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A Financial Update from Pete – A 50 Year Old Multi-Millionaire

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Back in March 2014, I wrote a short piece for MDJ on my journey to a $5M net worth by 50. See: “Lessons from a 50 Year Old Multi-Millionaire.”

We reached the $1M net worth destination by age 40 and $5M by age 50. After working (we’re educators) and investing for about 20 years, working, which I still do, is now an option. Over the years, I’ve set many net worth (NW) goals and achieved them. The most recent milestone happened in 2013 – our NW increased by $1M; well $949,722 to be exact. That breaks out as 50K savings, about $170K in dividend income, and the balance in unrealized capital gains. 2014 is starting out on a strong footing with our NW increasing by ($254K) by March 21.

Here’s a quick update. I’ve kept to my plan and have a NW of $7.1M as of September 2, 2016. My goal is to hit the deca-millionaire mark within the next 5 years (how to calculate net worth).

As a brief re-introduction, I’m a recovering “save-oholic” along with my wife of nearly 25 years. I’m a school principal and my wife is a teacher. We’ve worked in education since our late 20s and are approaching the age at which we could retire early. I would kindly refer readers to my original article and the Q&A that follows it to get more background into my situation, philosophies, and approach.

The last few years have been quite good for our net worth growth. We gained $857K in 2014, $600K in 2015, and are up by $721K in 2016 so far. I don’t want to jinx myself but I might be on track to possibly increase the NW by $1M or more in 2016.

Net Worth

Our largest asset is the investment portfolio ($6.5M), but I also have a primary residence (~$500K value), some cash on hand (~$60K) and three vehicles (~$35K value). We have done well with our personal real estate over the years having lived in areas with generally rising real estate markets and selling our first house after a nearly 50% gain in just 3 years.

Recently I purchased (with $300K cash) a small downtown property (an older house that had been renovated into offices) to lease to a friend who runs a small business. It’s my first foray into real estate and I’m quickly learning that it is much more work than an investment portfolio! My goal is to realize a capital gain on it as the economy picks up.

Investments and Performance

Our investment performance has been decent since 1992 when I started investing. We have averaged 8.34% (CAGR) to the end of 2015 (how to calculate investment returns). I’m on a bit of a roll having beat both the TSX and DJIA annually for the past 5 years. My average dividend yield on my Canadian holdings is 3.87% and 1.43% on the US holdings. That generated just over $200K in income in 2015 (some of that is earned in registered accounts).

My portfolio is 70% Canadian stocks and 30% US. For US stocks, I own (in order of largest to smallest holdings): FB (3,000 shares), SBUX, SYK, LLL, AAPL, VIVO, AFL, V, GOOGL, and EGL.

For CDN stocks, I own (in order of largest to smallest holdings): TD (12,400 shares), PKI, BCE, MRU, RY, GWO, IGM, HCG, EMA, IPL, WSP, HR.UN, ENB, CPG, NWC, HLF, RUS, FTS, ECA, HSE, POT, and HOT.UN. (A list of top dividend growth stocks)

For those of you counting stocks from my last article, I have done some house cleaning as I had 49 holdings at that time and 32 now. As usually happens, I have come to regret selling some of those. Lately I have been adding some positions in strong companies in the oil and gas industry anticipating a turn-around (ECA, CPG, HSE).

I spend about 10-15 hours a week studying companies, tracking quarterly EPS, keeping updated on news. Far from a chore, I enjoy doing this study and analysis, and think of it as a part-time job. If you have been following business news, you may have noticed that POT and PKI have recently surged in value due to some merger and acquisition activity. A positive quarter from the Canadian banks was also welcome news. As one person recently tweeted, and I completely agree: “don’t hate big banks, own them.”

Usually things are quite boring but my attention and activity perk up in times of market or company crisis. I readily use margin to buy shares when I want them rather than worry about whether I have the cash or can generate it from a sale. Right now I’m carrying about $250,000 in margin but no other debt.

