If you’re wondering why your portfolio has stalled it’s not you , it’s the markets. Stock markets and even a sensible balanced portfolio has not gone anywhere in the last two years. And no worries on that front, that’s normal stock market and portfolio behaviour. We can stall or decline for extended periods. Those stalls are usually followed by a robust move to the upside. That’s why you want to springload the portfolio when we’re going nowhere. In the Sunday Reads we’ll also look at how much you need to retire.
Think of stock markets as a roller coaster that goes up into the sky. The trend is up, historically, but it can be a wild ride for those with an all-equity or equity-heavy portfolio. You need to remain seated and strapped into your seat – investing all the while.
This week I offered – the waiting is the hardest part and the most profitable of times for investors. From that post …
At times investors have to wait. We build and springload the portfolio waiting for the next aggressive move higher. In fact, these holding periods can be beneficial, we are loading up on stocks at stagnating or lower prices. We’re able to buy more shares. The waiting is the hardest part for investors. But it is essential that we understand the benefits to sticking to our investment plan.
Please have a read of that post. It frames the investment and wealth building journey.
How much do you need to retire?
This is probably one of the most common questions and areas of misunderstanding. Sure a million dollars ain’t what it used to be, but do you really need millions to retire?
At My Own Advisor, Mark says – Sure you can retire with your millions. Hey, the more the merrier, right? But Mark and I have both observed how so many Canadians enjoy a very comfortable retirement with very modest portfolios working in concert with the Canada pension plan (CPP) and old age security (OAS). A couple that takes those programs at age 65 might be able to generate $45,000 or more in inflation-adjusted income. The investment portfolios fill in the rest of the spending needs.
If each spouse had a $500,000 portfolio, they might be able to generate $42,000 to $45,000 in annual income, adjusted each year for inflation. Given that expenses and spending needs can decline in retirement, $95,000 in annual income at a very low tax rate might go a long way. Many retirees make a good go of it with even more ‘modest’ portfolios.
Of course retirement (and the spending requirements) are different for everyone. Some retirees will need millions. Others might get by with modest portfolios due to having no debt and a simple lifestyle in retirement.
When I was an investment advisor at Tangerine, I talked to many clients who retired comfortably (and happily) with very, very modest savings / investments.
The portfolio math is simple
The key is to estimate your spending needs in retirement and then figure out how much you’ll need to reach your goals. The portfolio math is quite simple. That said, navigating through the cash flow and financial planning aspects of retirement is a somewhat complicated endeavour. Every retire will need some form of financial plan.
What is advice-only financial planning?
Many self-directed investors hit up Mark’s Cashflows & Portfolios to access that retirement cashflow plan. That is, to discover the optimal order of account type and rate of income harvesting from RRSP vs TFSA vs Taxable vs pensions and other income.
Feel free to reach out to me (Dale) if you want some guidance on resources for retirement planning. Use ‘Contact Dale’ on the home page at Cut The Crap Investing.
More Sunday Reads
Here’s a very good post on Findependence Hub, the Volvo of equities – in reference to the dividend aristocrats in the U.S. and Canada. You’ll find the charts showing the drastic outperformance of the aristocrats in the U.S. and Canada.
While there is certainly nothing wrong with core Index investing (quite the opposite), I slant towards the aristocrats for our U.S. stock portfolio.
Thanks to Nelson at Canadian Dividend Investing, an interview with a Canadian reader who built a $2.8 million portfolio.
This week I updated the post looking at the returns for the core ETF portfolios.
BUY ETFS for FREE AT QUESTRADE
I also updated the Canadian high dividend battle – it’s Vanguard’s VDY vs iShares XEI.
At MoneySense Kyle made sense of the markets, and looked at inflation in the U.S., the rush to Dollarama stores and the surprising best bank performer in Canada. You’ll never guess. But here’s a hint , check out the …
GIC rate increases at EQ Bank.
Here’s the week in review at Dividend Hawk. This past week we both shared in the dividend haul from struggling Walgreens. In the post you’ll find the other tickers where Hawk was collecting. You’ll also find the stock stories and blog posts of the week.
It’s the 5th anniversary of the wonderful Beat The Bank book from Larry Bates.
How many stocks?
At Tawcan, Bob looks at the optimal number of stocks to hold in a portfolio. My research suggests that you could ‘get by’ with 15 or so Canadian stocks, but take the U.S. stock portfolio to 20 to 25 names. It is surprising how few it takes to obtain very reasonable diversification. All said, pay attention to your sector arrangement and sector diversification.
