They said no compelling bargains in market...

[vinod1]

Liberty,

 

I wish you the very best of luck! Look forward to more of your wonderful posts if you do decide to retire.

 

FYI - I do not know if you have kids, but expenses have dramatically increased for me kids. This is partly due to housing, as after kids we realized there are lots of benefits to being in a better school district even though school ratings are mostly junk since they are just correlated to demographic profile. And houses in good school districts are 2x to 2.5x of average school districts in our area.

 

Vinod

[Liberty]

Liberty,

 

I wish you the very best of luck! Look forward to more of your wonderful posts if you do decide to retire.

 

FYI - I do not know if you have kids, but expenses have dramatically increased for me kids. This is partly due to housing, as after kids we realized there are lots of benefits to being in a better school district even though school ratings are mostly junk since they are just correlated to demographic profile. And houses in good school districts are 2x to 2.5x of average school districts in our area.

 

Vinod

 

We have a 1-year-old son. Over the past year, and the years before as we observed the many people around us who had kids, it became quite clear that kids can be as expensive or inexpensive as you want. And a lot of what people spend on kids isn't actually things that make them happier and better people. In fact, the best thing for most kids would be to spend more time with their parents, and to see those parents be stress-free and happy.

 

Most people spend all their time away from their kids to earn enough to buy a bunch of crap that the kids don't even notice and that they would gladly trade for more time with their parents (do they care if you drive a BMW instead of a Honda or that you have granite countertops instead of wood?).

[gary17]

Speaking of housing and kids...

 

http://www.theglobeandmail.com/life/home-and-garden/real-estate/5-kids2-adults1000-sq-ft/article23875496/

 

 

[vinod1]

Liberty,

 

I wish you the very best of luck! Look forward to more of your wonderful posts if you do decide to retire.

 

FYI - I do not know if you have kids, but expenses have dramatically increased for me kids. This is partly due to housing, as after kids we realized there are lots of benefits to being in a better school district even though school ratings are mostly junk since they are just correlated to demographic profile. And houses in good school districts are 2x to 2.5x of average school districts in our area.

 

Vinod

 

We have a 1-year-old son. Over the past year, and the years before as we observed the many people around us who had kids, it became quite clear that kids can be as expensive or inexpensive as you want. And a lot of what people spend on kids isn't actually things that make them happier and better people. In fact, the best thing for most kids would be to spend more time with their parents, and to see those parents be stress-free and happy.

 

Most people spend all their time away from their kids to earn enough to buy a bunch of crap that the kids don't even notice and that they would gladly trade for more time with their parents (do they care if you drive a BMW instead of a Honda or that you have granite countertops instead of wood?).

 

Between me and my wife having taken about a 7 digit aggregate pay cut over a 4-5 year period, to spend more time with kids, I cannot agree with you more.

 

I stopped going to office from the day my son was born, working from home for 7 years that offered a lot of flexibility. Finally I quit my job entirely when my wife was pregnant with our second. I used to take frequent unpaid 3 month time off as well. Main motive was time with kids. 

 

A good school district brings a lot of intangible benefits that I did not realize before my son started going to school. Moving to a good school district though increased our housing costs quite a bit.

 

Vinod

 

 

 

 

[Investmentacct]

 

>>>houses in good school districts are 2x to 2.5x of average school districts in our area.

 

Also, if you see the data for last 5 years since downturn in home prices lasted in 2010-2011-2012; houses purchased in good school district around that time have outpaced in appreciation by the same factors and multiples. And, meanwhile, rents have increased proportionally as well.

 

Liberty,

 

I wish you the very best of luck! Look forward to more of your wonderful posts if you do decide to retire.

 

FYI - I do not know if you have kids, but expenses have dramatically increased for me kids. This is partly due to housing, as after kids we realized there are lots of benefits to being in a better school district even though school ratings are mostly junk since they are just correlated to demographic profile. And houses in good school districts are 2x to 2.5x of average school districts in our area.

