Weekend Reading – Why cash and cash flow is king
Hey Friends,
Welcome to some new Weekend Reading: why cash and cash flow is king edition.
You can find some other recent Weekend Reading editions below:
Is paying off your mortgage early a mistake?
Big bank and life insurance dividend increases are on the way!
A reminder, when it comes to dividends, I also shared this recent dividend income update – a brand new all-time high number!
Why cash and cash flow is king
Leading off this Weekend Reading edtion, I found a nice summary from Accidentally Retired on this very subject – why cash is king.
I won’t steal his thunder but that post really reasonated for me – why cash (and more importantly to me: cash flow) is king to me, namely:
it doesn’t matter how much money is coming in the future if you don’t have enough money to get from here to there.
That means, like any business, I want as a co-CEO / co-CFO of our personal finance affairs:
- Predictable cash flow to manage our ongoing expenses, with,
- Some cash buffer built-in to avoid any “cease in operations”!
At Cashflows & Portfolios, we wrote about why cashflow is king for a few reasons.
What say you? Do you have the same philosophy?
More Weekend Reading…
Vibrant Dreamer shared his experiences in travelling around Greece recently. Pretty amazing stuff.
Matt Poyner wrote about mutual funds being a tax on the uninformed investor.
I enjoyed two of his punchlines:
“Mutual funds serve the needs of fund companies and advisors, not investors. Their fees are exorbitant, they’re riddled with conflicts of interest, and they underperform far cheaper, simpler, and more effective investment products.”
Highlighting more dividend income updates from the blogosphere, Reverse the Crush shared his October update.
A big thanks to Jon Chevreau and the team at All-Star Money for highlighting my post:
On the behavioural-side of investing….
The Irrelevant Investor told us to let the market worry for you instead
From the article:
In Bill Miller’s most recent investor letter, he perfectly captures the posture that most investors ought to have.
When I am asked what I worry about in the market, the answer usually is “nothing”, because everyone else in the market seems to spend an inordinate amount of time worrying, and so all of the relevant worries seem to be covered. My worries won’t have any impact except to detract from something much more useful, which is trying to make good long-term investment decisions.
Great stuff.
Fans and partners of this site, 5i Research, wrote about some mental hurdles with investing.
“We find that the best investors are those that are not only able to turn their emotions off, but also those that are able to introspectively view their own emotional biases and use that information to invest effectively.”
More fun stuff…
On Cashflows & Portfolios, we wrote about Bitcoin! If you want to own the top Bitcoin ETFs in Canada hit that link for our list.
Love it Larry:
Rob Carrick is on the money when he says some millennials could benefit from cash flow management, debt management and other tools in the financial planner toolbox vs. an investment advisor.
From Rob’s article:
“A report on millennials commissioned by FP Canada, which oversees the certified financial planner (CFP) designation in Canada, highlights the financial challenges faced by young adults today. They’re graduating with higher levels of debt than previous generations into “one of the hardest job markets in a century.” As a result, many millennials are working in the gig economy, which means temporary or contract work, and have erratic income.”
Dale Roberts was back in trying to make sense of the markets on MoneySense.
BTW – I also voted “Yes” when Elon Musk, the CEO of Tesla, took to Twitter asking if he should sell 10% of his Tesla stock? Amazing….
Win a Tesla – What????
Yup.
GeniusCash is a pretty sweet deal on its own, but right now and until May 31st 2022, they are giving away a brand new Tesla Model 3 or $10,000 to one lucky user who received a GeniusCash Payout!
More FREE My Own Advisor content:
How I invest in dividend paying stocks is always found here.
I keep dozens of free Retirement essays and case studies to help you out here.
You can read up about low-cost ETF investing, including how I invest in some ETFs, here.
Looking for free calculators, tools, or even my support? Check out my Helpful Sites page.
A reminder you can hire me! I also run a site with my partner called Cashflows & Portfolios, a site dedicated to free content for any age but also low-cost services about how to drawdown your retirement portfolio and provide personal, tailored answers to these time-tested questions:
- How much can I safely spend in retirement?
