Before I started blogging, I used to read many different personal finance and investing blogs. Over the years, some of these blogs have disappeared or changed ownership. One blog that is still around that I enjoy reading is My Own Advisor by Mark Seed. I have had the pleasure to meet Mark in person a few times (we happened to be roommates at FinCon 2019) and we have regularly exchanged ideas. Not surprisingly, we both follow the hybrid investing strategy and philosophy – invest in a basket of individual dividend stocks and index ETFs.
A few months ago, Mark published an article called Avoiding Some Big Retirement Mistakes. As we get closer and closer to stepping back from full-time employment and potentially live off dividends, it makes me wonder, are we ready? What are some investment and retirement mistakes we can and should avoid?
Mistake #1: Expecting too much
This is a big mistake for sure. Many new investors, after experiencing what seemed to be a never-ending bull run, have high expectations in terms of annual returns. Some expect as high as a 15% annual return, some expect even higher! On top of the high return rates, many of these new investors expect the inflation rate to remain at 1.5% or lower for a very long time.
Crazy!
Let’s not forget the bull market will eventually end and there could be a prolonged bear market! And let’s not forget the high inflation rate of only a few years ago.
Expecting too much is definitely an issue and if you were to make a projection based on these “high” expectations, you most likely will get into serious trouble.
For us, we would rather be as conservative as possible when it comes to modelling and projection. Yes, the historical long-term stock return is about 8% per year but we are using 6% for our projections. We also use an inflation rate of 2.5% in our calculation.
Is it perfect? Probably not but we hope that staying conservative will result in some margin of safety.
Mistake #2: No investment goals
I would make this mistake a bit more general and go as far as – having no investment strategy. Having a core investment strategy and long-term investment goals are important because they will help you to stay on course. Ensuring your investment goals are measurable and not far-fetched is also very important. It doesn’t make sense to set having a one billion dollar investment portfolio as one of your investment goals when you only have $100 in your portfolio.
For us, our investment goal early on was to have an investment portfolio worth $100,000. Once we reached that goal, the next target was $500,000, followed by $1,000,000, and so on.
One thing we need to realize is that just because you set a goal, it doesn’t necessarily mean you will achieve the goal.
Mistake #3: Not diversifying
I made this mistake when I first started DIY investing by buying shares of Intact Financial and Manulife Life, both of which are Canadian insurers. Over time, I realized that diversification is extremely important, so we purchased more individual dividend stocks and eventually index ETFs.
Here’s what we do with our investment portfolio, our kids’ RESPs, and their own investment account:
- We invest in individual Canadian and US dividend stocks. At the time of writing, we own 39 dividend stocks, probably a few too many. Ideally, I’d like to reduce that number to between 30 or 35.
- We invest in XAW for asset and geographical diversification reasons. We own QQQM to allow us to track the 100 largest non-financial companies listed on the NASDAQ.
- With my work’s RRSP, we invest in low MER index mutual funds
- With RESPs, we invest in one of the all-in-one ETFs – XEQT.
- With our kids’ own investment account (since we can’t open accounts under our kids’ names, this is under Mrs. T’s name), we also invest in XEQT. Both of them enjoy knowing that they own thousands of companies.
- We also have an account called “Play Investment Account,” which is less than 5% of our portfolio. This account is where I’d invest in more volatile, non-dividend-paying stocks like Tesla and Amazon. Lately, I haven’t been trading much in this account and simply let existing positions grow.
For the most part, we are about 99% invested in equities. With my work’s RRSP, I own a very small amount of bonds and we have cash in high-interest savings accounts for short-term usage.
Mistake #4: Focusing on the short-term
Despite getting closer and closer to living off dividends, we remain focused on the long-term.
We don’t do day trades or any short-term trades. We regularly invest new capital to take advantage of dollar cost averaging.
Therefore, I’d say we don’t focus on the short-term.
Mistake #5: Buying high and selling low
We rarely sell – we typically let our winners ride and once we initiate a stock position, we try to drip and put the investment on autopilot. For example, we bought Intact Financial and Manulife around 2008 and they both are still in our portfolio today. The same applies to the likes of Apple, Waste Management, Costco, Royal Bank, TD, and the list goes on.
Now, we’re not perfect. There have been times when we bought high and sold low, the best example being AQN. Those are certainly costly mistakes but the key is to limit them! And to learn from them.
Mistake #6: Trading too much
In my younger days, I used to do short-term trades based on charts and technical analysis. Luckily, those days are long gone!
With TD Direct Investing charging $9.99 per trade and Questrade used to charge $4.95 per trade, we try to trade when the commission fee is less than 1% of the overall transaction.
Now that Questrade and Wealthsimple both offer commission-free trades, we do trade slightly more but not what you’d imagine – we would regularly invest new capital every two weeks or so. We don’t jump in and out of a stock looking for short-term profits.
