Interview With Derek Foster, The “Idiot Millionaire”

While some of you may not have heard of Derek Foster before, he’s fairly well known in Canadian circles as someone who escaped the rat race extremely early in life, and became “Canada’s Youngest Retiree” by retiring at 34 years old. He then went on to write a number of books that showcase his early retirement strategy – investing in high quality dividend stocks. He’s been espousing this strategy ever since. He now spends a lot of his time running a newsletter and also produces a video series that highlights changes to his stock portfolio.

Derek started saving money right out of college and started rolling this surplus cash flow into dividend-paying stocks. Derek had some luck on his side along the way, as retiring that early in life almost requires it. But he also worked incredibly hard and stayed persistent.

Derek recently contacted me and we exchanged a few emails and he was kind enough to answer some questions I’ve always wanted to ask him. To be quite honest with everyone, Derek was actually an inspiration for me right from the start. I read his story early on when I was first researching dividend growth investing and early retirement after his name came up from a Google search. I thought if he could retire at 34 years old on a modest income, there was no reason I couldn’t retire early as well (even though I was starting at almost 28 years old).

Derek has been retired for years now, even with a large family to support (he has six kids). So, Derek definitely knows a thing or two about early retirement and investing. 

What you see below is what I believe to be a great interview with someone who shares my vision on what life should be and how one best gets there. While he lives in Canada and had some high-yielding trusts to propel him early on, the basic premise is still the same. I hope you readers enjoy!

Q: Tell us a little about who you are and how you got started. What got you interested in investing? How young were you when you began saving and investing in dividend stocks?

As a kid I played games like Monopoly a lot and was interested in investing in general and I gradually became interested in the stock market.  I started out investing in mutual funds when is was a teenager, but quickly realized that the fees were reducing my returns so I started looking at buying stocks directly.  I started by saving $200/month while in university as well as any additional money (such as income tax returns, etc).  Even when I could not get a good job in the early 90s (the Canadian economy had a long recession, sort of like the US recently) I still made saving money a priority.  So when I spent a year travelling in Australia and New Zealand, I made sure I first put aside $2,400 ($200 x 12 months) for savings before taking off -all saved from a crappy retail job I had at the time.

Q: I believe that one’s ability to save outweighs their ability to get outsized returns on their investments, meaning living below your means is much more important than seeking big returns in the market. Do you share this view, and if so how is frugality a part of your life?

I think there are three important variables to escaping “wage slavery”.  First (and agreed most important), spending less than you earn.  I went to university in the same city I lived in, so I stayed at home and kept costs down and graduated without any debt (and debt is really the chains that keep people financially enslaved).  I worked some really crappy jobs which I hated, which made me really focus on creating a passive income stream through investing in dividend-paying stocks.  I was very frugal, only splurging for travel.  I did backpack in Europe one summer and travelled (and worked) in Australia for a year (life should be fun, especially in your 20s), but I ALWAYS saved some money along the way.  

The second variable is to become an investor instead of just being a saver.  If you work and save and then just stick all your money in the bank, it will be VERY HARD  to become financially well-off because although you might have the discipline to work and save, your money is not working for you (it’s working for the bank making the bank money)!  

Third, it’s important to invest that money properly.  When I started, mutual funds were all the craze and I followed the crowd.  But after some research I realized the fees were stealing from me so I decided to invest for myself.  And with investing for yourself, I found one should look for QUALITY companies that are stable with long histories and dividends.  Too many investors treat the stock market like a casino trying to earn huge windfalls quickly – but that approach tends to wipe out your efforts of saving because in many cases you simply lose your money!

Q: I understand you’ve been retired for about nine years now, living off the dividend income your investments provide. And you also have a fairly large family to support. Have there been any major surprises along the way? A lot of naysayers say it’s impossible to retire young and live off dividend income. Do you believe you’ve proved that theory to be wrong?

My wife and I have 6 kids, so that’s a pretty big family these days.  I left the rat race at 34 and so far things have been great.  The biggest surprise was that I had to tweak my investment approach a little bit.  Back in the late 1990s, everyone wanted to buy the proverbial “lottery tickets” in the stock market – dot-com stocks!  This insanity led to certain investments being very cheap because investors were only focused on high tech stocks and ignoring the boring stuff which drove down their stock prices creating an opening for investors.  

In Canada, there were investments that paid very lush (and safe) dividends called income trusts (I think these are similar to your Master Limited Partnerships in the US, but I could be wrong).  Anyhow, I bought some REITs, Pipelines, Utilities which were yielding between 10-13%!  (and the yields were in many cases growing at 4-5% per year)!  But most investors did not care about these high dividend because they were more interested in hot IPOs which could gain 100% in a single day!  This was like manna from heaven (cheap stocks with high yields), until the government altered the tax rules as they related to income trusts in late 2006.  For a while I simply held on, but over time I began to understand the impact these changes would make on these investments and had to shift more into dividend-growing stocks.  For the naysayers, I still get people who tell me it’s not possible (even after I’ve already done it), but that is the way the world works – there are some people who disagree with everything so you just ignore them.  I had a lot of determination, but a dash of luck helped too – but without the luck component, I still would have retired early, just not quite as early…perhaps by 40?

Q: You are a Canadian citizen, correct? Are there any major differences that Canadian investors face when approaching a dividend investing strategy?

I think Canada and the US are similar in a lot of respects (rule of law, mostly capitalist economies, high standards of living).  The difference is the size of the economies and global growth potential.  In Canada there are some industries with cozy little oligopolies (banking, integrated oil, pipelines, railways, communications) which make a lot of money for shareholders and offer returns similar to the best US companies, but with mostly growth only within Canada.  They can make good profits because their margins are higher in many cases, but their growth is somewhat limited.  This is a big reason I own a lot of US companies such as Coke, P&G, JNJ, etc – I have been in many countries and have also spent time in Asia and these brands are growing there!  So I have to ante up a 15% withholding tax on the dividends to own these shares (regardless of my annual income), but that “entry fee” still seems worth it to me even though the Canadian taxation on dividends is more advantageous for Canadian investors.

