Dividend Growth Investor Q&A series – Robb Engen

Years ago I randomly set a goal of becoming financially independent via dividend income by 2025. By randomly I meant I didn’t really crunch any numbers and simply selected a year out in the future.

With 2025 just around the corner, we aren’t too focused on becoming financially independent and putting pressure on ourselves. Instead, we are enjoying the journey. We know we will be financially independent soon, it’s a matter of when, not if anymore.

Therefore, we have been focusing more on low yield high dividend growth stocks over the last few years. We also have been adding more index ETFs like XAW and QQQ to increase our portfolio diversification.

Having blogged for 10 years, I am blessed to have the opportunity to connect with like-minded people in the personal finance and FIRE community. Everyone is so kind and friendly when it comes to sharing knowledge and learning from each other.

Wanting to keep the dividend growth investor Q&A series well-balanced, I decided to interview Robb Engen from Boomer and Echo who has been blogging since 2010.

Robb used to be a dividend investor and turned into an index investor many years ago. I was nervous at first when I asked Robb about a Q&A on dividend investing because I thought he’d decline. To my relief, he agreed to the interview.

Q1: Welcome to the blog Robb. Please tell us a little bit about yourself.

A1: Hi Bob, thanks so much for inviting me to share my story. I’ve always been a big fan of your blog!

Tawcan: Thank you!

Well, I turn 45 this year. I’m married with two teenaged daughters. And I live in Lethbridge, Alberta.

I’m an advice-only financial planner, meaning I charge a flat fee to give comprehensive financial planning advice to my clients. It started as a side-hustle, offering basic money coaching services to blog readers, but eventually grew into a full-fledged business.

Late in 2019, I quit my job as a fundraiser for a post-secondary institution to go all-in on my blog, financial planning business, and freelance writing gigs. My wife and I work together on the business from our home office.

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

A2: Many years ago, I worked in the hospitality industry and one of my mentors (the general manager at the time) got me to take advantage of the company’s employer matching savings plan.

I started putting away money every month, and added to it whenever I received a bonus. I remember sitting down with the HSBC advisor and investing those contributions into a global growth mutual fund (I want to say the MER was something outrageous like 2.7%).

I left that job in 2009 and had the opportunity to transfer the funds to my own self-directed account at TD Waterhouse. I was reading MoneySense at the time and was drawn to Norm Rothery’s excellent articles on dividend investing and the dividend “all-stars”.

I moved $25,000 into my brokerage account and bought 10 “beat the TSX” stocks. This was in mid-2009, just after the bottom of the great financial crisis when stocks rebounded like crazy. I thought I was pretty, pretty smart! My portfolio was up something like 34% that year, and that sparked my love for investing and dividend paying stocks.

I also started devouring any personal finance content I could come across, including my favourite blog – Million Dollar Journey. It inspired the creation of my own blog – Boomer & Echo – in 2010, a place where I could document my own money journey as I navigated a new world of DIY investing, opening RESPs for my kids, building a house, taking a job with a defined benefit pension, etc.

Q3: Congratulations on moving into your new house recently. Walk me through why you & your family decided to build your new house. Looking back, would you make the same decision today knowing all the work involved? What are some key lessons you’ve learned?

A3: Thank you! It’s our dream house, but the decision to build it came totally out of the blue. We walked into a show home one day, sat down with a builder, and talked about the lots they had available and some of their house designs that we liked.

It turned out they had a lot available in a location we absolutely loved. Our kids were about to transition to new schools (high school and middle school), and this location was ideal for both (with a bonus view of the mountains for us!).

We put a deposit on the lot, worked with the builder on the design, and signed a purchase agreement within a few months.

Of course, in hindsight the timing was absolutely brutal! Inflation was rising, which was affecting the home builder and our purchase price went up accordingly, and then interest rates started to soar. We had to use a HELOC from our existing house, plus take on new debt in the form of a builder mortgage (a variable rate loan that we’d use to fund the builder’s deposit requirements during the phases of construction).

We also had to sell our existing house – and try to align the timing with our possession date – which was a moving target. Meanwhile, house prices had fallen from their previous pandemic highs and we had very few showings.

But, I’m a planner and had contingencies in place in case we couldn’t sell our house on time (or in case the costs on our new house build went over budget). We shored up cash inside our small business and put some travel plans on hold until we had more certainty about our situation. We even drained our TFSAs to top-up our downpayment rather than adding to our line of credit at 6-7% (keep in mind we didn’t know how far interest rates would eventually climb).

