Your TFSA Compounder – Work Your TFSA Harder So You Can Retire Sooner
“Everyone recognizes that starting to save earlier is best no matter what account vehicle you choose. But I believe an early start makes a TFSA imperative as your first choice, primarily because of its tax-free status.” – Henry Mah, author of Your TFSA Compounder.
I’ve believed the same thing since the TFSA was launched a decade ago. I prefer to maximize contributions to my TFSA, over the RRSP, or any investment account for that matter any day.
By using Henry’s four guiding rules, demonstrating the power of compounding, and including practical (and free) worksheets to use, Your TFSA Compounder shows you how your TFSA can work hard, so you can retire sooner.
Your TFSA Compounder – Work Your TFSA Harder So You Can Retire Sooner
For new readers to my site, you should know Henry has been around my site for years.
He first wrote about his average approach to retirement wealth here.
He then went to work in the coming years to translate his passion for dividend growth and income investing into this book: Your Ever Growing Income.
In Your Ever Growing Income, you’ll read about his ongoing praise of the disciplined, dividend-oriented path he learned from Tom Connolly, a retired teacher in the Kingston-area, who describes his own wealth-creation journey in The Connolly Report (a long running publication about dividend growth investing since the early 1980s). To quote many-a-Connolly Report, the investing path is all about the following:
“If a company does not pay a dividend, don’t buy it. If it doesn’t grow the dividend don’t buy it either.”
In his latest book, Your TFSA Compounder, Henry shares his tax-free passion about using the Tax Free Savings Account to build wealth – and how you can too.
I got a chance to interview Henry again about his latest book, what makes it unique, and how he invests inside the TFSA himself.
At the end of this post, I will give you a chance to win a copy of his book! Read on!
Henry, welcome back. How have you been?
We are doing well, though my wife can no longer travel so we spent the winter here in Edmonton.
I want to thank you again Mark for writing the Introduction for the new book. You were my only choice, as I respect your opinion and the work you do with your blog.
That’s very kind of you Henry. Thanks for the offer.
It was almost a year ago when we discussed your U.S. edition of Your Ever Growing Income. Given so much has changed in the last year, including living through this terrible COVID-19 viral pandemic, why do you feel investing for income is still a great way to invest?
We are a long way from seeing the end of this crisis and my concern is that this crisis might lead to an even worse situation, a debt crisis and rising inflation.
We’ve seen the market drop drastically, recover slightly and drop again. I think this will continue with very slow progress to any recovery. Who knows if prices will continue to go down and many investors will lose a good portion of their previous gains and the capital they might need to live off. To date I’ve not had any cut to my income, in fact my income is up quite a bit from the end of 2019. Although it’s early days, I believe that quality businesses will come through the crisis, and hold the income they pay to shareholders, if not continue to provide increases.
Let’s talk about the TFSA and specifically using the ETF XIU (iShares S&P/TSX 60 Index ETF) as your starting point to pick Canadian dividend paying growth stocks to buy and hold. Why so much focus on the TFSA as an income compounding machine and why XIU?
The TSX 60 index, which the ETF XIU duplicates, holds the 60 largest companies in Canada and most of the quality dividend growth companies in the country. There are others, but you’ll find the majority of them here.
I do not recommend holding XIU or buying all of the stocks in the TSX 60 Index. They are the starting point and the companies to be screened to arrive at what I refer to as a “List of Stocks to Consider”.
Too many consider their TFSA as a short-term savings account. (I know you’re not one of them.)
Instead I believe one should focus their investments within the TFSA using an income growth investment strategy. By doing so, one can generate sufficient tax-free income to “Live Off Your Income”, without needing to sell capital when you are ready to retire.
In Your TFSA Compounder you share what you believe are “enough” stocks to own. This was my answer and remains my answer. What’s your recommendation and why?
I think too many investors are blinded (convinced, believe, accept…) by the word “Diversification”.
The financial industry has promoted the concept, that in order to protect your capital you need to be diversified. They recommend that to achieve this you need to hold a large number of stocks covering most, if not all sectors and markets, or own a variety of ETFs from markets around the world.
With ETFs it seems the larger the number of ETF holdings the better. Has diversification protected ones’ capital during this crisis? No.
Income investors should concentrate on finding and holding only quality companies which will provide them with consistent income growth. One can still diversify and achieve it with a fewer number of holdings than most believe. How many is a personal choice, but I’d suggest 15 to 20 Canadian DG (Dividend Growth) stocks and 5 to 10 U.S. DG stocks held within an RRSP or RRIF. I am not a proponent of owning international or emerging market stocks.
Let’s talk about your own TFSA. What stocks do you own? Why? What stocks do you own in other accounts and why? Can you share any dividend income earned from this approach with readers? I share my updates every month here.
