Victory Lap

Once you achieve Financial Independence, you may choose to leave salaried employment but with decades of vibrant life ahead, it’s too soon to do nothing. The new stage of life between traditional employment and Full Retirement we call Victory Lap, or Victory Lap Retirement (also the title of a new book to be published in August 2016. You can pre-order now at VictoryLapRetirement.com). You may choose to start a business, go back to school or launch an Encore Act or Legacy Career. Perhaps you become a free agent, consultant, freelance writer or to change careers and re-enter the corporate world or government.

11 books Small Business owners should read this summer

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What one book would you recommend for small business owners to put on their summer reading list?

Being a business owner requires hard work and dedication. But other skills entrepreneurs need are more subtle and can be the difference between a thriving or struggling company. So if you have felt like your bank of knowledge is missing a key element to reach your next business goal, this curated booklist might hold an answer.

To help your small business succeed, we asked business professionals and CEOs for their best book recommendations. From books that will propel your leadership to the next level to tomes that offer advice on conflicts of all kinds, there are several innovative ideas presented in these volumes that may help you grow your business and win at life in the long run.

Here are 11 books for small business owners to add to their summer reading list:

  • The 24-Hour Family
  • Mindset: The New Psychology of Success
  • Citizen: An American Lyric
  • They Can’t Kill Us Until They Kill Us
  • Think Big, Act Small
  • Deep Work
  • The Elements of Style
  • Primal Leadership
  • The Seven Habits of Highly Effective People
  • Measure What Matters
  • The Hard Thing About Hard Things

The 24-Hour Family

For those small business owners who are also parents, I would highly recommend The 24-Hour Family by Polly Ghazi! This is perhaps one of the best guides to work-life balance for parents. It does a great job at breaking down how you can balance the ever-growing demands of your work and your family. — Jeanne Kolpek, Cadence Education

Mindset: The New Psychology of Success

One book to put on your summer reading list is Mindset: The New Psychology of Success by Dr. Carol S. Dweck.  Dweck’s work breaks down the way we view our abilities and skill sets as based on the way we carry ourselves. Some people are content with where they’re at, or think that after a certain point they can’t improve on a skill. This is known as a fixed mindset. Others continue that hunger for knowledge and want to improve. This is known as a growth mindset. This book emphasizes the importance of a growth mindset and how it can help anyone in all facets of life, from school to business, and even personal relationships. I highly recommend putting this on your summer reading list if you want a kick to get in gear. — Chris Abrams, Marcan Insurance

Citizen: An American Lyric

While this book is not strictly business-related, it definitely does something I think people in the business world need to become apt at: understanding a variety of experiences outside of their own. Claudia Rankine’s Citizen: An American Lyric subverts narrative structures to put the reader into the driver’s seat of each page as she tells us about the varied experiences of Black people in America. Rankine doesn’t tell us, readers, how to feel. She is simply asking us to feel, to open ourselves to a world beyond our own. — Hunter Blackwell, Markitors

They Can’t Kill Us Until They Kill Us

Small business owners should add They Can’t Kill Us Until They Kill Us by Hanif Abdurragqib to their summer reading list. This book is a collection of personal essays illustrating the theme of empathy. These essays make the reader stop to consider what makes the world meaningful. Apply this principle when deciding how your business will fit into customers’ lives, and your small business can become a force for change. — Alex Czarnecki, Cottage

Think Big, Act Small

Think Big, Act Small: How America’s Best Performing Companies Keep the Start-up Spirit Alive by Jason Jennings is a best-selling book that every small business owner needs on their summer reading list. Jennings dives in deep to explore the unique concept of operating on the level of a big organization yet incorporating the spirit and drive of a start-up into the core values of the business. The book provides insider interviews, extensive research, and in-depth analysis on the topic. It is a must-read for any business owner looking for long-term, steady, and consistent growth. — Kelli Lane, Genexa

Deep Work

If you read anything this summer, read Deep Work: Rules for Focused Success in a Distracted World by Carl Newport. This book will probably strike many people as counterintuitive because it flies in the face of a lot of the conventional wisdom surrounding maximizing productivity and what it means to be productive, but by learning to harness short bursts of productivity, interspersed with downtime, you actually get far more out of a workday. If you want to learn how to do more work in less time, this book provides the template. — Markus Albert, EatFirst

The Elements of Style

It might seem ancillary to running a small business, but The Elements of Style by William Strunk Jr. helped me dramatically improve my written communication, and I am certain that it has meant better relationships with my vendors, clients, and employees. Continue Reading…

Embracing Uncertainty: Do Nothing and hope Nothing Happens but don’t make me Think

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By Noah Solomon

Special to the Financial Independence Hub

One of my favourite quotes is attributable to the late, great economist John Maynard Keynes. During a high-profile government hearing, when a critic accused him of being inconsistent, Keynes responded, “When the facts change, I change my mind. What do you do, sir?”

