Stocks for FUN and PROFIT: Questions and Answers about adventures of an amateur investor
Fans of this site will know for many years now, I’ve reviewed a host of personal finance and investing books.
Over years, these books have improved my financial IQ, matured my investing behaviour and in some cases, changed my ways for the better. Some books that I’ve read have been insightful, not because I didn’t know some of this financial information, but rather they are packaged from much different perspective – Stocks for FUN and PROFIT is one of those books.
Each chapter of this book, written by amateur investor Herman VanGenderen, takes the reader through Herman’s ups and downs with investing over the last four years (since June 2014) – highlighting how he has invested (and his opportunities missed) using three investing accounts: TFSA, RRSP and a non-registered account. His objective for the book was to share his learnings, help demystify the market and educate Canadian investors through his own personal journey. Basically, a blog in print format with “20/20 hindsight” for reflection.
I got a chance to chat with Herman about his book recently. Here’s what we discussed….
Welcome to the site Herman! As you know, I use this site to chronicle our financial freedom journey. I think most readers know who I am and how I invest. I’m curious about your background. Can you provide some details for readers? Also, why write the book now?
- Name: Herman VanGenderen
- Age: 60
- Family status: Married with 2 sons. One working as a financial analyst, and the other just starting grad school in bio-chemistry.
- Background: A career in agricultural sales and sales management. Still operating a seed business in the Calgary area.
- Semi-Retired since 2009, when I was 51, but as busy as ever.
- Retirement plans: I never plan on fully retiring, even though we’ve had the financial means to do so for quite some time. The annual dividends on our stock portfolios would sustain a very nice lifestyle, which is the goal of My Own Advisor! One of my goals with the book is not just to demonstrate that it can be done, but that’s fairly easy if the right approach is taken. The other reason is to help others, especially younger readers, avoid many of the “knocks” from the “School of Hard Knocks” that I experienced in my investing career. My wife and I are both very active and really enjoy traveling and hiking. We plan on increasing those activities this next decade. We also enjoy wine and while she hates beer, I love craft beer. For those who wish to retire, stock investing can provide a great and productive pastime, to help keep one’s mind active and engaged.
Interesting path! You just completed a 200+ page book on investing. How did your investing journey evolve for you?
I started immediately after graduating university. The company I worked for had a stock purchase plan that I participated in. My first decade of stock investing however, was relatively unsuccessful. The reasons for this are all described in the second chapter of the book, but basically came down to over-reliance on the stockbrokers I worked with. Therefore I initially focused more on real estate than stocks. I re-evaluated the situation in 1992 and moved my RRSP into a self-directed stock account.
My real estate journey, which is chronicled in Chapter #12, has also been successful. However, having over time gained confidence in stock investing, and given the workload of real estate, I started to de-emphasize real estate in favour of stocks. But I still do some of both.
There is lots of debate in the personal finance community on investing using the TFSA first vs. RRSP first vs. simply paying down your mortgage. What’s your take based on your experiences?
Technically speaking Mark, a lower income person should focus on their TFSA and a higher income person should focus on the RRSP. However, in my books a higher income person should strive to max out both accounts, because they have the means to do so! I have always maxed out all tax-advantaged accounts, the reasons for which are explained in a couple of the early chapters.
My first focus would be the TFSA because of its simplicity and flexibility. I know you’ve written about that here – why you continue to maximize contributions to this account…
On paying down the mortgage…well….how I feel about that is in Chapter #12 as well. Let’s just say I don’t even consider the house lived in as an investment. This may be controversial but I think the culture of believing your house is your biggest and most important investment is flawed, and is a key factor keeping people from achieving financial freedom.
That said, my first house mortgage was about 14% interest, and today mortgage borrowing costs hover about 3%. This changes the picture. Since I believe 9-12% average annual returns can be achievable with stock investing a case can be made for keeping the non-tax deductible interest expense and at least maxing both the TFSA and RRSP. I had this discussion with my oldest son when he purchased his first vehicle. He was 23 at the time and chose to take the 2-3% finance charge on the vehicle and stay fully invested in the market.
Let’s break down how you invest for folks that haven’t read the book yet. How do you invest using your TFSA? Why?
Both my own and my wife’s TFSA are 100% common shares of dividend paying corporations, located in Canada, the UK and Bermuda. This way I avoid paying dividend withholding taxes. I max our contributions every year in early January. My compound annual return since we started the accounts has been 17.4%, and my wife’s has been 13.9%. I feel really bad I’m not doing as well for her as myself J! Then again, I always tell others the 17.4% is not sustainable and will moderate in time.
How do you invest using your RRSP? Why?
Our RRSPs are almost entirely made up of dividend paying corporations located in the US and Canada. We hold about 60% American assets. We put U.S. assets inside the RRSP since there are no dividend withholding taxes on U.S. companies held inside this account – you just referred to that in a recent post actually Mark!
My 25-year record is 11.7% annual gains and my wife’s 22-year record is 9.3%. You might think with the performance of our TFSAs and RRSPs we employ some kind of rocket science approach, but that couldn’t be further from the truth. I still own Bank of Nova Scotia purchased at about $5.50 per share in 1992. I also own other companies purchased in the 1990’s. My annual portfolio turnover is only about 5-10% per year, and that’s mostly the result of corporate takeovers. If one adopts a true investor mentality (vs. a trading or speculating mentality), workload and stress are reduced, and performance is enhanced. Model TFSA and RRSP portfolios, based on our own approaches, are outlined in the book.
How do you invest using your non-registered account? Why?
Our non-registered accounts are similar to the registered accounts with a couple of additions. I employ ETFs to gain exposure to some specific sectors, like gold, and other geographies such as Europe and Emerging Markets. I also employ options very successfully.
I started a non-registered account specifically for my newsletter which is outlined in the book. That account is now about 2.5 years old and has a total return of 53.9% as of June 30th. Again, like my TFSA, I will warn readers that that kind of return is unsustainable but it sure is FUN right now! And let’s face it, the FUN and the PROFIT parts are highly correlated for me!
Before we wrap up, what are your investing plans for the future?
Well, after a lot of trial and erroring if you will, I believe I am now on a sustainable and repeatable path, which is another reason for writing the book. I would not have had the confidence 10-15 years ago that I knew what I was doing. It takes a long track record with stock investing to be confident that it isn’t $___ luck (fortuity). Therefore, my plans are to stay-the course, and help others learn from what I did.
You look like you’re on a similar path Mark. I applaud My Own Advisor for sharing your journey (and your mistakes). Financial literacy is extremely weak across North America, leading to many of the social problems we face as a society.
Lastly, a final plug – why buy your book?
I have read over 40 investing books. Some are better and some not so good, but in the end they tended to deal with just one aspect of investing. They were like one piece in a puzzle. I have attempted to put together the entire puzzle using my lessons learned, success stories and my own account information in detail – few books actually put that type of detail in print!
My book shares true bottom-line performance and tracks the portfolios over time. It is a real-life demonstration. This unique approach has resonated well, as reviews to-date have been exceptional.
Thanks for this interview Mark. I look forward to the comments on your site and anyone that might have questions about my journey or my book. Your audience is welcome to check my website anytime: www.you1stenterprises.com. Thanks again.