August Dividend Income Report – The Yield Isn’t Important

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In September 2017, I received slightly over $100K as a result of the commuted value of my pension plan. I decided to invest 100% of this money into dividend growth stocks. Each month, I publish my results. I don’t do this to brag; I do this to show you it’s possible to build a portfolio during an all-time high market. The market will crash… eventually. In the meantime, I’d rather cash some juicy dividends!

dividend income report

The Yield Isn’t Important (to me)

Funny story, I’ve been told a couple of times (on Seeking Alpha) that my moniker (The Dividend Guy) should be replaced by the “Total Return” Guy. I don’t really get why since the whole purpose of investing is making money right? My goal is to generate a positive total return (capital appreciation + dividend). If I wanted to see money deposited monthly, I would have simply bought an annuity and get my paycheck. Making sure my capital is growing (along with dividends) is only a rationale approach to investing. I want to make sure my wife and kids will have more money to manage if I ever pass away. Not just some rundown companies paying 8% yield and losing 105% in value year after year until the company finally cuts its dividend.

I’ll go one step further just for fun with this column about dividend yield. I don’t mind about the dividend yield. My portfolio generates roughly 2.5% yield now. I know, you can cough and tell me it’s not a real yield. But that’s mostly because my portfolio jumped in value over the past 2 years. My yield on cost (dividend payment today divided by my original investment) is probably around 3.5% now.

What really matters (TO ME) is the dividend growth. First, I don’t need to withdraw money immediately. Therefore, I don’t need my portfolio to generate lots of income. I just need my portfolio to generate a growing income stream for the future.

Tracking dividend growth ensures that most of my companies are doing well (if not, why would they increase their distributions?). This is my number one signal to make sure my investment thesis is still valid. An absence of dividend growth is definitely a red flag telling me I need to investigate further.

I understand that yield is important when you are retired and you expect your portfolio to generate enough income so you can enjoy a stress-free retirement. At that point, yield does matter, but not at all cost. In fact, you are probably better off with a portfolio yield of 3.5%-4% with a steady capital appreciation and withdraw a total of 4- 5% of your portfolio (e.g. selling a few shares) each year. If you aim at an 8% withdrawal rate, no matter if you want to do it through dividend yield or by selling shares; you are going to bleed your portfolio out rapidly. Here’s more information on how to manage a higher yield portfolio at retirement.

New! My Income Report in Video

If you don’t feel like reading, you can now jump into my monthly market commentary on Youtube:

Numbers are as of September 6th 2019 (before the bell):

Canadian portfolio (CAD)

Company Name Ticker Market Value
Alimentation Couche-Tard ATD.B.TO $7,165.52


Andrew Peller ADW.A.TO $5,955.25
National Bank NA.TO $5,080.80
Royal Bank RY.TO $6,041.40
CAE CAE.TO $6,750.00
Enbridge ENB.TO $7,257.88
Fortis FTS.TO $5,509.35
Intertape Polymer ITP.TO $5,406.00
Lassonde Industries LAS.A.TO $3,757.95
Magna International MG.TO $4,811.80
Sylogist SYZ.V $2,167.00
Cash $334.84
Total   $60,237.82

My account shows a variation of +$1,039.34 (+1.8%) since the last income report.

August was the month where banks were discussing their results. While some missed the mark, I was “lucky” enough to have shares of two banks showing great results.

National Bank is still a winner

National Bank posted a strong quarter with results supported by growth from all segments. Personal and Commercial net income was up 11%. Rising 4% from a year ago, personal lending experienced growth, particularly due to mortgage lending, while commercial lending grew 7% from a year ago. Wealth Management was up 5% as the increase is driven mainly by growth in fee-based revenues. Financial Markets was up 2% attributable mainly to the global markets revenue category. U.S. Specialty Finance and International was up 28% attributable to the expansion of ABA Bank’s banking network.

A 2nd dividend increase for Royal Bank

RY posted another strong quarter with mid-digit growth and its second dividend increase of the year. Results for the quarter ended July 31, 2019 reflect strong earnings growth in Personal & Commercial Banking, Wealth Management, and Insurance, partly offset by lower earnings in Capital Markets and Investor & Treasury Services amid challenging market conditions. Q3 net interest income was C$5.05B, up from C$4.84B in Q2 and C$4.60B in the year-ago quarter; growth driven by volume growth in Canadian Banking and U.S. Wealth Management. Provision for credit losses ratio on loans of 27 basis points, fell 2 bps Q/Q, and rose 4 bps Y/Y.

