Before going on vacation, I wrote a piece about retiring at the age of 35. When I wrote this post (it was end of July), it was simply a crazy idea: I would sell everything, buy an RV and go with my family on a never-ending trip. This is definitely in the line of ERE (Early Retirement Extreme) and would require several sacrifices.


    This post generated several comments and I thought I would continue my thinking out loud with you on this blog. After all, maybe I had this idea due to being over worked and after two weeks of vacation, I would change my mind and hop back into my comfy home and go to work with a smile. But this is exactly the problem; why do we have to wait for thee two darn weeks to recharge?


    What’s the Point of Retiring at 35 and What it Means


    I didn’t use a provoking title of retiring at 35 just to catch your attention. And I don’t intend on retiring as most people might imagine retirement. My goal is not to sit back on a rocking chair on the front porch at the age of 35. It is not also to chill out and stop working. I really want to retire from “The Matrix”. I don’t know if you recall this movie, but the story is about machines taking over the world and putting all human beings in a virtual world that looks like exactly like today. Humans are dormant and live their life without asking any question. I feel we pretty much all do the same; wake up in the morning, workout for the most courageous (I’m not always part of this group!), go to work, have supper, rinse & repeat until the weekend or go on vacation.


    I’ve been against this lifestyle since the age of 28. This was the first year when I made a 6 figure income and realized that my life outside work was more important. I started to work 4 days a week (and still am) to benefit from more free time. At the moment, I’m not like many individuals who hate their job and want to quit to escape their reality. In fact, here’s a few tips:


    #1 I like my job and I’m good at it

    #2 I’m not under too much pressure and work about 35 hours/week

    #3 I live a happy married life and my kids are super fine at school


    So really, why do I want to quit all this? The short answer is: because it’s boring. I don’t feel that I’m alive right now. You can call this mid-life crisis (mind you, I’m only 33! Hahaha) but I think I’ve decided to swallow the blue pill and wake up out of the Matrix. I want to move around, create something, feel alive, do something different than everybody does because this is the way it goes.


    The RV Plan Revisited


    At first, the idea of selling everything to drop my lifestyle and live in an RV sounded very promising. After further thought and discussion with my wife, we decided to modify this plan a little bit.


    It is obvious our kids will need stability at one point in time. We can’t really drive them across America without a solid home base. This is why we decided to make a few modifications to the original “retire by 35” plan.


    We will sell everything and buy a RV. Renting my house seems complicated and wouldn’t allow me to buy an RV. The first goal around this plan is to be debt free and I can’t do it without selling my house. Plus, I have started to find my house a little too big for our needs (which we all create in our minds anyways, right?).


    We will start with a one year trip. This is the big modification; we are thinking of doing all of Canada, the US West coast, then Mexico and finish up with 2-3 months in Costa Rica. Then, we expect to come back through the US East coast and finish with the Maritimes to come back to our place 12 months after we left.


    This should give me enough time to build a real business with Dividend Stocks Rock. I launched my investing platform back in December 2013 and the potential is enormous. So far, I’ve seen very interesting growth and can definitely see DSR paying my bills if I work hard enough on it. Just do the math; it’s $14.95 per month, if you reach 1,000 member mark you make…. Right away over 100K per year. This is even more than what I’m making. I currently get about 20 to 30 new members per month while working on this site part time. I just imagine how many new members I can get if I work on it 30 hrs a week!


    The thing is I can’t find out unless I sell everything. And if I sell everything, might as well use this “excuse” to have a new start, increasing the bond within my family and go learn about the “real world” instead of simply waking-up, going to work, heading back home and waiting for the weekend!


    I Hope to Come Back 12 Months Later Still Financially Free


    Once we arrive home, I am thinking of buying a smaller home, living on a smaller budget and living off my websites. No more 9 to 5, no more vacations as I will be able to take vacation when I want and for the length I want too! I can pack my things, hop in the RV and go across America whenever I feel like.


    So… now, what do you think about my retirement plan? It does make more sense, doesn’t it?

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  • What’s the worst thing that could happen to a retiree?


    a)      2 golf balls in the lake the same day

    b)      A Barista at Starbucks putting cinnamon topping with whole milk on his Non-Fat Vanilla Latte

    c)       Outliving his savings


    Once you retire, it’s finally time to enjoy life. It’s time to relax, do what you love most and stop stressing. Unfortunately, this definition of retirement is pretty rare. Most retirees still have to work to fill the hole in their budget and others worry about how long they can hold on to their savings before the well dries-up.


