Investing Truths: Linda on How She Retired Early

On any given day, you can find Linda relaxing at home – that is, unless the retired 66 year old isn't vacationing in Mexico, Ireland or the Czech Republic (to name a few recent destinations).

“That was my constant goal while I was working," says Linda, who worked in risk management at RBC before retiring about six years ago. “My number one aim as an investor was to develop a portfolio that would be sufficient to augment my lifestyle and allow me to retire. And that is what I did."

Admittedly, early retirement didn't come easily to the Niagara Falls, Ont., resident. “I really struggled with the idea of retiring before 65. I thought I would not have enough money. I didn't know what it would be like," says Linda, who eventually came around, and is now thrilled with her decision. “I'm totally enjoying retirement. I can travel and do what I want."

Linda is living her dream, but she got there by having a plan. We picked her brain to learn more.

Q: Tell us a bit about your investing journey.

A: I got an MBA when I was a young person, and I started working at a bank at 26. I began investing soon after that. That was before self-directed investing was an option, so I did so with an advisor. Back then, my risk tolerance was very low because I wanted to have the funds available in case of need. When direct investing became available, I decided to invest for myself. My education and work experience helped me be able to look at financial statements and decide whether a company was healthy or not. Over the years, my risk tolerance has increased a fair amount but only with a small part of my portfolio.

Q: Tell us more about your approach to investing.

A: The majority of my portfolio is pretty conservative, but I'm an active investor. I dedicate about 10 per cent of the portfolio to what I call “flyers." I don't day trade, but I like to watch a stock to see if it's undervalued relative to the past performance. I might buy it, and then sell it when it's, say, $2 higher. I do stuff like that. I find investing a lot of fun, and I like watching the companies and seeing how they do.

Q: Has your level of confidence changed over time?

A: I was pretty confident from the get-go; however, I am more confident now because I have been through some ups and some downs. I don't worry when I see that a position that I hold is underperforming because I know that, if the fundamentals of the company are there, eventually the market will catch up. I realize that fluctuations happen, and you just go with them. I don't worry about losses; I look at the overall numbers. I have less discomfort, and I don't stay awake at night.

Q: Tell us a bit about some of those ups and downs.

A: Near the end of the tech boom, around the time I became self-directed, I had an awful lot of fun buying and selling tech stocks and making money. And then I watched the portfolio take a nosedive, and it taught me a bit of a lesson. I think one of the things that investors lost sight of in the tech bubble – and what they lose sight of in all bubbles, really – are the price-to-earnings multiples. To me, an enterprise is worth what the enterprise can earn.

Q: You mention P/E ratios as a key consideration in your investing decisions. What other sort of things do you look at that make you feel comfortable with buying a stock?

A: Before I buy a stock, I look at the dividend payout percentage. How much of its earnings is this company paying out? Because you will see some companies that are paying out over a 100 per cent of their earnings. I look at the dividend per cent itself as well. And I also look at a company's historical data. What has this company done over the last 10 years? What have they done over the last year? I look at all of these things and ask, is the price today reasonable? Is it an attractive price that will likely increase over time?

Q: Do you have any tips for novice investors?

A: Take courses if you can, and read everything you can. Read investment books, any of the old investing-basics books, like Benjamin Graham's The Intelligent Investor. Read the business section of the Globe and Mail on a daily basis. If you really want to invest, you have to keep up to date.

Q: Are those your go-to sources for research?

A: Yes, and there are also great tools available within the RBC Direct Investing site. The Morningstar reports offer really good reviews that bring you up to date on a certain industry or a certain company very quickly: What do the bulls say? What do the bears say? I think probably everything that you need to know could be obtained from RBC Direct Investing or just the internet. I'm old, so I read books, but you don't have to!

Q: Do you have any retirement-specific investing tips?

A: For whatever it is you're saving for, your risk tolerance should be geared toward your time horizon. If I were saving for a vacation at the end of next year or a down payment I'd like to put toward a house in the near future, I would invest in safer, most likely interest-bearing investments. Saving for retirement, starting in my twenties, I felt I could afford to be liberal in terms of risk tolerance. On the other hand, you do want to be reasonable and not gamble with your retirement. It should not be a gamble. It should be a calculated risk.