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Happy 2023, everyone!
While I have no idea what 2023 will bring, it would be pretty hard for it to match last year’s casserole of crazy. Inflation, war, spiking gas prices, and the fastest interest rate increase in history made last year a true head-spinner. Personally, I’m rooting for 2023 to herald in that goddamned “Roaring 20’s” we were promised when the pandemic ended.
Well, as you know, we here at Millennial Revolution know how to party. So of course FIRECracker and I spent New Year’s Eve knee deep in spreadsheets so we could write this post.
So without further ado, I give you, our portfolio’s 2022 performance review!
Woo!
The Equity Bear Market
From an investment perspective, 2022 was a *checks notes* total shit show.
The impact of all those different world-shaking events did a number to investor confidence. Not to mention energy prices, inflation, and interest rate policy. Add it all up and the US stock market officially entered bear market territory, declining by a whopping 20%.
2022 was the worst year for the US stock market since 2008. International stock markets did a bit better, with the MSCI EAFE index sinking by 16.6%.
One surprising area of outperformance was the Canadian stock market. After the war in Ukraine made gas prices shoot through the roof, Canada’s stock market unexpectedly benefitted because of how energy-based our stock market is. As a result, the TSX declined by “only” 8.6%.
And because our equity exposure is generally divided evenly between Canada, the US, and international stock markets, our portfolio inadvertently got a cushioning effect from this. However, I can honestly claim zero credit for this. Even as I was watching with horror as the war broke out and gas prices shoot up, I never could have predicted that this would have a positive effect anywhere, let alone one of the main stock indexes I invest in. But an accidental win is still a win!
The bond market, which typically acts as a counter-balance to stock market volatility, also got creamed this year. Bond prices move in the opposite direction of interest rates, so when interest rates rise rapidly (like this year), bonds go down. And boy did they.
An aggregate bond index fund like VAB fell by almost 14% in 2022. Double digit moves in either direction for bonds is extremely unusual, and was caused by the fastest rising interest rates in history. So while bonds dropped the ball as a dampener of volatility, it’s unlikely to continue happening in the future since these kinds of interest rate moves are extremely unusual.
That being said, central banks were nice enough to telegraph the fact that they would be raising interest rates all the way back in 2021. Many people didn’t believe them, but I did, and as a result replaced our aggregate bond holdings with a short-duration bond fund back in June 2021. And I’m super glad I did, because here’s how our short bond fund did relative to the medium-term aggregate bond fund in 2022.
Short-duration bonds are less sensitive to interest rate moves, so doing this meant that our portfolio’s bond holdings declined far less than the main aggregate bond fund. Was this a bit of active trading? Maybe, but come on! Interest rates were at zero and only had one direction to go. I made a judgement call and it turned out to be right in the end.
So put it all together, and here is how our portfolio’s overall performance looked in 2022.
In any other year, a 12% decline isn’t exactly something to celebrate, but in 2022, that technically represents an 8% over-performance over the US stock market. That ain’t too shabby given that we entered 2022 with a 90%/10% allocation.
We had similar performance on Portfolio B, since it’s largely invested in the same ETFs, but because we add money we earn throughout the year to this account, its true performance is not as easy to see.
In our report generated by Passiv, the green line represents total value while the light blue line represents contributions. You can see that while stock market volatility is swinging our portfolio’s value around, its impact is hidden by the infusions of new cash into the account as we move book and blog earnings in throughout the year.
So even though the portfolio was supposed to go down this year, it ended up higher at the end, though this is caused by new contributions rather than anything magical I did to our investments.
When we decided to separate our investments into Portfolio A and Portfolio B way back when, the original intention was to preserve the integrity of the experiment and prevent any post-retirement earnings from “polluting” the FIRE portfolio we built up before retirement.
As it later turns out, this had the added bonus of making it much easier to measure the impact of our investment choices. As many of you who are in the accumulation phase of your FIRE journey have no doubt noticed, when you add money to your accounts throughout the year it’s not actually that easy to see how well or poorly your portfolio actually did because the impact of new money being added clouds your reporting.