- Will I run out of money?
- What accounts should I drawdown first?
- What is the best drawdown order for tax efficiency?
- When should I take CPP or OAS?
- How much will my estate be taxed?
- And more!
Reader question of the week (adapted slightly for the site):
Hi Mark,
I’m a big fan of yours…that’s for sure. I wanted to ask if you could post about REITs (Real Estate Investment Trusts) in the future? What might be a good place to own those REITs – what accounts?
We’re thinking about selling one of our rental condos (in Vancouver) and using a good portion of the proceeds for REITs – we will stay invested in real estate this way but without the tax challenges, tenant headaches here and there, along with helping with overall investment diversification instead of holding rentals.
I know you can’t provide advice on what you’d buy, or own, but your insights are always very much appreciated. Thanks in advance.
Thanks for your readership and kind words!
Well, to your point, not advice of course but I like some warehousing REITs like SMU.UN (Summit) and some residential REITs like CAR.UN. I own both and have done so for some time now….a few years.
In terms of what to own where, I like (and only hold REITs) inside my TFSA or RRSP.
Read on why in this recent post here:
Why? From that post:
“Thanks to the Tax Free Savings Account (TFSA), REIT investing can be very tax-efficient…as-in tax-free! There are no small business costs to manage unlike being a landlord owning property. The Registered Retirement Savings Plan (RRSP) is also a great home for your REITs as well – although I personally prefer owning U.S. assets in my RRSP for increased diversification beyond Canadian borders.”
Further reading: Check out this older but very relevant post: all about asset location, location, location!
If you decide to invest with REITs inside a taxable account, things get more messy tax wise. REIT distributions can come from multiple sources, such as capital gains, interest and income – and all such sources are taxed differently so buyer beware!
Finally, given what I assume can only be a large influx of cash from any sale, maybe a REIT ETF is a good idea for your TFSA or RRSP. My favourites = Best REIT ETFs in Canada:
- BMO Equal Weight REITs Index ETF (ZRE)
- Vanguard Canada FTSE Canadian Capped REIT Index ETF (VRE)
- iShares Canada S&P/TSX Capped REIT Index ETF (XRE)
- CI First Asset Canadian REIT ETF (RIT)
I hope this post provided some ideas, not advice of course 🙂
Mark
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All my best,
Mark
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.
Thank you Mark for this article it will fill up my time on this rainy weekend in Vancouver 🙂
as for cash flow I think we’re lacking on that since 80% of our money is tied up in real estate but with the real estate market insanly high we’re thinking of selling one of the properties that we own so your article came at a perfect time and I also wanted to thank Mr.Dreamer for the etf comparison as well.
Have a great weekend and yes Greece is on the list but we’re planing on going to Norway next summer.
Great stuff Gus.
Have a great weekend back!
I don’t like to have cash but in fact I am accumulating cash quite fast. It’s rare that we don’t have at least half year of expenses in cash.
But I fully agree positive cash flow is king, and secure positive cash flow is emperor. I am delaying both CPP and OAS, holding DGI stocks as core invetment, to help to secure the cash flow in retirement.
The most important thing though, is still one needs to have enough assets. More assets, more choices.
You’re going to be in great shape May, if not already. So, part-time work coming in 2022 or 2023 for you?
Part-time work would be lovely. In my line of work, it’s difficult to get a part-time job though. Fortunately, my current work is not stressful and I will just quit in case it becomes stressful.
I am always looking forward to your weekend reading and as always tons of very valuable information. Indeed cashflow is king and that’s what we are focusing in and goals in the next 3-5 yrs. As someone who only learned to invest in stock market in the last 10 years, we have a lot of catching up to do. Our goals maxing out our TFSA then RRSP and non registered accounts if able.
We only have a small defined benefit pension as we have not been in this country long enough and took a sabbatical leave for 2 years so not much to be excited about but work pension but definitely a good addition to our future cashflow.
