The Nine Year Plan

I’ve come to the conclusion that I hate work.

Well, let me rephrase that. I don’t hate work. I actually like work. I like the people I work with. The work is somewhat interesting, and occasionally challenging. But, I hate the idea of the structured daily grind, the rat race, the nine-to-five, whatever you want to call it. I also have a lot of side projects I’d like to work on, but with the newest edition to our family, I never have time for side projects. I work all day, come home, handle nightly duties (feeding, bathing, housework, paperwork, etc.), crash, repeat. On weekends I try my best to give my partner some time off from babysitting, and the rest of the weekend I spend time taking care of other errands and what not. In short: I spend so much time supporting life, I don’t have a life.

Now, don’t get me wrong.. This is all natural for me, at this stage in my life. A new family, a steady job, paying off car, house, condo, etc., all means that I have to make some sacrifices. Unfortunately, those sacrifices are things like pulling together a portfolio to participate in the annual Contact Festival, finish work on PART so that it is in a state that can be used by the public (truth be told I’ve used it for managing my investment portfolio for a few years now, and it works great), and some other side projects..

And for those reasons, I hate work.

So, what to do?

I’ve been crunching numbers, and mulling over what would be realistic goals, and pulling together my vision for my financial future. To that end:

  1. Retire from full-time work in 9 years, working at most 6 months out of the year
  2. Have an average before-tax salary of $100,000

There, one vision, two goals. As I said, I don’t mind work, but I want time to do my own things. And having six months of free time every year, will certainly afford me with the time to work on those things. The assumptions baked into the above:

  1. The $100,000 average before-tax salary will naturally adjust by inflation
  2. Any debt load I have in 9 years will be covered b the $100,000 salary, with enough to have a comfortable lifestyle

To accomplish those goals s going to take some fancy financial engineering. One of the biggest logistical challenges is that the bulk of my investments are tied up in either my LIRA or my RRSP; this means that any income and/or gains from those investments will not be available to satisfy goal #2. My non-RRSP/LIRA funds are relatively minimal at the moment: the past few years I have shifted many investments (primarily US companies) into my RRSP to take advantage of the zero withholding tax Canadians have when they hold US investments in registered accounts.

So, I am essentially starting from ground zero. If we do some quick back of the envelope math, to generate $100,000 in income at an average yield of 4% (a number I literally pulled out of the air, but it is fairly trivial to find reliable ETFs and/or individual companies to pay an average 4% yield) would require $2.5million in capital: $2,500,000 x 4% = $100,000.

Luckily the entire $100,000 does not have to come from investments. Up until recently I was a Project Management Consultant, and as such I still have my corporation. If I were to go back to project management consulting, it would be a fairly easy task to pick up at least one six month contract per year. If we do some more back of the envelope math, even at a very low hourly rate of $70/hour (which is the low-end of project management consulting rates in Toronto, in the finance sector), working six month yields:

Days per Week 5
Weeks per Year 26
Hours per Day 7.5
Total Hours 975
Hourly Rate $70
Total Revenue $68,250
Less CPP Contributions $969.15
Net $67,280.85

A prudent decision would be to take out the $50,000 salary I need and leave the other $17,280.85 in the corporation “for a rainy day”; an added bonus!

So of our $100,000 target, there is now $50,000 remaining. Looking at the March results, I am currently generating approximately $1,000 net annual passive income that is not locked into a registered account; this leaves $49,000. Generating that much passive income is not an impossible task, but it is a daunting one: how to generate $49,000 in annualized income in 9 years? This is a classical risk-reward problem: the more risk you take on, the higher your potential reward.

If we use the benchmark Canadian Couch Potato Returns from the Couch Potato website, the balanced portfolio has a 10 year CAGR of 5.38%. $49,000 in passive income at 4% yield is $1,225,000 in capital required. At 5.38% CAGR, that means we need $765,000 today, so that it compounds at 5.38% over nine years to result in capital of $1,225,000. Regrettably, I do not have $765,000 lying around.

Some other considerations:

  • I am gainfully employed at the moment at a major Canadian company; assuming I continue to be employed, my salary will go up each year (which I can redirect to investing), and I can continue to participate in the company’s employee share ownership plan.
    • The plan gives me an instant 50% through the company’s match (i.e. for ever $1.00 the company kicks in $0.50), so I am making huge gains.
  • Who knows where the housing market will be in 9 years? We may sell off our property and become renters: even after paying rent, $100,000 in pre-tax income will be more than enough, assuming that the relationship between $100,000 in pre-tax income and rents remains constant. I.e. if I were making $100,000 right now, I could still afford to rent. Assuming that the $100,000 inflation-adjusted in 9 years is enough to cover rent inflation-adjusted in 9 years, I would still be okay

So while I do not have the capital now, there are options available such that in 9 years I can fulfill my vision.

What are your thoughts? Knowing you require $49,000 annual income in 9 years time, what would you do?


I Invested on Thursday and Lost $352 on Friday

..but I’m not worried.

I recently published an analysis of Magna International, and concluded that the stock was very undervalued, to the tune of 26%. Following my own advice, I picked up 100 shares in my Tax Free Savings Account on Thursday February 23, 2017. Following that, on Friday February 24, 2017 the TSX composite was down 1.57%, its biggest drop in 5 months. I had picked up Magna for an average cost per share of C$59.95 including commissions, and on Friday it had closed at C$56.43/share, a 5.87% drop in a single day; this equating to a C$352 cash loss in 24 hours.

At the same time, Magna announced its fiscal 2016 results, some highlights of which include:

  • Record 2016 sales up 13%, well above 4% growth in global light vehicle production
  • Record 2016 diluted earnings per share from operations increased 9%
  • Record 2016 cash generated from operating activities of $3.4 billion, up 45%
  • Returned $1.3 billion to shareholders in 2016

To sweeten the news, the dividend was hiked to U$0.275/share, up from U$0.25/share, a 10% increase.