Once you stop adding money, it becomes much easier.
Here are our final net worth numbers for 2022.
| 01-Jan | 31-Dec | |
| Portfolio A | $1,480,089.00 | $1,277,787.00 |
| Portfolio B | $418,200.00 | $485,178.00 |
| Total | $1,898,289.00 | $1,762,965.00 |
So that means we ended 2022 with a net worth of $1,762,965, for an overall change of -7.1%.
It does suck that it’s negative, but it could have been a LOT worse. I can pinpoint our year’s financial performance on 3 factors that caused us to over-perform (any by that I mean not lose more money than we should have):
- The Canadian stock market outperforming its sensitivity to oil prices
- Owning short-duration bonds
- New contributions due to book and blog earnings
Dividend FIRE
I do want to take some time to talk about something interesting that also happened this year. At the beginning of 2022, we projected that even after moving to an aggressive 90/10 split, our dividends would match our living expenses for the first time. We projected that we’d receive about $43,500. How did that prediction turn out? Well, according to Passiv’s handy-dandy dividend income report…
Actually, pretty damned well.
This actually demonstrates a rather curious and under-reported phenomenon of the past 12 months. Despite the war, despite record-high inflation, despite the US stock market slipping into a bear market and near-universal predictions of an upcoming recession, dividends held up.
Actually scratch that. Not only did dividend payouts hold up, they actually increased over the year.
This tells us something really important.
Despite stock prices having 20% of their value shaved off by 2022’s market rout, those companies are still making plenty of money. So much money, in fact, that they saw fit to increase dividend payouts. That means that the recent stock market declines are mostly driven by compression of their P/E ratios rather than a decline in earnings.
In other words, stocks went down in 2022 because the news spooked investors. But the underlying companies are still healthy. In fact, earnings actually increased during this time. And that means that there’s potential for a very rapid rebound in the stock market if and when investor sentiment goes the other way.
Another big realization from this year is that we’ve hit a new milestone in our FIRE journey. You may have heard of Lean FIRE, Fat FIRE, Coast FIRE, and even Barista FIRE, but here’s a new type of FIRE you may not have heard of…
Dividend FIRE!
This is when the dividends from your portfolio completely cover your projected living expenses.
Normally, the 4% rule assumes that you’ll be funding your retirement out of a combination of harvested dividends and selling shares that have gone up in value. But of course, in some years there are no shares that have gone up in value, like this year. This is when the risk of bad timing (or sequence of returns risk, as we’ve written about in the past) rears its ugly head, and strategies we came up with like the Yield Shield and Cash Cushion were necessary.
But if you use those strategies to successfully survive the first few years of retirement, eventually your portfolio grows to a point where the straight dividend yield is enough to live on. At this point, managing your portfolio becomes trivially easy.
You don’t need a Cash Cushion anymore, since a bad year on the stock market no longer means you have to make up the difference elsewhere.
You don’t need to use Geographic Arbitrage to lower your living expenses in a market downturn (a.k.a our “If shit hits the fan, we’re going to Thailand” strategy). We’re still going to go to Thailand, but because we want to, not because we have to.
And most importantly, the day-to-day gyrations of the stock market really don’t matter anymore.
This has been a huge change for me, but an even bigger change for FIRECracker. As a natural worrier and involuntary-lister-of-all-things-that-can-go-wrong, FIRECracker is usually a bundle of nerves during market downturns that I have to calm down. But this time, every time the news would report something scary about the stock markets, she would turn to me and ask “Are the dividends still OK?” I would check and report back that yes, they were. And then she would go take a nap.
It’s been pretty great, and completely unexpected.
After spending so much energy coming up with backup plans A, B, and C for every possible bad thing that can happen, reaching Dividend FIRE means we can’t really be derailed by the stock market anymore.
