Here's my investment plan for the next 25 years. Every year, I will contribute the maximum amount to my TFSA account to buy stocks. I created a table below to demonstrate how my portfolio should perform if I stick to my investment plan. The yearly contribution is $5,500; the dividend income is calculated on an average 5% return rate, and capital gain is calculated on average 3% return rate. All dividends are reinvested back into dividend-paying stocks.
| YEAR | YEARLY $5,500 INVESTMENT | YEARLY DIVIDEND INCOME | YEARLY CAPITAL APPRECIATION | TOTAL YEARLY RETURN | MONTHLY DIVIDEND INCOME | |||||
| 2010 | $ 5,500.00 | $ 275.00 | $ 165.00 | $ 440.00 | $ 22.92 | |||||
| 2011 | $ 11,440.00 | $ 572.00 | $ 343.20 | $ 915.20 | $ 47.67 | |||||
| 2012 | $ 17,855.20 | $ 892.76 | $ 535.66 | $ 1,428.42 | $ 74.40 | |||||
| 2013 | $ 24,783.62 | $ 1,239.18 | $ 743.51 | $ 1,982.69 | $ 103.27 | |||||
| 2014 | $ 32,266.31 | $ 1,613.32 | $ 967.99 | $ 2,581.30 | $ 134.44 | |||||
| 2015 | $ 40,347.61 | $ 2,017.38 | $ 1,210.43 | $ 3,227.81 | $ 168.12 | |||||
| 2016 | $ 49,075.42 | $ 2,453.77 | $ 1,472.26 | $ 3,926.03 | $ 204.48 | |||||
| 2017 | $ 58,501.45 | $ 2,925.07 | $ 1,755.04 | $ 4,680.12 | $ 243.76 | |||||
| 2018 | $ 68,681.57 | $ 3,434.08 | $ 2,060.45 | $ 5,494.53 | $ 286.17 | |||||
| 2019 | $ 79,676.09 | $ 3,983.80 | $ 2,390.28 | $ 6,374.09 | $ 331.98 | |||||
| 2020 | $ 91,550.18 | $ 4,577.51 | $ 2,746.51 | $ 7,324.01 | $ 381.46 | |||||
| 2021 | $ 104,374.20 | $ 5,218.71 | $ 3,131.23 | $ 8,349.94 | $ 434.89 | |||||
| 2022 | $ 118,224.13 | $ 5,911.21 | $ 3,546.72 | $ 9,457.93 | $ 492.60 | |||||
| 2023 | $ 133,182.06 | $ 6,659.10 | $ 3,995.46 | $ 10,654.56 | $ 554.93 | |||||
| 2024 | $ 149,336.63 | $ 7,466.83 | $ 4,480.10 | $ 11,946.93 | $ 622.24 | |||||
| 2025 | $ 166,783.56 | $ 8,339.18 | $ 5,003.51 | $ 13,342.68 | $ 694.93 | |||||
| 2026 | $ 185,626.24 | $ 9,281.31 | $ 5,568.79 | $ 14,850.10 | $ 773.44 | |||||
| 2027 | $ 205,976.34 | $ 10,298.82 | $ 6,179.29 | $ 16,478.11 | $ 858.23 | |||||
| 2028 | $ 227,954.45 | $ 11,397.72 | $ 6,838.63 | $ 18,236.36 | $ 949.81 | |||||
| 2029 | $ 251,690.80 | $ 12,584.54 | $ 7,550.72 | $ 20,135.26 | $ 1,048.71 | |||||
| 2030 | $ 277,326.07 | $ 13,866.30 | $ 8,319.78 | $ 22,186.09 | $ 1,155.53 | |||||
| 2031 | $ 305,012.15 | $ 15,250.61 | $ 9,150.36 | $ 24,400.97 | $ 1,270.88 | |||||
| 2032 | $ 334,913.13 | $ 16,745.66 | $ 10,047.39 | $ 26,793.05 | $ 1,395.47 | |||||
| 2033 | $ 367,206.18 | $ 18,360.31 | $ 11,016.19 | $ 29,376.49 | $ 1,530.03 | |||||
| 2034 | $ 402,082.67 | $ 20,104.13 | $ 12,062.48 | $ 32,166.61 | $ 1,675.34 |
GK portfolio,
ReplyDeleteI just came across your blog...nice work. I particularly like this 25yr plan. Just had a few questions though. Will $29K cover your expenses and allow you to retire? If not, what percentage of your expenses will this cover? And do you have other retirement income coming from other sources?