To sum things up:

  • The market dropped 1.57% in a single day
  • My investment lost 5.87% in a single day
  • Magna had a record year
  • Magna increased its dividend 10%

Days like this only go to emphasise the importance of a long-term view. The market will always go up and down, and there is really no way to time things out (I’ll ignore the technicians in the audience). If I had a crystal ball, I would have waited 24 hours before pulling the trigger on my trade, and by now I would have been up 2.23% week-over-week, instead of down 1.54% week-over-week. Alas, I’m a Dividend Gangster, not a Dividend Clairvoyant. My original investment thesis stated that:

  • Magna had a strong dividend history (26.97% CAGR over the past 6 years, when measured in USD Dollars. When measured in CAD dollars the dividend is a little wonkier (in the favour of Canadians) as it has to take into account currency fluctuations)
  • Magna was undervalued to the tune of 26%

With the 10% increase, Magna is continuing to maintain the course of a strong dividend player. Even though the price dropped (like a rock!), it is still undervalued, and still has plenty of upside before reaching its Graham number.

Now, a novice investor might have panicked on the Friday when the market dropped, and sold off on the Monday. Let’s take a look at the stock performance over the past few days, and see where we’ve landed:

Date Price (CAD$) Gain (Loss) for the Day Gain (Loss) Since February 23
2017-02-23 $59.20
2017-02-24 $56.43 (4.68%) (4.68%)
2017-02-27 $57.18 1.33% (3.41%)
2017-02-28 $56.79 (0.68%) (4.07%)
2017-03-01 $58.00 2.13% (2.03%)
2017-03-02 $57.86 (0.24%) (2.26%)
2017-03-03 $58.06 0.35% (1.93%)

If a novice had sold immediately after the drop on Feb 24 (i.e. they sold on Monday Feb 27), they would have lost 3.41%, or $2.02. If they had held until today (Mar 3), they would only be down 1.93% or $1.14. How would they know when to sell? How would they know why to sell? The short answer is: they wouldn’t! And that is what differentiates an investor from a trader. The former does not panic at the drop in price in the short term. Guess what happened between February 23, 2017, and February 24, 2017?

  • The price dropped 4.68%
  • EPS rose 12.02%
  • Book value rose 7.19%
  • The dividend rose 10.00%
  • The dividend payout ratio increased from 17.23% to 17.82%

So except for the dividend payout ratio, some of the key per share metrics improved, and the price dropped. If the EPS went up, and the dividend went up, and the book value went up, and the share price went down, that screams “buying opportunity”! However, the general trend of the market on that one day pushed most stock prices down, including Magna. If anything, I wish I had some additional capital kicking around: I would have doubled down on my position in a heartbeat.

As investors, more importantly, as dividend investors, we have to keep our eye on our 3-year, 5-year, 10-year, and 20-year goals… A minor blip in stock price shouldn’t shake us, it should drive us to invest more of our capital. The classic quote from Baron Rothschild is to “[b]uy when there’s blood on the streets, even if the blood is your own.” Now, I didn’t have blood of my own that day (because I was investing in my TFSA, if I had leveraged my line of credit, the interest to purchase the stocks would not be tax-deductible)… But nonetheless, while a market downturn is bloody, but it is also an opportunity.

Onwards and Upwards!

Notes

  • Fundamental figures are in US currency
  • Share prices are in Canadian currency
  • My ACB was C$59.95, which was based on an intra-day price; the values listed in the historic pricing table are the CAD close price

The Great Pension Experiment Part III: One Year Review

This is part 3 of a 3 part series I have entitled "The Great Pension Experiment", which details my analysis on what to do with a defined benefit pension plan payout. The first two parts may be found here: Part I, Part II.

It has been one year since I started off on The Great Pension Experiment. I feel that this is a useful experiment because it leverages real world results in a closed environment. Because the funds are in a LIRA, I am unable to add or withdrawal funds, so any losses must be recouped “internally” by better investments.

In Part II I made the claim that, based on the Assertive Couch Potato Portfolio, over a 25 year time horizon I would be able to grow the portfolio to a point where I would be able to generate over $600/month in passive income, assuming a 4.00% yield. It has been 12 months since that claim, so lets see how we’ve done after one year.

When the portfolio was first opened, I set it up with a blend of 25% fixed income, 25% Canadian Equities, and 50% of non-Canadian Equities:


Ticker Num Shares Weight
Cash $22.50 cash 0.035%
VCN.TO 600 25.204%
VXC.TO 1065 49.741%
VAB.TO 633 25.020%

Originally I had intended on re-balancing the portfolio semi-annually (i.e. every six months), and in retrospect, this was a stupid idea. Cash was building up in the portfolio slowly, but sitting there idle until I had a chance to re-balance. Due to the already high number of shares, any dividends and/or distributions from the holdings would be in excess of the current price of those shares. Because of this, I should have been using synthetic drips right from the start! Accordingly, in September 2016 I set up my brokerage to re-invest any dividends received directly into additional shares. This ensures that money is not sitting idle, and because the investments are via synthetic drip, I receive additional shares commission free.

That said, as of October 2016 (one year), the portfolio sits at:

Ticker Num Shares Weight
Cash $106.88 cash 0.156%
VCN.TO 603 26.351%
VXC.TO 1109 49.224%
VAB.TO 634 24.270%

For the year ending October 31, 2016, I received $1,485.24 in dividends/distributions ($123.77/month). The portfolio as a whole has grown from an initial investment of $64,723.32 in cash to $68,468.29, which represents a 5.648% total return. This is actually pretty impressive, since the first half of the fiscal year (From November 2015-April 2016), the portfolio was in negative territory:

