It’s no secret that we like interviewing authority financial bloggers and writers. So much so that we have decided to invite Mark Seed from MyOwnAdvisor back for a second interview! We’ll cut right to the chase here in our second interview. If you’d like to learn more about Mark and what his investment goals and objectives are, check out his website. Let’s go over what we know about Mark from the first interview we did with him.
A little about Mark before we start
Mark started investing when he was in his early 20’s. Initially, Mark blindly invested most of his money into big-bank mutual funds and was paying exorbitant fees in the process. He really didn’t know how much these fees would kill his investment returns. Over the years he has read many books and paid close attention to where and how he invests his hard-earned dollars. Nobody cares more about his money than he does.
Mark started MyOwnAdvisor to bring his journey to financial independence to life. Personal finance and investing have always been a growing passion for Mark and the quality of Myownadvisor shows he truly has a passion for all things investing.
We’ve managed to keep up with Marks blog and have become regular readers. MyOwnAdvisor was a blog that I followed even prior to starting Stocktrades, and in fact was one of the motivations for me starting this website! Mark’s website is included on our list of the best investment websites in Canada. Let’s get to it!
1.What originally sparked your interest in finance and investing, and particularly what made you go down the path of income stocks?
Mark: Probably the realization that I didn’t know as much as I should have. Meaning, why are the funds (that I own) performing so poorly? What is embedded in these fees that I’m paying? Why am I even paying these fees? What are these fees costing me in terms of lost wealth? Are there no other ways to invest beyond big bank mutual funds? And the list goes on. I had little clue about asset allocation or asset location or asset anything beyond my basic mutual fund holdings.
Like many investors I suspect, the 2008-2009 financial crisis was a huge kick in the a$$ for me to get a better handle on my personal finances – including igniting a major interest in investing. Since that crisis, over many years of investing, I’ve read dozens of books, followed dozens of established blogs, and learned to pay very close attention to where, how and when to save and invest my hard-earned dollars. I’ve learned to be wary of the financial industry because….nobody cares more about my money than I do. Well, probably my wife cares just as much! I think you should feel the same about your hard-earned money as well.
I started the blog soon after that spark in personal finance and investing occurred and I haven’t looked back since.
To your question about income stocks, your readers should know I/we also own low-cost Exchange Traded Funds (ETFs) for long-term growth but I guess my passion for income investing comes from the tangible money I can see (or use) that flows into our accounts every month. While growth is great, and our stocks do provide that, it’s the dividends from the 30+ companies we own that provide some sanity when the market goes amiss. When the market is booming, more income flows into our accounts thanks to dividend increases from the companies we own. We’re basically growing a perpetual cash machine but that approach is not without risks. There are many other reasons why I like being a dividend investor and I referred to them in a recent dividend monthly income update on my site.
2. What would you say is the biggest challenge that faces the average retail investor today, and how can they tackle it?
Mark: I would have to say the biggest challenge that faces the average retail investor today, as in right now, is the ability to save money in the first place. I mean, let’s face it, businesses are in business to make money. They stay in business and thrive at what they do by selling you and me products and services; but often those are things we don’t really need. I mean, we need to heat our home and brush our teeth. We don’t need the latest iPhone every year.
So, in backing up the truck a bit, I would say the ability to save money to invest (in order to grow it over time) is the biggest challenge facing most investors today.
How can folks save money? Lots of ways! Ultimately it depends on your choices in life. Many financial decisions are invariably tied to emotional decisions.
I think the sooner investors can be objective about who they are, how they spend their money, and what value that spent money ultimately provides them – they can figure out how they can save money for investment purposes. It’s hard to invest money properly when you don’t have any savings to do so.
3. Are there some pros that stick out for you in regards to investing in dividend-paying companies that would maybe yield them more favorable than other investments?
Mark: I think so but that’s based on my experiences only. Your mileage may vary!
Here are some of the benefits I see with dividend investing in general:
- I can control the portfolio turnover, or lack thereof, with a buy-and-hold approach for many our companies. (Canadian companies that have paid dividends for decades are the same companies paying me as a shareholder today.)
- I don’t pay anyone a money management fee for my Canadian stocks. I buy and hold and reinvest all dividends paid inside our TFSAs. That’s it. Boring – but when it comes to investing boring works very, very well.
- Dividend-growing companies tend to be solid performers over time. You can’t fake dividends for very long. Either a company can afford to pay a dividend for years on end or they can’t. It’s pretty simple.
- Dividends help me stay invested. Better still, and I’ve told people for years about this, you should celebrate falling prices as a long-term dividend stock investor. Consider your favorite food in your local grocery store now on sale!
There are many, many other ways to invest. At the end of the day though, I believe the best investment strategy for you should boil down to two big things:
- Develop a (financial) plan you can stick with over time; over many decades.
- Develop a plan and the investments for that plan that will meet your long-term goals.
It can be that simple.
4. What are a couple of important aspects to look for in a dividend paying security when considering investment other than the obvious ones like dividend yield and payout ratio?
I wrote an article with Canadian MoneySaver last year on this subject actually. Beyond dividend yield and dividend payout ratios, here are some other key metrics that I consider:
Earnings Per Share (EPS)
The calculation and example:
Net income – dividends on preferred stock / outstanding shares = EPS
Say a company earns $2 million in one year and had 2 million common shares outstanding, and no preferred stock, then the EPS = $1 per share.
