How to laugh in the face of market danger John Heinzl Wednesday, August 22, 2007 For a guy who invested wisely and retired at the ripe old age of 34, Derek Foster isn't getting a lot of down time. In May, he moved to a new house in Ottawa. In July, his fourth child arrived. Now, at 37, Canada's self-proclaimed "youngest retiree" has found time between diaper changes to self-publish a second book. Called The Lazy Investor, the follow-up to Mr. Foster's successful Stop Working, Here's How You Can is full of good advice for investors and is a timely read for folks who suffered scrapes and bruises in the recent subprime-driven tumble. Mr. Foster's strategy isn't about "playing the market" or trying to make a bundle on a hot stock. Instead, he advocates buying shares of blue-chip companies with rising dividends and eventually living off the income. Focusing on dividends changes one's perspective on the stock market, he writes in The Lazy Investor. Instead of fearing market corrections, dividend investors welcome them as an opportunity to add to their positions at a lower cost. In effect, they get to purchase a stream of income at a discount. "This important fact was the cornerstone for me being able to stop relying on a regular paycheque at such a young age. This is the factor that will start you on your road to financial freedom," Mr. Foster says. His portfolio of 17 stocks and trusts is worth about $600,000 and generates about $33,000 in income annually. It includes such household names as Royal Bank of Canada, Manulife Financial, RioCan REIT, Canadian Oil Sands Trust, Johnson & Johnson and Wal-Mart. How can he support a wife and four kids on $33,000? Easy. He has paid off his mortgage and has no work-related expenses, such as clothing, take-out meals or contributions to the Canada Pension Plan and Employment Insurance. He also pays very little tax, because his dividends and trust income are dinged at favourable rates. And because his income is modest, he collects Canada Child Tax Benefits. The book - available at http://www.stopworking.ca - covers a range of other topics, including dividend-reinvestment plans, registered retirement savings plans and why - despite the mutual fund industry mantra about the importance of foreign diversification - you should keep most of your money in Canada. There's also a section on teaching your kids about money. With his family growing almost as fast as his investment portfolio, we figure Mr. Foster will be getting plenty of practice in that regard. Adding to equity positions When markets are going splat, it's hard to keep your cool. It's even harder to place a "buy" order. But that's precisely what many institutions were doing during the recent stock market rout, according to the latest investor confidence index from State Street Global Markets. The index, which is based on actual buying and selling patterns of the world's institutional investors, surged 13 points to 99.3 in August, indicating money managers used the selloff as an opportunity to add to their equity positions. The increase was even more pronounced in North America, where the regional index spiked 21 points to 116.5. The index covered the period from July 24 to Aug. 15. "Given the recent market dislocation stemming from the subprime mortgage crisis, this month's investor-confidence readings may seem paradoxical," said Ken Froot, a Harvard finance professor who helped develop the index. "They appear less so, however, once it is remembered that for every seller, there is a buyer. Many market participants sold heavily over the past fortnight, but institutional investors were not among them. Instead, they took the other side of the trade and accumulated assets at relatively attractive price levels." It's worth remembering the next time all hell is breaking loose on markets and you want to hit the "sell" button. jheinzl@globeandmail.com -------------------------------------------------------------------------------- Copyright © 2007 CTVglobemedia Publishing Terms of Service | Privacy Policy | Legal Policy