A slow and steady path to financial independence

Mrs. T and I have been on our financial independence journey for over 8 years and we have learned a few things along the way. Although we technically can be financially independent now if we really want to, we choose to prolong our FI journey prioritizing the various things in our lives. One of the things we wanted to prioritize is our dividend portfolio so it can generate sufficient dividend income to cover our expenses. We believe this would allow for more flexibilities when we are FI.

I’m not the only one in the personal finance world to take a slow and steady approach path to FI rather than running as fast as possible to the finish line. Mark, whom I had the pleasure to meet in person in CPFC’16, is also someone who’s taking the same approach. Interestingly enough, the two of us both invest in dividend growth stocks and index ETFs. I recently asked Mark to participate in an interview style questionnaire.

Welcome to the blog Mark, tell me about yourself…bio, where you live, family life, etc.

Well, I was born and raised in a small city in eastern Ontario.  I “got out” of that town at age 18 because my parents encouraged me to get an education. Besides, they told me I couldn’t live at home any longer 🙂 I completed my first degree just over 20 years ago in biology, minor chemistry at the University of Ottawa. After a co-op term at a major pharmaceutical company in Toronto, I got what I would call my first real job at the same company when they offered me a full-time position. I worked my way out of the lab, as a chemist, and into the manufacturing-side of things over the coming years. That position gave me the necessary experience to apply for a job in Ottawa. I moved here in January 2001 and I’ve lived here ever since. Time really flies!

In my mid-40s now, my wife and I have two cats, no kids.  

I was never really passionate about investing until I reached my early 20s. I learned back then based on a few big financial lessons that nobody really cares more about your money than you do – so best to get a handle on saving and investing so you can take good financial care of yourself and your family.

1. It’s nice that the two of us share a common strategy when it comes to investing. What got you started with dividend growth and index ETF investing?

I became highly interested in the performance of my portfolio during the great financial crisis of 2008-2009. Shocking? Not so much. I mean, looking back, it was a trying time for many investors. I know I found it difficult to watch my portfolio tank by more than 30%…but it was a great lesson, probably the best lesson yet. That period forced me to ask some tough questions about my investing choices to date. Why was my portfolio down so much? How much more downturn could I stomach? What fees am I paying for the performance of this portfolio? Are those fees worth it?  

At the end of the day, I realized there was a better way to invest than using the high-cost big bank mutual funds I was invested in at the time. Owning pricey mutual funds that under-performed the market was just one way I sabotaged my portfolio.

Coming out of that global financial crisis I gravitated to owing dividend paying stocks because I became more mindful of being an owner of what I consume – I could profit from that long-term.  What I mean is – I need to heat my home in the winter and I enjoy my gas BBQ on the deck in the summer. I might as well buy and hold Enbridge stock. I need (and enjoy) my cell phone – I might as well buy some telecommunication companies like Telus, Bell and Rogers. Every Canadian uses a bank (or two). You can see the pattern. The list goes on.  

I looked at various big utility stocks, pipeline stocks; the impressive dividend histories of Canadian bank stocks – I was floored with what I found. Not only was there price appreciation but also significant dividend increases over time. I figured this was an approach that was built to last and suited for me. Regardless of the stock price (high, low or flat-lined) I would get paid to be an investor via the dividend. I could choose to reinvest that dividend or hold the money in cash for new, vs. future purchased. It seemed like a get wealthy eventually strategy.  

Tawcan: It is. That’s exactly why I like dividend stocks so much. Find something that you use daily and invest in companies that produce these products. Simple.

That said, I know investing in just a few dozen Canadian stocks could be a risky bet. Sure, most of these companies will probably thrive over time but my crystal ball is always very cloudy. So, why bet the farm when you can own the farm (i.e. most of the market)? This makes the case for index investing or at very least investing in a few low-cost, diversified Exchange Traded Funds (ETFs) for the long run. This way, you don’t have to select certain dividend paying stocks. You can own hundreds of them if not thousands of them (depending upon the ETF you purchase) at a low-cost. You can ride market returns along the way and throw your investing biases out the window.

I figure the combination of owning many established companies that pay dividends, consistently, and increase them over time and owning a couple of low-cost U.S. ETFs for U.S. and international diversification is an amazing one-two investing punch for income and growth.  

2. How do you usually select which dividend stocks to invest in? Do you follow any methodologies?

A few rules and methodologies, sure. I answered how I built my dividend stock portfolio here.

Essentially, I look for companies that have decades of established dividend paying histories – companies that grow their dividends over time. In Canada, there are only about 30 or so stocks worth owning outright that fit this criteria for me – companies that continue to raise their dividends year after year. Otherwise, you might as well index invest using a low-cost Canadian ETF like VCN, ZCN, VCE, XIC, XIU, etc.

I own a few U.S. dividend paying stocks but that list is very short when compared to my Canadian stock portfolio – for the reasons I mentioned above. I’m striving to own more units of some U.S.-listed ETFs in my portfolio as I get older. I’ve learned this is a lazy way to invest but then again, when it comes to being lazy, that can work wonders over time for investors.  

3. How do you know when to buy a stock and when to sell a stock? Do you keep a dividend score sheet?

In terms of when to buy, I consider 52-week lows a good entry point for consideration. Do I always wait for that point? No. Because I have no idea when that low point might come for certain stocks.   

When I do invest, I tend to invest a few times per year to keep my transaction costs low. The less I speculate, the less I trade, the better. If my holding period is many years into the future, I don’t worry too much about today’s price.

I haven’t sold many stocks over the last ten years or so since I’ve migrated to becoming a hybrid investor – owning stocks and some ETFs. TransAlta was one stock I sold, many years ago now.  

