Passive income from dividends. Is it a mistake?

[mitchell76]

Again, this is just my opinion. If anyone is interested in passive income investing or covered call ETFS, then this you tube video series is excellent. The host's name is Adriano, and he is sponsored by some ETF companies like Hamilton ETF, Brompton ETF, and Harvest ETF, so please keep this in mind.

Here's a sample of one of his videos, as there are many!!

 

[themaxx]

Thanks for the tip.
Perhaps I wasnt clear, or perhaps i'm misunderstanding you.
I advocate buying quality companies and holding for the long term. Stay clear of market fluctuations & make investment decisions based on business and economic fundamentals (not advocating fundamental over technical analysis, both have their merits). Its the approach i follow, and i've been living of my investment income for quite some time now.
I certainly did not intend to infer that you only buy 1 company.
Buffett is a value investor, which is characterized by finding undervalued companies. He recommends that most people buy index funds because most people arent stock pickers, and the main reason for that is most people wont put in the years of study required to become even a semi-competant stock picker. An index fund will attempt to match market performance, less any fees. A stock picker, in the vernacular, will try to identify potential stars from probable dogs, and if successful, outperform the market. However, its impossible to do 100% accurately 100% of the time. But ,as with Ceiling Cats approach, it can potentially outperform the market in the short term.



Only in the short term.
Professional money managers cannot beat the long term market with their funds so how can you?
Some funds appear to but that is because they have so many funds that some will beat market by chance

Buffet loses on %90 of his buys and the other %10 get it back


I read something in one of your posts about being forced to sell shares, which, unless its a margin call, or your getting into derivatives, why or how would anyone be forced to sell, or buy? its a free market.


Dividends are forced upon you and $1 in dividends lowers the stock by $! which means you sold $1 of stock


Ben Graham's first rule of investing is "Dont lose money", and his second rule is "never break rule #1". If youre being forced to sell at a loss, youve made some serious mistakes and perhaps shouldnt be trying to invest on your own.
Have a great night


You never lose money on a stock until you sell so hold until
market comes back is true for the index but not for individual stock

Hmm, your ideas are intriguing to me and I wish to subscribe to your newsletter.

 

[Zoot Allures]

Hmm, your ideas are intriguing to me and I wish to subscribe to your newsletter.

Waren Buffet and Jack Boogle are the wise older investors passing on their wisdom to help out the common man

I also like ben felix

Also I try to use my healthy skepticism such as mutual funds claims they
have a fund that does this or that and beats market

I think if you can do it why cant all funds? Which is more likely

1 One fund company has the secret know one else knows? Dont they all go to the same schools?
All a competitor has to do is match their funds as holdings are public and I suspect a lot do and
do not bother with the cost of research

2 They are playing a game . What they do is close their losing funds so they are not counted
then claim their aggregate beats the average and sooner or later they have funds that beat the average
10 years in a row by mere chance because they have so many freakin funds, them hawk them as great
funds with proven ability but then watch them collapse like a house of cards.
And that is the recorded history of 5 star funds


It makes no sense, none to me that you can beat the average

If it was possible then all the funds would do it then the average would
be unbeatable as the market would reach perfect efficiency as stocks
would be perfectly adjusted for risk

Yes some stock prices are inefficient but you will not find them and the argument
that some funds weed out the weaker stocks in ,for example, the TSX top 50 thereby beating the tsx 50 index
is just more marketing as separating the losers from the winners consistantly and beyond chance is impossibly hard
the proof , once again, is why does not everyone do it if it is so easy?

Then I think if professionals who run the funds need to use gimmicks to convince you they can beat the
average what chance do you or me have?

But, matching the average is easy as that is what index funds do for freakin free !! (I consider .01% free) so
why give all your profit to a mutual fund when you invest all the risk?

Let me explain my last sentence

A mutual fund takes 2.5 % The average rises 5% on average, inflation is 2.5 % on average
so you have lost all your profit , every last cent, after you put up 100% of the risk capital !!!


I just thought of something else.

You have just doubled your risk with a mutual fund!!

You not only have the market risk but the risk the mutual fund managers know WTF they are doing!

 

[Smallguy]

This is my style of investment, I like my zsp, atd, hba, Tourmaline, and love my riets Minto, apartment riets.
I do like growth etfs aswell.

