Book Review: Stop Working: Here’s How You Can!

Once the money being paid to you in dividends equals the annual income you feel you need, you can retire and never work for money again.

This book is a bit of an oldy (published in 2005), but if you are new to investing and dividends, you should give it a read. There’s a few caveats that I will add, as I first read this book back in 2007 when I first started investing. The author, Derek Foster, is Canadian … and he had a bold claim that he was Canada’s youngest retiree. Now, I can smell marketing hype just as much as the next guy, so I didn’t pay too much attention to that. The title though, makes an even bolder claim. There is an implication here that Derek is going to show us how we can stop working using the strategy of said youngest retiree and implies that I too can retire young. Although this book made an impact on me as it was one of the first investing books I read, his math didn’t hold up when I read the book and I later found out that indeed, the author did not retire by following his own strategy. Instead, he made a few leveraged bets (or maybe just one?) and it paid off for him. Now, with the disclaimers aside, onto the content!

Derek makes a good point early on in the book about how financial advisors, money managers, portfolio managers, mutual found managers, and stock brokers all have one thing in common: they all make money, regardless of if you do or do not. Based on that claim, you are probably better off managing your own investments, as you can lookout for number one. By following the advice of some of the investments greats, he concludes that you should open an account at a discount broker (such as Questrade) and buy / invest in quality companies when they are on sale. Warren Buffet has been quoted many times saying to only invest in what you know and Benjamin Graham has said to ignore short term swings in the market. Derek expands on these concepts in greater detail in future chapters, but when you pull them all together, they amount to this: invest in companies you understand, buy stocks in these companies when they are on “sale”, only invest in dividend companies, choose companies that are recession proof and that have strong brand loyalty, and of course, never sell.

In terms of companies to invest in, there is an emphasis placed on the benefits of dividends that companies pay. In a lot of cases, even when the market or a sector crashes (and so too does the stock price!), many blue chip dividend paying companies can weather the downturn and continue to pay the dividend. There is a clear advantage here, as the theory is that in a market disruption, the income that your portfolio is producing will not change! We have no further than 2008 to go back to in order to check stocks for dividend cuts. During the great recession of 2008, many companies made dividend cuts or suspended them entirely. But many did not. When I started investing in stocks, this was one my criteria: the company must not have cut the dividend in 2008. Further, I heavily favoured stocks that increased their dividend that year and have a history of increasing their dividend every year for some time (commonly referred to as “dividend champions”). The author recommends that you focus on building an income stream to fund your early retirement.

Related: Stop Working too: YOU Still Can!

For stock selection, the author says to ignore short term predictions and to primarily invest in Canada because of the dividend tax credit. This of course applies to Canadian stocks held in a non-registered account (cash or margin), as there will be no tax on dividends held inside an RRSP or TFSA. How do you know when to buy? Simple: buy when the price is below the average. There are several chapters devoted to market sectors such as REITs, pipelines and energy trusts, oil and natural gas, etc.

Foster talks about how he was able to retire at age 35 in the final chapters of the book, by starting to save $200 a month at age 22. He started with mutual funds and then evolved his strategy to include dividend paying stocks. Now, here is where there is a bit of a disconnect. If you save $2400 a year for 17 years, you would only have saved $40 800. Even if your portfolio had an unreasonable growth (say double the standard 7% … 15% per year), you would not have amassed enough money to comfortably retire (in my opinion). At a 15% annual growth rate, investing $2400 a year, you would end up with almost $180 000 at the end of year 17. I knew at this point that the title of the book was a bit of a sham. It was all marketing designed to get book sales. The strategy is sound, it is one I follow to this day. But I invest a lot more than $2400 a year and I think I’m only about half way there! Derek states that although his case of early retirement is exceptional, the strategy detailed in the book is what he followed to retire… which is simply not true.

The remaining chapters of the book mostly fall around personal finance and has some sound advice, such as not carrying credit card debt, accelerating your mortgage payments by paying bi-weekly, contributing to your RRSP, and negotiating your mortgage rates. All in all, there is good value here for the beginning investor. If you haven’t opened an RRSP or TFSA account yet, this book might help get you over the edge to make that first stock purchase! For me, I read Stop Working: Here’s How You Can! back in 2007 / 2008 while I was investing in low cost index funds following the couch potato methodology (with TD e-series index funds) and it wouldn’t be until 2013 that I opened my account at Questrade and made my first dividend paying stock purchase. And I’ve never looked back!

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