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.
In my role as a Portfolio Manager, Financial Planner and President at TriDelta Private Wealth, the number one question that people ask is “Will I run out of money?”
This question comes from people with a $10 million net worth, a $3 million net worth, and a $300,000 net worth. There may be different levels of angst involved but they still wonder.
The fundamental issue is fear. Even if it isn’t rational, there is always a bit of fear about running out of money. Even if running out may mean different things to different people.
Of course, for those with more wealth, the related question is almost always “Am I paying too much in tax?” and “Is there tax smart things that I should be doing that I am not?”
While we do a lot of work in each area with Canadians, we decided to build a free tool to help answer that number one question. We have done this through our TriDelta My Estate Value calculator. By someone entering in several core pieces of financial information, the calculator does some pretty heavy lifting. Behind the scenes are actuarial tables to show life expectancy, tax tables, and a variety of stated assumptions around inflation, real estate and investment growth expectations.
The output is an estimate of your likely estate value in future dollars, along with a lifetime estimate of your income taxes paid.
One other tool we have put together is a donation calculator. It takes the information from the My Estate Value calculator and provides some ability to see the impact of annual charitable giving. What if you gave $5,000 a year? What would be the impact to your likely estate value and to your lifetime tax bill? What if you gave $10,000 or $20,000 a year? One of the reasons that we put this together is that many Canadians would give more to charity of they felt confident that they could afford to do so. This calculator helps to show in real time the impact of higher levels of giving. The link is here: Donation Planner – TriDelta Private Wealth
We have found that even among the free tools online, most are focused on retirement savings, and deliver a monthly savings target. The My Estate Planner calculator is focused on the years after retirement, and what potential estate you will be leaving to your family and/or charity. Continue Reading…
While Get Rich Quick publishers use AI for email advertising, investors combat their spam with AI-based anti-spam programs. Meanwhile, what’s the best way to profit from AI with less risk?
Image courtesy Pexels/ThisIsEngineering
AI continues to make gains, mostly in communications. (In contrast, early adopters are still waiting for a licensed, insurable, road-worthy self-driving car.) You also hear a lot about AI-related start-ups. Most seem aimed at improving existing devices and/or cutting business costs. Many have highly specific goals.
Meanwhile, AI will keep attracting investment interest.
Here’s how AI has changed one industry
As you’ve probably noticed, a boom is underway in the investment-newsletter publishing business, at least in its “GRQ” segment. (GRQ is an acronym for Get Rich Quick.)
GRQ publishers sell newsletters and related products to subscribers. Their expertise is in newsletter marketing, not investing. Many publish numerous newsletters that may offer conflicting advice. When one publication puts out a stream of bad recommendations that drive off too many customers, the publishers change the publication’s name and/or investment specialty. That way, they always have one or more fresh titles that still have customer appeal and can operate at a profit.
GRQ publishing has been around for many decades, if not centuries. But it really went into high gear in the early 2000s. That’s when email began to replace postal mail as the main carrier for newsletter advertising, and costs began to plummet.
In the days of postal mail advertising, it cost a publisher perhaps $1 per “name” to offer a newsletter subscription to prospective customers. Publishers had to create, print and mail elaborate mailing pieces. They had to rent prospect names from direct competitors, or from other publishers in the same or related fields.
Compared to the costs of paper/postal mailings a decade or two ago, today’s costs of email advertising are close to negligible. Now publishers spend heavily in other areas: direct marketing consultants, specialized writers of advertising copy for email marketing, and so on.
Some newsletter publishers seem to be using AI to help them create email ads in ever larger numbers, to send to investors who never asked for them: spam, in other words. Continue Reading…
Canada’s aging population means more retirees but most Canadians contemplating retiring say they would keep working if they could reduce their hours and stress. That was the top line of a Statistics Canada Daily release issued early in August. It was also the subject of a CBC Radio interview I conducted that aired in multiple cities on Thursday, Nov. 2. Here’s the link. Go to Episodes, then Nov. 2nd, then click on the line that says Canadians would choose to work past 65 under certain circumstances.
The interviewer is CBC Business columnist Rubina Ahmed-Haq, who focuses on money, workplace and financial wellness. The 4-minute interview with me and others touched on most of the topics this site does, including semi-retirement, entrepreneurship, Findependence and Victory Lap Retirement (the latter a book I co-authored with ex banker Mike Drak.). At the outset I clarified that I myself am still working at at 70, albeit self-employed through this web site and regular writing and editing for MoneySense.ca.