Q: You hold a fairly sizable portfolio, and quite a bit of it is invested in American stocks. Do you have any particular favorite U.S. companies for the long haul? Any U.S. stocks that you’re interested in right now at current prices?

 It’s hard to pick one “favorite” stock.  In my book, “The Idiot Millionaire” I listed 50 or so “idiot-proof” stocks that have great histories.  I look for companies simple enough to be explained by any 6-year-old using a crayon because I am not smart enough to understand some companies (like tech stocks) so I simply avoid them.  But something like Colgate (which has paid dividends since the 1890s) makes sense to me.  I mean what would have to happen to encourage you to stop brushing your teeth?  I look for companies that have a competitive “moat” as Warren Buffett has explained.  

So for example, I own shares in UPS – what a great moat.  A few years ago a huge package company (DHL) took a run at the US package market but pulled back a few years later because they weren’t as successful as they thought they’d be (even though they dominate the European market).  If an already huge package company can’t move into UPS’s turf, how in the world can an upstart?  How long would it take a company to build up the trucks, routes, distribution centres, etc to match a UPS or FedEx?  How much money would they have to lose while building up their networks and operating at a loss as the cost of the infrastructure is HUGE?  Their main competitor is the USPS (post office) which is in decline where UPS can gradually take business.  Talk about a moat! Also think of this, most of UPS’s cost are fixed costs.  The infrastructure.  So if a truck carries one additional package and charges $40, almost the entire $40 moves to the bottom line (revenue becomes income) once they have the volume to cover the fixed costs.  This is how companies can increase revenue by let’s say 2% but increase earnings by 10-12% at the same time! Companies like that will do well for investors over time!  

Right now I don’t see huge value in the market, but I do an online video series where I detail my portfolio and explain why I bought certain companies and the price I paid.  I also offer free updates from time to time. So for example, in my first update back in January a company that dominates the Canadian coffee market (Tim Hortons) was cheap so I bought some shares.  This company has opened some stores in the US with mixed results, but even if they only operate in Canada, coffee is an addictive product that is cheap to produce which generates large profits.  Since that time, the dividend was increased almost 24% but the shares are up over 20%.  It’s still a great company, but not cheap like it was…so I will slowly wait for opportunities which will probably be company-specific.

Q: I remember reading that you sold your house and bought an R.V so that you, your wife and your six children could travel for a year. How was that? That sounds really amazing. That’s the kind of adventure that a lot of us still stuck in the rat race dream of, right?

It was a lot of fun.  First we went out west in Canada and then headed south into the US as the weather got colder.  We stopped in Las Vegas of all places and then headed gradually east through Arizona (the Grand Canyon), New Mexico (Roswell for Halloween), then into Texas where we settled for a few months.  I have never met friendlier people in my life!!!  It was great!  And it beat the snow and cold we get in Canada during winter.  As a cheap guy (oops, I mean frugal), it helped that the Canadian dollar had risen to parity over time (a number of years ago it was hovering around 60 cents, so a HUGE difference, which is another reason I have gone shopping for US stocks over the past few years).  It was a fun trip and it’s nice to have had the freedom to do it (which is the point of creating a passive income).  I try to buy US stocks when our dollar is strong.  US investors might to the same thing when their dollar is strong with Canadian stocks.

Q: Finally, can you share some advice for any readers who are just starting out? Are there any particular mistakes you’ve made that you’d like to see others avoid? Any strategies that you can particularly recommend to beginners? 

 I’ve made so many mistakes I could write a BIG book about those alone.  The biggest mistakes I’ve made is when I focused on cheap stocks which were crappy companies.  Some people are smart enough to be true “value investors” , but I’m not.  The funny thing is that if you accept the fact that you are never going to be Warren Buffett or Ben Graham, you can avoid a lot a grief.  If you stick to quality stocks, the whole system is rigged in your favor (yes, you read that right)!  For example, go to the Proctor and Gamble website and look at dividend history going back to 1970 (coincidently the year I was born).  If you simply bought enough shares in 1970 to give you $1,000 of dividend income, and then NEVER DID ANYTHING ELSE, you would be doing well.  If you had spent all that dividend money every year on bubble gum and jelly beans, (and the only thing you did was not sell your shares), today you would be earning over $60,000 per year in PASSIVE DIVIDEND INCOME!  Anybody can do this and this is how I retired at 34 and became “The Idiot Millionaire”  (which you can Google to find out more).

There you have it. Let me know what you thought! Hopefully Derek will be kind enough to stop by and answer some questions. 

Thanks for reading.

Comments

  1. says

    Thanks for posting this interview with Derek Foster. When I first read his book “Stop Working” in 2008, I was very inspired that he was able to retire on saving a few hundred/month at age 34 ( after 12 years). I reviewed it on my site.
    In the process of my research however, I have identified a few red flags from others regarding Derek Foster.
    The first controversy is related to the fact that he made his money by making risky leveraged trades. In 1999, he bought Altria on margin in a concentrated bet, and seems to have made a large portion of his nest egg this way. This is certainly different than what he writes about in his books. To me, if this is true, putting all your money in one stock and then leveraging yourself to the maximum is not a smart way to build wealth. But that’s just me, as I don’t like the approach of heads I win, tails I lose.
    The second controversy with Derek Foster is that he sold all of his dividend paying stocks in February 2009. This was the bottom of the market, and it looks to me that he panicked. In some of the interviews with him from that period, he makes forecasts of how things are going to get worse for the economy, GDP/market cap ratios, yadda, yadda yada.. So much for his “talk” about buying quality companies and holding on for the long run.. This was disturbing for me.
    The third controversy with him is that he is “not retired” but essentially supplementing his income by selling books on investing. In addition, his wife works also. Now, I am fine that whoever retires will probably earn money doing whatever they want, but the fact that Derek seems to write books every year or so, could look like a desperate attempt to make money to others. If I were retired, I would probably be writing books too however, which is why I am fine if he uses his “expertise” to sell a service.
    Overall, I wanted to put those out, in order to have a balanced view of the person. I am more than 100% sure that when Dividend Mantra retires and writes a book, he would have retired because of a strategy that everyone could have followed to the ultimate goal of retirement. With Derek Foster, there seem to have several controversies, which seem to be largely true. Therefore, a lot of people think of him as a fraud. I would not go as high as that, but would urge everyone to not take everything at 100%

    • Anonymous says

      Agree with your comments 100%. Good to know his wife is working ….kind of hard to figure out how two unemployed adults could run a household with 6 kids…it was all hard to believe and should not be taken at face value.

