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me and my money

Bob Gibb, 68, retired five years ago even though his income and pension took a big hit during his prime working years. What helped get his retirement plans back on track was boosting his savings and building a portfolio of dividend stocks that outperformed most money managers.

The Globe and Mail recently interviewed Mr. Gibb about his more than two decades of investing and five years of retirement.

Can you give us a brief history of your investing journey?

In the 1990s, I was employed as a school teacher contributing to a pension plan. That ended when a motorcycle accident left me on disability.

What eased the financial blow was that my wife had a part-time job and the insurance company let me earn some income from tasks I was able to perform.

Without much of a pension to look forward to, we started saving a good percentage of our income and investing it. By the end of the 1990s, I was building a portfolio of dividend stocks though the Dividend Reinvestment Plans [DRIPs] offered by Canadian and U.S. publicly traded companies. The inspiration came from Cemil Otar’s book, Commission Free Investing.

DRIPs reinvest dividends, without commissions. What I liked even more were the DRIPs with Stock Purchase Plans [SPPs]. They let me buy additional shares, without commissions and at 3- to 5-per-cent discounts to the market. The plans could also buy fractional shares.

As there are limits on the amount of shares that can be held in SPPs, I began buying dividend stocks in RRSPs and TFSAs after our mortgage was paid off and more money became available.

Back in the 1990s, mutual funds were popular thanks to books like David Chilton’s The Wealthy Barber – why did you choose DRIPs over them?

I had read a lot and knew how much their annual management fees could cut into investor returns over the long run. With DRIPs, my costs would be virtually zero.

I also liked the idea of using the SPPs to apply a value investing approach to buying shares in good companies whenever their prices dipped. With this approach and my cost advantage, I was able to generate better returns than most professionally managed money.

But what about death spirals like Nortel Networks – isn’t buying on the dips risky for do-it-yourself investors?

Fortunately, I was spared the experience of averaging down on a company in a death spiral. Maybe it was luck. Or maybe it was because I looked for companies with high rates of return on equity and dividends supported by strong balance sheets. This pointed me toward blue-chip companies in stable industries like banking, telecom and utilities. They aren’t struggling with cutthroat competition; they have the resources to turn things around when there is a stumble.

Is it true that reinvesting dividends is one of the more powerful tools for boosting returns?

The icing on the cake was the reinvesting of dividends. As the years go by, the compounding of returns snowballs and becomes quite significant. For example, one recent study I read found that the MSCI World Index returned 640 per cent over the 25 years to March of 2018 with dividends reinvested – versus 323 per cent without dividends reinvested.

Have there been any challenges in retirement?

My pension is small because of my years on disability. The income from government pensions is not a lot either. I should be winding down my DRIPs more and taking the cash to enjoy retired life more.

But old habits die hard. During the accumulation phase, one spends a long time being thrifty. Or maybe it’s those darn Scottish ancestors hypnotizing me into watching my portfolio grow!

So far, three DRIPs have been turned off. But this was not of my doing. Luckily for me – so to speak – the companies suspended their DRIPs and started issuing dividend cheques.

What about your RRSPs and TFSA?

Our TFSAs have dividend-paying, blue-chip Canadian stocks with reinvesting plans. We plan to start taking the dividends in cash.

Our RRSPs will probably be converted into annuities when I’m 71. This will keep things simple for my wife should anything happen to me. With annuitizing, she’d just have to collect cheques.

If the RRSPs were rolled into RRIFs, she would have to manage a portfolio of stocks and that is not her cup of tea. Nor would she would have to worry that the RRIFs’ mandatory, high rates of withdrawals will deplete her funds prematurely.

This interview has been edited and condensed.

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