Piggy bank and chains on wooden background

Piggy bank and chains on wooden background

Of all types of investment income, you pay the lowest tax on deferred capital gains. Paying tax 20 years from now on a capital gain is much better than paying tax on a dividend or capital gain this year. How do you invest for deferred capital gains?

In recent years, many investors have been focusing on dividend investing, because of a search for yield and preferred tax rates. However, the lower tax rates only apply to Canadian corporations, so investing for dividends gives up global diversification. You end up heavily over-invested in Canada.

There are other disadvantages of dividend investing. Dividend paying companies are usually mature and slow growing. Due to the popularity of dividend investing recently, many dividend paying companies are quite expensive today.

Investing for deferred capital gains offers significant benefits. They are generally taxed much lower than Canadian dividends and do not limit you to Canadian or mature companies.

Capital gains and Canadian dividends are both taxed at lower rates than interest. Dividends are taxed lower for lower income Canadians and capital gains are taxed lower for higher incomes.

However, deferred capital gains are taxed at a lower rate, plus the tax can be deferred for years (or decades) into the future. Paying tax on dividend income every year bleeds away your capital to invest. Paying tax 20 years from now on a capital gain is obviously much better.

If you have investments outside your RRSPs and TFSAs, such as Smith Manoeuvre investments, here are 6 ways to invest for deferred capital gains:

  1. Buy-and-hold: Capital gains are deferred until you sell. This means you need to buy investments that you are comfortable holding for many years. This long term perspective is a good idea in investing anyway. Studies show that buy-and-hold investors tend to outperform frequent traders. One great example is Warren Buffett. His holding period for almost all his holdings is “forever”.
  2. Invest in funds: A little known fact is that people that pick their own stocks pay a lot more tax. Mutual funds, seg funds, pooled funds and ETFs get tax credits every year based on the capital gains allocated to investors that sold the fund at a gain. It is called the “Capital Gains Refund Mechanism” (CGRM).

This is a technical accounting thing, but very significant. In short, if the capital gain on stocks sold inside a mutual fund were taxable and then the growth of the mutual fund was also taxable, there would be double tax on the same gain. To avoid this, every time an investor sells a fund at a gain, the fund gets a tax credit for that gain.

This means that the long term holders of a fund usually get a steady stream of capital gains tax credits. Fund investors can often invest for 20 or 30 years with their fund being up 300% or 500% and all holdings in the fund turned over a few times – and yet the fund investor may get little or nothing in capital gains distributions (T3 or T5 slips) at year-end.

If an investor owned the underlying stocks directly, he would have to pay close to 20% of his capital in taxes over the years. Investors that own their own stocks or are in “separately managed accounts” (SMAs) with a broker are often considering the tax consequences every time they sell a stock.

As an aside, high net worth investors are often marketed the worst products. Brokers market separately managed accounts to high net worth investors claiming tax advantages, because they are not “pooling their tax position”. However, the fact is that investors in SMAs usually also pay far more tax. Pooling your tax position is highly beneficial. It gives your fund a steady stream of CGRM tax credits.

In short, fund investors that own their fund longer term benefit from significant CGRM tax credits their fund receives.

Here is an article on CGRM: https://edrempel.com/capital-gains-refund-mechanism-why-mutual-fund-and-etf-investors-potentially-pay-less-tax/.

  1. Funds that buy-and-hold: Funds that tend to keep their holdings longer tend to have lower capital gains to distribute. From my experience, most All Star Fund Managers have a longer term perspective on their holdings. This means smaller or no T3 or T5 slip at year-end.
  2. Corporate class mutual funds: This type of mutual fund can net the gains from one type of fund against losses in another fund to avoid having to distribute capital gains. This works best when a fund company has many sector and regional funds in their corporate class structure, not just core broad-based funds.

In short, corporate class mutual funds usually have smaller or no T3 or T5 slip at year-end.

For example, if a fund company has a resource fund, a technology fund, a health care fund, an emerging markets fund, a US growth fund and a small cap value fund, most likely some of these funds will have some holdings that are down each year. These losses can be triggered and used to offset taxable capital gains on the funds that went up. For example, the losses on some stocks in a resource fund can be offset against gains in the tech fund that is within the same corporate class.

You can also switch from one fund to another without triggering a capital gain. It is useful not to have to worry about tax consequences every time you reallocate your portfolio.