    • says

      DGI,

      Thanks for stopping by!

      As you know, you and I share a very common passion (investing our way towards financial independence) and our strategies diverge very little.

      With dll due respect to Derek, I think that while there are certainly some aspects of his investment style and journey that prove to be questionable to some, there is still some value to be found from someone who no longer works a regular 9-5 for a living. We all have our faults, and while I disagree with selling a portfolio during a market crash or heavy leverage, Derek has still been able to attain the life he wants. And that’s really what we’re all after, I think?

      Best wishes!

  2. Anonymous says

    Dividend Mantra asked me to address questions, so here goes…

    Dividend Growth Investor (a few points)…

    A lot of the “research” you mentioned seems to have involved reading and believing whatever you read on other websites, some accurate, some not (poste by anonymous people – really, how reliable is that). That’s the problem with the internet, anonymous posters can say anything and everything they say is taken as fact by those who don’t think for themselves…

    The leveraged bet you are referring to involved Phillip Morris (the forerunner to Altria) and the year was 1995, NOT 1999. I had researched the company/industry a LOT and invested (and borrowed massively to buy more). I turned my net worth of around $60K into around $120K in 6-8 months. Would I do the same thing today? No. I was 25 and still pretty new to investing and was a little overconfident – this is the “luck” I’m referring to in the interview. Without this, I was still on track but perhaps not a quickly… I’ve made mistakes which I mention (and promise I will make more), but no investor is perfect, but many claim to be, but they are just not as open about their moves (only highlighting their victories and ignoring their losses)! I dedicated a whole chapter to this move in my 3rd book, “Money For Nothing”.

    It’s true I did sell my stocks in early February 2009, which was NOT THE “BOTTOM” of the market. A quick search on Google Finance shows the bottom was reached in early March 2009 (around 20% BELOW what I sold my shares at)- posts should be factual, imo. I sold put options for a while trying to get back in more cheaply while collecting premiums (a strategy I still use to buy stocks cheaply), but eventually re-entered the market. Overall, the move worked to my advantage as outlined in detail in “The Idiot Millionaire” book (pages 169-179), but again more luck than skill on my part. The other factor for me was my need to exit income trusts and get into dividend growth stocks (for tax purposes – but too involved to discuss here)…

    The third “fact” you mention is total BS and really annoying – my wife HAS NOT WORKED IN PAID EMPOLYMENT SINCE I RETIRED. The only exception is she worked 6 weeks at a ski hill to learn to ski for free (she comes from Korea and skiing is not as good there, and wanted to try it). I was asked in an interview one time if my wife works and I said, “Well, we have 5 kids so I guess you could call that work.” (meaning taking care of kids is a lot of work) and suddenly anonymous posters started saying my wife works and I’m not retired! I do write books, but why would that be a “desperate attempt” to make money. I agree I earn income from my books (again as I state right in my books), but if I enjoy it, why not?

    But I agree, I would also urge everyone not to take everything they read online 100% – ESPECIALLY ANONYMOUS COMMENTS from blogs (I think you ignored your own advice on that one as your “facts” all seem to be made up Tinker-Bell stuff that is only true in Never-Never Land).

    I don’t mean to be disrespectful, but it gets frustrating for me…people seem to believe anything and don’t question the reliability of the source

    Cheers,
    Derek Foster (The Idiot Millionaire)

    • says

      I have no problem you are earning money from selling books. When I retire in a few years, I would likely write a book as well..

      I don’t have my Stop Working copy next to me, but I was under the impression you said she worked in the book. But, based on your comment, I guess I was incorrect that you wife works in paid employment today.

      As far as facts are concerned, here is the article that shows how you sold everything in Feb 2009:

      http://www.thestar.com/business/personal_finance/2009/03/12/buy_and_hold_investing_guru_sells_all_he_has.html

      Honestly, it looks like you engaged in market timing at the worst time possible. I am not sure if you panicked or why you just decided to time the markets.. You might have sold some puts and collected premiums, but then stock prices rose in late March and April.. Which means that a large portion of your puts probably expired worthless.. Meaning if you really did get back into the market, you paid a lot more than you sold for. But then, those are my assumptions, using your “simple google searches”

      I honestly don’t care whether you sold at the bottom or not.. I still found your first book to be very inspirational. I know we all make mistakes, so I am fine that you are sharing those with people. Maybe you should write a book about all the investment mistakes you have made.

      It is important for readers to know that you are doing a little more than a simple “put $200/month for 12 years and then retire”. I am not one of the DF haters out there, but I am curious about the details behinds the DF story. I wanted to throw those several internet red flags to get your comments on them. I am not an internet troll, but have a decent size internet site dedicated to the process of identifying the best dividend growth stocks. You might find it interesting.

      Good luck to you, all the best to your family

    • Anonymous says

      Dividend Growth Investor…

      Thanks for replying – I didn’t mean to overboard, but since I’ve been in the media since retiring, I’ve found it frustrating that so many lies or half-truths circulate without any basis of fact behind them.

      I didn’t mean to respond to you as if you are an internet “troll”, so my apologies for that.

