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A Retirement-ready portfolio of Canadian and U.S. stocks

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By Dale Roberts, cutthecrapinvesting

Special to the Financial Independence Hub

In this post I’ll offer up charts on our U.S. stock portfolio and the Canadian stock portfolio. And I’ll put them together so that we can see how they work together. The total portfolio was designed to be retirement-ready. The fact that it beats the market benchmarks is a welcome surprise. At the core of the portfolio is wonderful Canadian dividend payers – the U.S. stocks fill in some portfolio holes. Let’s have a look at our U.S. and Canadian stock portfolio.

I recently received requests to share our U.S. stock portfolio holdings. While I often track that portfolio on Seeking Alpha (the land of stock pickers) that’s not a regular event on this blog. I have certainly shared the Canadian Wide Moat Portfolio on Cut The Crap Investing.

On Seeking Alpha, here is our U.S. stock portfolio. The post may be paywalled for those who have exceeded the 3 free reads on Seeking Alpha. Again, that’s why I will share some details here. But keep in mind, this is not advice. But you may be on the receiving end of some ‘good’ lessons on building the simple stock portfolio.

Skimming the dividend achievers index

In early 2015 I skimmed 15 of the largest-cap dividend achievers. What does skim mean? After extensive research into the portfolio “idea” I simply bought 15 of the largest cap dividend achievers. For more info on the index, have a look at the U.S. Dividend Apprecation Index ETF (VGG.TO) from Vanguard Canada. At the core is a meaningful dividend growth history working in concert with financial health screens. It leads to a high quality skew.

You will find that index ETF in the ETF portfolio for retirees post.

At Questrade you can buy ETFs for free.

I won’t get too deep into the methodology and how and why I constructed our portfolio in this post. I will offer more details in a post next week. Today, I will just get to the fun stuff – the holdings and the return charts and tables.

The U.S. Dividend Achievers

The 15 companies that I purchased in early 2015 are 3M (MMM), PepsiCo (PEP), CVS Health Corporation (CVS), Walmart (WMT), Johnson & Johnson (JNJ), Qualcomm (QCOM), United Technologies, Lowe’s (LOW), Walgreens Boots Alliance (WBA), Medtronic (MDT), Nike (NKE), Abbott Labs (ABT), Colgate-Palmolive (CL), Texas Instruments (TXN) and Microsoft (MSFT). Continue Reading…

Planning for Longevity: How to avoid Retirement Hell

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I never thought that I would fail at retirement and end up in Retirement Hell. But I did.

You see, I spent my entire career – almost forty years- in the banking industry. While there, I learned a lot about money and investing and, over the years, I helped thousands of clients save for their own retirement. Furthermore, my wife is a financial advisor. And yet despite all that knowledge and expertise, I still managed to fail miserably at retirement.

Looking back, I now realize that many of my beliefs about retirement were wrong because they were all linked to the financial aspects of retirement. What I know for sure now is you just don’t fall into a happy retirement because you have a lot of money. You need financial security, of course. But designing a satisfying life takes thought, time and planning on many more levels. You need to know your needs and values, and what makes you happy, and then you have to find ways to satisfy these aspirations on a regular basis. Thinking that you will figure things out when you get there doesn’t work.

Traditional retirement planning has programmed us to think it’s all about the money, but it’s not. In conventional planning, the focus is always on the number: how much money you are going to need to retire. Few financial advisors/planners talk about the other important stuff: how you are going to replace your work identity, how you are going to stay relevant and connected, and how you are going to keep mentally sharp and physically fit, among other things.

Believe it or not most retirements fail for non-financial reasons rather than financial ones. I don’t want that to happen to you so for the past year and a half I along with five of my friends have been working on a new book — Longevity Lifestyle By Design — to help people design a life they would be happy to wake up too.

Retiring from work is simple. Figuring out what you are going to do with the rest of your life is the hard part.

Our mission is to help improve the transition to retirement and help retirees to design a life that they look forward to living everyday.