You can read about how I managed my portfolio as a Canadian (e.g. mixing both CDN and US investments): Investing the Canadian Way – Tricks I use to Boost My Returns. I discuss my sector allocation, how I manage currency fluctuations and my favorite sectors.

Numbers are as of September 6th 2019 (before the bell):

U.S. portfolio (USD)

Company Name Ticker Market Value
Apple AAPL $6,611.68
BlackRock BLK $5,946.08
Disney DIS $6,247.80
Garrett Motion GTX $30.78
Gentex GNTX $6,377.90
Hasbro HAS $5,105.54
Lazard LAZ $3,618.96
Microsoft MSFT $8,403.00
Resideo Tech REZI $71.20
Starbucks SBUX $8,123.45
Texas Instruments TXN $6,340.50
United Parcel Services UPS $4,484.40
Visa V $9,236.50
Cash $287.44
Total   $70,885.23

The US total value account shows a variation of +$3,045.87 USD (+4.5%) since the last income report.

While there are still lot of uncertainties around the commercial trade war and the interest rate yield curve, the market seems to always find a way to go higher. My portfolio value is up 11.5% (total, converted in CAD) vs last August. Most of my growth has been found among my US holdings.

The current earnings season has pushed many of my holdings to higher levels. I don’t want to get over excited about this short-term gain a we all know how fast the wind can turn. What is nice about the current value of my portfolio is that it can now take a ~30% hit and get back to my original invested amount. This gives me a nice margin of safety going forward.

At this point, I’m debating selling GTX and REZI as they are the results of spin-offs from Honeywell (HON), which I sold last year to buy BlackRock. Those are small amounts and a part of it will be eaten by fees, but I’m better off seeing those as dividend payments instead of shares. They don’t add any value to my portfolio right now.

My entire portfolio quarterly updated!

Each quarter, we run an exclusive report for Dividend Stocks Rock (DSR) members called DSR PRO. The PRO report includes a summary of each company’s earnings report for the period. We have been doing this for an entire year now and I wanted to share my own DSR PRO report for this portfolio. You can download the full PDF giving all the information about all my holdings. Results have been updated as of September 10th.

Download my portfolio Q3 2019 report.

sector allocation

Dividend income: $354.05 CAD (+31%)

I show an impressive dividend growth for August as I bought my shares of National Bank (NA.TO) last year in August. The increase would have been around 11% excluding National Bank’s dividend payment. Still, I’ll take the double-digit pay raise, wouldn’t you?

Here is the dividend growth detailed. The growth is compared to August 2018 (not necessarily a recent dividend increase):

  • Alimentation Couche-Tard: +25%
  • Royal Bank: +8.5%
  • Texas instruments: +24%
  • Hasbro: +8%
  • Apple: +5.5%
  • Lazard: +8%
  • Starbucks: +0%
  • Currency factor: +2%

When you combine both dividend growth and capital growth in this portfolio, you get great results! I’ve never been looking for high yielding stocks. I think the balance between dividend growth and capital growth is important in one’s portfolio.

Canadian Holdings payouts: $126.35 CAD

  • National Bank: $54.40
  • Alimentation Couche-Tard: $10.75
  • Royal Bank: $61.20

U.S. Holding payouts: $172.19 USD

  • Texas instruments: $38.50
  • Hasbro: $31.28
  • Apple: $23.87
  • Lazard: $47.94
  • Starbucks: $30.60

Total payouts: $354.05 CAD

*I used a USD/CAD conversion rate of 1.3224

Since I started this portfolio in September 2017, I have received a total of $5,607.35 CAD in dividend.  Keep in mind that this is a “pure dividend growth portfolio” as no capital can be added int his account (it’s a LIRA). Therefore, all dividend growth is coming from stocks and not from additional capital.

Final thoughts

My portfolio has had a great since I started (more on this here). This recovery is so strong that I can now take a 30% hit on my portfolio I would still have a few hundreds over my original amount. This shows you how it’s impossible to know when and by how much the market will crash.

The post August Dividend Income Report – The Yield Isn’t Important appeared first on The Dividend Guy Blog.

Why I Don’t Keep Cash and Invest it All

Opportunity is missed by most people because it is dressed in overalls and looks like work.