Period Ending Open NAV Close NAV Return % TTM Return %
2015-11-30 $64,723.32 $64,489.47 (0.361%) (0.361%)
2015-12-31 $64,489.47 $64,460.13 (0.045%) (0.407%)
2016-01-31 $64,460.13 $63,015.30 (2.241%) (2.639%)
2016-02-29 $63,015.30 $61,782.64 (1.956%) (4.543%)
2016-03-31 $61,782.64 $63,695.25 3.096% (1.588%)
2016-04-30 $63,695.25 $63,523.47 (0.270%) (1.854%)
2016-05-31 $63,523.47 $65,380.00 2.923% 1.015%
2016-06-30 $65,380.00 $65,168.21 (0.324%) 0.687%
2016-07-31 $65,168.21 $67,560.62 3.671% 4.384%
2016-08-31 $67,560.62 $67,887.23 0.483% 4.888%
2016-09-30 $67,887.23 $68,275.76 0.572% 5.489%
2016-10-31 $68,275.76 $68,468.29 0.151% 5.648%

I had bought into the portfolio at a peak in 2015, and the market had a clawback shortly after. As a result, the portfolio lost money for the first six months. I did take the opportunity during that period to top off the VXC shares whilst I had some excess cash from distributions, which in retrospect was a wise choice. Buying when the market is in a downturn helps to dollar cost average down, ultimately increasing future returns.

The portfolio is more or less at the target weighting if you round to the nearest whole number, and because of this I see no need to buy or sell additional shares at this time. Hypothetically, if the portfolio were to keep this pace for another 24 years, even at a 5.000% return we would generate approximately $736/month in passive income. So based on simple extrapolation (i.e. assuming constant returns for the next 24 years), we are right on track.

That said, I am going to ignore the portfolio for another six months, and will revisit in May of 2017 to see if any rebalancing is required. Until then, the next update will not be until December 2017. Here’s hoping that the portfolio continues to provide excellent returns at that time.

Onwards and upwards!


The Great Pension Experiment Part II: Analysing my Options

This is part 2 in a 3 part series I have entitled “The Great Pension Experiment”. This will detail my analysis on what to do with a defined benefit pension plan payout, after leaving my previous employer.

I am a big fan of Monte Carlo analysis (MCA). In a nutshell, when performing an MCA we run a test a fixed number of times, using a controlled set of inputs, and observe the results.

I had mentioned on my previous entry that I felt I could do better than the $600 per month defined benefit pension that OPTrust was offering after I left the company. But, how would I quantify this?

I wanted my LIRA to be as simple as possible, to run virtually effortless. Because of this, I elected to use one of the Couch Potato model portfolios, specifically the one using ETFs. Within these options, given my 25+ year time horizon, I elected to use the Assertive Portfolio, which has the following composition:

  • 25% of the Vanguard Canadian Aggregate Bond Fund ETF, VAB
  • 25% of the Vanguard FTSE Canada All Cap Index ETF, VCN
  • 50% of the Vanguard FTSE All-World ex Canada ETF, VXC

The weighted average expense ratio of this portfolio is 0.18% as of November 2016, and the returns are pretty impressive:

  • 1-year return: 7.20%
  • 3-year return: 12.61%
  • 5-year return: 8.91%
  • 10-year return: 6.24%
  • 20-year return: 7.10%
  • Lowest 1-year return (2008-03 to 2009-02): -24.95% (2008 financial crisis)

To perform my analysis, I elected to take the lump sum from OPTrust, and run an MCA on it to see what the projected monthly income would be in 25 years, if I had used the Assertive Portfolio. To do this, I ran 100,000 iterations on 25 years of growth in the portfolio, using randomized returns. Here is an example of one set of returns:

Year Start Value % Gain End Value Implied Annual Income Implied Monthly Income
1 $64,723.32 14.17% $73,893.95 $2,955.76 $246.31
2 $73,893.95 0.01% $73,900.28 $2,956.01 $246.33
3 $73,900.28 12.32% $83,007.73 $3,320.31 $276.69
4 $83,007.73 10.53% $91,747.31 $3,669.89 $305.82
5 $91,747.31 4.52% $95,898.44 $3,835.94 $319.66
6 $95,898.44 17.83% $112,995.45 $4,519.82 $376.65
7 $112,995.45 16.41% $131,536.76 $5,261.47 $438.46
8 $131,536.76 4.38% $137,296.97 $5,491.88 $457.66
9 $137,296.97 -0.97% $135,964.84 $5,438.59 $453.22
10 $135,964.84 20.16% $163,378.55 $6,535.14 $544.60
11 $163,378.55 0.01% $163,400.53 $6,536.02 $544.67
12 $163,400.53 8.39% $177,102.35 $7,084.09 $590.34
13 $177,102.35 9.17% $193,336.09 $7,733.44 $644.45
14 $193,336.09 8.17% $209,128.33 $8,365.13 $697.09
15 $209,128.33 5.86% $221,377.33 $8,855.09 $737.92
16 $221,377.33 9.18% $241,700.87 $9,668.03 $805.67
17 $241,700.87 -3.10% $234,207.49 $9,368.30 $780.69
18 $234,207.49 -14.21% $200,925.08 $8,037.00 $669.75
19 $200,925.08 8.71% $218,421.90 $8,736.88 $728.07
20 $218,421.90 -7.81% $201,370.49 $8,054.82 $671.23
21 $201,370.49 -0.48% $200,408.22 $8,016.33 $668.03
22 $200,408.22 -3.10% $194,196.40 $7,767.86 $647.32
23 $194,196.40 -2.32% $189,688.02 $7,587.52 $632.29
24 $189,688.02 6.79% $202,574.08 $8,102.96 $675.25
25 $202,574.08 10.31% $223,467.86 $8,938.71 $744.89

In the above, the % gain is a random gain for the portfolio based on an average return of 8.29%, and a standard deviation of 7.96%. The implied annual income assumes I could take the ending value of the portfolio, and buy an annuity or other similar (set of) instrument(s) to generate 4% of annual income. I believe 4% annual income, if you are not concerned with growth, is incredibly doable in the market.

But wait, where did that 8.29% average return, and 7.96% standard deviation come from? And what do they mean?

