Net Worth Update: 2021 Mid-Year Review

By Robb Engen | June 30, 2021 |
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Net Worth Update_ 2021 Mid-Year Review

Our net worth surpassed the million-dollar mark at the end of last year. It was a goal I had been chasing since I began sharing net worth updates back in 2012. So, what now? 

Life is about the journey, not the destination. Along the path to $1M I built a side-business that helped accelerate our financial goals. I quit my day job at the end of 2019 and turned that side business into a full-time entrepreneurial career.

That decision changed our lives, not just from an earnings perspective but also in terms of lifestyle. We caught the travel bug after an epic 32-day trip to the UK and Ireland, and plan to do more world travel again soon. 

I’m motivated by big, audacious goals. That’s why I’ve targeted a net worth of $2M by the end of 2025. I’ll continue sharing these updates twice a year to hold myself accountable and to be completely transparent with my readers. Hopefully you find some inspiration for your own journey. If not, well, it’s always interesting to take a look under the hood at someone’s financial situation.

The first half of this year has gone incredibly well, financially speaking. Our business revenue in six months alone is 2x greater than my final annual salary at my day job. I plan to intentionally earn less money in the back half of 2021 as health restrictions ease and we can (hopefully) travel again.

The markets continue to hit record highs and my all-equity investment portfolio is reaping the benefits. I invest in Vanguard’s VEQT across all of my accounts, and so far this year my investments are up 12.18% (30.97% year-over-year). No meme stocks or crypto for this guy. Just 13,000 global stocks doing their thing.

The bulk of our savings have gone into my wife’s TFSA and into our corporate investment account. We decided not to pay down the mortgage any faster than our current amortization schedule calls for, taking advantage of our ridiculously low variable rate of 1.45%. My thinking is that if rates tick up above 3% by the time our term is up (Sept 2023) then we might throw some extra cash at the mortgage. Our registered accounts will be completely filled and we can balance non-registered savings with more aggressive mortgage payments.

Finally, we had some landscaping work done in the backyard and bought an above ground pool from Canadian Tire as a hedge in case we couldn’t travel this summer. The kids have been in the pool non-stop, especially during this incredible heat wave. 

Now, let’s look at the numbers.

Net worth update: 2021 mid-year review

Total Assets – $1,376,719

  • Chequing account – $5,000
  • Savings account – $85,000
  • Corporate investment account – $159,777
  • RRSP – $277,317
  • LIRA – $184,036
  • TFSA – $131,908
  • RESP – $74,681
  • Principal residence – $459,000

Total Liabilities – $179,756

  • Mortgage – $179,756

Net worth – $1,196,963

One interesting takeaway from looking at this is our total investments are now worth more than $825,000. I’d love for this amount to reach $1M by the end of the year, but that might be a long shot. We can control our savings rate but we can’t expect markets to continue climbing at 2% per month.

Now let’s answer a few questions about the way I calculate net worth:

Credit Cards, Banking, and Investments

We funnel all of our purchases onto a couple of different rewards credit cards to earn points on our everyday spending.

Our go-to card is the Scotia Momentum Visa Infinite Card, which we use for non-Costco groceries and gas. I’m also using the HSBC World Elite MasterCard, which came with an incredible 100,000 point welcome bonus. Finally, we look for the best credit card sign-up bonuses and time our large annual spending (car and house insurance) around these offers.

Our joint chequing account is held at TD, along with our mortgage and kids’ RESPs. My wife has her own chequing and savings accounts at Tangerine. Our high interest savings account is held at EQ Bank, which pays 1.25% interest.

My RRSP and TFSA are held at the zero-commission trading platform Wealthsimple Trade. My LIRA is held at TD Direct, and the new corporate investment account is held at Questrade. My wife’s investments are held at Wealthsimple. You know all of this from my post about how I invest my own money.

RRSP / LIRA / RESP

The right way to calculate net worth is to use the same formula consistently over time to help track and achieve your financial goals.

My preferred method is to list the current value of my RRSP, LIRA, and RESP plans rather than discounting their future value to account for taxes and distributions.

I consider a net worth statement to be a snapshot of your current financial picture, so when it comes time to draw from my RRSP/LIRA and distribute the RESP to my kids, my net worth will decrease accordingly.

Principal Residence

We bought our home in 2011 for $425,000 and developed our basement a few years later, increasing its value to $450,000. The next year I bumped up the market value by 2% (which is still less than its city-assessed value), but the local real estate market has since flattened – with nothing selling in our price range – and so I’ve left the value at $459,000 for the past three years.