I’m happy to report the house was within our budget, we sold our existing house for more than I anticipated, and aligned the possession date and move-out date within a week of each other. We love our new house – it’s exactly what we had hoped for and we’re so excited for this next chapter of our lives. We’re busy filling up our TFSAs again and hope to have them maxed out within four years.

The biggest lesson I learned was to plan for the unexpected (like interest rates rising by 5% in a year)!

Q4: Are you utilizing Smith Maneuver to allow you to write off the interests? Why and why not?

A4: I didn’t like the Smith Maneuver when interest rates (and stock prices) were much lower. I like it even less today. I mean, before you get to deduct any interest on your taxes you need to service the debt at 7.2% interest for an entire year. If stock prices fall, which is not out of the realm of possibilities, it’s like having a cash flow negative rental property that just fell in value. Not ideal!

I want to keep my personal finances as simple as possible. Optimize RRSP, maximize TFSA, prioritize short-term goals as needed, and otherwise move on with my life.

Besides, I never liked the end game with the Smith Maneuver. Is there one? What do you do with it in retirement, when your tax rate is much lower than it was during your working years? Do you even need an investment loan to deduct?

Q5: Many years ago, like us, you invested in dividend stocks. What got you started with dividend stock picking?

A5: As I mentioned earlier, it was Norm Rothery’s articles on dividend investing, and subsequent ‘Beat the TSX’ approach that got me started with dividend investing. The blogs I was following at the time, like Million Dollar Journey, were also mostly invested in dividend stocks. Index funds just weren’t as mainstream as they are today.

I also liked Tom Connolly’s blog on dividend growth investing. It made a lot of sense at the time. I had this dream of building a dividend churning machine that would sustain me throughout retirement without ever touching my capital. Dividend investing certainly had an allure to it.

Tawcan: When I started investing index ETFs weren’t as mainstream as they are today too. This was probably the key reason why I went with individual dividend stock too.

Q6: You closed out all your dividend stocks and went with a straightforward index ETF (VEQT) approach a number of years ago. Could you explain why you went with this route?

A6: The transition was a few years in the making. First, once I had built up a portfolio of around 20-25 individual stocks, I had a hard time finding new ideas. Maybe I needed a better rules-based system, but I had stuck with Canadian blue-chip stocks and frankly there aren’t that many of them. I started to stray into smaller dividend paying stocks. I was also struggling with the idea of “buying stocks when they are value priced”. I was saving aggressively and wanted to grow my portfolio, not sit with cash on the sidelines waiting for stocks to fall in price.

I diligently tracked my returns against the TSX and a dividend ETF (CDZ) and was doing well in comparison. But 2015 was a rough time for the energy stocks in my portfolio, with several of them getting cut in half.

I know it was just one year, but my personal returns were well below my benchmarks. My own judgement wasn’t adding value versus just buying and holding the index. I realized it would be very difficult to consistently keep up with or beat the index over many decades of investing.

I also expanded my reading. Daniel Kahneman’s Thinking, Fast and Slow, was hugely influential and got me thinking about my own behavioural biases when it comes to investing and decision making.

Dan Bortolotti (Canadian Couch Potato) published an excellent myth-busting series on dividends that challenged my prior beliefs about investing. Dividends weren’t magic, they were just one part of a stock’s total return.

Finally, the investing landscape was evolving for the better. I had no interest in building and maintaining a portfolio of 7-10 individual ETFs like the ones Dan offered up as model portfolios for index investors prior to 2015.

But along came ETFs like the Vanguard FTSE Global All Cap ex Canada Index ETF (VXC) and I realized that I could own the entire global stock market with just two funds (VCN and VXC). Something clicked and I immediately sold all my Canadian dividend stocks and set up my two ETF solution.

Later, the landscape evolved even further with the introduction of asset allocation ETFs – including Vanguard’s All Equity ETF (VEQT). Eager to consolidate further into an all-in-one, self-rebalancing fund, I sold my two ETFs and bought VEQT in all of my accounts and haven’t looked back.

Tawcan: I happen to like these all-in-one ETFs a lot too. They’re very simple and straight forward. In fact, I have been recommending coaching clients to start with them before tapping into dividend stocks (if they choose to). We invest in XEQT for both kids’ RESP.

Q7: Are you saying that one should simply avoid dividend investing? Or there any benefits with dividend growth investing that some people are ignoring? Like potential psychological boosts when the market is down?

A7: Keep in mind this has been my journey and evolution with investing. I realized I wasn’t cut out for individual stock picking. I hated that I was constantly logging in and checking on my babies (pro tip: if you have pet names for your stocks then you are probably too emotionally invested in them!).