Getting a Raise with Preferreds
Which brings us to 2023. Are we planning on keeping the same 90/10 split in 2023, or are we going to make any changes?
After careful consideration, we are planning on changing our portfolio allocation from 90/10 to 75/25, with the 25% fixed income portion replaced with a preferred share ETF, namely ZPR.
Why? As we discussed in a previous post, Preferred Shares can either be issued with a fixed interest rate, similar to a bond, or a floating rate, which adjusts with interest rates. And for some strange reason, floating rate preferred shares have been pulled down alongside fixed rate preferreds as interest rates rose, despite the fact that they’re supposed to go in opposite directions.
This has created a unique value play where an ETF tracking a floating-rate preferred share index (like ZPR) is currently yielding about 6%, which is fantastic value considering that these shares are issued by blue-chip companies like banks and utilities.
So over the next few days, our portfolio will be moving from this:
| Asset Class | Allocation | Yield |
| Short Bonds | 10.00% | 2.57% |
| Canadian Stock Index | 30.00% | 3.19% |
| US Stock Index | 30.00% | 1.52% |
| EAFE Stock Index | 30.00% | 3.00% |
| Total | 2.57% or $45,308.20 |
To this…
| Asset Class | Allocation | Yield |
| Preferred Shares | 25.00% | 6.00% |
| Canadian Stock Index | 25.00% | 3.19% |
| US Stock Index | 25.00% | 1.52% |
| EAFE Stock Index | 25.00% | 3.00% |
| Total | 3.43% or $60,425.63 |
This move will boost our projected dividend yield from $45,308.20 to $60,425.63, which represents a raise of 33%!
Now, this is not a move that makes sense for everyone, especially if you’re still in the accumulation phase of your FIRE journey. The reason is that dividends are tax-free, but only if you’re not making other income. If you’re still working, a higher dividend income will mean you’ll be paying more taxes for income that you don’t actually need yet. Why pay taxes when you don’t need to, right?
This move makes sense for us, because we have very specific needs. Namely…
- We need the income each year because we’re retired
- We want that income to come from dividends rather than capital gains
- We don’t care about volatility anymore
If these conditions don’t apply to you, then there’s no need to change your portfolio to follow us. Keep it simple and stick with indexing.
Conclusion
2022’s been a pretty crazy year news-wise, but from a financial perspective the biggest adjustment for us has been the sudden appearance of high inflation and rapidly rising interest rates. Millennials have never dealt with this situation before in our lifetimes, and for many people in our generation, that adjustment has been very painful.
People who bought into the hype of home ownership and went into massive amounts of debt assuming sub-2% interest rates would stay around forever got absolutely screwed this year. Rising debt servicing costs and falling home prices meant that homeowners are trapped in a financial vice of their own making, and many are being forced to work multiple jobs just to stay afloat.
On the other hand, our approach of rejecting home ownership and avoiding debt has absolutely worked out to our advantage. Rather than seeing our living expenses squeezed by higher mortgage costs, because our wealth is liquid, it’s easy for us to identify value in the fixed income market and lock in a 33% raise in dividends.
Next week, FIRECracker will be reporting on our 2022 expenses, so stay tuned for that!
How did everyone’s investments perform in 2022? Let’s hear it in the comments below!
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Kind of sad to see the US index fund is still only paying a measly 1.5% in dividends!
Does re-allocating more to Preferred Shares require you to sell and incur capital gains tax?
You really need to look 10 yrs ahead – Canadian here who’ve been travelling and working abroad, opted for mini retirements + coast FI. Not owning a modest home in your country of citizenship feels ridiculously risky. Inflation in expat towns is more then typical stock returns. Safetywing insurance becomes a rip off in the event you have a health condition that spans over a year (according to older ppl who retired abroad). At one point, if all goes well it will get old living in a suitcase and flying every 1-3 months. Just make sure you have enough gains in your portfolio to buy something modest in cash during a real estate market correction. At the end of the day, you need to live somewhere.
