Early Retirement Update With Jim The Plumber

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This week’s edition is an update on my friend Jim’s early retirement. He’s a plumber who hung up the wrenches with a $3M portfolio in 2021, shortly after his 50th birthday.

Plus all sorts of other goodies, all in a format that’s hopefully a little easier to read.

Let’s get right to it.

First off, who’s Jim?

I first met Jim about 18 months ago. He had been following my work for years and wrote in to say he appreciated all I was doing to cover Canadian dividend paying stocks.

We started talking more and more often, and I discovered he lived just a few hours down the road. So next time I was in his neck of the woods we agreed to meet up.

It was supposed to just be a quick lunch at Wendy’s, but it ended up being a long three hour conversation. I discovered Jim was not only a smart investor, but he clearly thought a lot about the world around him.

And you would’ve never realized it from looking at him. He wore a ratty old Calgary Flames hat. His shirt was well worn, and his jeans (which were purchased at Walmart) had holes in both the knees.

The longer we talked, the more wisdom he shared. So I bugged him to do a full interview, which turned into another three hour conversation. I shared that interview with subscribers in 2023.

If you haven’t read that one yet, it’s a good one. Jim told me his journey and shared tons of wisdom gained from thinking about investing while unclogging pipes. He also shared his $3M+ portfolio, right down to the last penny.

And everyone loved it.

Jim was blown away by the support, and we vowed to keep in touch so I can update y’all on his progress.

Jim’s portfolio

I won’t bury the lede, since I know the vast majority of you are interested in seeing what Jim has invested in. So here it is, his portfolio in a nutshell.

When Jim first shared his portfolio with everyone in 2023, it was worth a hair under $3M. It had struggled a bit since his 2021 retirement, and the value of the portfolio kept grinding lower as the year went on. It bottomed at about $2.7M.

But it’s surged higher ever since, led by Jim’s largest holding, Royal Bank (TSX:RY). He has owned that one since the 1990s and he told me whenever he couldn’t decide what stock to buy he’d just gobble up some more.

Jim’s Royal Bank position always gets a lot of attention when I share his portfolio. People can’t believe he would have that much wealth tied up in a single stock. This cracks Jim up; he told me it seems like “randoms on the internet lose more sleep worrying about my Royal Bank position than I do.”

He’s made a couple of small portfolio moves since we last talked. He owned some George Weston preferred shares that he sold when they hit a recent 52-week high. He also received the South Bow spinoff from TC Pipelines. That position was sold because “it didn’t offer any dividend growth.”

Two sales in one quarter is a lot for Jim. Typically he averages one sale every 18-24 months. He’s loathe to sell and pay capital gains taxes.

Jim invested the proceeds of these sales (and some reinvested dividends) into the following:

• Telus (TSX:T) - he added 500 shares

• Canadian National Railway (TSX:CNR) - he added 100 shares

• TD Bank (TSX:TD) - he added 100 shares

He also keeps at least 1% of his portfolio in cash, and that’s over and beyond any cash he might have set aside for spending.

Jim’s spending

Jim told me that after spending virtually all of his dividends for about a year after he retired, spending really slowed down. These days he takes out about $60,000 each year from his various investment accounts.

His reasoning? “We have a paid off house, two nice vehicles, family that lives close-by, and a ton of super cheap hobbies. My wife enjoys cooking and we have friends over all the time. I play pickleball and hang out with my retired buddies. Our main splurge is we spend three months a year in Mexico, and even there we share a place with our friends and eat mostly at home. Life just isn’t that expensive once you have everything paid off.”

I asked him if he’d be happier if he spent more. “I’m not going to spend more just for the sake of it. I have a great life. We want for nothing… I’ve seen the people (on Twitter) who say I need to spend more and I think they’re just projecting their own insecurities onto me.”

One of the things I admire most about Jim is how he realized how a simple life is best. So many of us don’t really understand the concept of enough and simplifying our lives, but Jim has absolutely nailed it.

The taxes

One huge reason why Jim as so much of his net worth in Canadian stocks is because of the tax treatment.

