Wealth Creation - Millionaire on the Prairie

Money Should Work Harder Than You Do

One of things that I’ve always understood about investing is that money works harder than people are able to. Money never gets tired, sick, distracted, or unmotivated. It literally works around the clock once it has been invested. People can’t do that. People need food, rejuvenation, sleep and time with loved ones. Those items are vitally important to being a healthy person and to living a good life. They also take people away from doing their jobs.

The trick to being healthy, living a good life and earning lots of money is to send your money out to work. Go back to the title of this post and believe what it says. Money should work harder than you do.

There are a few ways around this particular fact, but most of us have to do the initial work to get money. We exchange our labour (aka: life energy) for a paycheque. The paycheque may be from an employer, from our clients, or from our own business. It doesn’t really matter. We give away our life energy and receive money for our efforts.

The purpose of this post is to remind you that you can work towards a situation where you still earn an income to support your lifestyle without having to earn a paycheque. I’ve written before about how your income and your salary are not the same thing. Your salary is part of your income, but it’s not the only element. There are ways to fund your lifestyle without having to earn a paycheque. One of the ways to do this is by increasing your dividend and capital gains income. Dividend income and capital gains income are what I like to call passive income. As far as I’m concerned, passive income is wonderful.

Dividends and capital gains are monies paid to shareholders when companies make a profit. Your goal, should you wish to increase your income, is to invest in companies that pay dividends and capital gains. There are a number of ways to do so, but I strongly recommend exchange-traded funds and index funds. If you want to do individual stock-picking, then more power to you. That’s not my cup of tea because I don’t know how to do it.

Sadly, there is no way around the fact that you likely won’t earn life-changing amounts of dividends and capital gains at the start of your investment journey. Let me be clear. Your invested money will earn passive income. However, it will take some time before your passive income is enough for you to live on. This is one of the reasons why it’s important that you consistently invest each and every time you get paid. Secondly, you should aim to increase the amount you invest. Start with whatever amount you can commit and increase that amount over time.

You have to invest your money in order for it to work for you. The simple idea of investing has never generated a single nickel for anyone. Ask me how I know this. One of my biggest money mistakes was to not start investing my former mortgage payments as soon as that particular debt was gone. Instead, I spent years thinking about starting a dividend-heavy portfolio. I earned nothing while I was, in effect, procrastinating. The month after I stopped thinking and actually started doing, I earned my first dividend. I haven’t looked back since.

Remember how I said that your money should work around the clock? I wasn’t kidding. I set up a dividend re-investment plan, often called a DRIP. This way, my dividends are automatically re-invested into more units of my chosen ETFs and index funds. The dividends don’t sit in my bank account, and I’m not tempted to spend them. They are immediately put to work for the sole purpose of making even more passive income for me. It’s a highly lucrative feedback loop.

If you wanted, you could do the same thing.

Now, even though I’m a big fan of the Financial Independence Retire Early (F.I.R.E.) movement, I’m a super-huge fan of the FI part. I firmly believe that everyone who earns a paycheque should be working towards financial independence. If you part ways from your employer, or are otherwise unable to earn your keep, having a cushion of cash that’s funded by passive income is your safety net. The passive income can replace your earned income, if you choose to go back to work, or it can fund your retirement if you decide that working for a living no longer turns your crank.

Early retirement is not everyone’s goal. Some people love their jobs. There is no reason why they should stop doing what they love. The same cannot be said for financial independence. The best of both worlds is loving what you do and having financial independence. Most of us won’t have the former but all of us can work towards achieving the latter.

However, the money won’t start working for you, nor be there when you need it, unless you start investing part of your paycheque today. So start today – stay consistent – increase the amount you invest as you’re able to – achieve financial independence – live life & be happy!

Taking Stock & Making Tweaks As Necessary

One of the ways to ensure that you meet your goals is to review your progress along the way. Doing so involves taking stock and making tweaks as necessary. No journey is perfect for all people in all circumstances. That’s simply not possible. As a matter of fact, there is no such thing as a perfect journey for anyone. There will always be challenges along the way.

That said, I’m equally convinced that there are some universal mistakes. These mistakes have the power to derail everyone’s path for a very long time if not rectified as soon as possible.

Atleast once a year, you should be assessing your progress. The gyrations of the stock market are out of your control so don’t worry about them. Continue to invest into the market through dollar-cost averaging (my personal preference) or through lump-sum investing. However, you should be taking stock of the things that are in your control and tweaking them as necessary.

Have you increased the amount you’re investing from your paycheque?
Did you set up an automatic transfer from your paycheque to your investment account?
Are you eliminating subscriptions that you never use so that you stop wasting money?
Do you track your expenses so that you know exactly where all your money is going?
Have you ensured that the MERs you’re paying are all under 0.5%?
Are you using a no-fee online bank account so that you don’t have to pay service charges?

In addition to controlling what you can, you should also assess whether you are making any of the following mistakes. And if you are making them, then take the necessary steps to stop. Eliminating these mistakes from your life will allow your money to grow faster so that you can live the life you want.

Again, this is a personal finance space so I try to stick to personal finance topics. Here we go.

Mistake #1 – Never Getting Started

It’s hard to build wealth if every nickel is spent. In order to invest, you need to live below your means and send a portion of your paycheque to your investment account. You can start low and work your way up.

When I was still living in the bosom of the family home, I was able to send $50 to my savings account every 2 weeks. My parents were paying for the big stuff, so I had a leg up on that front. Once I moved out and started working, it was far harder to save that $50 every two weeks. However, I was used to it so I kept doing it even though all of my expenses were on my shoulders at that point. The savings habit had been ingrained.

Start today, where you are. If you can only set aside $5 for investing, that’s better than $0. You’ll increase the amount as you’re able. When a debt payment is finally gone, direct 80% of it to your remaining debts and send the other 20% to your investment accounts. There will come a day when all your debts are gone. Those former debt payments are yours to invest and spend as you see fit.