Good luck with your journey...wish you nothing but success!
Hey,
ReplyDeleteThanks for stopping by and commenting on my blog. $29K per year tax-free will allow me to retire considering that my mortgage will be paid off and my only expense will be property taxes, insurance, electricity, car related expenses, food, and clothing. Dividend income should cover all living expenses. I will receive federal and provincial pension as well. I have no other source of income, but who knows what else I will be doing in 5 to 10 years that will increase my residual income. I'm only in the beginning stage of the plan :)
If you have any other questions or concerns, just drop me a line and I will respond back ASAP.
Thanks!
Helloa, I'm afraid to say the plan is likely to fail. I am a dividend growth investor myself, and since I am very patriotric, I focus on Canadian Dividend stocks. I recently read a very good eBook which is called 'The Dividend Lie' and explains the top 10 mistakes that will kill a dividend investor's plan to live from his dividend income. You find the ebook on www.dividendlie.com. I see at least three of the biggest mistakes in this plan:
ReplyDelete1) You are not contributing enough (~$500 per month will not bring you anywhere, except with unrealstic dividend growth ratios)
2) You are calculating with wrong assumptions - please, you plan for 8% after taxes dividend income per year!!! This is insane. You aim for let's say 10% gross div income, which means you need a portfolio FULL of high yielders, you can't even afford to add any dividend aristocrate like KO, PEP, JNJ, XOM, etc, since for each aristocrate yieling 3%, you'll need an ultra high yielder with 18% (!!!) to compensate. Even with all the high yielders (REITs, MLPs), please look at their dividend history and what happend with the payouts during the crisis in 2008/2009. 25 years with constant flow of 8% after taxes in NOT doable. Totally unrealistic, I'm sorry.
3) I'm missing your expenses calculation that incorp. inflation rates and planned degree of lifestyle, incl. safety margins for children, health issues, repair, etc.
Don't get me wrong - I don't want to crush your motivation but I believe you need to be more honest with yourself and prepare a realistic plan.
All the best
Canadian Dividend
Hey Walt,
DeleteThanks for stopping by and commenting on my blog. I do appreciate your concerns regarding my 25 years plan. You brought up very important points and here are my thought about them.
1. Regarding the contributions. Canadians are allowed to contribute up to $5,500 per year in their TFSA account. All gains made inside TFSA are not taxable. So at the end of the year I pay Zero in taxes from dividend income or capital again.
2. My 8% return includes the dividend and capital gain. Most of the stocks that I own pay me from 4.5% to 6.5% in dividends. I think my only high dividend stock for the moment is STB.TO, but I’ve been holding that stock for over 3 years with no dividend cuts. In fact, I will also record a decent capital gain if I decide to sell it in the near term.
3. My goal is not to live off dividends alone, but to increase substantially my earnings in the future to allow my family and my children a better life. By the time I reach my investment goals, my mortgage will be paid off so my monthly expenses will be marginal… some bills, foods, meds, taxes.
It’s impossible to have a 100% full proof plan, but I will continue to do what I know best and I really believe that I will succeed.
Hey GK,
ReplyDeleteNice plan you got here, dude. it's always nice to see charts like this and determine where you're going and compare yourself year after year. I believe in you, go get em!
Best regards
DB
Hello your 25 YEARS PLAN is very interesting and thank you for sharing your ideas and goals. I think there is an error in your table, and here is my explanation: we assume that in the beginning of the first year you put 5500$ in your TFSA, in the end of the year you will get (5500*5%)=275$ of dividend income. To simplify the calculus these 275$ are not reinvested along the year, but only in the beginning of the second year (the idea is, if dividends are paid each month (275/12)=22.91$ or each quarter(22.91*4)=91.64$, these amounts are not enough comparing to transaction coasts 9.95$).
ReplyDeleteIn the beginning of the second year you put a new 5500$ and 275$ of the past dividends, so you have 5775$ to buy new shares. The portfolio appreciation can't buy you another shares, because you are not selling and buying low price shares. In the end of the second year you will receive (5500+5775)*5%=563.75$ dividends, witch you will add to 5500$ of the third year and receive (5500+(5500+275)+(5500+563.75))*5%=866.93$.