-Thomas Edison


“Mike, you should keep dry powder (cash) ready. Cash in your portfolio is ready to be deployed when there is an opportunity. Keeping liquidity will make sure you’re ready when the market crashes.”

Each time I discuss investing “now” on this blog, I get served with the same soup. Keep cash to invest later. Depending on investors, this strategy implies keeping from 5% to 50% of their portfolio on the sidelines. While some “extreme” investors keep up to 100% in cash, my wild guess is most investors probably find a 10-30% of their portfolio being liquid acceptable.

I’m part of the other “extreme” investors who keep 0% to 3% in cash. I invest it all, all the time.

stay invested

Why do they keep cash?

The rationale behind keeping cash is easy to understand; buy low, sell high. When the market goes down and you have money, you invest and grab shares of great companies at a fraction of the price. It’s the equivalent of waiting to buy a new TV until it’s Black Friday. You wait the whole year and you grab the best deal on the market. When you look at both the Canadian and US stock markets over the past 10 years, you can see that, even during a strong bull market, there are times to invest at cheaper prices:

keep cash and invest

Source: Ycharts

Buying stocks when they are down 10%, 20%, or 30% seems like you made the deal of the day. It feels good. It generates a (false) impression of security. After all, if you buy shares of 3M (MMM) at $160 after seeing it at $250 not too long ago, you can’t go wrong, right?

Why I ignore this strategy and don’t keep cash

A few months ago, I wrote a shocking piece called “I’m going 30% cash”. Of course, I didn’t go cash. The point of this article was to calculate the outcome of keeping 30% and 50% of my portfolio in cash and invest it at the perfect market bottom. I took a real-life example (with its pros and cons) and ran the math. If you don’t want to read the article, here’s the conclusion:

“In both cases, the cash option just hurt my portfolio. While I may have felt ‘safer’ all it did was to take money away from me.”

I know this “one-time scenario” shows many flaws. But besides the fact I was right to invest all my money back in 2017, there is a rationale behind being 100% invested all the time.

Money works for me, not the other way around

When you save money aside, but don’t invest it, it comes down to working hard and waiting to get rewarded. In 2017, I had a lump sum of money to invest coming from my former employer’s pension plan. The whole purpose of this money is to create a safe retirement. The money is even locked in an account I can’t even touch today. So, I might as well have this money start working on this retirement plan today instead of sleeping in on the job, right?

I wasn’t excited to invest in an all-time high market (I would have preferred receiving this money in 2009!). I knew that I could lose $30,000 within a few months if there was a market correction. I also knew that companies in my portfolio would generate between $2,000 and $3,500 each year in dividend. That is real money being deposited in my investment account. I know, it’s not much compared to the $108K I invested, but dividends are the fruit of my money’s labors.

If I picked strong companies, sooner or later their stock price will recover. In the meantime, I will reap dividends monthly. I like the thought of knowing my money works for me.

“What about putting your money at 2% in a money market fund or the like?”

True, my portfolio currently averages a dividend yield of 2.40% (after a portfolio value growth of ~+45%). My “cost” of not leaving that money sleep well would be only 0.40% at this time (but I would have not gotten the 45% growth). I would also have to say goodbye to all dividend growth coming out of my portfolio. The money market won’t increase its interest rate each year. Plus, since I’m Canadian, I can’t even find a safe investment paying 2%! Haha!

A 52 Weeks High Story… or Two

According to the “cash holder” investors, the key is to buy stocks at a “low” price. This totally make sense on paper. The problem lies in the definition of “low”. Let me ask you a question to prove my point:

“Would you buy shares of Disney (DIS) at ~$65 today?”

Since DIS trades around ~$138 at the time of writing this article, you would probably say something like

“Hell yeah! I’ll use my cash to load a bunch of shares in my portfolio!”

But what if Disney was trading at its 52 weeks high? Then you would probably tell me to wait until there is a 20-30% drop before entering in a position. I bought shares of DIS on May 23rd 2013 after a 48% ride and at nearly the highest point in the past 52 weeks.


Source Ycharts

Fortunately for me, my investing process doesn’t require me to wait or to identify a 20-30% price drop before buying. Disney is part of my triple digit club. I have more than doubled my money since 2013.

disney (DIS)

Source: Ycharts

After seeing both graphs, you can then determine that the right price to pay for DIS shares was $65 (or lower, duh). This example illustrates how difficult it is to determine what “the right price” is.