Mistake #2 – Paying Higher MERs Than You Should

Should is one of those words that invokes judgment. Good. You should be ashamed of yourself for paying more then necessary for your financial products. If there’s a mutual fund that charges a 2% MER and an ETF that charges 0.35%, and they’re both invested in the same things, then use the ETF to build your investment portfolio. Paying an extra 1.65% seems unimportant but it’s a serious blow to your ability to build wealth for Future You. Higher MERs compounded over long periods of time result in the eventual loss of hundreds of thousands of dollars from your portfolio. Money that could have been left to compound over decades was instead paid to someone else via MERs.

Mistake 3# – Failing to Master Your Credit

This one is tricky. Everyone needs credit at some point, but staying out of debt is extremely important if you want to build wealth. It’s extremely hard to invest money if those same dollars have to be sent to a creditor for a past purchase. Maybe you have student loans, credit card debt, veterinary debt, car loans, personal loans to family & friends. It doesn’t matter.

You need to get rid of it. Credit is a tool. It’s also the only way to go into serious, crippling debt if it’s not used properly. Always be very, very cautious about using credit. Pay the bill in full every month. If you can’t do that, then don’t use credit. Get a promotion to increase your income. Find a second job. Start a side hustle. Sell your stuff. Eliminate the fat from your budget and only spend on needs. Do what you have to do to pay cash.

Getting into serious debt is very easy. Getting out of it is very, very hard.

Mistake #4 – Ignoring Your Priorities

Just like the rest of us, you have one precious life. How do you want to spend it? Is there something that’s very important to you? What do you want to accomplish, experience, see & do before you shuffle off this mortal coil? How do you want to spend your time?

Once you have answers to these questions, you’re better able to plan how to spend your money.

Here’s the thing. It won’t always be easy to stick to your plan due to the influence of others. You have family and friends. They love you and they want to spend time with you. So they invite you to do stuff with them – concerts, travel, sporting events, poker night, whatever. And you love your family and friends so you want to be there with them too.

I’m not suggesting that you always say no to invitations, but I am warning you that it won’t always be easy to stick to your priorities. If you’re trying to get out of debt, others in your life might not understand why that’s important to you. Maybe you’re saving to pay cash for a used car. Others might try to persuade you that “everyone” has a car loan so why are you trying to be different?

Now You Know

When you know better, you do better. If you see yourself making mistakes, stop making them. They’re only harmful or fatal to your financial goals if you allow them to continue. Once you’ve rectified them, then you’re moving closer and closer to the life you want for yourself.

You’ve got nothing to lose by spending a few minutes each year taking stock and making tweaks as necessary.

The Boring Middle

The boring middle… I’ve come across this phrase several times in the past two years while perusing various personal finance sites. It refers to the period of time between setting a long-term goal, such as financial independence or retirement, and achieving that goal. From my own experience, it’s an apt term to describe the slog.

Ideally, I would’ve decided to retire early and then won a lottery jackpot a few weeks later. Goal set – goal met! Easy-peasy-lemon-squeezy!

That has not been my reality. It’s been 15 or so years since I set the goal of early retirement… and I’m still working towards it. I’m still in the boring middle! That lottery win hasn’t happened yet, despite my best efforts, so I’m stuck with relying on my paycheques and investment income to build my portfolio. Even after a decade and a half, I still don’t have enough of a cash cushion to amicably part ways with my employer.

Now, that’s not to say that your experience is going to mirror mine. Some people are able to start a successful business and get there much faster. Check out Yo QuieroDinero‘s story of a lady who was able to quit her corporate job in under 10 years and is now living my dream life of travel funded by passive income. She also owns the food blog, Delish D’lites. Here’s the story of a man who was able to get it done in 5 years. The internet offers many, many, many such stories.

I’m not an entrepreneur nor have I had any wildly successful business ideas. I’ve dabbled in rental properties, but my real love is dividend income & capital gains. They’re truly the most passive income out there. In my humble opinion, the only drawback is the amount of time that it’s taken me to build a decent 5-figure income stream from these sources. For me, the boring middle is going to be around for a very long time.

Staying Motivated

Truth be told, I’ve never wavered in my desire for early retirement. Staying motivated hasn’t been a problem. My career has been very rewarding in some aspects, but I don’t love it enough to extend it further than absolutely necessary. It’s not my passion. Unlike Garden Answer, I’m not making a decent living doing what I love. By the way, if you’re an amateur gardener, I’d suggest watching her videos. The flower pictures on this blog are from my yard & others I’ve worked in. I used to be scared to try new things. Now, I’ve got the confidence to tackle larger projects!

So how have I stayed focused during the boring middle?

Firstly, I have many interim goals. Pre-pandemic, most of those revolved around travel. I managed to visit Europe three times in 5 years. For a person whose family did mostly road trips when I was growing up, it’s almost embarrassing to admit that I have no idea how many times I’ve been on a plane. I’ve managed to visit 6 different countries so far. Once the airlines are fully staffed and running with their pre-pandemic efficiency, I’ll be back in the air and visiting more new places. Until then, I’ll be doing roadtrips in my own country and seeing all those homegrown places that are still on my want-to-visit list.

Secondly, automation does a lot of the work for me. I have automatic transfers in place to move my money around each time I get paid. It’s not up to me to remember to send money to my investment portfolio. There’s never any temptation to spend that money on something else, just this once. The result is that I can go about my day-to-day life without having to worry about whether I’m moving closer to or further from my goal of early retirement. I don’t have to focus on the boring middle because automation is doing 97% of the money-moving work for me. Once a month, I buy more units in my chosen ETFs and then I’m done.

Thirdly, I enjoy the present. It’s summertime! And that means I get to indulge in my amateur gardening skills. Yay! I spend late winter and early spring planning out what I want to buy and where I want to plant things. After the long weekend in May, I get shovels & trowels into the dirt. I’ve decided that I’m only going to put perennials in the ground. All of my annuals will go into containers. This choice makes things way easier on my lower back and knees, neither of which are getting any younger.

