All posts by Pat McKeough

Choose investments carefully when building dividend portfolios for long-term gains

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A dividend portfolio should focus on high-quality stocks with a proven record of paying dividends

High-growth dividend stocks offer investors a measure of security. Dividends, after all, are much more stable than earnings projections. More important, dividends are impossible to fake: either the company has the cash to pay them or it doesn’t.

It’s important to make sound moves while building a dividend portfolio. That’s why we recommend looking for dividend stocks that have a strong position in their market and have a history of building revenue and cash flow.

The best stocks for your dividend portfolio dominate their markets

When we suggest dividend stocks for a portfolio we look for dividend stocks that have industry prominence, if not dominance. Our reasoning, besides brand recognition, is that major companies can influence legislation, industry trends, etc. to suit themselves. Minor firms can’t do that.

How to avoid sabotaging your dividend portfolio

You may decide to vary how much money you invest every year, depending on your view of the market outlook. But nobody can consistently guess right about the market outlook. Trying to do so is likely to cost you money about half the time.

If you invest more money in years when you’re confident about the economy or market, you may wind up buying more shares when prices are high. If you cut back on your investing in years when the outlook is uncertain, you’ll buy fewer shares when stock prices are low.

Investors may go so far as to try to improve their returns by taking money out of the stock market when they feel risk is high. They often get this urge after a few weeks or months of bad financial news or unsettling political developments. By then, however, the market may have already dropped enough to offset any negative developments.

Often, these temporary sellers wind up buying their way back into the market when the news has improved and stock prices have gone above the price where they sold.

Some brokers encourage this costly practice. From time to time, they may advise clients to “take some money off the table,” setting up a false analogy between investing and gambling. That’s in a broker’s interest. Continue Reading…

Top retirement advisor tips to get the most from your savings

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All investments come with a mix of risk and potential reward. The greatest danger comes when you understand the mechanics of an investment, but you’re missing some of the details. Your understanding of the potential reward can make you greedy, while the gaps in your knowledge limit your natural, healthy sense of skepticism.

When it comes to retirement, you should be long-term focused, which takes a lot of the guessing and game playing out of the equation. The best retirement plan you can have is to start saving as early in your working career as possible. You then invest a steady or rising amount of that money in the stock market every year. When you follow this plan, you automatically profit from dollar-cost averaging. You will automatically buy more shares when prices are low, and fewer shares when prices are high.

Continue reading for more retirement advisor tips and strategies for saving.

Retirement advisor tip: Use an RRSP For Retirement

You have to learn a lot of things to become a successful investor, and few people learn them all in any logical progression. Instead, most of us move from one subject of interest to another, with a lot of zigs and zags in between.

But one tip is clear: If you want to pay less tax on your investments while you’re still working, investing in an RRSP (Registered Retirement Savings Plan) is the way to go.

To cut tax bills, RRSPs are a great option. RRSPs are a form of tax-deferred savings plan. RRSP contributions are tax deductible, and the investments grow tax-free. (Note that you can currently contribute up to 18% of your earned income from the previous year. March 1 is the last day you can contribute to an RRSP and deduct your contribution from your previous year’s income.) When you later begin withdrawing the funds from your RRSP, they are taxed as ordinary income.

Registered Retirement Income Funds (RRIFs) are also a great long-term retirement investment planning strategy

Converting your RRSP to a RRIF is clearly one of the best of three alternatives at age 71. That’s because RRIFs offer more flexibility and tax savings than annuities or a lump-sum withdrawal (which in most cases is a poor retirement investing option, since you’ll be taxed on the entire amount in that year as ordinary income).

Like an RRSP, a RRIF can hold a range of investments. You don’t need to sell your RRSP holdings when you convert—you just transfer them to your RRIF. Continue Reading…

Retirement investing advice: here’s what works and what doesn’t

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Retirement investing advice is a subject we’re asked about all the time. And it’s one that we deal with on a practical day-to-day basis with our Successful Investor Wealth Management clients.

If you want to pay less tax on dividends while you’re still working, investing in an RRSP (Registered Retirement Savings Plan) is the way to go. That’s because dividends you receive in an RRSP grow tax free.