In case you’re wondering how many trades we typically do, I reviewed every dividend stock transaction we made between 2020 and 2022. Looking at all transactions in 2024, we made 22 purchases and 8 sales. All the sales in 2024 were to close out positions.
Mistake #7: Paying too much in fees
By utilizing Questrade and Wealthsimple, this isn’t a problem anymore. I no longer trade in my non-registered account with TD Direct Investing. Whenever there’s around $500 or so in my TD non-registered account, I’ll move that money into Wealthsimple and take advantage of Wealthsimple’s $0 trade.
- Sign up with Wealthsimple using my referral code (or type in YDC3NA) and get a $25 reward for simply signing up.
- Sign up with Questrade using my referral code and get a $50 reward.
Mistake #8: Focus too much on taxes
Taxes are unavoidable and I believe it is important to pay taxes so we can enjoy all the social benefits that Canada offers. Having said that, I do believe in optimizing and minimizing taxes.
By utilizing TFSAs and RRSPs, we can avoid in the case of the former and defer in the case of the latter our tax consequences by investing in Canadian dividend stocks that pay very tax-efficient dividends.
Don’t spend time trying to find the tax loopholes or trying to cheat the system. It’s not worth it.
Mistake #9: Not reviewing regularly
We review our portfolio regularly, at least every quarter, so we are all good here.
Mistake #10: Misunderstanding risk
Investing in stocks is risky but it’s certainly not as risky as going to the casino and putting all your money on black at a roulette table!
Some people have the idea that risk equals volatility but it’s important not to get the two mixed up!
Volatility refers to how much and how quickly prices move over a given span of time. Some stocks like high-tech companies typically have higher volatility than a stable utility stock like Fortis. The market can also be volatile when there’s bad news or extreme events, for example, a major war or a global pandemic. The more uncertain these news or events are, the higher the volatility.
Risk refers to the possibility of losing some or all of your money. Risk can be categorized as short-term risk or long-term risk. There are also different kinds of risks like currency, political, inflation, concentration, etc.
When we invest in individual stocks and index ETFs, we understand there will be short-term volatility. We also understand there’s a risk that we might lose some of our money short-term. But we understand that over the long term, stocks and stock indices have a tendency to increase in value; therefore, the long-term risk is limited if we avoid jumping in and out of the market and removing our emotions from investing.
Mistake #11: Not knowing your performance
We track our investment performance annually. You can find the details here.
In case you’re curious:
| Portfolio return excluding contributions | TSX return | S&P 500 return | |
| 2012 | +8.67% | +4.0% | +13.41% |
| 2013 | +33.04% | +9.55% | +29.6% |
| 2014 | +24.08% | +7.42% | +11.39% |
| 2015 | -5.97% | -11.09% | -0.73% |
| 2016 | +19.62% | +17.51% | +9.54% |
| 2017 | +12.33% | +6.03% | +19.42% |
| 2018 | -2.38% | -11.64% | -6.24% |
| 2019 | +11.32% | +19.13% | +28.88% |
| 2020 | +3.2% | +2.17% | +16.26% |
| 2021 | +32.8% | +21.74% | +26.89% |
| 2022 | -5.4% | -8.66% | -19.44% |
| 2023 | +10.48% | +7.79% | +24.73% |
| 2024 | +30.4% | +17.99% | +23.31% |
| Averages | +13.25% | +6.30% | +13.62% |
Note, the year returns are excluding any new contributions that we made throughout the year. The returns do include dividends.
Beating the market shouldn’t be your #1 investment goal. As one book I read once said (I can’t remember what the book’s name is and I’m paraphrasing here) – Don’t focus on your investment performance and beating the market. That shouldn’t matter. What matters is that you are meeting and achieving your investment goals and living a good life.
Trying to “beat the market” will usually increase your risk and it’s often a counterintuitive exercise.
Mistake #12: React to the media
I am guilty of doing this when I started DIY investing. I followed the news closely and tried to see what I should do. Over time, we have learned to try to ignore the news as much as possible, so much so that I rarely read the news anymore.
Now, I do hear about the tariffs (who doesn’t), but I don’t base my selling and buying decisions purely on how one person thinks, believes, and dictates.
When it comes to investing and retirement, the less news you consume and the less you react to the media, the better.
Mistake #13: Forgetting about inflation
Inflation will erode your purchasing power; don’t ignore it and don’t treat it like it’s a ghost hiding in the closet. Inflation is real and should never be forgotten.
Mistake #14: Trying to time the market
I have written many posts on timing the market:
- Does market timing work
- Does market timing work? Absolutely but with a catch!
- Reader Questions – Should I start investing in this 10-year long bull market?
- Should I sell some stocks now and wait for a market correction?