We know that many people are going to struggle with the non financial challenges that can often accompany retirement. It happened to me, my colleagues and through my discussions with other retirees discovered that it also happened to many of them as well. Continue Reading…

Nobody knows what will happen to an Individual Stock

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Image via Pixels/Tima Miroshnichenko

By Michael J. Wiener

Special to the Financial Independence Hub

 

When I’m asked for investment advice and I say “nobody knows what will happen to an individual stock,” I almost always get nodding agreement, but these same people then act as if they know what will happen to their favourite stock.

In a recent case, I was asked for advice a year ago by an employee with stock options.  At the time I asked if the current value of the options was a lot of money to this person, and if so, I suggested selling some and diversifying.  He clearly didn’t want to sell, and he decided that the total amount at stake wasn’t really that much.  But what he was really doing was acting as though he had useful insight into the future of his employer’s stock.

He proceeded to ask others for advice, clearly looking for a different answer from mine.  By continuing to ask others what they thought about the future of his employer’s stock, he was again contradicting his claimed agreement with “nobody knows what will happen to an individual stock.”

How a seemingly token amount can become a painful loss

Fast-forward a year, and those same options are now worth about 15 times less.  Suddenly, that amount that wasn’t that big a deal has become a very painful loss.  He has now taken advantage of a choice his employer offers to receive fewer stock options in return for slightly higher pay.  It’s hard to be sure without seeing the numbers, but in arrangements I’ve seen with other employers, a better strategy is to take the options and just sell them at the first opportunity if the stock is far enough above the strike price.  Again, he’s acting as though he has useful insight into the future of his employer’s stock.

The lesson from this episode isn’t that people should listen to me.  I’m used to people asking me for advice and then having my unwelcome advice ignored.  What I find interesting is that even if I can get someone to say out loud “I don’t know what’s going to happen to any individual stock,” they can’t help but act as though either they know themselves, or they can find someone who does know.

Michael J. Wiener runs the web site Michael James on Money, where he looks for the right answers to personal finance and investing questions. He’s retired from work as a “math guy in high tech” and has been running his website since 2007.  He’s a former mutual fund investor, former stock picker, now index investor. This blog originally appeared on his site on Sept. 20, 2022 and is republished on the Hub with his permission. 

An Ode to Dividends

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By Noah Solomon

Special to the Financial Independence Hub 

Companies that pay sustainable dividends have provided the best returns over time, including during periods of elevated inflation.

Ned Davis Research (NDR) studied the relative performance of S&P 500 stocks according to dividend category from 1973-2020. Their findings are summarized in the following table:

 

Returns by Dividend Category (1973-2020)

Over the past 48 years, dividend-paying stocks have outperformed their non-dividend paying counterparts by 4.7% on an annualized basis. When coupled with the power of compounding, this difference is nothing short of astronomical. A $1 million investment in dividend payers over the period would have been valued at $68,341,836 as of the end of 2020, which is $60,070,380 higher than the value of only $8,271,456 for the same amount invested in non-dividend paying stocks.

Within the dividend-paying complex, dividend growers and initiators have been the clear champions, with an annualized return of 10.4% vs. 9.2% for all dividend-paying stocks. A $1 million investment in dividend growers and initiators would be valued at $115,482,326, which is $47,140,940 more than the same amount invested in all dividend payers.

Not only have dividend-paying companies outperformed their non-dividend paying counterparts, but they have done so while exhibiting lower volatility.

NDR’s study also examined the relative performance of dividend payers vs. non-payers in various macroeconomic environments. Specifically, their research set out to ascertain how the outperformance of dividend vs. non-dividend paying stocks has been impacted by inflation, economic growth, and interest rates.

Inflation’s Impact on Returns by Dividend Category (1973-2020)

Dividend-paying stocks have on average outperformed their non-dividend paying counterparts regardless of whether inflation has been low, moderate, or high.

