I came across two articles this past week that deal with housing affordability and values across Canada. They are very much worth reading. The first one is from the Royal Bank discussing affordability. Housing in Vancouver and Toronto are now at their record worst level […]
(Photo: Pexels) This is an excerpt from my latest newsletter, expanding on how fear based media and marketing have become so prevalent. As I was leaving my book signing session on Saturday, the radio news featured a clip that went something like, “Experts predict that […]
(Photo courtesy of Microsoft Clip Art) This blog is the 5th in my series in Grainews. It beings together all previous columns written. Please share with others on your social media if you find it informative, and if you have read my book please write a review on the site it was purchased. Much Appreciated.
With the groundwork for international diversification laid in my previous column, let’s now complete “construction” of a prospective TFSA portfolio begun on March 27. This prospective portfolio would be suitable for an account of $15,000 to $57,500, the current maximum TFSA contribution if you hadn’t made a previous contribution, and you were 18 years of age when the program started in 2009. Please recall our big secret to success is common shares of solid companies, held for a long time. (Disclosure: My wife or I have an interest in all the companies mentioned, but not all in our TFSAs.)
And now… drum roll please… shown in the table above is a titanium-strong, hurricane-defying, bunker-bomb-surviving prospective TFSA edifice.
If you fell asleep for 10 years and woke up just once a year to reinvest the dividends, but otherwise didn’t touch the portfolio, you will be almost guaranteed to double your money. More likely you will have tripled it (recall the rule of 72).
This portfolio is 50 per cent Canadian and 50 per cent international, exhibiting much greater international diversification than most Canadian investors’ portfolios. The dividend yield is 4.2 per cent on the Canadian side and a lower 1.9 per cent on the international side. I purposely picked stocks with slightly lower dividend yields on U.S. stocks, as the U.S. government will withhold 15 per cent of the dividends in a TFSA. This makes Berkshire Hathaway (BRK.B) an ideal U.S. company for a TFSA. Warren Buffett’s approach is to assume that his company is better at investing than most people, so his shareholders are better off letting them manage their profits, rather than distribute them. He has the track record to prove he’s right.
In theory, when dividends are not paid to shareholders a company has more money to invest in and grow its business, with profits manifesting as share price appreciation. In practice, that much money jingling around in CEO’s pockets tends to get misspent on overpriced acquisitions or can otherwise be misallocated. One reason I like dividends is because they generally motivate greater corporate fiscal discipline, but I’m not about to argue that point with Warren! I’m actually pretty sure he would agree with me in general, but he’s proven that his company can exhibit superior fiscal discipline.
I put a higher percentage of the portfolio into Royal Bank, as Canadian banks also have an enviable track record of consistent profit growth and as such deserve prominence in any portfolio.
While I mentioned that this would be a great portfolio for up to $57,500, if you are a married couple, you can both contribute for a total of $115,000. I would be very comfortable with these 11 companies for a portfolio of that size. I would also suggest that, rather than rush in all at once, you build the portfolio over time.
There are a few ways you can manage the two accounts. You can have the same portfolio in both accounts, or you can split it up, placing half the stocks in one account and half in the other. Another option that might make management easier, is to put all the Canadian companies in one of the accounts and all the international companies in the other. I think this approach could work well if you look at bottom line results as a combination of both accounts. You will likely experience bigger differences in annual performance, from one portfolio to the other, with this approach. It is best to discuss details of account setup with your financial institution.
The chart includes a dividend yield and a dividend growth column. There is much more to evaluating a company than the dividend but it provides a good benchmark. I am increasingly watching for dividend growth. This column shows the dividend increase of each company based on what they paid in 2017 vs. 2008. On average, these companies are paying two times the dividend they did 10 years ago. Again, if you fell asleep for the next 10 years there is a very strong likelihood these companies will have once more, on average, doubled their dividend. That makes me pretty happy as a shareholder!