      I don’t know if you are Canadian or American, but in my situation, I am Canadian (but heavily invested in US stocks – as explained a bit in my interview). So the reason the early 2009 move worked out well for me, was because when the price of oil fell (along with the stock market), the Canadian dollar fell as well (from over $1 US to around 80 cents). This made it very cheap to buy good US stocks up to a year after the bottom of the market (even for prices cheaper than the market bottom) – but for Canadian investors. Regardless, all this is really unimportant.

      I call myself “The Idiot Millionaire” because I make a lot of mistakes and promise to make more. I try new things, new ideas, and sometimes they work and at other times they don’t – but that’s all part of the learning process anyhow. My main point is that you don’t have to be that smart to do very well investing over time…

      Best of luck to you as well – I will take a look at your site (after dealing with my kids – it’s “back to school”, and with 6 kids, things can get a little busy)…

      Cheers,
      Derek Foster (The Idiot Millionaire)

  3. Anonymous says

    Insourcelife:

    My life is basically middle class. There were not major adjustments to be made because once you stop working, a lot of work-related expenses “disappear” (commuting, clothing, eating out, taxes, etc). Your direct and indirect tax bill goes WAY down, so your AFTER-TAX income ends up being pretty close (which is the only thing that really matters).

    The one caution I would throw out there is that health care in Canada is mostly paid by the government whereas in the US, I think it’s attached to your job (or else you pay out of pocket – but perhaps I’m wrong on that now)?

    Cheers,
    Derek Foster (The Idiot Millionaire)

  4. Anonymous says

    $1,000 in dividend income assuming at 5% yield is $20,000 in cash. Assuming that I plug $150 per month into a stock (assuming no dividends/reinvestments), it would take me 11 years to pile up $20,000.

    • Anonymous says

      @ Anon post at 9:43
      Your error (please excuse me for saying so) is to not count the reinvested dividend. At that 20k you’re talking about, your dividend is adding 56% of what you’re adding from your own contributions. 5 years later it’s matching what you invest. But I do agree, it would take a long time to replace an income investing only 150/month and starting from $0. But following Derek’s advice(which mirrors my own views)about living well below your means, might let you save considerably more than that each month.

      Steve

    • says

      Anonymous,

      I can’t speak for Derek, but I think anyone who is seriously pursuing financial independence via investing in dividend growth stocks should be investing quite a bit more than $150 per month. I started off with over $1,000 per month and have scaled up from that considerably. One’s ability to save vast percentages of their net income will dictate a large degree of their success, rather than their ability to outperform the market.

      Take care!

    • Anonymous says

      Dividend Mantra,

      I think it depends on your income – when I started, I saved $200/month as a baseline, but I was a student an my income was somewhat limited and I also had tuition to pay, but agreed – the more you save the faster you reach freedom…

      Cheers,
      Derek Foster (The Idiot Millionaire)

    • says

      Derek,

      Thanks so much for adding that. Great points there. It all depends on your income. We all have to start somewhere, and if that’s $200/mo as a student then that’s awesome! I only wish I would have started as a college student like you did. I might be retired by now! :)

      Best regards.

  5. Anonymous says

    An interview with someone who sold all of his dividend stocks when markets crashed is not something I would expect to find in a blog dedicated to dividend investing.
    Someone said “Buy when there is blood in the streets”.
    The fact that he sold off everything just one month prior to the start of one of the strongest bull markets is just fun.
    This interview is not encouraging new investors.

    • says

      Anonymous,

      My strategy of living extremely frugally and investing 60% or so of my net income into high quality dividend growth stocks through thick and thin so as to achieve financial independence is a bit different than what Derek did, but I still think there is something to glean from Derek’s journey and his ability to escape what he determined to be a work/life balance that was out of whack. He found freedom, and I think that should be celebrated even if some of his methods are a bit inconsistent.

      Best wishes!

    • says

      There are a lot of haters who just like to spout negative comments like this about someone else. If you don’t want to sell before a strong bull market then don’t! Deal with it!

    • Anonymous says

      I have tried different things at different times – leverage, buying small stocks, put options, etc. The whole process was a learning experience for me and I’ve made mistakes and am sure I’ll make more in the future, but the main focus (and the thing that has really worked for me was to buy dividend paying stocks of “idiot-proof” companies and let their earnings and dividends grow over time.

      This is why I called one of my books “The IDIOT Millionaire”. Despite my mistakes along the way, I was able to quit the rat race in my early 30s and became a millionaire in my late 30s. The point is that you don’t have to be flawless or perfect to do this – but for people who are smarter than I am (which is not too hard sometimes), should do even better…

      Cheers,
      Derek Foster (The Idiot Millionaire)

    • says

      Derek,

      ” The point is that you don’t have to be flawless or perfect to do this – but for people who are smarter than I am (which is not too hard sometimes), should do even better…”

      Great stuff there. I think one of the greatest qualities of dividend growth investing is the fact that it doesn’t require genius intellect. I’m definitely no rocket scientist. Successful investing simply requires an actionable and realistic plan, goal-setting, consistency and patience. You obviously have those qualities in spades.

      Cheers!

  6. says

    The best advice Derek gives is to remember to save more than you earn – and that’s what traveling taught me since during those heady years in the 70′s I was a fanatical saver so I could hitchhike the world and have an amazing life. Since then I, too, disliked working as a wage slave and have remained a focused investor for some 30 years. I love it! It’s not work at all … something I can do from dawn to dusk if I didn’t have a myriad of other interests. Ben Graham was a master of many languages and could easily have taken a different career path if he didn’t love investing more than anything else. Read “The Einstein of Money” by Joe Carlen.

    So here’s my take.

    The next time someone says the stock market is a casino ask them “who gets banned from a Blackjack table” when the Dealer can spot him … someone who quietly has the patience to count the cards.

    Dividend investing requires this in spades. Of course your entry point is all important – Enbridge which has had the best return on capital than any other stock on the TSX since the 1950′s had zero dividend growth from 1986 – 1996. You’d have to have A LOT of hope to hang on to that one when inflation was, relative to today, high in the eighties. But if you bought a 7% yielding ENB in that final year and hung on to it through three stock splits and continuous divvy increases … WOW. You do the math.