In fact, if your only income comes from Canadian eligible dividends, you can earn up to $70,000, completely tax free. And so can your spouse.

Jim realized this in about 2005 after asking his accountant some questions. It undoubtedly motivated his thinking — although he was already a hardcore dividend investor at that point already.

Jim’s strategy paid off in retirement. He didn’t pay a nickel of taxes in retirement in 2022. He did pay some in 2023 after Rogers acquired his long-time holding, Shaw Communications. He’ll also pay some in 2024 after selling his South Bow shares.

Still, Jim says that taxes in retirement are “a hell of a lot better” than they ever were when he was working.

Jim wanted me to add something else here. Yes, he says, he paid taxes on his dividends while he was still working. But he minimized those taxes by firing those dividends (plus additional contributions) into both his and his wife’s RRSP.

Jim’s a big fan of the Pareto Principle (80% of your results come from the top 20% of effort), and is especially a fan when it comes to taxes. Get the big things right, he says, and the little things cease to matter that much.

Why Canada?

One big piece of feedback Jim’s portfolio generates is his large Canadian weighting. Approximately 85% of his net worth is invested in Canadian stocks, and that doesn’t count his house or a smattering of other assets.

We already went over one big advantage of having a large portion of your portfolio in Canadian dividend-paying stocks — the taxes. So we won’t spend any time on that.

Besides, Jim disagrees with the assessment, and I do to. Once you look under the hood you see a portfolio that’s quite diversified outside of Canada.

Jim’s top five holdings are:

• Royal Bank (17.2% weighting)

• Enbridge (8.2%)

• Fortis (6.2%)

• Imperial Oil (5.1%)

• Intact Financial (4.6%)

Combined, those five stocks make up just over 41% of Jim’s portfolio.

And four out of five have significant operations outside of Canada. About 60% of Royal Bank’s profits come from its Canadian operations, with 40% coming from its U.S. and Caribbean assets. Enbridge is a North American pipeline giant. Fortis has been expanding into the United States for 10+ years. And Intact Financial has made major acquisitions in the United States and United Kingdom.

Jim’s next five biggest holdings are:

• TC Energy (4%)

• Walmart (3.9%)

• Smartcentres REIT (3.9%)

• Telus (3.8%)

• Coca-Cola (3.4%)

Two of those are U.S.-based stocks, and TC has operations throughout North America. Only Smartcentres and Telus are 100% Canadian.

Combine that with positions in other stocks with large exposure to countries outside of Canada — like Restaurant Brands, Sun Life, Power Corporation, and others — Jim figures his portfolio weighting is 60% Canada and 40% everywhere else.

VEQT, the ETF many people like for its one-product international diversification, has about a 30% weighting in Canada.

What’s early retirement like?

Jim and I took slightly different paths in our early retirements.

I immersed myself in a passion project, this newsletter. Now don’t get me wrong — I still have lots of time to travel, golf, cook, and for my various other hobbies — but my main activity is reading and talking about Canadian dividend stocks.

Jim’s early retirement has been different. He has chosen to immerse himself in his hobbies. He plays pickleball six days a week. He closely follows his favourite NHL and MLB teams. He has season tickets to the local junior hockey team. He spends time with his daughters, who both live nearby. He plans to golf more. And, as mentioned, he spends three months a year in Mexico.

Is he bored? I’ll let him answer: “There are so many things to do, I can’t imagine getting bored. I’ve always wanted to do these things, but I just never had the time. I know that eventually I’ll get old and run out of energy, so I’m trying to experience as much as I can today.”

The bottom line

Jim is about three years into his retirement, and things couldn’t be going better.

He has ample passive income. Dividend increases combined with strategic dividend reinvestment are doing the heavy lifting there.

He’s busy with hobbies, family, and friends, and he can’t imagine that ever changing. In fact, one of his daughters is about to have a baby. Jim’s very excited about becoming a grandparent, and he’s pledged to take care of all his grandkids’ education costs.

He’s kind enough to share his journey because he feels it’ll be helpful. He often says “if I, a dumbass plumber, can do this whole early retirement thing, then pretty much anyone can.”

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