There are no such things, because we don’t know the future. DIS shares have stumbled (as they did many times between 2015 and 2018) and created better buying opportunities AFTER 2015. The right price was any moment BEFORE 2015. After 2015, it became anyone’s game for a while. But chances are you will never be able to pick DIS shares at $65 again (unless they split).

The same story applied to Lockheed Martin (LMT) when I bought shares in January of 2014, when LMT was trading at an all-time high:

lockheed martin (LMT)

Source: Ycharts

Once again, I’d rather cash my dividend and let the great company do their things than watching their stock price with a short-time horizon. When I bought shares of DIS or LMT, the only thing I bet on was that both companies would continue to do well and in 25 years from now, they will be worth more than today. At that point, picking them up at the perfect and lowest price was little interest to me.

It’s Simple, Efficient and Meets my Investing Goals!

Should I buy now or wait a little longer?

Should I sell and cash my sizeable profit?

When will the market bounce back…. Or crash again?

Those are common questions asked by most investors… but not me. Since I follow a clear investing strategy that doesn’t require me to dabble forever about the optimal price of a stock, I buy shares whenever I want based on my investment thesis and not the “price of the day”.

This simple, yet efficient, strategy clears out lots of questions leading to paralysis by analysis. How can you seriously define the right price of a stock in front of your computer at home? Even professional managers can’t do that.

By keeping a focus on the long-term outcome (retirement in ~30 years), I don’t have to worry about the current state of the market. I only have to worry about which great companies I want in my portfolio. Waiting with cash on the side would generate tons of questions that I can’t answer.

Was the right time to invest was in December 2018?

How can I have identified correctly the past 10 perfect market bottoms?

It’s easy to play Monday morning quarterback when you look at a graph, but when you try to guess where stocks will be trading in September 2020 or 2022, that’s a whole different game. Nobody knows. The only thing I know is by keeping my portfolio invested, I will reach my investing goals.

Final Thoughts

In light of my results, I guess it’s easy to brag that I was right. Keep in mind that I’ve been investing over 95% of my money in stocks since 2003. After 16 years in the market, I still come to the same conclusion; letting my money work for me is the best strategy.

When market drops happen, I wish I had more money to invest. But when I look back at how much my invested money generated year after year, I don’t have any regrets. My increasing dividend payments are here to tell me that my 7 investing principles work and that my portfolio is better off invested than in cash.

Webinar coming up on September 12th!

investing webinar

Next week, I’ll share more about my story. In my next webinar, “Should You Buy Stocks Now? 3 Steps Process to Avoid The Biggest Mistake of Your Life,” I will cover step-by-step how I invested my lump sum of money. If you read this article and you’re passed the date, register to watch the replay!

This webinar is for you if:

  • You are waiting for the next crash to invest.
  • You are looking for opportunities in this market.
  • You struggle to invest as everything seems overvalued.
  • You have money available, but you don’t know how to invest it.
  • You are looking to have a good time with a passionate investor!

The webinar will be hosted on September 12th at 1PM EDT. If you register, you will have access to a full free replay (at anytime).

Register here (it’s 100% free)

Topic: Should You Buy Stocks Now? 3 Steps Process to Avoid The Biggest Mistake of Your Life

Date: Thursday, September 12th at 1PM EDT

Description: In this webinar, I’ll walk you through my investment process that I used to successfully build a portfolio in this crazy market. I went through 2018 without blinking as my portfolio ended the year with a positive return of 5.5%. As of August 20th, my portfolio was at $152,707.51 for a profit of $44,345.32 or $40.9% (18.7% CAGR over almost 2 years).

  • If it’s your first time, you must provide your email address to register to the webinar. This is completely free and the webinar is free as well.
  • Webinar Ninja is the platform we use to run all our webinars. It works well and provides an optimal experience for everyone.
  • The presentation is about 45 minutes.
  • There will be a Q&A session of about 25-30 minutes.
  • The webinar works on Google Chrome or Safari from a laptop or computer. (not compatible with smartphones or tablets)
  • If you can’t make it on time, there will be a full replay available, but you must register to access the replay.

Register here

Forward this article to your friends, I’m sure you know someone who is struggling to invest right now.

The post Why I Don’t Keep Cash and Invest it All appeared first on The Dividend Guy Blog.

Invest Now, Or Wait? The Results of My Decision

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The market is at an all-time high, you have $100,000 to invest, what do you do? Invest now, or wait?

