Worried about retirement? Don’t be if you consider this wealth of advice
For a few years now, I’ve been inspired and motivated by early retirement stories. We’re certainly not there yet but we’re getting there slowly. Using this site to chronicle our financial journey (the good, the bad and the everything in between) I’ve been fortunate to meet a number of fine folks who are willing to share their own financial stories with me. Today’s post is another one of those stories….
- Name: Janus10 from Canadian Money Forum
- Age: 52
- Family status: Common Law for 17 years, 3 adult children (1 from my previous marriage and 2 from my wife’s previous marriage)
- Retired since: October 28, 2016 (not like I’m keeping track!)
- Retirement plans: Stay retired, grow investment portfolio by > $200k/year, downsize house, move out of GTA but still close enough to kids
- Retirement worries: I figure my wife and I have at most 20 years to be of sound enough mind, and physical health, to enjoy retirement. But, these will be big changes – no longer having children at home, both of us not working and pursuing our personal goals – can we stay happy together and grow closer?
Deep bio already! Thanks for this Janus10. I enjoy learning from folks – certainly people that can confidently say “been there, done that”.
Well Mark, its early stages, so I’d say it’s more like “being there, doing that” right now.
The last several years have been quite eventful, and the next year promises more of the same. Relationship, career and financial plans are all well and good, but I think it is like a chart of the stock market – looking closely shows a lot of, sometimes neck snapping ups and downs, but with the perspective of a long time horizon, those valleys and mountains look more like bumps and dips.
Good perspective. So, how did you get started in investing? Anyone show you the ropes?
I’d have to say I pretty much taught myself. I can remember at around six years old having a passbook savings account and being thrilled when I could see my balance growing because I only deposited (never withdrew!) and also got paid some measly monthly interest (probably a nickel or something).
During a summer when I visited my mom, her 2nd husband asked me to help them by filtering stocks by hand. I had to take some printouts and look for any stock that met certain criteria (e.g. EPS (earnings per share), market cap, etc.). It was boring, tedious work and although I loved numbers, I didn’t gain any insight into stock picking.
However, there was a stock ticker channel for the precursor to the VSX (Vancouver Stock Exchange) at the time. And it would show the various penny stocks (mostly resource based) as they traded with how many shares, the price, and the absolute and percentage changes. I noticed that stocks that were very active tended to continue moving in the same direction. Thus, I got my mom to create an account for me at a brokerage, funded it with my own money, and would watch the channel for 2-3 days before I identified a likely momentum play. I believe it was Breakwater Resources that was my first trade and turned about $2,500 into $3,500 in a couple of days.
Interesting start. So what was your investing journey over the years?
Fast forward to three years out of university.
I fortunately won a full scholarship so I graduated without any debt and in fact probably had close to $10k in my savings accounts back in 1987. However, what I didn’t have, was a clear path to a job from my academic studies. I parlayed my experience teaching myself how to program and administer servers into an IT job. It took me about 2 years before I was making enough money to take a good chunk of my income and become an investor in equities.
I tried a full service broker but realized, after losing well over $1k, that he was a salesman trying to sell penny stocks with stories of great potential. That was the first, and last, time I put my money in the hands of someone else.
I really wasn’t (and still am not) any good at evaluating companies as excellent choices for investing. But, I was good at saving, saving, saving. So, I just kept putting money into my RRSP (I also eventually worked at one company that had a stock option plan where you could purchase their stock, at a 15% discount, every quarter at whatever price was the lowest – either the beginning or end of the quarter. Easily the best investment I have ever been given).
guess part of the reason why I’ve always focused on saving was because I have lived through some very big life events that I didn’t plan on – graduating with a degree that wasn’t going to lead to the kind of career I wanted; getting married; having a child; getting divorced; plus an almost consistent change of employers every 5 years. My philosophy became, save and invest whatever you can and eventually you’ll end up where you want to be.
I’d recommend it to everyone I know as I think that, as long as one has the discipline to buy even more when the market suffers a setback rather than sell, it is a low stress and consistent method to grow your investments with reasonable risk.
Certainly, as one gets a little more comfortable, it wouldn’t be a bad idea to explore additional strategies. But, for some people, they may never be more comfortable than employing a Couch Potato Portfolio using low cost ETFs.
Dividend investing seems to be a decent way to invest, although there might be more risks involved. What’s your take on that?
Sometime in the mid-2000’s I was working with a colleague who is about the same age as I am, he made good money and so did his wife. He looked to be on track to rise within the company but he said something that was a turning point for me.
