For a little over 4 years now, we have been reporting
our DIY Portfolio progress every 12
weeks or so. And despite the fact the entire process was quite fulfilling by
keeping us accountable and fueling our reflection, enjoy these reports while
they last because they might stop coming sooner than you might expect. In fact,
we have been thinking a lot lately about our blogging career and are at least considering
an extended break.
So, if you can’t live without these reports or any
other part of our blog, show us some love!
Because the cold hard facts are that we simply may not have the will to continue on our own.
Because the cold hard facts are that we simply may not have the will to continue on our own.
Let’s proceed for now. Hopefully not one last time…
You can access earlier portfolio updates here:
In the last few months,
many signs have been pointing in the direction of a recession. The
blow-in-our-faces economical alarms seem to be ticking louder and more often.
We can be worried that some of our leaders (I can at least think of one in
particular) won’t be able to effectively handle potentially fast approaching
crisis. Could the next major recession be also environmentally driven? In many
ways, this could be remarkably painful.
We still have a strong
belief in the long-term perspective of stocks and won’t bother too much about
short-term gyrations. We can only focus on putting measures in place to profit
from amazing opportunities colossal market noise may provide.
Once more, I’ll remind you that I
am not an investment or tax professional of any kind. The intent of this blog
is not to give specific investing advice. Before investing yourself, we suggest
you do all necessary research and consult a licensed financial professional if
need be.
Preventive Measures
The big news as of late
has been getting some of our money into bonds. We decided to do that for the
first time ever because of two main reasons.
One reason to invest in
bonds, and particularly short-term ones, is to precautionarily prepare for recession-induced
rougher times. We still believe in our economical system and the better sense
of some of our leaders and as always, are confident things will eventually get
back on track. We just believe bonds give us additional options to get through
it more easily. We can even take advantage of it all.
But our main reason to
buy bonds is that a big chunk of our money will come out of the markets, at
least temporarily, in the next few years. For instance, our RESP withdrawals
are scheduled to begin in 2020. We would not want a badly timed stock market
downturn to hit us in those circumstances. Our newly acquired bonds should
provide enough liquidities to at least temper possible ill effects of tanking
markets.
To quickly summarize
it, as soon as we are permitted (when our daughter is officially registered for
college), all initial contributions (maxed out by rule at 36000$) will be
withdrawn as this can be done tax free.
On top of those, we
will also maximize Education Assistance Payments (money coming from grants and
investment return) taxable in the hands of our daughter. EAPs should provide
her between 10000$ and 12000$ for 4 years while keeping her tax bill near zero.
We’ll have to adjust EAPs depending on how much she makes from her limited part-time
job. In may sound old school, but our entire family believes she should not
work too much and concentrate on her studies. She certainly will have the means
to do it that way.
The trick with EAPs will
simply be each year, to keep her taxable income under the basic personal
amount, which should be around 12250$ in 2020. The liberal government
re-election should even get us more leeway in that regard. They are proposing
an 15% annual increase in the basic personal tax amount to get it to 15000$ by
2023.
Bending Odds in Our Favor
Regardless of the
circumstances, we know timing the market is next to impossible. Yet we believe
we can somewhat tilt odds in our favor.
For one thing, we can
achieve that by making sure our stock buying is only done at attractive prices.
Our Dip Factor tool greatly helps us in that regard.
We also try to buy
solid stocks. We will continue to strive for the steady boring type. For a long
time now, those unsexy stocks have provided the best results for our DIY Portfolio.
Quite recently, we added both dividend growth and dividend sustainability to
our solid stock standards.
Continuing our cleanup
with that frame of mind, we have recently sold Manulife (MFC) and our stake in
iShares CDN S&P/TSX 60 (XIU). Only Nutrien (NTR) and Pfizer (PFE) remain on
our sell list.
On top of getting some
proceeds into bonds, some stock buying opportunities are beginning to emerge.
We will remain patient, but some stocks slowly getting in a sensible price
range are quite high on our radar. US stocks like Colgate-Palmolive (CL),
Johnson & Johnson (JNJ) or even Travelers (TRV). On the Canadian
side, we especially are on the lookout for Telus (T) and Canadian
National Railway (CNR).
We will also note that
we decided to be more environmentally friendly in our stock picks. Hence, Suncor
(SU) in officially out of our buying list. We will privilege utility stocks
with holdings focused on electricity. Despite being strong candidates, looks
like Enbridge (ENB) and TransCanada (TRP) will eventually find they way out.
RESP Money Ending Up in TFSAs
Let’s get back to our
unique RESP situation. On their own, EAPs will probably be enough to fund our
daughter’s education. If they are not, education expenses still won’t make a
big dent in our budget because they would only replace money previously used
for RESP contributions.
This is another good
example of good financial habits that give you transposition options in later
stages of your life. Money that you are used to save for RESPs can now be used
for education expenses or to fund other projects. Another example is people
getting on an aggressive debt repayment plan. Money first used to tackle down
debts within 2 or 3 years could then be used for a juicy saving plan
afterwards.
In the end, there’s a
good chance a big portion of our RESP withdrawals will be used to fund our
TFSAs. Despite our great financial discipline, we still have a lot of TFSA
contribution room. To some extent, RESP money will allow us to catch up on
that.
During all those
transfers, we would like to stay invested as much as possible. Liquidities that
now include bonds and indirectly channelling RESP money back to our TFSAs
should allow us to avoid missing out on time in the market or on attractive
buying opportunities if stocks happen to go down.
Now that we are financially ready for it, we’ll have to focus on psychologically preparing for another exciting stage in our daughter’s life. We know it will inevitably greatly affect our own lives too.
Now that we are financially ready for it, we’ll have to focus on psychologically preparing for another exciting stage in our daughter’s life. We know it will inevitably greatly affect our own lives too.
No comments:
Post a Comment