiting for a good price to enter.
I think DRIPs make a ton of sense Jin. Have you read my DRIPs page?
Let me know if you have more questions!
Great work Steve. You are being more strategic with your dividends paid out as cash. Until I own more shares in the companies I DRIP, I will probably keep my DRIP taps in the “on” position for some time.
That said, in the coming years, I will “turn off” my DRIPs since I want to live off those dividends in my taxable account and prior to doing that, I might use the dividends paid out to fund my cash TFSA contributions going forward. This way, I can more slowly draw down my RRSP and keep funding my TFSA every year with cash dividends from taxable going into TFSA for more CDN stock or CDN ETF purchases.
I might consider that in the coming year or two since our semi-retirement days are hopefully only 5 years out, maybe less.
What are your thoughts on synthetic DRIPs for early portfolio building or focusing the dividends on expanding the portfolio horizontally given the current market prices?
I have everything in my registered accounts on DRIP. I am a terrible market timer and not a very disciplined investor. So for me, I think synthetic DRIP is the way to go. As my investment goal is living off investment income, this will just keep me on autopilot to my goal. The expected dividends grow every month. I accumulated cash in my taxable account so I use the accumulated cash there to buy new shares myself. But I found my timing normally is not very good. I also have a busy life and don’t want to spend too much time watching the market. E.g. I started a new position of100 shares BAM.A yesterday using dividends I got there.
People are different. If you know when is the best time to buy, then maybe DRIP is not the thing for you.
Thanks for your feedback! I’m still relatively new to investing so I find it fascinating, but I think at some point, I’d like to have a life outside of investing. I like the autopilot idea and your idea of keeping the registered accounts on DRIP and accumulate in the taxable account, might have to give that a try once I establish my core portfolio in the registered accounts.
I think it’s VERY smart to start with a plan and then products that fit within that plan.
For example, I decided some time ago that part of my plan was income investing. So, I decided to unbundle Canadian ETF XIU over time and hold the top stocks (at the time) that were part of XIU ETF for income (dividend income).
I continue to hold most of those stocks until this very day! Most of them are DRIPping.
I also decided some time ago that indexing was smart and lazy and easy and filled with success. So I own some low-cost U.S. and Canadian ETFs for growth.
I figure my hybrid approach over the last 10+ years as a DIY investor have gotten me this far so I’m not going to change my approach now.
As you said, everyone’s circumstances are different in terms of how much time you want to spend on your investments and how much risk you want to live with (even when buying quality dividend stocks). No one can time the market to any degree of accuracy but the time line for fluctuations in stable dividend providing stocks is much longer than the high risk stocks that day traders focus on which Is not for me. So you have some time to make a decision or wait for the next pull-back. Nothing wrong with DRIPs or synthetic DRIPs for the majority of investors but the other reason that I switched out of DRIPs was that I ran out of contribution room in registered accounts. Cash dividends were the only way to generate cash in these accounts without selling core holdings. This provided options to either add to existing positions or build up new positions as market conditions change. As I said everyone’s situation is different.
Essentially what you are doing with any synthetic DRIP is you are turning your “optionality” payment (i.e., your dividend, take as cash and do with it as you please) and turning that into a total return play. (Dividends + Growth = Total Return).
I like this because there is a time and place to get your cash/dividends but I think in your asset accumulation years you want as much total return as possible with as little risk as possible based on your personal situation.
I agree that in the asset accumulation stage to stick with DRIPS and/or synthetic DRIPS. If you have RSP head room and a regular source of income then you can add cash (if so inclined) to purchase new stocks within an RSP to accelerate growth and let the DRIPs ride. When you run out of contribution room, your options are more limited. Up to about 2 years ago, I had been using DRIPs and my investment/retirement strategy was similar to yours.
