Decumulate & Downsize

Most of your investing life you and your adviser (if you have one) are focused on wealth accumulation. But, we tend to forget, eventually the whole idea of this long process of delayed gratification is to actually spend this money! That’s decumulation as opposed to wealth accumulation. This stage may also involve downsizing from larger homes to smaller ones or condos, moving to the country or otherwise simplifying your life and jettisoning possessions that may tie you down.

Timeless Financial Tips #2: Rising above the Noisy News

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Lowrie Financial: Canva Custom Creation

By Steve Lowrie, CFA

Special to Financial Independence Hub

In investing and life, information overload, aka “noisy news,” has long been a thing. In fact, before the Internet came along, I used to publish a hardcopy newsletter called “Rising Above the Noise.” Because even then, investors seemed awash in TMI (too much information).

If media noise was a problem back then, imagine the implications today. Which brings me to today’s Play It Again, Steve – Timeless Financial Tip #2.

To be a successful investor, it’s as important as ever to dial down all the noisy news you invite into your head.

News versus Noise

These days, we’re all familiar with the term “clickbait.” Long before that term came along, the popular press already knew it could profit similarly by embracing an “if it bleeds, it leads” approach to delivering the news. The more eyeballs or clicks scored, the higher the potential advertising revenue.

Driven by profit motivations, popular newsfeeds have long been incented to showcase that which will elevate your excitement. They care more about whether you look, than what you’re seeing. This means our duty as informed consumers remains the same:

Consider the true incentives for any given news source.

Are they aligned with yours? If not, it’s best treated as noise rather than news.

Noise versus Knowledge

We’re not advocating that you stop learning. Rather, a successful, long-term investor’s goal is to tune out the pointless distractions, so we can tune into more thoughtful action. What’s the difference?

The noise we’re exposed to from never-ending newsfeeds is …

  • Demanding: New news arrives at a breakneck pace and insane volume that never lets up. Don’t you dare blink.
  • Distracting: The constant stream delivers endless lures to STOP whatever you’re doing and tune right in, lest you miss right out. (There’s a reason the popular media’s favorite crawler is: “BREAKING NEWS.”)
  • Fleeting: News is inherently new. By the time you hear it, something else has probably already happened to change it. Over and over again, forever.
  • Inaccurate: Given the speed of the spin, rumors and half-baked hunches are more frequent than facts. All the conjecture feeds on our fears and preys on our emotions.
  • Incoherent: Even when information is correct, it comes in so fast and furious, we can’t possibly make sense of it all in real time.

Where noise is loud, wisdom is quiet …

Acquiring knowledge calls for the opposite of all this commotion. Knowledge takes reflection. It takes selectivity. Perhaps most of all, it takes time:

  1. Time to translate the reams of random information into meaningful insights.
  2. Time to separate fact from fiction.
  3. Time to distinguish reputable sources from biased blather.

What’s the Problem with Noisy News?

In his post “Why You Should Stop Reading the News,” Knowledge Project podcast host Shane Parrish explains why news-based noise can be so damaging to an investor’s well-being:

“Our obsession with being informed makes it hard to think long-term. We spend hours consuming news because we want to be informed. The problem is, the news doesn’t make us informed – quite the opposite. The more news we consume, the more misinformed we become.”

Put another way, the more noise you encounter, the harder it becomes to make good investment decisions. Good investment decisions are the kinds guided by your own goals rather than market noise. They’re the kind you can more readily trust, because they’re grounded in solid evidence and feel built to last. They help you stay focused and on track. Continue Reading…

Coping with the Fear of Market Downturns

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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

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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.

Living the Dividend Dream - Investor Profile

Source: https://twitter.com/DreamDividend

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!

MOA Dividend Income Target 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. 
In many respects these investors are not wrong and/or are not pointing out some challenges with DIY stock investing.

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…

ETFs to generate Retirement Income

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By Mark Seed, myownadvisor

Special to the Financial Independence Hub

Image courtesy MyOwnAdvisor/Dreamstime.com

Let’s dive in!

My retirement income plan and options

I’ve been thinking about my semi-retirement income plan for some time now.

Months ago, I captured a list of overlooked retirement income planning considerations that remain very relevant.

There are obvious ways to generate retirement income but I suspect some might not appeal to you for a few reasons!

  • Option #1 – Save more. Sigh. I doubt most people will like this option, I don’t! However, more money saved will help combat inflationary pressure, rising healthcare costs and longevity risk.
  • Option #2 – Work longer. Double sigh. If you didn’t like option #1, you might not like this one! Working longer into your 60s or potentially to your 70s might be the reality for some with a low savings rate.
  • Option #3 – Spend less. Spending less than you make seems simple but not easy!

Simple but not Easy

Meaning, the path to a well-funded retirement is usually (always?) spending less than you make, investing the difference, and growing that gap over time. This has largely been our plan – to let the power of compounding do its thing – but that does take discipline and time. Investing patience is a virtue.

Save, invest, earn

Our semi-retirement income plan has us leveraging a mix of income streams in a few years:

  1. Earn income from part-time work – to remain mentally engaged but also to fund some income needs and wants in our 50s.
  2. Spend taxable (but tax-efficient) dividend income from our basket of Canadian stocks.
  3. Make strategic Registered Retirement Savings Plans (RRSPs) withdrawals in our 50s and 60s.

