EP #180 | Early Retirement & Living off Dividends by the Canadian Dividend Investor | & expected dividend growth in Europe
Jan 20, 2024
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Guest, the Canadian Dividend Investor, achieved early retirement by living off dividend income. They discuss transitioning from real estate to dividend investing, composition of the investment portfolio including preferred Canadian banks, benefits of blogging for investors, strategies for reinvesting dividends, and thoughts on Manulife Financial Corporation's expansion in Asia.
The challenge of transitioning from an exchange of time for money mindset to pursuing intellectual curiosity and embracing a decoulement mindset is a crucial aspect of early retirement.
The Canadian Dividend Investor focuses on a conservative and higher-yielding portfolio with less exposure to tech stocks, prioritizing Canadian stocks, particularly banks, to ensure strong dividends and stable returns.
For beginner investors, it is advised to start with ETFs if they are not interested in deep investing research and analysis, but for those interested, it is recommended to start the journey by reading books like 'The Four Pillars of Investing' and Peter Lynch's books.
Deep dives
Challenges and Rewards of Early Retirement
The most challenging aspect of early retirement for me was transitioning from an exchange of time for money mindset to a pursuit of intellectual curiosity and embracing a decoulement mindset. It was difficult to break away from the default notion of exchanging time for income and explore alternative ways of engaging in activities I was interested in. Another challenge was shifting from an accumulation mindset to deaccumulation, as it required a mental adjustment to withdrawing money from my accounts rather than continuously saving and increasing net worth. Despite these challenges, the most rewarding aspect of early retirement is the freedom and flexibility to do whatever I want on a daily basis, pursuing intellectual pursuits, enjoying hobbies, spending time with friends, and traveling. Each day is different, and I have the satisfaction of living life on my own terms.
Retirement Portfolio Performance and Diversification
My retirement portfolio has performed well compared to the S&P 500 during the first half of my investing journey, mainly due to my investments in real estate. However, in recent years, my portfolio has underperformed the S&P 500 as I have a relatively conservative and higher-yielding portfolio with less exposure to tech stocks. Instead, I focus on Canadian stocks, particularly banks, which dominate the Canadian market and provide strong dividends and stable returns. In terms of diversification, I have around 50 stocks in my portfolio to minimize the impact of dividend cuts and ensure the reliability of my dividend income. While some may consider it over-diversification, I prioritize the safety and stability of my income over concentration.
Advice for Beginner Investors
For beginner investors, my advice is to focus on ETFs if they don't have a passion for deep investing research and analysis. However, for those who have a genuine interest in learning and exploring the world of investing, I encourage them to start the journey. It requires a lot of work and diligence to become competent in investments, but the effort can be rewarding. I suggest starting with books like 'The Four Pillars of Investing' and 'Moats' by Jack Dorse and Peter Lynch's books. But ultimately, it's about finding your own path and developing a deep understanding of the companies and industries you invest in.
Managing a Dividend Portfolio
In managing my dividend portfolio, I have a six-month cash cushion and focus on spending a portion of my dividend income while reinvesting the rest to increase the growth rate. I keep an eye on my holdings, but my primary focus is on the reliability and growth of my dividend income rather than benchmarking against specific indexes. I strive for wide diversification with around 50 stocks in my portfolio to mitigate the risk of dividend cuts and ensure the stability of my income stream. By diversifying, I aim to protect myself from poor stock choices and safeguard my lifestyle in case of unexpected events.
The Importance of Dividend Investing for Income
When it comes to dividend investing, the speaker emphasizes the importance of focusing on dividend income rather than total return. Unlike total return investing, where diversification can reduce risk, dividend income is vulnerable to potential income loss resulting from a single dividend cut. Therefore, it is crucial for dividend investors to carefully select their stocks and manage their portfolio with a strong emphasis on preserving and growing their dividend income.
Balancing Growth and Income in a Dividend Portfolio
The speaker suggests that dividend investors should not abruptly shift their investment strategy from growth to income-oriented stocks as they approach their financial independence retire early (FIRE) number. Instead, they recommend gradually adding more growth to their portfolio while maintaining a balance between dividend growth and income stocks. This approach allows for continued capital appreciation while also ensuring a steady stream of dividends. The speaker argues against a sudden shift from growth investing to income investing, as it may result in unnecessary taxable events and disrupt an investor's successful investment strategy.
Welcome back to another episode where we discuss everything about dividend growth investing with a European flavour. In today's show, we have the Canadian Dividend Investor as a guest who achieved a year ago what many of us are aiming for: early retirement by living off the dividend income.
Hence, this was a very engaging show, because he was the first guest that actually did early retire, so we had a lot of curiosity on how that all went.