    The answer to this question is often answered by two factors you can control:

    a)      how much do you withdraw per year and;

    b)      how you are invested (asset allocation)


    For those who choose dividend investing; this is good news. If you have a well diversified portfolio, your dividend payouts should increase over time protecting your lifestyle from inflation. Plus, your capital shouldn’t move enough to worry you. But if you have chosen to put most of your investment in a “safe place” such as bonds; you might outlive them.


    The Bond that Will Kill You


    There is nothing safer than an investment in a bond, right? Pick a Gov’t bond which is guarantee beyond reason and you will never lose money. On paper, you are right about 99% of the time. If you buy a Gov’t bond at any level (even municipal), you are pretty sure that you will not lose your capital.


    But the issue at retirement is far bigger than protecting your capital; we are talking about protecting your lifestyle. I found some interesting stats on Canadian bonds that will show you we are not in the right place to invest for the years to come. This article is also good for Americans as we are in the same boat in terms of interest rates.


    What Happened Before and After 1981


    Funny enough, 1981 is the year of my birth. More importantly, this is the year where the world of bonds changed for a very long time. Between 1950 and 1981, the 10 year Canadian bonds yielded 3.8%. From 1981, the year when interest rates spiked higher than the Rockies, to 2013; the same 10yr Canadian bonds generated a 9.6% yield. By comparison, stocks did 9.2% for the same period.


    For 30 years (starting in the 50’s) the interest rates in Canada (and US) climbed a long mountain to reach its peak in ’81. Investors lost on bond value but gained on higher interest rate year after year. However, starting in 81, rates started to drop. I was able to find a 10yr Canada bond graph since 1995:

    10yr canadian bond yield

    The line is pretty obvious here: it has gone down big time. So the best move in the early 80’s was to buy long term bonds and watch them grow in value year after year. This is why bonds yielded so much during this period.


    What Will Happen in the Next 10-20 Years


    Since 2008, bond rates have kept on falling to the lowest level we’ve seen in a long time in 2012-2013. Now that we have reached the bottom, there is only one place to go: higher.

    10yr canadian bond yield02

    When you think about it; this means investors are stuck with 5 years of incredibly low yield in their portfolio and a big wave of dropping value ahead. There are no winning bids here: either you sell at loss, or you keep your low interest yield barely covering inflation for the next 10 years.


    The risk for retirees is here: chances are you will get stuck for a 10-20 years period where interest rates will rise or worse, will stabilize at a very low yield (anybody see what happened in Japan for 20 years?).

    10yr canadian bond vs japan bond

    So don’t think we only have a few years of low interest rates and this is going to end. Japan has been stuck in this turmoil for the past 20 years.


    What Can You Do if You Have Bonds


    You don’t have many choices;

    a)      make sure you don’t need much capital so you can count on the low interest yield and live happy

    b)      return to work again to compensate for the gap between the expected investment return and the real investment return

    c)       sell your bonds and move towards other types of securities (dividend stocks, real assets, non-traditional asset classes, etc)


    This won’t perform miracles overnight (after all, dividend stocks will also drop one day),  but, over time, you may end-up with a much higher yield  with stocks than with other asset classes such as bonds for the next decade at least!


    I’m 100% stocks right now and I’ll keep it this way, what are you going to do?

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    Since 2009, two Canadian sectors had proven to the world the Canadian market can provide strong dividend growth stocks. It’s not by luck that four out of the ten Best Canadian Dividend Stocks for the Next Decade come from these two sectors.


    Both sectors are quite similar on many fronts. They both oligopolies, this is a mature market, but natural growth is still available and federal laws protect them from other competitors (mind you, it has become less protected for telecoms in recent years). In my opinion, they are the backbone of dividend stocks in Canada and all dividend portfolios should contain at least one of these companies.


    However not everybody thinks the same way. Many investors believe the growth potential for both banks and telecoms is gone for the years to come. Let’s take a dive into both dividend worlds and see if there is still potential for a new buy.


    Canadian Telecoms


     canadian telecoms

    Besides Rogers, the other three telecoms beat the S&P TSX60 over the past five years. Here, I’m not counting the dividend, so you can add a good 4-5% in yield per year to each of them. This is also a lot more than what the TSX60 pays. Rogers has been struggling for about a year now but it was ahead of the index for almost the entire period.


    There have been many fears from investors with regards to the obvious Government desire of enabling foreign competitors to enter into the Canadian mobile market. All telecoms dropped like a rock after the possibility of Verizon (VZ) joining the market during the summer of 2013. Fortunately for Telus & company, Verizon preferred buying back its shares from Vodafone than entering a new market. Since then, we all know it’s only a matter of time before another big player enters the market and puts additional pressure on margins. This could be good for consumers but a lot less for telecom investors.