I faced this very situation not too long ago: Invest now or wait. $100,000 is a lot of money. I worked very hard to build that nest egg. For a long time, it was growing inside my former employer’s pension plan. When I finally realized that I didn’t want to wait until I’m 65 to enjoy freedom, I quit my job and asked for my pension check!

The exact sum was $108,362.19. This was the largest sum of money I had ever held in my hand. It was cold hard cash ready to invest. But WAIT! The market was at an all-time high, was I really going to invest????

A sound piece of advice is to protect your money; one point in the wait column

When I discussed this topic on my blog, many of you answered back. A recurrent suggestion on this blog was to “protect my money”. There were several ways offered by fellow investors:

  • Use stop-loss in the event of a market correction
  • Invest systematically over a year
  • Look for undervalued stocks (is there such thing?)

But my favorite was definitely this one:

“Staying in cash for a bit longer.” I just wondered: “how long is a “bit longer””.  I wish I could have had a coffee with Jesse every month or two. I wonder if he would have then told me to wait to see how the Brexit would settle, or to see if the NAFTA will be signed or wait to know what will happen with the next FED’s decision about interest rates…

When fear is the driver

Let me be clear: I’m not making fun of Jesse here and I don’t think I’m smarter or a better investor than him. His concerns about the potential impact of the tax reform were well founded and made sense. Someone could bring the end of the current trade war between China and the U.S. as the next entry point to investment. Others would elaborate to tell you how this market is complete nonsense and the only way to make real money is to wait for the next crash.

I’m not going to debate whether it’s a good strategy or not, but let’s all keep in mind that a year like 2008 doesn’t happen often. In fact, it has only happened three times (including 2008) in the past 100 years:


If you are a fan of graphs and tendencies, you could argue that two major drops happened in the same decade, so it should happen anytime now. Or… you could also argue that last year was similar to 1990 which was followed by nearly another decade of bullish years.

This is what happens when fear is the driver: any sources of concerns or challenges in the market will become the next reason for the market crash.

Fear will tell you to wait

That’s a primitive instinct. It goes back to the time we were hiding in a cave and had to wait until it was clear to go outside. We soon realized there were always threats outside of the cave, but we had to get out if we wanted to eat and survive. At one point, we had to deal with threats coming from predators, bad weather or another tribe hunting us down. We had to go out to survive. At that point, there was no “going outside for 5 minutes and coming back”. That waiting game would have made the human race extinct fairly quickly.

So it’s only normal to fear the market will crash, especially when you have a lump sum of money to invest. The last thing we all want is to see our $100K going down to $75K before the end of the year. The thought of losing $25K+ gives us shivers. Therefore, we find all kind of ways to minimize that thought to a maximum up to a point that we may not even invest that money. Better to keep that $100K than seeing it crushed by some evil financial forces!

Instead of giving in to fear, I found a quiet place and started to think about my investment plan.

Why I ignored my fears (here’s my trick)

When you dig deep inside, you will find that fear comes from the unknown. Our brain is giving us (making them up) answers to questions or challenges we face. Some of those answers are built on possible outcomes. I don’t know why, but it seems our brain keeps bringing the worst outcome possible to the forefront of our minds!

The best method I found to dissipate my fears is quite simple, but also quite difficult. It is called playing the long game.

I have no control on what is going to happen on the markets today, tomorrow or in three months. So why bother trying to figure what will or won’t happen? I know what is going to happen on the markets in 15, 20, or 30 years from now: stocks will worth more.

Once I’ve worked enough on my mindset to be convinced of this premise, I don’t mind seeing my 100K going to down to 75K by the end of the year. It won’t matter in 15 years.

I invested all my money quickly and then I waited

By the end of the month of September (2017), most of my money was already at work. My plan was well defined before I receive my check and all I had to do was to pull the trigger and buy those amazing companies. It was exciting and frightening at the same time. While I knew deep down I was doing the right thing, there was still a small voice telling me I could be pretty much killing my whole retirement plan by investing so “recklessly”. After all, I would not have felt very good losing 20-30K by December.

I had a very solid plan to build my portfolio. I had spent years on working on my investing process and determining  how to buy stocks. I followed this plan and made sure I was buying companies meeting my investing criterion. You guessed it; valuation wasn’t a big part of my plan.