    And I would like to thank Royal and TD for raising theirs today at 6 and 5% respectively. They’ve had their dry periods too. But in 2008/2009 our banks were in far better shape than in the eighties when they were technically bankrupt. You can say what you will about the getting mortgages insured by CMHC – and thus the taxpayer – thereby getting leveraged risk off their balance sheet but Chuck Brown who was the dean of Bay street bank analysts, and retired as of a couple of years ago, said that the eighties were a far more frightening period. The burden of latin american debt nearly killed them – and the government said, “that’s tough – you’re going to have to get out of this the old fashioned way … by EARNING your way out”. On this basis, and a bit of dutch courage to help pull the trigger, I bought heavily in February/March 2009 – BMO @ $26 and a 10% yield knowing that none of the Big 5 cut their dividends in the eighties (National Bank is a different story) while the last time any did so was in 1943 as a “patriotic gesture” to a government request.

    This purchase of our banks was a mixture of LUCK and guts. I had some cash from a house sale in 2006 and mutual funds which I sold off in January at a huge, though subsequently regained and way beyond, capital loss if I were to sell today – fat chance. Now I get to keep all the filthy lucre plus the ridiculously tax advantaged income. If the average CDN really understood the dividend income tax credit in this country they would be screaming bloody murder instead of nodding the “we’re taxed to the max” mantra at some dinner function. But they won’t because it would involve turning off the Reality Show and hitting the books. I’ve found that talking about money really turns people off at dinner parties – they prefer polite little nothings and following the herd. They think it eccentric even rash to not behave like everyone else. Think Keynes famous quote from his 1936 General Theory “Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally”. And think how this applies to the average mutual fund manager who keeps clients by pointing to the same benchmark returns that every other portfolio follows – “See – no one saw 2008 coming”. To add insult to injury you had to PAY tax on your market losses if you held during the fall since the very same mutual funds had to sell their winners to meet their redemptions by those who bailed.

    I could go on …

    • says

      Bazz White,

      Great comment. Thanks for adding that.

      The growth of dividends, the reinvestment of those raised dividends which buys even more dividend income which can then also grow and being patient enough to let that wealth compound for you is the name of the game. And it’s a game I quite enjoy playing! :)

      As a shareholder of both BNS and TD, I’m very pleased with the recent raises after raises earlier this year. Great stuff!

      Keep up the great work!

      Best regards.

  7. Anonymous says

    Excellent interview!

    Derek’s books have many wonderful investing lessons.
    Dividend investing makes a lot of sense.
    I would be much poorer without using this investment approach.
    Thank you.

  8. Anonymous says

    One of my holdings, TD, just increased their dividend another 5% today. This is pure coincidence, but this is the beauty of dividend investing – regular “pay raises”. Last year, every one of my dividend-paying stocks boosted their payouts except one – so overall nice income increases.

    It takes time to get going, but the longer you do it, the better it all gets…

    Cheers,
    Derek Foster (The Idiot Millionaire)

  9. Elemag says

    A Japanese proverb says: “Observe the others and correct your own behavior.” In other words learn from the mistakes of others. Derek Foster’s books inspired me to start my dividend investing journey. I learned so much from him, and I am very grateful for that. However, over time I didn’t blindly follow his strategy or simply bought every stock which he recommended. There are other great investors to learn from as well- Warren Buffett, Peter Lynch, Stephen Jarislowsky, just to name a few. I combine the knowledge in Derek’s books with other useful things I have learned along the way. In the end, the only fact that matters is that he achieved the goal most of us strive for, so he has my respect, and I don’t care about all the gossip on the net about him.

    • says

      Elemag,

      I agree 100% There is always something to be learned from someone successful, but that doesn’t mean you should blindly emulate them completely. I try to take the good parts of the people I idolize and try to replicate their success by using some of their methods while also putting my own unique spin on things. Following someone without understanding why you’re doing something is a recipe for failure and disappointment.

      Best wishes!

  10. says

    I found his responses interesting. But, look at these with a keen eye.

    The mention of the 1k dividend income in 1970 from an investment in PG throwng off 60k today no doubt is correct. However, in 1970 PG was selling for $50/share and had 4% yield. You would need to invest about $25,000 to get $1k of income. No problem.

    The average yearly income in 1970 was about 3-4k. New homes on 1/4 acre lots sold for $15k. 25k in 1970 was a lot of money. The average person would have to work hard to save that much.

    According to longrundata.com, the yearly investment return for PG over this time frame was about 12%/year including reivested divs. This is not bad but really not exceptional. But over 40 years it still adds up to big money (25k goes to 2.3m).

    You should be able to do better. Altria (MO) this year is offering an earnings return of 14% (5% yield plus 9% div growth). In the 10 years I’ve owned this it as never been lower than 12%.

    • says

      Sfi,

      I think the example Derek used was a good example of enthusiasm and hyperbole. However, the key takeaway is that you don’t need to go out and pick the next great start-up or invest in super cheap companies that may or may not fail. The point is that all you need to do is pick great companies and let them go to work for you. Although PG wasn’t the highest returning stock over this period, a 12% return is pretty strong and likely to leave an investor very happy. :)

      I’ll gladly keep my money invested in both PG and MO!

      Take care.

    • says

      Sfi,

      In my opinion: Diversify – Figure out your position size and stick with it, and make it larger when you have filled all your positions and there is nothing else to buy. PG, MO, CL, RAI, BMO, TD – I will buy as much as I can afford as soon as I can afford and keep them reaping the dividends they pay me!

    • Anonymous says

      SFI,

      The P&G was just an example – one that most people can identify with. I mean who doesn’t know Crest Toothpaste, Tide Laundry detergent, Pampers diapers, and Gillette razors? Simple, idiot-proof company that makes money in good times and bad (and has increased its dividend for over 50 years). This is one of my holdings along with many others just like it….