 

[Zoot Allures]

Again, this is just my opinion. If anyone is interested in passive income investing or covered call ETFS, then this you tube video series is excellent. The host's name is Adriano, and he is sponsored by some ETF companies like Hamilton ETF, Brompton ETF, and Harvest ETF, so please keep this in mind.

Here's a sample of one of his videos, as there are many!!

Not a fan of derivatives like covered calls as they come at a price
derivatives go against the purpose of a market which is to put money
into companies so they can expand and create money and jobs


derivatives turn the market into a casino


Margo Robbie explains

 

[HungSowel]

TaxTips.ca - Ontario 2023 & 2024 Tax Rates & Tax Brackets

TaxTips.ca - Ontario tax rates for 2023 & 2024 for eligible and non-eligible dividends, capital gains, and other income.

www.taxtips.ca

.

In the best case scenario, you make ~50k income with ~37k from qualified dividends and ~13k regular income (taxed @ 20%) you get ~2.5k (37k x 6.86%) dividend tax credit which you apply to the ~2.5k taxes owing on the 13k (13k x 20%). It will look like you pay near 0 on your income taxes, but dividends come from after-tax profits and the typical corporate tax rate is ~25% so the 6.86% DTC means the taxes you pay is actually 18.14%, regular tax on income under 50k is 20% so you are saving 1.86% in taxes.

In all scenarios, the capital gains tax credit is much superior.

 

[Zoot Allures]

TaxTips.ca - Ontario 2023 & 2024 Tax Rates & Tax Brackets

TaxTips.ca - Ontario tax rates for 2023 & 2024 for eligible and non-eligible dividends, capital gains, and other income.

www.taxtips.ca

.

In the best case scenario, you make ~50k income with ~37k from qualified dividends and ~13k regular income (taxed @ 20%) you get ~2.5k (37k x 6.86%) dividend tax credit which you apply to the ~2.5k taxes owing on the 13k (13k x 20%). It will look like you pay near 0 on your income taxes, but dividends come from after-tax profits and the typical corporate tax rate is ~25% so the 6.86% DTC means the taxes you pay is actually 18.14%, regular tax on income under 50k is 20% so you are saving 1.86% in taxes.

In all scenarios, the capital gains tax credit is much superior.

Confusing and complex as dividend tax credit takes coporate tax paid on dividend before distribution into account
with a formula so you do not pay it all over again which is why it is believed
dividends pay less taxes but it seems like a shell game

Regardless, I suspect taxes are secondary to income generated by the market

 

[mitchell76]

TaxTips.ca - Ontario 2023 & 2024 Tax Rates & Tax Brackets

TaxTips.ca - Ontario tax rates for 2023 & 2024 for eligible and non-eligible dividends, capital gains, and other income.

www.taxtips.ca

.

In the best case scenario, you make ~50k income with ~37k from qualified dividends and ~13k regular income (taxed @ 20%) you get ~2.5k (37k x 6.86%) dividend tax credit which you apply to the ~2.5k taxes owing on the 13k (13k x 20%). It will look like you pay near 0 on your income taxes, but dividends come from after-tax profits and the typical corporate tax rate is ~25% so the 6.86% DTC means the taxes you pay is actually 18.14%, regular tax on income under 50k is 20% so you are saving 1.86% in taxes.

In all scenarios, the capital gains tax credit is much superior.

Yes, but if you're in the lowest or second lowest marginal tax rate, you pay literally no income tax in your non-registered account, due to the canadian dividend tax credit!!

It's -6.86% not 6.86%!! In other words you could have $50K worth of cdn dividend income in your non-registered acct, and literally pay no income tax on this, except for the cdn health premium!!

 

[mitchell76]

Confusing and complex as dividend tax credit takes coporate tax paid on dividend before distribution into account
with a formula so you do not pay it all over again which is why it is believed
dividends pay less taxes but it seems like a shell game

Regardless, I suspect taxes are secondary to income generated by the market

IMHO, what you pay in income tax is very important, and is overlooked by a lot of investors. IMHO, the cdn dividend tax credit is a total gift as far as income tax goes. However, a lot of investors prefer US securities or Bonds or GIC's in their non registered acct. In that case, they will be paying income tax at their marginal tax rate!!