- Best Investment in the world & The Best Way to Invest
I hate to break it to you but market timing doesn’t work! You’re better off staying in the market, aka time in the market and taking advantage of dollar-cost averaging.
Can you take advantage of short-term market volatility? Absolutely! That’s exactly what we did during the COVID market drop and the recent tariff market drop, to name a couple.
Mistake #15: Not doing due diligence
Some people blindly rely on financial advisors to invest their money. (The cliche about the person who cares most about your money is you is very true!)
Big mistake!
You should always take charge of your own money. Nope, I’m not saying financial advisors are bad; in fact, there are a lot of good ones. What I am saying is, do your homework!
Since we’re doing DIY investing, we make sure we do our own due diligence. Further, when we use a professional, we make sure we do our own research to ensure the professional is knowledgeable and trustworthy.
Mistake #16: Working with the wrong advisor
We don’t use financial advisors. However, we have consulted with various specialists. We also make sure that these specialists are paid by the hour, so there’s no conflict of interest in what they’re trying to sell to us!
Mistake #17: Investing with emotions
It’s tough not to get emotional when it comes to investing, but we have been getting better and better at separating emotions from investing in recent years.
One book I’d highly recommend reading is “The Behaviour Gap.” It explains very well why we make stupid emotional mistakes.
Mistake 18: Chasing yield
I’ll admit, we definitely made this mistake in the past – Just Energy, Liquor Store, Inter Pipeline, and Algonquin Power & Utilities Corp, to name a few. And I suppose BCE to a certain extent.
Sure, dividend income is important, but one must know that the higher the yield, the higher the risk. It’s important to understand whether the payout is sustainable or not. More importantly, finding a balance between high yield vs. high dividend growth is a very personal decision and what the mix is can be different depending on your personal situation.
In recent years, I guess we have “chased yield” and made calculated risks by buying the likes of TD, Canadian Natural Resources, and Enbridge. These have paid off well. But some purchases like BCE and Telius, not as much. You win some, you lose some.
However, you will never find us getting into these covered call high yield ETFs or the super high yield ETFs like the YieldMax ETFs (some of them have a yield north of 50%!) and the Hamilton Yield Maximizer ETFs (most of them have a yield of more than 10%). I’m sorry to say this but these ETFs are simply crap. If an investment “guru” is trying to get you to invest in one of these high-yield ETFs, run!
Mistake 19: Neglecting to start
Definitely not us! Yesterday was the best day to start investing and today is the second-best day to start. Don’t beat yourself up for not starting. It’s never too late to get started!
Mistake 20: Not controlling what you can
When it comes to investing and retirement, there are many things we cannot control – market return, stock yield, ETF performance, to name a few.
But there are things you can definitely control – your savings rate, how much money you contribute & invest, stocks/ETFs selection, etc.
Control things that you can and don’t worry about the things you can’t control. Stop losing sleep over things you can’t control.
In addition to the 20 mistakes from Visual Capitalist, Mark also added five additional mistakes that I thought I should go through.
Mistake 21: Reluctance to realize capital gains
This is a big one for some people who have invested for a long time and have a large sum of capital gains. When you realize capital gains, you have to pay 50% of the gain at your marginal tax rate. Because of this, some people are reluctant to realize capital gains.
But this is a big mistake because if you leave it till the end (i.e. when you’re not around anymore), your estate will get a huge tax hit.
It’s more prudent to slowly realize capital gains and be strategic about it. There are many ways to do that and I plan to write more about these strategies in the future. For us, we fully plan to realize capital gains as our working income drops.
Mistake 22: Drawing RRSP/RRIF income too late
You must convert RRSP to RRIF at age 71. Once you have an RRIF, you must withdraw money from it at a mandatory minimum withdrawal percentage. The RRIF withdrawals (and RRSP withdrawals, too) are taxed as working income at your marginal tax rate.
Leaving drawing RRSP/RRIF income too late means you may end up with a big bill. Therefore, it’s important to consider RRIF/RRSP utilization, especially in early retirement (i.e. the so-called RRSP/RRIF meltdown strategies).
For us, we plan to tap into our RRSPs early by making strategic withdrawals, probably starting in our 50s.
Mistake 23: Drawing CPP and OAS income too early
I wouldn’t necessarily call this a mistake. Some people draw from their CPP and OAS earlier due to health reasons and some just need the money. Generally speaking, the later you draw from CPP and OAS, the better, because you get a larger sum. (Note, I know this is a debatable argument and it’s not a one-size-fits-all solution and is highly dependent on the individual).
Not drawing from CPP and OAS early also allows you to utilize your investments and potentially bring you to a lower tax bracket later in life.
We have always treated CPP and OAS as extra gravy and have not included them in our FIRE calculation. Therefore, we plan to draw from them as late as possible.
