Posted by Canadian Dream on August 19, 2009
It finally happened. EIT.UN cut their distribution by a third. I can’t say I’m surprised. Some of the funds that make up EIT.UN have been cutting back distributions themselves so I was expecting a cut sooner than this.
To be completely honest I was expecting it to be worse. I was expecting a cut of about 40% in regards to taxation of income trusts, so keeping it this high was a bit of nice surprise, but it may have a second cut post 2011. Also the writing was on the wall nothing can yield 18% forever, actually seeing it that high was a big red flag they would have to cut it at some point. The current yield is now closer to 10% based on market price which is still a bit high, but not in the atmosphere.
Overall I haven’t double checked the numbers but I’m likely out about between $400 to $500 a year from this cut. Yet my personal yield is still likely around 12% so I’m still happy with the return I’m getting.
What I find interesting about this cut and other dividend cuts is it really does illustrate to me the flaw in the original Derek Foster strategy. You can’t just buy a basket of dividend payers and income trusts and live off the cash flow. Dividends and distributions are not fixed income. There is no guarantee that the cash flow from that company will continue for your entire retirement. Also when you add in the risk that after a cut often the share price drops you can almost be assured to lose some capital as well when this happens.
So as complete unsexy and boring as it is some kind of fixed income is required to fund a early retirement. Actually I would argue that based on what your spending habits will be you might want to have a very high amount of fixed income. Basically your asset allocation should be set up that your fixed income portion can spin off enough cash to keep you fed and a roof over your head. So depending how much extra spending you have in your retirement budget you might have a fixed income portion from 50 to 80%.
So have you had a distrubtion or dividend cut affect you yet? If so how much cash flow did you lose?
Posted by Canadian Dream on August 18, 2009
Now depending on your family and friends you might not want to actually tell anyone you are early retired for the first few years to avoid the obvious issue that people will think you are rich. So in the nature of some fun, here are my top five cover stories for early retirees.
- Man or Woman of Mystery. When ever anyone asks you about what you do for a living just reply “It’s classified.” It will drive people nuts trying to guess it and you can just fail to mention it’s classified by you.
- Starving Artist. Here you take one of your hobbies and turn it into your day job. You can even play up the whole bit of not making much money at it, but you are much happier angle. Good categories for this is actor/actress, painter, writer, graphic design…you get the idea.
- Consultant. Now here you can make up any sub category you like depending on your interests such as image consultant (I don’t dress like a slob even when I don’t have to), management consultant (I manage my to keep my spouse happy) or travel consultant (I travel so cheap it would make your head spin). Just make sure people you talk to know you are far to busy to take on new clients. You may need business cards to complete this cover story.
- Conservation Professional. You are very skilled at doing nothing or at the very least spending no where near the same amount as everyone else in the room.
- Private Wealth Management. This is by far my favourite cover story, because it’s true. You just manage your own wealth and that is why you are retired. Again be careful to avoid taking on ‘new’ clients. If you really want to feel exclusive don’t even bother carrying business cards to complete the story. People will naturally assume they need millions before they could become a ‘client.’
So what’s your favorite cover story? If you have got another idea please share with a comment.
Posted by Canadian Dream on August 17, 2009
Perfect. It sounds like an innocent word, but in reality it can be evil incarnate for some people. The pursuit of perfection had driven a few people outright mad and others it just keeps busy while getting nothing really important done.
In personal finance perfect has it’s own particular issues. Some people try for the perfect budget that leave just enough money for living and your enjoyment while still having a great savings rate. Others try for the perfect investment plan which hedges six different types of risks and requires daily analysis to ensure it is still working.
The simple reality of it all is: perfect doesn’t exist. It’s an illusion or mirage or perhaps a sadistic goal. Yet in the end it is impossible to achieve since it doesn’t exist except in some part of your mind. It is also a waste of time to go after since it will turn to sand when you get near it.
People get stuck in habits investigating meaningless savings methods or researching topics on an obscure tax clause that will save them a dollar of tax. Instead of facing the truth that ever artist in existence knows: you never finish anything, you just release them into the world. At some point you have to stop investigating certain things and say to yourself “It’s good enough for now” and then move onto something else.
I think I’ve been stuck trying to get to perfect and didn’t realize it. There might be more saving to be had in my life, but other than going for a couple of major ones I’m not going to bother hunting down those last few dimes anymore. I’m now too busy with other interests to waste anymore time on those dimes. I’m letting go of trying to hit perfect and accepting it’s good enough for now. If I find something new I can look at it, but I won’t spend too much time on it. It’s time to move forward instead of endless circles.
My name is Tim and I’m a recovering personal finance perfectionist.