Also,if you are Canadian résidents, you pay 0% taxes in about the first 15000$ of ordinary income. Less then capital gains. Rental Income is taxed as ordinary…
I witnessed the same phenomenon as you did. My portfolio value declined while my dividend income increased and covered my living expenses, even as I had unexpected higher expenses this year than the previous year.
Yea try renting a hoyse as a family and see how amazing and cheap it is in comparison now lol.
Excellent !
For year 2022, I’m down 10.9%, but I went a little heavier on energy at end of 2021.
When I was in accumulation phase, my plan was to be able to retire entirely on dividends. The 4% rule was the icing on the cake, which I easily hit. Other than occasional rebalance, I won’t be selling any equity positions.
..also, I’m not convinced we’ve seen the worst in Ukraine yet. That situation can get much much worse….waiting for the other shoe to drop…
This is a creative strategy, like the cash cushion.
Theoretically, Dividends are irrelevant, as they are just forced liquidations. (Ben Felix on YouTube has a great video summarizing this in his Common Sense Investing videos).
In other words, theoretically, Capital Appreciation + Dividend Yield should be the same for non dividend and dividend funds. So, dividend yield paid is equivalent to selling shares of that amount.
However, I do understand the tax implications given 0 regular income.
Interesting review, thank you for the transparency Bryce!
See you in Thailand!
Ryan
this point is lost here. most here think dividends are free money separate from capital growth. forced liquidation is spot on though but mental accounting makes it easier to think youre not selling equities in a downmarket if you dont have to hit actually press the sell button and just get it as a dividend instead
Oh darn, I was hoping you’d know how to take out the deposits from the reports. I have no idea what our actual returns are (or in this year perhaps aren’t!) … and I worry I should know this.
Anyone have a reasonable approach? Is it actually simple and I’m over-complicating it in my head?
That’s easy to do.
1) You calculate the difference between ending and beginning balance, excluding the contributions / withdrawals.
For example : 1,762,965$ – 1,898,289$ = -135,324$, minus net contributions 100,000$ = 235,324$.
2) Divide the gain / loss by the beginning value minus net contributions.
For example : 235,324 – 1,798,289$ = -13.08%
For more accuracy, you can prorate contributions / withdrawals based on the number of months in the year inside the portfolio.
For example, if all contributions / withdrawals are made in March, then 10/12 of the net contributions are affecting the portfolio performance, thus a 83,333$ adjustment to the calculation instead of 100,000$.
If contributions are made equally throughout the year, then half of them are affecting the portfolio, for a 6/12 adjustment. 50,000$ for 100,000$ in annual contributions.
You made a good reflexion on the year 2022 on an investing perspective.
I was able to achieve -2.33% in 2022, which in the context is particularly good, although it is still down for the year.. Like you, my income (dividends + interests) has increased by 27.8% from 2021 to 2022.
That’s an important thing to remember : when inflation is high, earnings usually go higher, not down, which eventually push dividends higher. Interests can also go higher, but only if the government agrees to give you a higher interest rate on their bonds. That was the case in the US, Canada and the UK. European and Japan citizens are still waiting for better interest rates although inflation is even higher in some of those countries …
Another important fact to remember from 2022 is that higher interest rates have a strong effect on pulling down prices of every assets, from bonds to stocks, to real estate, etc. and even pokemon cards and cryptos !! Good for them, hehe.
I don’t know if you’ve noticed, but if you sold your entire portfolio and put it in a 5% GIC, you could earn 88,148.25$ per year, guaranteed, with no volatility whatsoever. Common stocks, preferred stocks and bonds have to compete with them. That’s not an easy job. That’s why prices of so many assets are down. They have more competition from fixed income investments.
But I think your setting is better. 88,148.25$ per year guaranteed is awesome if we have 0% inflation. But if we have a few years of 10%+ inflation, then you’re totally screwed … And since governments are aiming for 2% inflation on average, having inflation-proof investments is really not an option. It’s a necessity ..