Being uncertain of what to do and/or scared of being wrong can cause investors to cling to their existing strategies and portfolios regardless of changes in the economic backdrop or market environment.

Another cause of investor inertia lies with the wealth management industry, which generally espouses a “do nothing and hope nothing happens” approach to investing whereby clients are encouraged to adopt a static, buy-and-hold approach and refrain from making any significant changes to their portfolios, regardless of changes in the investment environment.

The behavioral explanation behind the abdication of action in favor of passivity is nicely summarized by the following quote:

“You see, Dr. Stadler, people don’t want to think. And the deeper they get into trouble, the less they want to think. But by some sort of instinct, they feel that they ought to and it makes them feel guilty. So they’ll bless and follow anyone who gives them a justification for not thinking.”

– Ayn Rand, Atlas Shrugged

Despite this tendency to cling to the status quo, the fact remains that refusing to change your portfolio in response to changing conditions has historically been one of the costliest mistakes in investing.

Sometimes It’s OK to Do Nothing (But it’s really hard to know when)

When asked what went through his mind when he listened to his own music, jazz legend Miles Davis responded, “I always listen for what I can leave out.” Davis meant that there are times when less is more: restraint can be more effective than action. As is the case with music, there are investment climates in which it’s best to do nothing.

The value of sound risk management varies depending on the market environment. The ability to manage risk has little value when conditions are favourable.  During a bull market that occurs against a backdrop of attractive valuations, low leverage, and a favourbale economic climate, risks are minimal and any move to take profits and reduce risk will likely make you worse off: just sit back and enjoy the proverbial ride. Conversely, there have been (and inevitably will be) times when risk management and flexibility can prevent a great deal of financial (not to mention emotional) pain.

So far so good: swing for the fences and make huge returns in favourable markets and apply the brakes to avoid losses when conditions turn hostile. But wait! To pull this off, you need to do the impossible and successfully predict exactly when markets will turn from favourable to hostile and vice-versa. In other words, you need to be consistently right … or do you?

It’s not just about Being Right. It’s also about What you Do when you’re Wrong

People put too much emphasis on being right. One explanation for this is that people get psychic income from being right:  taking profits on winning positions makes them feel good. Conversely, accepting a loss forces us to admit we were wrong, which can be psychologically challenging even for professional investors. The net result of these opposing reactions is that investors often strive to maximize their percentage of winning vs. losing positions. While this strategy seems like a good idea, it can lead to highly sub optimal results. Continue Reading…

My review of The Boomers Retire

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My latest MoneySense Retired Money column reviews the new fifth edition of The Boomers Retire by certified financial planners Alexandra Macqueen and David Field. Click on the highlighted headline here to retrieve full article: Fresh takes on the challenges facing baby boomers as they approach retirement.

As I note in the column, the original edition of The Boomers Retire (which I read at the time) was by Lynn Biscott and was published back in 2008.

Macqueen and Field are both CFPs and the book is aimed at both financial advisors as well as their clients, as indicated in the book’s subtitle.

Clearly, retiring boomers constitute a massive potential readership. I myself co-authored The Wealthy Boomer, way back in 1998. At that time, baby boomers may have started to worry about Retirement but most, including myself, would have been squarely in the Wealth accumulation camp.

Wealthy Boomers now well on way to transition to Decumulation

Here in 2021, Decumulation is the emerging financial focus of Baby Boomers, many of whom will already be retired or semi-retired, and considering new decumulation solutions like the Purpose Longevity Fund, which this site has looked at more than once. (here via Dale Roberts and here via another MoneySense Retired Money column.) Continue Reading…

How one Tawcan reader lives on $360,000 a year of dividends almost tax-free

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By Bob Lai, Tawcan

Special to the Financial Independence Hub

Long time readers will know that my wife and I are deploying a hybrid investing strategy – we invest in both dividend paying stocks and index ETFs. It is our goal to have our portfolio generating enough dividend income to cover our expenses. When this happens, we can call ourselves financially independent and live off dividends. By constructing our portfolio and selecting stocks that grow dividends each year organically, we believe our dividend income will continue to grow organically and keep up with inflation so we don’t have to ever touch our principal.