Time with family and friends helps me in the boring middle. I realize that focusing solely on money and retirement isn’t healthy. I need to have good, solid relationships with others too. Spending time with my family friends creates and nourishes the truly important bonds in one’s life. As I’ve said before, you cannot have a relationship with money. So while I’m in the boring middle, I don’t have to have a life that’s boring. I’m building relationships. I’m reading, cooking, baking, traveling, gardening, etc… There’s a lot of life to be lived outside of financial goals. I don’t want to miss any of it.

Day By Day

Set your goals and make a plan. The boring middle lasts as long as it lasts. Maybe you’ll figure out a way to shorten it. If so, good for you! If not, that’s okay too. Don’t spend your life wishing it away. Focus on your priorities. Live below your means. Drink enough water. Be present when you’re with family and friends. Build strong relationships with people who are worthy of your time and energy. Invest your money consistently. Time will do the rest.

Invest your money bit by bit until you’re rich.

Look… I’m not an expert on the economy. I don’t have crystal ball, nor can I tell the future. I’m in the same boat that you are – inflation is way up, house prices are crashing, mortgage rates are increasing, stock markets are wildly volatile.

What does all this mean from one day to the next?

I don’t know. And neither does anyone else.

During these economic challenges, my financial goal is to stay on track. I can’t control the stock market, but I can control whether I continue to invest. For a very long while, I’ve shaved off a good chunk of my paycheque and have automatically invested it into my various exchange-traded funds. When the market was going up, I was investing. And when the market was going down, I was still investing. Right now, the market is correcting. Guess what? I’m still investing my money, bit by bit.

My advice to you is that you should be investing too. Start where you are right now. Pick a broad-based equity fund and automatically have some of your money invested into it every time you get paid. Start with $1/day. When you’re able, increase that amount to $5/day – then $10/day – then $20/day. And if you want to invest even more than that, be my guest. The more money you invest, the better.

You start where you are, and you do what you can. I’m not going to promise that it will be fast or easy, but I can assure you that the formula is quite simple. Consistently investing some of your money on a regular basis will work.

The Talking Heads of the Financial Media should be ignored. They cannot tell you your future because telling the future accurately is an impossible thing to do. Their job is simply to talk about what might happen. Listening to them will not calm you down. I would even venture to say that one part of their job duties is to increase ratings & views. Right now, there are enough economic shocks and global catastrophes to keep their doom-and-gloom chinwag flowing for a very long time.

Again, you should ignore them. Concentrate on your own goals.

You need to focus on that which is in your control. Despite how it may seem, you have more power than you may think where it comes to your money. Firstly, you can control how much you choose to invest from your disposable income. If you invest $0 today, then you’ll have $0 tomorrow. The more you invest and the longer you leave it to grow, then the more money you will have. It’s that simple.

Secondly, you get to control whether to listen to the Talking Heads. Go back and re-read what I just wrote. They are to be ignored while you stick to your knitting. Quick refresher! Your “knitting” equates to consistent investment in equity-based ETFs or index funds over a long period of time, regardless of whether the market is up or down.

Thirdly, you are in control of ensuring that you choose to re-invest the dividends and capital gains to increase the power of compounding your returns. Dividends and capital gains are money that you didn’t have to sweat for. You lived without them before you earned them. Continue to live without them and just re-invest them. At first, they’ll be worth pennies and maybe a few dollars. After a few years, you’ll be earning thousands. They will continue to get larger so long as you re-invest them for further growth.

Finally, you and only you control whether you start today or whether you allow procrastination to flourish. It should be obvious by now that I want you to stop procrastinating. Do not let analysis paralysis stop you. Start investing today. You won’t make a “perfect” decision, and that’s okay. Nobody else is making “perfect” investing decisions either. Just start today.

From here on out, I want you to be investing bit by bit until you achieve your financial goals. Start today. Keep going when it’s hard. Don’t stop until you’re rich. That’s it – that’s the plan. Implement it.

Slow and Steady – My Dividend Story

Way back in 2011, I started to invest in dividend funds. I started with a bank’s mutual fund, then moved my money into an index fund with an investment company, and I’ve now finally settled on a couple of exchange traded funds.*** I had a goal of creating a steady stream of passive income. What could be more passive than dividends? I work once. Then I invest my money into dividend-paying investments. Those investments pay me dividends for as long as they live in my portfolio. It was a simple and brilliant plan!

So I stuck to my slow and steady method of building my dividend portfolio. I’d paid off my mortgage very, very early so I used my former mortgage payments to invest. And there was nothing wrong with my vehicle so I didn’t buy a new one. Instead, I invested my former car payments. My career was still young, which meant I was getting salary increases over the years. I used half of each increase to improve my day-to-day life, but the other half went to invest in my portfolio.

The plan was very simple. Buy dividend-paying investments for a very long time then use the dividends to pay for life’s expenses in retirement. I wanted my dividends to be a reliable source of cash flow when my paycheque disappeared.

Was my plan perfect? No! Have I always made the correct choices when writing my dividend story? Again, no!

There are so many things that were wrong with my plan. One, I didn’t start early enough. You see, I paid off my mortgage in 2006 but I didn’t start investing beyond my RRSP and TFSA until 2011. That was 5 years of simply living. I travelled and renovated to my home. My RRPS and TFSA were stuffed to their limits, but it took me a little while to realize that I could be investing in my non-registered portfolio.

Secondly, I failed to appreciate how long it would take. Dividends are wonderful, and I love each of mine equally! However they don’t grow very fast without exceedingly huge up-front investments. Remember, I was investing both my former mortgage payment and my former vehicle payment. That was not a small amount of money. Even with a dividend re-investment plan, it took many years before I saw note-worthy effects of compounding. Earning four figures in dividends each month did not happen overnight. Today, I’m consistently earning over $2,000/mth in dividends… yet it’s still not enough for me to retire comfortably. I’d been hoping that my dividends would exceed my contributions by now, but that’s yet to happen. I’m close but not quite there. All in good time…

With the benefit of hindsight, I see that my portfolio would have grown much faster and been much larger had I invested the exact same amount into an equity-based, growth product. Between 2009 and 2020, the stock market was on a bull run. My portfolio would’ve grown exponentially larger had I invested differently. Growth ETFs and index funds generated much better returns that my dividend products. Growth products were a lot more volatile, and their distributions were not as frequent. At the time, I didn’t know as much as I do now so I saw those factors as deterrents. I chose dividend products, but I would have had more money in my kitty today had I chosen equity products.

