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.

Defensive Sectors for Retirement

Posted By Financial Independence Hub | March 22, 2023

By Dale Roberts, cutthecrapinvesting

Special to Financial Independence Hub

Defence wins championships say many sports commentators. Defense can be a big winner for retirees as well. In fact, from the massive correction known as the financial crisis (2008-2009 and beyond) using defensive sectors was twice as effective as using bonds. Then, factor in the generous and growing dividends that Canadian retirees embrace, and we might have an unbeatable retirement funding model. Let’s take a quick look at defensive sectors for retirement.

The first question you will likely ask is – “what are the defensive sectors?”

Consumer staples / Healthcare / Utilities

For the utilities sector, we will include the modern utilities known as telco (we can’t live without being hooked up in the modern world). Pipelines are also in the mix.

The 3 defensive sectors are products and services that we can’t live without. And we often do not reduce spending in these categories, even during times of recessions and bear markets.

The sectors are more durable and will typically hold up quite well during the bear markets. Of course, bear markets can pull the rug out of your retirement plans if you are not properly prepared, and are exposed to too much stock market risk. In retirement we are looking to grow and protect.

Defensive sectors for retirees vs the market

Here’s a chart that looks at the defensive sectors in the U.S. vs the S&P 500. It is a retirement funding scenario, where the portfolios are funding retirement at a 4.8% annual spend rate. That is, a million dollar portfolio will deliver $48,000 in year one. Spending will then increase at the rate of inflation.

Here’s building the big dividend retirement portfolio.

Keep in mind that the ETFs used in the example are U.S. dollar funds and belong in U.S. dollar accounts. You may choose to build a stock portfolio from these sectors. That is what I do with great success.

What is shocking is that through just one investment cycle (bear market through bull market), the defensive sectors for retirees finished the period with twice as much as the traditional balanced portfolio approach. Team defense was also better than a mix of defensive sectors and bonds.

Disclaimer: past performance does not guarantee future returns.

Canadian defensive sector ETFs

These ETFs are Canadian dollar ETFs, suitable for Canadian dollar accounts. Some of the ETFs will offer international exposure.

Canadian healthcare ETFs

Harvest – HHL
BMO – ZHU

Canadian consumer staples ETFs

BMO – STPL
iShares – XST

Canadian utilities ETFs

iShares – XUT
BMO – ZUT
BMO Covered Call Utilities – ZWU
Horizons – UTIL
Hamilton – HUTS. This ETF uses modest leverage.

The all-weather models for retirees

Readers will know that I embrace the all-weather portfolio models for retirement. In the above scenario the time period is almost exclusively during a period of disinflation. Stock markets and bonds love disinflation. In the defensive portfolio there would be no meaningful protection from robust inflation.

The all-weather portfolio – ready for most anything.

Given that I would suggest that you consider adding (bolting on) inflation protection. In Canada, that can be as easy as adding the Purpose Real Asset ETF. That holds a very nice mix of dedicated inflation fighters, from energy stocks, REITs, gold and commodities. Continue Reading…

How 12 Business Leaders invest to Grow their Income

Posted By Financial Independence Hub | March 21, 2023

From getting over the fear of starting to looking into REITs, here are 12 answers to the question, “Can you share your most recommended tips for how you can invest your money to grow your wealth and increase your income, specifically for financial independence through investing?”

Get Started Right Now
Maximize Tax-advantaged Investments
Avoid Trying to Time the Market
Remember Diversification is More Important Than You Think
Put Your Tax Refunds to work
Create a High-Yield Savings Account
Think of the Market as a Game
Prioritize Risk Management Over Chasing High Returns
Be Patient and Plan
Raise Your Savings Rate by 5% Each Year
Repay High-interest Debt
Try REIT Index Funds

Get Started Right Now

Investing is one of those things that seems like an insurmountable barrier to entry for many people. How can I invest when I don’t have thousands of dollars just kicking around is a common attitude I’ve come across, and in my opinion, it is one of the biggest mistakes toward actually growing your wealth and becoming financially independent.