Unfortunately, the tax benefit of switching funds is being restricted as of January 1, 2017. For example, until the end of 2016, you can switch a Canadian dividend fund to a US growth fund without triggering a capital gain, if both are in the same corporate class. After 2016, you will still be able to switch tax-deferred between 2 funds with identical holdings, such as Class A fund (regular fund) and a Class T fund (pays a distribution). The offsetting of gains between funds is also not affected.

After you retire and need to receive cash flow from your investments, there are 2 methods that focus on deferred capital gains – T-SWP funds and “systematic withdrawal plans” (SWPs). Retirees often think they need income, but what they actually need is cash flow.

Focusing on deferred capital gains can be even more important after you retire, since it can also reduce or eliminate clawbacks on government benefits, such as GIS or OAS. The difference can be massive! For example, a retiree receiving GIS pays 70% on dividends (20% tax plus 50% GIS clawback), but 0% on T-SWP payments, and usually 3-7% SWPs.

  1. T-SWP funds: After you retire and are taking income from your investments, a T-SWP can give you tax-deferred income for 12 to 20 years. For example, a T8 fund will pay out 8%/year which is all considered to be “return of capital” (ROC). It is not taxable until your book value reaches zero. This is in about 12 years for a T8 fund and 20 years in a T5 fund.

You can choose one year every decade or two to trigger the gains, and then restart your tax free cash flow for another 12-20 years.

If you receive a year-end T3 or T5 slip, it is still taxable. However, the monthly payments you receive are all not taxable. They are deferred capital gains.

These funds create a tax problem for the Smith Manoeuvre, though, since they reduce the tax deductibility of an investment credit line, if you borrowed to buy the fund.

  1. Retirement income by SWP: When you retire and are taking income from your investments, you can sell some investments every month to give you the cash flow you need. This is called a “systematic withdrawal plan”. Only the gain portion of the amount you sell is taxable. This allows you to continue to defer tax.

For example, if you invested $100,000 and it tripled to $300,000 when you retire, you could sell $15,000 each year to provide some retirement income. Of the $15,000 you receive, $5,000 is your book value, so only the $10,000 gain is taxable. It is a capital gain, so only $5,000 is added to your taxable income. This is almost definitely lower tax than receiving $15,000 in dividends.

In short, deferred capital gains are the lowest taxed type of investment income. They are taxed at lower rates, plus you can defer the tax for years (or decades) into the future. Paying tax 20 years from now on a capital gain is obviously much better than paying tax on a dividend this year.

It takes some planning to invest for deferred capital gains, both before and after you retire. The tax deferral can be a big benefit in your financial plan.

 

 

Ed

39 Comments

  1. Ben on September 12, 2016 at 1:36 am

    Ed, thank you for this post. Looks like you took a well deserved break from posting.

    Very insightful post.

    Cheers,



  2. Ed Rempel on September 12, 2016 at 2:15 pm

    Hey Ben.

    Thanks for the kind words. I have been enjoying the awesome summer here in Toronto.

    These are the biggest tax savings in investing. Lower tax than dividends.

    Glad you found the article useful, Ben.

    Ed



  3. Andy on September 21, 2016 at 6:21 pm

    Hi Ed,

    I’m trying to figure out the investment-related tax implications that exist for us investors upon retirement, and I’m *clearly* not in-the-know since some of the points you make in this great article seem way above my head.

    For instance, if we are in our retirement years, and have defined pensions, along with our investment nest egg, what will the best strategy be to withdraw a portion of the nest egg (e.g. to buy a retirement property or something along those lines) in terms of minimizing taxes?? Is there any way to significantly reduce the enormous tax hit?



  4. Ed Rempel on September 24, 2016 at 2:44 am

    Hey Andy,

    Great question. That is part of why I wrote this article. Other than TFSA, the lowest tax on income after you retire is on deferred capital gains.

    The best way to get them with your retirement income is with a SWP (systematic withdrawal plan) or with a T-SWP fund (like a T8).

    With a SWP, you just sell a bit of your investments each month. This can be automated with mutual funds or seg funds. The amount you sell is partly your original investment and partly the growth. Only the portion that is growth is taxable. It is a capital gain, so it is only 50% taxable.

    The example in the article is $100,000 that tripled to $300,000 by the time you retire. If you sell $15,000 each year for your retirement income, you only have to add $5,000 to your taxable income. You probably only pay $1,000-$1,500 on tax on the $15,000 income.

    Some people worry about this because they are selling a bit of their “principal”, but “principal” does not really apply with equity investing. You can withdraw 3-5% per year of your investments, depending on how it is invested and whether you want to increase by inflation. It should be sustainable as long as you live. I researched this personally through 150 years of stock market history.