We’re not quite “there” yet in terms of having 1, 2 and 3 running smoothly to meet our semi-retirement income needs yet, but we are getting there and making some lifestyle choices accordingly…

We hope to semi-retire sometime in 2024.

We have been working hard to build up our taxable dividend income stream for about 15 years now.

We continue to max out our TFSAs as our first investing priority every January (and we’re saving for that again in early 2023).

We have been maxing out contributions to our RRSPs, and we’ll continue to do so for the next couple of years.

What are my retirement income needs? 

In a nutshell, we figure once we can earn close to $30,000 per year from a few key accounts (for example, from our taxable account(s) and TFSAs x2), and then make those strategic RRSP withdrawals on top of that, we should have enough to start part-time work.

Here are some estimated very basic expenses in semi-retirement:

Key expenses Monthly Annually Semi-retirement comments ~ end of 2024??
Mortgage $2,240 $26,880 We anticipate the mortgage “dead” before the end of 2024.
Groceries/food $800 $9,600 Although can vary month-to-month!
Dining/takeout $100 $1,200
Home maintenance/expenses $700 $8,400 Represents 1% home value per year, increasing by inflation.
Home property taxes $500 $6,000 Ottawa is not cheap, increasing by inflation or more.
Home utilities + internet/TV/cell phones, subscriptions, etc. $400 $4,800
Transportation – x1 car (gas, maintenance, licensing) $150 $1,800 May or may not own a car long-term!
Insurance, including term life $250 $3,000 Term life ends in 2030, will self-insure after that without life insurance.
Totals with Mortgage $5,140 $61,680
Totals without Mortgage $2,900 $34,800 As you can see, once the debt is gone, we’ll be in a much better place for financial independence!

Add in other spending/miscellaneous spending to the tune of $1,000 per month on top of that, and our semi-retirement budget is likely at the basic-level about $4,000-$4,500 per month.

What are your retirement income needs?

Until the end of time, I suspect one of the most popular retirement planning questions will be: how can I generate retirement income?

That’s a HUGE quesiton to answer. I mean, we have rising inflation, higher interest rates, and the need to make your money last to fight any longevity risk, higher taxation and the need to cover essential healthcare costs as you age. This also makes how you can generate retirement income a VERY important question to answer.

Passionate readers of this site will know I’m a big fan of investments that generate meaningful income. Sure, you can invest in real estate, private equity, run a business into your 60s and 70s but for many people: the stock market is a common vehicle for average people/average investors to be long-term business owners.

This makes the hope of capital gains or getting paid today via dividends an interesting paradox.

As I get older, while the best total returns are always the goal, I’m more concerned about the tangible income my portfolio can (and will) generate moreso than hoping for stock market prices to work in my favour.

Full stop: I like investments that generate income. I like individual stocks as investments that pay ever growing income!

While I believe in (and own) low-cost, passive Exchange Traded Funds (ETFs) for total portfolio growth, a major portion of my portfolio rewards me to be a shareholder. I am attracted to investments that pay dividends or distributions. You may wish to consider the same for your meaningful retirement income needs.

Should you use ETFs to generate your retirement income needs? 

I believe so, at least a consideration if you’re not going to be an owner of some individual dividend-paying stocks!

While I invest in many Canadian and U.S. individual dividend-paying stocks for income and growing income, today’s post is about those lower-cost income-oriented ETFs you can own in certain accounts to avoid individual stock risks. Continue Reading…

Rate Hike hiatus?

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By Dale Roberts, cutthecrapinvesting

Special to Financial Independence Hub

Late in January, the Bank of Canada boosted rates by another 0.25% and signalled that they will now pause and evaluate. I’ve been calling that the rate hike hiatus. As I touched on in mid-January, inflation is moving in the right direction and the consumer is holding up quite well. It’s a Goldilocks scenario, for now. That said, the rate hikes have not worked their way through the economy. In fact, many suggest that we’ve felt almost no economic damage from the rate hikes. There is a lag affect; it can take a year or two for hikes to be felt in full. But let’s call the rate hike hiatus good news.

The big news last month was the announced rate hike hiatus in Canada. Of course, markets are forward “thinking” and they are pricing in a soft landing and rate cuts in 2023. That Yahoo!Finance post suggest that cuts are likely not on the table this year. That would only happen if something breaks and we get a serious-enough recession. Also, inflation would have to be completly under control. The Bank of Canada is not likely to cut rates if inflation is not close to that 2% target.

Rate guesses, not so good …

The consensus appears to be the call that there will be no rate cuts in 2023, though there is a sprinkling of calls for cuts in late 2023. And all said, we should remember the rate predictions from March.  Not even close.

Inflation is so unpredicatable. And inflation might still be driving the bus in 2023.

Coming in for a landing

Lance Roberts looks at the history of soft landing and hard landings. There were 3 past soft landing scenarios, but none in an inflationary environment. The affect of rate hikes have largely not been felt, and likely have had little push on inflation. But that will come over time of course.

Here’s the chart that shows the positive effect of a weak U.S. Dollar for international equities. With bonds looking better and the potential for international markets, the traditional balanced portfolio might ‘be back’ one day soon.

A Weak Dollar Bodes Well For Non-U.S. Equities – ⁦@SoberLook⁩ ⁦@bcaresearch⁩

Originally tweeted by Rob Hager (@Rob_Hager) on January 24, 2023.

Stacking those dividends

Dividend Daddy knows how to stack and count those dividends.

Here is a popular tweet on the simple basics of wealth creation and the path to financial happiness … Continue Reading…