 

Vinod

 

We have a 1-year-old son. Over the past year, and the years before as we observed the many people around us who had kids, it became quite clear that kids can be as expensive or inexpensive as you want. And a lot of what people spend on kids isn't actually things that make them happier and better people. In fact, the best thing for most kids would be to spend more time with their parents, and to see those parents be stress-free and happy.

 

Most people spend all their time away from their kids to earn enough to buy a bunch of crap that the kids don't even notice and that they would gladly trade for more time with their parents (do they care if you drive a BMW instead of a Honda or that you have granite countertops instead of wood?).

 

Between me and my wife having forgone about a 7 digit aggregate pay cut over a 4-5 year period, to spend more time with kids, I cannot agree with you more.

 

I stopped going to office from the day my son was born, working from home for 7 years that offered a lot of flexibility. Finally I quit my job entirely when my wife was pregnant with our second. I used to take frequent unpaid 3 month time off as well. Main motive was time with kids. 

 

A good school district brings a lot of intangible benefits that I did not realize before my son started going to school. Moving to a good school district though increased our housing costs quite a bit.

 

Vinod

[Investmentacct]

Not sure about spending $2,150 on monthly rent forever and thinking it's an economical option; when you can get same place subsidized place cheaper.  Is it  only applicable in Canada.? Or why someone would need 500K downpayment for similar space?

 

Speaking of housing and kids...

 

http://www.theglobeandmail.com/life/home-and-garden/real-estate/5-kids2-adults1000-sq-ft/article23875496/

[no_free_lunch]

Liberty,

 

I wish you the very best of luck! Look forward to more of your wonderful posts if you do decide to retire.

 

FYI - I do not know if you have kids, but expenses have dramatically increased for me kids. This is partly due to housing, as after kids we realized there are lots of benefits to being in a better school district even though school ratings are mostly junk since they are just correlated to demographic profile. And houses in good school districts are 2x to 2.5x of average school districts in our area.

 

Vinod

 

We have a 1-year-old son. Over the past year, and the years before as we observed the many people around us who had kids, it became quite clear that kids can be as expensive or inexpensive as you want. And a lot of what people spend on kids isn't actually things that make them happier and better people. In fact, the best thing for most kids would be to spend more time with their parents, and to see those parents be stress-free and happy.

 

Most people spend all their time away from their kids to earn enough to buy a bunch of crap that the kids don't even notice and that they would gladly trade for more time with their parents (do they care if you drive a BMW instead of a Honda or that you have granite countertops instead of wood?).

 

Between me and my wife having taken about a 7 digit aggregate pay cut over a 4-5 year period, to spend more time with kids, I cannot agree with you more.

 

I stopped going to office from the day my son was born, working from home for 7 years that offered a lot of flexibility. Finally I quit my job entirely when my wife was pregnant with our second. I used to take frequent unpaid 3 month time off as well. Main motive was time with kids. 

 

A good school district brings a lot of intangible benefits that I did not realize before my son started going to school. Moving to a good school district though increased our housing costs quite a bit.

 

Vinod

 

 

 

 

 

I agree with these statements.  You are investing your time in a new version of yourself.  The money you could have made couldn't replace that time investment.

[innerscorecard]

Liberty, very happy to hear of your possible decision! You are a great living example to me.

[oddballstocks]

Liberty,

 

I wish you the very best of luck! Look forward to more of your wonderful posts if you do decide to retire.

 

FYI - I do not know if you have kids, but expenses have dramatically increased for me kids. This is partly due to housing, as after kids we realized there are lots of benefits to being in a better school district even though school ratings are mostly junk since they are just correlated to demographic profile. And houses in good school districts are 2x to 2.5x of average school districts in our area.

 

Vinod

 

We have a 1-year-old son. Over the past year, and the years before as we observed the many people around us who had kids, it became quite clear that kids can be as expensive or inexpensive as you want. And a lot of what people spend on kids isn't actually things that make them happier and better people. In fact, the best thing for most kids would be to spend more time with their parents, and to see those parents be stress-free and happy.