Final thoughts

I quit my job three months before a global pandemic shut down the economy. As health restrictions ease and we emerge from 16 months of largely stay-at-home orders, I can’t help but be excited once again for the future. To travel again and live the type of location-independent lifestyle that I had in mind in the Before Times.

My wife and I have designed a great work schedule that aims to maximize productivity during the week. But throughout the pandemic it was easy to work too much and bite off a little more than I could reasonably chew. Now we plan to dial that back to a more appropriate level that will allow us to travel and live the life we had envisioned earlier. Yes, we’ll intentionally earn less revenue so we can enjoy more leisure time.

I’ll share more about this in a future post, but with the amount we’ve been able to save and invest over the past two years I think we can dial back the work load so that we earn just enough to pay our living expenses and max out our TFSAs – and that’s it. This sort of Coast FI approach will allow us to work on our own terms and maximize our leisure pursuits.

Weekend Reading: Best Offers Yet Edition

By Robb Engen | June 27, 2021 |
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Weekend Reading: Best Offers Yet Edition

Most travel rewards credit card issuers hit pause on their generous welcome bonus offers when the pandemic shut down global travel last March. What good are perks like airport lounge passes and priority boarding when nobody is traveling?

American Express consistently offers some of the most generous benefits, including luxury travel perks with its iconic Platinum Card. Existing Platinum Cardholders (like me) were pleased to see an extraordinary effort by Amex to keep loyal customers happy by offering easily attainable statement credits.

In addition to providing its annual $200 travel credit, Amex offered two $200 statement credits on grocery purchases. This helped ease the pain of paying a $699 annual fee without receiving typical travel perks like Priority Pass lounge access and elevated hotel status.

As more countries look to ease travel restrictions we can finally look forward to booking – not just dreaming about – that next trip. American Express has launched its Best Offers Yet with new welcome offers on seven Amex travel cards. They’re not just for new customers, but existing cardholders can take advantage of extra bonus points on spending throughout the summer.

To say I’m excited about this development is an understatement. Here’s a quick rundown of the new offers:

American Express Platinum Card

Earn 70,000 Membership Rewards points when you spend $6,000 in the first six months. Plus, earn a total of 10x points for every $1 in eligible eats and drinks purchases (groceries, dining) in Canada for the first six months, up to a maximum of 50,000 points. Finally, you can also earn an additional 30,000 points when you make a purchase between 14 to 17 months of Cardmembership. That’s a total of up to 150,000 bonus points. Offer ends on August 3, 2021.

Sign-up for the Amex Platinum Card here.

American Express Membership Rewards points are incredibly flexible. My preference is to transfer the points to Aeroplan where I believe I can reasonably earn 2 cents per mile. That means if I earn the full 150,000 bonus points I can turn that into $3,000 in flight rewards.

Need I remind you that Aeroplan did away with fuel surcharges on Air Canada flight redemptions so now you can redeem your Aeroplan miles for good value on flights and pay very little in terms of fees and taxes.

American Express Business Platinum Card

This one isn’t new – it’s the same offer I shared several weeks ago. Business owners can sign up for the American Express Business Platinum Card and earn up to 100,000 in Membership Rewards points when they spend $10,000 in the first three months. A tall order, for sure, but doable if you out a lot of charges through on your business card each month (or have a large one-time expense due shortly).

Sign up for the Amex Business Platinum Card here.

Again, I’d transfer these points to Aeroplan and strive to earn 2 cents per mile on flight reward redemptions. That’s $2,000 in travel rewards value.

Marriott Bonvoy

Earn 65,000 Marriott Bonvoy points when you spend $3,000 in the first six months. Plus, earn a total of 5x points for every $1 in eligible eats & drinks purchases (groceries, dining) in Canada for the first six months, up to a maximum of 25,000 points. You can also earn an additional 15,000 points when you make a purchase within 14 to 17 months of Cardmembership. They can earn a total of up to 105,000 bonus points. Offer ends on August 3, 2021.

Sign up for the Marriott Bonvoy card here.

I value Marriott Bonvoy rewards at 0.9 cents per point, so the full 105,000 points would be worth ~$945. 

American Express Aeroplan Reserve Card

This is a new one for me (I just signed up for it yesterday) but it might be the most lucrative of the bunch.

Earn up to 100,000 Aeroplan points + 10x points on eligible eats & drinks (groceries and dining), up to 50,000 points. Also, enjoy benefits like Maple Leaf Lounge access, an annual Worldwide Companion Pass, and priority airport services.

The annual fee is a steep $599 ($100 less than the Amex Platinum Card) but I like this offer slightly better because it won’t take as long to earn the full welcome bonus (six months).

Sign up for the Amex Aeroplan Reserve Card here.