My money was fully invested in equities when I faced the 2018 market drop. The S&P 500 dropped by almost 20% from its peak level that year. The Canadian market wasn’t too far behind. What happened to my portfolio? Not much. I finished the year at +5.5% as I was patiently waiting.

Hmm… I guess the waiting game could be a winning game after all! The key is to invest first and then wait.

The results 2 years later

If you have followed my blog for a while, you know that I’m reporting my dividend income and portfolio value on a monthly basis (you can sign-up to my newsletter to make sure you don’t miss one of my trades).

At the time of writing this article, 23 months have passed since I invested my money. In the past 2 years, a lot has happened:

  • More Brexit drama
  • The NAFTA never-ending signature story
  • The FED increased… and then decreased its rate
  • The oil market continues to be difficult
  • The U.S. and China are in the middle of a trade war
  • Elections are coming up for Canadians this fall
  • Both US and Canadian markets got hit big time in 2018
  • The yield curve has inverted (OMG!)
  • Some Euro countries offer negative yielding bonds (!?!)

I didn’t trade based on those events. In fact, I’ve patiently waited and counted my dividend payments. As of August 20th, my portfolio was at $152,707.51 for a profit of $44,345.32 or $40.9% (18.7% CAGR over 2 years).You can download my portfolio here.

In the end, it’s easy today to smile and brag that “I was right.” But that’s not the point. This portfolio is a real case study showing you that investing in an all-time high market isn’t a crazy idea. Nobody knows when the all-time high market will crash. Therefore, investing in it is really about investing in strong companies and playing the long game. With this perspective in mind, there is only today’s market value and the market value in 20+ years.

PSST! If you are going to tell me that some markets in the world have been stagnant for more than 20 years, please cash in your money from the stock market and stop reading investing articles. If you don’t believe the market will go up, what’s the point of even discussing it? Your mattress is probably a better place to hide your money.

The post Invest Now, Or Wait? The Results of My Decision appeared first on The Dividend Guy Blog.

Video of the Week: Dividend Investing is Fun and Exciting

A couple weeks ago, I wrote an article on Dividend Investing is Fun and Exciting. As a complement to the article, here is a video about Why Dividend Investing is so much fun! What if you could earn money and have fun? I think this is not only possible, it’s now a reality to me!


If you enjoyed the video and want more of them, subscribe to my YouTube channel!

The post Video of the Week: Dividend Investing is Fun and Exciting appeared first on The Dividend Guy Blog.

How to Invest a Lump Sum of Money

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The arrival of a Lump Sum of money would likely create mixed emotions. It could come from a former employer pension plan, an inheritance, the sell of a property or a business, or simply because you have been sitting on the market sideline for a while and you are now ready to invest. In any case, receiving an amount over $100,000 is quite exciting. You picture several projects and a world of possibilities open-up. Unfortunately, the sudden arrival of a Lump Sum of money comes with it loads of concerns. Today, I’m going to answer a crucial question:

How Do You Invest a Lump Sum of Money?

I once took less than 30 days to invest $76,000

If you have been searching the web for a methodology on how to invest a large amount of money, you’ve probably read tons of articles about how people would do it. I always had a problem with people knowing stuff, but not doing them. When it comes down to investing money, there is a huge gap between theory and reality. All the would, could, should take a whole different meaning when you hold a check with several zeros in your hand.

In 2017, I quit my job and decided to manage the commuted value of my pension plan. I received a lump sum payment of $108,760.02. This money was meant to be invested for my retirement. I invested the first $76,000 within a few weeks and completed my portfolio a few months later. The entire amount was invested in dividend growth stocks (50% Canadian, 50% U.S., no international companies).

At that time, 2017 represented the stock market all-time high for both Canadians and Americans. How do you invest a Lump Sum of money when the market is at its peak? I was well aware of what could possibly happen if I had picked the wrong year to invest. From peak to bottom, investors saw the stock market lost about 50% of its entire value during the 2008 financial crisis:

Source: Ycharts

Just the thought of losing $50,000+ within a few months is enough to keep you waiting for a very long time before making an investment decision. But is waiting really the solution? You’re just postponing the inevitable: invest the money. Since it was my decision to quit the corporate world, I knew this money was coming. Here’s what I did before I received the money.