RESPs

Lately, my self-directed RESP (how an RESP works) has been on my mind since my daughter has just started her first year of university and we made our first withdrawal. This 9-holding plan has a value of about $325K. I’ve made the maximum contributions for my daughter and son (who is in grade 10) over the years, and have received the maximum CESGs (government grant). It’s earning about $13K per year in dividends.

The funny thing about RESPs is that after I proved to the bank that she was enrolled I was allowed to take out a whopping $2,500 in the first 13 weeks of school… I was amused by that since the first 13 weeks are costing roughly 3x that amount! I think withdrawals are unlimited after that but be prepared to bankroll the first term.

Final Thoughts

I guess the other thing on my mind lately is early retirement. We’ll likely travel a bit in retirement and I have plans to write an outdoor adventure guide book. As an avid outdoors person, I also have climbing Kilimanjaro and walking the Camino de Santiago on my bucket list. My only worry is that I’ll have more time on my hands in retirement for managing my investments so I’ll likely be more active (and making more mistakes) than I should be!

Thanks for reading. Pete.

About the Author: Pete and his wife are educators in Western Canada, and are regular followers of MillionDollarJourney.com

If you would like to read more articles like this, you can sign up for my free newsletter service below (we will not spam you).

About the author: This is a guest post. You can read more about the author in the biography above.

{ 30 comments… add one }
  • Mary September 12, 2016, 1:10 pm

    You have been misinformed about the RESP withdrawals.

    Now that you have provided the financial institution with the confirmation of enrolment you can withdraw as much of your contributions as you like. (And it doesn’t effect anyone’s income tax.) In the first 13 weeks of school you can also withdraw $5000 of EAPs. (EAPS are the combination of CESGs and the growth in the account.) These EAPS will be taxable income for the student. See
    http://www.esdc.gc.ca/en/resp/use.page

  • Ed Rempel September 12, 2016, 1:29 pm

    Hi Pete,

    Way to go. You are exceptional savers.

    One question. If you are not retire yet, why are you investing for current income that is taxed every year? You had $200K of investment income, so you probably pay $60-70K of tax every year (even with a bit in RRSP). That sounds like a huge amount of unnecessary tax every year.

    Why do you focus so heavily on investing for income that is taxed every year?

    Ed

  • Greg September 12, 2016, 1:35 pm

    Very nice job. A few thing I would do differently, but that’s just me:

    1) The time required to work earning, let’s say $300k per year (principal plus teacher), compared to the investment income which is greater, would make me stop working. Time is clearly more important. Unless being educators is about more than money, perhaps it’s more of a labour of love.

    2) Using margin. Why? The portfolio is big enough to do anything in life. Why take the risk? If markets decline this wonderful portfolio could decline in turbo-charged mode. Is the $10MM goal worth it? Then what? $15MM? Do you plan to spend the money ever or just leave it to someone else to spend for you 20-30-40 years from now?

    3) Individual stock choices I realize are a personal thing. CPG? ECA? Why invest in companies bordering on insolvency?

    Good luck. I hit over $1MM at 40 and think $5MM is a good goal for 50. I plan to start spending it at some point. I’m not going to work a lifetime for the benefit of providing an inheritance.

  • rgz September 13, 2016, 3:55 am

    “Our investment performance has been decent since 1992 when I started investing. We have averaged 8.34% (CAGR) to the end of 2015”

    “I spend about 10-15 hours a week studying companies, tracking quarterly EPS, keeping updated on news”

    From 1994-2013 the Canadian Couch Potato is reporting 7.3-7.8% returns depending on the portfolio you choose (http://canadiancouchpotato.com/wp-content/uploads/2014/01/CCP_Model_Portfolio_Performance_1994-2013.pdf). You beat this by a little, but when you factor in the time cost of your strategy, I would argue that you lost since you could have similar returns for a few hours per year vs a 10-15 hours a week.