In the past, I have done a few simulations showing that living of dividends is possible and that dividend income is very tax-efficient in Canada. But simulations are full of assumptions and the numbers can change. Wouldn’t it be nice to showcase someone that is living off dividends already?

As luck would have it, Reader B, a fellow Canadian, recently mentioned that he retired in 2004 at age 55 and has been living off dividends since. I was very intrigued by B’s story when he told me that he worked as a civil engineer and his wife worked as an administrator.

I fell off the chair when he told me that he and his wife started investing with $10,000 and have amassed a dividend portfolio that generates over $360,000 in dividends each year! 

That’s $30,000 a month! Holy cow! 

While working, they had above average salary (B made ~$110k and B’s wife made ~$90k in today’s money). The high household income has certainly helped them build the dividend portfolio. But I believe a lot of it is due to B and his wife’s living modestly – not a lavish lifestyle but not penny pinching either.

After a bit of emailing exchanges, he agreed to answer my questions about his experience with living off dividends (it took a bit of convincing haha!). I truly believe B’s knowledge will help a lot of dividend growth investors.

Note: B’s original reply was over 11,000 words not including my comments (our email exchanges were very long too). I went through his answers and edited some parts out. For ease of reading, I have decided to split the post into two posts.

I hope you’ll enjoy this Q&A as much as I did.

Living off dividends – How I’m receiving $360k dividends a year and paying almost no taxes

Q1:  First of all, B, thank you for participating. It’s wonderful to learn that you and your wife have been retired since 2004 and have been dividend investors for over 36 years.

A: Thank you, Bob, for giving me the opportunity to share my 36 plus years of dividend investing experience and results with you and your readers. After following your blog, I realized that we and many others were on the same dividend investing path. The only difference being that I was a few more years along in the investing journey. I felt others might benefit from my experience with dividend investing.

You’re on the right path, Bob, and given your rate of progress to date by the time you reach my age (72) you will certainly attain your dividend income goals and likely well beyond. So I wanted to encourage you to continue along the dividend investing path. It’s a very sound and profitable strategy.

I’m more than happy to share with others a few of my ideas on dividend investing and how it can be done in a tax-effective manner.

Q2:  How long have you been investing in dividend paying stocks?

A: I started investing in stocks in 1985. After the initial period of learning the ropes and finding my way in the investing and stock market world, it was only in 1990 after subscribing to a weekly investing newsletter that I finally saw the investing light and found that dividend investing was right for us.

So I guess you could say I’ve been traveling along the dividend paying stock road for some 31 years now. And we’ve been comfortably supplementing our lifestyle with an ever increasing stream of dividends since we retired in 2004 to the present day.

Diving into the dividend portfolio

Q3:  How much dividend income are you getting each year? Can you provide a detailed breakdown across non-registered and registered accounts? 

A: As of April 30, 2021, my wife and I are receiving $360,000 in combined pre-tax dividend income annually – that’s $30,000 per month – and still growing.

Our combined assets are distributed as follows:

  • RRIFs: 8.2%
  • TFSAs: 1.9%
  • Non-Reg Dividend Income Accounts: 85.5%
  • Other Short-Term Liquid Assets: 4.4%

So the amount we have in registered tax-sheltered plans totals 10.1% and is decreasing annually in compliance with RRIF mandatory withdrawal requirements.

These figures illustrate a problem that can develop gradually over time – a severe imbalance between registered and non-registered  accounts caused by the low contribution limits governing registered savings plans. Allowable contributions to registered plans are capped.

If one’s savings levels exceed the cap limits by a significant amount, then the balance between registered and non-registered accounts can tilt heavily towards the latter. The effect is that registered plans then become less and less significant in the overall account mix. This unbalanced effect means that we now have only 10.1% of our assets in tax sheltered accounts while 85.5% is held in “unsheltered” non-registered accounts.

So that makes it critical to find ways to ensure that holdings in non-registered accounts are as tax efficient as possible. The most optimum way to achieve tax-efficiency under such conditions is to focus on buying and holding Canadian dividend paying stocks in non-registered accounts.