The thing is that you actually have to get started: even if it’s a few dollars at a time invested in penny stocks, you’ve got to make a start. Even if the amounts are negligible, you’re gaining invaluable experience in financial markets and financial literacy that will pay massive dividends down the line. — Dragos Badea, CEO, Yarooms

Maximize Tax-advantaged Investments

Both IRAs and 401(k)s have tax advantages [and the equivalent RRSPs and group RRSPs in Canada: editor]. You can choose to deduct your contributions from your taxes or contribute after taxes and avoid taxes when you withdraw during retirement.

IRAs and 401(k)s are easy to set up. A 401(k) is offered through employers, so if your workplace offers one and matches a percentage of your contributions, take advantage of that matching benefit.

Anyone can start an IRA. You can open an account online today with Fidelity or another firm. Many people assume it’s hard to set up, but it’s not. You can do it in half an hour.

With both options, you can set up automatic withdrawals from your paycheck. That option helps you succeed in saving because you don’t have to think about it. — Michelle Robbins, Licensed Insurance Agent, Clearsurance.com

Avoid trying to Time the Market

Almost 80% of active fund managers fall behind the major index funds.

So if these financial professionals can’t beat the market, what chance do ordinary people like you and me have?

This is why my best investing tip is consistently putting money into an index fund like the S&P 500 without trying to time the market.

By putting a portion of your salary into an index fund every month for decades, your investments compound, allowing you to build unimaginable amounts of wealth.

For example, if you put just $300 a month into an index fund growing 8% annually, you’ll have over one million dollars after 40 years. — Scott Lieberman, Owner, Touchdown Money

Remember Diversification is more Important than you Think

Portfolio diversification is a powerful tool that can help protect your investments against large losses due to market downturns. By selecting assets with low correlation, you are essentially increasing the safety of your portfolio while pursuing rewards. This strategy has become indispensable for individual investors and financial advisors alike: after all, who wouldn’t want some extra security for their hard-earned money?

If you split them between two different companies, such as Invest A and B — one providing package deliveries and another offering video conferencing services — you’ll have far less reason for worry in times of economic hardship or other disruptive events! Look at how gas shortages can fuel success with Investment B: when stock prices dip on account of limited resources, people switch to digital communication tools from home, which ultimately benefits Investment B’s performance. — Derek Sall, Founder and Financial Expert, Life and My Finances

Put your Tax Refunds to work

Using your tax refunds to invest is a wise investing tactic to consider that you may have never thought about: for many, the short-term sacrifice is worth the long-term benefits, especially as you settle into life after work.

This is a great way to supplement your current income or even a retirement account, or jump-start a new investment account. Tax refunds can also be used for other pivotal financial reasons, including paying off debt, funding an IRA, building a health savings account, and creating an emergency stash. — Dakota McDaniels, Chief Product Officer, Pluto

Open a High-Yield Savings Account

While savings accounts aren’t exciting ways to grow your wealth, online banks are currently paying 3-4% interest. While 3-4% might not seem like much, it only takes a few minutes to set up an account, meaning you can earn interest risk-free while also keeping your money easily accessible. — Larissa Pickens, Co-Founder, Worksion

Think of the Market as a Game

For investing, I always tell people to think of the stock market as a big game of poker.

Invest in real estate: “I like to think of real estate as the gift that keeps on giving. With rental properties, you’re not just earning income from tenants, but also building equity over time.”

Start your own business: “Entrepreneurship is not for the faint of heart, but neither is settling for a mediocre 9-5 job. Starting your own business is like taking a leap of faith and trusting that you’ve got what it takes to make it happen. Just remember to pack a parachute.”

Invest in yourself: “Investing in yourself is like planting a money tree, except instead of watering it with H2O, you’re watering it with knowledge and experience. So, go ahead and take that online course, attend that industry conference, or volunteer for that new project. Your future self will thank you.” — Russ Turner, Director, GallantCEO

Prioritize Risk Management over Chasing High Returns

Although even small returns can accumulate into significant wealth through compounding, a single failed investment can cause a substantial loss.

