Dividend Growth Investor Q&A series – My Own Advisor

When we started our financial independence journey, we set a goal of becoming financially independent via dividend income by 2025. Why did I pick the year 2025? Because it was far out there and it ended with 5. I didn’t specifically pick the date by crunching a bunch of numbers. 

Since 2025 is just around the corner, fortunately, we aren’t too focused on the actual date. If we wanted to live off dividends by 2025, we would have focused more on high-yield dividend stocks in the past number of years. But we have been focusing more on low yield high dividend growth stocks over the last few years. At this point, we know we will be able to live off dividends soon. We are not in a rush to get there though. 

One nice thing about this blog is having the opportunity to connect with like-minded people and share knowledge. It is even better when I can talk to someone slightly ahead of us on the financial independence journey and learn valuable information from them.

Many of you probably know Mark Seed from My Own Advisor. I had been reading Mark’s blog before I started this blog and have had the pleasure of meeting him in person a few times. Thanks to some small arm twisting (kidding, not really), Mark had agreed to do a Q&A.

Q1: Welcome back Mark, it’s always great to have you on here. Can you tell us a little bit about yourself? 

A1: Happy to be back, Bob. 

I’ve been a passionate DIY investor for well over 20 years and I’ve been My Own Advisor for about 15 years now, where I chronicle my DIY investing journey including some recent aspirations to start semi-retirement in the coming year or so.

I love golf, travel, cycling, camping, enjoying the odd craft beer and much more – so I see investing as a means to help and support my enjoyment of those things. 

Q2: What sparked your interest in investing originally? What got you started on your financial independence journey? 

A2: I invested during the dot-com boom and bust, as a young DIY investor. It was a good lesson to learn about investing risk versus reward since I was 100% equities at the start of that crash. 

I think that crash really triggered my passion for investing, and snowballed my DIY investor journey since I learned nobody will care more about my money and financial well being than I will. You should feel the same. 

After the early investing years of dabbling with big bank mutual funds, I learned fund fees are forever (as long as you pay them) so I decided to become My Own Advisor and document my DIY investing journey, the ups and downs, owning individual stocks and low-cost ETFs while kicking high fee funds to the curb forever. Owning a mix of stocks and equity ETFs is what I call a get wealthy eventually strategy. In running My Own Advisor, I could learn from any investing mistakes by documenting them but I can also share my investing journey as well – pay it forward if you will to others who may aspire to become DIY investors. 

I stay motivated to this day by way of these core personal finance principles – since we hope to realize financial independence sometime later this year:

• We try to save early and often.
• We keep our money management fees low.
• We diversify our investments. 
• We try to max out contributions to our TFSAs, then RRSPs, then invest in taxable accounts after that every year. 
• We stay the course. 

Q3: Congratulations on becoming mortgage-free earlier this year. Why did you want to be mortgage-free in the first place? Why not utilize Smith Maneuver and allow you to write off the interests? What’s your plan now you’re mortgage free? 

A3: Thanks, it was a great milestone for us.

Simply put, I really don’t want to pay other people first – that’s what you’re doing when you owe debt. It’s an obligation to others. Now that we’re mortgage free, given other assets we own, we should be able to consider semi-retirement in the coming years since no mortgage means less income needed to maintain the same lifestyle we enjoy today. We could of course continue to work full-time but that’s not our plan long-term. 

We did not utilize the Smith Manoeuvre for these key reasons:

• You need a readvanceable mortgage whereby you can tap into your Home Equity Line of Credit (HELOC) – I figured my mortgage was enough debt. 
• You also need to be very comfortable with leverage in performing this approach – it’s a long-term game plan measured in multiple years. 
• I was always a bit concerned, with leveraged investing, about my income-producing investments covering the HELOC loan. 
• Further, what happens if interest rates climbed or spiked?
• And more…

There was also the time, maintenance and monitoring this approach takes. Not for me. 

See my simple list of core personal finance principles above. 🙂

Q4: You and your wife are getting ready for FIWOOT (Financial Independent Work On Your Terms), could you tell me more about your plans for this new chapter?

A4: For sure!

Our thinking is to live off dividends from our portfolio, mainly from our RRSPs (via cash withdrawals when dividends are paid) and from our taxable accounts (via the dividends generated there) while working part-time. The desire to still work, just part-time, is what I mean when it comes to work on my own terms. 

We’re not quite sure what part-time work will be, but we have some ideas. 

The general plan is to work part-time for at least a few years, and then consider full retirement thereafter. 

I’ll keep you posted, and will share with others what happens, via my blog. 