If you take 15 years of returns for the couch potato model portfolio, and do some statistical analysis on that data, you will end up with an average daily return of 0.032%, which equates to an average annual return of 8.287%. Moreover, those same daily returns have a standard deviation of 0.503%, which is 7.959% annualized. (For annualizing, I assume there are 250 active trading days in the year: 52 weeks @ 5 days/week, less 10 days for various holidays). Now, because the model portfolio asks for VAB, VCN, and VXC, and those ETFs are relatively new, I used iShares Core S&P/TSX Capped Composite Index ETF (XIC), iShares Canadian Universe Bond Index ETF (XBB), iShares MSCI World Index ETF (XWD), and iShares Core S&P 500 Index ETF (CAD- Hedged) (XSP) as proxies:

  • For the period of October 29, 2009 to December 31, 2015, I used a blend of 25% XIC, 25% XBB, and 50% XWD.
  • For the period of April 15, 2002 to October 28, 2009, I used a blend of 25% XIC, 25% XBB, and 50% XSP.

The ETFs listed are iShares ETFs. The XWD is the equivalent to VXC, but prior to October 29, 2009, there were no ETFs I could find that were all-world excluding Canada ETFs. Moreover, the period I chose covers the tail end of the dot-com bubble, as well as the massive 2008 financial crisis. Doing this provides more real world examples. In fact, looking at the above table you can see that in this iteration, in years 18 and 20 the sample has massive declines of -14% and -8% respectively! I feel this is an accurate representation of what could happen.

The average and standard deviation play into each iteration of 25 years. In the table above, the “% Gain” column will be, on average, 8.29%, and vary with the standard deviation of 7.96%.

Now, if we pull this all together:

  • Create the table above 100,000 times
  • Take the final 25 year implied monthly income from each iteration
  • Plot a histogram

We get the following:

Implied Monthly Income From a LIRA at 4% After 25 Years of Growth

The above histogram shows that we have a 16% probability of having total monthly income less than or equal to $786. Put another way: we have an 84% probability of having implied monthly income greater than $786. If we take this a little further, we have an approximately 7% probability of making at most $600, or a 93% probability of making at least $600.00. But wait, OPTrust’s defined benefit income would be $600/month. I have only a 7% chance of not beating OPTrust’s defined benefit pension! Screw you OPTrust, I’ll take my chances.

So, based on my Monte Carlo analysis, using 13 years of historical returns on a portfolio of 25% Canadian Equities, 50% non-Canadian Equities, and 25% Canadian Fixed Income, I took the plunge to invest all of my money from OPTrust into my LIRA, using the couch potato portfolio. That was almost a year ago. In my next post, I’ll speak to the first year of actual results.

Onward and upward!


The Great Pension Experiment Part I: Background

This is part 1 in a 3 part series I have entitled "The Great Pension Experiment". This will detail my analysis on what to do with a defined benefit pension plan payout, after leaving my previous employer.

Up until 2015, I worked for the OPSEU Pension Trust, a major pension plan in Ontario, and had the benefit of a “golden pension”, or a Defined Benefit Pension.  These pensions are considered the gold standard in the pension industry because the total payment that one receives upon retirement is guaranteed, regardless of what happens in the markets.

However, towards the end of my tenure at the company, a new CEO came in, and there were a number of changes with upper management. As a result of these changes, there was a large amount of restructuring as the company made attempts to streamline processes and change the long term strategic goals and organization of the firm. As with any restructuring, there are causalities, and my department was no different: my entire department was explained away, and I left the organization.

Due to pension law in Canada, when an employee leaves a company, they are given three options with the money that is with the company for their future pension:

  1. Leave the money with the company, and at age 65, start taking a pension.
  2. Transfer the money with the company to your new employer’s pension plan. In this way, any deductions which were taken off of your paycheque whilst with employed with the former company, would carry forward with you to your new company. The caveat to this is that it is not the actual deductions which would transfer, but the commuted value of those deductions.
  3. Transfer the commuted value of your pension to a Locked In Retirement Account.

Before continuing with the background information, it would help to get some terminology out of the way..

The commuted value of a pension is an actuarial calculation which states what the total value of your pension in the future is worth today. To give a very simple example, assume you received a pension of $1,200/year ($100/month) starting at age 65, and given your actuarial profile, you would live to the age of 85. Given that, the total payments you would receive would be:

     \begin{align*} \text{total value} & =\$1,200/\text{year} \times \text{20 years}\\ &=\$24,000 \end{align*}

But, that $24,000 is the value of the pension as you receive in the future; to be accurate, you have to discount that back to the present day. If we extend our example to assume that we have a discount rate of 5.25%, and we are currently 50 years old, this means that the first annual pension payment of $1,200 (i.e. when you turn 65) has to be discounted back 15 years at the discount rate of 5.25%, or \frac{\$1,200}{(1+5.25\%)^{15}}. The next payment would have to be discounted 16 years, or \frac{\$1,200}{(1+5.25\%)^{16}}. If we do this for all of our payments to age 85 (our assumed death age), then the present value of the pension is then:

\text{total present value}=\frac{\$1,200}{(1+5.25\%)^{15}}+\frac{\$1,200}{(1+5.25\%)^{16}}\cdots\frac{\$1,200}{(1+5.25\%)^{35}}

And if we do the math on this, we find that our $1,200 annual pension at age 65 is worth $7,353.54 in today’s dollars.

The example above is very simple, and a more true calculation would discount each (monthly) payment by the discount rate. Also, the assumption that the pension would last for 20 years is based on a number of actuarial tables, etc. But at the end of the day, the commuted value is the present day value of all future pension payments.

The other item to discuss is the Locked In Retirement Account, or "LIRA" for short. A LIRA functions much like an RRSP, with the following key differences:

  • Under normal circumstances, funds in the LIRA are locked in until either your retirement age, or some other specified age as specified by the province the LIRA is registered in. For my purposes, I am basing my calculations assuming the LIRA is locked in to age 65.
  • Under normal circumstances, money added to a LIRA can come only from another LIRA, or registered pension. You cannot add money to a LIRA at a time of your choosing as you would with an RRSP.
  • Depending on the circumstances, you may be able to transfer your LIRA to your pension plan with another employer in the future.