To mitigate risk, I employ the dollar-cost averaging (DCA) strategy when investing in the S&P 500. The S&P 500 is already a diversified index, reducing the risk associated with individual stock investing. Furthermore, the DCA strategy further minimizes risk by investing fixed amounts of money at regular intervals, regardless of the market’s ups and downs. Continue Reading…

Tawcan: 5 stocks we plan to buy this year

Posted By Financial Independence Hub | March 20, 2023

By Bob Lai, Tawcan

Special to Financial Independence Hub

A new year is here and many investing-focused Canadians like us are overjoyed. Because this means new contribution room for TFSA and RRSP.

If you look at our dividend portfolio, you’ll see that we currently own 50 individual dividend stocks and 1 index ETF. Interestingly, despite making an effort at reducing the number of holdings last year, we ended up now at the end of the year with the same number as we had at the beginning of 2022.

The individual stocks we own consist of a mix of US and Canadian stocks:

18 US dividend stocks including big international brands like Visa, Apple, Costco, Coca-Cola, Pepsi, and McDonald’s. We only own US dividend paying stocks in our RRSPs in order to avoid the 15% withholding tax on foreign dividends.
31 Canadian dividend stocks including well-known Canadian brands like TD, Royal Bank, Enbridge, BCE, Telus, and Fortis. We hold these Canadian dividend paying stocks in TFSAs, RRSPs, and non-registered accounts.

With the new contribution room for TFSA and RRSP, we are eager to purchase more shares of the stocks and index ETF that we already own, rather than initiate new positions. But again, plans are only plans and can change if a new potential new position becomes too attractive to ignore.

Here are 5 stocks we plan to buy in 2023 and our rationale for each:

5 stocks we plan to buy in 2023

Before we proceed further, please note that I’m not a professional financial advisor. Whatever I write and share on this blog is purely my personal opinion. It should not be treated as advice or recommendations. Please always do your own research and due diligence before buying and selling stocks or ETFs. Thank you.

1.) Apple (AAPL)

Despite only owning an iMac at home and no other Apple products, both Mrs. T and I like Apple a lot. We are probably one of the rare households that are not deeply tied into the Apple ecosystem despite owning a Mac.

Why do we like Apple? Well, what’s not to like when the company makes billions and billions of dollars each quarter?

While iPhones make up the bulk of Apple’s revenues, revenues from services have increased over the years as you can see from the chart below.

Yes, Apple’s Q1 2023 results look a bit disappointing – down 5% YoY, a bigger drop than many analysts expected due to iPhone supply issues. The EPS was $1.88 versus the $1.94 estimated, and down 10.99% YoY.

We all know that Apple products are usually more expensive than its competition, yet people continue to buy them. Due to its brand name, Apple is able to charge a premium over its competition (aka the Apple tax) and as a result, enjoy a higher gross margin (in case you’re wondering Apple’s Q1’23 gross margin was 42.96%!).

Apple’s share price has struggled a bit in 2022, mostly caused by uncertainties in the rising interest rate environment. But Apple’s share price has continued to go up over the long term.

Apple has a 10-year dividend increase streak with a 10 year dividend growth rate of 25.26%. Although the dividend yield is extremely low, the overall total return has been quite impressive.

I believe 2023 will be a big year for Apple as we expect many new products to be announced. Just last month, Apple announced M2 Pro and M2 Max based MacBook Pro and Mac mini as well as HomePod.

One very important to note, as I pointed out in the tweet above, is that every Apple desktop and laptop (except Mac Pro) now all have integrated components. This means the desktops and laptops are not user upgradable at all. To-be-Mac-owners must decide whether to buy additional RAM and SSD storage at the time of purchase.

Let’s not forget Apple charges an arm and a leg for these upgrades! For example, going from 16 GB unified memory to 32 GB on a 14-inch MacBook Pro will cost you $500 CAD. And going from a 1TB SSD to a 2 TB SSD will cost you $500 CAD.

Did I mention that these laptops and desktops aren’t cheap to start with?

14 inch MacBook pricing — 14-inch MacBook Pro pricing. Hardly affordable for students

It sucks to be an Apple customer when you have to buy a new laptop or desktop and need memory and storage upgrades. But this is really good news for Apple shareholders.

2.) iShares All Country World Ex-Canada International ETF (XAW)

Yes, XAW isn’t a stock, but rather an index ETF. Since we plan to add more XAW shares throughout 2023, I thought I’d include it on the list.