One other thing why we haven’t saved much because we love to travel. This pandemic just stop us from doing it. On my wife 50th we did a mini European trip 3 years ago: Greece, Italy, France and England. We stayed in Santorini and Athens Greece and loved it. Planning to go back and do a mediterranean cruise in the near future.
“Our goals maxing out our TFSA then RRSP and non registered accounts if able.”
If you can do that, that’s very well done IMO and likely sets you up very well for a comfortable retirement in your 60s once you add CPP and OAS to th mix – in addition to a small DB pension.
I would love to go to Greece. On the list. France is too!! Figure we need 7-10 days in each to make it worth our while.
Always great to hear from you Rommel.
Mark
Yes to a cash buffer and adequate cash flow in retirement to ride through the market dumps. That’s king to me. Agree with Accidentally Retired. I also favour utilizing my own assets while delaying CPP, and likely OAS to build bigger indexed cash flow and longevity insurance. Our plan.
Reits have been kind to us for years now but in the likely to happen new era of higher rates probably won’t be as fruitful.
Have been to numerous places in Greece. Crete, Athens, Olympia, Santorini, Corfu, and others, but not Mykonos yet.
Awesome Deane – re: CPP and OAS.
“Have been to numerous places in Greece. Crete, Athens, Olympia, Santorini, Corfu, and others, but not Mykonos yet.”
If we go to Athens, Santorini and then Mykonos, do you figure we can do that in 10-12 days leisurely? Thoughts?
Mark
Yes, no sweat doing that. I think ~3 days each plus travel time would work great.
Cash flow may be King but in retirement, cash flow security is the Emperor. How secure is the income source to support your cash flow? In retirement there are several possible sources of income such as pensions, CPP, OAS, TFSA, RRSP/RRIF etc… and how secure each of those sources are is critical. This really struck me during the pandemic when I realized that my retirement income was more secure then my kids who were still relying on employment to generate their income.
Delaying CPP and using your RRSP to fill the income gap is an example of improving the cash flow security long term. (I signed up for my CPP this week at age 60 but that’s another story).
If your retirement income is highly secure, that might suggest you don’t need as large a cash buffer to handle any “cease in operation” although it’s always a good idea to have some cash available. Great lineup of articles Mark.
Ha, love it. I’m going to borrow that.
“Cash flow may be King but in retirement, cash flow security is the Emperor.”
I know when it comes to our plan, we hope to work part-time to cover a few expenses (in a few years), and taxable dividends and RRSP withdrawals should cover the rest. I won’t be tapping my pension nor my wife’s pension in the early years. I won’t be old enough to collect CPP or OAS. I will still have our TFSAs in my old age – health willing 🙂
I wish more Canadians would consider delaying CPP, of course, some don’t have an option.
Always good idea to have some cash indeed…I’m going to be building my cash wedge for retirement in 2022.
https://www.myownadvisor.ca/the-cash-wedge-managing-market-volatility/
Have a great weekend,
Mark
Delaying CPP is a solid tactic for many, especially those with the financial capacity to bridge those 5-10 years. I had drpensions run my numbers so I knew exactly what my numbers were and I strongly recommend Doug’s service for anyone considering taking CPP. I had my numbers in less then 24 hours! What tipped it for me was at age 85 the difference between starting at 60 and 65 was 37K. I’ll give that up to get 60 smaller payments earlier when I can make the most of the money. There were lots of other factors that went into the decisions as well. It’s not about building the biggest pile but living the fullest life and we have enough.
Bottom line is know what your numbers are and where your retirement income will come from. Make informed decisions.
Big fan of DRPensions and Doug’s work 🙂
I should have him on here as a guest!
I recall the break even age for CPP age 65 vs. 60 is about age 74 or 75.
If you live to 84 or 85, then CPP is best at age 70.
Of course “it depends” when you need the $$$.
https://www.myownadvisor.ca/when-to-take-your-canada-pension-plan-benefit/
That sound about right for you?
Mark
My break even age is age 76. I didn’t run the numbers to age 70 as I knew I wouldn’t wait that long.
