Susan P. Brunner Interview – Part 1

Susan P BrunnerSusan P. Brunner has over 40 years investing experience. She started investing in the 1970’s, and by 1999 she was able to stop working and live mostly off her dividends. Susan is a dividend stock investor, and over the years she has tried many different investment approaches and strategies. When I asked her about this, Susan said that she tried them all, but dividend stock investing has been the strategy that has worked for her.

Back in April, I published my controversial post on living off dividend income – Can You Live Off Your Dividends? Susan left a couple of comments, and at that point I knew she was somebody with a wealth of experience and knowledge that I wanted to interview.

With over 40 year’s investment experience, I really wanted Susan to share her experience and knowledge with others. That is really the point of this interview, to listen to someone who has successfully been implementing the dividend investing strategy for decades. I feel the interview with Susan is both an inspiration to all investors, and a valuable insight for those of us who already are dividend investors.  Who can argue with 40 years investing experience?

Dividend Ninja:
Hi Susan, thank you for visiting the Dividend Ninja and taking the time for this interview! As mentioned in my intro I’m delighted to interview someone with over 40 years investment experience. I really think you have a lot of wisdom and prudent advice to share with others.

Susan:
I would like to thank you for having me.

Dividend Ninja:
How did you get started, what inspired you?

Susan:
I started to invest in the 1970’s in order to try to lower my taxes.  I started to read books on investing and especially books on investing in stocks.  However, in the 70’s interest rates were quite high and rising.  I started investing first in GICs and then in Canadian Savings bonds.

Canadian Savings bonds were quite interesting in the 70’s and 80’s and you could pay for them monthly and cash them in, in November each year.  I started to do this in the 80’s to buy stock.  The first stock I bought was Bell in 1982.  That was the same year I also bought a 17.25%, 5 year GIC.  So, you can see why GICs and Bonds were attractive at that time.

Once I got going, I realized that investing was a viable way of making money, so I developed a long term plan to save, stop working and read.

Dividend Ninja:
And you did stop working, and live off your investments, didn’t you?

Susan:
When I stopped working in 1999, about 50% of my money was in a trading account and the rest was in RRSPs.  Around 12% of my RRSP money was in a Lock-in RRSP with the rest in a regular RRSP.  I have read extensively, so I knew about taking money from investment portfolio for living expenses.  There is what is called the 8%, 4% rule.  That is you should invest to get a return of at least 8% and you should take out no more than 4%, each year.

Since I could not take money from the lock-in pension, I took my withdrawals from the RRSP and Trading Account.  I have a spreadsheet that shows the dividends I receive each year by account and stock.  I use this to project my dividend income over the next 5 years.  I also have a budget for each year and I use the current one to project my budgets for the next 5 years.

The thing with stocks is that there are good and bad years for the stock market.  Since I never want to be in the position of having to sell something at an inopportune time, I do a 5 year projection to ensure I will have enough cash and dividend income to cover my expenses.  Because we have just been though a recession, my cash is a bit run down, but at the end of the year or maybe early next year, I will be selling something in the RRSP account to increase its cash.

Dividend Ninja:
Susan, have you made any changes to this plan?

Susan:
Over the past 11 years, I have made a number of changes.  One, I have been shifting money from my RRSP account to my Trading Account.  Originally, I was selling stocks in both my Trading and RRSP accounts to make meet my expenses.  Now, I am selling stocks in the RRSP accounts, but buying in my Trading Account.

I have also shifted the sort of stock mix I had.  I used to have a lot more of low dividend, high growth stocks (like Saputo, TSX-SAP) and fewer high dividend, low growth stocks (like Transalta (TSX-TA or REITs).  I am shifting stocks to get an overall dividend rate of 3.5%, and this is up from my 2.5% to 3% dividend yield.

Dividend Ninja:
How would you tell others to get started?

Susan:
I think a good idea is to start small.  Start by buying 100 shares of a well-known stock and see how things work out.  I did not really understand much about investing until I started to do it as well as read about it.

Also, if you want to end up with some money for retirement, it really must be a two prong attack.  You not only have to invest, but you have to get your expenses under control.  This really means living below your means.