Put another way: when you open the LIRA, any and all money is inaccessible until the prescribed age of withdrawal, or if available to you, you transfer the funds to another registered pension plan. If the market goes south and your LIRA loses 90% in value, you cannot add money to bring it "back up". Similarly, if it grows in value over time, you cannot withdrawal that money until some time in the future.

For my own personal situation, after leaving my previous employer I elected to incorporate myself and become an independent consultant. This mean that Option 2 was not possible, as I would no longer be employed by a company with a pension plan to transfer the funds into. The other options would be Option 1, leave my money with OPTrust, and Option 3, transfer it to a LIRA.

The formula for OPTrust when calculating the defined benefit pension is:

    \begin{align*}\text{annual pension at retirement} & =2.00\% \\ & \times\text{best consecutive 5 years salary} \\ & \times\text{years of credit in the plan} \end{align*}

Based on my years of service, and average salary, the pension I could have expected to receive at age 65 would be approximately $600/month, or $7,200/year. But, that is $7,200/year in 28 years!! The Bank of Canada has an inflation target of 2.00% annually. If we discount back the pension offered by my previous employer at the inflation target of 2.00%, that would equate to $426.67/month in today’s dollars. I’ll be honest: I think I can do much better than that.

That said, because the pension offered by OPTrust would be worth relatively little in the future, and because I did not have an employer to transfer my pension to, I went with Option 3. The second part of this series will outline the quantitative analysis I performed to come to this conclusion.


DRIP Investing

Dividend Reinvestment Plan investing, or “DRIP” investing, is a very cost efficient way of making passive gains in your portfolio. I have been a big fan of this type of investing for years, as it completely removes two types of investment friction: rounding friction, and commission friction. Well, the second one is a bit of a lie: you are exposed to some commission friction, but it is minimal in the grand scheme of things. But, before I get ahead of myself, I’ll explain what DRIP investing entails.

At its core, a company which offers a DRIP allows the shareholder to re-invest dividends issued by the company directly back into additional shares in the company. So if the share price is $5.00, and you received $10.00 in dividends, you will receive 2 shares. In addition to this core functionality, there may be additional benefits and/or constraints:

Item Description Potential Benefts Potential Constraints
DRIP Enrollment The process of enrolling in the DRIP May have a minimum number of shares required, e.g. you may need 100 shares to even sign up for the DRIP.
OCP/SPP Optional Cash Purchase or Share Purchase Plan. This is the ability for you to buy additional shares directly from the company. May offer a discount on additional shares, e.g. 2% off of the current share price.
  • May have a minimum cash amount required (e.g. $100.00)
  • May charge a small commmission per transaction
Automatic Contributions Automatically debit from your bank account on a periodic basis. This allows you to slowly build your position over time, virtually effort-free on your part. Same as OCP/SPP Same as OCP/SPP

So, how does this all work?

With DRIP investing, you normally have a share of stock in certificated form. Classically, this would mean that you have a physical paper certificate for the company in which you are investing. Today, there are alternatives such as the Direct Registration Sytsem (DRS), but the core of the matter is that the share(s) of the company are registered directly in your name. This differs from a typical stock trade through a brokerage where shares are held in street name (more info may also be found here), where the shares are actually in the name of your broker/agent, and not yourself.

This is important, because once an investment is certificated, you can start participating in the DRIP. You cannot participate in the DRIP if the shares are in street form.

Once you have your certificated share, enroling in the DRIP is as easy as filling out the requisite paperwork.

So, how is this a good thing?

As I mentioned above, one form of friction that DRIP investing eliminates is rounding friction. Recap the example ealier:

[i]f the share price is $5.00, and you received $10.00 in dividends, you will receive 2 shares.

I had picked those numbers for convenience, as they gave us a whole number of shares to re-purchase. However, what if the share price was $7.50, and you received $5.00 in dividends? With a normal brokerage, you would receive $5.00 in cash, and no shares, since the share price is greater than the received dividend. With a DRIP however, you can receive fractional shares. So your $5.00 in dividends will purchase you 2/3 of a share (since $5.00 is 2/3 of $7.50).

Let’s look at OCPs. If you have an extra $100 lying around one day, you might decide to purchase some stocks. Moreover, let’s say you own Telus (T.TO) in your DRIP. The current market price (as of business day close on Sep 9, 2016) is $42.03. If you were to buy shares at a typical broker, assuming $9.95 commission, you could only buy 2 shares, and be left with $5.99 in your pocket ($100.00 less $9.95, and purchasing two whole shares at $42.03). But, because Telus offer OCP/SPP, and no commissions, you can buy 2.379252 shares!

These fracitonal elements are important, because you can now take advantage of true compounding. As an example, let’s use Telus again, with the following assumptions:

  • Share price grows at 3%/year
  • The dividend grows at a rate of $5%/year

At a regular brokerage, after 5 years, here is what you have:

# Numbe of Shares Period Dividend Dividends Received Share Price Dividend Bank Shares Purchased Dividend Bank (end) Net Value
1 1 $0.46 $0.46 $42.03 $0.46 0.000000 $0.46 $42.49
2 1 $0.46 $0.46 $42.34 $0.92 0.000000 $0.92 $43.26
3 1 $0.46 $0.46 $42.66 $1.38 0.000000 $1.38 $44.04
4 1 $0.48 $0.48 $42.97 $1.86 0.000000 $1.86 $44.83
5 1 $0.48 $0.48 $43.29 $2.35 0.000000 $2.35 $45.64
6 1 $0.48 $0.48 $43.61 $2.83 0.000000 $2.83 $46.44
7 1 $0.48 $0.48 $43.94 $3.31 0.000000 $3.31 $47.25
8 1 $0.51 $0.51 $44.26 $3.82 0.000000 $3.82 $48.08
9 1 $0.51 $0.51 $44.59 $4.33 0.000000 $4.33 $48.91
10 1 $0.51 $0.51 $44.92 $4.83 0.000000 $4.83 $49.75
11 1 $0.51 $0.51 $45.25 $5.34 0.000000 $5.34 $50.59
12 1 $0.53 $0.53 $45.59 $5.87 0.000000 $5.87 $51.46
13 1 $0.53 $0.53 $45.93 $6.41 0.000000 $6.41 $52.33
14 1 $0.53 $0.53 $46.27 $6.94 0.000000 $6.94 $53.21
15 1 $0.53 $0.53 $46.61 $7.47 0.000000 $7.47 $54.08
16 1 $0.56 $0.56 $46.96 $8.03 0.000000 $8.03 $54.99
17 1 $0.56 $0.56 $47.31 $8.59 0.000000 $8.59 $55.90
18 1 $0.56 $0.56 $47.66 $9.15 0.000000 $9.15 $56.81
19 1 $0.56 $0.56 $48.01 $9.71 0.000000 $9.71 $57.72
20 1 $0.59 $0.59 $48.37 $10.30 0.000000 $10.30 $58.66