    For seniors, being tax efficient with investments often has a bigger effect than for working people. This is because of clawbacks on various government programs, such as the 50% GIS clawback or the 15% OAS clawback. These clawbacks are in addition to income tax. The table in this article illustrates this: https://edrempel.com/tfsa-vs-rrsp-clawbacks-income-tax-on-seniors/ .

    Other ideas that are popular today all involve higher tax. This includes a rental property of dividend investing.

    With a rental property, the rent is fully taxable, like interest. You get some deductions, but the profit (if there is one) is 100% taxable. It is not tax-preferred like capital gains and is taxable every year, not deferred.

    The profit on a rental property that is taxable can often be more than the cash you get from it. This is because you have to pay the full mortgage payment, but can only claim a tax deduction for the interest portion.

    Dividends are normally tax higher than capital gains for higher income people and lower for lower income people. Since most seniors are at low incomes, you would think dividends would work well. The issue is that dividends are a disaster with the clawbacks.

    For example, for a senior making $20,000/year, dividends are actually a negative tax. A $1,000 dividend reduces income tax by $70. However, the dividend is “grossed-up” by 38% (a quirk of how dividends are taxed). This means that a $1,000 dividend shows on the tax return as $1,380 of taxable income. A senior making $20,000 is subject to a 50% clawback on the $1,380, which is $665.

    In short, the senior making $20,000 that receives a $1,000 dividend reduces her income tax by $70, but loses $665 of her GIS over the next year. The net cost is 59%. Low income seniors are the highest taxed Canadians and dividends can be the worst thing for them.

    In your case, Andy, with the pension you would not have a GIS clawback, but could be affected by the OAS clawback.

    With only the odd exception, you will pay the least tax (or tax plus clawbacks) on a SWP after you retire, since it takes advantage of the lowest taxed investment income – deferred capital gains.

    This is a complicated topic, so please ask if you have any questions at all, Andy.

    Ed



  5. investment manager on April 20, 2017 at 7:39 pm

    Everything is very open with a really clear explanation of the issues.

    It was truly informative. Your site is very helpful. Thanks for
    sharing!



  6. Chrissy on September 22, 2017 at 12:51 am

    Hi Ed,

    I’m really glad I found your site after I watched your presentation at the Canadian Finance Forum (really great, info-packed presentation, BTW!)

    This article is particularly helpful in clarifying what I’d always believed about capital gains vs. dividends. Thanks for going to the level of detail that you have both in the article and the comments.

    I’d like to ask a question: what are your thoughts on deferred capital gains in a non-registered account vs. RRSPs? Since RRSPs withdrawals are fully taxed, is it worth forgoing the tax sheltering and deductions in order to take fully advantage of the lower tax on capital gains?

    Or are the benefits of RRSPs today still more valuable than tax savings later?

    Thanks in advance for your time!



  7. Ed Rempel on October 8, 2017 at 10:36 pm

    Hi Chrissy,

    Excellent and inisightful question.

    Sorry to be slow to respond. I had a family health emergency taking a lot of my time.

    RRSPs give you a tax deferral, plus you can gain from the difference between your marginal tax bracket when you contribute vs. your tax bracket when you withdrwaw.

    Non-registered investments focused on deferred capital gains can give you a similar tax deferral, plus low taxes on the gain deferred far into the future. You probably won’t get a 100% tax deferral, like an RRSP, but you can get close to it – say 90-98% with very tax-efficient investments.

    Assuming you will be in a lower tax bracket after you retire than now, RRSPs will usually be better. They give you a 100% tax deferral plus a gain from the difference in tax brackets now vs. after you retire.

    Non-registered investments focused on deferred capital gains can give you the deferral and a low tax rate. There will still be some tax, though.

    To give you a clear picture, if you just calculate what your investments would grow to from now through your retirement ignoring any taxes, RRSPs can give you more than that figure, while deferred capital gains will be less than that figure (although not much less).

    To know for sure, you would need to know your marginal tax bracket at which you contribute to your RRSP over the years and through your retirement when you withdraw them.

    A critical issue with RRSPs is how you use your tax refund. There are 3 main uses:
    1. Spend your refunds.
    2. Invest your refunds.
    3. Gross up your refunds.

    If you spend your tax refund every year, investing in deferred capital gains investments is clearly better.

    If you gross up your refunds, the benefit of RRSPs is great than if you invest your refunds. Here is an article that explains it: https://edrempel.com/rrsp-gross-strategy-easily-contribute-40-70-rrsp/ .