Why buy more XAW shares?

One word – diversification.

XAW holds more than 9,000 international stocks with more than 60% exposure to the US market, 6% exposure to the Japanese market, 4% exposure to the UK market, 3% exposure to the Chinese market, and exposure to other global markets. So by holding XAW, we are able to get an instant asset and geographical diversification. This kind of diversification is nearly impossible to do when holding individual dividend stocks.

Furthermore, XAW is also good for many Canadian investors who have an inherent Canadian bias, holding arguably an overly high percentage of their portfolio in Canadian stocks.

We plan to add more XAW throughout this year in our RRSPs and non-registered accounts and take advantage of the commission-free ETF purchase that Questrade offers.

At the time of writing, XAW is one of the top five holdings in our dividend portfolio. We are hoping to purchase more XAW so it can rise to be the top or second-place holding in our portfolio.

3.) Waste Connections Inc (WCN.TO)

We started buying WCN shares in late 2021 but didn’t get a chance to get more when the stock market was volatile in the latter half of 2022. Overall, I really like the business sector WCN is in – people will produce garbage and waste and companies like Waste Connections will collect, transfer, dispose of them, and make a profit.

Because people produce garbage regardless of whether it’s a bull or a bear market, WCN’s business should be quite stable. In other words, the waste management sector is a recession-proof area. Given a potential recession in the future, it makes sense to add more shares of WCN.

WCN’s dividend yield is below 1%, so many income-focused investors may ignore it. However, WCN has been raising its dividend for 13 straight years with a 10 year dividend growth rate of 14.4% and a 5 year dividend growth rate of 13.6%. Whichever you slice it, WCN’s dividend growth rate has been quite impressive. Continue Reading…

Coping with the Fear of Market Downturns

Posted By Financial Independence Hub | March 15, 2023

Image courtesy RetireEarlyLifestyle.com/Kiplinger

By Billy and Akaisha Kaderli

Special to Financial Independence Hub

On our latest adventure, we were on the beach in Isla Mujeres, Mexico when a lady recognized us from our website RetireEarlyLifestyle.com. After some pleasantries, she asked if we could address the fears of the market declining and how to handle it.

We appreciated that input from one of our Readers.

Previous market declines

Since the surviving of the 1987 crash when the Dow Jones Industrial Average fell over 20% in one day, there have been other downturns including the recent ones of 2007-2008 and the Covid meltdown in March of 2021. We have learned from each of them.

They can be trying on one’s patience and confidence, so how is it best to handle them?

Noise, corrections and bears

First, let’s define these meltdowns.

Between a 5-10% decline in the averages is called noise and can happen at any time.

Many individual issues have these gyrations which is why we own the Indexes. They are more stable.

Over a 10% drop is called a correction, meaning it is wringing the excesses out of the markets. The markets are constantly being over-extended and under-extended and these 10% moves correct for those times.

If the averages drop 20% or more, it is considered to be a bear market and we tend to have these every 56 months.

On average, bear markets last 289 days or 9.6 months with an average loss of 36.34%. These can be painful for one’s financial health – or an opportunity – depending on where you are in the investment cycle.

A number of events can lead to a bear market including higher interest rates, rising inflation, a sputtering economy, and a military conflict or geopolitical crisis. Seems we have all of these presently.

If you are in the accumulation phase and buying more shares at cheaper prices, this can be a bonus for you. However, if you are now retired and living off your investments with your account values dropping, that can be difficult to swallow.

How to calm your nerves to prevent panic selling

It’s important to note the difference between trading and investing.

Traders drive the day-to-day activity, booking profits and hopefully taking losses quickly. We investors take a longer view to ride out these cross currents of the markets knowing that – over the long run – we will be fine. Continue Reading…

Living the Dividend Dream

Posted By Financial Independence Hub | March 9, 2023

By Mark Seed

Special to Financial Independence Hub

Incredibly, there are some investors out there truly living their dividend dream.

Today’s post highlights one of those investors for investing inspiration…

But let’s back up a bit …

Some time ago … yours truly wrote a controversial post about the intent to live off dividends and distributions from our portfolio.

