Weekend Reading – The Safe Withdrawal Rate (SWR) debate, buying QQQ ETF, new dividend milestones and more!
Hey Everyone,
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.
You can find my last Weekend edition here about the best ETFs to own for a slice of Canada, commentary about the shortest recession (ever), why FIRE is for wimps and much more!
This week, I shared an update on our financial goals for 2020. I figure we wouldn’t be this far in our financial independence journey if we didn’t have any every year to keep us focused. Thoughts on that?
Enjoy these articles about what is truly a safe withdrawal rate (SWR) for modern times, why I own QQQ, some new dividend milestones from bloggers and much more.
Have a great weekend!
Mark
Weekend Reading
As a follow-up to this ridiculous clickbait article about needing $8-million dollars to retire on, I enjoyed Early Retirement Now’s rebuttal:
Do we really have to lower our Safe Withdrawal Rate (SWR) to 0.5% now?
Heck no is the answer. In fact, as ERN claims with lots of detailed facts and charts, should you be conservative by nature AND have more than 30-years of potential retirement then maybe you want to consider a withdrawal rate of just lower than 4% say something around 3.5% – but that’s potentially as low as you want to go.
The reason being, and this is cited on my site from other established research, your SWR relates to much more than just any bond returns. It remains a great rule of thumb to start your retirement math with.
In fact, from any purist perspective, assuming you have at least 50% equities in your portfolio throughout retirement, a 3.5% withdrawal rate is likely is “safe” for some 30-years even if you never make a withdrawal adjustment outside of that.
Studies have shown, you could have retired on the eve of The Great Depression, coming out of that date withdrawing 3.5% and gone for 50 years, and you still had money left over at the end.
In many cases, taking out 4% from your portfolio value, you could end up with almost x3 your starting principal even after 30 years!!
How much is enough???
Geez, I can’t tell you for your lifestyle but I can say my wife and I figure $1-million in personal assets should be plenty to cover our basic expenses throughout semi-retirement or during full-on retirement. This is because thanks to pure math/taxtips.ca calculator you can find on my Helpful Site page here, this amount should last plenty even with 3% inflation and modest 6% rate of return.
You’ll see from the table above that you actually don’t stop drawing down more money than your portfolio generates until you’re forced to in your 70s thanks to RRIF rules.
What do you make of using 4% or even 3.5% as a starting rule of thumb? Comment away.
Million Dollar Journey reached a new dividend income high. Impressive as always.
I will be posting my dividend income update in the coming week or so. In the meantime, this was our increase last month.
Dividend Growth Investor highlighted the solid returns for stocks that the Dow Index dumped.
Before my reader question of the week, as per the blog headline, I wanted to highlight I bought more QQQ ETF for my LIRA recently. You can read up on what a LIRA is and how I’ve previously managed it over the years here.
Yes, I know, the NASDAQ went down recently but I really don’t care. I’ve actually had some QQQ for a while now since 2015 but was waiting for some U.S. cash to build up inside my LIRA for any future purchase. I bought more QQQ to take advantage of any long-term tech stock gains without worry about any individual tech stock selection. I figure QQQ = a good long-term “growth kicker” for my portfolio.
Would you agree or am I making a mistake with tech in my portfolio? Comment away!
Dale Roberts was back with a mix of interesting points in this week’s edition of making sense of the markets.
Reader question of the week (adapted slightly for the site)
Hi Mark!
I have been reading your blog off and on since February. I enjoy your insights very much. At that time I rearranged some of my TFSA investments to allow me to invest in a couple biotech and tech stocks. I did experience a decent return on them. While my TFSA also has some Canadian dividend stocks that are lagging, I’m wondering if it would be wise to sell these and invest in more tech worthy stocks to generate a “higher” return? I’m 62. I also have RRSPs and pension related RRSPs. My TFSA represents about 20% of my total investments.
Thanks!
Happy Investing!
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.
question about QQQ vs TEC-T
Hi Mark
you mentioned you already had shares in QQQ so added to this in the LIRA. What do you think about TEC-T as an alternative if one didn’t want to be trading on the US based exchanges?
Sue
Correct. I had some QQQ in my LIRA and I added a bit more based on US $$ saved up over time with distributions paid.
I haven’t looked in detail at TEC (the TD fund) but it seems great in that for a low MER (0.39%) you get good tech exposure.
https://www.td.com/ca/en/asset-management/funds/solutions/mutual-funds/fundCard/TD%20Global%20Technology%20Leaders%20Index%20ETF/?fundId=7113
You also don’t have to worry about any currency conversions. I won’t rule it out for a spot in my CDN $$ RRSP to put a few hundred shares when I have RRSP contribution room – for some growth kicker!
Mark
Yup, TD product. From my perspective, the MER is reasonable around 35 bps. The units around priced in their twenties, plenty of liquidity and access to over 200 tech companies worldwide so you’re getting exposure beyond the NASDAQ. Trades in CAD so don’t have to worry about any conversions. I picked this up a little while ago.
Hummm, might have to consider for the TFSA. No withholding since CDN ETF. Will consider. 🙂
Hey Mark,
Been a while since I left a comment here, been caught up with my YouTube channel.
Btw, great pick up on QQQ. Have you ever considered picking up TEC? it’s another tech ETF, more globally diversified.
Best,
DG Capital
That’s a TD product right? Thinking about that although the MER is higher than QQQ. Do you own it?
I actually really enjoyed Financial Samurai’s article on his 0.5% Rule. You should read it and link to it instead of just the derivatives. Sam didn’t come up with the $8 Million title, Marketwatch did.
It is very true that risk asset returns are all interconnected with the risk-free rate of return. To still stick to a 4% is not smart. And I don’t know anybody who has retired early who withdraws at 4%.
The vast majority of people I know who retired early still make money somehow.
Thanks Josh. Yes, Marketwatch decided on the click-baity title and I feel for it 🙂
“To still stick to a 4% is not smart. And I don’t know anybody who has retired early who withdraws at 4%.” Agreed. I do believe it’s a good starting point to figure out any variable withdrawal.
Thoughts on VPW method?
Mark
I’ve been wanting to add a small tech/NASDAQ position to my RRSP for a while too. I kind of agree with some comments Mark Yamada has made on the annual Moneysense ETF allstars articles that tech is going to be a driver for the next couple of decades. The NASDAQ is just so flipping expensive right now that I can’t pull the trigger.
Ya. But it might seem cheap today vs. 20 years from now. Have you looked into $TEC (a TD product)?
I didn’t know they launched that but been reading up on it.
I’m with you on tech. Other than a few large cap stocks like Apple and Microsoft, hard to pick winners hence my ownership in QQQ. In another year or so as USD $ builds up I will probably buy another 10-20 units. That’s the plan!
Gave up on withdrawal rates years ago, after I realized that, rather than selling assets or assuming one needs $1 Million or more in market value, that the Income my portfolio provides is much more relevant. If the income from ones investment grows as they are saving for retirement, they’ll know long before they retire if their investments will meet their needs. The size of their savings won’t be important and they won’t be worried about future market crisis, which will/could/almost certainly reduce the value, likely when they need it most.
Ya, I’m still a HUGE fan of dividend income/income from the portfolio. I figure we’re ~70% of the way there to realizing our semi-retirement dreams in a few years and that dream is focused largely on the income our portfolio generates. Once I know our income can cover expenses, we can semi-retire without debt.
Cheers cannew.
Mark