The best investment plan is a sensible one that you can stick with for the long-term. There are plenty of successful dividend investors who enjoy the process of stock picking, have a preference for growing investment income, and/or have legacy goals to live off their dividends and leave a large estate behind. That’s all good in my book!

And also keep in mind when we started investing. Back in 2009, we had blogs and MoneySense magazine and stock trades were $29 per buy/sell. It was a different world. I absolutely think that investors starting today who want to self-manage their portfolio should just stick with a single asset allocation ETF.

Be honest, it’s how you’d advise your neighbours, work colleagues, friends, or relatives to invest. We eat, sleep, and breathe personal finance and investing. Most people do not. It would be irresponsible to suggest buying a bunch of individual stocks just because it “worked for you” over the past 15 years.

The landscape today is so different. With a single fund on a commission-free trading platform you can buy the entire global market for as cheap as possible and move on with your life. I’d argue that should be your default portfolio, from which you’d need a pretty compelling reason to deviate.

Tawcan: Personal finance does not have a one size fits all solution. That’s why it’s so interesting. People need to understand this key point.

A very good point on investing landscape. Discount brokers like Questrade with much lower trading commissions than $29 changed the Canadian investing landscape years ago. But WealthSimple Trade really changed the game by offering zero commission trading.

Q8: Mark Seed from My Own Advisor and I not only invest in dividend stocks but index ETFs as well. What are your thoughts on hybrid investing?

A8: I like the hybrid approach a lot better than simply buying individual stocks. If I understand right, hybrid investors for the most part buy individual Canadian stocks and then use index funds to access the US and international markets.

I think that’s a smart approach, especially if you like the process of stock picking – sticking to your Canadian blue-chippers isn’t likely to get you into much trouble.

Q9: Do you believe home bias is a critical mistake that many Canadians make? Why is it important to focus on investments outside of Canada?

A9: I am old enough to remember when the federal government imposed foreign content limits in your RRSP (no more than 30% of your portfolio), so a lot of home bias could be traced back to a legacy policy like that.

Still, home bias is a big problem for most countries outside of the US. We tend to invest in what we know, which typically includes domestic companies. It’s also a lot easier to invest in individual stocks that trade on a Canadian stock exchange in Canadian dollars.

A recent Vanguard paper said that the average Canadian investor has 52.2% of their portfolios in Canadian stocks – which is 48.8% higher than Canada’s global market cap.

But the same paper argued that some home bias is a good thing, both behaviourally and to deal with the effects of foreign currency conversion (we live in Canada and spend Canadian dollars, after all). They suggested no more than 30% domestic equities and 70% international equities.

I’ve also heard PWL Capital’s head of research Ben Felix say that a domestic weighting of 3% to 30% equities can make sense, depending on your preference for Canadian stocks.

Q10: If you were to summarize your philosophy of dividend investing, what would that be?

A10: My philosophy as a dividend investor was to buy dividend stocks when they are value priced and hold them for the long term. I can’t say that I followed that approach exactly, but that was the idea.

Now I think companies that pay dividends tend to have the same characteristics that we find in known risk factors like value and profitability. In other words, companies that pay dividends tend to be fairly priced and highly profitable – traits which tend to outperform stocks that are highly priced and have low profitability.

It’s those traits that lead to good long-term performance, not the dividends themselves.

I think many dividend investors confuse that point and think that dividends are magical (or worse, free money).

Q11: Your investing strategy has evolved over the years. What are some of the challenges you have faced? Do you see your investing strategy evolving moving forward?

A11: Well, being so public with my personal finance and investing journey has obviously opened me up to scrutiny. I lost blog readers when I made the move from dividends to indexing. I’ve had people mock me, saying I just couldn’t cut it as a stock investor so now I’m “settling” for mediocrity.

John Maynard Keynes has been credited with saying, “when the facts change, I change my mind. What do you do, sir?” I love that quote and I think it applies to my investing journey. I just didn’t know what I didn’t know. And I’m sure in 10 or 20 years I’ll look back at my past self and think the same thing. At least I hope I do – it means I’m constantly evolving.

Right now, I’m only investing in one known risk factor – market beta. I’m ignoring other factors such as size (small stocks beat big stocks) or value (value beats growth). If the investing landscape evolves further so that I could capture a reasonable tilt towards size and value factors in a single, low-cost, self-rebalancing, rules-based, Canadian-listed fund then I’d absolutely consider switching again.

Tawcan: It’s too bad people mocked you when you switched from dividends to indexing. We should be more open to different ideas.

Q12: 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?