 

Most people spend all their time away from their kids to earn enough to buy a bunch of crap that the kids don't even notice and that they would gladly trade for more time with their parents (do they care if you drive a BMW instead of a Honda or that you have granite countertops instead of wood?).

 

Between me and my wife having taken about a 7 digit aggregate pay cut over a 4-5 year period, to spend more time with kids, I cannot agree with you more.

 

I stopped going to office from the day my son was born, working from home for 7 years that offered a lot of flexibility. Finally I quit my job entirely when my wife was pregnant with our second. I used to take frequent unpaid 3 month time off as well. Main motive was time with kids. 

 

A good school district brings a lot of intangible benefits that I did not realize before my son started going to school. Moving to a good school district though increased our housing costs quite a bit.

 

Vinod

 

This is awesome congrats!

 

I echo Liberty.  Kids can be expensive if you want, or cheap.  My wife and I are still living on the budget we set up before we had two kids.  Some things have gone up, but you can be frugal and cut in other areas.

[gokou3]

Reasonable assessment.  There are certainly no easy pickings, if there ever were.  I have been liquidating Leaps in favour of dividend payers.  My major prerequisite is companies that can fund their dividend, even in a downturn, and have raised the dividend sometime within the last year or two.  I am willing to overlook a cut to the divvy in 2008/09 if it has been bought back up.  No dieing businesses in this lot. 

 

I am now able to completely live off the dividends - good to be in Canada in this case.

 

Al,

 

When you said "good to be in Canada in this case", are you referring to the tax-advantaged treatment of dividends from Canadian companies?  I would really love to know some good Canadian dividend payers; I have a pretty bad record investing in Canadian companies in general.

 

Yes. 

 

I have held in the past and rebought recently: Russell Metals -'its running back up fast;

Seaspan (US) see thread - its running up again; Mullen Transport - I love this company - got hammered down late in 2014 with oil panic;

 

Newer: First National - my mortgage lender and the biggest in Canada.  My Equifax score is 850 out of 900 to give you an idea of their customers - < 5% subprime.  Closely held.

 

Bird Construction - small position - I am still studying it.

 

Royal Bank - small position - not especially cheap but they have never, ever cut their dividend

 

bought some AT&T today (US obviously) - small - a work in progress. 

 

Sirius XM Canada - xsr - held by Sirius XM.  This one pukes cash.  I am a little hesitant here as I dont completely grasp the business, and the potential competition from streaming. 

 

The biggest positions are SSW, MTL, and FN. 

 

The conversion of US dividends to CDN is working really well in RRSP accounts. 

 

JPM and WFC common - more for cap gains potential than dividends.

 

.thats about it.

 

Thanks Al.  Good list of companies to study on.

 

I have had some successes with the Brookfield group of companies.  Management guys are shrewd value investors.  Pays about 4-5% dividends (technically distributions of various sorts) with annual group of 5-9%.  They target 12-15% total return.  Of course talk is cheap, but they have a long track record to back it and they seem to still have a long runway ahead.  I have not put in a lot of money with them because I aim for even higher returns, but if I ever want to put my portfolio on autopilot I would commit a substantial % of money to Brookfield.

 

 

 

[Liberty]

This is awesome congrats!

 

I echo Liberty.  Kids can be expensive if you want, or cheap.  My wife and I are still living on the budget we set up before we had two kids.  Some things have gone up, but you can be frugal and cut in other areas.

 

We don't have a budget, but we track expenses, and looking at the graph of the past few years, I don't see a noticeable jump since my son was born. The "kids are super expensive" is one of those things like "life's so expensive these days, who can put money aside?" that just isn't true for most but the very poorest, but is quite convenient for people who want to sell you things or convince you that you need a gold-plated everything to be happy.

 

My grandmother had 12 kids. She raised them by herself since my grandfather was out doing mineral exploration up north most of the year. They lived on a farm without electricity for a while when my mother was young. We're so fricking rich these days, we don't even realize, or truly enjoy it, because people make the unconscious choice of massive lifestyle inflation rather than keeping a solid margin of safety and letting that compound over time.