Is an RRSP the best savings plan for retirement?

RRSPs are a great way for investors to cut their tax bills and make more money from their retirement investing.

RRSPs are a form of tax-deferred savings plan. RRSP contributions are tax deductible, and the investments grow tax-free. (Note that you can currently contribute up to 18% of your earned income from the previous year. March 1 is the last day you can contribute to an RRSP and deduct your contribution from your previous year’s income.)

When you later begin withdrawing the funds from your RRSP, they are taxed as ordinary income.

 A Registered Retirement Income Fund (RRIF) is a great long-term investing strategy for retirement

Converting your RRSP to an RRIF is clearly one of the best of three alternatives at age 71. Continue Reading…

How to build a sound and profitable Retirement portfolio

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By Patrick McKeough, TSINetwork.ca

Special to the Financial Independence Hub

To decide if an investment belongs in your portfolio for retirement, you need to take a close look at its attributes or features. But, just as important, you need a close look at how well the investment suits your needs. A superficial look can steer you in the wrong direction.

From time to time, for instance, investors say “Now that I’m retired, I can’t invest in stocks any more. I can’t risk a 30% to 40% drop in the value of my portfolio.” But these same investors may buy annuities without considering the fact that annuity rates are related to bond yields. Both are at historically low levels. A revival of inflation could do extraordinary damage to the purchasing power you get from the fixed returns on bonds or annuities.

Retirement planning and four key factors to consider when investing for retirement

Retirement planning is the process of setting retirement goals, estimating the income needed to meet those goals and assessing your potential sources of retirement income. These days, more investors suffer from what you might call “pre-retirement financial stress syndrome.” That’s the malady that strikes when it dawns on you that you don’t have enough money saved to be able to earn the retirement income stream you were banking on. The best way to overcome this is with sound investing.

Additionally, here are four key factors to consider for retirement saving:

  • How much you expect to save prior to retirement;
  • The return you expect on your savings;
  • How much of that return you’ll have left after taxes;
  • How much retirement income you’ll need once you’ve left the workforce.

Should you consider investment products in your portfolio for retirement?

The financial industry has created income-producing investment products to cater to investors who are wary of stock-market uncertainty. These products can provide steady income that’s higher than bond interest, or dividend yields from stocks. However, these products are almost always subject to hidden fees and risks that continually drain your capital, or leave it vulnerable to unexpected losses.

Successful investors understand that occasional market plunges are normal and unavoidable. A drop of 30% to 40% in stock prices is rare. But after the plunge ends, stocks bounce back and eventually recover. Meanwhile, if you follow our Successful Investor approach, you’ll still have dividend income. What’s more, you don’t need to (and probably won’t) sell at the low in prices.

You can maintain reserves for your cash flow needs by selling some stocks every year, during times of high and low prices.

Continue Reading…

Which investments are best inside and outside RRSPs

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As we stated in an earlier article on RRSPs (What you need to know to build a productive RRSP) your investments gain doubly in your RRSP. Instead of paying up to 50% of your profit to the government in taxes, you keep 100% of your money working for you.

When you lose, however, you take a double loss. You lose the money you’ve invested as well as the opportunity to have the money grow for years, or even decades, sheltered from taxes.

So don’t use it as a place to find out if you have a talent for stock trading.

Successful investors put only their safest investments in RRSPs. These investments have the greatest potential to increase in value over time and therefore benefit from the RRSP’s continuing protection from taxes.

If these investors indulge in penny stocks, stock options or short-term trading, they do so outside their RRSPs.

If you hold speculative investments like this in an RRSP and they drop, you lose more than the money you invested in them. You also lose the tax-deduction value of a loss outside your RRSP. Outside your RRSP, you can use capital losses to offset taxable capital gains in the current year, the three previous years, or any future year.

If you invest in mutual funds, you have another set of tax concerns. At the end of the year, mutual funds distribute any capital gains they have made during the year, after deducting any capital losses, to their unitholders. So, you may have to pay capital gains taxes on your mutual-fund holdings, even though you haven’t sold.

Continue Reading…