Unsurprisingly, dividend growers and initiators outperformed other dividend-paying companies during periods of moderate to high inflation.

The Economy’s Impact on Returns by Dividend Category (1973-2020)

During recessions, dividend-paying stocks have underperformed non-payers by 2.5% on an annualized basis. This shortfall pales in comparison to their 4.8% outperformance during economic expansions, especially considering that economies spend far more time expanding than contracting. Continue Reading…

Issues that arise when Financing your Small Business yourself

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Photo Credit: Unsplash

By Beau Peters

Special to the Financial Independence Hub

When you get an idea for a new business, it’s easy to want to launch it right away. It might seem like a “now or never” situation, and your eagerness makes it nearly impossible to think about waiting a year or two to get things running.

However, it’s not uncommon for small business start-ups to cost thousands of dollars. Applying for small business loans can take time, and if you’re worried about launching quickly, you might be tempted to bankroll your business and use your own money to finance it.

Unfortunately, that’s a risky move. While it might seem like an investment, it could be a bad idea for a small business looking to grow.

If you’ve got a great idea for a small business and you’re anxious to launch it, you already know the importance of funding. However, it’s just as important to recognize some of the risks of financing it on your own. Let’s talk about what that might look like, and some issues that often arise when you’re putting in your own money to get things off the ground.

Mixing Business and Personal Funds

One of the biggest problems that can arise when you finance your small business yourself is drawing a line between your personal funds and what you’re spending on the business. It might not seem like a big deal for the two to commingle, especially if you’re starting out as the only employee. Some of the most common ways of commingling funds include:

  • Using one bank account for business and personal needs
  • Moving money back and forth between accounts
  • Depositing personal money to pay for business expenses
  • Withdrawing from your business account to pay for personal expenses

Not only can commingling funds get confusing, but it could put both your business and your lifestyle at risk. First, if your business is listed as an LLC, you could end up being held personally responsible for any business debts or lawsuits. You’ll also risk your personal assets being exposed.

One of the easiest ways to keep yourself from commingling funds is to dedicate a separate bank account to your business. Even if you end up putting some of your personal money in there for funding, you’ll be less likely to tap into it for personal reasons, and it will be easier to keep things organized and easy to understand, especially when tax season rolls around.

Ignoring the Fine Print

Financing your small business yourself doesn’t always mean reaching into your own pocket. It could simply mean you’re taking other routes to fund your idea, rather than relying on a bank or small business loan.

One popular option nowadays is crowdfunding. In the United States, over $17 billion is generated each year through crowdfunding sites. If you need money quickly, setting up a crowdfunding campaign is a great way to get it while encouraging people to get excited about your new business. It can be a solid marketing tool if you invest some time into it.

However, don’t ignore the fine print when it comes to these campaigns.

There are several different sites and platforms that allow you to ask for money. Each of them has a different set of rules and regulations. Some might require a small percentage of whatever you make. Others will charge a fee. Even if you understand that part, make sure you know what you’re liable for if you reach your funding goal. Many platforms require you to offer incentives to people willing to donate or pledge. It’s important to follow through on those incentives. Not only could you end up getting reported and lose some of your funding, but it’s a bad look for your business if you don’t give the people helping you out what they deserve.

If you decide to go with a crowdfunding site, make sure you understand the rules and are willing to stand by them, whether you make your goal or not.

Not Building your Skills

When you’re starting a business, you have to wear many hats. You might have a great idea, but you’re going to have to learn how to market yourself, deal with accounting, work with technology, and even how to hire the right people. In addition to the hard skills you’ll need, there are plenty of soft skills small business owners should have, including:

  • Leadership
  • Strong communication
  • Organization
  • Emotional intelligence

Not only are these skills important for running your business, but they’re necessary if you’re trying to work with angel investors or you want to secure venture capital. Refining your soft skills can make it easier to communicate with potential investors. By communicating clearly and effectively and showcasing your leadership skills, they’ll be more likely to trust your business plan and your projections. Continue Reading…