Your TFSA Compounder – Work Your TFSA Harder So You Can Retire Sooner

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.

Well put.

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. 

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