I also dabbled in this and that in investing.  I invested in Bonds and found out that the bond market was much more risky and volatile than the stock market.  It was also not very transparent when it came to fees.  I invested in mutual funds and found that there were far more mutual funds than stocks.  I even had investing in index funds and ETFs.  As with mutual funds, there are now more ETFs than stocks.

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People say that they invest in ETFs and Mutual Funds because they cannot decide what stock to invest in. This is just another safety in numbers idea.  They find stock investing confusing and intimidating.  But since there are such a bewildering variety of mutual funds and ETFs, are they not just changing one sort of decision for another?  Does it really get them anywhere?  At least if you invest in a well know company like Rogers or Canadian Tire they show up in the newspapers and people often discuss them, so you could get a feeling for how they are doing quite easily.

I have always found it quite incredible that people will spend more time in deciding what brand of toothpaste or shampoo to buy than what to invest in.  They hand over thousand of dollars for some investment they know virtually nothing about, but spend hours on deciding on something costing a few bucks.

Dividend Ninja:
Do you believe in using leverage or margin?

Susan:
Not really.  I never had a margin account.  However, I do have a line of credit and I have borrowed money to invest.  I have not done this extensively and I have never borrowed more than $10,000 to invest.  I do not believe in having debts.  I have bought cars and once a cottage.  However, I took out money from my trading account and paid cash.

The other advantage in having not having debts, but some savings, is that if something happens to your job, your stress level can remain good.  And, things do happen; I lost jobs, had a company I worked for go bankrupt and a company I worked for was bought out.  I think having savings gives you confidence in the future and the ability to coup with stress of something bad happening.

Dividend Ninja:
How did you cope with the 2008 and 2009 crash? Did it change your investment style?

Susan:
This was not the first crash I have been though.  It is also the second one since I stopped working.  I do have a cushion of 5 years of dividends and cash so I do not have to sell anything at an inopportune time for spending needs. I am quite comfortable with my current portfolio and I really have nothing to worry about.

I do check out any stock that stopped their dividend increases or decreased their dividends.  In the end, I did not sell anything.  You usually have to be more worried about stocks that decrease their dividends or stopped dividend increases when there is no crisis.

This crisis was the same as others.  My dividend increases slowed down.  Some stocks stopped rising dividends and some cut theirs.  This mostly happens after the crash.  It was 2010 when I had the lowest dividend income increase of just 5.3%

Stock market crashes are going to happen.  There will be ones in the future and some sector will be hit harder than others will.  I often just stop looking at the market.  No sense getting upset over something I have no control over.  And, it too will pass. The economy will again recover and the market will also recover.

Dividend Ninja:
Susan thanks so much for taking the time for my questions!  I’m looking forward to continuing the interview in Part-2.

Susan:
I am looking forward to it.

.  .  .

Just a reminder to readers the interview is continued in Part-2

In Part-2, I asked Susan what she thinks the biggest challenges are for a dividend focused strategy, her thoughts on index investing, and how she screens and tracks her dividend stocks.

You can learn more about Susan P.  Brunner from her website and follow her on twitter. See how she invests, and view the spreadsheets she uses to track Canadian Stocks:

http://www.spbrunner.blogspot.com/

http://twitter.com/spbrunner

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15 Responses to “Susan P. Brunner Interview – Part 1”

  1. Sunny

    Jun 10. 2011

    Good interview!

    Also, congrat for your appearance in the Globe and Mail, looking sharp :0)

    Reply to this comment
  2. MoneyCone

    Jun 11. 2011

    Excellent interview! Thanks Susan and DN!

    Very interesting perspective and I love the idea of a 5 year cushion. Great point about taking time to research a stock!

    Reply to this comment
  3. The Dividend Ninja

    Jun 11. 2011

    @Sunny, Glad you liked the interview, and thanks for the congrats 🙂

    @MoneyCone, thanx for posting!

    Reply to this comment
  4. Julie @ The Family CEO

    Jun 12. 2011

    I’m excited that you found a woman investor to feature. That’s something you don’t often see. And great information for those of us learning about dividend investing. Looking forward to part 2!

    Reply to this comment
  5. The Dividend Ninja

    Jun 12. 2011

    Julie, thanx for dropping by 🙂 And 40 years investing experience as well!