In the above, the “Dividend Bank” is where you would store all dividends received until you had enough to purchase one share, and “Dividend Bank (end)” is the money left over in the dividend bank after buying a share. But, as you can see above, we were never able to purchase any shares! This is because it would take us forever to save up enough of the dividend income to buy a share, plus we have to save up enough to cover the commissions as well.

Using a DRIP, with the same growth assumptions, here is what you have:

# Numbe of Shares Period Dividend Dividends Received Share Price Shares Purchased Net Value % Gain from Without DRIP
1 1.000000 $0.46 $0.46 42.030000 0.010945 $42.49 0.00%
2 1.010945 $0.46 $0.47 42.341740 0.010983 $43.27 0.02%
3 1.021927 $0.46 $0.47 42.655791 0.011020 $44.06 0.06%
4 1.032948 $0.48 $0.50 42.972172 0.011598 $44.89 0.12%
5 1.044546 $0.48 $0.50 43.290900 0.011642 $45.72 0.19%
6 1.056188 $0.48 $0.51 43.611992 0.011685 $46.57 0.29%
7 1.067873 $0.48 $0.52 43.935465 0.011727 $47.43 0.40%
8 1.079601 $0.51 $0.55 44.261337 0.012379 $48.33 0.53%
9 1.091979 $0.51 $0.55 44.589627 0.012428 $49.25 0.68%
10 1.104408 $0.51 $0.56 44.920351 0.012477 $50.17 0.84%
11 1.116885 $0.51 $0.57 45.253529 0.012525 $51.11 1.02%
12 1.129410 $0.53 $0.60 45.589178 0.013192 $52.09 1.22%
13 1.142602 $0.53 $0.61 45.927316 0.013248 $53.09 1.44%
14 1.155850 $0.53 $0.62 46.267962 0.013303 $54.09 1.67%
15 1.169153 $0.53 $0.62 46.611135 0.013357 $55.12 1.92%
16 1.182510 $0.56 $0.66 46.956853 0.014102 $56.19 2.19%
17 1.196612 $0.56 $0.67 47.305135 0.014166 $57.28 2.47%
18 1.210778 $0.56 $0.68 47.656001 0.014228 $58.38 2.77%
19 1.225005 $0.56 $0.69 48.009469 0.014289 $59.50 3.08%
20 1.239294 $0.59 $0.73 48.365559 0.015054 $60.67 3.42%

Where the “% Gain from Without DRIP” is the relative difference between a brokerage-based portfolio and our DRIP. Looking at the above, by using the DRIP, over our 5 year example time horizon we have gained 3.42%, all for doing nothing. And, if you throw OCPs into the mix (e.g. setting up regular contributions), your holdings grow even quicker.

Not all companies offer DRIPs. In Canada, two of the major providers are Computershare Canada and CST (the CST link takes you directly to their DRIP page). But even for those companies that offer DRIPs, not all DRIPs are created equal. Not all companies offer OCP/SPP. Some charge for DRIP, OCP/SPP, and/or withdrawals to/from the plan, and some have minimum balance requirements. That said, when I am looking for a company to DRIP with, other than my regular stock analysis, I look for those who offer and OCP/SPP, and as an added bonus, regular automated contributions by deducting from my bank account. Moreover, those that offer discounts on OCP/DRIP (e.g. Emera which offers up to a 5% discount on DRIP) are even better.

And OCP/SPP is key. The reason being, if you have only one share to start, it will take you forever to get to the point where you can take advantage of material growth through DRIPping.

How does one get started?

You only need one share to start a DRIP, and then you can use an OCP/SPP purchase to purchase any additional shares as needed. You can leverage places such as The DRiP Investing Research Centre‘s Share Exchange board to find individuals who are selling individual shares, or you can even post a message asking for a particular share. Typically individuals selling on these forums ask for a $10.00 convenience fee. This is pretty much in line with most discount brokerages, and since you can easily recoup this cost through the DRIP process itself, it is a small price to pay. Alternatively, you can purchase shares through a regular (discount) brokerage, and then ask the brokerage to withdrawal your shares in certificate form. DRIP Primer has a great list of brokerages, and the fees to do so.

One final thing to mention is synthetic DRIPs. With a synthetic DRIP, a brokerage will buy you any whole shares that it can when the dividend is issued, and any money remaining is given to you as cash. Looking back to Telus, if the share price were $42.03, the dividend were $0.46/share, and you had 100 shares, you would receive $46.00 in dividends. Your brokerge would take this $46.00, purchase one share, and leave the balance ($3.94) in your account as cash. The advantage to this is that the brokerage does not charge you a fee (i.e. commission) for the purchase. The disadvantage is that you cannot take advantage of the fractional shares as with a true DRIP; i.e. you are still subject to rounding friction.

To summarize:

  • DRIPs offer a great way to build compounding returns, through re-investing dividends and purchasing fractional shares
  • Often, companies offer discounts on DRIP and OCP/SPP, but not all DRIPs are created equal; some have better features than others
  • DRIPping does not save you from doing your research: as with all investments, only invest in companies after doing a thorough analysis

And some good resources:

Happy investing!