Q5: If you were to summarize your philosophy of dividend investing, what would that be?

A5: To keep it short and sweet:

• Learn why income, a blend of income and growth, or a focus on just growth matters to you and your investing objectives. I like a blend of income and growth. 
• Develop a list of stocks that may fit your investing criteria, otherwise just index invest. 
• Avoid stocks that cannot grow their dividend, stocks that do not grow their earnings per share over time, stocks that do not generate higher cash flow for their shareholders over time. 

If you want to own some individual stocks, from Canada, consider this type of screen:

1. Look at low-cost ETF XIU as your place to skim stocks from. 
2. Consider companies that have paid dividends consistently for many, many years, ideally a growing dividend, for at least 10-years. 
3. Consider companies that have a modest dividend growth rate, a tendency to raise their dividends by 5% or more. 

Where possible, continue to own any stocks you pick for the long-haul. Otherwise, index invest and use XIU or a similar fund for Canadian stock ownership. 

There are other low-cost ETFs to consider owning, beyond Canada too!

Q6: You and I are alike in the sense that we own a basket of individual dividend stocks and some index ETFs. Why do you do hybrid investing?

A6: I feel like I coined that term on my site almost 15 years ago, since I’m not quite all-in on indexing (especially in Canada) nor do I believe I can always pick the top-stocks for income and growth.

I like hybrid investing since beyond keeping some cash or cash equivalents I feel I get the both of both approaches:

• Income from my dividend stocks, today, to use the cash or reinvest the cash as I please without selling any stocks on my part.
• Growth from my low-cost ETFs for lazy investing. 

Q7: How has your investing strategy evolved over the years? What are some of the challenges you have faced? Do you see your investing strategy evolve moving forward? 

A7: Great question. I think we all change as investors as we age. 

To simplify my portfolio and to remove a bit of home bias I’ve accumulated over time since the mid-2010s, I’ve committed to owning more of low-cost ex-Canada ETF XAW in particular since 2016 – that’s probably the biggest strategic change I’ve made and will continue to make. 

In terms of challenges, when benchmarking my portfolio from time to time, at times my individual stock picks in Canada have trailed the TSX index but over time, I’m also way ahead of that index – so my point is stock picking is not always a path to beating the index – some years you’re up and some years you’re down. Your stock returns will depend on what stocks you bought, when, holding periods and more. 

As I move forward, one of the biggest challenges I/we will face is ensuring our drawdown strategy will meet our objectives. I haven’t started semi-retirement let alone full retirement yet, but it will be interesting to see how we manage and preserve what we’ve established to date. 

I’ve some good plans but like Mike Tyson once said, everyone has a plan until they are punched in the face! 🙂

Q8: Tax planning is very important when you start living off dividends or start withdrawing from your investment portfolio. What’s your withdrawal strategy to minimize taxes? Do you have an early withdrawal RRSP strategy? 

A8: Indeed it is. Spend too little from your portfolio over time, and you’re going to have a large estate to manage. Spend too much from your portfolio, especially in the early investing years, and you risk outliving your money. 

Our withdrawal strategy is going to be NRT = Drawing down some non-registered ( N ) assets along with registered assets ( R ), leaving TFSAs ( T ) until the end. 

In more detail:

• N – Regarding non-registered accounts – We intend to work part-time at some point in our 50s and “live off dividends” to some degree from these accounts. 
• R – Regarding RRSPs/RRIFs – In our 50s and 60s, we’re going to do something unconventional from what some money managers and advisors mention – we’ll start withdrawing assets, slowly, from our RRSPs. This will help smooth out taxes over a period of decades. 
• T – Regarding TFSAs – We don’t intend to touch our TFSA assets in any early retirement. We will let our TFSA assets compound over time. By our early 70s, with part-time work done, with most of our RRSP/RRIF assets likely gone, our plan is to live off income from mainly any government benefits (CPP and OAS) and TFSA income/withdrawals. The latter will be tax-free!

This strategy is designed purposely to a. meet our income needs and b. to smooth out taxation over time. I simply wish to avoid a few, high, lumpy or bumpy tax hits and I suspect most semi-retirees or retirees likely feel the same. 

Based on my own projections, including variable spending needs over the coming decades, I could see our RRSPs being fully depleted between the ages of 70-75. 

I have written a post on why you should watch out for RRSP and RRIF taxation if you want to read more. 

I believe the NRT or RNT drawdown orders can work for many retirees, since either approach may help you defer CPP and/or OAS benefits later in life as well – deferring CPP and/or OAS can offer higher, guaranteed, inflation-protected income. Something to think about!