Thirdly, I didn’t take the time to find other dividend investors and learn from their experience. Several years after starting my dividend story, I found Tawcan’s website and truly started to learn about how to invest in dividend-paying stocks. His system is more sophisticated than mine, but my armamentarium has benefitted from his lessons. I’ve often wished that his website had been around when I was in high school. I could’ve started down this investment journey from my first job as a grocery store clerk! If wishes were horses, then beggars would ride.

I’m sharing my dividend story with you because it’s important that you know that you don’t have to be perfect when it comes to investing. For all my mistakes, and they weren’t small ones, I’ve met my goal of building a passive stream of income to help pay for my living expenses in retirement. The effects of compounding are noticeable now, as my annual dividend payment is increasing thanks to the DRIP feature.

There were a few things that I did perfectly.

First, I chose to live below my means. Once the necessities were paid, I didn’t spend every other nickel on my wants. Some of those nickels were diverted to investing. This is key. A portion of every raise was re-directed towards my investment goals. I’ve travelled and attended concerts and spent weekends in the mountains and bought gifts and contributed to charity and bought garden supplies and worked on craft projects and bought furniture and paid for parking and etc, etc, etc… However, I have always made sure to pay myself first from every paycheque.

Second, I picked a path and stuck to it. There is no one perfect path for everyone. My imperfect path works for me and it will get me where I want to be. I’m a huge proponent of buy-and-hold. It’s an investing philosophy that has worked for me over the years. I don’t watch the stock market ticker. And I have little faith in my ability to time the market. How can I possibly know in advance which stocks will take off and which ones will fail? Buying into ETFs means I don’t have to do all of the rigorous financial analysis myself.

Third, I stayed out of debt. This can be tough, but it’s doable. I had to say “No” to myself, a lot. I didn’t want debt payments to creditors. Instead, I wanted contribution payments to my future. Please don’t think I deprived myself. When I wanted something badly enough, I found a way to get it. I simply chose not to want everything that the AdMan told me I should want.

Fourth, I ignored the incessant chin-wag of the Talking Heads of the Media. I learned early on that they couldn’t predict my future. They didn’t know the particulars of my circumstances. I had a very healthy skepticism about whether their “advice” and “insights” would be useful for me. Instead, I stuck to what I understood.

In my humble opinion, dividends are an excellent source of passive income. All things considered, I can’t say that I regret making the choice to invest in them more than a decade ago. While I may never reach the dividend income of this particular individual who earns $360,000 per year in dividends, Part 1 and Part 2, I’m satisfied with what I’ve been able to accomplish on my own. My dividend story is not too shabby, if I do say so myself!

*** The reason for so many switches? Each move from one product to the next meant that my management expense ratio decreased. First, I was paying over 1.76% of whatever amount I was investing when I was in the bank’s mutual fund. When I learned about index funds, I transferred my money from the bank to the private investment company, where I started paying an MER of 0.75%. Along came exchange-traded funds and I reduced my MERs even more, so that I paid 0.55%. Today, I’m paying 0.22%. My thinking is simple. Why should I pay higher MERs for the exact same investment product?

Getting Good Advice

When it comes to your money, you want to get good advice. The problem is that it’s very hard to know if you’re getting good advice, or whether you’re being scammed.

For my part, I’ve built my portfolio by myself and I started when I was a young adult. All told, it took me more than 25 years before I went to see a fee-only financial planner. He took my information – he crunched my numbers – he told me that I could retire 2 years earlier than I’d planned. His fee was worth every penny!

Bank Advisors

Reader of Long Association know that I’m not terribly fond of banks. I hate paying bank fees. For the most part, I think lines of credit are poisonous. Debt is not something I encourage people to have. If you take away debt & fees, banks have precious little to offer their clients. My impression of bank advisors is similarly dim.

Banks offer mutual funds to their clients. However, the bank’s offerings are generally more costly than what can be purchased elsewhere. Advisors from Bank A will sell you mutual funds with management expense ratios of 1%-2%. They will not tell you about nearly identical products that can be purchased for 0.35% or less, i.e. exchange traded funds (ETFs).

The advisors who work for banks are not bad people, necessarily. They’s simply employees. Part of their job is to sell their employers’ products to the bank’s customers. They are trained and are knowledgeable about financial products. However, the terms of their employment are such that they will never advise customers to check out the competition’s investment products. Advisors working for banks will never encourage customers – you – to go and see if the same product can be obtained for a lower price. This is just a simply fact. Advisors at Bank A receive their paycheques from Bank A, not from you. Since you’re not paying them, the advisors’ interests are more aligned with their employer’s than with yours.

I went to a Bank near the start of my investment journey. It was a less than great experience.

Was I getting good advice? No.

Did the bank charge me a high management expense ratio? Yes.

As I learned better, I did better. Time to move on.

Investment Companies

After my experience with buying mutual funds from the Bank in my early twenties, I decided to invest with one particular investment company. They had a slick marketing folder, an office in the mall near my job downtown, and I liked their website. What other criteria could I have possibly needed to choose an investment company?

I have no idea if that company is still around. What I do remember is that they charged atleast 1% for their mutual funds. The management expense ratios (MERs) were the same as, or a touch lower than, the Bank’s.

Was I getting good advice? No… but atleast more of my money was directed into my investments and not being paid out in MERs.

As time passed, I moved my money to a different investment company that had far lower MERs for their products. While this second company did not have an office in the mall, they did have a much better website and a wider array of products. (Throughout my whole investment journey, I never stopped reading about money and investing. As I learned more, I made better choices. Like they say – when you know better, you do better.)

