Many people are interested in learning how to build wealth. In this post, I lay out my own, personal wealth building approach that involves a blend of index and dividend growth investing; while also aggressively paying down mortgage debt.
I hold low-cost index funds in my RRSP and work sponsored defined contribution pension plan and Canadian dividend growth stocks in my TFSA and in non-tax sheltered accounts.
I believe that both strategies have proven track records of success. Indexing provides broad based diversification among many stocks across many sectors, countries and markets. Dividend growth investing provides tax efficient income, as well as capital appreciation. I also reinvest all of my distributions and dividends to get the benefits of compounding.
In my experience, the two most important aspects of building wealth are paying yourself first and investing on a regular basis. To make my investing really simple I set up weekly withdrawals from my bank account to purchase index funds in my RRSP. I use Dividend Reinvestment Plans (DRIPs) where I contribute funds to purchase great dividend paying stocks on a monthly and quarterly basis. The core of my dividend growth stock portfolio consists of Canadian banks, telecom, pipeline and utilities stocks. While as a rule I do not attempt to time the market, I do keep some cash on hand to take advantage of market swings.
My wealth-building approach depends heavily on my savings abilities. I regularly save over 50% of my net income – automatically – through a payroll deduction into a company sponsored savings plan and through automatic withdrawals from my chequing account into my RRSP, TFSA and investment accounts. I also increase my savings whenever I get a chance. Over the years I’ve found that I don’t even miss the extra money and I avoid the pitfall of lifestyle inflation.
Finally, I take advantage of every tax-sheltered savings vehicle at my disposal. These include an RRSP which offers tax-deferred compound growth, an RESP where, not only does the government match 20 % of our contributions (up to a maximum of $500/year), but the investments can grow on a tax-deferred basis, and in the TFSA where my investments can grow completely tax free. After maximizing my contribution limits in each of those registered accounts, I’ve found that holding quality Canadian dividend stocks are an attractive investment option due to their favourable tax treatment when it comes to capital gains and eligible dividends.
Now that you’re familiar with my approach, tell me your approach to building wealth.
Photo Credit: Image courtesy of hywards / FreeDigitalPhotos.net
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