      Cheers,
      Derek Foster (The Idiot Millionaire)

  11. says

    Good interview with Derek Foster. His books are very easy to read and he is the average person showing anybody can do this if they buy into good quality companies at a reasonable price. He says this a lot on TV ” 95% of stocks are not worth owing”.

    • says

      Investing Pursuits,

      Glad you enjoyed the interview!

      Buying into high quality companies at reasonable prices is a surefire way to build your wealth over time. As Derek would probably say: “It’s idiot proof!”

      Best wishes.

  12. Anonymous says

    This is great stuff. I always enjoy reading these experiences. They have been my inspiration and has lead me to where I am today. Had a mortgage for three years. Before the crash I choose to cash out and pay off the mortgage. I just didn’t want to give the bank the interest. It was all just luck. I always say I know nothing. No debt of any kind is great. Live way below my income. Now I guess I could retire, still work because I enjoy it. Not ready to count my eggs.

    • says

      Anonymous,

      I’d say luck is great to have, and retiring early in life probably requires a fair amount of it. I’ve certainly been lucky in many ways, while also unlucky in many others. The key is to make the most of the opportunities you’re given and stay persistent. Know what you want and go after it with all you’ve got.

      Glad to hear you’re in a great spot, financially! :)

      Take care.

    • Anonymous says

      DM,

      Thanks for doing the interview with Derek. I really enjoyed reading through it. I do believe we have to be careful about what we read on the internet. I know when I read the newspaper I am careful not to believe everything that is written because a lot of what I read I find to be editorial opinions disguised as news or fact. When I was in college we did an experiment in my public speaking class where the Instructor told a story to one student and that student passed it on to the next and so and so on… by the time it got to the 10th person that story was so distorted it was unbelievable how much that story had changed. I think the same thing happens on the internet.

      Salud,
      Nomad

    • says

      Nomad,

      Glad you enjoyed the interview! This was a lot of fun, and I appreciate Derek taking the time out of his busy schedule to answer a few questions.

      We all take different roads, but if financial independence is our common destination then I say the more we can learn about successful journeys the better.

      Take care!

  13. Spoonman says

    Thank you for putting together such a nice and inspirational interview. I think you asked all the right questions. Retiring early with 6 kids! That’s amazing! That adds to the list of early retirees that were able to do so while having kids. That should quiet the naysayers.

    I think any journey benefits from good luck and serendipity, but I think Derek owes his success to good old perseverance. As he points out, he would have gotten there anyway a few years later.

    Someday I hope to invest in Canadian banks and some other Canadian dividend stalwarts.

    • says

      Spoonman,

      Thanks for adding that. Glad you enjoyed the interview!

      I agree. The fact that Derek has such a big family and is able to support them on great decisions he’s made in the past is a testament to the strength of this strategy – books or no books.

      I agree with you that Derek was on the path to early retirement with or without some moves like the leveraged play on Philip Morris. While I wouldn’t make a move like that, and will possibly suffer in the rat race a little longer for it, it doesn’t mean that Derek made a bad choice. Quite the contrary, obviously he made the right choice as that sped things along. I don’t agree with making big bets or leverage, but luck is a great thing to have on your side.

      Glad you stopped by!

      Best wishes.

    • Anonymous says

      Dividend Mantra,

      No – the leveraged bet was a risky move made by an overconfident, inexperienced investor – that turned out okay for me – but this was almost 20 years ago when I was learning all about investing and trying different things. That’s why I mentioned it in my third book (it’s cheaper for investors to learn from others’ mistakes rather than their own)!

      Spoonman,

      The six kids, well, err…I think that’s the by-product of retiring too young with your wife also at home without having enough hobbies to keep you busy – you end up with a lot of kids, LOL!!! No risk in this happening if you follow the traditional retirement age however…

      Cheers.
      Derek Foster (The Idiot Millionaire)

  14. says

    While the topic of Derek Foster seems to generate much conflict in the dividend investing community, I for one was actually quite inspired by the story, which I seem to recall reading about 5 or so years ago. While it didn’t necessarily prove to me that I could retire early or comfortably on the kind of dividends that Derek generated, it did suggest to me that you could generate a stack of passive income from sustained long term dividend investing. 5 years later, I see that in my own results in being able to generate just under $30k/yr annually through my own dividend machine.
    For that, I want to thank Derek, because it was stories like his that kept inspiring me when I still ramping up that it was possible to build up your own cash machine through a dividend strategy. Of course, when and how you can retire on that is going to depend on your own circumstances.
    Nice interview DM, I enjoyed it,

    • says

      Integrator,

      Glad you liked the interview. Derek does bring out some passion in people, and not all of it good. But I think there’s a number of reasons for that. Let’s not forget that anytime you’re doing something different and you’re successful at it there are going to be people sniffing around to see how they can chop you down a bit. I know I experienced that myself when I was featured in some national media. People like to knock you down because it makes them feel better.

      Like I said above, there are certain aspects to Derek’s journey that proved to be fruitful by way of luck…but we all need a little luck in life. I know I won’t turn down luck if it knocks on my front door! :)

      Best wishes!

  15. says

    Thanks for the interview. I haven’t heard of Derek Foster before and will try to get some books to catch up. Thanks Derek for responding to the comments as well.
    6 kids would be tough. That’s why we just have 1. :)

    • says

      rb40,

      Thanks for stopping by! I know this was a long post, so I appreciate you taking the time to check it out.

      Six kids would be tough. I guess Derek has found ways to occupy his time in retirement (as he likes to mention). :)

      I commend Derek for taking on a challenge like that. I don’t plan on having any children. And although that’s not for financial reasons, I also know that having children can put a serious strain on the budget. I have a lot of respect for dedicated parents. I had no such thing as a young child, so it’s great to hear of proud parents like yourself and Derek.

      Best regards!

