After hearing the story about John, who retired at the age of 31, many of you have been anticipating an interview with him to get more details. Here are some questions that I had for the early retiree.
What province do you live in?
How old are you?
When did you retire?
August 2008 at 31.
What is your current net worth?
$1.7 million not including the equity in 3 corporations. I don’t include the value until it’s realized.
Can you break down your net worth by portfolio and real estate?
Only real estate is the primary residence. Bought for $320k and it’s currently worth about $400k. Contents would be another $30k to $40k. $100k in vehicles and toys.
We have $180k in RRSP’s, $100k in RESP’s/in-trust funds for two children, and $170k in a non-registered portfolio. Presently there’s about $40k in cash. There’s $180k in deferred income in the form of owner carry on sales of shares in private corporations. $20k in the form of alternative minimum tax credit. There’s $510k in shareholder loans to the 3 private corporations.
When did you start saving and investing?
I started saving very young. I came from a frugal parents who grew up quite poor on farms. A penny saved is a penny earned was something I heard often growing up. I never received an allowance, but did work on the family farm for which I was paid. All that money went into a savings account and from there into GIC’s.
I got my first real job during high school when I was 17. I ended up spending the savings and income from that job on a car. Parents weren’t that happy, but you need to “fail” on your own sometimes to appreciate the lesson. I had a paid for car in school, something not many kids did, unless it was given to them. I spent what I earned for the next couple years and even flirted with consumer debt a bit before getting on track.
Investing started with my first RRSP contribution which was made when I was 19. I wasn’t a sophisticated investor then and found myself in mutual fund on the recommendation of the bank rep.
What is your savings philosophy?
A strict pay yourself first, spend the rest mentality. Everything is/was on an automated withdrawal – rrsp, resps, etc. They came out on the same frequency as income going into the account. You never miss it.
What would you say was the greatest factor in your financial achievement thus far?
By far the greatest factor was starting my company. There are numerous tax advantages available, but the earnings potential is key. The very nature of working for someone else means you’re enriching them from your labour. Owning the company allows you to enrich yourself and means others enrich you!
How does your spouse feel about your financial fanatics?
She came from a very different type of upbringing. Shopping was recreation. You worked to spend. Her and her siblings were indoctrinated into the world of credit with their first vehicle when their mother co-signed for each of them. It took a while to, ahem, fix her, but she’s onside now.
What influence did your parents have on your financial knowledge?
They had a huge influence in terms of my over all approach to money. Frugality and delayed gratification came directly from emulating them and following my upbringing. They were big savers, but quite risk adverse – a product of their upbringing. Neither were big believers in the market or vehicles like RRSP’s. Dad always said he could get a better return by investing in his own company. Before becoming a farmer he was an entrepreneur. After my brother and I passed on taking over the family farm, he went into business again.
What are your favorite stocks/mutual funds today?
We are indexed in our RRSP and no longer contributing. The RESP and in trust money for the kids is also indexed. The only active stock picking is happening in the non-registered portfolio. It is this portfolio that will one day provide all of our income. Given the huge tax advantage of Canadian dividends, this is the primary focus, but the yields on some income trusts are also quite attractive. I presently own T, TD, TRP, FTS, and RET.A. along with some XDV. On the trust side, I have some BPF.UN, YLO.UN and XTR.
How do you pick them?
Yield is important, but so is the viability of the company. I generally like low debt, fat margins and growing income. I try to buy them on sale, but given the time line of 2-3 years to convert the shareholder loans and owner carry amounts into cash for the non-registered portfolio, it’s not always going to be possible.
Thinking in terms of owning the whole company helps. Is this something I would buy myself? I drop the zero’s from financial statement and get it down to “real” levels that make sense to me. I really like the idea of utilities – these will always be around and profitable.
I also really like the franchise trusts. If you owned the whole thing, who wouldn’t want to be a franchiser? You get paid regardless of how much money your franchisee’s make. The royalty comes right off the top. Given the investment that someone has put into their local restaurant (probably 2-3 million in the case of Boston Pizza) – they’re highly committed to the business. Even a down turn in the economy that squeezes their profit or maybe makes them lose some money in the short turn – they’re not going to bail on their investment and all along the way – they’re paying me royalties.
If you were to give some financial tips to someone just starting out, what would it be?
Set goals and don’t stop until you achieve them. Pay yourself first. Don’t let your income determine your budget. A higher education is something you can always fall back on, even if you never use it. Owning a business isn’t for everyone – we’ve all heard the stats about how many fail, but if you’re young and just starting out, what do you have to lose?
Is retirement what you thought it would be?
Retirement has been interesting. Doing “nothing” is harder than it seems. The very things that drove me to get to where I am are proving to be difficult to turn off. School ends for the kids in a few weeks and we’ll have true “freedom” for the first time – well 2 months worth anyway. We’d like to travel more, but with 2 kids in school, it’s pretty much impossible.
What is your retirement investment strategy?
My goal is $2 million in book value in the non-registered portfolio by the time the kids are done school. That gives me about a decade. Unless the children show an interest in the business(es), we plan to have divested of them completely by then. I plan to live off the income generated by the portfolio. I don’t want to touch the capital. $2 million at book value with even a 4 or 5% yield via mostly dividends will provide more income than we could spend yearly.
Did you have a financial role model? If so, who?
My parents and my brother. Both are/were entrepreneurs.
What is your favorite financial book of all time?
Which financial web sites do you read often?
I lurk on some forums like Canadian Business, RedFlagDeals, FinancialWebring and have started to post on Canadian Money Forum. I spent a lot of time online with the company I sold in August, so I’m trying to cure my internet addiction.