    • FrugalTrader FrugalTrader September 13, 2016, 8:47 am

      Rgz, I’m an advocate of the couch potato portfolio as well, but I will argue that Pete enjoys investing and researching and it has been working for him. Although it may not seem like a big difference in performance, a 1% performance increase over 30 years results in a 30%+ difference in portfolio size.

      • Steve Blaismith September 13, 2016, 11:37 am

        I second this.

        On his $6.5M investment portfolio, he’s made an extra $1.5M over 30 years. More importantly, if he’s able to continue that performance and retires @ 60, that delta will grow to over $4M.

        Couch potato portfolio is great for a hands off approach. You won’t be disappointed with the results. But even a slight out performance can make a very large difference over time.

      • Dividend Earner September 13, 2016, 12:22 pm

        Finally … A great answer not just focused on a hypothetical index performance value. I find that many don’t even track their performance against the index properly. The true accurate way would be to replicate purchases of the index at the time you buy. This would show you if you actually even underperform the index.

      • HonestBanker September 14, 2016, 6:26 pm

        I would also add that this is not a perfect apples to apples comparison since Pete’s stats track 2 extra years before and after the presented couch potato portfolio. I realize this was done out of convenience since the research was already compiled for the time frame rgz presented but it’s not a totally accurate comparison without matching time frames.

  • Dividend Earner September 13, 2016, 12:19 pm

    Impressive!
    At which point did you feel your portfolio was working on its own to increase your wealth?

  • different Greg September 13, 2016, 3:01 pm

    8.34% is pretty good for a portfolio with lots of exposure to the Canadian markets, but for comparison the S&P 500 total return from 1992 to present is 9.06% and the Wiltshire 5000 return is 9.33% for the same period. Small cap indexes do even better.

    Pete, besides the rate of return, I’d be interested in how much you save to invest in a typical year and what kind of risk you take (in terms of return variance and/or return in worst years).

    To get to $6.5M starting in 1992 with a 9% total return, you’d have to save about $80,000 per year (especially in the early years) and pay no taxes on the dividends. Seems like your savings rate must be very high, although you mention saving only $50,000 to invest in your stock portfolio recently.

    • FrugalTrader FrugalTrader September 13, 2016, 4:12 pm

      Greg, it’s not really fair to compare to one particular index, but rather a mixed portfolio like the couch potato link above. I think a fairer benchmark would be around 7.5% for a globally diversified portfolio.

      • different Greg September 13, 2016, 4:38 pm

        FrugalTrader, I’m not so sure it’s fair to compare Pete’s 100% stock portfolio with a couch potato portfolio that contains 25% or more bonds. Combined with the use of margin, it seems Pete took a lot more risk than simply investing in an S&P 500 index fund and didn’t generate any extra return.

        • FrugalTrader FrugalTrader September 13, 2016, 4:41 pm

          Point taken! I need to followup with “all stock” benchmarks.

        • different Greg September 13, 2016, 4:45 pm

          Well, I guess I’m assuming the portfolio had no cash holdings on average, I could be wrong. But it sure sounds like the portfolio was almost always fully invested in equities and beyond fully invested when margin was used.

  • Pete September 13, 2016, 7:48 pm

    Hi Everyone,
    Thanks for the comments everyone and sorry for the delay. Mary, for whatever reason the withdrawal form that TD bank uses says that RESP’s opened after 1998 can withdraw $5,000 in EAPs in the first 13 weeks, or $2,500 otherwise. I opened it in 1998. See: https://www.td.com/ca/document/PDF/forms/596702.pdf. Perhaps it was a bank error “not in my favour.” I could have taken out some of my contributions tax free but want to keep that working for us.

    Ed, I guess the simplest answer to your question about dividend income is that I like the (relative) stability of dividend paying companies and their industries, and the tax is a trade off for that. The Canadian MoneySaver has a “why dividends matter” piece in its Sept. issue and my favourite reason is: “Dividends are an outward, visible sign of [management’s understanding] who the real boss is.” My US portfolio is much more growth oriented.

