40 years of investing advice
Jul 3rd, 2009 by Heather
Hi All
Here is a fascinating article written by an ordinary guy a wealthy ordinary guy though.
He has some great tips and comments on building wealth and I really like his advice on educating oneself financially. So take a rainy day and read on how Hedley Dimock achieved his dream life .
For more advice on the agricultural ideas in the article see the following sites or links
www.fbc.ca www.ofa.on.ca www.cra.gc.ca
•http://www.canadianmoneysaver.ca • September 2004
Wealth Creation and Preservation
Top Ten Techniques from
45 Years of Investing
Hedley Dimock
Let me start by describing where I am coming from
with these techniques and thus my bias. These
techniques (which would be called “secrets” if I
was selling something) have come from my experiences
as an investor and are focused on what has worked—
not on one or more theories of investing. I was a millionaire
at age 50 while earning less than $50,000 a year. So,
these are “in my pocket” techniques—no fancy charts or
graphs—and more successes than failures. But many of the
failures have consolidated my techniques, as it is one thing
to read about what not to do and another to then do it and
lose money. I am a retired university professor and organization
consultant presently just writing, operating a Christmas
tree hobby farm, and managing 9 financial portfolios
and some real estate. I am not in the finance business and
have nothing to sell you.
1. Take charge of my own investments.
No one is more concerned about my money than I am.
For many years I was too busy making money to spend
time managing my investments. I monitored Trimark’s Select
Growth’s rate of return compared to the Trimark Fund
of which it was a clone. As Select Growth produced over a
1% lower return a year, I converted my Select Growth without
cost as soon as the delayed commission (rear-end load)
feature expired.
2. Gather informed opinions and data from many sources.
I read, ask questions, listen to my friends and colleagues,
and file the track records of my present investments and
possible future ones. I tracked the 10-year return of the
Trimark Fund for 3 years before investing in it. It was first
then and still is 9 years later. I subscribed to three investor
newsletters for a few years before finding MoneySaver. Each
has taught me a lot and shown me new ways of looking at
data on returns and their tax implications. The single best
tax book I’ve read is Personal Tax Planning by the certified
general accountants of Ontario. I read it every year to keep
up with the tax changes.
3. It is not what I make but what I keep that counts.
My present net worth, while earning a modest income
(maximum $50K), substantiates this action. It was confirmed
years ago, for example, by my next door neighbour—
a financial advisor—who had 2 BMWs, 2 ultralight
airplanes, a beautifully renovated house and swimming pool.
I was getting a bit envious as our lifestyle was very plain
with only 2 entry level cars, until he went bankrupt and
moved away.
4. Taxes are usually the biggest taker of what you make.
There are marvelous ways to minimize and defer taxes. I
learned about them through my readings, but a few I had
to figure out for myself. Tax exemptions are part of minimizing
taxes. I am a member of the Ontario Federation of
Agriculture which exempts me from Ontario’s 8% sales tax
on farm-related purchases. My hobby farming makes me
eligible for reduced property tax, and I signed up with the
Conservation Tax Incentive Program for another reduction.
These are farming examples but there are similar exemptions
and reductions in many areas.
The best tax minimization and avoidance strategy I have
found is to do my partner’s and my own tax return. You can
do the paper return before, after, or with your tax consultant.
If I didn’t do it myself, I wouldn’t know the relationship
between and among the tax credits, tax brackets,
clawbacks, surcharges and comparable rates for my three
income sources. My learnings have included: how to split
income most effectively (dividends are best for the low-income
partner), which partner should declare medical expenses
and charitable donations, whether the donation credit
should be postponed to a future year, how to shift income
to be in a lower tax bracket while avoiding clawbacks and
surcharges, and how to withdraw money from an RRSP
tax-free. It is one thing to do last year’s return accurately
and use all the benefits available, but quite different to figure
out how you can save 10-20% on taxes for the next
return by rearranging your income.
•http://www.canadianmoneysaver.ca • September 2004
5. Split income.
Splitting our incomes has saved us a couple of thousand
dollars a year since I learned how it works. As we refined
our splitting, Mary was able to make at least half of my
income and pay little, if any, tax. This took a while. Mary
mostly worked part-time and had no pensions or savings.
But I finally found out that the baby bonuses that she invested
in our first farm entitled her to share the money from
selling the farm. Four other openings were also available for
splitting—only one was suggested by an investment advisor.