    • says

      Roger H,

      I like BP, but there is still a lot of uncertainty regarding the financial ramifications of the spill. I recently bought RDS.B, however, because it’s valued similarly but without the overhang.

      Seth Klarman is a big fan of BP here, so that bodes well.

      I hope that helped a little!

      Take care!

  16. Anonymous says

    I like the Canadian banks not only for dividends but they have proved to be one of the safest banking systems in the world. Rather than buy one, I use the ZWB etf which is a covered call etf on the 6 largest Canadian banks & yield 6.47% as of Aug.

    • says

      Anonymous,

      I don’t follow any ETF’s at all. I’ll have to take a look at this, but I prefer just buying shares in high quality businesses myself and pocketing the management fees.

      Thanks for sharing!

      Cheers!

  17. Anonymous says

    Thanks for the interview DM! I was not familiar with Derek, but as a dad who both needs to watch and provide for the kids, I’m always interested in reading about those that have succeeded. I also agree with the idea that growing dividends are preferred to cheap or lottery ticket stocks. I will read up on him. Keep the knowledge flowing DM

    daddydomestic.blogspot.com

    • says

      Anonymous,

      Glad this interview provided some value for you. That’s why I write; to inspire and share!

      Lottery tickets are fun and entertaining. But investing in high quality dividend growth stocks offers an individual a great chance at building wealth. And a dividend stream eventually turns into a monthly jackpot anyhow. And that’s even more fun and entertaining!

      Best wishes.

  18. gibor says

    Buying ZWB ,when it just got released ,was my mistake. I sold it later and bought bank stocks. ZWB distributions going down from month to month, don’r see any sense to keep it. imho much better to hold all 5 or 6 “big” canadian banks and if you don’t have enough money ZEB is better

    • Anonymous says

      I would respectfully disagree Gibor. Since it came out a little over 2 yrs ago the NAV is up 7.33% Your mistake was selling it, not buying it.

  19. says

    Great interview! I wasn’t familiar with Derek prior to reading this post, but I’ll definitely be looking into more of his story. I can’t imagine being on this journey while also having a family with 6 kids, my 1 child is enough :)

    Thanks DM, keep the good posts coming!

    • says

      Chris A.,

      Glad you enjoyed it. I’m just glad Derek was kind enough to share his story and take the time to give some great answers.

      Six kids would definitely be tough! I have none and will continue to be childless and retiring early is still hard enough. :)

      Best wishes.

  20. says

    Grats Derek on early retirement. Even if you are required to supplement your income with books or side-jobs there is nothing wrong with that. The way I look at it, is your children will not need 100% support from you forever so as they age and move out that will further reduce your spending! I know because I have 2 and I struggle.

    • says

      Investing Early,

      I don’t know how much side income I’ll make once I’m financially independent but I do know that I won’t shy away from it. Nothing wrong with supplementing an already healthy portfolio. I’d love to write a book one day. That’s kind of a dream of mine, so I’m a bit jealous of Derek in that regard.

      Thanks for stopping by!

      Best regards!

    • Anonymous says

      Investing Early:

      To be honest, I don’t have any side-jobs (except if you count writing books). I actually don’t need the book income as I never really spend it, so it gets reinvested over time…

      Cheers,
      Derek Foster (The Idiot Millionaire)

  21. says

    Mantra and Derek, Nicely Done!

    Derek is one guy I really enjoy talking with and I had a great time with him on the phone when I did his interviews a while back. I have a lot of respect for him, as many of us do up here in Canada (regardless of his reasons to sell at the bottom). I wouldn’t have done that myself, but he was the first dividend investor I came across after fleeing the mutual fund industry. What he said made complete sense to me, compared to what I read on indexing, and it’s how I got started. ;)

    I don’t think Derek ever hid the fact that he made some early trades on margin that were questionable. They happened to pan-out for him, he was lucky, and I beleive he said it’s not a good way for any beginner to go (or anyone else for that matter).

    I believe we have all made some dumb mistakes along the road…

    Mantra, yes you should indeed write a book. I have no doubt it would be a best-seller!! Maybe Warren might even read it. ;)

    Cheers
    The Dividend Ninja

    • says

      Ninja,

      Derek was a pleasure to talk to and work with. And I really appreciate him taking the time out to do this interview. I’m glad readers have enjoyed it.

      Although he increased his risk exponentially when taking on the leveraged Philip Morris bet, it turned out fantastic for him. I can’t say I have the guts for that, but congrats to him for doing it.

      I’d really love to write a book one day. Who knows? Maybe when I retire early I’ll have the time to really put something nice together. :)

      Thanks for all of your support!

      Best regards.

  22. says

    For what it’s worth – I read his “Lazy Investor” book about 5 or 6 years ago and if nothing else it helped motivate me to get out of Mutual Funds and become a DIY investor. Fast forward to now and I am bringing in close to $1K a month in dividends (and increasing).

    In the past few years I have significantly improved my understanding of how to invest (sites like this one are great resources, and creating your own site forces you to learn new things too), but I have to give the man some credit for helping me start the snowball rolling down the hill…

    Happy Long Weekend everyone!

    • Anonymous says

      Dividend Tactics:

      Awesome!! – glad my book got you into investing for yourself and you’ve moved along with investing. My kids use the Lazy Investor strategy also – great starting point, and the DRIPs keep compounding – which is VERY powerful over time. We don’t add any money, but they have time on their side!

      $1K/month in dividends is a great start! I think you will find your next $1/mont should come more quickly as you are saving investing, but now your portfolio is also saving and investing for you (sort of like having an invisible partner helping you along…

      Once you have the necessary income, you can just spend it all if you like and it appears again the following year (in increasing amounts)…

      Cheers,
      Derek Foster (The Idiot Millionaire)

    • says

      Dividend Tactics,

      $1k/mo is fantastic! I’m really anxious for the day I hit that mark. Congrats to you for that kind of financial success. You’re in rare company.