You said you have no idea what 2023 will bring.
You can read Vanguard economic and market outlook for 2023. It’s the most accurate forecast I’ve seen up to now. Here it is :
https://investor.vanguard.com/investor-resources-education/news/vanguard-economic-and-market-outlook-for-2023-beating-back-inflation
In summary, it’s almost certain we will have a recession in 2023 (90% chance). According to them, US stocks could continue to fall and foreign stocks (Canada, Europe, Asia) could do better. So, the challenge for the coming year will be to continue to invest without being hurt too much during the recession.
Personally, I agree with this view. That’s why I sold a lot of US stocks last year (2021). I didn’t made any major change in my portfolio in 2022. My current allocation is :
US : 36%
Canada : 39%
Europe : 10%
Asia : 5%
Cash (~4% yield) : 10%
Debt (~2.5% interest) : -15%
Hope all will be well for you. Wish you the best for 2023 !
Thanks for the insights Manuel!
Dividend FIRE has always been my goal. While dividends can always be cut, if you’re buying stable blue chip dividend payers with a solid track record, dividends are pretty safe.
Right now I am not early retired, but earning nearly $60,000 in dividends annually (not including rental property income).
However, those dividends are spread across RRSP, TFSA and Taxable accounts (bulk in my taxable account). Thus, accessing dividends from my RRSP in early retirement is challenging.
Are you withdrawing RRSP dividends?
I’ve always wondered how one figures out the dividends for assets held in 401k accounts.
I think a lot of people are in the same boat, as they have a substantial amount of their net worth in those accounts.
The account transactions don’t even show how much dividends are paid out, for example, every quarter.
Any suggestions?
I think this subject warrants a blog post in itself.
I can’t comment on 401K’s as a Canadian, but with our equivalent (RRSP – Registered Retirement Savings Plan), I see transaction by transaction the dividends I earn in my RRSP account(s). My brokerage breaks it out by stock and ETF. Perhaps it’s an issue with your brokerage?
If I remember my reading a long time ago, dividends and capital gains do not get itemized in 401K plans due to their structure. Since the plans are already tax-advantaged, the dividends and capital gains are automatically reinvested when they occur, not distributed back to the shareholders as a separately tax reportable event.
Once you roll your 401k to an IRA account, the dividends would be shown and you will see them as transactions.
great info .. you guys did well in 2022
i moved to dividends type investing in 2021 . now earn 11% average a year from ETFs
virtually tax free considering the canadian tax relief and only earning income from dividends . even in a non reg account .. TFSA maxxed
and managed to buy a house in UK for equiv $350k cash . for me it is geographical arbritrage ; UK is way way cheaper than Victoria BC ..
erm isn’t anywhere cheaper now ???
I’m really puzzled by your low yields across all your portfolios. Especially if you don’t work and live off dividends.
Why are you buying all these high fee etfs when you can just buy directly Canadian banks, telecoms and utilities like RY, TD, CM, BCE, FTS, CNR all with dividend yields 4-6%.
Also US etf yields 1.2% ? Even better with more choices . Just buy in your US dollar brokerage account and get US banks , insurance, consumer, industrials many with 3-6% yields .
Inflation is at least 10% so your portfolio is even more negative.
If you live off dividends then you need to find higher yields or work again
I agree when it comes to the Canadian stock market. It’s easy to simply replicate it by buying the stocks themselves (banks, telecos, insurance, energy) at a significantly better yield. As a Canadian I do this but use ETFs to access the U.S. and global stock market (although I do own some individual U.S. stocks in my RRSP).
Work again? Lol – divs alone covering 40k annual spend and they have been retired for the better part of a decade. Their past writing suggests they are also concerned with long term total return. Not that they need it, but that portfolio will probably be tens of millions later in life. ~1.25T in share buybacks in 2022 for S&P 500.
Really good point about the share buy backs…
Nice job outperforming!