I improved my portfolio mix by moving to the second investment company and I saved money on the MERs I was paying. Further, the second company was easily able to set up an automatic transfer from my chequing account to my investment account. Each time my paycheque landed in my bank account, the investment company would scoop out a portion of it to be added to my investment portfolio. This was a free service! Once I’d set it up, I never had to think about it again. I could go about my daily life knowing that my money was being investing for the Care and Feeding of Future Blue Lobster. All was well… for a time.

Bear in mind that I never stopped learning. I continued to read more books from the library and I delved into online articles about money & investing. That’s how I came to learn about ETFs and index funds, investment products that mirrored mutual funds for a much lower price. In other words, I could re-create the same portfolio by replacing expensive mutual funds with cheaper ETFs and pay even lower MERs. Eventually, I had to accept the fact that my second investment company’s MERs were too high when I could get the nearly-identical portfolio elsewhere for less money. Though I really enjoyed the convenience of my second investment company, that convenience wasn’t worth paying higher MERs. Whatever wasn’t diverted to paying MERs would instead be invested for long-term growth. I realized that I could improve my returns by investing my money into ETFs so that’s why I did.

Self-Directed Learning and Investing

At some point in my investment journey, I had opened a self-directed brokerage. When it was time, I moved my portfolio from my second investment company to my brokerage account. In a few simple keystrokes, I sold the mutual fund products and bought ETFs from BlackRock (aka: iShares). Unlike my last investment company, this one did not make withdrawals from my bank account. I had to set up my own automatic transfer so that I could buy units every month. And since I was using my brokerage account, I had to pay a commission.

Big deal! The money I was saving on my MERs was more than sufficient to cover the monthly commission fee. My twin goals were being met: consistently investing every month and saving money on my MERs.

What could be better?

Vanguard Canada was better. By the time Vanguard came to Canada, my self-directed investment education had already led me to its US counterpart. I was ready for their Canadian arrival. Now, I didn’t sell anything from my BlackRock holdings. For the most part, I’m a buy-and-hold investor. The exceptions I can remember were moving from the Bank to the investment company, between my investment companies, and then from my last investment company to my brokerage account.

Instead of selling investments, I simply re-directed future investment dollars to Vanguard’s products instead of BlackRock’s. Again, Vanguard’s offerings were nearly identical to BlackRock’s and Vanguard’s cost less. There was no good reason to pay more money for the same damn thing.

My Fee-Only Advisor

Despite the pride I felt in building my investment portfolio, I wanted an objective review of what I had done. My goal was to retire early on a certain income. Despite my years of self-tutelage, I’d never discovered the formula that could give me a straight answer. Could I retire when I wanted? Or was I looking at another 15 years of work?

So after 25+ years of investing on my own, I went to a fee-only financial planner to get the answers to my questions…. The news was good. It was better good – it was great! He told me that I was on track and that I could retire two years earlier than I’d planned. Woohoo!

For the first time in my investing life, I was getting good advice. The financial planner pointed out a few weaknesses in my investment strategy. He offered me a tentative, new plan and explained how it could improve my returns going forward. However, he also assured me that I had done a very good job by myself and that my goals would be met whether I followed his suggestions or not.

When it comes to getting good advice, I’m a fan of fee-only financial planners. They work for the customer, who is you. They make recommendations, but they don’t sell investment products. That means that they don’t get a commission from someone else for making certain recommendations or pushing the investment-product-of-the-month. You’ll pay a fee for them to analyze your current situation and to create a plan whereby you will meet your financial goals. They will give you advice and it’s up to you whether to follow it.

Have I made mistakes? Yes – many mistakes. I didn’t get great advice to start. The only rule that I’ve always followed was to live below my means. (Even when I was stupid in 2008/2009 and stopped investing when the market crashed, I just piled up money in my savings account until it was “safe” to start investing again.) I saved and invested and switched my investments and kept learning-learning-learning … then more than 25 years later, I finally went to a professional advisor.

Getting good advice is worth the effort. It allows you to reach your goals faster and more efficiently. Though I am self-taught, I have benefitted from many resources over the years. I’m confident that I have the knowledge to separate the good advice from the bad as I continue to fulfill my financial goals. You can do it too. Start today. Save – invest – learn – repeat. When you know better, you’ll do better. I promise.

Power thru the volatility & stick to your knitting

There’s no doubt about it. We’re in a period of volatility in the stock market. For the first time, in a long time, there’s been a run of “down” days. The stock market has been in the red and the market has closed lower than the day before. I do not claim to be any kind of expert on such things, but even I can see that the value of my portfolio is dropping too. This is entirely due to the fact that I’m invested in the stock market.

So what’s my next move? What steps should I take to make my portfolio go up?

Short answer: it’s time for me to stick to my knitting!

I can’t do anything to move the stock market the way I want it to go, which is up. The factors I control are how much I contribute, how often, and into which investment. Everything else is out of my hands. Over the long term, the stock market goes up. This has been proven repeatedly in the past. I have no reason to think it won’t go up again in the future. So I’m going to power thru the volatility.

And you should power thru the volatility too.

I view what we’re experiencing now as a correction. It’s happened before, and it will happen again. Corrections are completely normal! Do the Talking Heads of economic media generate a lot of jibber-jabber about them? Yes, they do…. because that’s their job. The jibber-jabber results in viewers, which translate into ratings, which translate into money.

Pay them no mind. Stick to you knitting.

When the 2009 correction rolled around, I made one of my biggest ever investing mistakes. I stopped making regular contributions into the market. In other words, I halted my dollar-cost averaging system of investing. I froze like a deer in the headlights because I focused on the jibber-jabber. I stopped my contributions for 3 months. Yikes! Huge mistake! Doing so meant that I wasn’t investing at the bottom, when the market was at its cheapest. I waited until the recovery and then I re-started my investment system. This was one of the stupidest moves I have ever made, and I promised myself that I would never make that particular mistake again!

Learn from mistakes wherever you find them.