    BCE (BCE) recently decided to buy Bell Aliant (BA) its sister company. BA is money making machine that will support BCE’s dividend growth over time. Bell’s diversification strategy among TV & entertainment (they also bought Astral not so long ago) can help them face any potential competitors in the mobile industry. BCE recently invested $600M in customer service to compete with Telus and Rogers. It seems to have paid off since their customer service surveys are going up. TV services (Fibe) and their media segments continue to go well with the integration of Astral Media posting operating revenue growth of 40.7% in this segment. BCE is undervalued compared to Telus. With a dividend yield around 5%, this could be your chance of adding a strong blue chip to your portfolio. BCE is a BUY.


    Telus (T) seems to be the super powered dividend stock we all look for. Revenues, earnings and dividend payouts are up, what more do you want? Strong from a 5% revenue jump and an 8.9% EPS surge, Telus decided to keep its good habit of increasing its dividend as the next payout will be 11.8% bigger. Both wireless and wireline segments were very strong during this quarter. Telus recently announced a $1.3B investment in infrastructure in Quebec. Strong from its position in Western Canada, Telus is now attacking both Ontario and Quebec battling with Rogers, Bell and Quebecor. T is a BUY.


    Rogers (RCI.B) was once able to follow the highly competitive telecommunication train in Canada but it seems to lag behind Telus (TSE:T) and Bell (TSE:BCE) of late. After posting disappointing results during the entire year in 2013, Rogers is keeping this bad habit for the first quarter of the year with a drop in revenues by 2% and missing analysts’ expectations on both earnings and revenue targets. Analysts are worried about its high debt-to-equity ratio (2.997 vs Telus at 0.98 for example). An aggressive stock buyback program combined with an increasing dividend payout will continue to erode Rogers’ cash flow. Telus is also hitting Rogers’ markets very hard. If I had to buy a telecom in Canada, I would turn around to buy Telus instead of Rogers. RCI.B is a



    Canadian Banks


     canadian banks

    There are two main fears around the Canadian banks and they are closely related: the high concentration of many banks in the mortgage industry combined with the ridiculous debt level of the Canadian population. There are several overheating housing markets in major Canadian cities and we all agree Canadians can’t sustain a 165% debt level forever. This is another reason why the Bank of Canada is highly reluctant to increase interest rates and prefers to increase borrowing rules to limit access to properties.


    Nonetheless, I believe some banks have more options than others and still believe there is growth for them.


    National Bank (NA) is the smallest Canadian bank but shows very interesting growth potential. First, 38% of its revenues come from their market segment (e.g. trading). As long as we are in a bull market, NA can take advantage of this concentration. Since I believe we are in a long term bull run, this bank will definitely continue to show growth. It also aggressively acquires clientele in the private wealth management segment. This is also another growth generator for this company. NA is probably the bank that is the least affected by the overheating housing market. NA is a BUY.


    TD Bank (TD) has shown the strongest growth across Canadian banks for the past ten years (NA is very close but TD is a lot bigger). On top of being a leader in Canada, TD is also the most productive Canadian Bank (e.g. more earnings relative to its risk-weighted assets). Its earnings volatility is lower than its peers due to a smaller exposition to capital markets. Finally, TD has deployed a very lean structure into its branches which benefits greatly from their expansion in Quebec and the US. TD Bank it is now known as “America’s Most Convenient Bank”. They recently beat analysts’ estimates once again. Their lean structure gives them one of the best customer service SCOREs across Canada. TD is a BUY.


    Royal Bank (RY) is another bank that did very well in the US. Since 2008, it has benefitted from the crisis to grow outside Canada. It has also a very strong market segment generating about a third of its revenues. Royal Bank has shown very strong earnings beating analysts’ estimates on a regular basis. This is not an easy task right now considering Bay Street’s heavy appetite. RY obviously has a strong mortgage market share and this should be a concern for new investors in this stock. However, the largest bank in Canada has also one of the most solid balance sheet and it can better endure a lending crisis than its peers.


    I Don’t Think the Party is Over for Banks and Telecoms


    Telecoms have started to diversify their services in order to benefit from their strong wire and wireless phone segment as a cash cow to open their business in other industries. A similar movement is happening with banks going after specific niches to avoid being too much at risk with mortgages.


    This is why I believe both industries will continue to grow and pay solid dividends. I agree with you that the easy money is probably gone, but this is the case with most sectors at the moment anyways. For any Canadian dividend investors, an investment in banks and telecoms still remains a good play.


    Disclaimer: I hold shares of NA, BNS & T

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