[Liberty]

meiroy, you misunderstood me. Read what I wrote earlier in the thread; what benefits kids most is to be with their parents, and to have happy and stress free parents. Buying a BMW or a granite countertop doesn't help your kids, yet most people spend most of their money on crap, and they work all the time to afford all that crap, rarely seeing their kids who end up being raised by strangers. That's when money problems and stress don't strain the relationship of parents. Education isn't just in school. I intend to teach my son all kinds of stuff that I never learned in school, and to build a strong relationship with him, and I wish my father had done the same with me, but he was always working.

 

And I wasn't talking about sending them to a crappy school or whatever to save a few bucks. The whole idea is to figure out what really matters and what doesn't, and most people fail miserably at that.

 

The example of my grandmother was just to show that she didn't have any margin of safety. She had the bare essentials (though a medieval peasant might have found her life luxurious, it's all relative). But today, we do have a surplus, except we just spend it all on unnecessary crap rather than buying our freedom and independence, things that I find a lot more valuable than what most people around me spend their money on.

 

I don't know if you deleted your post because you changed your mind or not, but that's my reply.

[mbower]

Going along with Liberty's posts, here's an interesting article in the NY Times about the CEO of a private credit card processing company that will now pay all of his employees at least $70,000.

 

http://www.nytimes.com/2015/04/14/business/owner-of-gravity-payments-a-credit-card-processor-is-setting-a-new-minimum-wage-70000-a-year.html

 

My favorite part is this excerpt - 

 

"The happiness research behind Mr. Price’s announcement on Monday came from Angus Deaton and Daniel Kahneman, a Nobel Prize-winning psychologist. They found that what they called emotional well-being — defined as “the emotional quality of an individual’s everyday experience, the frequency and intensity of experiences of joy, stress, sadness, anger, and affection that make one’s life pleasant or unpleasant” — rises with income, but only to a point. And that point turns out to be about $75,000 a year."

[KinAlberta]

This is a great thread. It's been very rare that the debate over dividends vs buy backs vs capital allocations gets beyond the simplistic investment discussions (tax efficiency, etc) and gets into the reality of people's lives, ages, retirement needs, etc.

 

For a long time I didn't care whether or not a dividend was paid.  (Bought BRK in the early 1990s, etc.) However, the fact that I've aged and got closer to retirement, and witnessed what has happened to the Japanese market has made me realize that if I do plan to make withdrawals from my accounts in say the next 20 years, then I do need to care about cash flows. I may not be able to count on a rational market properly pricing shares at fair or higher valuations when I need cash flow.

 

Now, if you don't need cash flow and will pass your whole estate on to the kids or donate it... Some clarity here...

 

Capital Recycling at Elevated Valuations: A Historical Simulation

Posted on April 12, 2015 by philosophicalecon@gmail.com

 

"Because share buybacks are functionally identical to reinvested dividends in terms of their effects on total return, and because the Total Return EPS index assumes that all share buybacks are conducted at the same valuation, the index effectively tells us what the Total Return to investors would have been if the effect of changes in valuation had been completely removed."

 

http://www.philosophicaleconomics.com/2015/04/recycle/

[writser]

A 5% dividend yields exactly the same result as using the dividend money for buybacks and you selling 5% of your position. You end up with the same amount of cash and the same stake in the same company (ignoring taxes etc.). I completely agree with the sentiment that it *feels* wrong to have to sell shares to pay for your retirement. However, that's just our brain playing tricks with us. You should look at the total return of capital, regardless of whether they are tender offers, buybacks or dividends. Only if there is no return of capital _at all_ you might get into a difficult spot when you're retired because you might be forced to sell holdings at unfavourable prices.

[Uccmal]

A 5% dividend yields exactly the same result as using the dividend money for buybacks and you selling 5% of your position. You end up with the same amount of cash and the same stake in the same company (ignoring taxes etc.). I completely agree with the sentiment that it *feels* wrong to have to sell shares to pay for your retirement. However, that's just our brain playing tricks with us. You should look at the total return of capital, regardless of whether they are tender offers, buybacks or dividends. Only if there is no return of capital _at all_ you might get into a difficult spot when you're retired because you might be forced to sell holdings at unfavourable prices.