You need not make this mistake yourself. Don’t stop contributing to your investments just because we’re in a period of volatility. Trust in your plan. You’re investing for the long-term, remember?

There have been subsequent corrections, and I’m happy to say that I’ve kept my promise. No matter what, my automatic transfer funnels money from my chequing account to my investment account and I buy units in my ETFs on the appointed day. My investment strategy has remained consistent ever since 2009.

These past two weeks haven’t been fun. No one likes to see the value of their portfolio decrease, including me. I’ve decided to stop checking the value of my portfolio for a little while. Before this correction started, I would check the value each day and smile to myself. Lately, my smile’s been turned upside-down. I’ve chosen not to torment myself. My transfer will remain in place, and I will continue to invest in my selected ETFs. However, I’ll check my portfolio’s value less frequently.

This is the lesson I learned from the 2009 correction. The stock market will never go to 0. It will go up and down, but it will never go all the way down to 0. I’m investing for the long haul. Even after retirement, there’s a good chance I’ll be around for another 20-30 years. This means I still have decades of investment ahead of me. (Whether I’ll be investing as much during retirement as I do now remains to be determined.) There is no point in worrying about the day-to-day gyrations of the stock market when I’m still invested for the long-term.

Allow me to very clear on this next point – I am not an expert. My wisdom, such as it is, comes from years of personal experience. I cannot predict the future, and I don’t know your particular circumstances. I am not qualified by anyone to give you expert advice. What I say is based on what has worked for me & for those in my circle who discuss such things. I fully admit that my experience is not going to be the same as yours.

That said, I want you improve your odds of ensuring that Future You is financially secure. Continue to invest in the stock market. Take a long-term view. Keep atleast 60% of your portfolios in equities. Invest on a regular basis. Stick to your knitting and ignore the jibber-jabber. Save – invest – learn – repeat. Power thru the volatility and enjoy the rewards on the other side of this correction.

My 5 Most Successful Steps to Retiring As I Wish

Ever since I started working, I’ve been thinking about the day that I can stop – for good. Thankfully, I’ve had very good jobs and worked with amazing people. My work has been challenging and my tasks have been interesting. All that said, work is not my passion in life. I’m not one of those people who bounds out of bed every morning because I’m excited to get to the office. Nope. I’m willing to admit that I’m happier with life when I’m not at work. Whether it’s two weeks away on my annual vacation, two days away on a weekend, or a day off during the week for whatever reason. I’m always happier with my life when I’m not at work.

Thankfully, I learned this truth about myself when I was quite young. As a result, I started my retirement planning when I was 21 years old. Here are the most successful steps that I’ve taken over the years to maximize the odds that I can retire as I wish.

Contributing the Maximum to my RRSP

In hindsight, maybe it wasn’t the best decision to start investing in my Registered Retirement Savings Plan at age 21. I still remember my parents’ accountant telling me that taking the tax deduction while I was a student wasn’t the best idea. He didn’t have any qualms with me contributing to my RRSP but he thought I should wait to claim the deduction in the future when I’d graduated and was working in my chosen profession.

Looking back, I can see that his advice was very good. Admittedly, I didn’t really understand it. My lifelong love of learning about all things personal finance was nascent so I didn’t appreciate the wisdom of his words. At 21, I happily claimed the deduction and spent it on some item whose memory thereof has been lost to the mists of time.

Stupid decision or not, the RRSP-habit was formed. I have contributed the maximum allowable amount to my RRSP every single year since age 21. The money first went into GICs, then into mutual funds, and finally it is now all invested in exchange traded funds. As I learned better, I did better. Over the years, my MERs have dropped and my returns have skyrocketed.

Contributing the Maximum to my TFSA

In 2009, the federal government introduced the Tax Free Savings Account. I can still recall sitting at my computer desk and hearing the words come out of the Minister of Finance’s mouth as I listened to the recap of the federal budget. My head whipped around and I immediately started paying attention. What had he just said? There was going to be a new way for me to save money without paying taxes? Tell me more!

My wise younger sibling then said the following to me:

“Blue Lobster, for you, the TFSA is just another retirement savings vehicle.”

Lightbulb on!

Ever since it’s been available, I have been making the maximum contributions to my TFSA. These contributions have never been sullied by interest rates incapable of matching inflation, as are offered by GICs, nor have they been brutalized by the higher-than-necessary MERs of mutual funds. Nope. I immediately put my TFSA money to work in dividend-paying ETFs.

After another discussion with my accountant, I decided that my TFSA could be used to create a tax-free stream of income in retirement. If I invested in dividend-paying ETFs, then I could withdraw the monthly dividends from my TFSA in retirement. It would be tax-free cash flow. Cha-ching! There was also the tiny little benefit that money from my TFSA wouldn’t impinge my ability to get OAS payments.

Was this the smartest use of my investment? Probably not. I now listen to the wisdom of Bridget Casey of Money After Graduation, and she’s convinced me that I should’ve gone for growth by investing in different equity ETFs. She’s probably right. There was a bull run in the stock market from 2009 to 2020. My TFSA would be bigger had I made different investment choices.

Contributing a Good-Sized Chunk of my Paycheque to my Brokerage Account

This is where the rubber really hits the road. Once I’d paid off my mortgage, I had a good bit of money remaining in my bank account every two weeks. (For the record, I’m a big believer in accelerated bi-weekly mortgage payments.)

Instead of spending that money on this-and-that, I put it to work in my non-registered investment account at my brokerage. My former mortgage payments went straight into ETFs. As with my RRSP & TFSA investments, I put everything on the dividend re-investment plan. When I got raises, I diverted some of the newly-earned money to my investment portfolio and some of it went to increasing my standard of living. As time passed, I was able to get to the point where I’m investing 1/3 of my net pay into my brokerage account and living on the rest.

Staying Away from Debt

In today’s world, it is very hard to avoid all debt. I understand that. I don’t like it, but I understand it.

For my part, I’ve had student loans, vehicle loans and a mortgage. Thankfully, I’ve never had revolving credit card debt. In the interests of transparency, I’ll admit that I do use my credit card but I pay the balance in full every single month.