Yield on Cost vs. Yield on Price? It’s Opportunity Cost that Counts.

I read an interesting article on the Globe and Mail recently, about the “Yield on Cost Myth” (Archived copy may be found at this link). In a nutshell, the author argues that it is erroneous for an investor to consider the yield on cost when they are looking at the dividend yield for a stock; and as a dividend investor this is a very important topic for me. When you are looking at the cash flow stream from an investment, do you look at it from the perspective of what you paid for the stock, or what you would pay today for a stock?

First, some definitions. Yield on Cost is exactly what it sounds like: the total yield returned based on the original cost of the investment. Mathematically:

Yield On Cost=\frac{Dividend}{Average Cost Basis}

This compares to Yield on Price, or what typically we refer to as the normal “dividend yield” of a stock. This is simply the yield based on the current cost of the investment. Mathematically:

Yield On Price=\frac{Dividend}{Current Price}

Now, I do agree that one should focus on the Yield on Price of a stock, not the Yield on Cost of a stock. The reason for this is opportunity cost. Let’s consider the example cited in the original article:

  • You purchased BCE at an average cost of $30.00/share.
  • BCE’s current price is $62.95/share.
  • BCE’s current dividend is $2.73/share.
  • Shaw’s current price is $26.50/share.
  • Shaw’s current dividend is $1.19/share.

Summarizing all of that, let’s do the comparison of the different yields:

 

Company ACB ($) Price ($) Dividend ($) Yield on Cost Yield on Price
BCE 30 62.95 2.73 9.10% 4.34%
Shaw n/a 26.5 1.19 n/a 4.49%

The ACB and Yield on Cost for Shaw are n/a because we don’t actually own them yet. As pointed out in the article, at first glance it makes perfect sense to sell your shares of BCE, and purchase the shares of Shaw, and reap the additional 0.15% yield (which equates to a 3.55% relative gain between yields, since 4.49% is 3.55% greater than 4.34%).

The challenge with this is that it assumes that we live in a frictionless environment. By swapping your BCE shares, you’ll be victim to all at least two, and possibly three, types of friction that I mentioned in one of my earlier posts. Unless you are in a tax-deferred (e.g. RRSP) or tax-free (i.e. TFSA) account, you will be subjected to capital gains tax on the sale of the BCE shares. In addition to this, you will be hit with one, possibly two, commission charges by selling the BCE, and purchasing the Shaw.

However, the biggest challenge is with rounding friction. This is illustrated by the below table, which illustrates the net change in your cash flow stream, based on holding 10, 100, and 1000 shares of BCE:

Activity Scenario 1 Scenario 2 Scenario 3 Scenario 4 Notes
Number of BCE Shares 1 10 100 1000 What you started off with
BCE Share Price $62.95 $62.95 $62.95 $62.95
Shaw Share Price $26.50 $26.50 $26.50 $26.50
Commissions $9.95 $9.95 $9.95 Per trade commission
Proceeds of Selling BCE Shares $62.95 $619.55 $6285.05 $62940.05
Shaw shares purchased 2.38 23 236 2374 Number of shares you can purchase from the BCE proceeds
BCE dividend $2.73 $27.30 $273.00 $2730.00 Net dividend pre-swap
Shaw dividend $2.83 $27.37 $280.84 $2825.06 Net dividend post-swap
Delta $ $0.10 $0.07 $7.84 $95.06
Delta % 3.55% 0.26% 2.87% 3.48%
Implied Delta % 3.55% 3.55% 3.55% 3.55% The relative difference between the Shaw yield and the BCE yield.
Delta Variance (3.29%) (0.67%) (0.06%) How much over or under we are in our real gain in yields, relative to the base case.

Looking at this, you can see that the difference in yield is not necessarily as clear-cut as one would think. Scenario 1 represents the base case in a frictionless environment, and from there we can see that the implied delta, and the actual delta, are equal. However, once we get into the real world (e.g. rounding, commissions), this quickly changes. Looking at 10, 100, and 1000, shares, the actual gain varies. You do come out ahead, but not by as much as the frictionless scenario. Moreover, this example assumes no taxes! When we introduce taxes, things get even worse, illustrated below:

Activity Scenario 1 Scenario 2 Scenario 3 Scenario 4 Notes
Number of BCE Shares 1 10 100 1000 What you started off with
BCE Share Price $62.95 $62.95 $62.95 $62.95
Shaw Share Price $26.50 $26.50 $26.50 $26.50
Commissions $9.95 $9.95 $9.95 Per trade commission
Proceeds of Selling BCE Shares $62.95 $619.55 $6285.05 $62940.05
Tax Rate 16.95% 16.95% 16.95% 2016 Ontario Tax rate for $83M-$86M income tax bracket, from taxtips.ca
Available proceeds to purchase Shaw shares $62.95 $514.54 $5219.73 $52271.71
Shaw shares purchased 2.38 19 196 1972 Number of shares you can purchase from the BCE proceeds
BCE dividend $2.73 $27.30 $273.00 $2730.00 Net dividend pre-swap
Shaw dividend $2.83 $22.61 $233.24 $2346.68 Net dividend post-swap
Delta $ $0.10 ($4.69) ($39.76) ($383.32)
Delta % 3.55% (17.18%) (14.56%) (14.04%)
Implied Delta % 3.55% 3.55% 3.55% 3.55% The relative difference between the Shaw yield and the BCE yield.
Delta Variance (20.73%) (18.11%) (17.59%) How much over or under we are in our real gain in yields, relative to the base case.

Again, with Scenario 1 as our base case (no taxes, no commissions, no rounding), we see that our net gain is exactly 3.55%, which is what we would expect. However, the net result looks gloomier with 10, 100, or 1000, shares: our total income is less after we have made the swap!