Do Canadians mostly hold variable mortgage rates that go up with rates going up?
Because here in the U.S., ~95% of mortgage holders own 30-year fixed-rate mortgages, which stay the same despite rising rates. As a result, inventory has remained suppressed.
Sam
LOL. In Canada most people have 5 year variables.
There will be a day of reckoning shortly for Canadians who have those.
But as a Canadian Bank shareholder without any debts I’m happy as my Banks profits will be going up bigly .
Gotcha! But what happens when rates are back down within five years? Inflation in mortgage rates are already fading at the beginning of 2023.
It’s funny, because our interest rates helped boost our passive investment income to about $380,000 in 2022. I’m hoping to grow into $400,000 in 2023, but it’s gonna be hard with interest rates are coming back down.
If there is tenant turnover, rents will probably go up by 5 to 10% as well. But my tenants will probably stay because they have a good deal.
Sam
In Australia, Sydney and Melbourne house prices are already falling. We mainly have variable mortgages and fix is mostly 2 year max. Some of those fixed rates will finish mid 2023. Starting new buyers who bought at the peak struggle with increased repayments.
My TFSA is basically all USA tech stocks with no dividends. It got cut in half this year. Ouch. But I live off my Non reg account which is all Canadian dividend payers. So that hasn’t been too bad. Hopefully this year turns around a little for a reason other than QE. I think that gig is up. We need some organic economic growth, not stimulus. I’m hopeful but not optimistic!
Curious, as a Canadian, why do you own mostly US stocks? Most Americans don’t own mostly Canadian stocks. Thanks for the insights!
Sam
US company market cap is a material part of world market cap. Some of the best and most profitable global companies. Same reasoning as why JL Collins argues US citizens don’t need international exposure.
canada did way better than US this past year … and you get a tax break investing in canadian companies … $50k per person in fact
i only invest in dividend not growth ETF’s . never single stocks
It depends on what type of income you are looking for. Canadian companies pay large dividends that are taxed at a lower rate so it makes sense to hold them in a taxable account. US dividends are taxed as regular income so its preferable to hold them in a tax shelter like a TFSA or RRSP account.
Personally, I keep my US stocks in an RRSP and not my TFSA, to avoid paying non-resident withholding tax. Also, you want to pump up your dividend earning holdings within that TFSA so all that dividend goodness can be earned tax-free. Like DadMD, I am all about the Canadian bank stocks these days. They are “on sale” with Bank of Nova Scotia and CIBC yielding 6%. Woohoo! I also put some cash in a Canadian bank-issued GIC which will pay 5% when it matures, just to hedge against any market ickiness. I am retired and in RRSP meltdown mode, which is not for the faint of heart in this climate, but the dividends help lessen that pain.
dividends went up because correlated with interest rates going up. market forces from opportunity cost of yield
Nice report, however you still don’t take inflation into account.
That is to say that you continue to monitoring in nominal rates and not in relative terms.
As a result, your purchasing power will drop in 2022
interesting to see your shift to dividends. I managed -5.8% last year, but I think this is because I am UK based and gained from the falling pound, I also held some cash positions during the year as I’m due to pay off my mortgage in oct 23 with 25% cash from my pension (I will soon be 55 and able to access my pension). I’ve recently moved the cash within my pension that is earmarked to pay off my mortgage into a 60/40 Vanguard lifestrategy fund, on the basis that I don’t want it to sit in cash for 10 months and miss out on potential gains/dividends. I’ve been more bullish with the rest of my portfolio in the last year, with very little bond exposure – although I have recently shifted a larger proportion of it to UK high dividend, as I would also like to achieve a dividend FIRE at 55 (this will seem old to a lot of you, but amongst my peer group 55 is still considered young to retire!). My thinking is that a 60/40 approach now might have more upside on the basis that the bond exposure has potential upside, and also the bond element will yield more than previously?
