Well we are back at it again, and this time we’ve got a great one. We love interviewing online authorities when it comes to anything investing or personal finance related. From Mark Seed to Rob Carrick we are always actively reaching out to whomever we feel would be a good fit for our audience and picking their brains. This week we have Mike McNeil from The Dividend Guy and Dividend Stocks Rock. Before we get into the interview, let’s learn a little more about Mike.
Mike:I started my career in the financial industry back in 2003. I earned several promotions along with a good pile of diplomas. I had lots of fun working with clients in private banking for half a decade but thought I could do more with my life.
In 2016, I decided to take a leap of faith and left everything behind to travel across North America and Central America with my family. We drove through nine countries and stayed three months in Costa Rica before returning home. This was an eye-opening adventure that led me in 2017 to quit my job in the financial industry and pursue my dream; helping others with their personal finance through my investing websites.
What initially sparked your interest in finance and investing?
Since the age of 8, I knew I wanted to work with numbers and money. While attaining my Bachelor Degree I got a summer job in a financial firm. I worked in the options & futures clearing department. Each day, we made sure previous day trades balanced with what we had on our books. You can imagine how a 22 year old kid was impressed by the whole system behind the market. After summer, I completed my bachelor degree in marking & finance and I started working full-time in this department. Two weeks after working for my employer, I took a $20,000 line of credit and invested it all in the stock market. 3 years later, I bought my first house with the proceeds of my trades. Since then, I never stopped investing.
Can you tell us about your number one mission with dividendstocksrock.com?
Dividend Stocks Rock has been created to provide powerful tools for investors ready to take control of their portfolio. In other words, our goal is to empower investors and make their investment decisions easy. By synthesizing all the information in the stock market and focusing on dividend growth stocks, investors can build and manage their portfolio with a fraction of the time required… at a fraction of the price of a financial advisor.
Do you believe that self-directed investment is an obtainable goal for people looking to get more bang for their buck?
There are as many great stories about “do-it-yourself” investors as there are horror stories about the same topic. Investing requires discipline and rigor. When one follows simple but effective investing rules and sticks to them, he will make money on the stock market. We can’t control where the market will go in the next 3 months or in the next few years. However, we can control how much we pay to manage our money. Each time you invest $10,000 with a broker; there is about $150 that is taken out of your account annually (MERs fees). If you invest on your own, $0 is coming out!
If you could say one thing to a person wanting to start investing, regardless of their life stage, what would it be?
Yesterday was the best time to start investing. Today is the second best day and tomorrow is the worst.
What is the hardest lesson you learned from the world of investing?
When I started investing at the age of 23, dividend growth wasn’t my focus. In fact, I was buying and selling stocks on a monthly, sometimes weekly, basis. I made enough money in three years to buy my first house with $50,000 cash down (all coming from my investment performances). When I was about to buy my second house, I put some money in the stock market to boost my cash down. I invested $10,000 in a penny stock. A few weeks later, I was making some serious money. I kept my investment thinking it would continue to boom. One day, I went for lunch with some friends and when I came back, my investment dropped down to $5,000. It was a mining company and they didn’t find what they were looking for. Lessons learned:
#1 Never invest money you can’t afford to lose
#2 Forget about getting rich quick with the stock market, this is not a casino.
What has been the most positive impact that investing has had on your life?
Investing has grown into one of my most important passions in life. I worked in the investment field for over a decade while blogging about it since 2008. In mid-2017 I even quit my job as a private banker to work full-time on my investing website: Dividend Stocks Rock
Investing has changed my life and I can now work from anywhere in the world. I expect to travel for 2 months in Asia in 2019. All thanks to my passion for investing!
What percentage of a young, versus older, persons portfolio should be dividend-paying stocks in your opinion?
I don’t think age has nothing to do with your optimal asset allocation. Volatility and risks are handled differently by each individual. Their tolerance at watching their portfolio going up and down along with their time horizon should be dictating their asset allocation. For the record, even if you are 65, I don’t consider you having a short-time horizon. In fact, chances are you will live until 85. Therefore, you have plenty of time in front of you.
As for my personal situation, I’ve been 100% in equity since the age of 23 (I’m 36). In 2010, I started to switch my holdings toward a dividend growth investing strategy. In 2012, all my money was invested in dividend growing stocks. I do not intend to change this asset allocation… ever. When I am older (let’s say 80), I will manage this money thinking of my heirs instead of my own time horizon.
What do you look for in a dividend stock when considering investing?
I start my search with a simple but effective set of metrics: revenue, earnings, and dividend growth over the last 5 years must be positive. This is what I call the “Dividend Triangle”. Then, I apply my 7 dividend growth investing principles. This is a series of investing rules that have been developed based on years of academic studies along with my own experience. The most important point is probably to understand what you invest in. Metrics alone don’t mean anything if you can’t understand why the company is showing them.
Can you offer a few pros and cons to dividend investing when compared to growth investing?
I think there are 2 major advantages to choosing dividend investing over growth investing. The first one is that stock analysis is easier with dividend paying companies. In order to pay dividend, the company must have a solid business model making profit year after year. You don’t “expect” or “hope” for a breakthrough. The company is already making money and you automatically reap benefits from your investment. It is a lot easier to predict what will happen with your investment in Royal Bank (RY.TO) than with Shopify (SHOP.TO).
The second advantage is that you get paid to wait. The power of compounding dividend payments is astronomical. Several academic studies on the S&P 500 show that dividends represent about 50% of the overall market return. Can you really afford to ignore that fact?
I guess one of the biggest downsides of dividend investing is that it isn’t sexy. You will not be able to brag during your Christmas party that you made a 75% over a year on a trade on dividend stocks. You could if you bought Shopify in January!
The second disadvantage I see is that it requires lots of patience. When you purchase a stock like Canadian National Railway (CNR.TO) or Andrew Peller (ADW.A.TO) with yield under 2%, you can’t expect them to contribute significantly to your passive income pot. It takes years before you see the full power of this strategy. It’s a little bit like planting vines to produce wines. You need about 7 years before you produce your first bottles that won’t taste like vinegar!
For a young person looking to get into investing, what are 3 golden rules that you would suggest they follow?
#1 Start investing now. Don’t wait until you have reached this or that level. You have $50 left in your pocket? Put it into an investment account and start saving more.
#2 Invest on a systematic basis. My first boss almost forced me to put 8% of my salary into our employer stock purchase program. I never saw that money on my paycheck and the first thing I know is that I could go on vacation each year with those savings.
#3 Take some time to select your investment strategy, but stick to it. Too many investors buy and sell upon what they read on internet. Make sure you select an investing strategy that fits your need and risk tolerance and never change your mind.
Don’t try to time the market, just follow those three rules and you will become wealthy.
Any additional comments that you have for our audience?
Just stop paying people to manage your money. Take your time, educate yourself and become your own fund manager. You will save tons of money and you will learn a lot from financial statement readings. Investing isn’t only about making money, it’s about understanding how the world works.