    Greg, yes I agree with your point one – time is clearly more important than money – and am very early in retirement planning. As for why margin (your point 2), I use margin so I can add holdings quickly without selling anything since I don’t have any cash available. As all the readers know, things get really wacky in the markets sometimes and while it is hard to do, that is when I like to add to my holdings. Since I don’t withdraw income, the dividends pay it down relatively quickly. Re goals, once I get to approximately $10M NW, I’ll likely shift goals away from new NW targets to income stability oriented goals. However, to dividend Earner’s point, the portfolio is “working on its own to increase my wealth.” To your point 3, CPG and ECA are not in great shape but I believe they will turn around. I have relatively small holdings in each.

    I’ve never been much of a couch potato so not being hands on with my investments would be difficult. Dividend earner, at roughly around the $3M NW mark I realized that I had a wealth building machine and that with proper maintenance, it would keep working for me.

    Different Greg, the amount we invest annually has really varied but in most (not every!) years I’m investing all of my wife’s income, some of my income, all of the dividend income plus some margin. My best year for returns was 2009 with almost 42%. Worst year was 2008 with a nearly 34% decline. I have had three other years of negative returns in 24 years of tracking (2000/01/02).

    • FrugalTrader FrugalTrader September 14, 2016, 10:31 am

      Using dividends to pay down the margin balance is clever! Never thought to do that before.

  • rgz September 14, 2016, 1:13 am

    What was your typical stocks/fixed income balance? It sounds like you were at or near 100% stocks the whole time based on the use of margin.

  • Pete September 14, 2016, 10:25 am

    rgz, I’ve been fully invested in stocks only for nearly the whole 24-year period. In addition, I’ve usually had a margin balance.

  • different Greg September 14, 2016, 4:15 pm

    Thanks for the answers Pete, you are very open and candid! So it seems the two main ingredients in your success are high savings rate and good investment results. The obvious way to build wealth really, but the challenge is to stay disciplined and stick to it for decades.

    You seem to take a lot of risk for not that much excess return, but it’s worked for you and you’ve enjoyed it, so who am I to criticize? I guess you could afford to lose it all now and still retire with no change in your standard of living on two teacher’s pensions, so in that sense your stock picking doesn’t carry much risk at all.

  • nobleea September 14, 2016, 4:51 pm

    Pete,

    Again, thanks for all the detail and candour. A question on pensions. I assume you and your wife likely have them. Are they included in your NW numbers above? If so, what amount are they, combined? If they are included, do you list the contributed amount or commuted value? The commuted value is sensitive to interest rates, so dropping and low rates will result in a commuted value that increases at a much higher rate than would be explained by contributions alone.

    If you have not included the pension values in the NW numbers, then I would think that’s well over another million right there. I include what they call the ‘termination benefit’ in our statement (wife is a teacher), which appears to be pretty close to the commuted value.

  • Pete September 14, 2016, 6:04 pm

    Nobleea and different Greg, I was wondering when someone was going to bring up pensions. No, I haven’t included them in the NW calculations, but I do appreciate that they have a very significant value. We have been fortunate on many fronts and as educators, we are discussing starting a scholarship fund. We’re not sure what theme or angle to pick for it, and not sure who will administer it.

  • Diligent Learner September 14, 2016, 9:07 pm

    Hi Pete,

    I just wanted to say thank you for being candid and honest about your investment philosophy and breaking down what you did and how you achieved success. Your story is inspiring, I really enjoyed reading your initial post a few years back and to see you post an update has been amazing. Hopefully you stick around to keep us informed and share more of your wisdom.

    Thanks Pete.

  • Pete September 15, 2016, 11:33 am

    Hey thanks Diligent Learner. I learn a lot from this site and particularly from the collective wisdom of the folks making comments.

  • Rakiki September 16, 2016, 11:28 am

    Exceptional work! Not accounting for the value of the pensions is underestimating the value of your assets. How much money does it take to generate the equivalent of a $60K or $70K pension? It’s a great position to be in to have the pensions as a rounding error. ;-)

    My wife and I are under 40 and our NW is $1.9M, but we include in that the value of cashing out our pensions – the tax we would pay on the “amount over tax limits”. Two defined benefit plans. This is the amount we would end up with if we walked away from it all.