A12: My wife and I invest within our corporation and so the tentative plan when we retire is to withdraw dividends from the corporation (see, I’m still using dividends!) and then start withdrawing from our RRIFs and my LIF at 65 to take advantage of pension income splitting. We’ll delay CPP and OAS to age 70.

So, corp first, then RRSP and LIRA, then TFSA last (if needed).

This all assumes I retire or at least slow down enough by age 55-57 so that we can get funds out of our corporation before 65 or 70 at the latest. But I like what I do, so we’ll see 😉

Q13: Not investing related. You and I both like to travel. Did you head overseas this summer? Are you planning any more trips? If so, tell me about them.

A13: Yes, we had an epic trip this summer centred around a Taylor Swift concert in
Zurich (two teenage daughters, what can I say?). We flew to London and stayed for three nights, took the Chunnel to Paris and stayed for four nights, took the train to Zurich for two nights (and the concert), travelled to Lauterbrunnen for a classic Swiss mountain village experience. We then rented an electric car and drove to Lake Como to stay for five nights. We closed out the trip with two nights in Venice and flew home from there. It was a ton of fun!


We are heading back to Scotland, our favourite country on earth, for 10 days later this year.
We’re staying in Edinburgh (Dean Village) and are planning some day-trip excursions from there.

Q14: You invest in VEQT which is 100% equities. Are you planning to transition to VGRO and increase your bond exposure once you’re in your 50s? Or are you planning to increase your bond exposure via bond ETFs?

A14: There was an interesting paper by Scott Cederburg recently that challenged the traditional lifecycle investing advice (moving from equities to bonds and cash as you get closer to and throughout retirement).

He was on the Rational Reminder podcast and said, “the internationally diversified equity portfolio (50% domestic and 50% international) ends up being safer during the retirement period compared with a target date fund that’s getting you into bonds. You’re actually less likely to run out of money during retirement if you’re remaining in 100% equities.”

Interesting, right? And I like to say that I’m an emotionless robot when it comes to investing, so I think I have the temperament to stick with a 100% global equity approach even throughout retirement.

Bonds can actually be quite risky to hold in retirement as they don’t hold up well during periods of high inflation (as we’ve seen recently), so your portfolio can lose a lot of purchasing power if it’s more bond heavy.

Many of my retired clients opt to hold a cash wedge, putting 10-15% of their portfolio in a high interest savings ETF and the remaining 85-90% of the portfolio in their regular investments. This may not be “optimal” for overall wealth, but it is a nice behavioural trick since you can simply make your withdrawals from the cash bucket and you should have enough funds in there to last 12-24 months before needing to sell stocks to replenish your cash bucket.

Q15: Do you have any advice for someone who is just starting their investing journey?

A15: Read Dan Bortolotti’s, “Reboot Your Portfolio”. Watch Shannon and Justin Bender’s video on how to choose an asset allocation ETF. Open a self-directed brokerage account. Buy a risk appropriate asset allocation ETF. Contribute regularly. Ignore short-term market movements and stock picking pundits. Go enjoy your life.

Q16: Any final comments you’d like to share with us to wrap up this Q&A?

A16: Bob, you’re one of the good ones! You’ve been blogging and sharing your wisdom for a long time. I know we don’t have the same investing philosophy, but I know you want the best for your readers and they’ve likely done well with your advice and guidance over these many years.

I want to thank you for inviting me to share my investing journey with your readers. It was a lot of fun!

Dividend Growth Investor Q&A series – Wrapping it up

Thank you Robb for agreeing to answer these questions and providing a more balanced view on dividend investing vs. index investing. I always enjoy reading and learning different views.

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

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6 thoughts on “Dividend Growth Investor Q&A series – Robb Engen”

  1. Thank you for the interview and commentary. As a recent retiree, I am still trying to come up with a reasonable way of handling our portfolio – some very good thoughts here to consider!! Currently in a number of secure dividend stocks and a number of growth stocks, but we are still looking at finding ETF’s that will do all this for us without too much effort on our part. Thank you for the ideas presented. We will be spending some time looking at these.

    Reply
  2. Was really fun to read this interview!

    Frankly, I’m also gravitating towards this hybrid approach. It’ll be much simpler and I’m also seeing the return some of the ETFs is far higher than what I’m seeing with my “picks”. And as much as I love finance and the idea of dividend investing with stocks, I find myself too busy (yes, an excuse) and tired to monitor this as much as I would like to.

    A question: How do you suggest allocating these from a tax optimization perspective?

    Do you agree with the below?
    VCN – non registered
    VXC – RRSP

    Reply

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