Finally, I should add, I believe your recent Q&A with Henry Mah has learned this lesson…avoid hoarding RRSP/RRIF assets too late in life…

From Henry:

I would have put much more into our non-registered, paid a bit more taxes, and likely not have our OAS clawed back to zero.

Henry Mah

Q9: There are a lot of debates on which is superior, dividend investing vs. index investing and living off dividends vs. 4% withdrawals. What are your thoughts on this topic? 

A9: Gosh, if I had a nickel every time I heard this debate…LOL.

At the end of the day, start with your goals. 

I hope your readers by now understand that there are many ways to invest – so don’t let others convince you otherwise. I know folks that have been successful growing a business, owning real estate, investing in private equity, and more. There is no one right way to invest and I believe anyone that seeks to put you into a box is someone you should avoid learning from. 

Your investing and withdrawal approach could be living off rental income, living off dividends, investing just for growth/total return, that could include 3%, 4% or 5% withdrawals…depending on what you have invested and/or what you need as well. 

I’m of the mindset there is no single, optimal, investment strategy. Some people agonize over having the perfect portfolio, the best ETFs, the highest savings rate, etc. Those things can be an obsession for folks which I don’t think is very helpful. I’ve always been of the mindset that following a good plan is better than striving to find the perfect plan since the latter does not exist. 

Morgan Housel said it better than I did in his book The Psychology of Money:

You don’t have to be a perfect investor. Getting wealthy and staying wealthy is “about consistently not screwing up.”

The best investment strategy and debt-free strategy too, is one you can stick with to meet your goals. 

• If investing in some dividend stocks, long-term, will help you realize your goals – go for it. 
• If taking that fixed-rate mortgage helps you sleep at night – go for it. 
• If you feel low-cost ETFs are better for you – own ‘em. 

The most successful DIY investors I know, focus on the outcomes they are trying to achieve and tend to tune out everything else. 

Q10: Not investing related, you and I are both big hockey fans. What went wrong with the Ottawa Senators’ 2023-2024 season? What should they do in the offseason so they can have a shot at the playoffs this upcoming season?

A10: Ha, well, in a few words, lack of defence and structure. I went to a game recently and a few things come to mind more specifically. 

1. They need more core defensive minded players, starting on the back-end. Keep guys like Sanderson, Zuv and Kleven. Everyone else on D can be on the market, including Chabot although if you want to keep him for term and give him a stay-at-home partner that works. 
2. Goaltending needs to be much better. Nuff said.

We have enough talent up-front but less injuries with folks like Norris and Pinto avoiding gambling would help too! 

Q11: You not only plan to live off dividends, but you also plan to withdraw from your principal eventually. What’s the reason behind that? 

A11: I’ve done my own financial projections and here is a screenshot for you and your readers. The reality is, if I just stick with a “live off dividends” only approach I will likely leave lots of money on the table that we could have otherwise spent and enjoyed along the way. 

Our projections include 6% annualized returns (and no more) combined with 3% sustained inflation over the coming decades. 

I have no doubt we’ll adjust our spending patterns once we’re in retirement, since I’m not convinced we’ll need as much money as this chart suggests when we’re age 90+ but we believe we have a good plan overall to start with. 

You can find more information in this Financial Independence/FIWOOT post.

Q12: I loved that you and Joe started Cashflows & Portfolios and are providing Canadians with the “Your Retirement Projections” service. What are the top five things you’ve learned from the various projections you have done that you can share with the readers? 

A12: Thanks for the kind words. 

It’s fun to run Cashflows & Portfolios with Joe, where we provide more free content via case studies there and help DIY investors out with their own financial projections in a lower-cost way. 

Hard to narrow things to just the top-5 but here goes, from the successful DIY community we help there. The most successful and happiest retirees we know:

1. Know their spending needs and plan for retirement around what they intend to spend, on average, per year with additional annual spending buffers built-in. 
2. Continue to focus on their goals which give them purpose – including in retirement – whether that purpose is related to travel, hobbies or volunteer work. 
3. Do not concern themselves with what other people are doing, spending, or investing. They focus on themselves, determining their spending needs (#1) and their objectives related to those spending needs (#2) usually in that order. 
4. They monitor their plans/projections every few months, including when circumstances might change. That can include inflation, taxation and rates of return. 
5. When in doubt, they keep a financial cushion far beyond some small emergency fund. Some retirees, depending on the predictability of their income sources, have up to 3-years’ worth in cash or cash equivalents for spending. Meaning, the stock market could literally shut down for three years and they would still be more than fine by lowering their spending needs vs. wants too. 