As a side note, the cdn dividend tax credit, is only relevant in a non-registered acct. It's not applicable to your TFSA or RRSP etc.

 

[mitchell76]

Not a fan of derivatives like covered calls as they come at a price
derivatives go against the purpose of a market which is to put money
into companies so they can expand and create money and jobs


derivatives turn the market into a casino


Margo Robbie explains

Bing Videos

Yes, Covered call ETFS come at a price. However, you earn more monthly income with covered call ETFS, then even dividend ETFS etc. Also, another plus is you don't need a margin acct to buy covered call ETFS, as the professionals at various ETF companies buy the covered call options for you!! As usual, just my opinion!!

 

[Zoot Allures]

IMHO, what you pay in income tax is very important, and is overlooked by a lot of investors. IMHO, the cdn dividend tax credit is a total gift as far as income tax goes. However, a lot of investors prefer US securities or Bonds or GIC's in their non registered acct. In that case, they will be paying income tax at their marginal tax rate!!

As a side note, the cdn dividend tax credit, is only relevant in a non-registered acct. It's not applicable to your TFSA or RRSP etc.

Thanks for the valid point of what stock to put in registered account once you have bought it

You have not made a case that you should have bought it in the first place because it
was the wisest investment

 

[Zoot Allures]

Yes, Covered call ETFS come at a price. However, you earn more monthly income with covered call ETFS, then even dividend ETFS etc. Also, another plus is you don't need a margin acct to buy covered call ETFS, as the professionals at various ETF companies buy the covered call options for you!! As usual, just my opinion!!

You may have that wrong as ETFs are not buying the call they are selling it thereby generating income

covered calls generate income but the price is losing out if stock that are covered rise
and giving that capital rise in stock to the buyer

people seperate income generated through dividends or covered calls from capital
gains but $ is $ no matter how it is generated

 

[mitchell76]

Thanks for the valid point of what stock to put in registered account once you have bought it

You have not made a case that you should have bought it in the first place because it
was the wisest investment

IMHO, it all depends on the individual investor. Covered call ETFS and Dividend ETFS, are optimal for investors who are retired, or who have a relatively low income. They're definitely not the wisest investment as far as total returns go, but they will help you sleep better at night. Reason being, you know you have a guaranteed monthly income coming in, no matter what the stock market is doing.

Therefore no need to sell any down investments, as you are still getting monthly income, no matter what!!

Using a hybrid approach of covered call ETFS and dividend ETFS, will help you sleep better at night. Especially for investors who need the higher monthly income, to pay their bills etc

 

[mitchell76]

You may have that wrong as ETFs are not buying the call they are selling it thereby generating income

covered calls generate income but the price is losing out if stock that are covered rise
and giving that capital rise in stock to the buyer

people seperate income generated through dividends or covered calls from capital
gains but $ is $ no matter how it is generated

I don't agree with Ben Felix, even though he is a portfolio manager and has an MBA etc BF is the type of guy who probably earns well over $150000/yr, and therefore covered call and dividend etfs, aren't for him. BF is a more growth stock and Index ETF guy.

Also, some covered call ETFS are tax efficient. They pay out mostly return of capital (ROC), and capital gains or eligible dividends. Just too repeat, the pros buy the options in covered call ETFS for you, which is a good thing. I personally don't have the ability or knowledge to buy or sell options on my own!!

 

[mitchell76]

There is no free lunch as they charge to actively manage covered calls and in the big picture they lose potential upside



Your opinion sounds thought out so I appreciate it but, although you need a million $ to get into PWL, Ben Felix of PWL
recommendations are meant for everyone.

Although his podcasts help him get wealthy customers he is honest about his position with PWL (imagine that a honest financial advisor!)
I feel he is speaking to the common man as well as the rich.

He constantly refers to Buffet and says he , or any advisor, is not needed if you stick to indexes, but most people


need him because they lack discipline to learn and to save and to not panic .

PWL charges 1% plus the charges of the index funds

1% seems worth it to me for then this disscussion is academic as PWL takes care of your money


I am still learning and the problem is the learning curve is infinite

First of all, I totally respect Ben Felix, but I don't agree with him. Let me explain why. IMHO, Index funds like XIU, XSP, are good for investors who are married or have kids etc In other words, have someone to leave their estate to.