My goal is to create more secure cash flow early in retirement, not later. I want higher income in my go years and not my no go years. Seniors generally spend less as they age.
The RRSP meltdown and delaying CPP and OAS is a solid strategy for most and I am not discounting that. I have a DB pension and stopped work early,and my retirement income is very secure going forward.
I plan to melt down RRSP early AND take CPP early. That boosts cash flow now when I have more options for what to do with the money such as pay down debt, invest, charity, play. Imagine your boss offers you a $640 dollar raise today or a $1000 raise in five years or a $1420 raise in ten years, which would you take? Which can you make better use of now? Which creates more options?
If I die at 85 I leave 37K on the table. A small investment of part of the CPP income can easily make up that difference over 25 years. If CPP inflates by 2%, the investment contribution increases by 2% to accommodate inflation. That still leaves plenty of CPP cash to do other things with.
The difference is not enough to make me defer. I can do more with less now then I can with more later.
This is why Doug’s service is so valuable, he can give you very accurate numbers to help you make decisions.
Good to know Gruff re: break even age is age 76 for taking CPP at 65 vs. 60.
Nothing wrong with that: “I want higher income in my go years and not my no go years. Seniors generally spend less as they age.”
I would agree, it’s not like you’re travelling the world in your 80s.
Do you have a desired RRSP draw down plan? How much per year to supplement pension and CPP?
I would imagine you’ll slowly kill off the RRSP over a few decades to smooth out taxes? A few readers of my site do this and it seems the way I will go as well.
Yes, Doug is very good. I would be curious if you have used or seen this from my Helpful Sites page?
Need a Canada Pension Plan (CPP) calculator? A free one?
Visit this site Holy Potato aka John Robertson who updates his CPP calculator annually. Great stuff John!
https://www.myownadvisor.ca/helpful-sites/
Yes, Doug P is very good at his work!
I had read that 70 vs 65 was a 77 yr old breakeven so I was going with that. Last month, an out of the blue heart attack (immediately after a hockey game) has made me rethink taking it at 70 (as I had planned) as my parents are still doing well in their late 80’s. My other problem, that this experience made me think of, it that I have a large portion of my savings in RRSP and LIRA accounts.
Any thoughts on my dilemma?
ps. after 2 stents, I’m doing very well FWIW.
Sorry to hear about that scare Denis – jeepers – glad you are OK!
At the end of the day, it’s just money honestly. I know that working with various clients at Cashflows & Portfolios recently that most take CPP later given they want to draw down personal assets first and avoid OAS clawbacks to any degree. Not right or wrong really, just an objective.
https://www.cashflowsandportfolios.com/
If you have a large portion of assets inside RRSP and LIRA, then it usually makes sense to smooth out taxes by reducing RRSP and LIRA assets by mid- to late-70s leaving TFSAs, CPP and OAS benefits until the end for estate planning.
Just some very quick thoughts!
See more here.
https://www.myownadvisor.ca/weekend-reading-portfolio-drawdown-options/
Take good care Denis!
Converted RRSP to RRIF when I stopped working mainly to generate monthly income and no bank withdraw fee. My pension contributions limited RRSP contributions so our RRIF are not huge. The plan is to use the RRIF income to fill in the gaps until CPP and OAS are fully activated. As each Gov account comes online I can adjust RRIF withdraw as I see fit. Currently we draw substantially more then the required RRIF minimum so we are gradually melting down the RRIF’s and I anticipate they will be empty in our mid to late 70’s. That may change as life progresses. I keep a close eye on our marginal tax brackets and will likely take more RRIF money out, pay the tax and move it into TFSA. TFSA and house are the best ways to pass on legacy money.
Current RRIF income is currently 20% of total retirement income and that will shift to about 7% when CPP and OAS are fully in place. If you consider CPP, OAS and pension as fixed income and TFSA, RRSP and non registered as Equity, there is a natural shift that occurs in asset allocation: equity decreases and fixed income increases. That helps secure retirement income.
