The purpose of this website is to explain how Canadians can invest their savings so that the income generated by their investments will cover their cost of living, making them financially independent. The information provided on this site applies specifically to the Canadian investing and regulatory environment and may not be applicable in other countries or jurisdications.   

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Many Canadians understand the need to save and invest for retirement, but just earning a living and family responsibilities often make this difficult or impossible. Moreover, for anyone who does not have a financial background or experience, the task can seem overwhelming. It is not surprising then, that many Canadians turn the management of their retirement savings over to professional money managers, only to discover after several decades that the value of their investments is insufficent to support them in retirement and they must continue working.

 

This disappointing outcome occurs because most financial institutions and money managers make the mistake of concentrating their (and your) attention on unpredictable share price movements and capital gains, rather than on the more stable and predictable dividends. Let me explain. 

 

Unpredictable Share Prices and the Rise of Index Funds

Share price movements are volatile and unpredictable, due to a myriad of factors including market sentiment, economic conditions, company performance, geopolitical events, and investor behavior. Even the most financially stable companies, such as banks, experience volatility in their stock prices, making share price movements impossible to predict.

Research demonstrates that price volatility can be mitigated by diversifying your investments among  different companies, industries and countries. This finding led to the development of mutual funds which contain anywhere from 20 to several hundred companies and which are managed by dedicated managers, who charge a percentage of the value of the fund for their services. Mutual funds made investing in the stock markets possible for the general public so that these funds became a popular choice for several decades after 1950, as more people had extra savings available to invest.  

After a few decades, researchers found that that the majority of mutual funds underperformed their respective benchmark market indices, which prompted the creation of index funds. Index funds hold the same companies as their benchmark index, which guarantees that the fund will deliver the same annual return as the index, minus a small management fee. In the 1980s, computer programs started being used to automatically update the index funds to match any changes in the respective indices, with the result that the cost to manage index funds fell dramatically. 

For those folks who have no interest in managing their investments, index funds are certainly a convenient way of investing their savings. Unfortunately index funds suffer from a major limitation. 

The Limitation of Index Funds

The problem with index funds is that the future value of the fund is unpredictable, simply because the value of whatever market index the fund emulates, is unpredictable. For example, the following figure shows the average annual price per share of the iShares XIU index fund, from 2011 to 2025. This fund, which started trading on the Toronto Stock Exchange in 1990, emulates the S&P/TSX 60 Index and is now the largest index fund in Canada.

 

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The return on an investment in XIU will depend on the share price at the time you purchase shares of the fund, and the price you receive when you sell your shares. For example, if you bought 1000 shares of XIU in January 2015 at a price of $22.50 per share and sold them 10 years later, in January 2025, your investment of $22,500 (1000 x $22.50) in 2015 would have grown to $27,500 (1000 x $27,500), a very disappointing growth rate of 2% per year, about the same as the annual rate of inflation.

 

On the other hand, if you purchased 1000 shares of XIU in January 2020 at a price of $16.50 per share and sold them 5 years later in January 2025, your investment of $16,500 (1000 x $16.50) in 2020 would have grown to $27,500 (1000 x $27.50), an annual growth rate of 11%, which is excellent. Unfortunately, it is impossible to predict the share price movements of either the S&P/TSX 60 Index, or the corresponding index fund XIU.

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It is no wonder that many people are convinced that investing in equities is the same as gambling. And it is, if you focus on share prices and price movements, in an attempt to realize capital gains. Fortunately, there is a much more reliable and less stressful investing strategy and it begins by focusing your attention on dividends.

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The Predictability of Dividends

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The predictability of the annual dividends paid by companies varies by industry. For example, the following figure shows the annual dividends paid by Teck Resources, a Canadian mining company, from 2010 through to January 2025. As shown, the annual dividend paid by Teck Resources (TECHB) varied significantly and unpredictably, primarily because world prices for copper and zinc, which account for about 85% of the company’s production and profitability, are unpredictable.

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In contrast, as illustrated in the figure below, the annual dividends paid by the Royal Bank of Canada have increased steadily and consistently during the same period of time, and it is reasonable to expect that this trend will continue, at least for the next few years.

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Imagine if you could identify a small number of companies, like the Royal Bank, that have a history of consistently paying their shareholders a growing dividend over several decades. You could create an investment portfolio that would generate a predictable dividend income that would gradually increase to cover your costs of living, making you financially independent. Most importantly, your annual dividend income would be independent of share price movements and the vagaries of the stock market.

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This website describes how you can do this, with or without the assistance of a financial advisor. 

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1. This quote is widely attributed to Robert Kiyosaki, a motivational speaker and financial educator. who has written over 25 books, the most well-known being “Rich Dad Poor Dad”.

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