However, sometimes life gets in the way of completing your ideal retirement plan and/or choice of retirement date. Sometimes you are forced to pivot your retirement strategy on short notice (e.g. an unexpected layoff which eventually led to a decision to give up on the job search and focus on investing).. I switched out of DRIPs to cash dividends on my Registered and Non-Registered accounts. Within Registered accounts this provided cash flow to either grow existing stocks or add new ones. Within Non-Registered accounts, this provides cash flow to live on as needed, fund on-going investing or fund yearly TFSA contributions and augment this cash as needed by rotating out of positive positions that were planned as short term trades.
The “new plan” is to leave RSPs intact as long as I can hold out (ideally 2 more years) before any withdrawals to provide additional time for growth and minor tweaks of stocks.. I’m not as concerned if I need to access TFSA funds since you get the TFSA contribution room back which could be useful in future years when minimum withdrawal rules kick in on RSP/RIFs.
I have increased the amount of trading in non-registered accounts which takes more of my time but at least for now this is my “new job”, I have the time and a keen interest in building investment knowledge/expertise.
Well that’s the plan anyway … until life gets in the way again…will see how it goes.
Life happens to all of us and you do need to be prepared to pivot. On that note, I wrote about that with any pending recession coming. These might still be tactics I need to employ. We’ll see to your point!
I will likely continue all my DRIPs for the foreseeable future. I can see myself turning off some DRIPs in the coming years once I enter semi-retirement and I need the cash flow. Not there yet because I am still working but that won’t always be the case….
I suspect I won’t tap my TFSA assets until many years into the future. I’m thinking I will reduce the tax liability that is my RRSP first.
BTW – see my recent dividend income for more details.
I think you have to take your best shot at your retirement plan based on what you know today (with some assumptions) but keep flexible on life/financial changes or new ideas that might require a change in plans.
When to access registered and non-registered accounts and later whether to delay taking CPP, OAS, etc. will in many cases depend on an individual’s tax situation at the time of these decisions. Future tax legislation changes could also impact your plans. For example, changing how dividends are taxed in non-registered accounts or changing the Capital Gains inclusion rate could be a game changer for some. We could also see changes in RRSP, TFSA or RIF rules in the future that could impact these decisions.
For now, I think I’ll hold off on that decision until I can better assess the tax implications at decision time. I totally agree with you about the tax liability hanging over our heads on the RRSP side. Given the current financial crisis and governments with lots of money to throw around it would have been nice if they allowed tax-free or tax- reduced RRSP withdrawals (within some limits). But I guess that will never happen! The RIF minimum withdrawal changes that were made were minor and of little benefit to most.
Smart approach – you can only plan so much Steve. I do believe in the process of planning and re-planning that is VERY important for that reason. Plans can and will change. So, I could see with COVID-19 pandemic reactions in particular, there could be sweeping changes to how RRSP, TFSA and RRIFs are managed. Example, maybe a lifetime contribution cap on the TFSA?
I would hope to offset that, they don’t have any RRSP withdrawal minimums/they abolish that but I’m not holding my breath!!
“E.g. I started a new position of 100 shares BAM.A yesterday using dividends I got there.”
They are a GREAT company May with very deep pockets. Well done. I own a bunch of Brookfield as part of BEP and BIP.
Like you, I don’t care about market timing and I want my $$ working for me as much as possible so I invest when I have money to do so, usually > $2K since I want to keep my transaction costs low.
Thanks for your comment. See my comment above about my DRIP page. Overall, I’m a huge fan of synthetic DRIPs and I use them as much as possible within my TFSA and RRSP. I do turn off my synthetic DRIP now and then (over the years) in my taxable account to avoid being overweight in any one position but it’s rare I do that. I usually rebalance my portfolio by buying more assets that are beaten up in price. Over the last couple of years I’ve been buying more utility stocks and REITs. I figure the latter will come back eventually!