We use spousal and regular RRIF accounts to income split and draw a bit from each of the four accounts.
I don’t want a large RRIF late in life as it gets tax whacked upon death of second person. Combining CPP, OAS and Pension will likely push the survivor up a tax bracket.
I have used that CPP calculator in the past. Helped me figure out my total contribution years.
Smart…”I don’t want a large RRIF late in life as it gets tax whacked upon death of second person. Combining CPP, OAS and Pension will likely push the survivor up a tax bracket.”
Yes, only a few things you can do with RRIF to minimize taxes.
https://www.myownadvisor.ca/beneficiaries-for-tfsas-rrsps-rrifs-and-other-key-accounts/
We’ll probably exhaust our RRSPs/RRIFs by late-70s. That’s the goal anyhow. I will leave our TFSA assets intact until then – money should double there every 10 or so years.
Do you have a set target for equity vs. fixed income in retirement? Or glide path, re: higher equities over time?
Mark
My set target for asset allocation in retirement is simple: 100% Equity in the form of Canadian DGI stock. No glide path required as I’m already 100% equity and have been for years. I hold no fixed income (Bonds or GIC’s) and likely won’t.
I can take this approach because my retirement income is secured through my DB pension, CPP and OAS. My small portfolio is not critical to meeting my financial needs therefore I can comfortably hold more equity.
I think people are hesitant to include CPP and OAS in their retirement plan and focus to much on their personal portfolio.
An Alberta couple wants to generate 48K in after tax income at age 65 in retirement. Combined CPP and OAS of 32K and the rest comes from RRSP. They need to draw about 16K from their personal assets. Total tax about $144 so income is $3988/month but they can probably easily use tax credits like charity or medical to eliminate any tax.
This means that 67% (32/48) of their income is generated by “fixed income” and inflation protected.
To sustain the 16K going forward they require about 350K in personal assets. (4% return and 2% inflation adjustment) If that was put into an 50/50 asset allocation ETF that means that 32K + 8K = 40/48 or 83% of their total retirement income is dedicated to fixed income.
Everyone has to work their own numbers to see how much of their retirement income will actually be fixed income vs equity when they look at ALL the sources of income.
You are in great shape Gruff…..and I know more and more DGI investors that are running with their baskets of banks, pipelines, utilities and such for any income stream in retirement. I don’t blame you. I own those stocks as well…..
“TULF” stocks.
https://www.myownadvisor.ca/weekend-reading-canadian-home-bias-edition/
“No glide path required as I’m already 100% equity and have been for years. I hold no fixed income (Bonds or GIC’s) and likely won’t.”
Again, you and some other retirees I know have a great conviction on your approach – I don’t blame if you if it’s working. 🙂
I know I have CPP and OAS in my plans, but I’m 20+ years from collecting that so I need to consider how much income I can derive from my portfolio to “live off dividends” in the early years while working part-time. I figure $30K per year will cover most “basic” expenses for us.
Yes, to your example, a couple working and living in Canada for the their entire lives could not need very much income in retirement in fact. $500,000 invested could be plenty. We did a case study on that recently here:
https://www.cashflowsandportfolios.com/reader-mail-can-i-retire-with-a-500000-rrsp/
$500K is still a good chunk of change mind you!
Mark
Another great weekend reading which as usual I couldn’t wait and read it before the weekend starts.
I also personally prefer REITs than rental properties just because in my mind, more money should mean more freedom leading to less stress and more happiness. I can’t find that while having rental properties to manage and worry about no matter how much they go up in value.
I did some comparison between REIT ETFs. https://vibrantdreamer.com/best-reit-etfs-in-canada/ might be useful to the reader as well.
Oh! Thank you so much for sharing my Greece post. That was a great adventure with family.
Ok then. Going to win a Tesla! Wish me luck (PS. I never won anything by luck in life!)
Outstanding adventure indeed. I want to go to Greece. On my to-do list. Mykonos in particular. Thoughts?
I wish you lots of luck on that Tesla of course!!
Mark