Archive for July, 2009

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

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•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 series 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