Banker on Wheels always offers a plethora of reads and podcasts.
From the mix I will pick out the bond bear market and asset allocation. What to do when we’re worried that bonds might continue to struggle. There are some very good charts and tables in that post.
I have long suggested a bond barbell – shorter term bonds and longer term bonds.
You can utilize bonds to earn higher yields and protect against deflationary recessions.
These days, short term bonds are paying handsomely and longer term bonds will still protect you in a recession. Readers will know that I like the idea of adding inflation protection to manage the rising rate risk. We build an all-weather portfolio.
Accumulators might skip the inflation fighters and rely on the longer term success of stock markets and their ability to tackle inflation.
Martin Pelletier shows one of the reasons why oil is on a bull run …
We are certainly enjoying the incredible performance (and dividends) from our Canadian oil and gas stocks.
And on the energy front Scott Barlow offered …
From the Globe post and Scotiabank analyst Cameron Bean …
In our view, TOU, TPZ, AAV, ARX, CPG, and WCP offer investors the best high-return organic growth potential in the play.
Dividend Daddy is buying financials…
What stocks or ETFs did you buy this week? We’ll see you in the comment section. Don’t forget to follow this blog, it’s free. New followers over the next week will be entered into a draw – the prize is a complimentary portfolio and investment review.
Next week we have the Fed rate decision …
Cut The Crap Investing Partners
Earn a break on fees by way of many of these partnership links.
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Cut the Crap Investing readers can earn a break on fees at Questrade by way of that partnership link. At Questrade, you can buy ETFs for free.
I have partnerships with several of the leading Canadian Robo Advisors such as Justwealth, BMO Smartfolio, Nest Wealth and Questwealth from Questrade.
Here’s Canada’s top-performing Robo Advisor, Justwealth. You can get advice, planning and l0w-fee ETF portfolios all at one shop.
Consider Justwealth for RESP accounts. That is THE option in Canada with target date funds that adjust the risk level as the student approaches the College or University start date.
CASHFLOWS & PORTFOLIOS
The self-directed investor might consider the service provided by Mark Seed from My Own Advisor. He runs Cashflows & Portfolios where they will provide options for that optimal retirement funding strategy. That service is provided for a very reasonable fee.
If you do head to Cashflow & Portfolios (as do many Cut The Crap Investing readers), be sure to tell them Cut The Crap Investing sent ya.
OUR SAVINGS ACCOUNTS
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 …
The Tangerine Cash Back Credit Card
For August we received $60 in cash.
While I do not accept monies for feature blog posts please click here on the mission and ‘how I might get paid’ disclosures. Affiliate partnerships help me (try to) pay the bills for this site. But they don’t, ha. That will allow me to keep this site free of ads and easy to read.
Dave, I am a regular reader and appreciate all your posts and advise.
I am thinking of buying GIC (about 100k) and I understand Tangerine gives a good rate on a 18 month GIC. I would like to click on Tangerine from your website, so you could get some credit, even if it is minimal. Any advise you could give, how I do that?.
Thank you / Naresh
Thanks so much Naresh. I think there is no partership link for the Tangerine Bank sign up, just one for the cash back credit card.
https://cutthecrapinvesting.com/2019/08/08/cashing-in-with-our-tangerine-credit-card/
That said, if you sign up at Tangerine you an use my Orange Key
32968172S1
That would be greatly appreciated.
Dale
Dale,
I see suggested retirement $ needed to retire are typically given in total capital $. I assume those totals include all income streams. How does one convert monthly $ income streams such as company pensions, CPP & OAS for example into into total $ sums so they can be incorporated into those suggested total capital $ sums needed to retire? Is there a conversion formula for that?
Hi Bernie. The pension and government amounts are typically known. One can then simply deduct that from total spending needs and then calculate the portfolio value needed to provide the rest.
In basic form, one can use the 4% rule, where the portfolio might provide inflation adjusted income at a 4% to 4.5% spend rate. That is, a million dollar portfolio will provide $40,000 to $45,000 of annual income. All of these figures are before taxes, so you will need to calculate your after tax amounts.
But if you get a cash flow plan, you’ll find that you will likely not use the 4% rule for many accounts. There are some ‘tricks’ where certain account types are used more than others at a higer rate.
For example, you might more quickly draw down the RRSP or RRIF to delay CPP and OAS while letting the TFSA grow (untouched).
The financial / cash flow plan is key.