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Monday, March 30, 2015

2015 TFSA Update

Posted by Tim Stobbs on March 12, 2015

As I previously noted in my last net worth update we already finished maxing out our TFSA accounts for the year.  So with that in mind my wife and I went shopping for some additional stocks.

Our strategy for our TFSA accounts is fairly straight forward.  We buy individual stocks that pay a dividend and mirror our existing bills.  So that means we tend to look at banks, power companies, telecommunications, real estate trusts….you get the idea.

We also have a few other ‘rules’ that we try to follow.  These include we also try to buy stocks with a fairly good yield, so while this doesn’t result in any firm minimum number or maximum we do try to aim for the accounts combined having about a 5% yield based on current value.  The other ‘rule’ we try to meet is to have about two companies per sector and try to not have too much dividend income from any one company.  We don’t keep a firm cap or anything, but we try not to have more than $500/year in dividends for a starting position in a given stock.  If the dividend growth of the stock pushing it higher than that I tend to ignore that.

Our current holdings are (by stock ticker symbol):

  • BMO
  • RY
  • EIT.UN
  • D.UN
  • REI.UN
  • NPI
  • AQN
  • BCE
  • RCI.B
  • CSW.B

We recently increased our shares in RY and started a position in RCI.B. That consumed the majority of our available cash so I doubt we will be buying much more for a while until our cash position builds up again.   We don’t bother with any DRIPs for these accounts.

Overall we are hitting the majority of our objectives with these accounts.  Our current combined yield is $4973/year on $100,270 in account value, which puts us just under our 5% target (yes I’m acutely aware our actual yield on contributions to these accounts is much higher).  The longer term plan is to get the yield up to $6000/year by the time I retire from my day job, which should be doable in three more years.  That way we can only draw out the dividends from these accounts and never touch the principle.

Well at least that is the plan…long term I suppose when we adjust positions over the years we might end with a small amount of principle getting paid out.  I intend to just take the cash out periodically rather than a complicated tracking spreadsheet. The other longer term adjustment would be in our retirement years strip out our RRSP and taxable accounts and move the money to the TFSA over the years to reduce our tax owing in the long run.

Of course these are only ideas for the long term.  I still need to sit down and plan out in more detail how I will switch from the contribution phase to the withdrawal phase.  After all getting the money invested is one thing, living off the investments gains is entirely another beast.

Any questions or ideas of companies for me to consider?

What’s It For?

Posted by Tim Stobbs on February 18, 2015

You have likely already been reminded you should be investing some money in your RRSP today.  How do I know that?  It’s the season for it so most people via the 1000s of ads out there are told they really should be investing their money.

Yet I’ll offer you a more basic question than: RRSP or TFSA, stock versus bond, or even index fund or actively managed…..the question is: why?

Pardon?!?

Why are you saving and investing the money at all? What is the purpose of the investment?

*silence*

Need a hand? Perhaps the answer is: to retire.  Which is a good idea, but what does that look like?

*longer silence with confused look*

Far too often we save blindly because we fail to really understand what sort of lifestyle you want in your retirement.  After all, depending on the lifestyle you want that will drastically change how much you should be saving and how early you can retire.

For example, let’s say you have a couple who is in their 50s and they have been really good savers and have $500,000 in investments and a paid off house.  Do they need to work any longer?  Perhaps it depends on the lifestyle they want.

If they choose a modest life of mostly hanging around the house, being involved in the local community helping out with a few organizations, reading a lot of books and playing with the grand kids, they don’t really shop a lot and when they do they tend to buy high quality items that last a long while…well depending on the exact numbers they could retire in a just a year or two.  Yep, if they don’t need much income, perhaps $24,000 a year, they could potentially retire shortly.

But if they want to travel the world for four months of the year, enjoy shopping a lot and are real foodies that enjoy all the finer things in life.  Again it depends on the exact number, but if they spend like $5000/month.  They may very well have to keep working until they turn 65 or later.

It all depends on the why.  Why are you saving?  What sort of life do you want to lead and what is stopping you from doing that at least in part right now before you even consider retiring?

The illusion is that someone one choice is better than the other, when it fact, what matters most is which one appeals most to you.  If you have never really spent on $5000/month when you were working, what on earth do you think you will be doing when you retire?

What do most retirees end up spending? It varies but on average they spend $30,000 to $40,000 a year.  That’s it.  No huge lifestyles of the rich and famous, but rather a modest but happy life having lots of time to do those things you enjoy.

You could do less than that if you want, especially if you consider your mortgage was paid off.  So if you aimed for $30,000/year target you could be retired rather easily on $750,000 in investments.  Yep, that’s it. Forget about the million dollar mark, you don’t need it.

So if someone tells you they need at least $2 million or more to retire…I would ask why?  It won’t change the answer in some people’s cases, but more often than not they don’t understand the why and end up with overly large targets.

Instead, take the quicker way out…think about what you really want from your retirement and then plan around that.  The more detail you can provide the better plan you can make.   It won’t also be easy to do, but in the end you at least know exactly why you are putting money into your RRSP or TFSA.

What are you saving for?

Saving Contributions 2014

Posted by Tim Stobbs on January 23, 2015

So this week I should have finished maxing out one of our TFSA already.  If you recall in December’s net worth update I pointed out I put some of that money aside.  Then by Feb we should finish off the other TFSA account contribution for the other account.  So where do I put the money for the other 10 months of the year?

Well you see that is actually turning into a small issue as I’m running out contribution room on where to put it.  We made an effort last year to finish off as much as my RRSP contribution room as possible into my wife’s spousal RRSP.  Now the only tax sheltered account contribution room we will have left is about $20,000 in my wife’s name.  So I have to play around with the tax implications of her buying RRSP in her name as she doesn’t make much money per year so I’m not sure if the tax savings are really worth it.  After all if we drive her income to zero with RRSP contributions, I don’t know if her basic income deduction will transfer to me…I’ve literally never tried that before.  So if anyone knows, I would appreciate some advice.

So we will be back to non-registered investment accounts at some point in the year, which is just fine. Overall I expect by age 40 we should have approximately $100,000 in non-registered savings (give or take a bit). The longer term plan for the non-registered money is fairly simple, after I stop working at my day job I will drawing down the non-registered accounts first and also move what we can over to our TFSA accounts for anything that produces taxable income (like a GIC).  The idea is to keep our income tax bill as low as possible so we will likely keep dividend paying companies in the taxable accounts and any cash savings will eventually end up the TFSA (even if they don’t start there).

Perhaps the only thing I’m debating in my head is where do I open up the non-registered accounts?  On the one hand I like to keep our fees low and the other hand there is a certain ease of access if I put the accounts with our existing bank.  So I’m curious what other people have done and why did you pick that option?