Tawcan: You might want to check out a great post written by Mark and Joe called “How much do you need to retire early at age 40, 45, 50 or 55.” Also, Mark and Joe are kind enough to offer all Tawcan.com readers a 10% discount on their Cashflows & Portfolios Done-For-You Presonalized Retirement Projections. Just mention TAWCAN10 in your email correspondence to them or add TAWCAN10 in the “How did you hear about us” part of the form.

Q13: I believe you currently do not invest in GICs, bonds, or other fixed-income investments. When you’re in FIWOOT or retired, do you plan to change this investment strategy? Or do you plan to continue to hold most investments in equities? Walk me through your thought process. 

A13: Correct, Bob.

No GICs, no bonds. 

I do however hold some cash-alternative ETFs and cash equivalents like ISAs (Interest Savings Accounts) since it’s hard to pass up 4.5%+ yield vs. holding idle cash. 

I’ve written about my plans to hold more cash in the coming year or so, including in this recent dividend income update.

Generally, my thinking is as we consider some semi-retirement in future years:

• Stay/remain mostly equities, I will continue to own my basket of Canadian stocks, U.S. stocks and low-cost ETFs.
• We will maintain a small/modest emergency fund in the form of a higher interest savings account or ISA (Interest Savings Account)>
• We will let cash from dividends or distributions paid, in particular within our RRSPs, accumulate. This cash position will grow for eventual withdrawals in the coming years without selling any stocks or ETFs. 

That’s pretty much the plan right now but I reserve the right to change my mind. 🙂

Q14: Since this is a dividend Q&A, what are five dividend stocks you believe you can hold forever? 

A14: Gosh, forever is a mighty long time!

I wrote a post on that subject back in 2022, some considerations for Canadian and U.S. stocks in fact. Read on!

If I had to narrow my list down to just five stocks only, just five dividend stocks, I would strongly consider the following:

• Canadian National Railway (CNR)
• Canadian Natural Resources (CNQ)
• Royal Bank (RY)
• Fortis (FTS)
• Waste Management (WM:US)

I would own these stocks for a mix of dividend income, growing dividend income and some capital appreciation over time along with sector stability/prominence. 

I know you didn’t ask this question, but I would also own Berkshire Hathaway (BRK.B) stock even though it doesn’t pay a dividend – for appreciation over time.

At this time, I will disclose I own all of these companies above and have done so in some cases for well over a decade. 

Q15: Do you have any advice for someone who is just starting their dividend investing journey or someone like us who is planning to live off dividends one day? 

A15: A few thoughts. 

One, dividends and dividend income is not the be-all, end-all. It’s just part of the total return package. 

Companies and corporations can do many things to deliver shareholder value: they can buy back shares, pay down debt, develop new products and services, acquire other companies, invest (more) in what they already produce and make it better, and yes, they can pay a dividend to their shareholders. So, I’ve written on my site many, many times that dividends are just optionality – you can take the dividend or not (and reinvest it – which is a bet on total return anyhow).

So, if you’re going to own some individual stocks, yes, dividends are great and believe me I love them along with growing them for my semi-retirement plan but the punchline is it’s just one way companies can reward shareholders. 

Second, if you’re just going to “live off dividends” forever, well, you’re likely headed for estate taxation issues as you get older – since you’re likely to leave money on the table for the same reasons I wrote above. Capital appreciation should occur over time since capital appreciation is part of total return, so if you never decide to sell those stocks then growth should continue to occur. 

While we fully intend to live off some dividends in semi-retirement and full retirement, we will absolutely sell stock shares and ETF units over time – I want to enjoy the money I’ve saved and invested since I can’t take it with me. Life is short and precious.

Q16: Finally, which Canadian team will win the Stanley Cup next? Ottawa Senators, Toronto Leafs, Vancouver Canucks, or someone else?

A16: Well, I would love to say Ottawa but with the competition the way it is now, we are at least 5-years out and even then, some major roster changes would need to occur. 

If I had to bet, I would go with Vancouver. 

Sorry not sorry, Leafs Nation. 

🙂

Dividend Growth Investor Q&A series – Wrapping it up

Thank you Mark for appearing on this blog once again. I always enjoy doing these Q&A sessions with you and learn something from you. I’m very happy and excited for you that you’re realizing FIWOOT this year and I look forward to reading more about your new adventures. 

Readers, I hope you enjoyed this Q&A as much as I did. Stay tuned for more Q&As with other dividend growth investors.