    Reply to this comment
  6. Dividend Mantra

    Jun 13. 2011

    Great interview. 40 years of weathering the markets provides a lot of insight that we can certainly all learn from. It’s great to see someone sticking to the plan and actually living off dividends. Looking forward to part 2.

    Reply to this comment
  7. My Own Advisor

    Jun 13. 2011

    What can I say? Great interview!

    Susan’s experience is something every dividend-investor should try to tap into, thanks for sharing Susan!

    Reply to this comment
  8. Bernie

    Jun 19. 2011

    I’m close to retirement and appreciate your blog for insightful postings like your interview with Susan Brunner.

    Much has been posted over the years regarding safe withdrawal rates in retirement years. I would think Ms Brunner has a yield on cost much greater than 10% yet does not exceed a withdrawal rate of 4%.

    Could one not safely withdraw all of their RRSP dividend income in retirement? This income should increase over time from dividend growth and should exceed inflation rates. This would also offset the need to sell off stock for more income.

    Reply to this comment
  9. The Dividend Ninja

    Jun 19. 2011

    Bernie, thank you for posting and I always appreciate hearing readers enjoying the blog.

    I’ll ask Susan to answer your question 😉

    Reply to this comment
  10. Susan Brunner

    Jun 19. 2011

    The withdrawal rate has nothing to do with yield on cost. I have read all I can on safe withdrawals rates as it is a subject I am much interested in. Unfortunately, I have not saved the articles that impressed me the most.

    As I understand the 8%, 4% rule is that you plan to make an 8% compound rate of return on your portfolio and plan to withdraw 4%. Also, in this plan is an increase each year in your budget of 3% which is considered to be the long term background inflation rate for Canada.

    It does not matter what you invest in to get the 8%. Getting a high rate of return on your investment is often offset by lower capital gains (or no capital gain).

    The implications of this are that you will leave an estate. But, it is meant to provide you with money until you die, whenever that is.

    The other thing is that you will probably not be able to make exactly 8% per year. If you invest in stocks like I do, you can make a long term compound rate of return at 8% per year. (I am actually looking at a 4% long term compounded rate of increase in my portfolio after withdrawals.)

    So, for example, you have $1M. The first year you can withdraw $40,000. The second year you can withdraw $41,200 and the third year $42,436. The fourth and fifth years would be $43,709.08 and $45,020.35.

    The first illustration is the ideal with starting of 4% withdrawal, increasing at 3% per year with 8% return each year.

    Date Portfolio
    01/01/2000 $1,000,000.00
    31/12/2000 $1,040,000.00
    31/12/2001 $1,082,000.00
    31/12/2002 $1,126,124.00
    31/12/2003 $1,172,504.84
    31/12/2004 $1,221,284.87

    01/01/2000 -$1,000,000.00
    31/12/2004 $1,221,284.87
    XIRR= 4.08%

    The second illustration is starting of 4% withdrawal, increasing at 3% per year with returns of -2%, 18%, 16%, 1% and 8.75% returns. This is probably more realistic. (Note that the Average rate of return is 8.35% on this illustration, whereas the average for the first one is 8%. Average returns are not the same as compounded returns.)

    Date Portfolio
    01/01/2000 $1,000,000.00
    31/12/2000 $940,000.00
    31/12/2001 $1,068,000.00
    31/12/2002 $1,196,444.00
    31/12/2003 $1,164,699.36
    31/12/2004 $1,221,590.20

    01/01/2000 -$1,000,000.00
    31/12/2004 $1,221,590.20
    XIRR= 4.08%

    01/01/2000 -$1,000,000.00
    31/12/2004 $1,221,590.20
    XIRR= 4.08%

    This may not be a perfect solution, but I have done fine with it and I have been through 2 bear markets since I stopped working in 1999. My XIRR since 1999 is just over 4%. This can, of course, vary year by year. However, I have never taken out more money than I have earned in total returns. It may be save to take out all income earned in a portfolio. I have seen a lot of debates on this. I think you have to consider that you will need an increasing amount from your portfolio as there will be inflation.

    Reply to this comment
  11. The Dividend Ninja

    Jun 19. 2011

    Susan, thanx! 🙂

    Reply to this comment
  12. Bernie

    Jun 19. 2011

    Thank you Susan! I also read your blog & love your stock reviews!

    Reply to this comment

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