(Photo courtesy of Pexels) This was the fourth column in my series for Grainews. There are many reasons to diversify outside of the country. My first three columns have covered a lot of ground, but there is more to cover. The stock market presents endless […]
(Photo courtesy of Pexels)
So you have emptied your piggy bank, read my book, and are now motivated to start a stock investing account. Or you already have accounts at a few different places and want to consolidate them to start managing yourself. Perhaps you are working with a financial advisor but want to take more control yourself. How do you actually set up accounts so you can self-manage your investments? This area has been generating a number of questions.
Always trying to take the simplest approach, I simply went to my local bank branch and met with one of the branches financial advisors. We filled out and signed the appropriate forms to set up accounts at that banks internet brokerage division, and within a few days had the accounts ready to operate. All major banks have an internet brokerage arm. I like that I can go into one website to manage all my accounts. Transferring money between accounts is also easily done. My wife’s accounts are set up so that I can manage them, and expect many families will have one person doing the investing.
There are also a number of independent internet brokerages like QTrade, Questrade, Virtual Brokers and Interactive Brokers, for those of you comfortable doing everything on the web, but I still prefer a bit of the old fashioned way. All internet brokerages have help lines to ask technical or account questions, but the onus will be with yourself to make the investing decisions.
One consideration for account set up is to look for an institution that allows both Canadian and US dollar TFSA’s and RRSP’s. All institutions have taxable accounts in both currencies, but not all allow registered accounts in both currencies. With small accounts it may not be necessary, but as the account grows and when you wish to diversify internationally, it is better to avoid paying conversion costs every time a dividend is paid or you buy and sell a foreign stock. With a USD based account, you only pay the conversion cost upon depositing and eventually withdrawing the money. I expect in-time all our major Canadian banks will allow both currencies in registered accounts.
For a married couple, if you both have a TFSA, RRSP and regular taxable account, that’s six accounts. Potentially seven if you have an RESP. Let’s say you are working with a financial advisor and want to start learning to invest on your own, I might suggest moving just one or two accounts to start with. Perhaps start with just your own TFSA. When you’re meeting with the bank to set up the account, simply bring in a statement from your current TFSA, and the bank will take care of transferring that account into your new account at the banks internet brokerage. You don’t need to sell anything prior to moving it. It can all be transferred in-kind, and when moved you can begin to manage on your own. You don’t even need to talk to the financial advisor where the account currently resides, but I would suggest a courtesy call and explanation, especially if leaving some accounts with that advisor. If the account has mutual funds you may want to ask the advisor if there are any penalties for cashing them, as many mutual funds have what are referred to as deferred sales charges.
If you have a few accounts and are just moving one, that advisor shouldn’t be upset. If they are upset, that’s not a good sign. Any advisor adding value should not feel threatened when you move one account to try taking greater responsibility yourself.
A great way to save is by having money automatically transferred each week or month from your bank account to your investing account. This is very doable with a self-directed stock account. Let’s say you want to begin your TFSA by transferring $105.00 weekly from your bank account to a TFSA. This will almost max out your TFSA contribution for the year. I would suggest waiting until $1000 has accumulated in the TFSA and then buy $1000 worth of one of the stocks mentioned in “Start Small, Build Confidence and Prosper.” When another $1000 accumulates, buy another company mentioned. Over time you can build a very nice portfolio.
This all might sound like a bit much but it’s worth it. A wonderful thing about stock investing is the endless learning opportunities. Building financial independence is very liberating, and stock investing is a truly fascinating activity.
(Photo: Thinkstock) This is the second column written for Grainews. Get started soon, with a small portfolio, to build financial returns for your future. Have you kept our secret? You know, our secret about building wealth over time in the stock market. The secret that it’s about buying […]
My book, STOCKS for FUN and PROFIT ~ Adventures of an Amateur Investor, has been out since early November and I thought it would be great to hear from readers, your thoughts of the book and blogs so far. It has at times been the […]
I recently became a contributing columnist for Grainews, a leading agricultural magazine. My profession is agriculture, so it is an honour to be able to write a column on off-farm investing for the agricultural community. I thought I would share the first article here.