 

Your last line there sums up the issues I have with total return.  I am now in a position, at least temporarily, where I need the regular income to fund my life.  As I mention above I have deliberately chosen stocks in the last year that pay good dividends, and will keep paying them, with a strong value bent.

 

I have been investing for 20 years.  That's long enough to have seen my portfolio drop 40-50% a couple of times! and 70% once.  Writser, Would you want to be selling stock into a 50% correction?  A prolonged correction? - I have been down 20% or more for a couple of years at a stretch. 

 

I don't know about your Country, but I can make up to 60-70k in dividends without paying any tax (Canadian Dividends - US/EU are counted as income).  So, combined I can have 30-40 k, considered income, and 25-30 considered dividends, and pay no tax. 

 

Conversely, capital gains are taxed less favourably - they count as income regardless of the source. 

[Liberty]

Al & al,

 

My plan right now is kind of to have a few years worth of expenses in cash, to live off that, and to replenish that buffer periodically when something is at a level that I can sell. If there's a big drop, historically things tend to fall fast but usually within two years things have had time to recover, at least to a level that isn't terrible if I have to sell some.

 

Have you looked at that kind of "cash buffer" approach and if so, why did you reject it in favor of finding dividend payers? Is it because it's less predictable, so it doesn't feel good? That's a worry that I have, that I would be constantly thinking about that buffer, and if I can avoid the extra stress, that would be nice.

[Jurgis]

Your last line there sums up the issues I have with total return.  I am now in a position, at least temporarily, where I need the regular income to fund my life.  As I mention above I have deliberately chosen stocks in the last year that pay good dividends, and will keep paying them, with a strong value bent.

 

I have been investing for 20 years.  That's long enough to have seen my portfolio drop 40-50% a couple of times! and 70% once.  Writser, Would you want to be selling stock into a 50% correction?  A prolonged correction? - I have been down 20% or more for a couple of years at a stretch. 

 

I don't know about your Country, but I can make up to 60-70k in dividends without paying any tax (Canadian Dividends - US/EU are counted as income).  So, combined I can have 30-40 k, considered income, and 25-30 considered dividends, and pay no tax. 

 

Conversely, capital gains are taxed less favourably - they count as income regardless of the source.

 

I agree that Canadian treatment of divvies as you described make them more attractive than in US.

 

Regarding divvies vs cap gains vs downturns: so you have to pick companies that pay divvies and won't stop paying them during the 50% market downturns. This limits the investable universe quite a lot. Are you sure you are not sacrificing long term returns if you do that? Cause if you do, you might win the battle but lose the war: you get divvies now, but have problems 10-20 years down the road when your portfolio has not grown enough. E.g. if I had to buy KO or JNJ for divvies and divvie payout security, I'm not sure I'd be happy with their future return (although I might be wrong and the return might be fine). While on the other hand JPM might satisfy divvie payout and possible future growth but probably has lesser divvie payout security.

 

Anyway, it does depend on a personal situation and personal portfolio. Your solution might work perfectly fine for you. I don't think there is a single right answer.

 

Take care

[Uccmal]

Al & al,

 

My plan right now is kind of to have a few years worth of expenses in cash, to live off that, and to replenish that buffer periodically when something is at a level that I can sell. If there's a big drop, historically things tend to fall fast but usually within two years things have had time to recover, at least to a level that isn't terrible if I have to sell some.

 

Have you looked at that kind of "cash buffer" approach and if so, why did you reject it in favor of finding dividend payers? Is it because it's less predictable, so it doesn't feel good? That's a worry that I have, that I would be constantly thinking about that buffer, and if I can avoid the extra stress, that would be nice.

 

That is probably my ultimate goal.  Unfortunately, I live with others who have their own needs and wants.  Having a cash hoard is a little like a honey pot sitting around to be wasted on home renovations and so forth. 

 

I sort of use a line of credit to smooth my cash flow.  Also, I still carry margin debt, so it makes a cash hoard difficult.  I want it all dispatched before interest rates (if/when) rise too high to service.

