Never Retire Profile of the Week
Bill Gates
If anyone could retire at this time in his life, it’s Microsoft co-founder Bill Gates. He has, in fact, been reducing his role at Microsoft, and he recently stepped down from the company’s board. And with an estimated personal worth of almost $100 billion USD, it’s not like the man has to work to support himself in his retirement years. It’s more like he has too much going on, and far too many interests, to even consider retiring. At the age of 64, Gates wants to devote more of his time to the Bill and Melinda Gates Foundation, which is the world’s largest philanthropic organization. With its focus on global health, development, education, climate change and infectious disease, now, in the time of this pandemic, is the best time for Gates to never retire.
It is hard to overstate the unpredictability and chaos of the times we are living through. As we all navigate these circumstances that are unlike anything we have seen in our lives, I’m focused on the adage about controlling what we can control.
We can’t control the presence of this virus in our lives. We can’t control how others are managing their days. We can’t control the past or the future. But we can be informed about what is happening around us today. And we can make choices that impact us in a positive way.
So, to offer my devoted readers a weekly blog, here are six topics to consider: a mix of things to know and things to do that can make a difference in our lives.
1. New Flyer Industries (NFI)
This week, NFI reported a temporary reduction of their dividend by 50%. They also idled most of their projects and announced that more than two thirds of their workforce will be laid off until they restart their operations.
On March 22nd, the Richard Dri Dividend Model flashed a sell signal for the company, and at the time of writing, we are preparing to sell the stock.
I hate to sell the stock because of the capital loss it will generate, but I know how essential it is to follow the evidence – especially in these times of high emotion. Our model indicates that there are other stocks with a higher probability of recouping losses.
2. Are more dividends cuts coming?
Many clients have asked if more companies will reduce their dividends during the pandemic and how this may impact our recommendations.
These are very good questions. However, we don’t know the answers because we have not experienced weeks or months of an almost complete shutdown. So for once, I am offering here a guess not based on evidence but also, of course, not generated out of pure emotion.
I expect that other companies will decide to a) hold their dividends at current level (as many did during the financial crisis), or b) reduce their dividends and conserve cash.
If the pandemic causes a “sharp, short recession” followed by a “fairly quick rebound” (former US Federal Reserve Chairman Ben Bernanke1 March 25th 2020, CNBC), dividends growth should resume when the economy gets back to its “new normal.”
And if our models work as well as it has historically, we will be holding the stocks that recover quickly and the companies that resume their dividend growth patterns.
3. Tax harvesting
I hate losses but in long-term investing, we must accept that some short-term losses are part of the price for long-term returns.
Last year, we triggered significant capital gains from rebalancing portfolios and trimming overweighed positions. And many of our clients were justifiably upset for a higher than usual tax bill caused by the capital gains.
We stand by those recommendations, but in 2020, I expect we will have capital losses. The tax code2 allows us to offset capital losses against the capital gains of the past three years or forward capital gains indefinitely.
Bottom line, for every one dollar in capital losses, you should be able to recover 25 cents of previously paid tax on taxable capital gains (assuming a 50% marginal tax rate and sufficient capital gains in the past three years).
4. US fiscal stimulus
At the time of writing, the US Senate has agreed to pass a stimulus package of approximately $2 trillion. Yes, that’s a huge number.
According to Ray Dalio (CIO of Bridgewater Associates and one of my mentors), when interest rates are almost 0%, monetary policy alone is no longer effective. The best approach is to coordinate expansionary monetary policy with a stimulus fiscal policy.
So the Federal Reserve (and the Bank of Canada) has already stated it will provide a highly expansionary monetary program. If we get the US Senate (and, for that matter, all federal governments around the world) to provide a big fiscal stimulus, the two together will give the world time to find a vaccine for the virus, so we can begin returning to work.
Will the US (and Canadian) fiscal stimulus be sufficient, and will it be directed at the right people and companies? I don’t know, and I’m afraid no one else does.
5. Has life changed forever?
This is another great question posed by one of my clients. My answer is, “I don’t know.”
When will we feel comfortable to fly again? When will we be allowed to watch a live hockey game? When will we start enjoying our favourite restaurants? How many employees will continue working from home? Will traffic congestion no longer be a problem? Will Amazon and Walmart kill off all their competitors? Will Canada still accept 250,000+ immigrants yearly?
There are so many questions and so few answers. So why include this in a “things to know and do” blog? It is because it is important to share what’s on our minds. It is important to reach out and connect, and to take the time to listen to each other. We may not know the answers to all the questions, but we know that we’re in this together.
6. Time to conserve cash and build a bigger cushion
Here are a few ideas that may help reduce expenses and increase your cash reserve.
Defer major expenditures. Speak with your lenders and negotiate a lowered interest rate or a deferral of payments. Cancel unnecessary and pesky monthly subscriptions. Apply for a line of credit (just in case). Apply for government emergency support payments (if you qualify). Spend deliberately and intentionally. Note that our fees are also dropping because they are not a fixed dollar amount; they are a percentage of the portfolio value. So if the portfolio declines, our fees decline, saving you money. On behalf of my team and me, we hope you and your family stay healthy and safe. Remember, we are open for business, so if you have questions or would like to talk to someone about life, please call me or anyone else on my team. We will try our best to help out.
Did this article resonate with you? What did I miss? Send me a note and let’s start the conversation.
The process of finding an Advisor can be overwhelming. Our process is designed with you in mind. Its structured framework helps you make an informed decision about engaging an appropriate advisor.
Call me if you in want to map out how you can Never Retire. You can also subscribe to our Never Retire Newsletter, contact us to order a complimentary book, register for one of our events, and call us to meet with a Certified Financial Planner. We offer you a range of services from a financial plan to investment advice or helping you take advantage of our investment models. Call me at 416-355-6370 or email me at richard.dri@scotiawealth.com.
1https://www.cnbc.com/2020/03/25/former-fed-chairman-ben-bernanke-sees-very-sharp-recession-followed-by-fairly-quick-rebound.html
2https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-127-capital-gains/capital-losses-deductions.html
source https://richarddri.ca/6-things-to-know-and-do-in-these-turbulent-times/
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