Saturday, May 10, 2014

Travelling in Early Retirement

In our book Retired at 48, I write about how it is almost as important to plan socially for your retirement as it is financially.  Those who don't have social activities, interests or hobbies outside of work will find it difficult to adjust to retired life.  Those like me (or am I unique?) who were born to be retired and have practised enjoying it since the first day on the job, will relish the new-found freedom of time and opportunity.

So many people have asked us how we could possibly fill our days if we retired at such a young age.  I then proceed to bore them for multiple minutes as I rattle off our seemingly endless list of hobbies and interests which include tennis, cycling, walking around the city, theatre, movies, arts, photography, knitting, crocheting, writing, blogging, cooking, dining out, hanging out with friends and family, learning new skills such as speaking French or playing the ukelele, ... see what I mean?

 But the biggest itch that we have been able to scratch with our early retirement is our love of travel. While we were working, our ability to travel was severely restricted by the demands of our jobs.  Being in sales, Rich could not be away more than 6 business days at a time, had to avoid the last and first weeks of each month due to month-end processing, and the entire months of March and September, which were the "year-ends".  This really limited which destinations we could travel to, since there are some locations that just were not worth going to for a mere 7-9 days.

Now we can travel whenever and wherever we choose, as long as we have the funds to support the trip. This is something else we considered when planning for our retirement.  We made sure we set aside a healthy travel allocation in our annual budget that we track closely against.  There may be some years where we will travel more modestly and locally to offset larger trips abroad in other years.  Both will be fun, so that is no big sacrifice.

One major way that we keep travel costs down is by home-swapping. Staying in someone else's home for free while they stay in yours is a great way to not only to reduce expenses, but also gives you the opportunity to live like locals.  We are about to embark on a 7-week trip to France that will include a 6 week home swap in a little town called Bargemon.  I will be blogging about our trip in my travel blog, so check out the link below if you want to follow our adventures.

Annie and Rich's Travel Adventures -

Thursday, May 8, 2014

Falling Discount Broker Costs and the Use of DRIPs Can Jumpstart Small Accounts

 Back in the early 2000s when we first started managing our own stock trades using a discount broker, we selected the little company eTRADE, since it was offering the best rate by far at $9.99 per trade compared to $29.99+ for the large banks.  A few years later, Scotiabank purchased eTRADE, keeping the low trade fee for accounts worth at least 50K and rebranded it as iTRADE.  Soon, the other banks lowered their fees to remain competitive and for a while, the fees for the discount brokerage arms of all the major banks were pretty close.  Non-bank brokerages such as Questrade have even lower fees, but for the purpose of this article, let's stick with the big banks. 

This year, in another salvo to win new business, RBC Direct Investing removed the minimum account balance restriction and is now offering $9.95 a trade (note the trivial but symbolic $0.04 competitive difference to iTRADE) for all accounts regardless of size.  BMO InvestorLine and TD Waterhouse quickly followed suit.  It is only a matter of time before Scotiabank and CIBC Investor's Edge will need to fall in line if they don't want to start losing customers, let alone attracting new ones.

This is great news for new investors who are starting to build up their portfolios. Now, you could buy stocks or bonds for as little as $1000 and pay only 1% on the trade.  Of course the more money you can save to make a single purchase, the lower the cost per share will be.

The use of the Dividend Reinvestment Program (DRIP) makes it even easier for small accounts to grow with minimal transaction fees.  If you buy a stock that supports a DRIP, you can enroll to have the dividends from that stock be automatically reinvested into buying more shares, without incurring any trade costs. Some companies even offer a discount on the shares bought within a DRIP in order to reward shareholder loyalty.  Having your dividends reinvested in a DRIP immediately puts to work small sums of cash that otherwise would sit idly in your account–not worth enough to warrant the trade fee, but also not earning any interest or dividends. The DRIP works its compound magic since the more shares you own, the more dividends you generate, so that eventually your DRIP can buy even more shares.  Of course, you want to select a company that you feel comfortable owning more and more shares of.  Luckily, DRIPs are supported by most of the large-cap blue chip companies.  An excellent list of Canadian companies that support the DRIP can be found here.

I just found out today that to qualify for the DRIP purchase, you must receive enough dividends per payout period to cover the cost of at least one share.  I thought that my dividends would be put aside and accumulated until I had saved enough to cover the cost of the share purchase.  This turns out not to be the case.  If I don't have enough dividends to buy a share, the dividends just remain as cash in my account. So for one of my stocks, I hold 160 shares that pay out around $15 per month.  The share price is around $24.8 so I need to purchase an extra 114 shares ($2840 including fees) before I will generate enough dividends per payout period to actually qualify for the DRIP.  This stock is in an RRSP where I can no longer make further contributions, so I will just have to wait until I accumulate enough dividends from the other stock in that account to make my purchase.

Just note that it could take up to one dividend payout period before the request to DRIP or unDRIP a stock to take effect.  So if you decide at some point that you need the dividends as cash again, leave enough time for the unDRIP request to be processed.