We will continue to shift portions of our “other” assets toward Canadian dividend income as we go forward.

Our non-registered accounts are producing the entire $360K dividend income stream referenced above. The annual yield on market value is 4.2%. The actual yield on cost is much higher than the market yield. Our portfolio has returned nicely over the years.

Our annual mandatory RRIF withdrawals are the minimum required by age and proceeds are immediately re-invested in more dividend stocks and held in our non-registered accounts. We do not touch our TFSAs and contribute the maximum allowable amount each year.

Tawcan: My jaw dropped when you told me about your $360k a year dividend income. That is absolutely amazing! 

At 4.2% yield that means the market value of your portfolio is over $8.5M! Obviously your yield on cost would be much higher than that given you have invested over 30 years. Regardless, I’m betting that the cost basis of your non-registered portfolio is in the multi-million dollars range. It is very impressive considering you and your wife only made around $200k a year in today’s money.  

The Dividend Investing Philosophy

Q4:  Can you give us an idea of your general approach to dividend investing?

A: My dividend investment philosophy can be summed up as: “To buy gradually over time, high-quality Canadian tax-efficient dividend paying stocks and hold them indefinitely.”

I buy stocks gradually in roughly equal amounts and spread the purchases over time. I never invest large lump sums all at once. I’ll take an initial position in a stock, usually in the $10K value range, and then return again at an opportune price point and buy some more (i.e. dollar cost-averaging).

High quality stocks are selected – conservative large cap stocks – most often dividend aristocrats – minimum 2% yield with the odd exception for superior growth stocks or those with growth potential. Great focus is placed on buying dividend aristocrats and stocks in the TSX Composite 60 Index with a nod toward following the Beat the TSX strategy.

Tawcan: Funny B mentioned the BTSX strategy. Check out Matt, the brain behind Beating the TSX strategy, and his family’s amazing story about traveling the world with 4 kids. 

I exclusively buy only Canadian stocks – no USA stocks – none – no exceptions. The only US stocks I would consider are those that have a TSX listing and can be purchased in Canadian dollars for tax efficiency reasons.

Tawcan: It’s interesting that you only hold top Canadian dividend stocks and no US or international dividend paying stocks or ETFs. 

All our stock buys must be held in non-registered accounts – contributions can not be made to RRIFs and our TFSA contribution room is maxed out. My wife and I also invest in REITs and they require special attention (more on that later).

All stocks we buy must pay a dividend. As mentioned, I usually insist on a 2% yield or higher – but not too high. One never wants to over-reach for yield, which is often the warning sign for an impending dividend cut. If a stock does eliminate its dividend, then it’s automatically gone from our portfolios and we move on to another stock that does pay a reliable dividend.

On very rare occasions, it may be advisable/necessary to sell a stock for the following reasons:

  1. When a stock’s prospects have taken a downward turn.
  2. In the event of a takeover bid – friendly or otherwise – one often has little choice but to sell.
  3. For tax-loss selling purposes. We seldom pay any capital gains income tax at all. When we do realize a capital gain from a stock sale, then we’ll sell another stock (or partially sell) to realize an offsetting capital loss. But tax-loss selling is not usually done at year-end along with “the herd.” After waiting the mandatory 30 days and if the stock remains a solid investment, then we will often buy the stock back – hopefully at a lower price.

Under a buy and hold strategy, there is not a lot of opportunity for capital gains. By not selling, no capital gain is realized and so capital gains tax can be deferred indefinitely.

On the other hand, dividend income can be extremely tax efficient when you are income splitting between two people. We’ll get into the specifics a bit later.

Q5:  You mentioned that REITs require special attention. What did you mean by that?

A: Not all REITs are equal in terms of tax efficiency when held in a non-registered account where taxes on REIT distributions can vary from 0% to 53.53% (in Ontario). Therefore, the most tax-efficient place to hold a REIT is in a registered account. Continue Reading…

New 2nd edition of US version of Findependence Day now available; plus an Interview with Myself

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Happy Canada Day!

Just in time for America’s Independence Day, I’m happy to announce that a new updated 2021 edition of Findependence Day is now available in the US market. Published by Best Books Media in New York, you can buy the paperback version of the book here through Amazon.com.

Or you can buy the new paperback for US$15.99 or Nook ebook for US$1.99 at Barnes & Noble.