 

a bit of colour:

 

1 - LIRA - locked in RSP - cant touch for another 10 years - some bragging for writser: (started at    23 k 9 years ago - now worth 100 k) - un levered, no cash can be added.

2- Regular RSP - no longer contribute to it.  Future tax avoidance in mind.  I may start to withdraw from it next year to minimize future taxes.

3- Modest pension coming from 13 yrs. with my most recent employer - can take cash, or leave and collect at 60 or 65, at assorted different rates (probably will leave it - it is held external to the employer). 

4- Kids RESP mostly fully funded based on reasonable return rates and age of kids.

5- TFSA - BTW - dont ever buy options in a TFSA - Losses aren't tax deductible.  My TFSA is fully funded and up about 30% total return.

6- CDN/US margin accounts - I carry the debt right now in the US side which is convenient as the CDN dollar rises - the debt shrinks without me doing a thing. 

7- Of course there is home equity

8- If things get really dire there is Old age security, CPP etc.  I don't expect I will ever actually see this on an after tax basis.

 

That's sort of how I work things. 

 

I have a similar system for my Wife's accounts but less money.

[Uccmal]

Your last line there sums up the issues I have with total return.  I am now in a position, at least temporarily, where I need the regular income to fund my life.  As I mention above I have deliberately chosen stocks in the last year that pay good dividends, and will keep paying them, with a strong value bent.

 

I have been investing for 20 years.  That's long enough to have seen my portfolio drop 40-50% a couple of times! and 70% once.  Writser, Would you want to be selling stock into a 50% correction?  A prolonged correction? - I have been down 20% or more for a couple of years at a stretch. 

 

I don't know about your Country, but I can make up to 60-70k in dividends without paying any tax (Canadian Dividends - US/EU are counted as income).  So, combined I can have 30-40 k, considered income, and 25-30 considered dividends, and pay no tax. 

 

Conversely, capital gains are taxed less favourably - they count as income regardless of the source.

 

I agree that Canadian treatment of divvies as you described make them more attractive than in US.

 

Regarding divvies vs cap gains vs downturns: so you have to pick companies that pay divvies and won't stop paying them during the 50% market downturns. This limits the investable universe quite a lot. Are you sure you are not sacrificing long term returns if you do that? Cause if you do, you might win the battle but lose the war: you get divvies now, but have problems 10-20 years down the road when your portfolio has not grown enough. E.g. if I had to buy KO or JNJ for divvies and divvie payout security, I'm not sure I'd be happy with their future return (although I might be wrong and the return might be fine). While on the other hand JPM might satisfy divvie payout and possible future growth but probably has lesser divvie payout security.

 

Anyway, it does depend on a personal situation and personal portfolio. Your solution might work perfectly fine for you. I don't think there is a single right answer.

 

Take care

 

I concur.  It is different in every case.  During the financial meltdown, and the Great Depression a lot of companies didn't cut their dividends.  Overall, there may be a 20% cut which is manageable in MY greater context. 

[Guest longinvestor]

Al & al,

 

My plan right now is kind of to have a few years worth of expenses in cash, to live off that, and to replenish that buffer periodically when something is at a level that I can sell. If there's a big drop, historically things tend to fall fast but usually within two years things have had time to recover, at least to a level that isn't terrible if I have to sell some.

 

Have you looked at that kind of "cash buffer" approach and if so, why did you reject it in favor of finding dividend payers? Is it because it's less predictable, so it doesn't feel good? That's a worry that I have, that I would be constantly thinking about that buffer, and if I can avoid the extra stress, that would be nice.

+1

I'm also having to think about investment versus earned income in a few years.

A. 1 year's worth of mandatory cash

B. A second year's worth cash raised by unemotionally selling at 52 week highs. Need to develop the formula for this: # of fractional sales etc.

 

Mind games can be overcome easier if portfolio is 20 or 30x annual cash versus 5x. Either way, living modestly and value investing will be necessary. Thankfully both are habits I don't have to worry about developing in the future.