Receiving dividends during a down market is mathematically the same as selling shares. There is no difference even though you may want to think you’re not selling. pivoting to higher dividend yield, means selling more shares. . Here’s great explanation as mentioned by Ryan above
This fact is lost on many, but you guys should really understand this with the love to math shit up
https://youtu.be/f5j9v9dfinQ
yes but if you’re in, or close to retirement, there is a huge ‘sleep at night’ factor that comes into play if you don’t have to sell shares in a downturn. A lot of time is spent within the FIRE community analysing the risks of a portfolio failing, whether the 4% yield holds etc… if you can achieve your annual expenditure through dividends then this psychologically can help you to avoid selling in a falling market – and we all know you can’t time the markets…. personally, having spent 10 years managing my SIPP and ISA, and having gone through many sales/buy-backs to try and beat the market, it is a relief to me now to know that I can just leave my portfolio alone. I have put half of it in 100% lifestrategy – low income, so that I still have the exposure to growth stocks, and the other half in higher dividend etfs, the two combined give me enough dividend to live on, hopefully without selling any units….
I see why you may think that and the math but if you sell a share, that share will stop working for you. When you get a dividend sure you could be getting a share at a lower price but you won’t have fewer shares than what you began with in the first place, and there’s the the psychological effect of just spending what you get in dividends without even touching your portfolio, just what’s dripping into your account every month.
This analysis is very wrong. If a company is paying dividend out of current earnings, the dividend payout ratio is reasonnable and that the company reinvest for its future growth, then the cash dividend is a real income. It is very far from selling your shares.
Ben Felix lost it on this one. I understand he is just stating theory. But the real world is very far from theory. Otherwise, all finance teachers would be on the Forbes 500 list of richest people in the world, which is clearly not the case.
Anyway, you just have to understand that a company that generates cash and gives it to you each year is a real income. It is not like selling your shares.
Believe me when I say all options and futures traders at investment banks see dividends like this. Otherwise there is huge arbitrage opportunity available if share prices did not fall with the dividend. It is not just academic theory but very much how capital markets function.
I do understand the psychological appeal for retail investors to not have to manage when to sell, but there is a risk that comes with pivoting to higher yield dividends. ironically, it is de facto equivalent choosing to sell even more shares during the down market
I understand the math behind dividend distributions.
I am just saying, if you invest in a company over a period of 5 or 10 years, the company that generate large cash flows and pays a large part of this revenue in dividends will give you a real income on your investment.
We have to be careful about companies that do not pay enough dividends on the basis that it will always increase the stock price. This is just not true.
This strategy has been very popular over the last 10 years. But my guess is that these kind of companies will get punished by the markets in the coming 2-3 years. I’m talking about companies like PayPal, Salesforce or Adobe, for example.
It’s time for companies to stop treating shareholders like infinite piggy banks and to start paying some dividends to those who provided capital that was essential for their growth.
Panicked retail investors and margin-called institutionals can drive down share prices, but they can’t cut the dividends. That is the difference
Amazing!!!
Dividends get a very bad rep in the FIRE community but for me and as I can see, you as well, it’s a very very important tool, especially in bear markets.
I liked the term Dividend FIRE. That’s my goal as well. Even in the accumulation phase I’m aiming to increase my passive income just because I like to see it covering my expenses, even paying a little bit more in taxes, it’s for the piece of mind knowing I won’t need to sell any shares to live my FIRE life. It’s just a shame US stocks are still paying below 2% in dividend yield. Wayyy to low, but I guess guys like Buffett are all about stock repurchase instead of income, and in their cases, it’s understandable, but ordinary people need ordinary money to pay bills, preferably without denting my net worth in the process – dividend!
Preach the truth: even though market value is down, companies are still making lots of money so some have even increased their dividends!
Schwab also does a good job of showing current and projected dividends. I hope people realize that they don’t have to scour each stock for dividend growth, we’re lucky in that there are plenty of low cost dividend ETFs too.
A bear market can be a good thing, markets don’t always go up.