Investing a large sum isn’t easy: 3 Things to do before

First, planning is everything. Before you even get the money in your hand, you should consider what you want this money to do for you. Keep in mind that money is there to work for you and enable you to enjoy life, not the opposite. In my case, this lump sum amount needs to be invested for my retirement. The purpose of your money will determine how you will invest it (e.g. for the next 5 years or for the next 30 years). I determined I would invest this amount with a long-term investment horizon. If you don’t know if you should take the lump sum payment or keep your former employer pension, I’ve designed a decision grid to help you.

Second, will you take care of your investment or hand it over to an advisor? Money is a very personal matter and nobody cares more about your portfolio than you. However, if you lack time, interest, or knowledge, having a professional looking over your investments could be a smart thing to do. Since I’m passionate about finance and have plenty of time to manage my portfolio, I decided to trust my methodology. If you don’t feel comfortable managing your portfolio just yet, you can receive my portfolio update (I share everything) through my free newsletter:

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Third, get an action plan ready. Actions speak louder than words. You can talk about investing your money for months and you will wake up a year later with nothing done. Before I even receive my check, I had built a buy list with all the stocks I trust to fund my retirement when I grow old.

Lump Sum Investing Vs Dollar Cost Averaging (DCA)

Now, the big day has arrived, and you wonder if you should invest all that money within a few days or weeks or if you should wait and invest a little every month. This strategy of investing a small portion of your lump sum over a 12 to 18 months period is called dollar cost averaging (DCA). For example, let’s assume you want to buy for $12,000 of shares of Johnson & Johnson (JNJ). The DCA approach would consist of investing $1,000 each month during a full year. If JNJ shares goes up or down during that time for an unexpected event, you will average the cost of your shares. The DCA is a seductive strategy when you fear JNJ shares will drop by 20% a few weeks after buying a lump sum of $12,000 in a single transaction.

Because there is no way I can predict what will happen in the next 12 months…

Because the more transaction I do, the more fees I pay…

Because I want my money to work for me and not me working for my money…

I decided to put all my money in the stock market as soon as possible. I don’t see a strong incentive to use DCA unless I was in early 2008 and knew what was coming. Keep in mind that seeing the market drop by ~50% during a short period is also a very rare phenomenon.

Here’s a very interesting article about the difference between lump sum investing and dollar cost averaging and a paper from Vanguard about the same topic.

How do you invest the money?

I like to keep things simple. I think that too many investors suffer from “paralysis by analysis” as they try to know and control everything. You can spend days, weeks, months looking at charts, metrics, comparisons and all you will do is waste valuable time and your money will still not be invested.

Here’s how Invested my lump sum of money:

#1 Build a virtual portfolio

Getting good results out of your investment is all about your asset allocation. If you don’t know in which asset class and in which sectors you want to be, there is no point in starting a stock filter and buy stocks. I started by selecting a portfolio model at DSR. They have been proven to post robust results since 2013 and performed well during the flash crash of 2018. You can get the results here.

#2 Build my watch list

Once I decided what my portfolio will look like in term of asset allocation, I spent time analyzing each stock in the portfolio model. I used the DSR stock cards and rankings to get a quick idea of which companies would fit well for my retirement portfolio. This is the hardest and longest part of the process as this is where you will wonder if you should or shouldn’t pick a company. Take the time to pick the right stocks, they will accompany your in your investing journey for a while after that.

#3 Get the Lump Sum work for you – buy now

As soon as you get your check, you should put that money to work. Invest the proceeds in the stock market now. When is now? It’s NOW.

Don’t wait to see what the next FED meeting will say.

Don’t wait for the next election round.

Don’t wait for the next earnings season.

Don’t wait for the “currently big conflict between countries” end.

Don’t wait for the next market crash.

Don’t wait for the time the market will be better valued.

Waiting isn’t paying. I agree with you that in an ideal world, you would buy stocks at the cheapest level possible. Unfortunately for you and me, those low price were 10 years, 25 years, 50 years ago. The good news is that in 25 years, the good timing to buy stocks will be… today.

Bear markets, as we like to call them, take on average 2 years to recover. Will you really wait 1 months, 1 years, 4 years before the next market crash only to realize it would take 2 years to recover your money?

I invested a large amount in the market in 2017. 2 years later, my account was showing a total gain of ~+38%. If 2017 was the year of a massive market crash, my portfolio would have shown a ~0% return in 2019. And from then on, my money would continue to work for me. Does waiting work? Not at all.

If you are looking for more tricks and tools I use, I describe the entire process of my investment right here.

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