Below is an Interview with Myself, which explains the timing, the differences and other things. If “An Interview with Myself” strikes some as a little bizarre, let me acknowledge that I originally got that idea from British journalist and author Malcolm Muggeridge, who I knew when he was the Writer in Residence at the University of Western Ontario journalism school in 1978-1979.

So without further ado, here’s the Q&A with myself:

 

Jon Chevreau: So Jon, you already had an American edition out in 2013. Why are you updating it eight years later?

Jon Chevreau: Good question, Jon, it’s mostly a matter of timing and the fact that North America, led by the United States, is just starting to emerge from the Covid pandemic. Suddenly, young people are starting to have hope again about their futures, including their financial futures. And, Findependence Day is a novel geared to younger adults, millennials, people just starting out on their life’s journey.

JC-Q: I see. I know Canada is a bit behind the USA in its vaccination program and economic recovery, but why a new US edition and not a new Canadian edition?

JC-A: True but the fact is that while the original Canadian edition has sold well and continues to sell in Canada, the original print run was such that there are still enough copies left that it doesn’t make much sense to make the old version obsolete. And besides, the content in the Canadian edition is still current.

As you know, Jon, the first edition from 2008 was actually written as a North American edition and attempted to include both Canadian and American content. But you decided a few years ago that the US market — which after all is ten times as large — needed its own edition with no reference at all to Canada or to Canadian financial content.

JC-Q: How do the different editions differ?

JC-A: Well, both the 2013 Trafford U.S. edition and the updated 2021 Best Books US edition are what I wanted the original edition to be. The cover concept was always the one you see above: it’s just that when Power Publishers published the first edition, the design team there went with the cover concept of the red balloon in the blue sky.

JC-Q: But you really wanted the image of a calendar set in the future, circling July 4th as the Findependence Day selected by one of your main characters?

JC-A: Correct. The 2013 and 2021 covers are quite similar although Best Books slightly reworked it and we changed the futuristic date from 2027 to 2036.

JC-Q: So the protagonist, Jamie, still has 15 years to achieve his dream of Financial Independence while he’s still young enough to enjoy it?

JC-A: Quite right, Jon.

JC-Q: Any other big differences?

JC-A: Well, the other thing the two US edition incorporated was something some people suggested I include in the original Canadian edition but chose not to at the time. That’s the chapter summary at the end of each chapter of the key lessons that Jamie and his wife Sheena learned. The new 2021 edition retains that feature and updates some of the financial info.

JC-Q: How do you categorize Findependence Day? Is it non-fiction or is it fiction?

JC-A: I wish you hadn’t asked that one, Jon because that’s a tough one to answer. In truth, it’s a hybrid of fiction and non-fiction, which I realize is a bit unusual.

JC-Q: So which is it, if you put a gun to our head?

JC-A: First, I’d say please remove the gun. Second, I’d say it’s primarily a novel but a financial novel.

JC-Q: Like David Chilton’s The Wealthy Barber and its many imitators?

JC-A: Sure, David Chilton established this genre way back in 1989 and no one has sold more copies than him in that niche. Incidentally, David has told us he “believes” in Findependence Day and that it is “excellent.” You can find that among the many laudatory testimonials the book has gathered over the years.

JC-Q: So why the hybrid and how does Findependence Day differ from all those other Wealthy Barber knockoffs?

JC-A: Well, most of the imitators tend to be what I call “information dumps” — the focus tends to be on the financial information and the stories around them tend to be a bit thin when it comes to characterization, plot etc.

JC-Q: And Findependence Day isn’t?

JC-A: We tried to bring traditional novel-writing structure and techniques into the book so that the young people who are its target audience would first be entertained and drawn in sufficiently that they’d want to see what happened to Jamie and Sheena. Yes, we sprinkle in the financial info as the plot proceeds but not at the expense of Story. So the minute any financial dump starts to sound contrived and unlikely to occur in real life, we cut it short and returned to the story.

That’s another reason for the end-of-chapter summaries and incidentally the reason we also created two Amazon ebooks that summarize the plot and reprise the end-of-chapter summaries. They cost just $2.99: they’re called A Novel Approach to Financial Independence. (one for Canada, the other for the US)

JC-Q. In short, we tried to write a “real novel.”

JC-A. We did try and many reviewers seemed to think we pulled it off. One financial planner, Diane McCurdy, said Findependence Day is “the closest you’ll come to a great beach book that helps you make enough money to retire!”

JC-Q: How is it a beach read? Continue Reading…