    Let’s assume you invest all your tax refunds. If you are in a 40% marginal tax bracket now and a 30% after you retire, your RRSPs gain that 10% difference. Your deferred capital gains investments can have a simlar deferral and will be taxed at only 50% of the 30% tax rate, but they will still always result in some tax.

    In short, RRSPs 40% refund less 30% future tax. Deferred capital gains no refund now and 15% future tax.

    The other major factor is clawbacks of government benefits after you retire. They can put you into a higher tax bracket after you retire than now. In that case, RRSPs are penalized by the higher tax bracket, so your deferred capital gains investments are likely quite a bit better.

    In a financial plan, all these details are worked out specifically for you.

    I hope that is helpful for you, Chrissy.

    Ed



  8. Chrissy on October 9, 2017 at 1:52 am

    Hello Ed, I’m so sorry to hear of your family emergency. I hope everything is okay now. You’re very kind to take the time to reply to my comment at such a busy time in your life.

    Like your articles, this comment is so value-packed. You certainly have a knack for distilling complex calculations and concepts into a digestible, actionable piece of education.

    Thank you, not just for answering my question, but going further and discussing the RRSP gross-up strategy (which I’m delighted to say we’ve been able to implement the last few years) and detailing the math to figure out the difference between RRSP vs. taxable investing now and in retirement.

    Your readers are very lucky to have this wealth of resources on your site. I’ll be sure to spread the word about you on the various financial forums and groups I’m part of. Thanks again!



  9. Ed Rempel on October 9, 2017 at 11:48 am

    Thanks for the kind words, Chrissy!

    Ed

    [P.S. The name change was made last night.]



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  11. Bruce Bunker on November 18, 2017 at 11:50 am

    I am having a lengthy standoff with TDWH over T8 funds. We were heavily invested in T8 without full knowledge of the deferred capital being built up (more like down) in the book value for 5 years. TDWH was not reporting the book value with imbedded ROC that was available at the various funds, just the traditional book value from buys and sells. We did not discover the real book value until we left TDWH for RBC. I saw an internet article once that said “HSBC is the fourth financial firm in Canada to make payments to clients after discovering calculation errors affecting fees or mutual fund valuations over the past 2 years. The other 3 cases involved CI Funds and 3 subsidiaries of Toronto-Dominion Bank”
    I would appreciate any comments.



  12. Ed Rempel on November 18, 2017 at 10:31 pm

    Hi Bruce,

    Sorry to hear what happened to you. The actual advice you were given may or may not have been good advice for you, but clearly you were not told about the tax consequences.

    Taking income from a T8 fund or taking it as a systematic withdrawal plan (SWP) are 2 options for receiving cash flow tax-efficiently. Both options focus on receiving deferred capital gains. The best choice depends on your tax position this year and future years. Effective tax planning can create an effective strategy for you with the right choice (or combination).

    T8 funds generally give you less tax now but more later. The cash flow you receive can be mostly or fully tax-deferred (because it is ROC) for the firdst 12 years or so, but it reduces your book value on the investment. There is a tax hit coming, though. Once your book value hits zero, 100% of the cash flow you receive is a capital gain. In addition, when you sell, your book value is zero, so the full proceeds of selling are a capital gain.

    Unfortunately, many advisors are focused on investment sales and don’t disclose the tax consequences. The tell their clients the cash flow is “tax-free” (when really it is tax-deferred) and don’t bother to mention the tax hit coming down the road. This is what seems to have happened in your case.

    If the full tax consequences had been disclosed to you, the T8 fund might have been the best choice (I would have to know your full situation to know.), but that does not excuse the fact that you were not told about the tax consequences.

    Many companies don’t record the book value accurately with T8 funds, but often have disclosures on their statements that you are responsible for recording your taxable investment income accurately. If the company does not record your book value accurately, you are still expected to track it yourself for tax purposes.

    With proper records, your capital gain now may not be as large as you think. The monthly payment you received was tax-deferred ROC, which reduces your book value, but only to the extent that it is not taxable. Check your T5 slips to see how much was taxable. Your book value is only reduced by the non-taxable portion of the cash flow you received.

    Whether or not you can make a complaint against them depends on your situation. They likely have disclosures in small print to put the tax onus on you. You may also not have really lost money, just paid tax in different years. The failure to disclose consequences to you is still a big issue and may have affected your decision to buy T8 funds at the time. However, if you have not actually lose money over all the years combined, you may not have a strong case for compensation.