At the end of the day, while yield is important, and understanding the difference between Yield on Cost and Yield on Price is important, it is opportunity cost which is the most important. Even though BCE’s Yield on Price was lower than Shaw’s Yield on Price, the cost to make the switch effectively cost us 14% in annualized net income!


Minimizing investment friction

Over the years, I have started to pay more attention to friction in my portfolio, which I define as any charges, fees, or penalties, which ultimately deter from my earning potential. When I am making decisions to buy/hold/sell investments, there are three primary types of friction I pay attention to, and try to avoid: Tax Friction, Rounding Friction, and Commission Friction.

1. Tax Friction

Taxes are a reality, and ultimately the tax man (or woman!) always gets his (her) due. In Canada, there are three key types of taxes to pay attention to with your investments. The first, is the capital gains tax, which is applied on any capital gains (i.e. profits) from your investments when you sell them. Following this, is taxes on dividend income; and finally, there are taxes on interest income.

There are a number of ways to reduce tax friction with your investments. The most obvious one, is to keep your investments in a tax free account; in Canada, this would be your TFSA, otherwise known as a tax free savings account. Any capital gains, dividends, or interest, you receive in the TFSA are received tax free. The reason for this is that any contributions you make to a TFSA (i.e. money or investments transferred into the TFSA) are made from after tax dollars, so you have already been taxed on the inflows to the account. The one downside to using a TFSA is that you cannot use capital losses incurred in the TFSA to offset capital gains outside of your TFSA.

The second vehicle at your disposal is to keep your investments in a tax deferred account, e.g. your RRSP. Similar to your TFSA, any gains, dividends, or interest, or not taxed in the account (well, not immediately; see the second key difference below). Moreover, any losses cannot be used to offset gains outside of the RRSP. That being said, there are two key differences between a TFSA and an RRSP. The first difference is that contributions to your RRSP lower your taxable income in the year in which you make the contribution1. As an example, say your salary in 2016 is $45,000, and you contribute $5,000 to your RRSP. This lowers your taxable income to $40,000, which means that your income tax for the year is on $40,000, not $45,000. Taking this even further, if you review the marginal tax rates for your province, you may actually move yourself into a lower tax bracket. In the example we just cited, in the province of Ontario, at $45,000 your marginal tax rate is 9.15%, but at $40,000 your marginal tax rate is 4.05%!

The second difference is that you are taxed when you take money out of the RRSP. The theory is that when you take the money out however, you will already be in a lower tax bracket. So while you may be in a $45,000 tax bracket today, when you take the money out when you retire, you will likely be in a lower tax bracket. Again, by forcing yourself into a lower bracket, you are ultimately paying less tax (and keeping more money in your pocket!).

The third way to reduce taxes is to leverage your capital losses against your capital gains. This option is only available to you in a non-registered account (e.g. not a TFSA and not an RRSP). With this reduction, you reduce the amount of tax you pay on your gains by your losses in that year. For example, if you sell a stock for a profit of $10,000, and you sell another stock at a loss of $4,000, you will only pay tax on $10,000 -$4,000 = $6,000. In general this applies provided you claim the gain and loss in the same reporting period (or carry forward any losses and/or gains to future years); seek advise from a tax professional for details.

2. Rounding friction

Rounding friction is exactly what it sounds like: losses due to rounding. As an example, assume we are able to trade stocks with no commissions, and with no tax friction (e.g. in our TFSA). For our example, say there are two companies, A and B, and we wish to sell company A and purchase company B, because the yield on B is higher:

Line # Company A Company B Notes
A # shares 100 20
B share price $12.34 $59.80
C total value $1,234.00 $1,196.00
D dividend yield 5.00% 5.10%
E dividend $ $61.70 $61.00

After we have completed all of our trades, our absolute dollar return is less even though Company B is the higher yielding stock. The reason for this is that we cannot trade fractional shares. When we sold Company A and took the proceeds of $1,234.00, the proceeds divided by the price of Company B would have had fractional shares: $1,234.00 ÷ $59.80 = 20.635 shares. But, since we can only trade in whole shares, we lost out on 0.635 shares. Even if we take into account the residual cash from selling Company A (i.e. the cash leftover from the trade), our net value is still less. Note that this is only in Year 1, however in subsequent years your net dividend income would still be lower as well with Company B due to the loss of 0.635 shares.

Line # Company A Company B Notes
A # shares 100 20
B share price $12.34 $59.80
C total value $1,234.00 $1,196.00
D dividend yield 5.00% 5.10%
E dividend $ $61.70 $61.00
F Cash in Lieu n/a $38.00
G Net Value $1,295.70 $1,295.00

The only way to get around this is to either luck out and fund companies where the net proceeds of the first will exactly pay for the net cost of the second, or to purchase fractional shares. Luckily, there are ways to perform the latter. If one uses Optional Cash Purchases for companies that allow it, you can purchase any number of shares, and the the total shares purchased will be exactly equal to the amount of capital divided by the going price for the shares.

3. Commission Friction

The most common type of friction, and often one of the hardest to avoid, is friction caused by commissions on your trades. As investors we are all familiar with commissions, and they are a cost of doing business when investing.

Other than choosing a (discount) brokerage which has very low commissions (Personally I use BMO InvestorLine, which charges $9.95/trade), to my knowledge there are really only two ways to get around commission friction.

The first, is to use Optional Cash Purchases for those companies that allow it, and that do not charge commissions on OCPs. Not all companies that offer OCPs do so commission free. For example, the McDonald’s OCP program charges $6.00 per share, whereas the Emera OCP program does not.

The only other way to reduce commission friction is to trade in larger quantities of stock, thereby reducing the average commission. For example, if you purchases 100 shares of a stock at $9.95 commission, your average commission per share is only $0.0995. But if you were to purchase only 50 shares, your average commission would be $0.1990. While you are not completely eliminating the commission, you are reducing it on an average basis.

Onward and Upward!
-pmp
__________

1 This isn’t exactly true. See a tax professional, but you can may be able to defer your contributions to a later year, hence reducing taxes in a later year.


Reset button.

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.

Welcome back.