Tax-Free Savings Accounts are quickly becoming the investment program of choice for Canadians. There are three main tax-advantaged programs: Registered Retirement Savings Plans (RRSP), Registered Education Savings Plan (RESP) and TFSAs. Personally I have taken full advantage of all three programs, because it hard to beat investment returns inside a tax-free program. The simplicity and flexibility of the TFSA makes it my personal favorite. In future articles I will discuss the other programs but in this, my first such article, will focus on the TFSA and why any entrepreneur, farmers included, might consider having one.
Firstly, let me introduce myself and thank Grainews for the opportunity to contribute to the investment discussion. I am a life-long agriculturalist and remain active in the industry. While building my career I became an active investor in both stocks and real estate. Real estate entails a lot of work, which is difficult when travelling extensively, so I gravitated towards the simplicity of stocks. I sure don’t miss the tenant and toilet days! I recently penned a book, “STOCKS for FUN and PROFIT ~ Adventures of an Amateur Investor” in an effort to help other like-minded amateur investors succeed at stock investing. While I don’t have a formal education in finance, I have graduated from the ultimate educational institution, The School of Hard Knocks! I hope to help others graduate from this school, with a lot less knocks than I experienced.
My first decade of stock investing was relatively unsuccessful. This prompted adoption of a different approach. Many give up on stock investing after a few bad experiences, yet the market has driven about 10% annual returns for the last century, and similar returns are likely in the next century. I was not willing to give up on the markets great wealth creation ability. Over the past 25 years, I have earned an 11.7% annual return in my RRSP. Other family accounts have long-term annual returns ranging from 9.3% to 17.4%. And here’s the first little secret, shh!… rocket science is NOT used to derive these results. The compounding effect of such returns is phenomenal. Twelve percent annual returns, doubles the money every six years. I share these personal results strictly for the purpose of illustrating what a straight-forward approach can achieve. I refer to it as “Success through Simplicity.”
The current maximum annual TFSA contribution limit is $5,500 per year per person over 18. The total maximum limit is $57,500 if you were 18 in 2009, and have not yet contributed. If you can pinch yourself $5,500 per year (just $15.07/day) and contribute for 10 years achieving market returns, you will build almost a $100,000 kitty, away from the farm. Why would any entrepreneur, business owner, farmer consider a TFSA? Here are a few possible reasons:
- All returns are earned tax-free (Yippee).
- Many farm family members are employees of the farm business. Funds in a TFSA can be used for whatever personal choices you make, away from the farm business.
- It’s easy for a farm, like individuals, to find expenses. A structured plan to set aside a small amount of money each week or month helps a farm and farmer, live within their means. It is a good idea to live below the standard of living you can afford.
- Small businesses, like farms, don’t always turn out as planned. An investment cushion can give you peace of mind that you have the means to move on if necessary.
- If you really, really, really have to, in an emergency, you can withdraw all the funds from a TFSA tax-free, to support the business. When the calendar turns to a new year, you can re-deposit all those funds, plus whatever new contribution room is available. It’s a very flexible program.
My purpose here isn’t to fully explain all the details of the relatively simple TFSA program. Those can be learned at your financial institution. My purpose is to try to motivate a savings and a straight-forward investment approach to help readers capitalize on the tremendous wealth creation potential of the stock market. It is a terribly misunderstood entity and we’ll get into de-mystifying it in the next installment. But for now, shhh… I have a secret for you. Don’t tell anybody else, but it’s all about buying common shares in solid companies, and holding them for a long time. Many people in the market aren’t really investors at all. They are traders or speculators. If the market is approached with true investor intentions, effort is reduced while success is enhanced.