I was asked about the FIRE movement (Financial Independence/Retire Early) and I explained that while there are many FIRE proponents who claim to have “retired” in their 30s, in my experience these people have not really retired: rather, they have ceased to be salaried employees with the commuting grind, bosses and meetings and all that comes with it. Most have in reality become self-employed or semi-retired entrprepreneurs: in fact, many of the FIRE bloggers I have read are running web sites that accept advertising, and/or writing books that pay royalties and in some cases are on the speaking circuit accepting speaking fees. Having done all of these myself over the years, that’s not my idea of full retirement!
10% of 70-plus cohort still working at least part-time
Statistics Canada
Going back to the Statistics Canada Daily, it reported that in June 2023, 21.8% of Canadians between ages 55 and 59 were either completely or partially retired. That doubles to 44.9% for those aged 60 to 64, and doubles again to 80.5% for those 65 to 69. By the time Canadians reach my age (70), it plateaus around 90% who are at least partially retired.
Interestingly, as I may have alluded to on-air, I can think of several people who are working well past 70, including some prominent journalists and financial gurus. I guess both are seen by proponents as a relatively satisfying occupation, particularly those who like myself do both by writing (or editing) about money.
Not surprisingly, for those who are completely retired, the main factor in determining the timing was financial: usually having qualified to start receiving pension benefits. This was cited by 35% of the men and 28.2% of the women who reported being completely retired.
When it comes to investment strategies, dividend or income investing holds a special place in the hearts of many investors, especially retirees. It’s not surprising, considering that dividends often constitute a substantial portion of a portfolio’s total return. Let’s dive into this popular approach and understand how Exchange-Traded Funds (ETFs) can be a game-changer.
The Dividend Advantage
Now, let’s dissect the significance of dividends in the realm of equity returns. Looking over the long-haul equity return expectations, the S&P has returned an average of around eight per cent over a 40+ year period[i]. In historical context, dividends have accounted for a significant portion of this return, ranging from three to four per cent. This underscores how dividends contribute almost half of the total equity market return annually[ii]. However, their true power lies in compounding. While you collect dividends each year, reinvesting them into equities sets the stage for exponential growth. This compounding effect is what propels your portfolio to higher echelons of growth.
Moreover, dividends are more than just monetary gains; they serve as a vital indicator of a company’s financial health. While not the sole indicator, companies with robust dividend policies often signal financial stability. It’s crucial to note, however, that not all dividends are created equal, a distinction we’ll explore further.
The Art of Portfolio Construction
We’ve witnessed a surge of interest in dividends: evident in the significant influx of investments into the dividend space. But what are the actual benefits of incorporating dividend investments into your portfolio?
From a portfolio construction perspective, the benefits of including dividend-paying stocks are evident. We’ve examined 32 years of returns across various companies in the Canadian equity market. Dividing them into dividend growers, dividend payers, dividend cutters, and non-dividend payers, a clear pattern emerges.
The standout performers are the dividend Growers, showcasing the potential of quality dividend-paying stocks. Over this period, they have consistently outperformed the broad index, offering a higher average return. Moreover, when it comes to managing risk, dividend Growers and high-quality dividend payers exhibit a slightly lower level of volatility compared to the broader market. This suggests that a focus on sustainable, high-quality dividend stocks can lead to both enhanced returns and a controlled risk profile, making them a compelling addition to a well-rounded investment portfolio. It’s worth noting that not all dividends are created equal, and a discerning approach is crucial for maximizing the benefits of dividend investing.
Ensuring Sustainable Dividends
One of the crucial aspects of dividend investing is ensuring the sustainability of the payouts. Stepping into the shoes of a prudent investor, it’s imperative to avoid falling into yield traps: companies offering high yields but lacking the financial backing to sustain them. Enter the analysis of a company’s overall health, a task made easier by assessing key metrics.
Cash as a percentage of total assets and payout ratios are key indicators of a company’s financial fortitude. In recent times, the top quartile of companies has seen a surge in cash reserves, an encouraging sign of their resilience. Moreover, evaluating the payout ratio provides insights into the sustainability of dividends. A company paying out more than it earns in the long run is walking on thin ice, whereas those with ratios in the 40-50% range are on relative solid ground.
