Happy Canada Day long weekend to those who celebrate. And celebrate we should. While most of us will have some “suggestions” about how to make things better, we should first admit that we won the lottery when it comes to the passport we hold. Canada is a wonderful place to live. The true north strong and free, absolutely. It’s a beautiful country from coast to coast to coast, filled with wonderful people(s). It’s no wonder that most everyone wants to live here. We just passed the 40 million population mark with record immigration levels. To kick off the Sunday reads we will look to John Heinzl’s post – O Canada, it’s a good place to invest, eh.
Here’s the post link on the Globe & Mail (paywall). John is a dividend enthusiast who runs a model portfolio on the Globe & Mail. It’s not as good as the Canadian Wider Moat portfolio, ha 😉 but it’s an interesting exercise and demonstration.
John starts with …
Canada isn’t perfect, but for investors who do their due diligence it is a safe, well-regulated place to put capital to work. It’s also a relatively peaceful country, with far less of the violence and racial division that affect our southern neighbours … There is lots of room for improvement – particularly to our straining medical system and growing housing crisis – but this is a good day to remind ourselves that we have it pretty good here, as citizens and investors.
For these sections I will not use the quotations, to allow for an easier read.
All the reasons we love to complain about Canadian banks – they’re too big, their service fees are too high, they have long lineups at lunch time – are precisely what make them such great investments. The banks have their fingers in everything from mortgages and mutual funds to credit cards, insurance and investment banking, and they rake in billions of dollars in profit from these businesses every quarter.
Over the past 20 years – a period that included the financial crisis, a global pandemic and the recent spike in inflation and interest rates – the Big Five posted average annualized total returns of about 10%, led by Royal Bank and Toronto-Dominion Bank, which returned 11.6% and 11.4%, respectively. Will the next 20 years be just as good for the banks? I don’t know, but I wouldn’t bet against them.
In late May on Cut The Crap Investing we were buying the big Canadian banks. We bought more last week, too.
The dividend tax credit
One reason I love dividends is that they are taxed at much lower rates than regular income. For example, an investor in Ontario with annual income of $100,000 would face a marginal tax rate of just 12.24% on eligible dividends. That compares with a marginal rate of 33.89% on interest or employment income. Thanks to the dividend tax credit (DTC), in some provinces, it’s even possible to have a negative tax rate on dividends if your income is below a certain level (in Ontario and British Columbia, for example, the threshold is $53,359).
Tax free savings accounts
When the federal government introduced the TFSA in 2009, it was one of the greatest financial gifts to Canadians, allowing them to earn interest, dividends and capital gains completely tax-free. Had my neighbour’s parents made the maximum TFSA contribution every year from 2009 through 2023, they would have put away a total of $176,000 ($88,000 each). If they had invested the money each year in an exchange-traded fund tracking the S&P/TSX composite index, and reinvested their dividends, they would be sitting on about $315,000 today.
Thanks to John for that article.
While we should be careful with that Canadian home bias (portfolio concentration risk), our core Canadian holdings can be a portfolio bedrock. We can take advantage of the many oligopoly wide moat sectors.
A win for retirees
Here’s a chart that lays out the benefit for retirees and near retirees. Once again, nothing crazy going on here, just simple rebalancing when you manage a stock portfolio. That said I would not argue against an investor in the accumulation stage who lets the winners run.
Two weeks ago we were selling some winners on the Sunday Reads.
I’m back on MoneySense
I was back at MoneySense making sense of the week in the markets, and the crazy world we live in. I take a look at the curious coup in Russia, earnings reports, the inflation report in Canada and the case for emerging markets in your portolio.
On Findependence Hub, this post looks at using ETFs for the international exposure. ETFs are likely the only way to gain meaningful exposure in a low-cost package.
This week I also updated this post, have a look at the core ETF portfolio returns to the end of June 2023. All is good in the land of core and passive.
Mark was playing some portfolio defense (and offense) in his weekend reads post.
Readers will know that I am a big fan of defensive sectors for retirement. You’ll see the defensive sectors greatly outperformed a traditional balanced stock and bond portfolio through the financial crisis. Investors in the accumulation stage who seek a lower volatility portfolio might also explore stocks in the defensive sectors.
In the Banker on Wheels weekend reads post, I found this video on defensive investing, from Pension Craft …
Some good all-weather portfolio Cut The Crap Investing “stuff’ in that video.
At Tawcan, Bob explores how to tell if a stock is expensive, or not.
Here’s the week that was on Dividend Hawk. You’ll find the Hawk’s dividends received, the blogs of the week to read and some earnings summaries.
At stocktrades.ca Dan offers 11 Canadian stocks for 2023 and beyond.
From FIRE to coast FIRE
Dr. Graham has gone from retirement to coast FIRE.
Well, that’s the grace offered by FI. You can work for money if you want to or need to (as I do). A nine (9%) variable interest rate loan on the home I purchased on margin is why I’m working again.
Here’s a definition on coast FIRE courtesy of smartasset.com
Your nest egg, in other words, has reached a tipping point so that it will “coast” to the target amount needed for retirement. People who have successfully achieved their Coast FIRE still need to work, but they only work to cover current living expenses – not to build up their savings or investments for future retirement.
Let’s hope those rates come down sooner rather than later. I am more of a fan of retiring with no debt or very limited debt.
Canadians losing ‘retirement confidence’
Jonathan Chevreau points to a study that suggests Canadians are losing confidence in retirement plans, and they are worried about running out of money. Only 29% believe they will be able to maintain their desired standard of living in retirement.
Canadians desire reliable pensions that offer inflation protection. For the most part, that only exists in government worker plans. The rest of use have to build our own reliable home-made ‘pensions’. Given the desire for reliability and less risk, more Canadians might look to pensionize their nest egg.
At the right time we might look to annuities for a portion of our retirement assets. We can also lean more heavily on our RRSP or RRIF up to age 70, allowing us to delay CPP and OAS – that would lead to much higher CPP and OAS monthly payments. Keep in mind that those government payments have some form of inflation adjustment as well. We’re trading more risk for less risk.
Check in with friends at Cashflows & Portfolios for that optimized retirement spending plan.
More pensionized income can lead to more spending without worry as well.
Given the generous GIC rates available today, it’s hard to argue against starting your retirement with three years or more in guaranteed investments. As you can see from that link, EQ Bank has 6 terms at 5.0% and higher. Why not remove sequence of returns risk for the first few years of retirement?
Feel free to reach out if you have any questions on building the retirement portfolio. Most of us with modest to generous income should be able to build a very generous portfolio that is up to the retirement task. Turning that portfolio into reliable income is also not that difficult. And removing any full-time advisor from the equation might be key.
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Have a great Sunday and long weekend.
Cut the crap investing …
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Make your cash work a lot harder at EQ Bank. RRSP and TFSA account savings rates are at 2.5% and 3.5%. You’ll find some higher rates on GICs, recently updated and increased to 3-5%. They also offer U.S. dollar accounts. We use EQ Bank, they have been awesome.
OUR CASHBACK CREDIT CARD
We make between $40 to $70 every month! And that’s on everyday spending. There are no fees with …
Last month we received $45 in cash. Spending is down, yes! Less on gas, less on restaurants, less on groceries – our 2% cashback categories.
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