On the Tawcan blog, Bob has interviewed a Canadian reader who built a massive portfolio. The reader invests in Canadian dividend stocks (surprise surprise) and has built an annual $360,000 income stream before taxes. And while the investor has likely done a few things that are ‘wrong’, or let’s say not optimal, there is no denying the success. The investor and his wife enjoy a very prosperous retirement. They have more income than they would ever need. How did they get there? We’re building the $8 million portfolio on Sunday Reads.
Here’s the link to the post on Tawcan, living off the dividends and paying ‘almost’ no taxes.
And what is very telling about the journey is that the investor, called Investor B in the post, did not ‘get there’ by way of outrageous salaries for him and his wife. Most of the hard work was done by paying off debt, living well blow their means, and then investing on a regular schedule and staying the course.
We can do most of the heavy lifting by doing a few of the big things right. That is the main theme in my personal finance book on the personal finance basics. OK, it’s not a book. This is all so basic that all it took was a 1,000 word blog post. 🙂
From Bob in that Tawcan post …
While working, they had above average salary (B made ~$110k and B’s wife made ~$90k in today’s money). The high household income has certainly helped them build the dividend portfolio. But I believe a lot of it is due to B and his wife’s living modestly – not a lavish lifestyle but not penny pinching either.
It started with ditching the crap mutual funds.
And yes you’ll need time on your side. Investor B began the journey (when he ditched his advisor and crappy mutual funds) in 1985. Investor B than began an investment plan similar to that of the Connolly Report (Dividend Aristocrats) and he also mentions the Beat The TSX Portfolio that I recently covered, and updated.
Check out that Tawcan post for more details on the investment approach and the income journey.
Bob did a quick back of the napkin estimate based on the yield and the income and came to a total portfolio value estimate of near $8,000,000.
How much would it take, building that $8 million portfolio?
I ran a quick test on portfoliovisualizer.com. That site allows me to include international stocks from 1986. While Investor B is dedicated do Canadian stocks, I ran the test using a 50%/50% mix of U.S. stocks and International stocks excluding the U.S.
From 1986 to present it would require about $2,300 to be invested monthly. Here’s how that portfolio growth shapes up. Keep in mind that taxes in the accumulation stage are not taken into consideration.
This should be inspiring …
We can see that most of the portfolio growth came after the market correction known as the Financial Crisis in 2008-2009. The portfolio value dipped to under $1.3 million in February of 2009. And that said U.S. stocks have doubled up on Canadian and International stock returns from that 2009 trough.
Of course there are many considerations including risk. We enter the retirement risk zone some 10 years before the retirement start date. And from the mid 80’s stock investors ‘got lucky’. We’ve mostly been in a low inflation and disinflationary environment that is favourable to many types of stocks. A higher dividend approach is not necessarily inflation-friendly.
And speaking of inflation, here’s what happens when we do factor in inflation. The real portfolio value and real spending power drops considerably.
Stocks failed during the stagflation of the 1970’s and early 80’s. Stocks would have stumbled badly for a retiree through the dot-com crash of the early 2000’s.
Readers will know that I’m a fan of protecting against all economic conditions.
We might not get lucky on the economic front.
The big dividends.
Investor B uses a Canadian high dividend stock strategy that is known to outperform the market. That said, the Canadian strategy likely would not have closed the gap between U.S. stocks from the financial crisis, and the incredible performance of U.S. stocks in the run of the 1990’s. Investor B likely has some considerable opportunity costs due to the Canadian home bias, especially if we take taxes paid in the accumulation stage into consideration.
In the comment section, Mark Seed of My Own Advisors offered that Investor B would have faced considerable taxes on dividends while in the accumulation stage and while generating significant work income. Taxes paid might have been near the top marginal rate.
In a message exchange Mark offered …
As a long-time dividend investor, I can attest to the appeal of dividend paying stocks including the psychological benefit of seeing dividends flow into your account to help you stay invested….. but one has to remind themselves that while buying and holding Canadian dividend paying stocks can be tax efficient, in a taxable account thanks to the Canadian dividend tax credit, it is likely not tax-free income for you given you probably have other income sources.
Do enough things right.
The best investment plan is the one that you can embrace and stick to like glue. We don’t have to be perfect. The most important consideration is to reach your life and investment goals. And when a self-directed investor removes the burden of high fees and terrible funds, it is such a head start.
But that’s not to discount the value of good advice at the right price. I often write that a self-directed investor might check in with an advice-only planner to find the most optimal investment path in accumulation and decumulation. You can then manage your own investments in a low-fee manner. That might be a big win-win.
And to have the success of Investor B you don’t need to be a stock investor. You can build a portfolio of ETFs at your risk tolerance level. We have those wonderful game-changing all-in-one asset allocation ETF portfolios. Here’s the one ticket from iShares, Vanguard and the tax-efficient offering from Horizons.
For complete portfolios and advice you might go the route of one of the Canadian Robo Advisors. That is a far superior option compared to high fee mutual funds.
You can reach your goals by way of living beneath your means, and investing on a regular schedule. There’s more than one investment vehicle that will take you there.
More dividend journeys.
And while we’re on that discussion of the income journey let’s check in with a friend or two who are building that dividend portfolio.
On All About The Dividends here’s the May income report courtesy of Matthew.
And here’s the annual gauge …
And from A Wealth of Common Sense, here’s a very interesting take on historical inflation trends and the path that usually follows.
And on the topic of the grand reopening, hope is on the horizon at GenYMoney.
We might be allowed to travel soon, given that, you might be interested in – how much does it cost to live in Amsterdam?
And I agree fully with Fritz at The Retirement Manifesto, you can do anything you put your mind to. I believe that applies to your career, your retirement, your life. We build and design our own life. We can make it happen.
Happy Father’s Day. If you check out my Twitter profile, you’ll know that it’s a very important day for me 🙂
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