  • Martin September 16, 2016, 8:48 pm

    Thank you Pete for sharing your experience and story. I have two young children and am working at building up their RESPs for their future. I contribute at least $2500 a year to each child. I was wondering if you had any lessons you would like to share and how much you contributed yearly in order to get such an amazing figure.

    Thanks,

    Martin

  • jolayn September 17, 2016, 12:30 am

    From the original article “Lessons from a 50 Year Old Multi-Millionaire”:

    “Avoiding other big 4 wealth-killers such as annual tropical vacations, anything brand new with wheels, debt for depreciating assets, and expensive show homes and second homes, was also critical in our successful journey. You are now likely thinking “what a boring dude.” It’s not true but I’m happy it appears that way because living modestly is a key ingredient for a successful MDJ!”

    I’m always surprised when wealthy people treat their million dollar journey as a million dollar destination, depriving themselves of enjoyable things as they increase their net worth. If you could do it again, would you take a more balanced approach, perhaps splurging on a “wealth killer” along the way?

    I personally agree the latter three should be avoided, i.e. anything brand new with wheels, debt for depreciating assets, and show homes/second homes. But for me and my family, vacations are some of the most enjoyable times of our lives and I think it’s healthy to indulge in them, even if they’re tropical.

  • Pete September 19, 2016, 12:55 pm

    Rakiki, yes I agree, the pensions are significant and understate our NW.

    Martin, I’m reluctant to give advice per se, but we were successful with our RESP because we set it up in one self-directed plan (account is with TD bank and allows investing in stocks/ funds etc.) and invested in a relatively small number of good quality, dividend paying, growing companies over a period of time. We contributed $4,000 per child from the year they were born and then began investing $2,500 per child in 2007 when the rules changed. We always made the full contribution early in January. We contributed the amount each year that would maximize the CESGs and have now contributed the maximum amount.

    Jolayn, it seems that my comment re tropical vacations struck a nerve with a few folks. But, I wouldn’t do anything differently in terms of tropical vacations. At roughly 10k per trip for a family of 4, we found other ways to indulge ourselves and spend quality time together. My thinking is that key factors on getting to the million dollar destination and going beyond/ keeping it, are sacrifice and delay of gratification. Everyone has their own thinking regarding this but as I tell my kids “not everyone thinks like dad, and that’s what makes the world such a wonderful place.”

  • jolayn September 23, 2016, 1:45 am

    My family of 4 has never spent more than $5K on a tropical vacation. Granted $5K is still a lot of money, and we travel multiple times per year so our total spend is close to $10K anyway.

    I’m more interested in your outlook regarding delayed gratification. Many people who post on forums like these are one dimensional, but you seem to have a variety of interests aside from money and the pursuit of wealth. I don’t understand where the balance is in your big picture. Perhaps you foresee a tipping point where your focus on sacrificing will swing wildly into unmitigated indulgence?

  • Pete September 26, 2016, 11:53 am

    Good question Jolayn! Sounds like an invitation to get philosophical. My major gratification which was delayed (but has now arrived) is the freedom to make my own choices about how I spend my time. My wife and I have really never been gratified by owning fancy things so never felt that we made too many sacrifices. I guess that has been another key factor in our success. Rather than unmitigated indulgence on things, at this stage, I’m more interested in relationships with family and friends, helping my kids be successful, and having amazing life experiences. In terms of leaving kids an inheritance, I like Buffet’s thinking which is something like: “I’ll leave them enough money to do anything they want, but not so much that they will do nothing.”

  • Jungle September 26, 2016, 7:13 pm

    Agree you don’t need 10k vacations and new cars to “live life.”
    Congrats Pete on your journey really enjoyed reading all of this.
    Please keep us updated again next year.

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