How would you like to leave your job and retire early? Very early?
Derek Foster, who also is known as the "Idiot Millionaire" and "Canada's Youngest Retiree," was able to do just that. "At the age of 34 I was able to wave goodbye to the work force and walk away."
Being able to retire so early seems impossible to people. But Foster had an encouraging message for those still looking for a way to do so themselves.
His message: by following common-sense strategies that focuses on recession-proof stocks in companies that produce products people need, even an ordinary person can be in a position to retire early.
Foster, in North Battleford this past weekend for the Battlefords' Best Marketplace and Expo at the NationsWEST Field House, has filled up his "retirement years" by writing six books focusing on how people can "stop working" and earn enough money for retirement. But his schedule is his own now and he has the freedom most people dream about.
Foster himself was able to retire and live on his dividend income from stocks, even though his career consisted of several retail jobs that didn't pay well, as well as some English teaching in Asia.
He started investing in stocks when he was about 18 or 19, and "made some mistakes along the way" in the beginning, he admits.
Among those mistakes was investing all his relatively modest life savings in the company he worked for, Radio Shack, only to see the stock price tank.
But he kept reading up on stocks and what stood out for him was a line from one of Peter Lynch's books about how investors could do a lot worse than "high-dividend achiever stocks."
"Most investors, when they invest, they're treating it as a casino," said Foster. In one of his books, he gave the analogy of planting a tree and watching it grow, and then chopping it down to sell it off for firewood.
To "make a quick gain and get out" isn't his approach, he says.
"What I do, yeah, I plant a tree and let it grow, but then I want to harvest the fruit. Because then the next trek I can come back again I can harvest the fruit again and again and again."
For Foster, that meant focusing investing in high-dividend stocks, the kind of stocks that could issue a check every three months. "And then I could live on that," he said. "I'm looking for the constant cash flow."
The problem, he says, is 97 or 98 per cent of companies go through peaks and valleys. "I'm looking for what I call 'idiot-proof stocks,'" said the Idiot Millionaire. "Things that do well in all economic conditions."
He cited toothpaste as a perfect example, because that is something everyone will keep on using no matter what the economy is. "If the stock market crashes a thousand points, they're still going to brush their teeth," he said.
Foster said he read a report for Colgate that said they've paid uninterrupted dividend payments for 120 years, since 1895. "The key factor is they've increased their dividends for 51 straight years."
He cites a number of other good examples, such as the big Canadian banks, or other companies like Visa or Bell Canada where people pay for their service every month.
So through his 20s he "kept buying those sorts of idiot-proof companies" and was saving and investing, and then in his early 30s tried to figure out how much he really needed to stop working.
What too many people do, he noted, is figure they need X amount of dollars without remembering that they also earn a regular salary at their jobs.
"You don't work for free for 20 years and then get a million dollars at the end of it," said Foster. "But people treat investing that way and they shouldn't. They should say 'how much portfolio income do I need to stop working.'"
"I looked at my dividend income, and once my dividend income equaled my expenses, I no longer had to work," he said.
He says he is not so worried about the ups and downs of the stock market as long as the dividends keep coming in.
Another factor, he said, is the tax system. He looked at the Income Tax Act and realized "the worst way to make money in Canada is to have a job and work for it." There is income tax at the top marginal rate, then there is CPP, EI, and work-related expenses.
"When you earn past dividend income you don't have those expenses. So the amount you need to retire is a lot less than when you're working."
He adds that based on the Income Tax Act, if you only had Canadian dividend-paying companies in your portfolio, you could "earn more than $50,000 a year without paying a single penny in tax."
You don't need a lot of money to get started in investing, he said. When he started out he invested $200 a month, but he said you can start for as little as $50 with a DRIP account (Dividend Reinvestment Plan) as an example.
"Everybody should start. You shouldn't say 'I don't have a lot of money therefore I'm not going to start.' If you never start, you're never going to make a lot of money."
Foster was in North Battleford at the Saskatchewan Pension Plan booth at the Battlefords' Best Marketplace and Expo.
Foster was asked many retirement questions from Baby Boomers, and investigated various plans. He wrote a whole chapter in one of his books on the Saskatchewan Pension Plan. He liked it for a number of reasons.
"The fees are low, anybody can join," said Foster. As well, the "pension's portable, it comes with you, it follows the worker, it's not linked to one particular company."
On the SPP's invitation he agreed to speak at the trade show and explain how to invest and plan retirement.
His final thoughts: "Basically keep investing simple" and "keep to the simple idiot-proof investment ideas."
More information on his books, which include The Idiot Millionaire, Stop Working, The Worried Boomer and others, can be found at his website www.stopworking.ca where you can also email Foster on topics related to investing.