    The calculation errors for the 4 companies do not relate to the T8 income option, as far as I have seen. A few companies had unintentional errors in how they calculated their MERs, but not specifically anything to do with T8.

    I feel for you, Bruce. It sounds like you received an investment sale pitch, not proper advice when you bought the T8 fund.

    Ed



  13. Bruce Bunker on November 19, 2017 at 2:47 pm

    Your reply was very responsive and helpful. I even learned more about T8s. I pulled out of TDWH in frustration, but now realize that T8 funds are perfect for TFSAs (I think). I still think it is wrong for TDWH to sell T8s and not disclose the declining book value. It is also poor that T8 funds disclose taxable income on T3s and T5s annually but do not report ACB annually unless asked or an annual capital gain summary unless asked. Our TDWH advisor did not give us that important advice while collecting over $30,000 in trailing fees. I think the culture of the financial institutions is lacking in full and honest disclosure. They surround themselves with walls of fine print and legal lingo to protect themselves from any liabilities caused by their incomplete reporting and/or advice. I am sad that Jim Flaherty has passed away. I think he started the CRM2 ball rolling but it hasn’t rolled far enough to clean up all the smoke and mirrors. I am surprised that OSC and CRA are not interested, since this gap in reporting income is big enough to drive a truck through. You have impressed me, so I’ll have to look at your material more closely.
    Thanks



  14. Ed Rempel on November 21, 2017 at 12:37 pm

    I agree with you, Bruce.

    T8 funds are a tool with advantages and disadvantages. They are very tax-efficient in some cases, but not others.

    The financial industry is dominated by investments sales people that like to tell you the benefits, but not the disadvantages.

    Many companies have started to use a “T8 Disclosure” form for anyone investing in them, to make sure they understand them, but the form is not mandatory or standardized.

    T8 funds are sometimes the most tax-efficient option for non-registered accounts. In TFSA or RRSP, you don’t get the tax hit on sale, but you also don’t get the capital gains deferral. T8 funds adjust your cash income automatically every year, but it is easier to choose the exact amount of income you want to receive using other methods, such as SWPs.

    Ed



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  22. […] of RRSPs and TFSAs, deciding how much to withdraw from your RRIF, TFSA and investments each year, investing tax-efficiently for deferred capital gains or dividends, using tax-efficient withdrawal strategies such as SWPs, using “T-SWPS” to defer […]



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  26. james on February 13, 2019 at 2:25 pm

    Hello, Ed

    Could you please provide some examples of quality Non- Registered “Deferred Capital Gains” investments?
    ie. ETF’s vs. Equity stocks?
    Also, Do only Canadian holdings qualify for the tax deferral?

    thnx

    james



  27. Ed Rempel on February 27, 2019 at 11:54 pm

    Hi James,

    The best quality “deferred capital gains” investments are stock market investments with low or no dividends that you will want to hold for the long-term.

    They could be individual stocks with no or low dividends that you want to hold long-term. They could be broad-based equity ETFs. They could be mutual funds, especially corporate class mutual funds, with low turnover, low dividends and a great fund manager so that you want to hold the fund long-term.

    There are some mutual funds structured to avoid any taxable distributions at all, so all tax is deferred until you sell.

    You can have very tax-efficient retirement cash flow by selling your tax-efficient equity investments systematically. Invest for capital gains, not income, to save tax.

    Ed



  28. Harry Wong on March 12, 2019 at 9:02 pm

    Hi Ed,

    Your example above reminds me of the self-made dividend withdrawal I read/heard from your other sources of information. Now I have a clarifying question, if you don’t mind. Aside from the taxes resulting from the capital gain portion, the dividend will also add to the taxes (grossed up etc as in the example above, as in general stocks produce dividend distributions). Thus, even though the retirees decide not making any withdrawal from his taxable accounts in some years, his dividend income will always create a tax which will result in some clawback to his GIS payment. Is this accurate?

    Thank you for taking the time to read this comment.

    Harry



  29. Ed Rempel on April 13, 2019 at 10:14 pm

    Hi Harry,

    Yes, it is correct that dividend income will always create taxable income. If a senior has no other income, any dividend will result in clawback of GIS income.

    For example, dividend investors argue that you can make almost $60,000/year in dividends with no tax. What happens, though is that $60,000 in dividends is grossed-up and and shows as $83,000 income on your tax return. You lose all your GIS plus some of your OAS. The dividends have cost you at least $13,000 in government benefits.