I’ve always tried to avoid listing the exact stocks I own, because I’d rather teach others how to find, evaluate, and to select their own stocks (which is explained in my books). I want to emphasize though I own only dividend growth stocks in all my accounts. They may not all be the best stocks to buy today (market prices are lower for some with this COVID-19 crisis).
In my TFSA I have just four DG stocks Mark, my wife has five. Combined, the yearly TFSA dividend income is now over $13,000.
Those who read my blog will know that I sold two bank stocks in December 2019 (I wanted to gift the shares and some cash to my kids). With those sales I lost some dividend income. Today, months later after I contributed to the account in 2020, I’ve not only recovered that income but exceeded it. The year is not over, but unless the majority of my 10 companies cut their dividend (which I do not expect even during this COVID-19 crisis), my income should continue to grow.
In closing Henry, amidst all this stock market negativity and calamity, you have in your book:
“Income investing is about growing your income gradually, not about making the big score.”
What’s your pitch for the book, what makes it different, and why income investing could be considered for investors?
“The TFSA Compounder” explains how to generate the maximum possible tax-free retirement income by maximizing your TFSA as quickly as possible, and by following an income growth investment strategy.
That strategy is the same as described in my first book, “Your Ever Growing Income,”, but I’ve added specifics on how much income is possible by investing inside the TFSA, with projections, and explaining why I feel the projections are realistic.
Finally, this crisis confirms what my income investment strategy stresses: “That when markets drop, the income from your holdings and new investments will grow your income that much faster”. Yes, the value of your holdings will drop but, your income should continue to grow.
Keep investing inside your TFSA Mark!
I will and thanks.
As a passionate dividend investor myself, I share many similar thoughts with Henry on how to invest in Canadian dividend paying stocks.
That said, I do believe however if you have any reservations about unbundling any Canadian (or U.S.) ETF for income, then you should strongly follow a low-cost index investing approach.
You can read up on dozens of low-cost ETF investing funds and approaches on this dedicated page here.
While I cannot guarantee that either approach (dividend investing nor indexing) will allow you to achieve all your long-term financial goals, by staying invested and disciplined to either approach or even a blend of them, I think it will definitely put the odds in your favour.
Happy investing and good luck with the giveaway!
You can purchase a copy of Henry’s book here on Amazon.
You can order a copy and get in touch with Henry on his blog here.
@Graham, appreciate you comments and all the best.
I bought his first book and enjoyed it. In Dec 2019, Henry was kind enough to send a free pdf of his TFSA Compounder book from his website. I appreciate that.
Been investing myself since the early 80’s but never had a lot of money to invest (mediocre paying job). Perhaps a good thing in regards to my investing skills.
Nowadays for my wife and I in retirement, we’re quite financially comfortable. An indexed balanced ETF in the registered accounts and all Canadian dividend growth in the taxable account. One cut and two dividend suspensions so far this year. IPL, CAE and RCH. Twenty six other individual equities in the portfolio have kept their dividends intact.
Thank you Henry and Mark for adding to my knowledge base.
I hope my dividends stay intact as well Graham. Posting my latest dividend income update today. I hope to be “where you are” in the coming years – being “financially comfortable”. That’s what we aspire to!
@JB: Haven’t we all said “I wish I had his (in my case Tom Connolly) knowledge years ago”. That’s why I hope my book will help others.
I have also read both of Henry’s book. They are both excellent and written in a way that even I can understand! I wish I had his knowledge years ago but have passed the info on to my children so that they can benefit from his expertise! I highly recommend both of his books.
That’s great to hear JB!
I have read both of Henry’s books and they are excellent. I have both ipl and su but in small holding. Su is a well managed company. That said, the company doesn’t have control of oil prices. So I am likely to sell both stocks eventually. The only pipeline I am keeping is Trp.
@RN: Thanks or the praise.
I want to win because…. I want to read the book!
Thank You for the information on Audrey’s Books, they fulfilled an order for Henry’s books along with two others I’d been looking to add to my finance collection.
@Jason: Glad to hear it. Let me know your opinion of them.
Excellent to hear!
Thanks Mark for all the informative and educative articles. Between you and Henry, I’ve learned so much and gained confidence to not panic every time the markets nose dive. I’ve had 1 dividend cut (IPL) and one dividend suspended (CVE). I quite like that my recent dividend drips are buying more shares. Please enter me for Henry’s book. Cheers!
Yeah, I had the same dividend cut (IPL) and not really happy with my other one (SU) but what can I do?? In it for the long haul Bonnie!!
