Welcome to the first update of the year, the Million Dollar Journey AUG 2023 Financial Freedom Update!You can follow my entire financial journey by getting updates sent to your email, Facebook, Twitter, or both.
For those of you who are new to the site, in June 2014, when I reached $1 million in net worth (at the age of 35), I changed my focus to reaching financial independence by increasing my passive income sources until they could support our family’s costs. primarily through tax-effective dividend investing and passive indexing.
We have the following objectives for our passive income:
How It All Started – Original Financial Goal
I usually find it fascinating to reflect on past objectives. After reaching the million-dollar net worth milestone, the following was the main objective:
Our current annual recurrent expenses are around $55,000 (after taxes), but that doesn’t include travel expenses or mortgage payments. Although travel is essential to us, we still view it as a luxury and something that is optional.
We might reduce vacation time for the entire year if finances ever tighten. This means that our ultimate objective for passive income is to have enough to meet recurrent costs, and for company (or other active) revenue to cover indulgences like travel, savings for a new or used car, and just excess cash flow.
By the end of 2020 (at age 41), I want to earn $60,000 per year in passive income (after taxes).
By achieving this objective, my family—consisting of two adults and two kids—could live well without relying on full-time incomes (we were most recently a one-income family).I would then have the option to stop working full-time, allowing me to devote more time to my other interests, hobbies, and business ventures.
Achieving Financial Freedom:
What has transpired since 2020, you might be asking yourself? I’m glad to say that, a little earlier than expected, we achieved financial independence in 2020. While continuing to develop the portfolio and reinvest those dividends is the current objective, I’m noticing that more emphasis is being placed on indexing as time passes.
Despite this, I haven’t switched from dividend positions to index ETFs just yet. In reality, those hefty dividends have been covering our expenses ever since we quit our full-time salaried jobs! See here to see how much our passive income has increased.
Financial Independence Update – May 2023 – First Update Of The Year
Everyone who invests in the market can agree that 2017 was a tumultuous year for the markets. The S&P 500 experienced a peak in 2022 around 4800 before falling roughly 21% (dividends excluded) to close the year at around 3800.
On the other hand, this year appears to be shaping out better—at least thus far! The S&P 500 is currently trading near the 4100 level, representing a YTD gain of about 7.9% (excluding dividends). Will this performance continue all year long? Who knows, the markets may still be facing the same challenges from rising interest rates (which look to be flattening), tighter monetary conditions, and inflation that is growing slower than it did last year.1-year S&P 500 chart
The TSX has performed admirably so far in 2023. The major Canadian index is up around 5% YTD (excluding dividends), despite the fact that the past few months have been somewhat of a see-saw ride.
What ought a novice investor to do?Close your eyes and keep buying when you have the money. According to research, if your time horizon is sufficiently extended, it’s more important to spend time in the market than it is to time it.
HOW OFTEN AND WHEN DO I MAKE THE DECISION TO BUY?
When solid dividend companies’ valuations are favorable, I want to purchase them (along with indices).Alternatively put, when they are dipped (i.e. auctioned off).Some of my favorite Canadian dividend stocks are displayed here.
I’ve quit full-time salaried employment, as I’ve said in prior updates, which means I’m spending the profits I’ve grown and cultivated over the past 15+ years. My investment cash position has decreased as a result throughout the years, therefore I won’t be making any more significant investment acquisitions for the time being.
Reinvesting those increasing dividends is what drives the majority of portfolio expansions. I have so far invested modest sums of money in the following Canadian dividend holdings in 2023:
- (TD) Bank
- EMA, Emera
- CPX Capital Power
- ABE (ABE)
- WCN Waste Connections
- BIP.UN/BIPC Brookfield Infrastructure
- Corporation T.C. Energy (TRP)
- Index ETFs (which aren’t quite dividend stocks but are probably included in the indices nonetheless)
Choosing strong firms with a history of dividend increases is the aim of the dividend growth strategy.Check out the additional dividend increases that have occurred since the last report below.
2023 Dividend Raises
My portfolio’s Canadian holdings have already seen dividend increases from the following businesses this year:
- CU.TO (1% increase)
- MRU.TO (10% increase)
- CNR.TO (8% increase!)
- BIP.UN/BIPC (6.3% increase)
- CNQ.TO (5.9% increase!)
- NTR.TO (10% increase)
- BCE.TO (5.2% increase)
- BEPC.TO (5.5% increase)
- TRP.TO (3.3% increase)
- ENGH.TO (18% increase!)
- TRI.TO (10% increase)
- T.TO (3.56% increase)
- L.TO (10% increase)
- WN.TO (8% increase)
- FTT.TO (5.9% increase)
- H.TO (6% increase)
- SLF.TO (4% increase)
Top 10 Holdings
Our top ten holdings fluctuate a lot. This time, there is a good balance of equities in the industrial, infrastructure, utility, energy, telecom, and financial sectors.
Here are the current top 10 dividend holdings in our whole portfolio:
- Fortis (FTS)
- Canadian National Railway (CNR)
- TD Bank (TD)
- Royal Bank (RY)
- Brookfield Infrastructure (BIPC/BIP.UN)
- Telus (T)
- Emera (EMA)
- Enbridge (ENB)
- BCE (BCE)
- Bank of Montreal (BMO)
*not counting index ETFs (they are my largest holding).
DIVIDEND INCOME UPDATE
As previously indicated, there have been several laudable dividend hikes, and we were able to invest some money in dividend-paying firms.
The chart below shows how the dividend hikes significantly impacted our projected annual dividend income, which is now $76,400. Providing portfolios have enough time to compound, slow and steady does produce results!
All of our family’s accounts, including non-registered (including leveraged accounts using the Smith Manoeuvre), RRSPs, corporate investment accounts, and TFSAs, are included for calculating the dividends.
2023 has gotten off to a fantastic start after the bear market in 2022 was over, but will it last? Does it matter? is the true query. The dips and sell-offs (i.e. volatility) in the world markets on a regular basis can be terrifying! The dips, however, appear to be more of a resting period before a move higher if you zoom out and observe the long-term trend.
What further puts my mind at ease is that the dividends remain coming in, regardless of the state of the market. Receiving money whether the markets are up or down is one of the main advantages of dividends for retirees.
Other dividend investors and bloggers, I’ve seen, frequently contrast their dividend income with an equivalent hourly wage. Based on a 40-hour work week, $76k/year is equivalent to around $38/hour in passive income, and depending on how the assets are set up, most of it may be tax-free!
With no other income in early retirement, you can earn up to $50,000 in dividend income (in a taxable investment account) and pay very little to no income tax (depending on the province), according to a piece I authored about dividend income taxation. If you can split the dividend income with a partner or spouse, the advantages are considerably larger.
Here is a guide on how to create a dividend portfolio if you’re interested in the dividend growth plan as well.You may get a basic notion of the names I’ve been adding to my portfolios by looking at this list.
Check out my piece on the top all-in-one ETFs in Canada if you want a more straightforward investment approach that outperforms the majority of mutual funds currently available.Since the iShares XAW is my largest individual holding, I support indexing.
Maintain your long-term plan and continue investing your cash flow.You’ll be grateful for it when you’re richer in the future (sooner than you think!).