Indexers gasped and likely unsubscribed to my site!

Well, even though some considerable time has passed since that post my thinking and income goals remain the same – as least in part for semi-retirement planning:

I continue to believe “living off dividends” (and/or distributions) should work out well for us.

And I’m not alone.

For today’s post, I’m profiling a very successful investor …. who not only dreams of dividends but is living the dividend dream right now.

Living The Dividend Dream

Welcome to the site for this latest investor profile, The Dividend Dream.

I look forward to sharing this interesting new investor profile below but first up, a recap about why dividends and distributions continue to matter to me/us on our income journey.

Yes, my approach to live off dividends remains alive and well in 2023!

My dedicated page including many of the stocks I own.

Here are some reasons why some investors couldn’t care less about dividends:

The trouble with any “live off the dividends” approach is that you’d need to save too much to generate your desired income. Fair.
Dividends are not magical – there is nothing special about them. Sure, of course they are not magical or free!
A dollar of dividends is = a one dollar increase in the stock price. True.
Stock picking (with dividend stocks) is fraught with under performance of the index long-term. I’m not convinced about that.
You can never possibly know long-term how dividends may or may not be paid by any company. Fair.

You do need a bunch of capital to generate meaningful dividend income.

Dividends are part of total return.

Stock picking to some degree opens opportunities for market under performance.

However, my responses and approach to some of these items are as follows, since I believe dividend investing offers far more good than harm:

While market underperformance may occur (that is subjective and up to personal investment success, luck, and other factors that are very difficult to substantiate), dividend investing offers up some essential long-term investing discipline, for me at least, to stay the investing course, including when markets tank in any given year. If anything, I buy more!
This way of investing provides HUGE motivation and inspiration – to keep investing, in any market climate. The way I see it: money that makes money can make more money.
Dividend investing, seeing the tangible money flow into our accounts month-after-month, reinforces my belief that nobody cares more about my financial well-being than I do (except for my wife!). Ha.

All kidding aside…dividend investing and having a plan associated with building ever-growing income offers something that some other ways of investing just can’t readily offer: support for the emotional discipline to execute this strategy, come heck or high water, or even until the end of all capitalism as we know it!

But that’s just me and our plan.

Your mileage might vary and that’s OK.

There are many ways to invest and many reasons that folks invest in what they do.

That said, dividend investing is far from any local phenomena.

I reached out to The Dividend Dream for her to share her reasons for investing in dividend paying stocks, including why dividends matter (or not!), and any considerations she has for any investors at any age on their investing journey. [Editor’s note: for now, “she” wishes to remain anonymous, as explained below; hence there is no photo-JC]

Living The Dividend Dream – Dividend Dream – welcome to the site!

Hey hey … thanks for having me. I appreciate the invite!

Before we dive into your investing thesis, why you own what you own, and much more – tell us a bit about yourself.

Well, what can I say. People call me The Dream, Dream Girl, aka Dreamer.

I’m anonymous for now as I’m still working a bit, although I entered into a “freestyle” work optional state this year (2023). I’m a businesswoman, living in the southern United States. My field is strategy and marketing, and I went to a top MBA school. I’m in my mid-40s and am married to a wonderful woman who is a professor. I am the breadwinner in the family – by far – so I feel financially responsible for our future. And yeah … that’s the skinny, essentially.

Interesting!

I feel personal finance is personal – a constant refrain on this site. What I mean by this is: everyone’s financial situation is different, and they have personal reasons to invest the way they do, to realize their individualized goals.

How did you get started with investing?

I actually have been thinking about “retirement” ever since I was a teenager. Really, it’s always been more about being financially secure and independent. My family fell on some hard times and it scared me. I didn’t really have any choice but to rely on myself. I held several jobs in high school and throughout college. So … long story short, after college I started like everyone else with a 401(k) at work, trying to max that out every year. But when I started getting into my 30s that’s when I started to really breakout out of the mold, rolling past 401(k)s into investment accounts where I had complete control and could pick to hold whatever assets I wanted, not just the choices provided by an employer.

Awesome. OK, let’s get into it. Why dividend investing? Why do you invest the way you do? Continue Reading…