This Week’s Recap:

Earlier in the week I wrote about some misguided thinking around dividend investing that got the pot stirring.

Over on Young & Thrifty I wrote an evidence-based guide to successful investing. There’s a longer e-book version that should come out soon as well. I’ll keep you posted.

From the archives: Here’s a realistic retirement income target.

Summer Reading List:

I haven’t read as much as I wanted to over the past 16 months (doom scrolling Twitter might have had something to do with it), but I’ve powered through a couple of excellent books recently and have two more in the queue for later this summer.

The Data Detective: Ten easy rules to make sense of statistics. A fantastic book by Tim Harford about why we need good, reliable statistics in our lives.

The Premonition: A Pandemic Story. Michael Lewis wrote another masterpiece with this gripping story about the early stages of the pandemic in the United States and how a small group of visionaries worked to contain the virus despite the ignorance and lack of response from the federal administration.

The Bomber Mafia. Malcolm Gladwell’s latest work looks at the bombing of Tokyo and the deadliest night of the second world war.

Noise: A flaw in human judgement. Daniel Kahneman, Olivier Sibony, and Cass Sunstein explain how and why humans are so susceptible to noise in judgment – and what we can do about it.

Weekend Reading:

Our friends at Credit Card Genius always have the latest and greatest credit card offers and this time they have their own promotion offering a $100 Amazon gift card when you sign up for the BMO eclipse Visa Infinite Card or the Scotia Momentum Visa Infinite Card.

A lot of investors are headed for disappointing returns in the years ahead. Rob Carrick explains why.

The Irrelevant Investor Michael Batnick also says investor expectations are way out of whack with reality, with U.S. investors expecting 17.5% real returns over the long term.

Of Dollars and Data blogger Nick Magguilli answers the question, how much do you need to be financially independent.

Retirement Heaven or Hell author Mike Drak says we need to remember that smart retirement is about everything other than money:

“Unfortunately, most people have no idea about the type of lifestyle they want to enjoy in retirement.”

Michael James on Money wrote a good piece about the potential pitfalls of pursuing a perfect portfolio.

Diversification is key in the face of uncertainty. But does the classic 60/40 portfolio still make sense?

On a similar note, Millionaire Teacher Andrew Hallam explains what percentage you should have in stocks and bonds.

Online trading apps are drawing in millions of new and naive investors. Here’s how a generation of amateurs got hooked on high-risk trading.

Here’s a worthwhile read on whether you should consider selling your home and renting in retirement.

Finally, here’s a profile of our ‘down-the-street’ neighbours and their thriving fairy-tale cottage business. A terrific entrepreneurial story that I think is just getting started.

Enjoy the start of summer, everyone!

Misguided Thinking About Dividend Investing

By Robb Engen | June 23, 2021 |
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Misguided Thinking About Dividend Investing

I’ve received an uptick in emails and comments from investors about dividends and so I thought I’d address some common misconceptions around dividend investing.

One reader in particular wanted to know if he should take the commuted value of his pension ($750,000) and put it all in Enbridge stock because it was yielding around 6.5%. That reminds me of the reader who, several years ago, asked if he should borrow money at 4% to buy Canadian Oil Sands stock that was paying an 8% dividend yield.

Related: How did that leveraged investment work out?

I shouldn’t have to tell you why it’s not sensible to put your entire retirement savings into one stock – dividend payer or not. 

Most comments were much more sensible and reflected what I perceive to be some misguided thinking about dividend investing.

Dividends + Price Growth = Magic?

Some companies pay a dividend to shareholders. Some do not. Investors shouldn’t have a preference either way.

Amazon doesn’t pay a dividend, focusing instead on reinvesting their profits back into their business for more growth opportunities. 

Apple, on the other hand, is awash in cash thanks to the tremendous success of the iPhone and decided to start paying a dividend in 2012. It likely cannot reinvest or grow fast enough to keep up with its cash flow and so it returns some of that cash to shareholders.

Investors shouldn’t prefer Apple to Amazon just because of Apple’s dividend policy. 

But what happens when a dividend is paid? The value of the company decreases by the amount of the dividend. That must be true, since the dividend didn’t just appear out of thin air – it came from the company’s earnings.

Company A and Company B are worth $10 each. Company A pays out a $1 dividend, while Company B does not. 

Company A is now worth $9, and its shareholders received $1. Company B is still worth $10 and its shareholders received $0.

But some investors do seem to think the dividend comes from thin air and that it does not reduce the value of the dividend paying company.

Consider this example: Let’s say expected stock returns are 8% per year. The average dividend yield from all stocks (both non-dividend payers and dividend payers) is around 2%. That leaves 6% to come from the increase in share prices or capital gains.