Consider yourself entered 🙂
Thanks for the kind words,
Thanks Mark for all the informative and educative articles. I’ve learnt so much in the last 6 months from you website and I’m no longer scared to invest… like I did before. But now I do it with judiciously and cautiously and stick to just a few top dividend aristocrats/kings within finance, insurance and utilities. I’ve been watching the price highs and lows and my emotions in the last 2 months.. Quite an education there! 🙂
Thanks Henry for the interview.. I’m off to look at your blog. Curious to know more about another Canadian finance blogger. Your book sounds interesting.
@Kay: Hope you’ll visit my blog. It’s not up to Marks standard, but I try post a few items every week.
Just awesome to hear Kay…I’m glad you enjoy my site. Tell others about it 🙂
Shameless plug aside, it is a roller-coaster of late these markets but I’m sticking with my plan for as long as I can. Dividend paying stocks from Canada and U.S. and buying buy when the market tanks. So far, so good albeit some very big bumps in the road of late.
All the best and stay well,
Is it possible to purchase Henry’s material WITHOUT being driven to Amazon? I’ve been looking and there is not any contact info on the blog. I’d like to purchase both recent books. I’m sorry but Amazon is not and never will be for me. Thank You
All good Jason.
Please feel free to contact Henry directly via this blog and I’m sure he’ll be happy to process a payment for you 🙂
Henry responds to comments quickly and I know he’s following comments here as well.
@Jason: Other than Audreys Books in Edmonton, I only have my books with Amazon. Being able to self-publish with Amazon was easy and didn’t cost anything. I doubt if I’d have bothered if I had to go through a regular publisher and they probably would not have been interested.
For anyone who doesn’t know where my blog is located, just click on “cannew”. Check out my post “My way or the highway”.
@John: I just posted an article on my blog to discuss just what you asked. Besides what I said, in my blog, most people forget that when others provide a list of stocks, or provide and analyze stock(s), it’s an “At this time” statement. What I bought or what I think is a good stock(s), may not be a good choice a week, a month, or a year from now. Things change, and the way you look at your choices should also change depending on what happening. You don’t need to change your list, but the stocks on that list will be good or less good, depending on different conditions. That’s what you need to learn, and not worry about what others think.
That’s a good point about timing of purchase, etc. cannew. What makes a “great deal” today could be well overpriced in the coming years.
I think this is what makes it difficult to compare individual investor returns over time. Many factors involved.
That said I do believe holding a diverse basket of stocks, long term, will serve me well.
I suspect you feel somewhat similar.
All the best,
Hi Mark and Henry
Mark I always enjoy your musings on here and Twitter.
Henry thanks for sharing your thoughts. Like one other commenter above, I do wish you threw a couple of tickers out there though. Not to follow your picks and buy them but to try and find the metrics that set them apart for you and possibly myself. I know, I know I’ll need to buy the book and I will, if I don’t win it!
I am still not fully convinced that my entire portfolio should be just one kind of investing style. In my case I subscribe to DGI&R’s monthly “Canadian Dividend All Stars” list and he has so much information on his spreadsheet I like to try to find the subtle differences that set apart companies on that list for me to be interested in. For instance just because a company such as Fortis or Canadian Utility have increased their dividend for 40 plus years doesn’t make them the best company to own for me. I am looking for more growth in Share Price and dividends over time and yes of course yield matters.
I will consider medium term holds that I believe will generate sp growth and still pay a dividend if the SP goes down. Seasonal stocks are of interest to me for that very reason. NTR is one such play that swung 10%-20% no less than 5 times in 2019. I have followed it for well over a year and am up 28% on it so far since it’s ATL back in March. But I have slowly swung over from the dark side to a more concentrated long term approach. I have taken a very long approach to PKI and SJR.A and plan to take full advantage of the discounted DRIP program in PKI in particular. I still hold some volatile stocks in the MJ sector but less and less as my investing style evolves.
I appreciate fellows such as yourselves having “Been there done that and written the book (Or blogs)”.
Thanks for the kind words John.
You know, the older I get, the easier I find investing in the sense that I don’t panic as much and get as anxious. I think that is very key to long-term success. i.e., stick with a plan.
DGI&R’s monthly “Canadian Dividend All Stars” list is very good. He does a great job.
I think we’re all looking for more growth and rising dividends over time beyond FTS, CU, and the Brookfield companies in the utilities sector. 🙂
NTR is also one I own and have no intention of selling. I could see stock taking off in the coming years or decade. We are absolutely going to need food security.
Happy investing John and thanks again for your kind comments.
thank you Mark and Henry.
Always looking to learn more about DGI. Been at it for almost 2 years now, and only 1 dividend cut so far during this downturn!
That’s VERY good Daniel – stick with the plan!
Nice to keep it simple in the TFSA! Great review, sounds like a good book.
I hope you check it out. I think Henry would only be happy to be interviewed on your site GYM.