However, I don’t have debt. The last time I bought a vehicle was in 2008. I used my line of credit and I did everything possible to pay off that LOC-debt within 6 months. It sucked but I didn’t care. I knew that having a car loan for 5 years would’ve sucked too. In my mind, 6 months of short-term sacrifice was well-worth the extra 4.5 years of car-loan freedom. And, yes – my former car loan payments were re-directed to my investments once that debt was gone.

My house has been paid off for 15+ years. While the property taxes, utilities and insurance aren’t cheap, my housing costs are far less than they’d be if I still had a mortgage to pay on top of everything else.

Life without debt is generally better. Instead of money going to your creditors, it can be re-directed to paying for your life’s dreams. It’s best avoided altogether. And if you can’t avoid debt, then minimize it to the greatest extent possible. While it’s in your life, do whatever you can to get rid of it as soon as possible.

Playing the Lottery

Bet you weren’t expecting that one, were you?

It’s true. I play the lottery every week – to the tune of about $20/wk. Even though it hasn’t yet paid off, I consider this one of my most successful steps.

I’ve heard that the lottery is a tax on the stupid, and that those who can’t do math are the ones who play the lottery. I don’t care. The fact of the matter is that I can’t win if I don’t play. Someone has to win and it might as well be me.

Let’s face facts. I’m contributing the max to my RRSP and my TFSA. One third of my paycheque is going into my investment portfolio. I don’t have any debt. Spending $1040 per year on lottery tickets is not going to make or break me. My retirement plans are still on track. If I win the lottery, they’ll just get a fantastically, awesome boost and I can retirement today instead of tomorrow.

Playing the lottery is my indulgence and I’m not giving it up. Other people will spend their disposable income as they wish. I will too. No judgment.

Final Thoughts on Why I Save So Much

I’ve been working in my current position for a long time now. Believe me when I say that my feelings towards working haven’t changed. I’m still happier when I’m not at the office. And I say this despite the fact that I have mentally challenging work. I’m rarely ever bored by my work. My colleagues are truly wonderful people who carry their weight and are always there for me when I need guidance, advice, or mentorship. My bosses are all fairly good people. And while I would never turn my nose up at a raise, the truth is that my compensation allows me to live the life I want. Even my benefits are not too shabby. All in all, I have a working situation that many others can only dream of yet I’m still far happier when I’m at home or with family or on vacation.

I have no illusions that my feelings are unique or that others prefer working to spending time doing what they love with those whom they love. The difference between me and them is that I’ve created a financial foundation for myself where work is becoming optional. This blog post is about the most successful steps I’ve relied on during my working life. Thanks to them, I’ve put myself in a position where I don’t have to allow my paycheque to be the overriding factor in decisions about my life. If my paycheque were to disappear, I wouldn’t have to find another one immediately… or at all. I have the comfort of knowing that my investments – and hopefully a newspaper-worthy lottery win! – will replace my paycheque when I’m ready to part ways with my employer.

Know Your Ex-Dividend Date & Maximize Cash Flow from Dividends

This post is about creating cash flow by understanding ex-dividend dates. Buying a share in companies that pay regular dividends is way to creating passive income for yourself. Once invested, your money will be put to work. The dividends will come to you for as long as you own the shares. It’s a great way to create a steady cash flow for your later years, when you’re no longer will or able to send your body out to work. If you’ve sent your money out to work instead, then you have some assurance that it will generate an income for you at some point.

I am not promising you that this method of generating a retirement income will be quick. I’ve been investing for decades. While I’ve learned a lot along the way, I’m still not at the point yet where my dividends can support my current lifestyle. My first dividend payments amounted to tens of dollars per year, then hundreds of dollars per year. I’ve finally reached the point where I’m earning a five-figure amount of dividends on an annual basis. It’s comforting to have that passive income, even if I still have to rise-and-shine for my employer most days of the month.

You should definitely consider whether a dividend portfolio would be a good fit for your finances. If you need to hear an inspiring story about someone who did phenomenally well at divided investing, then please check out this 2-part interview at the Tawcan blog.

Dividends & Date of Record

Companies pay dividends to shareholders who buy their shares before the ex-dividend date. There is a date of record that entitles shareholders to a portion of the profits that are distributed as dividends. It’s a very important date to know if you’re planning to receive dividends. If you aren’t listed as an owner of the underlying security on the date of record, then you won’t be paid any dividends even though you bought shares or units in that security.

Every stock, mutual fund, index fund or exchange-traded funds that pay dividends will list their ex-dividend date on their website. Personally, I have a good chunk of my portfolio invested with Vanguard Canada in the VDY ETF. This ETF pays dividends on a monthly basis. I receive dividends based on a distribution price per unit. For the most part, I know in advance just how much money I’ll receive from this security before it’s paid to me. I simply multiply the number of ETF units I already own by the distribution price to be paid. So long as I’ve bought my units before the ex-dividend date, I can get an accurate amount of the dividends that I will receive on the payment date.

Click on the link and scroll down to the bottom of the page. There, you will find the distribution frequency for VDY. Pay attention to the ex-dividend date. If I wanted to be paid on any new purchases of ETF units, then I would have to buy those new ETF units before March 31, 2022 in order to get paid dividends on those units on April 8, 2022. This is because I have to be listed as the owner of those new units on the record date, which is April 1, 2022. If I’m not listed as an owner on April 1, 2022, then I won’t be paid for those units in the month of April. Instead, I’ll start receive payment for those new units in the following month.

As I said earlier, companies pay dividends to those who are listed as an owner of the underlying security on the date of record.

Creating a Cash Flow of Passive Income Takes Time

Knowing the ex-dividend dates of the securities that you’re buying will help you to forecast your cash flow. Once armed with this information, you have the ability to know exactly when you’ll be receiving your passive income.

In the interests of transparency, I can advise that I spent years and years investing in dividend-paying ETFs. (In October of 2020, I tweaked my investment strategy and have been investing new contributions into VXC.) My two dividend ETFs of choice are VXC and XDV. As with VXC, the link for XDV will disclose its distribution dates and amounts. Both of these ETFs pay me dividends every month.