Shopify doesn’t pay a dividend. You could consider its expected annual return to be 8% (ignoring the extreme dispersion of possible outcomes for a single stock), but all 8% would come from increases to its share price.

Enbridge has a dividend yield of 6.5%. Should we expect its price to also increase by 8%? Of course not. It would be more reasonable to expect price growth of 1.5% (again, ignoring the extreme dispersion of possible outcomes).

Here’s a more diversified example featuring Vanguard’s VCN (Canadian equities, represented by the yellow line) versus iShares’ CDZ (Canadian dividend aristocrats, in blue):

VCN vs CDZ

Teasing out the high dividend paying stocks (CDZ) did not lead to higher returns over the last five years. In fact, this portfolio lagged the overall Canadian equity market by a fairly wide margin.

High yield stocks payout most if not all of their earnings to shareholders, leaving little to no cash for growth and acquisitions. 

The bottom line: Dividends aren’t magic. Dividend investors don’t get to have their cake (high capital gains) and eat it too (high dividends).

Yield on Cost

Some dividend investors use a useless metric called yield on cost to track their growing dividends over time.

An example is that you buy a dividend stock for $10,000 and it yields 4%. Over time the company increases its dividend, which increases the yield on your original investment. Some dividend investors claim to be receiving double-digit yields on their original investment.

But this isn’t how investing works. The stock doesn’t care what price you paid for it in the past. All that matters today is the current yield. 

Replacement for Bonds

One concerning trend is the notion that dividends are somehow a safe replacement for bonds. I get it, we’re in a low interest rate environment where bond yields have fallen well below 2%. But the idea of replacing bonds with stocks, even stocks that pay dividends, is incredibly risky.

Bonds do still play an important role in your portfolio. They’re the ballast that reduces the volatility of stocks. They tend to hold value during periods of falling stock prices, which is essential for rebalancing. And, they do offer a source of return.

Now, we can argue about the merits of holding long-term bonds in this environment. Perhaps a blend of short-term government bonds and high yield corporate bonds could be appropriate for your fixed income needs

But all you need to do is look at the above chart and see how sharply CDZ fell during the March 2020 crash to understand why dividend stocks are not even close to being a suitable replacement for bonds in your portfolio.

Avoid Spending Capital

Many investors dream about having a portfolio so large they could simply live off the dividends and never touch the capital. But in reality we can see that this is impossible to do in an RRSP, and it’s impractical in other accounts. Here’s why:

You must convert your RRSP to a RRIF at the end of the year in which you turn 71. The RRIF minimum mandatory withdrawal schedule forces you to take out ever increasing amounts, starting at 5.40% in your age 72 year.

Good luck finding stocks that pay dividends (consistently) at that high of a rate – and, no, your yield on cost still doesn’t count.

Related: Investing for income in your accumulation years

It’s more realistic to just spend the dividends in your taxable account. But this poses two problems:

One, you’ll likely need to save a lot more money than you think in order to generate enough dividend income to meet your spending needs (i.e. a $200,000 portfolio would only reasonably yield $8,000 per year).

Two, unless you plan on leaving a sizeable inheritance there will eventually come a point when you need to dip into the capital. Meanwhile, you may have missed out on spending during your good, healthy retirement years.

Retirees who take a total return approach can create their own dividend simply by selling shares (or ETF units) to generate their desired income.

Dividend Tax Credit

This one might be the most misunderstood reason to invest in dividend stocks. The allure of dividend investing might come from the stories we’ve heard about investors living off extremely tax friendly Canadian dividends – even earning up to $50,000 in tax-free dividends.

But how realistic is it that you can enjoy a life of tax-free dividend income?

You can’t have any other sources of income, like from a job or a pension or from a rental property. And you’d need a large non-registered investment portfolio (think $1M or more) filled with Canadian dividend paying stocks.

In the article above, the example investor retired in his 40s and has been living off his non-registered dividends tax-free. A fun scenario to dream about, but extremely rare in reality.

Finally, most retirees start collecting other (taxable) income streams in their 60s, such as CPP and OAS, which start to erode the tax benefits of Canadian dividends.

Final Thoughts

I was a dividend investor for many years before switching to index investing. I understand all of the behavioural arguments in favour of dividend investing. But there is still a lot of misguided thinking around dividend investing.

I hope this article helped dispel some of these myths and also showed you that investors shouldn’t have a preference for dividend paying companies over non-dividend payers, and that dividends are no substitute for bonds.

Dividends aren’t magic – they’re part of a stock’s total return. If you’re attracted to a high dividend yield then consider what you might be giving up in capital appreciation.

And please don’t dump your life savings into one individual stock!

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