With excel spreadsheet you get $13,124.95 annual dividend income for the 25th year, you must continue adding 5500$ to 32 years to get $20,707.18 , so you must add more or reinvest during the year in order to accelerate the compounding effect.
Good luck with your plan.
Hi Hassen, thanks for stopping by. The dividends that I receive on monthly basis are invested the same month with the addition of fresh capital. They don't sit in the account until the next year. So the compound effect of the dividend starts right away. I do admire your precise calculation. It must taken you some time to calculate and write such a lengthy post. Would like to see more comments from you in the future :) Take care!
DeleteHi i have been looking to your plan, how can you justify the difference between your yearly targets and the your portfolio dividend income, if we compare your 2016 target $2,453.77, and your real income $2,117.81, same with the next years 2017, 2018 there are big differences.
DeleteI think the error in your table came frame including the fresh capital $5500 in the beginning of each year, but in reality this amount is invested along the year.
The second point; is the capital appreciation bringing new dividends ? that means do you often sell your stocks in order to get this amount of gain and reinvest in low price stocks with the same or higher dividend yield, what about your loosing positions, how can you include the capital loose.
What if you build a pessimistic plan without including capital appreciation; consider only monthly dividend income, and monthly contribution and include transactions fees, if there will be a capital gain consider it as an extra amount, as if you are adding a new capital to your portfolio.
good blog
I agree with you about the first year. I should not have considered any returned on my first year because it's a year of capital accumulation. There were some dividend cuts in 2014 and 2015 when oil prices collapsed and some of the companies could not afford to pay dividends anymore. That's why I'm slightly behind the schedule. But that's all good. This is a plan in the perfect world. I'm still happy with the real numbers.
DeleteI like how your plan is not immediate. 25-years is a long time. You have laid out the skeleton of the plan. What's great about 25-years is that so much will change for you. I envision you increasing your monthly investments, making more money, investing more money, etc. The actual 25-year delivery will be much different than what you have here, and most likely a lot larger. Keep up the good work.
ReplyDeleteThank you for your support. I have a big commitment for success. Good luck to you as well :)
DeleteI just found your plan and I must say I like it! It gives you a much clearer sense of the direction you are going and you can measure from year to year if you are in front or behind schedule! I think I'm going to calculate something similar for my own situation in the near future.
ReplyDeleteLooking at your assumptions I must say that in my book the dividend % seems quite high with 2016 valuations. Maybe it's different in Canada, but in Europe and the US it's hard to get 5% on average. On the other hand, the 3% growth in value seems low if you look at the historical averages, so that probably evens each other out.
Nice work!
Hi P2F, I'm glad that you like my plan. What I forgot to add in my table is future dividend increases from the excisting companies. My average yield will decrease slightly because yields on stocks are dropping. But on average 7%-9% return is very doable and it's tax free.
DeleteSee you around!
Well, as you have seen last year I made a plan for myself. Today I turned it into a page! I think it's to good not to follow up so I added columns for realized portfolio value and realized dividends so that I can follow the progress in relation to the plan.
DeleteHow are you doing so far? Still on target? Let's see if we both can reach our set goals!
By the way. I like the coloring of the table. What do you use to publish it?
DeleteHey P2F,
DeleteIt's nice to see you created a similar 25 Years Plan for yourself. I'm on target to meet my goal. I'm now between year 6 and 7 in terms of portfolio value and dividend income.
As for the table, I created it in excel first, the pasted to Word and from there to the blog post. Lengthily process.
See you later!
I love how you've laid out your 25 year plan and if you playing it smart I think you'll see much better returns than anticipated. But what jumps out of me from the table above is the monthly dividend payouts beginning from year one. Are you using DRIP to get compounding returns and growing your dividend investments alongside reoccurring buys? I use the dividend re-investment plan on all my portfolios and am diversified enough that I receive dividends sometimes multiple times a week but I haven't set up any sort of dividend tracker to monitor so just seeing regular growth makes it hard to distinguish how much the DRIP has helped. Any dividend tracker you would suggest? They all seem a little pricey for what you get especially for someone early on growing my investments.
ReplyDelete