6. Set up and contribute to an RRSP very carefully.
RRSPs are not for everyone and there are many potential
drawbacks to consider.
When self-directed RRSPs came out in the mid-1970s,
I thought they were the best thing since canned beer, and
quickly got one. I was holding a number of corporate bonds
and preferred shares at the time and put them in my
SDRRSP. My maximum contributions in the ‘70s were low
as half the limit was taken by my university pension, so our
savings were mostly in non-registered accounts. This was
fortunate because I gradually uncovered the serious limitations
of my RRSP and stopped contributing.
After its conversion to a RRIF I started wishing even
more that I had not contributed as much as I did. My present
opinion on RRSPs agrees with the C. D. Howe report that
one third of Canadians with low incomes should not use an
RRSP as savings for their future. For the rest, people should
determine what percent of their retirement portfolio they
want in fixed-income securities (usually 30-60 %) and have
only those investments in their RRSP.
7. The plan and process of creating wealth is most important.
As David Chilton (The Wealthy Barber) said, “Ninety
percent of wealth creation is spending less than you make.”
The power of compound interest means that investing regularly
at an early age can outweigh the return of periodic
“hot” investments. A plan with clear goals and measurable
objectives for wealth accumulation beats opportunistic investing.
Work your plan with how much and when to invest
and don’t fret the “what”.
The wealth creation goal Mary and I established was to
be financially independent by age 50 or at least by 55. Independent
for us meant not having to be dependent on
future work income, government benefits, or company pension
plans. Our plan of consistent investment of 10-20%
of my earnings, the growing economy, and some good luck
enabled us to reach our goal at age 50. While there was no
theme for our success, three farms and solid blue chip-stocks
(Bell Canada was our rock) were the winners. The duds
were 80% of our mutual funds. Near disasters were Massey-
Ferguson, Dennison Mines and Royal Trust (near disasters
because they were preferred shares and we did receive some
compensation).
8. Invest in things you like and are going to use.
Investing is more fun when the things you buy can enhance
your everyday life or provide enjoyable activities. I
have reported my fondness for the Bank of Nova Scotia
stock as Nova Scotia is the location of the Dimock ancestral
home in Canada and my father’s birthplace. Our three
houses have been marvelous investments as have our two
cottages. We enjoyed a vacation farm so much that we moved
to it after six years and commuted by train to work in Montreal.
When we moved to Guelph, we bought another farm
near the city. Our hobby farms have been the single biggest
contributor to our wealth creation and my physical health
and emotional well-being.
9. Be very careful with mutual funds.
The media hype on mutual funds can be very misleading
if not pure B.S. (beguiling statements). The management
expenses plus brokerage fees for the average Canadian
equity fund is over 2.8% a year. Over a fifteen-year
period about one fund in ten will beat the index of stocks
to which it is related. The proliferation of iUnits and exchange-
traded funds covering most markets mean you can
be diversified, play a global or specialized market and beat
most mutual funds while deferring tax on the fund’s yearly
earnings and capital gains.
I was an enthusiastic mutual fund participant with my
first purchase 45 years ago (AGF Growth). As I watched
their performance and studied them more carefully, I have
reduced my enthusiasm and most of my fund holdings.
The two I haven’t sold, all or part of, are ABC Fully Managed
and Trimark Fund (though it is on my watch list after
3-4 years of mediocre performance).
10. Stay the course.
I did not start to increase our net worth until I had a
plan with clear and attainable goals and yearly measurable
objectives to see how we were doing. I have worked hard
not to get suckered out of position by flaky trends and the
media hype over the sexy avant-guard investment or hot
stock.
I did get scammed by a persuasive salesperson on a penny
gold mine stock. Well, everyone knows better, but there is
nothing like learning from experience. The stock changed
its name and then mysteriously disappeared. During the
run-up of sexy high-tech stocks, I held the course but got
caught by the Nortel shares I inherited from my large Bell
Canada holdings.
My attempts to predict the market have also met with
failure. I sold Imperial Tobacco (Imasco) when I saw a se
ries of lawsuits coming. By selling, I also lost Shoppers Drug
Mart and Canada Trust. Even after they were sold, all three
did well.
Stay the course or as Tom Peters said of the best run
companies (In Search of Excellence) “stick to your knitting”—
what you know best—and “never acquire any business you
don’t know how to run”.
Hedley Dimock, EdD, RR1, Puslinch, Ontario N0B 2J0
(519) 822-2749 hdimock@infinity.net
