How to Start? (June 2007)
(Some ideas and assistance for those who don't give a damn about investing, don't know a thing about it and don't even want to learn...but would like to retire early and well off.)
If you have a financial planner, you must get rid of him or her. Quite simply, they are selling you the wrong products (PPNs, for instance) and they are making a lot of money on your back. Do it. If the planner is a friend, ease out of the relationship, but do it. You have to, you must. Stop the automatic withdrawals going into mutual funds. Take charge of your own money. The dividend growth strategy required very little time, a few minutes a month...perhaps.
You are going to have to do it on your own, but it will be worth it. I realize you don't know a thing about it. The motivation: you will be ahead at least tens of thousands of extra dollars, probably hundreds of thousands in a decade or two, depending upon what you start with. Believe it. Do it. Sever the tie with your financial advisor or broker. You must!
Look at it this way; You are going to make a deposit, but not in a bank, rather in a company. And, as the company grows, your money will too. The company will pay you income (called dividend, not interest) four times a year. If the company does not pay a dividend, don't buy it. If the company does not grow its dividend don't buy it either.
If you don't already have some money to invest, save up a few thousand dollars, cash in a GIC, or sell one of your mutual funds. Then find a friend with a discount brokerage account who will buy your first fifty or 100 shares for you...or open a discount brokerage account of your own at a major bank.
As I write this in late May of 2007, Sun Life (SLF) is reasonably priced. The Bank of Montreal (BMO) and National Bank (NA) are too. I'd like to buy some Power Corp (POW) for my own account. These are all high dividend growth common stocks. There are only a dozen or so good dividend growth stocks in Canada. That makes it easy: you only have to follow a few stocks. In my own RRSP, I have only four common stocks now valued at about $25,000 each. I started my RRSP in 1996 with a retirement gratuity of $32,000. You should be able to triple your investments in a decade too...proving you stick to dividend growth stocks and don't have a broker or financial planner. It's easy...really it is if you have patience, common sense and control over your own behaviour. If you smoke and can't stop, forget investing on your own.
Anyway, say Sun Life is selling for $50. Fifty shares will cost $2,500. If a stock is selling for $30, then perhaps you can buy 100 shares for $3,000. I'm looking at Power (POW) at $40 or so. You usually buy in board lots like that. It might cost you $25 or so to buy it through your friend's account.
REGISTERED: Once the shares are purchased, you want to have them registered in your name. That way you get the official piece of ownership paper mailed to you and the shares come out of your friend's account. And, once the shares are registered, you receive the dividend cheques four times a year.
Here's how your dividends and capital will most likely grow - using Sun Life as an example and with a dividend growth rate of 20%. Your dividend starts at $1.28 a share per year ($64 a year if you have 50 shares) and should grow to $ 2.65 a share in five years. By the time your retire, the growing dividends will provide a nice income, but it's the growth of capital where the real money is. Your capital should grow at the same rate as the dividend, so your $2,500 investment, with any luck, doubles in five years. Think about it, at 20% a year, it has to.
Year 1 $ 1.28 dividend $ 2,500 cost
Year 2 $ 1.54 dividend $ 3,000 price,most likely
Year 3 $ 1.84 dividend by year three, hopefully $ 3,600
Year 4 $ 2.21 dividend $ 4,350 price, if everything proceeds normally
Year 5 $ 2.65 dividend $ 5,230 ...with any luck...just about a double
The average annual return of Canadian common stocks that increased their dividends at least once a year since 1996 was 19.8%...that's per year, notice. In the same period, stocks that did not pay dividends lost and average of 2.3% a year. (Report on Business, May 4 2007 John Heinzl) Don't buy stocks which do not pay dividends. And, unless you make more than about $60,000 a year, there's really no income tax on dividends.