    You don’t have this problem with self-made dividends. You sell $5,000/month of your investments and get $60,000 of cash flow. If your investments have doubled up until now, your taxable income is only $15,000. You still get some GIS and all of your OAS.

    You can plan to crsystallize all your capital gains one year, and then self-made dividends give you essentially zero taxable income for quite a few years.

    In short, $60,000 dividends is $83,000 taxable income. $60,000 self-made dividends is between $0 and $15,000 taxable income.

    Ed



  30. Harry Wong on April 15, 2019 at 11:28 am

    Thank you for the response Ed. However, I realized I didn’t make myself clear in my question.

    I think I am looking for clarity as to what defines a dividend withdrawal from the taxable account. Every quarter I get dividend and this sits in the Cash bucket of the taxable account. When I sold stocks, the proceeds also go towards the same Cash bucket of the account. When I make a self-made dividend withdrawal, how do I define the money is not taking the funds from the dividend payout?

    The Bank also sends us a T5 for the dividend income. T5 information will need to be entered into the income tax return. This will definitely reduce every $1 of GIS by 50% at least, for eligible cases. When you have Canadian dividend paying stocks in the holding, will you not definitely be issued a T5 summarizing all the dividends paid out to the taxable account? Will this then not impact the social benefit funds you receive?

    This was the point I was raising in my original inquiry.



  31. Ed Rempel on April 22, 2019 at 11:20 pm

    Hi Harry,

    If I understand your question right, the point is that tax is not based on when you withdraw cash from your non-registered account. It is based on either dividends when paid (and grossed-up) or capital gains triggered on sale for self-made dividends.

    Your taxable income is affected by the money coming out of the investment (and into the investment cash account), not when you take the cash out.

    Does that answer your question, Harry?

    Ed



  32. Harry Wong on April 23, 2019 at 10:03 am

    Thank you Ed for your continued response.

    All along I have been under the impression that the taxable income from the dividend payout will remain to be there even when you have sold some equities resulting in capital gain taxable income. How does the self-made dividend withdrawal suppress the dividend taxable income, Ed? The assumption here is the taxable account portfolio holds Canadian dividend paying stocks.

    Harry



  33. Ed Rempel on April 23, 2019 at 10:58 pm

    Hi Harry,

    You have missed the point entirely.

    Here is what you need to know. Canadian = home country bias. Dividend stocks = Premature taxation.

    With self-made dividends, you can invest in the world’s best stocks. Invest for total return. Whether or not they pay a dividend is irrelevant.

    Instead of limiting yourself to 1% of the world stocks (Canadian dividend stocks), you can get a more reliable cash flow, pay less tax and buy the world’s best stocks.

    Invest in Chinese and American growth stocks. Get a more reliable self-made dividend than any dividend stocks. You choose the self-made dividend instead of having companies determine what dividends you get. Plus pay less tax.

    Remember, dividends are taxable income – something to avoid. Dividends are fully taxed every year. Dividends are taxed higher than deferred capital gains.

    Invest for total return. Decide on the amount of cash flow you want and sell that amount of your stock portfolio every year. You will out-perfornm 100% of dividend investors over time and pay less tax.

    Ed



  34. Harry on April 24, 2019 at 10:07 am

    Hi Ed, I really did miss the point. 🙂 My portfolio holding assumption was totally off from the beginning. I guess this “invest for total return” mantra seems to be part of your Unconventional Wisdom as well … I’ve enjoyed and highly valued your lead in this investing strategy. Can’t wait to see you again in person to express my appreciation.
    Harry



  35. Ed Rempel on April 26, 2019 at 10:41 pm

    Hi Harry,

    You have fallen into conventional wisdom. Your question as I read it is: Assuming I invest only for dividends, how can I avoid dividends?

    The way self-made dividends is that you don’t havet to invest for dividends. You can buy growth stocksYou can buy equities based on proper valuation and growth methods.

    Invest for total return. Then sell the exact amount for the cash flow you want. You pay only a low capital gains tax on the portion that is a gain.

    The point is that, with self-made dividends, ALL stocks can have higher self-made dividends with lower tax than any dividend stock.

    You want the best outcome – not the best income.

    Ed



  36. Chrissy on April 27, 2019 at 1:11 am

    As always, your unconventional approach makes so much sense to me Ed. I agree with the self-made dividends approach and am so glad you share your wisdom with the world.

    I look forward to enjoying an earlier retirement (due to having always invested for total return—not for income).



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