I think you want to own companies that have a high EPS or rising EPS with time. This is because rising profits are good for companies and investors in those companies alike. Investors, who focus on owning companies that grow their EPS over time, can potentially reap the benefits of increased dividends if the company Board of Directors decides on that. Think of earnings per share of a company like your own wage per hour – I think you should want it to go up over time.
I think we all agree that more money flowing into our accounts (than going out) is a good thing. Rising cash flow over time is, therefore, a great thing.
Rising (positive) cash flow means the company’s assets are increasing; they can settle debts; reinvest in the business and of course, return more money to shareholders – raise their dividend – if they want to. Negative cash flow is a sign the company is underwater; at least temporarily because there are more accounts due than received or payments pending that have yet to be received.
Modest Dividend Growth Rate
I think you want to own companies that have a modest dividend growth rate. Too low, say under 1%, and that could be a sign the company is struggling to reward shareholders. Too high, say over 10%, the company might be overly enthusiastic about long-term company prospects. With dividend history, it’s always important to keep in mind past performance does not guarantee future results but history often tells us a story about what tomorrow could bring.
5. In your opinion will dividend-paying investments remain a strong part of people’s investment portfolios for the decades to come?
Mark: I believe so. I mean, it’s tough to predict the future, however I’m banking on dividends being part of our total return for decades to come. Folks need to remember while dividends can be great, they are just one part of an investor’s total return. There could be interest, return of capital and stock price growth when buying and holding individual assets.
6. Just to touch on it, how diversified should a person be with their portfolio? What do you think would be a good number of sectors to cover or securities to own? What about diversification between income/growth securities?
Mark: Interesting question because I know investors who hold a dozen stocks only, and “live off dividends” from that to the tune of tens of thousands of dollars per year. I suppose you could have too much dividend income but that’s a great problem to have.
I know other investors who hold dozens of stocks and a few low-cost ETFs like I do. They are hybrid investors per se, merging the advantages that come with dividend investing and index investing across their portfolio. Some of those investors have done very well for themselves as well. I’d like to think we’re on the same path. You can read about our latest dividend income update here.
Then again, there are investors I know who invest solely via low-cost equity ETFs; a handful of them, and by doing so they own thousands of stocks from around the world, in dozens of countries, across every possible sector. They are banking on the returns of those collective markets and long-term growth of them. Some of them have been very successful as well.
At the end of the day, there is no right or wrong answer here. All approaches to investing and assets you can hold when you invest come with risks. There are risks in holding cash, risks in holding bonds, risks in holding stocks. I don’t really have a recommendation for the number of stocks to own or sectors to own but I do believe in diversification across companies, countries, and sectors to manage investment risk. Each investor must determine what is best for them based on their risk tolerance and long-term investment philosophy.
7. Can you let us in on what was your greatest success and greatest failure in the investing world?
Mark: I would say my greatest success to date is gaining the confidence I can invest on my own, as the blog title indicates, I am My Own Advisor. Along with my wife, we make all our own investment, tax, insurance, estate planning and other personal finance decisions. We’re proud of the knowledge and experiences we’ve gained.
I would say my failure to date is waiting until my early 30s to start this journey. I suppose I could have been retired or at least semi-retired by now (in my mid-40s) had I started our journey to owing a million-dollar portfolio earlier in life but you know what, life is about learning. Hopefully, I never stop.
8. Can you let us in on what was your greatest success, or your greatest failure in the investing world?
Mark: Enbridge (ENB) was one of my earliest and biggest individual stock purchases. I recall I started buying it in December 2008. You can read about that here.
Even with ENB stock price falling in recent months, our total return on this stock remains close to 100%.
Other stocks that have done well in our portfolio include Johnson & Johnson (JNJ). Total return is over 100% on this stock over years of investing as well.
I purchased those stocks based on many factors/metrics I already wrote about above including their steady dividend histories. I have no plans to sell any of these companies anytime soon.
I’ve also held the low-cost Vanguard ETF (VYM) for many years. I own that ETF for diversification, for dividend income, and for price appreciation. In the last five years or so that I’ve owned it, it has returned close to 12%.
Dan: **Enbridge is a very interesting stock, and we have decided to include it on our 7 stocks to watch as its falling price is making it very very enticing**
9. After retirement, what are your plans with your income portfolio? Do you plan to earn enough to strictly live off of dividend income? Have you ever considered other investment vehicles like bonds as you move closer to retirement?
Mark: We do have a goal to “live off dividends” but it’s more of a saving and investing mindset right now.
Eventually, we will start drawing down the capital. There is no point being a wealthy guy in the graveyard.
If things go well for us financially, I could see us owning our desired million-dollar portfolio within the next 5-10 years. As long as we’re debt-free around the same time, we will be able to stop full-time work, work as we please, and live off the income churned out by our investments. We figure the income to be earned from owning a million-dollar stock and ETF portfolio should be enough to cover all day-to-day living expenses.
In addition to that portfolio, we have some small workplace pensions to look forward to. At the time of this interview with you, we expect those pensions (combined) should pay us about $40,000 per year. We expect to start drawing on those pensions in our late-50s and early 60s. We consider those workplace pensions a “big bond” per se so we don’t intend to hold too much fixed income in retirement beyond a year or so in cash.
10. If you could offer a piece of advice to a person wanting to learn about investing, what would it be?
Mark: Educate yourself. Knowledge can be power. This doesn’t imply you need to invest on your own like I do, do your own taxes, manage your own estate planning and other stuff but it does mean you can make the best financial decisions for you and your family. How is that for empowerment?
Good luck to all readers and subscribe to my site if you haven’t done so already. It would be great to interact with you.