If you hold XIU and XSP for 20-30 yrs you will create a tremendous capital gain, as the stock market goes up, more than it goes down. However the yield on the XSP is about 1% and the yield on the XIU is about 3%. In other words the only way you can make money by holding index ETFS is by selling part of them to make a capital gain or capital loss etc. This involves making extra market decisions, or in other words "timing the market," which is a tough thing to do.

If you're divorced, single, or don't have kids, then IMHO, your much better off having a hybrid combination of covered Call ETFS and dividend etfs, especially in your non registered account. Not only is this strategy tax efficient, but you get to draw out a high income stream each month, without selling any shares. Therefore, you don't have to time the market, which is a good thing.

Also you don't have to pay a financial advisor like Ben Felix to manage your money. This is a rather easy strategy to implement yourself in a discount brokerage. As usual, just my opinion!!

 

[Zoot Allures]

I solved the market timing thing !

here is the secret to retirement investing !

and it could not be easier!

No dividends, no covered calls, no market timing required

Put money you need for a decided time frame into GIC , say maybe 5 years to allow for a market cycle,
the rest goes into high voltility index like the S&P.

If you need money you draw from the GIC and a robot rebalances every day
and you never touch the S&P monies (the robot does)

As market goes into bull the robot rebalances and takes monies
out of the S&P into the GIC IE you have sold high

As market goes into bear the opposite occurs and you buy low

You will get richer in retirement ! even as you spend more ! as your monies stay invested for maximum return !

This works regardless of your wealth

 

[mitchell76]

I solved the market timing thing !

here is the secret to retirement investing !

and it could not be easier!

No dividends, no covered calls, no market timing required

Put money you need for a decided time frame into GIC , say maybe 5 years to allow for a market cycle,
the rest goes into high voltility index like the S&P.

If you need money you draw from the GIC and a robot rebalances every day
and you never touch the S&P monies (the robot does)

As market goes into bull the robot takes monies out of the S&P into the GIC IE you have sold high

As market goes into bear the opposite occurs and you buy low

You will get richer in retirement ! even as you spend more ! as your monies stay invested for maximum return !

This works regardless of your wealth

I 100% don't agree with this strategy, but I'm enjoying the debate......LMAO If you need money how can you withdraw money from a GIC,when a GIC is not liquid??

 

[jeff2]

First of all, I totally respect Ben Felix, but I don't agree with him. Let me explain why. IMHO, Index funds like XIU, XSP, are good for investors who are married or have kids etc In other words, have someone to leave their estate to.

If you hold XIU and XSP for 20-30 yrs you will create a tremendous capital gain, as the stock market goes up, more than it goes down. However the yield on the XSP is about 1% and the yield on the XIU is about 3%. In other words the only way you can make money by holding index ETFS is by selling part of them to make a capital gain or capital loss etc. This involves making extra market decisions, or in other words "timing the market," which is a tough thing to do.

If you're divorced, single, or don't have kids, then IMHO, your much better off having a hybrid combination of covered Call ETFS and dividend etfs, especially in your non registered account. Not only is this strategy tax efficient, but you get to draw out a high income stream each month, without selling any shares. Therefore, you don't have to time the market, which is a good thing.

Also you don't have to pay a financial advisor like Ben Felix to manage your money. This is a rather easy strategy to implement yourself in a discount brokerage. As usual, just my opinion!!

I remember many years ago I held XSP and one year the tracking error was just horrible. Maybe it is better these days.

 

[themaxx]

I 100% don't agree with this strategy, but I'm enjoying the debate......LMAO If you need money how can you withdraw money from a GIC,when a GIC is not liquid??

Want to REALLY enjoy the debate?
Pull up a chart comparing any, or all, of the big 5 Cdn Banks to the TSE for say, the past 30 years. Post the chart here & we can all discuss. Maybe also throw in BCE and ENB, for fun.

 

[mitchell76]

Want to REALLY enjoy the debate?
Pull up a chart comparing any, or all, of the big 5 Cdn Banks to the TSE for say, the past 30 years. Post the chart here & we can all discuss. Maybe also throw in BCE and ENB, for fun.

I would be happy to do it, but I'm terrible at posting charts. If you would be good enough to do it, I would really like to participate in the discussion!!