Hello Mark and Henry,
I have my 2020 contribution set aside for my TFSA but just can’t pull the trigger to buy anything at the moment. I simply feel the markets still have a ways to drop. That is my dilemma. 🙁
Always a dilemma. I’ve always to tried to set my yield ranges for the stocks I like and select the one offering the best yield at the time.
Ya, hard to call that one….I invested everything in January! Worse case, you can limp in vs. lump sum. Limping in is trying to time the market. I have found that rarely works.
Limping in? Please explain. I’ve been telling those who are uncertain when to buy, especially during these volatile times, that it would be prudent to layer into a position via dollar cost averaging. This takes the timing guesswork out of the equation.
Thanks for introducing and educating so many to the wonderful world of dividend growth investing via your comments here, your blog and the fine books you authored on the subject! DGI has served me well for the past 13 years.
Essentially the same thing. I need to write a post about these things since I don’t recall having a specific one on the site.
Via limping into the market periodically or slowly through periodic contributions (i.e., dollar cost averaging) it probably feels better emotionally for most investors. They don’t feel they are necessarily buying high or low or anywhere in between should things change tomorrow via a lump sum contribution.
Thanks Bernie and continued success.
Great read, Mark and Henry.
I’m in the same boat as far as prioritizing TFSA contributions each year. Knowing that the income and growth will be tax-free and compounding over the years to come provides plenty of motivation to keep it maxed out and well-invested.
I also don’t go for international stocks aside from the U.S. There are large enough multinationals to get exposure to global growth without needing to complicate matters.
I’ve largely felt that as well…re: internationals. The U.S. multinationals derive so much revenue from around the world….hard not to own them!
I will be sharing your truck article/link you sent me this weekend.
That’d be much appreciated. Thanks Mark.
Really enjoy your website and look forward to your emails each week. You, John Heinzl and Henry Mah are my mentors!
Honored to be included.
I also enjoy John’s articles in the G&M 🙂
All the best James,
Thank you again for another great article!
You’re welcome Hetty!
I have read both of Henry’s books. He offers a simple approach to evaluating the best dividend stocks for your “stocks to purchase” list. I highly recommend Henry’s books. Keep up the great work!!
Appreciate your support Al.
Nice stuff Al!
Hi Mark. Thank you for the information about how we should be looking at our TFSA’s. I get nuggets of information from each of your newsletters I receive. I have shared your site with our 3 adult kids who have told me they like your take on things. I believe they have signed up to receive it now themselves. Keep up the good work.
Awesome Margie. I hope your adults enjoy the site and ask any questions they wish.
Funny, that this article came out now. I just bought the kindle version of this book on Saturday! It is a great book that looks at the world of investing from a different angle from the “noise” that is out there. I highly encourage the readers to go and get it. Thanks Henry for writing this.
Sounds like a great read! Pertinent to where my husband and I are in our financial time. Thanks for the article!
Hope you enjoy the book!
How did you like the Kindle version?
Hi Mark, Kindle version is pretty good. Some of the graphs are are just off by a paragraph. Sometimes it is irritating that a line under a paragraph starts in the middle of a sentence only to realize that one word is to the right of the graph. But overall it flows very well.
On another note, thank you for your work. I realize it has a dual purpose. You have learned a lot with your investing but in the process you have helped many others out as well. That is what humanity is all about, helping others without the need or desire to get something back in return.
If it was not for you I would have never heard about Henry Mah. My wife who has been so scared to invest in stocks because she sees it as a gambling casino (and in many ways it is, depending on how one looks at it), finally has ease in her mind after hearing how Henry and you invest and has trust within me that I will do the right thing for our future. So thank you to both you and Henry!
Those are some kind words Zeya – thank you.
Yes, the blog is two-fold. I want to chronicle my success (and failures and learn from them!) and I want to help others. I’m glad that “paying it forward” comes through the site….
If done poorly, trading, yes, the stock market can be a like a casino. However, I believe once you realize via indexed funds or some ownership in a diverse basket of dividend paying stocks (like I tend to invest in, directly); investors understand their commitment is in long-term ownership in a business then I think as an investor you start to see things a bit differently. It’s a multi-year if not multi-decade proposition. That is where major success can exist!
Investing is not without some major hand wringing moments but I feel it’s very important to have a strategy in mind and stay the course. So far, so good here! I hope the same for you.
We are on a good path now. Slow and steady wins the race. Baby steps 🙂 Thank you!
You bet! Discipline and patience and rinse and repeat.
Thanks for this Mark and Henry. I enjoyed Henry’s first book and his blog! Although Henry prefers to teach us how to identify the best DG stocks, I wish he would just give us the list!! Lol. I look forward to his newest TFSA book. Stay home and healthy.
@Chuck: Developing a list is the easy part, it’s deciding which stocks to buy on the list and when is the key to being successful.
Thanks for comments and visiting my blog.
Thanks Chuck and good luck!