MoneySense Editor-at-large and affable technophile Jonathan Chevreau happily announced on Twitter last weekend that he pre-ordered an Apple Watch. Getting a new gadget can be fun and I hope he’ll enjoy the device despite the mixed reviews it’s been getting.
For my part, I don’t want one. I generally avoid novel electronic devices, which makes me a late adopter. I’d much rather give the technical wizards time to work out the kinks in a new device and then buy a more refined product when the features are better and the prices are lower.
Given the current prices—and in my view limited usefulness—of the Apple Watch, I couldn’t help but wonder how many days of financial independence, or as Chevreau refers to it “findependence,” a young person would have to give up to buy one.
To make things easy, let’s focus in on the case of a 20-year old who earns $30,000 per year (after taxes) and would like to retire on the same amount of income, in inflation-adjusted terms, at 55.
There are many different models of the Apple Watch to chose from but I’ll pick a low, middle, and high-end model as exemplars with prices (in Canadian dollars) of $449, $779, and $22,000 respectively. A dollop of sales tax (13% HST) will be added to each, but I’ll leave out any extra environmental taxes and similar levies.
As a result, the low-end watch requires about 6 days of 20-year old’s after-tax income. The one in the middle costs 11 days of income and the luxury model costs a whopping 303 days of income.
If instead of buying the watch the 20-year old invests the cash in the market and manages to get a real after-tax return of 3% on his investment then the money would grow to 2.8 times its original size after 35 years in inflation-adjusted terms.
After all those years, buying the watch would cost 17 days, 30 days, or 754 days of his future income depending on the model selected. In the latter case, investing the money instead of buying the luxury model would allow the investor to retire roughly 2.1 years earlier than the watch buyer.
In more bad news, the watch will likely become obsolete as new models arrive on the scene over the next few years.
But it’s not just the watch. If you spend too much money on luxuries, you’ll wind up working for longer than you might like. On the other hand, for the first little while you’ll have a nice watch to mark the time with as you toil your life away to pay for it.
Safer Canadian Dogs
Investors following the Dogs of the Dow strategy want to buy the 10 highest yielding stocks in the Dow Jones Industrial Average (DJIA), hold them for a year, and then move into the new list of top yielders.
The Dogs of the TSX works the same way but swaps the DJIA for the S&P/TSX 60, which contains 60 of the largest stocks in Canada.
My safer variant of the Dogs of the TSX tracks the 10 stocks in the index with the highest dividend yields provided they also pass a series of safety tests, such as having positive earnings. The idea is to weed out companies that might cut their dividends in the near term. Just be warned, it’s a task that’s easier said than done.
Here’s the updated Safer Dogs of the TSX, representing the top yielders as of April 10. The list is a good starting point for those who want to put some money to work this week. Just keep in mind, the idea is to hold the stocks for at least a year after purchase—barring some calamity.
Bank of Nova Scotia (BNS)
National Bank (NA)
Bank of Montreal (BMO)
Royal Bank (RY)
Source: Bloomberg, April 10, 2015
Price: Closing price per share
P/B: Price to Book Value Ratio
P/E: Price to Earnings Ratio
Earnings Yield: Earnings divided by Price, expressed as a percentage
Dividend Yield: Expected-Annual-Dividend divided by Price, expressed as a percentage
As always, do your due diligence before buying any stock, including those featured here. Make sure its situation hasn’t changed in some important way, read the latest press releases and regulatory filings and take special care with stocks that trade infrequently. Remember, stocks can be risky. So, be careful out there. (Norm may own shares of some, or all, of the stocks mentioned here.)
New & Noteworthy
Money manager and author Howard Marks talks about investing at Google.
Just For Fun
Something to think about the next time you find yourself working on the weekend.