Running DRIPs allows me to avoid market timing and essentially turn off my investing brain. I don’t tinker with my portfolio as much which is good I think 🙂
I bought a tech ETF (ZQQ) and quickly earned 20%, but I hated checking the price all the time. It felt to me like I was thinking, when is it going back down to earth and I felt too uncomfortable to keep it. I sold it and bought RY when it was below $90.00. Dividend investing is only type of investing that I am confident in.
Thanks Todd. I’ve been looking at QQQ myself.
I like my hybrid approach to investing using a blend of CDN and U.S. stocks + ETFs. I’m comfortable that way and it has gotten me this far!
I need to save up for QQQ in my RRSP. I have no contribution room left but might buy some in April 2021 when I have more/new RRSP room.
I’ve been thinking the same thing re. tech stocks. I haven’t bought any yet but it’s an attractive industry. The valuations are rarely in a range that i would normally look at, but it’s usually because if the higher revenue or profit growth. Companies like Open Text and Enghouse have high ROE’s and high dividend growth. Alot of tech companies have moved to a SaaS model- their software is sold like a subscription and you get automatic updates, youdon’t have to decide whether you want to buy a new version of the software every 3-4 years. This makes for more predictable earnings and cash flow. It also makes moving to a competitor much less likely- most companies point out their retention rates right beside the earnings growth now
Financial writer Jon Chevreau considers tech stocks as almost an “asset class” unto themselves. I think that’s a good way to look at it given the disjointed rise of this sector vs. the rest of the market.
Very familiar with SaaS models since I’ve installed some of those software applications in my “day job” at work. That model makes a lot of sense. Probably one of the best subscription models around is Costco. I only own that stock indirectly via an ETF but my goodness, what a company.
All the best!
Re: Missing out on Tech – The only portion of my retirement portfolio that is not in managed accounts is my TFSA. My goal and mission statement was to only own dividend stocks in that account, to grow an income stream that I never have to cash in. However, lately I’ve been conflicted, as, like you, I feel like I’m missing the tech segment completely. I haven’t completely decided yet, but I’m leaning towards staying true to my mission statement and at least buying some stocks that do pay dividends, even if at a lower rate than I would normally consider for this account. ie: OTEX, ET, ABT, TCS, and ENGH. I feel like I missed out on Shopify and since it isn’t a divided payer, I’m convincing myself that’s okay. Thoughts?
I own a bit of the tech stocks via MSFT in my portfolio and I own some U.S. and CDN ETFs that hold those tech giants so I own the tech stocks indirectly that way. That said, hard to have predicted this MASSIVE run up in this sector. It would be nice to own more (tech) and I might go about that via an ETF like QQQ or something.
BMO has a new tech ETF as well (ZQQ).
Hard to know if we’ve missed out on SHOP. What a great Canadian success story though. Sure wish I bough a few thousand shares 10 years ago 🙂 Ah well.
I’m sticking with my plan. I own my dividend payers, they provide income and growing income but I’m continuing to diversify by owning more low-cost U.S. ETFs or CDN ETFs with time since it’s smart, lazy and I can ride market returns. The only exception might be QQQ in my USD $$ RRSP when I have contribution room in 2021. Still thinking on that one!
150 shares each quarter is awesome. Must be fun watching that occur each quarter. I hold no individual tech stocks as I got stung with 2000 tech bubble bursting. Do you remember how Nortel was the stock market darling and went poof, or are you to young? Nortel was actually sold off by BCE which is the closest holding I have to tech. Slow and steady and since your plan is working don’t change a thing. Enjoy the cottage. I do miss Ontario lakes.
Very fun 🙂
I do remember Nortel for sure. I don’t think SHOP is “cooking the books” like Nortel’s management did. John Roth was a crook!
Cottage was nice. Back to reality for work tomorrow but before that, a new dividend income update coming soon thanks to a new month and more reader questions. Stay tuned!
Yeah my Dad gave each of us kids 25 shares, in certificate form if memory serves me correct!
Nice 🙂 I/we also gifted some shares to some of our nieces and nephews.