Dividends in an Age of Inflation
Amid the specter of inflation, dividend strategies have shone brightly. Companies with robust dividend policies, characterized by stable cash flows, have weathered the storm far better than their growth-oriented counterparts. Inflation, while posing challenges to certain sectors, has not dampened the dividend-driven approach. In fact, historical data (monthly excess returns over the MSCI World Index for the last 45 + years) indicates that dividend-paying companies fare even better in high CPI environments, providing a reliable anchor for portfolios.
At the heart of the resilience of dividend-paying companies lies their ability to generate steady and predictable cash flows. These companies often operate in industries with stable demand for their products or services, which provides a buffer against the uncertainties associated with inflation. By virtue of their financial stability, they’re better positioned to maintain and perhaps even grow their dividend payouts, providing a reliable source of income for investors.
Historical data, tracked against the Consumer Price Index (CPI) reinforces the notion that dividend-paying companies can act as a reliable anchor for portfolios during inflationary periods. These companies tend to exhibit a degree of insulation from the market volatility often associated with rising prices. By consistently delivering returns through dividends, they offer investors a source of stability in an otherwise uncertain economic environment.
Methodology Matters
In the realm of Dividend ETFs, the choices are vast, and not all ETFs are created equal. Each comes with its unique methodology, impacting performance. Factors such as weighting methodology, sector caps, and company quality screenings play pivotal roles in the outcome. This underscores the importance of understanding the underlying strategy before investing. Continue Reading…
“Many investors have been saying for years that rates can only go up from here, rates can only go one direction, rates will eventually go up. Will they?” – My Own Advisor, September 2021.
My, how things can and do change.
In today’s post, I look back at what I wrote in September 2021 to determine if I still feel that way for our portfolio.
Why would anyone own bonds now?
Why own bonds?
For years, decades, generations in fact, bonds have made sense for a diversified, balanced portfolio.
The main reason is this: bonds can reduce volatility due to their low or negative correlation with stocks. The more that investors learn about diversification, the more likely they are to add bonds to their portfolios.
That said, they don’t always make sense for everyone, all the time, always.
I’ll take a page from someone who was much smarter than I am on this subject:
Ben Graham, on stocks, bonds and cash. Source: The Intelligent Investor.
Another key takeaway from this specific chapter of The Intelligent Investor is the 75/25 rule. This implies more conservative investors that don’t meet Ben Graham’s criteria above could consider splitting your portfolio between 75% stocks and 25% bonds. This specific split allows an investor to capture some upside by investing in mostly stocks while also protecting your investments with bonds.
Because stocks offer more potential upside, there is higher risk. Bonds offer more stability, so they come with lower returns than stocks in the long run.
As a DIY investor, this just makes so much sense since I’ve seen this playout in my/our own portfolio when it comes to our 15+ years of DIY investment returns. Our long-term returns exceed the returns I would have had with any balanced 60/40 stock/bond portfolio over the same period.
There is absolutely nothing wrong with a 60/40 balanced portfolio held over decades, of course.
From Russell Investments earlier this year:
“Fixed income has historically been considered the ballast in a portfolio, offering stability and diversification against equity market fluctuations. Over the last 40 years, a balanced portfolio of 60% Canadian equities and 40% Canadian bonds would have returned 8.5% annualized with standard deviation of 9.3%. While a portfolio consisting solely of fixed income would have had lower return with lower risk, a portfolio consisting solely of equities would have had only slightly higher return but substantially higher risk.”
So, while I continue to believe the main role of bonds in your portfolio is essentially safety – not investment returns – we can see above that bonds when mixed with stocks can be enablers/stabilizers and deliver meaningful returns over long investment periods as well.
As Andrew Hallam, a Millionaire Teacherhas so kindly put it over the years, including some moments on this site to me:
… when stocks fall hard, bonds act like parachutes for your portfolio. Bonds might not always rise when the equity markets drop. But broad bond market indexes don’t crash like stocks do …
Is that enough to own bonds in your portfolio?
Maybe.
Here are a few reasons to own bonds, in no particular order: Continue Reading…
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By Ted Rechtshaffen, CFP
One other tool we have put together is a donation calculator. It takes the information from the My Estate Value calculator and provides some ability to see the impact of annual charitable giving. What if you gave $5,000 a year? What would be the impact to your likely estate value and to your lifetime tax bill? What if you gave $10,000 or $20,000 a year? One of the reasons that we put this together is that many Canadians would give more to charity of they felt confident that they could afford to do so. This calculator helps to show in real time the impact of higher levels of giving. The link is here: Donation Planner – TriDelta Private Wealth
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