How do you buy ETF tracking a floating-rate preferred share index using Vanguard? Why not buy a larger share of that if it has such higher dividends? Wouldn’t you be making closer to $100K in dividends if you invested it all there?
Can you please explain how you are taking advantage of the tax exception on the dividends while still bringing in income from the book and the blog? Are you showing it under one person while the other shows the dividend income? Or is the book income still relatively low (which doesn’t look like it)?
Thank you!
I’m just speculating, but perhaps they are using a corporation to earn their blog and book income. That way they can just leave the income in the corporation and pay zero tax personally.
Firecracker’s portfolio performance during the last year matches mine ….11.8% decline and $152K loss. The asset mix was 68% stocks(individual stocks, mutual funds), 13% bonds (Corp only) and a 19% income fund. During this past volatile year, a purely income fund provided the best cushion. It was rock-solid..and generated a 1.2% income. 1.2 % is meagre, but its larger than a negative value. There’s a lesson learned here. Its not a bad idea if income-only funds are included in all-weather portfolio. I know stocks are sexy and bonds are boring…but income funds are will not wilt under pressure.
Big believer in Dividend FIRE but also think the “everything bubble” has only just begun to unwind. It’s very likely that we’ll see a lot more pain in equities in the year to come as US interest rates continue to go higher as the Fed focuses on getting raging services inflation under control. In this environment I think the best option is laddering short term US treasuries, which are yielding close to 5%, with no risk. This is definitely no time to be greedy, or throw caution to the wind.
Super common in Australia to live off the dividends. Much like Canada we have alot of big miners and gas companies along with big banks which pay dividends (5% is AVG for asx300) and a good percentage is fully franked dividends. I think we are one of the lowest bond holders in the world because of high dividends of our share market.
I have a couple of questions – are the dividend yields net yields? We are being taxed 15% on our dividend income (company tax) as non-residents. It’s my understanding that if you are residents of Canada it’s 30% holding (15% company tax and 15% individual)so that would impact our dividend income if we repatriate, wouldn’t it?
Also, yields are averaged per year but are projected yields, so your estimated income could be altered depending on those changes. Do you feel the changes will not be impactful as they will be so small?
How are you actually changing your allocation? I thought we are not supposed to sell low – but are you selling your short term bonds and buying preferred shares ETF’s(ZPR) with that money? Is selling low and buying low at the same time equivalent to just changing one thing for another and not representing any loss then?
FI Tip for those who just starting out the financial rat gate…
The 4 tips are organized in chronological order and high recommended for execution in order as you are gaining in financial strength
1. Use CASH whenever possible
2. Buy your first fixer upper
3. Max out your employer saving plan (401k etc…)
4. Open an online brokerage account and compete for your piece of pie on wall street
Good luck kids!
Great post, very good read.
However, I completely disagree with the move to replace bonds by prefered shares. I understand that you don’t care about capital gains, but prefereds have historically underperformed bond returns AND have the volatily of stocks. You can see this in Portfolio Vizualiser. Compare ZAG to ZPR over the last 10 years and ask yourself what you would have prefered holding. Spoiler, ZPR has negative returns.
Also, right now is a perfect time to buy back into broad bond funds, it’s too bad you’re passing it over.
Is there a post that illustrates which funds you are invested in exactly that yields such high dividends? Thanks!
Newbie question here – when you say you started 2022 with an aggressive 90/10 split, do you mean stocks vs bonds? Have you changed this split coming into 2023? Thanks a lot
The version of Windows 11 is really great. The bad news is that it is not available to everyone. To install it, you need to have the right processor and reddit windows key, because otherwise it won’t work well. Windows 11 already has built-in antivirus. It, together with Secure Boot, will fully protect your computer from threats, viruses and other intruders.
In conclusion, you would think this would make a strong case to flip your whole portfolio into high dividend returning assets, but instead you still keep a balance. I wonder why?
Is your $1,762,965 value portfolio in Canadian or US dollars?