I think evaluating the SM based on less than 1 year of real life implementation is foolhardy, regardless of whether the market is up/down. If someone extolled the virtue of any investment (rather than speculative) strategy with only 12 months of data, hopefully there would be people out there skeptical enough to evaluate it over at least a 5 year time frame.

If you don’t have (as opposed to “think” you have) a tolerant for risk, a suitably long time frame and a plan that you commit to, then don’t even consider the SM.

So maybe lose the chip on your shoulder.

http://www.toronto-investment.ca

I am also doing this and am holding the following mutual funds:
DYN1031 5,055.20
RBF600 5,093.69
SAX347 5,308.38
SIC009 5,190.06

They are generating around $30+ a month each. Conservatively that’s $1,000 a year in dividends. Which I am rolling back into the funds as I really want to take advantage of the compounding.

My understanding of the SM was that at the end of 25 years you would still owe EXACTLY the price of your house on your mortgage, but you would have invested it all on the other. Compounding it would be worth WAY more than your house. Which doesn’t go with you moving the DIVs back to pay the interest.

The other thing I understood that we are both doing wrong is that you want to invest in things that DON’T trigger much (if any) interest or dividends. So you are able to write-off your interest payments BUT you only ever trigger capital gains in the end.

Has anyone seen this: http://www.upvest.com/

It is basically AIC (which has funds that do what I describe above) trying to push people to leverage, essentially the SM.

Please call me out if you think I’m full of it…

I think it would be a good idea to compare both situations, isn’t?

And you are right about the longer-term picture: As time moves on and yields increase, our return on original investment increases significantly. I am worried, however, that this past period of healthy dividend increases is coming to a close and we may be hitting a period of stagnant dividend growth.

I disagree although perhaps I don’t understand what you are saying. So, I apologize if I’ve read your post incorrectly.

Let’s imagine I buy stock XYZ at $100 and the yield is 4% and this is, historically, where the company has tried to keep it. If, in ten years, it doubles to $200 I’m expecting that the yield will still be 4% whereas you suggested it would actually go down to 2% or, in other words, that the dividend payments would not go up. I, on the other hand, would expect that the dividend payments would also double.

In fact, most people talk about how stocks they purchased years ago are now yielding double digit percentages compared to their original investment. I owned NA until last year and it was yielding around 4% when I bought it and was still yielding around that range when I sold it – but, compared to my original investment it was yielding almost 12% since I bought it around $20 and sold it around $60.

I’ll also disagree that the premise that the yield after your initial purchase price is largely inconsequential from a cash flow perspective. If I borrow to invest, then as the stock value increases and my yield stays the same, but my dividend payments increase, I have the option to pay down the principal of my loan so that, at some point in the future, with no additional out of pocket costs, my investment portfolio is free and clear.

Your yield is based off your initial purchase price, what happens after that is largely inconsequential from a cash flow perspective. If you buy stock at $100 per share that yields $4/yr in dividends, you are yielding 4% on your original investment. If that stock then doubles to $200, you are still receiving 4% on your original investment even if subsequent share purchases would only yield 2%. The movement in share price only comes in to play if you actually sell the stock or add to your portfolio. For this portfolio, these are long term holdings. Likely the only scenario which would cause a sale would be if dividend yields weakened significantly (which would also erode share price and likely not yield a higher return if you sold the shares and reinvested them in a higher yielding stock due to the higher premium you’d pay on the better yielding stock).

There will likely be a continued period of weakness in financial stocks which could last a year, two or even more during which a lot of wonderful buying opportunities will present themselves. Dollar cost averaging your investment over this period of time should build a wonderful portfolio of good dividend yielding stocks and when financial markets finally recover and yields start to increase (we may see very few yields increase over the next while), you should benefit nicely.

Thanks

I probably will do as you suggested – buy dividend producing stocks that are a mixture of some lower dividends but good growth potential with those that have higher dividends and lower growth potential.

Ideally, I’d like to reach a mix of 4% growth + 4% dividends. Having 5% growth and 3% dividends wouldn’t be bad either – it would be a bit more tax efficient.

I figure that if I invest and really produce income (as opposed to the ‘expectation’ of income) and if it outweighs my interest costs once all taxes are factored in, then the CRA will be more likely to consider me onside with the spirit of the tax laws.

As to Millionaireby45 though I like the Beta Pro ETFs I’ve only ever used them for short-term investing.

Since they don’t produce income you may not be able to use them as part of a Smith maneuver since there has to be an expectation of income (not capital gains). I keep all my growth stocks in a separate account from my SM funds to avoid this confusion with the CRA.

Has anyone looked at the idea of buying a company with low, but consistent dividends and good growth potential? I’ve had a bit of success with this strategy, but have found the higher dividend stocks pretty well cover the interest costs on the HELOC.