Posted by Tim Stobbs on March 23, 2007
I’ve had a copy of Derek Foster’s Stop Working: Here’s How You Can for a couple of years now, but I just realized the other day I have yet to do a book review on it. So here we go.
Derek took retirement to extremes and managed to get out the rat race at 34. His book was self published and cause a bit a stir in the investing world with some of his ideas. Basically he saved $200 a month plus any extra he had into an investment portfolio, with a couple of good trades and some great market timing he has assembled a portfolio which generates enough dividend cash for his family to live off in a typical middle class lifestyle.
Now there has been skeptics, saying how it that possible. Yet in the book Derek outlines he took a big risk and dumped his entire portfolio on one stock because in his analysis it was very undervalued. The result was he doubled his money. That took some serious conviction to do, so I have to give Derek a hand for that one.
The heart of Derek strategy is to buy a good dividend paying stock when it has suddenly dropped in price to get a great yield. Then he holds onto the stock forever to avoid capital gains and with Canada’s wonderful treatment of dividend’s for low income earners he pays no income tax. Overall I agree with this strategy for people who never leave the lowest income tax bracket. An RRSP is not going to be that much use to you, so you might as well cash in on the excellent tax treatment of dividend income.
So if nothing else the book is a good read for most people to learn about an alternative investing strategy that works very well for lower income earners.
For me personally it is not going to work out. My wife can use some of this strategy, but for me I do very well dumping the cash in an RRSP or spousal RRSP and taking the refund (I have a 8.5% tax spread between my current tax level and the amount I expect in retirement). Also I know I’m not a good stock picker, hence I stick most of my money into a Couch Potato Portfolio (25% Bond Index, 25% TSX Index, 25% S&P 500 Index, 25% International Index).
For more information on Derek’s book check out the following:
-Canadian Capitalist book review
-Million Dollar Journey’s book review
-Early Retirement forums at Canadian Business Online where Derek regularly posts