He said that he wanted to amass enough money so that if, one day, he came into work and he couldn’t take the BS anymore, he’d pack up his things and leave. Just like that. So, not only did that inspire me to stop flying on auto-pilot with my investments, it made me put a plan together. And, one of the cornerstones, was this beautiful concept of dividend investing.
I could see myself, in the future, having a portfolio that generated enough dividend income to cover all of our expenses. Having CPP/OAS would be a bonus, of course, but the end state seemed ideal.
A few years later, I implemented the Smith Manoeuvre and so all of my new investments were dividend payers. However, that was during, but not before the worst of, the global meltdown. All of a sudden, many of my dividend payers not only had huge drawdowns but they slashed or even eliminated their dividends. It was a pretty difficult time indeed.
In the last few years, I’ve completely abandoned the idea of pinning my goals on a massive dividend paying portfolio and looked to more managed investing.
Do you think most investors should have a financial advisor? Why or why not?
I don’t think so. That’s because I think you need to educate yourself first and foremost. No one cares more about your money than you do, and no one suffers/succeeds as much as you do when it comes to your money.
That isn’t to say that a financial advisor with fiduciary responsibility can’t add tremendous value, especially when it comes to advising on a comprehensive plan (insurance, wills, powers of attorney, estate planning, etc.), but I think this is an area that is well worth one’s time to gain a fundamental understanding of household financial management.
If you contract a financial advisor as a professional instructor, rather than outsource your decisions, then I believe that is a reasonable compromise. But, understand that this is one person’s perspective and it may not always be the best perspective for you at all times.
What are your current income streams in retirement?
My wife and I have no pensions, so we will rely on our investment portfolio for the next several years.
She will be eligible for CPP in a little over 5 years while I still have a bit more than 7 years.
Our investment approach probably falls well outside the norm for people our age. I’m actively managing our money (i.e., trading) in order to realize exceptional returns. This isn’t without risk. Our success depends on my ability to adequately manage that risk. If I had to put a number on it, I would be disappointed if I can’t generate 20%+ annual returns on our portfolio. It will be interesting to see what our balance will be on October 28, 2017 – a full year after I retired.
(Editor’s note – active money management is not for everyone. Buyer always beware.)
I’ve written about retirement withdrawal strategies on my site. There doesn’t seem to be any consensus on what is best practice. What approach are you taking and why?
We will withdraw from our RRSPs first. The reason is that our margin accounts generate much higher returns, so I don’t want to hamper their growth more than is necessary. I do expect that some years we could see a gain in our RRSP that is larger than our withdrawals. We will take additional money out to fund the TFSAs on an annual basis.
If I’m right about the growth in our RRSPs, it may take a long time to draw them down and, in fact, we may still have them when we would be incented to convert them into RRIFs.
The next stage would be to start drawing down the margin accounts. In fact, I could see us dipping into them well before we need to in order to help our children. At this point, it looks like they will be about average wage earners, but they are growing up when housing costs take up a much larger portion of their after tax incomes. If we are very successful with our investing approach, then we can give them a head start on their path to financial independence. It has the potential to be a monumental game changer for them to have a significant sum while in their early 30’s than inherit our wealth in their 50’s.
That would leave the TFSAs to the end. It will be harder to grow this quickly because of the restrictions (as in any registered account) with the type of investments and trades you can do, but also because they aren’t nearly as well funded as the other accounts.
This is a big retirement essay Janus10 so to wrap this up what final words of financial wisdom do you have for readers?
Perhaps the two biggest factors that have put me where I am is that I worked at my career to make more and more money, and when I did earn that money, I modestly increased my lifestyle so that the beneficiary of my additional compensation was my investment portfolio.
For our kids, I know that we may have to take a different path, so I’m showing them how it is possible to not follow the crowd, adopt a very different strategy for investing, and get to where they want to be sooner. I believe they can already realize the value of having their money working for them. The by-product of this: it prompts them to invest in themselves and their careers. If their investments can grow and make money, then it follows that the more money they have to invest, the greater their gains will be.
t is quite a remarkable feeling when you have a year that sees your investment portfolio grow by a larger amount than how much you earned through your job. It’s a feeling you want to experience every year thereafter – it is the closest I’ve ever felt to being “self-employed”.
A big thanks to Janus10 for sharing his story. What is your retirement story going to be? Got questions for him? Fire away and please leave a comment below.