      Derek also inspired me. His story was one of the first I read about when researching dividends, dividend growth investing and early retirement. It was right about that time (when I read about Derek) that I had my “aha” moment where it all clicked together and I set about on a path to change my entire life.

      Keep up the great work.

      Best wishes!

  23. Anonymous says

    D. Mantra and DF,

    Thx for the interview. DF’s story among dividend circles is interesting. It seems that he has been inspirational to many Divy investors (myself included). However, he does remain a somewhat polarizing figure because of some of his investment decisions. In response, he has stated what those were and ultimately, as in life, it’s up for us readers to judge and then decide how to apply/NOT apply them to our situation.

    While I have no doubt that he worked hard to get where he is at, he admits there was an element of luck involved. I admire that he does admit that. I think that investing (like life) is a fascinating interplay of our actions or inaction (i.e. our work) and the “rolls of the dice” (luck) we get in life. An analogy I like to use is poker. Luck determines the hand you are dealt but a lot depends on how you play your hand. Ultimately, I think that luck is when preparation meets opportunity.

    That seems to have happened in DF’s case. Being a Canadian, he’s lucky to not have to worry about healthcare (definitely a concern for the American ER crowd). He was lucky on that margin call but he then parlayed that into investments into dividend paying stocks. All along he saved well along the way.

    Personally, I can testify that luck has played a large role in how I arrived at my current situation. Trying to make a long story reasonably short: my father advised me that the market usually will have a major correction every so often and that would present a good time to take advantage. I observed the 01-02 correction but had little capital to exploit it. So, I then decided to start more aggressively saving in anticipation of the next correction. I achieved about a 25-30% savings rate. Nowhere near D. Mantra levels but respectable by average American standards. I put this all in short-term cash waiting for the next market correction. Then in 08-09’, I was fortunate to receive some inheritance from an elderly relative I had been helping to care for. Of course, right at that time, we had the historic 08-09 market crash. I decided to deploy the capital acquired between my savings and the inheritance into the market. At that time, I had NO specific knowledge of investing (Heck, couldn’t have even told you what a P/E was!). I read a story about how the Canadian banks were sound and did not engage in the fiscal shenanigans that the American banks did. So, I put some of this capital into Canadian banks. I read a story how Ford, while still struggling, was in much better shape than GM and Chrysler. So, I bought Ford. The iPhone had just come out and was making major waves so I figured Apple was going to go higher. So I bought AAPL. In all these cases, I think I recognized the opportunity that a weakened market had provided me. Some good stocks (Canadian banks, Ford and Apple) had been unfairly and indiscriminately “punished” by the market. And, I had the fortunate (i.e. capital) to take advantage of that. Good luck? Hard work? Skill? Probably an interesting amalgam of all of the above.

    -Rock the Casbah

  24. Anonymous says

    Comment (continued)

    Shortly after this, I “discovered” dividend investing and some of its advocates (including DF). And my intent became to take advantage of the weakened market in 09 by investing in some stocks w/ good short term growth potential and sell them within a relatively short term timeframe to make substantial capital gains. These gains could then be used to fuel the purchase of dividend growth stocks (which became my true long term strategy). Essentially, I made some concentrated stock picks to “turbo charge” my available capital to purchase dividend paying stocks. I eventually sold my positions in AAPL and F. I sold some of my Canadian bank stock but kept a portion as they paid a dividend. I eventually recently reinitiated a smaller position in AAPL but, this time, as a DG stock.

    Now, ironically, of course, I would NOT advise folks to take the course of action that I did. I.E, do NOT “hoard up” cash awaiting the next market correction which may or may not come. Instead, I would advise investing in under or fairly valued individual equities on fairly regular basis. Pretty much what you are doing. But I did what I did and it worked out well for me just as DF’s actions seem to have worked out well for him. Like me, he seemed to have some luck along the way but was able to “exploit” that luck. Like me, he would probably NOT advise folks to take some of the same actions that he did yet that worked out well for him. But in the end, we all came to dividend investing but by different paths. So that gives us the opportunity to listen and learn from each other and then decide.

    Take care and thx for listening.

    - Rock the Casbah

    • says

      Rock,

      Great comment. Thanks for sharing that!

      I would definitely agree with you and Derek on the point that a certain amount of luck is important to achieve success in investing. That’s true for many endeavors in life.

      I’ve been lucky many times in my life. I was lucky to be adopted when I was 11 years old, I was lucky to get into the industry I’m in now, and I was lucky to have developed an interest for investing and early retirement at 27. All of these changes in my life required some luck, and without these changes I wouldn’t be where I am today. Derek was lucky that his leveraged bet went his way. And you were lucky to have a major market correction coincide with a large capital infusion.

      However, at the same time a lot of luck is manufactured via hard work. Although I was given many opportunities in life those opportunities could have easily been squandered away if I didn’t continue to work hard. Derek got lucky with Philip Morris, but the $60k he had to leverage came about from saving money and hard work. You got lucky with a major market correction and an inheritance, but the rest of the money was there because you had a high savings rate and you were waiting for a market correction because you developed an interest in building wealth.

      Perhaps success is where luck and hard work meet.

      Thanks for stopping by! Glad you enjoyed the interview. :)

      Best regards.

  25. SST says

    Hey Derek,

    Hope you are still hovering around here to read this.

    I only want to know two things:

    1) Since you publicly claim to not “spend all of the money that [your] portfolio brings in”, just how much in TOTAL income from all sources do you declare? (If you want to break it down into sectors — divs, royalties, etc. — that would be cool, too)

    2) How much in National Child Benefit Supplement low-income family payments do you collect from the government each year?

    I am one of your most fervent detractors (read all about it at milliondollarjourney.com), and being public with these two figures may even turn me into an ‘Idiot Millionaire’ supporter.

    Thanks for your transparency!

  26. Anonymous says

    Anyone looking for a copy of the idiot millionaire can find one at abebooks.com – they are $4.09 which includes shipping. I found it hard to locate the book except at amazon of Canada for much higher prices.

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