In terms of keeping a dividend score sheet I don’t bother. I know my Canadian stock portfolio continues to largely mirror the TSX composite index and that’s good enough for me. Besides, I focus on the cash flow my portfolio generates. No doubt you’ll ask me about that!

4. Most dividend investors track their monthly dividend income but don’t usually track their portfolio value as closely. Do you believe this is a fallacy? Why is it important to track both dividend income and portfolio value?

I absolutely track the dividend income my portfolio generates but that’s about it. I really don’t follow the portfolio value very closely and to be honest, I don’t care what it’s worth. We were fortunate to own a sizeable portfolio already many years ago, thanks to diligent saving and investing over many years, but let’s face it – you need cash flow to live from. Portfolio value means little if your money isn’t making money over time. This is where my focus is now:  how much can my portfolio deliver in terms of sustainable, consistent income? When we reach our crossover point – when the income derived from our portfolio largely exceeds all daily expenses – I know we’ll have enough money to live from and semi-retire and/or work on our own terms.

So, is focusing on dividend income versus portfolio value a fallacy? Not for us. Focusing on what our portfolio can do for us versus what I need our portfolio to do essentially provides a large level of financial security. We don’t have to touch the capital unless we do it on our own terms.  We can ride out bad markets but living off the income from our portfolio or spending less or both. That’s pretty great when you think about it. Your money stays invested to keep working for you so you don’t have to someday. I hope we can reach our crossover point within the next 5-10 years.

Is it important to track both dividend income and portfolio value? It depends on your portfolio goals but I know for us, the ability to live off dividends in the coming years will be very rewarding. It will provide some incredible financial flexibility.

5. There have been a lot of talks about a pending recession. Is there something you’re doing differently when it comes to investing?

Lots of talk for sure but I can’t worry about what the broad economy does or doesn’t do. It’s totally out of my control.

As I get older, I prefer to focus on things in my life that I have control over. My work ethic. My savings rate. My health. Many other things.  

Our short-term goals are to maintain the course we’re on – max out contributions to our TFSAs every year and max out our RRSPs over the coming years as well. We figure if we max out contributions to those accounts while killing mortgage debt; becoming mortgage free in the coming years we’ll be in a very good place for semi-retirement.

• The Millennial’s Ultimate TFSA Guide
• The Millennial’s Ultimate RRSP guide

To answer your question, whether a recession is coming or not we’re not doing anything different. If that changes, I’ll let you know on my site!

6. What are your investment goals? Is FIRE one of your goals?

Fans of my site will know I’m not one of these FIRE (Financial Independence, Retire Early) zealots. I mean, yes, the concept is great but I’m don’t aspire to be debt-free, blog about my existence from a camper or Airstream as I travel around North America away from family and friends. If folks want to do that, that’s great – that’s just not me.

Also, and let’s be honest, what 30- or 40-something truly believes they are retired when they continue to work for a living…when they are pumping a book, or a blog, or a podcast? Maybe I’m getting old and cynical with age but I simply want folks to be a bit honest – I mean really.

OK, with that out of the way I sincerely believe the principles behind the FIRE movement have some merit. Following them, in some shape or form, can allow you to gain more financial security over time. You can do this by:

• Living below your means.
• Diaster-proofing your life.
• Killing debt.
• Thinking, acting and investing long-term.

When it comes to our investing goals – we have a few big ones.

The first, to own a $1 million portfolio beyond any workplace pensions and any home equity ownership. We were fortunate to be half-way towards this goal a few years ago and I think if we keep saving and investing like we do, I suspect we might “be there” within five years. We’ll see if the markets cooperate!

Our second big financial goal is to own our home/condo within the next five years. That means no more debt – ever again. In five years, that would make me age 50. Yikes. But, owning our home, having our $1M portfolio goal would be very good and put us in a great place for FIWOOT (Financial Independence, Working On Our Terms). Just remember you heard FIWOOT from My Own Advisor first 🙂

Tawcan: Haha I like the acronym FI-WOOT! Give me a few woot woot!

I guess our third big investment goal, related to our portfolio goal, is to earn about $30,000 per year in tax-efficient (non-registered account) and tax-free (thanks TFSA!) dividend income to support semi-retirement. It’s a milestone I monitor monthly on my site and you can see a recent example here.

We figure $30,000 per year (excluding our RRSP assets, excluding our workplace pensions, dismissing government benefits like Canada Pension Plan (CPP) and Old Age Security (OAS)) will be “enough money” to retire on. When will we get there? No idea…but we’re well on our way and the journey there that I write about on the site is definitely part of the enjoyable ride.

So, FIRE for us?  No, more like FIWOOT.   

7. Any other advice for fellow Canadian investors?

Not so much advice but more some considerations for any investor:

• Take time to learn about your financial goals, what you want; what’s really important to you. Financial plans come before financial products.
• When in doubt, keep your money management fees/costs as low as possible for as long as possible.
• Find a saving and investing plan you can stick with, through thick and thin.  
• Avoid the talking heads about the stock market. They need to put food on the table too!
• Avoid financial comparisons, although easy to say and hard to do. I’m guilty of this too. Instead, focus on what you can control in your world and do the best you can as often as you can with the resources around you.  When it comes to financial health, it’s often the by-product of doing a number of little things very well over and over again. Try not to get too frustrated with setbacks and mistakes. We all make them. Simply do what you can to learn from any mistakes along the way. We’re all human and learning is life-long endeavour.    

Thanks Mark, that was a lot of great information you’ve shared. If you want to follow Mark’s journey, please drop by his site and say hi.