Since the success of the Canadian best seller Stop Working: Here’s How You Can, Derek Foster has written another book called “The Lazy Investor“. I was excited to receive his latest book for review as I really enjoyed his first book.

It’s not surprising to see that Fosters dividend investment strategy is followed by many Canadian investors as he has had great success in retiring at the very young age of 34.

What is his strategy? Foster strongly believes in putting your investment dollars towards steadily increasing dividend paying companies. There are a few reasons for this:

  1. It makes the investor invest for cash flow thus keeping emotions out of stocks buying/selling.
  2. It’s recession resistant
  3. Dividends are taxed favorably compared to other forms of cash flow
  4. Inflation resistant as he only picks stocks that have a long history of annual dividend increases.

What are some examples of strong dividend companies?

Who is Derek Foster?

Derek Foster is known as Canada’s Youngest Retiree when he retired at the young age of 34. How did he do this? Through starting young and sticking with his investment plan of buying strong dividend paying stocks. He feels very strongly about his strategy and rightly so as he has achieved great success. His first book Stop Working: Here’s How You Can is a Canadian Best Seller and his second book is well on it’s way to achieving the same success.

Foster currently lives off and supports his family through dividend distributions, book sales, and a rental property. Note that he retired before publishing his first book. You can read more about him in my book review of Stop Working: Here’s How You Can.

What are the main points made by the book?

  • Starting off with SPP and DRIPs – For those of you who don’t know a lot about SPP (stock purchase plan) and DRIPs (dividend reinvestment plan), Foster does a great job in explaining step by step how to set one up. He goes on to list the few companies in Canada that offer both SPP and DRIP (the combination is important). He also includes a small section on American based SPP and DRIP.
  • Stay in Canada – Foster is a believer in sticking with Canadian dividends due to the tax advantages and currency risk. Most investors would question this lack of diversity, but Foster follows the trend that most wealthy people have their money tied into a single company.
  • Investing in recession proof, consistently increasing dividend based Canadian stocks – This one is self explanatory, the book picks some of his favorite dividend paying stocks and income trusts.
  • Retirement requirements are less than you think – Foster believes in the same retirement principle as “Why Swim with the Sharks“. That is, when you retire, you’ll have fewer expenses to contend with. My early retirement series is based on this conclusion also.
  • Being frugal with non life enhancing expenses while being less frugal on life enhancing costs – This is similar to my “separate your needs and wants” principle. Foster basically is extremely frugal on non life enhancing expenses (taxes), and not as frugal on life enhancing expenses (vacations).
  • Teaching Children about Money – I read this section of the book with great interest as we’re expecting. Foster writes about his opinions on the right way to teach a child about money. You guessed it, through dividend investing and spending the dividend payments as an allowance.

What I liked?

  • The book is extremely easy to read and shows how a beginner can kick start a portfolio with very little upfront money.
  • I appreciated how detailed the book was in explaining how to set up a SPP and DRIP, how to transfer it over to a discount brokerage, and including other frugal ways to purchase stocks.
  • I liked the idea of teaching a child about money through investments. I’m going to try a few of these strategies with the little one coming.

What I don’t agree with:

  • The book neglects to point out some of the risks involved with Fosters style of investing. There isn’t very much diversification, which for some, it’s too many eggs in one basket.
  • Foster doesn’t believe in RESP‘s much like he doesn’t believe in RRSP‘s. I’m the opposite, I think the RESP program is great where the government basically gives you free money for your childs education.

Final Thoughts:

  • I really enjoyed this book and recommend it to anyone just starting out on their investment journey. The book shows how anyone can start a portfolio with very little money and grow it into a real income base in future years.
  • If you are interested in picking up this book, you can get a copy at Chapters or directly from Derek Foster.

Find out how you can save an additional 4% on this book through Chapters.

You can read other reviews by:

  • Canadian Dream: Free at 45
  • Quest for Four Pillars

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FT

FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.
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Frank Thomas
10 years ago

Great book. It’s definiltey a good intro to investing into small caps.

canabiz
12 years ago

Thanks for the advice FT, there are more discussions on Derek’s discussion over at the Canadian Business and Financial Webring forums, should you or other readers are interested. Some of the stuff discussed is way over my head and I like to stick to the K.I.S.S principle but it makes for good reading.

We will have to approach the SM with caution, we would like to clean up some outstanding debts and reduce our mortgage principle first before making the leap. It has certainly been an enjoyable learning curve so far. Thanks again and keep up the great job!

Ray
12 years ago

I think his no bond allocation has also caused him more looses than a more diversified portfolio would have. a 100% stock portfolio a very risky.

canabiz
12 years ago

FT, Derek Foster has sold everything he owns in his brokerage account, as per this article from the Star

http://www.thestar.com/business/article/600754

I would love to see you dissect this decision, from a man who is an average Joe like the rest of us but who has made it big and now apparently hit some rough patches, just like everyone else I might add.

I believe this story will have some significant impact. We recently got our first HELOC and my wife was tempting to take some money out and buy dividends-paying stocks, as a form of simplified Smith Manoeuvre, but we are not so sure about that at this point. Derek’s story certainly doesn’t help matters.

Looking forward to your (and others’ thoughts) on this.

Cheers!

Book Review: The Lazy Investor
12 years ago

[…] Other reviews: Michael James on Money, Four Pillars, Canadian Dream and Million Dollar Journey. […]

Bill
12 years ago

Works very well in the states, alot of companies pay high dividends.

This and That
13 years ago

[…] Million Dollar Journey reviews Derek Foster’s new book – The Lazy Investor. […]

Telly
13 years ago

TMW, the only issue is that dividends are actually taxed more preferably in Canada than the US, especially if your regular income is so low such that Canadian dividends are taxed at zero. This is what makes Foster’s strategy unique.

Mike, you’ve got me all figured out. ;) Now, if I could just get a little of that book money….

thickenmywallet
13 years ago

As you mentioned Foster’s strategy may work better if you are a US resident than Canadian in that most of the good dividend paying stocks in Canada are in the financial sector while in the U.S. you can spread your eggs out a little better in terms of industries and sectors.