In “The Biggest Lie in Personal Finance”, Nick Maggiulli voices an extreme level of irritation with the proliferation of “How I retired at 35” stories.
“All of these early retirement articles are the same. They all say things like, “Make it a goal”, “Track your expenses”, “Establish a system.” Blah. Blah. Blah. But none of these things are the actual reason for how they retired early. Because the actual reason is either (1) earning a high income or (2) having an absurdly low level of spending, or both.”
The central problem is that the vast majority of people cannot save their way into financial health – their income is too low. Mr. Maggiulli notes that the lowest-earning 20 per cent of Americans spend more than their income on necessities and that the next wealthiest 20 per cent make just enough to avoid using credit to pay for food and shelter.
Designing and following a household budget is, of course, a good idea that will help generate wealth. Skipping the daily latte and re-using dental floss, however, is unlikely to allow a 25 year old to retire in a decade unless they’re lucky enough to make a ton of money right out of school.
I agree with the author that stories about retiring before 40 are a form of financial pornography with minimal application to the general population. In one way or another these people are anomalies.
As a public service, the article includes more realistic headlines for retiring early, “Wanna retire at 27? Marry rich” and “Foregoing Procreation, Living Like a Hermit, and 4 Other Ways to Retire in Your 30s”.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Blackline Safety Corp. Year-to-date, this small-cap company’s share price has rallied nearly 17 per cent with a further 45 per cent gain anticipated by analysts. Over the past five trading sessions, up until Wednesday, the share price has spiked 9 per cent. As a result, the stock price may fill in this gap and could retreat to the $7 level in the near-term. Jennifer Dowty profiles the stock.
Gilead Sciences Inc. This is the latest biotechnology stock to rally as investors bet on the emergence of a drug to defeat the coronavirus. But analysts are taking a more sober position on Gilead: Good stock, ignore the coronavirus-fuelled hype. David Berman reports.
Real Matters Inc. In recent weeks, there has been a flight to bonds, driving the U.S. 10-year Treasury yield down to the 1.5 per cent level from around 1.9 per cent at the start of the year. This company benefits from a low interest rate environment. Furthermore, with a proven management team, this company is delivering solid growth while the stock is trading at a reasonable valuation. Jennifer Dowty profiles the stock.
Dividend growth is the power behind the gains of these stocks over the past decade
As a company’s dividend growth goes, so goes its share price. Rob Carrick provides some examples, and the correlation is quite striking.
Don’t laugh – GM just might be the better stock pick right now than high-flying Tesla
Tesla Inc. is suddenly everyone’s must-have, gotta-buy stock. The upstart automaker’s stock price has surged more than 60 per cent over the past week and rose more than US$100 on Tuesday to close at US$887.06 – about double the level it began the year. By way of contrast, General Motors Co. shares look about as exciting as a flat tire. The stock has wandered downward in recent months and is now trading at one of its lowest levels of the past year. So which stock is the more attractive investment? The answer may not be as obvious as you think. Read more from Ian McGugan.
Others (for subscribers)
John Heinzl’s model dividend growth portfolio as of Jan. 31, 2020
Wednesday’s analyst upgrades and downgrades
Wednesday’s Insider Report: Director invests over $1-million in this Canadian large-cap stock
Tuesday’s analyst upgrades and downgrades
Number Cruncher: Risk and opportunity: 15 U.S. stocks with high exposure to China
Number Cruncher: These 15 stocks with strong balance sheets are good choices for turbulent times
Others (for everyone)
Ackman’s Pershing Square exits Starbucks, sticks by Chipotle
Hedge funds eye opportunities in Chinese stocks rattled by coronavirus outbreak
Actively managed ETFs to consider for an RRSP
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Ask Globe Investor
Question: What do you think of the iShares S&P/TSX Canadian Dividend Aristocrats Index ETF (CDZ)? It seems to follow a similar approach to your model Yield Hog Dividend Growth Portfolio.
Answer: The idea behind CDZ is a good one: The exchange-traded fund invests in stocks that have raised their dividends for at least five consecutive years, which means it will generally include companies whose revenues and earnings are also growing steadily.
There’s some wiggle room in the methodology, however: According to S&P Dow Jones Indices, which manages the index that CDZ tracks, constituents “can maintain the same dividend for a maximum of two consecutive years within that five year period.”
That’s not a deal-breaker for me. However, one concern I have is that CDZ weights stocks based on their dividend yields. This means stocks with the highest yields account for the biggest positions in the fund. In the past, this has led to situations where troubled companies with unsustainably high dividend yields – such as Aimia and Corus Entertainment Inc. – have been the ETF’s top holdings, only to cut their dividends.
The weighting methodology – along with CDZ’s relatively high management expense ratio of 0.66 per cent – may help to explain why CDZ’s five-year annualized total return of 5.35 per cent (through Dec. 31) lagged the S&P/TSX Composite Index’s total return of 6.28 per cent. To be fair, several other Canadian dividend ETFs also trailed the S&P/TSX. Those that beat the index included the Horizons Active Canadian Dividend ETF (HAL), with a five-year annualized total return of 7.5 per cent, and the Invesco Canadian Dividend Index ETF (PDC), which returned 6.44 per cent.
Remember that these are backward-looking performance numbers, and it’s possible that ETFs that lagged the pack over the past five years could turn out to be winners over the next five years. Rather than pick a single ETF, you may wish to diversify by spreading your money across a few different funds. Just as important as the ETFs you choose is your behaviour as an investor. If you buy and hold through good times and bad, reinvest your dividends and resist the urge to trade, you’ll very likely be pleased with your results over the long run.
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What’s up in the days ahead
The TSX is back trading at record highs as fears subside about the economic toll of the coronavirus. But a closer look at the TSX stocks with the greatest revenue exposure to China shows a different story for some of Canada’s leading equities. Tim Shufelt will report
Click here to see the Globe Investor earnings and economic news calendar.
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Compiled by Globe Investor Staff