I track my purchases on a spreadsheet. Each month, I update my spreadsheets with the distribution price. This way, I’m able to calculate how much passive income I’ll be earning. It’s awesome! Unlike the money from my 9-5, these dividend payments are effort-free money. Contributions to my portfolio that were made 10 or more years ago are still churning out passive money for me.

When I was a child, my parents purchased bank stocks for my brother and I. I still own them today. Those stocks have paid me dividends for decades. I just wish my parents had been wealthy enough to buy me more! Now that I’m at my current stage of life, perhaps I should do that for myself.

Procrastination is your enemy

When it comes to investing, procrastination is a cancer. It slowly and irrevocably eats away at the potential growth of your portfolio. Your money must be invested in order to work its hardest for you. Creating a steady, reliable cash flow based on dividends won’t happen through wishing and hoping and good thought. You need to actually invest the money then leave it alone to do its thing.

If you let procrastination win, then you’re not investing before the ex-dividend date. That means you don’t receive your dividends until the following month. At the start of your investment journey, you might be missing out on a few cents or maybe just a dollar. Big deal, right? It is a very big deal. The sooner you receive your dividends, the sooner you can re-invest them through a dividend re-investment plan aka: DRIP.

While you’re building your dividend portfolio, you want to earn dividends as soon as possible. They can be re-invested with your regular contributions so that the following month’s dividend payment is even bigger. Compound growth is a key to increasing your dividend payments every month. If you invest after the ex-dividend date, you’re not doing yourself any favors.

Now, I know that you can only invest when you have the money in hand. This is why I suggest that you set up an automatic transfer so that a chunk of your paycheque is diverted to your investment account. Doing so means that you have money to invest. Sometimes, the transfer will take place after the ex-dividend date. While this is unfortunate, it’s also out of your control. You cannot invest what you don’t have.

By the same token, procrastination is entirely within your control. I don’t want you to set up an automatic transfer and just let the money accumulate. If it’s not invested, then your money isn’t being given the opportunity to grow. When you’re interested in pursing cash flow through passive income, then you need to be investing your money in dividend-paying securities as soon as you can. I do my investments every month, but you may want to do your investing quarterly or every other month or once a year. Whatever you choose, ensure that it’s result of your choice and not the result of procrastination.

As with everything you learn in life, you have the option of how to put the lesson to use. If you want passive cash flow, then start today. Get your money invested. Buy your securities before the ex-divided date. Then go about your daily life while your dividends do their thing in the background.

Is now a good time to invest in the stock market?

Yes.

Short though the answer may be, it is accurate. Today is the best time to invest in the stock market.

Since the start of 2022, my portfolio has seen a lot of volatility. My personal definition of volatility is that its value has moved between $7,000 and $15,000 in one day. Some days the swings are negative, and my portfolio value has dropped. Other days, the swings are positive and my portfolio has increased. Either way, I count it as volatility. During the Big Market Drop of 2020, my portfolio lost $247,000! It might have lost more, but I simply stopped checking it at that point.

Do I enjoy volatility? Not particularly, but it doesn’t bother me very much. I’m the same as most everyone who invests – I don’t want to lose money. No one wants to lose their investment! After all, we’ve worked incredibly hard to earn the money to invest in the first place and a loss means that all that hard work was in vain.

One of the secrets I’ve learned over my many years of investing is to never lock in your losses when the market is volatile. If you buy at $10/unit, and the price drops to $5/unit, then that’s a 50% loss. If you sell when the price is down, then you’ve locked in your loss – and that’s not a good thing. The key is to keep your money invested because the stock market’s trend over the long term is to go up.

Check out this image from personalfinanceclub.com which visually explains why stock market investors should ignore short-term volatility. It’s a picture of a person walking up the stairs while working a yo-yo. The yo-yo’s up and down movement represents the daily gyrations of the stock market. The stairs represent the long-term upward trend of the stock market.

If you stay invested for the long term, you will be financially rewarded. Your portfolio will be bigger than your initial investment. Yay for you!!!

Now, I have to caveat that last statement. This works for equity-based exchange traded funds and for equity-based mutual funds. If you decide to invest in a single stock, then you’d better have far more insight and wisdom than I do. You’ll do what you want, but I would suggest that you stay away from individual stock picking until you’re a sophisticated investor. It is between extremely hard and impossible to determine which stocks are the ones that will make you rich over the long-term. For my this very reason, I don’t invest in single stocks.

All of my money is invested in exchange-traded funds. ETFs are very diversified because they hold a basket of stocks that have done well over time. When one of those stocks starts doing poorly, it is removed from the basket and replaced with something else. When I invest in my ETFs, I don’t need to do the stock analysis to determine which stocks are good and which ones aren’t. That analysis is done for me. I can spend my precious time doing other things I enjoy. For example, last night I tried this absolutely delicious recipe for Thai Yellow Chicken Curry instead of poring over a prospectus. My portfolio continued to work in the background while I tried my hand at something new and tasty.

Money needs time to compound. The sooner compounding starts, the bigger your money will grow. Now is a great time to invest in the stock market! War breaking out? Check! Social unrest somewhere? Check! Inflation spiraling? Check! Devastating natural disaster? Check! There will always be some world event that makes the stock market volatile. That’s just how life goes with 8 billion people on the planet. Don’t let those extremely disturbing events stop you from investing in the stock market. Money that is not invested today never benefits from compound growth. You can’t go back 20 years and start your investment portfolio. You have today so start today. Once lost, time can never be recovered.

Do Future You a favor and start investing in the stock market via equity-based exchange traded funds. Start today. Set up an automatic transfer to your investment account so you’re investing on a regular basis. Personally, I invest every month. I know others who invest every 90 days. There are those who invest once a year. The key is that the investment gets made. Once you’ve started your investment journey, continue to learn about personal finance and investing. Start where you are and build from there because when you know better, you do better.