Mistake 24: Poor use of TFSAs
We have been maxing out our TFSA every single year. Personally, I really don’t like the term, Tax Free Savings Account. Instead, I think the government should have called it The Tax Free Retirement Account. People really need to stop using TFSA as a savings account and use it as a retirement account!
We did over-contribute to Mrs. T’s TFSA by mistake years ago but got that fixed. Therefore, it’s important to keep track of your TFSA contributions.
Here are some common TFSA mistakes you want to avoid!
Mistake 25: Incorrect Asset Allocation
It’s a good idea to allocate different types of investments in different types of accounts. Generally speaking, you want to do the following:
- Non-registered: Canadian stocks and ETFs. If you invest in Canadian dividend stocks, you want to invest in ones that pay eligible dividends (i.e. not REITs and income trusts). Keeping cash in high-interest savings accounts for short term needs is always a good idea.
- TFSA: Canadian stocks and ETFs. In some cases, it could make sense to invest US dividend stocks in TFSA and take the 15% withholding tax hit (US growth stocks would apply too).
- RRSP: Canadian stocks and ETFs. US stocks and ETFs.
- FHSA: Canadian stocks and ETFs.
We follow this rule more or less to the letter. In case you’re wondering, here are the accounts and asset allocation for us;
- Chequing and high savings accounts for daily and short-term spending. We do not pay monthly fees with these accounts.
- Four non-registered accounts (two for me, one for Mrs. T, another one for the kids but under Mrs. T’s account), invest in Canadian dividend stocks and index ETFs like XAW, and XEQT.
- Two TFSAs, invest in Canadian dividend stocks only.
- Four RRSPs (two for me, one spousal for Mrs. T), invest in a mix of Canadian and US dividend stocks, and Canadian and US ETFs like XAW and QQQM. For my work RRSP, I invest in low cost mutual funds tracking indices.
- Three RESPs (one for each kid, another family one to get the BC Training & Education Savings Grant), invest in XEQT and XGRO.
We keep our investing strategy and asset allocation as simple as possible.
Summary – Avoiding 25 big investment & retirement mistakes
It was interesting running through these big investing and retirement mistakes. We have made some of these mistakes before, so we are definitely not perfect. The key, I believe, is to limit the dollar value tied to these mistakes and learn from your mistakes.
Have you made any of these mistakes? Are there ones you’re avoiding?
Thanks for the summary, all great tips! I took over my portfolio slowly at first and then went all-in except for a few low-cost bank MFs I am stuck with in a corp account (otherwise I trigger capital gains if I sell all at once). I am spending this over time until I start to collect CPP/OAS.
Our portfolios are a bit all over the place because of how they were originally set up by the bank (definitely not optimal) so my spouse has more EAFE than me, I have more CAD. Combined we are “balanced” the way I want (diversified across regions). I’m considering selling a bunch of my CAD and his EAFE to try to balance our portfolios individually, but I really don’t feel like messing with it. 🙂
The big issue I have, is I started with CAD in my TFSAs to avoid withholding tax, but then my RRSP grew like crazy (had the US) which is a shame because it would have been great to have a higher growth TFSA and not as much in the RRSP. I am doing an RRSP meltdown (in my late 50s) so I can extract this before taking CPP/OAS to try to optimize my taxes (not avoid them…).
My question to you: when you finally get to the stage to spend your RRSP, how will you handle the asset mix in your TFSA? As I spend the RRSP (RRIF), I’ve been switching to XAW in my TFSA because it’s too much CAD in my overall portfolio. Thoughts on how you will rebalance as you spend??
BTW, I definitely have individual loser stocks in my portfolio – Telus, BCE are the worst. I sold AQN a while ago to tax loss harvest. I did the same with some of my BCE. Otherwise I’m holding on in my TFSA/RRSP hoping for more of a rebound and collecting the dividends but they seem like dead wood. The good news is these stocks are only 1-2% of our overall portfolio.
I think many of us got burned by AQN. But you’re going to have some losers in a basket of individual stocks. The important part is having more winners than losers. 🙂
We have done well in our elder retirement (beyond senior) with dividends. It is now that we must consider succession planning. I use the TD web broker account for stocks/dividends. I started with stocks in late 2021 and do a lot of research for each. I haven’t added additional funds to it for the last two years. It is very diversified with about 65 stocks. Dividends are about $35,000-40,000/year and reinvested. I am very happy with the results.
My heirs are not interested in the stock market. I am wondering if there is a way to have the dividends directed to me currently and to each of them each month as heirs after my passing? Currently I do very little buying and selling — it’s really not necessary as the value has increase approximately 77% in those few years.
BTW, I enjoy reading your column.
Thanks Dianne. I think the only way to pass down dividends is to pass down your dividend portfolio. Hope this helps.