Reset button.Posted: August 6, 2016
It has been a little over a year since my last post, and there have been a number of changes occurring personally, professional, as an investor, and with this site, all of which are intertwined.
The biggest event was that I was displaced in June 2015 due to downsizing at my former employer. This was a massive hit professionally and financially, as I saw my defined benefit pension fly the coop, and I took a drastic paycut. The summer of 2015 was a rocky one: instead of going to the beach, enjoying the weather in a park, or drinking on a patio with my mates in Toronto’s downtown core, I was hunkered down at home applying for jobs all summer. Towards the end of August 2015 I landed a contract position, and from there started up my new life as an independent project management consultant. So, in the end, things worked out, but it was still a bit of a professional roller coaster; and I will miss the defined benefit pension.
Personally, my family purchased a home earlier in 2016, just ahead of the massive Toronto Housing Bubble. We lucked out; similar properties in the neighbourhood we moved into have gone up about 10% since we purchased our house earlier this year. Needless to say, the market is hot, and I am certainly glad not to be part of that fire!
Which brings me to the changes as an investor. The majority of my investments were being saved for the next big purchase, or retirement, whichever came first. Needless to say, retirement is a far way off, so I ended up liquidating a number of my holdings to help pay for the house. While the sting of selling off those holdings is still wearing off, I am happy that overall my previous investment decisions were good ones. The biggest sale I had which contributed to the house was my long position of CCL Industries, which netted me a tidy return of 517.8%; I had purchased a while back in the high $30 range and sold in the $220 range. I had some other big gainers (e.g. High Liner Foods returned in excess of 200%), but CCL was definitely my big winner!
Which brings us to today.
With the cashing out of my defined benefit pension, and the selloff of a number of positions in my portfolio, my portfolio has taken a net hit of about 17%. Moreover, the tax distribution in my portfolio has changed drastically: before all of these major changes, 45% of my portfolio was taxable (i.e. non-registered), and 55% was in non-taxable or tax-deferred accounts, such as an RRSP or a TFSA (i.e. registered). Now, the mix stands at 10% in the taxable portion, and 90% in the non-taxable.
This split is both good and bad.
The good, is that the majority of my US investments are now in my RRSP – this means I save an instant 15% of withholding taxes, since Canadians do not pay withholding tax on dividends from US corporations if they are in an RRSP. Moreover, having 90% of my portfolio “locked away” means that I truly am saving for retirement: taking the money out of the registered portions of my portfolio would result in an immediate tax hit.
The bad, is that only 10% of my investments provide present day disposable income. So, if I need to use any dividend income to offset present day purchases, I am unable to do so.
From a salary perspective, I am not yet at the point where I can pay myself the same salary as before I was displaced, since I have to build up some capital in my corporation. My salary today is 17% less than one year ago, not including any short-term bonuses, the losses of which may be even larger. Contrary to popular belief, independent consultants are not rolling in cash! Due to this change in salary, I am not able to invest as aggressively as before, which means my portfolio growth will be seriously constrained until I can increase my net cashflow.
As investors, diversification should be one of the primary objectives of our investment portfolios. I’m happy to report that during the ups and downs of the past 24 months in the markets, my portfolios have done relatively well, all things considered. With that in mind, the irony of the situation is that my income streams were not diversified. While I received some income from dividend investing (in 2015, dividends attributed approximately 3% of my net cashflow), like most normal people, the majority of my income came from my place of employment. So when your job changes, your net income could take a massive hit; such was my case. With that in mind, I am looking at diversifying income streams as well.
I have moved this blog from a WordPress.com hosted site, to one hosted on my own servers. This will give me more opportunities for revenue generation through the site; what that means, I am not quite sure, but at least the option is there. You may see some ads on the site going forward, and clicking through to those will help me in keeping this site on its feet.
I started off by noting that it has been over a year since my last post, and I have a whole slew of ideas and things to write about. While the original focus of this blog was on dividend investing, I will be branching out into new areas. From an investing perspective, dividends are typically the payouts a shareholder receives from the profits of the company in which they own shares. However, a broader definition is “anything received as a bonus, reward, or in addition to or beyond what is expected.” That said, future posts will also focus on other methods of generating net positive cash flows: this could either be from hard inflows of cash (i.e. income), or cost avoidance, which ultimately results in more disposable income to use in other investing activities.
One thing is certain: I am certainly glad to be back here blogging and sharing my views and ideas, and I look forward to receiving criticism and feedback from my readers.