Retiring Baby Boomers

By Boomer | November 9, 2010 |

Next year the first baby boomers will reach the “standard” retirement age of 65 years. I read in the news the doomsday reports of the stock markets collapsing and the health care system falling apart because of the retiring baby boomers.

Is this really going to happen?  I will leave the markets for the moment and discuss my views on the future of health care.

Retiring Baby Boomers

The children born in the post World War II boom years were probably the most well nourished and active kids of any generation. Good early nutrition is one of the backbones, so to speak, of healthful later years.

Baby boomers had plenty of milk, fresh fruit and vegetables, chemical-free proteins, and vitamin supplements, not to mention the vaccinations that eliminated, or reduced the effects of, some deadly diseases.  The brittle bones resulting in hip and knee replacements for my parents’ generation, dentures and deteriorating vision should really not be all that prevalent in the coming decades.

While there will always be accidents and diseases and illnesses caused by unhealthy lifestyles, we generally are living longer, are active longer and I think the most serious threat could be mental degeneration rather than physical.

I see my thirty-something neighbours bringing home take-out bags from Burger King and McDonald’s at least three or four times a week, daily slurpees in cups the size I could stick my head in and cases of pop and snacks for the family that seem to be their regular diet.

I hardly ever see kids playing outside in the parks and playgrounds even in the summertime, unless there’s an organized baseball or soccer game.  My friends and brother and I ran off our energy playing made-up games outside in all but the most extreme weather as much as we could.  Of course there were no computers and video games then and I didn’t really watch TV regularly until I was more into my teen years.

Today obesity, especially childhood obesity, is almost an epidemic. Diabetes, high blood pressure and heart attacks in people in their twenties and thirties are no longer unusual – they are almost becoming the norm.  I think this is the generation that will require the most serious health care in the decades to come.

I have heard that the baby boomers will be, overall, the wealthiest retirement generation due to their own earning and investing efforts, and also from becoming the beneficiaries of our frugal, saving parents.  Former finance ministers have tossed around the idea of an inheritance tax.  Probate fees are already quite high in some provinces.

It is my opinion that the younger generation will not entirely be on the hook for increased health care costs for baby boomers.  I fear that, as retired baby boomers become more numerous, their taxes will not only increase, new ones will be implemented.

I think that health care and drug programs will increase their premiums and more and more procedures will be dropped from the health care system and will have to be paid for independently.  Since we will no longer be enrolled in company health and dental insurance plans, the costs will come entirely from our own hard earned money.

What are your thoughts on retiring baby boomers?

Yield On Cost

By Robb Engen | November 8, 2010 |

My investment strategy is to buy dividend paying stocks when they are value priced and then hold them to collect growing dividends.  The companies that I like to invest in typically raise their dividend annually, or they will average a high dividend growth rate over time.

While investing in dividend stocks is popular during a recession, dividend growth investors need to have the patience and discipline to stick with their strategy during economic boom times when other stocks are outperforming theirs.  The reason that patience and discipline are such strong virtues of the dividend growth investor is because of yield on cost.

Related: Beat Inflation With Rising Dividends

Yield On Cost

Once you’ve purchased a dividend paying stock, you will be receiving the dividend yield as it was on the date of purchase.  Each time that company raises their dividend, your yield on cost will increase, meaning more money in your pocket from dividend income.

After years of dividend growth your yield on cost could be in the double digits, beating the market each year with just dividends alone.

Related: 6 Reasons To Invest In Dividend Growth Stocks

Back in May 2009, I purchased the majority of my RRSP portfolio which consisted of about twelve stocks.  Over the next eighteen month, six of these stocks have raised their dividend (some multiple times).  Here is a look at the dividend growth percentages of those stocks, as well as my yield on cost:

Company Dividend Growth Rate Yield On Cost
BCE 18.8% 7.46%
T 10.5% 6.62%
EMA 28.7% 5.23%
SJR.B 4.7% 4.32%
FTS 7.7% 3.83%
ENB 14.9% 3.43%

Some of those dividend yields are starting to look really attractive and this is only after eighteen months.  I will be really excited next year when the banks finally decide to increase their dividends. We haven’t even mentioned the increase in valuation of these stock prices.

EMA is up close to 30 percent, BCE is up 35 percent, and T is up close to 45 percent over the same eighteen months.

Again, this strategy preaches patience and disciplined investing.  Many investors would take the profits from these stocks that are up 30 percent or more.  Not me, I’m not selling.


Related: How To Use A Stock Screener To Find The Best Stocks

Not that there is anything wrong with taking profits, it just doesn’t fit with my investing strategy.  The only way I would think of selling one of my stocks is if they slashed their dividend, or if the dividend wasn’t growing fast enough compared to others.

What do you think of yield on cost?  Is this something you measure within your portfolio?

Mutual Fund Investing

By Boomer | November 4, 2010 |

Mutual funds are a very popular investment.  For many people they are the core investments in their portfolios.  But, a lot of people are too complacent about their holdings – they don’t know exactly what they have and trust in their financial advisors too much so they end up in the “financial product of the month” that offers the advisor the best commission.

Mutual Fund Investing

Some people are happy when they see an increase, and switch to some other mutual fund company when they see a loss (or cash them in altogether and really take a loss).

Some people worry about high management fees and stick with lower cost index funds or switch to ETFs.  There’s nothing wrong with these products as long as the reason you hold them is not entirely because you save money on fees.  Some higher MER growth funds can outperform the index giving an overall higher return.   ETFs don’t lend themselves to a regular purchase plan because of commissions when you buy them (like a stock).

In my opinion, mutual funds can be a very good investment for people in certain circumstances for these reasons:

  • Easily available through banks and fund companies such as Investors Group.  Generally no fee to set up an account and advisors to assist in building a portfolio.
  • Low cost purchase plans – some as low as $25 – are a good way for younger and/or lower income people to start building up their investments and get them in the savings habit with fixed regular contributions that also have the benefit of dollar cost averaging.
  • An easy way to diversify a smaller portfolio by holding different types of asset classes, management styles and geographic locations.
  • A good way to take advantage of foreign investments that would be difficult to purchase otherwise.
  • After purchasing the initial funds there is no direct involvement in the managing of the securities (done by a professional fund manager) for those who have no experience or interest in making these decisions.

Also, in my opinion, when a mutual fund portfolio exceeds around, say $50,000, it’s time to purchase a stock portfolio.  After the initial purchase fees you will have no other management fees.

You can choose the top 10 stocks of an index or dividend ETF for a good start if you don’t know what to buy.  A buy-and-hold strategy avoids having to make decisions of when to sell.

You benefit from both growth and income if you hold dividend stocks for the long term.  Overall, I think you would end up making more money.

I like to read about different investment styles that other people choose.  What is your investment strategy and why did you choose it?  What are your thoughts on an ETF vs mutual fund?

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