6-time National Bestselling author Derek Foster left the rat race at the age of 34 despite spending his 20s backpacking across Europe, Australia, and New Zealand – and living a number of years in Asia. He later became “The Idiot Millionaire” using a simple investment strategy any 6-year-old can follow. When not writing or public speaking, Derek spends his time with his wife and eight children. His claim to fame was being the youngest retiree in Canada when he retired at the age of 34 in 2004. Derek currently lives off and supports his family through dividend distributions and book sales. I spoke to Derek at the The MoneyShow Conference in Toronto last month and was able to set up this interview.
Urgen Kuyee (UK): Hi Derek, thanks very much for taking the time out of your busy schedule for this interview. Why don’t you let my readers know a little bit about yourself? Which school did you go to? How did you get into personal finance?
Derek Foster (DF): I got a Commerce degree from Carleton University, but there were a lot of “distractions”, so to be honest, I was not a great student. I was interested in some form of investing at a very early age I first began to think about it at age 7 – the first time I played Monopoly! Collecting rent just seemed much more fun than “Passing GO”. Later, at around age 13, I read a book about how the stock market worked, and I was hooked on the idea.
UK: Reading your books was probably the first time I had come across the idea of using stocks to generate passive income. Where did you get the idea from?
DF: I read a lot (Peter Lynch and Warren Buffett) and started buying steady stocks that paid dividends. Then I began to notice my income kept increasing every year and I began to think about things. I figured cutting work will give me more free time, so by simply collecting dividends I could use my time doing things I enjoyed doing – and to be honest, I didn’t really enjoy working.
UK: You worked as a telemarketer once. Did you hate your job? Is that one of the reason you quit at 34?
DF: Yes – worst job I ever had! You want some encouragement to save to escape the rat race. A crappy job is a great motivator!
UK: How were you able to retire at the age of 34?
DF: My dividend income just kept growing as one of my main criteria was to focus on companies that consistently increase their dividends. Then I took a good look at how the income tax system worked and realized dividend income is pretty lightly taxed, so you need MUCH LESS income before taxes to end up with the same amount AFTER TAX. The worst way to earn income in Canada is to work for it! The taxes and other costs are simply too high.
UK: What are one to three books that have greatly influenced your life?
DF: One Up on Wall Street by Peter Lynch is a great one to read – but specifically where he talks about “high dividend achievers”. Also, Berkshire Hathaway’s annual letters written by Warren Buffett.
UK: We have had the longest bull market in history since the 2008/2009 recession. What should Canadians do with their portfolio today?
DF: Same as always – focus on simple companies you understand that have some sort of competitive advantage so that a competitor can’t hurt their business too much. This is becoming a bit harder as there are more “disrupters” out there attacking some businesses, but it is still very possible to do.
UK: Your strategy has always been to buy quality dividend-paying stocks and hold them through thick and thin. What is your current investment strategy?
DF: Buying and holding mostly dividend-paying stocks. The strategy has not really changed too much. One minor tweak is that since my portfolio income has grown quite a bit, I am willing to hold some stocks that might pay a low to no dividend as long as it is still high quality. An example would be Berkshire Hathaway.
UK: Do you mind sharing what’s in your portfolio today?
DF: Sure. In Canada, mostly banks, pipelines, utilities, mixed in with a few growthier stocks. Examples would be companies like RBC, TD, TC Energy (TRP), ATCO Gas industy company (ACO) and Restaurant Brands International Inc (RBI).
In the US, I own companies such as Johnson & Johnson (JNJ), Colgate-Palmolive Company (CL), etc.
*JSYK: If you have ever thought of owning a tiny piece of Burger King, Popeyes Louisiana Kitchen and Tim Hortons, you do that by purchasing RBI Inc stocks. Let’s be honest, we all prefer Timmies over Starbucks. 10 pack of Timbits? YUM.
UK: What do you consider your best financial move and your worst financial move?
DF: I would say my best financial move was starting young and focusing on quality stocks. Worst move would be borrowing to invest and leaving myself in a vulnerable situation especially prior to 2008/2009.
UK: You tend to stay away from tech stocks such as Apple, Netflix, Amazon, Uber, et cetera. Why?
DF: Technology changes so quickly. Today’s winners can become tomorrow’s losers really quickly. I am not that smart so I have trouble understanding them. But I am smart enough to know that I am not that smart, and therefore avoid them. I mean, how smart do you have to be to understand a company like Colgate, which makes toothpaste? If a six-year-old cannot understand it, I don’t want to invest in it!
UK: Lastly, what are you up to these days? You have been retired for over a decade. Is retirement anything like you thought it would be?
DF: Life is generally good. Dividends keep growing. We live comfortable and the stress of the work world is not something I have to content with. Earning a passive income stream is a reasonable strategy that has worked well over the years.
UK: Thank you Derek. Where can people find you?
DF: www.stopworking.ca is my website. If you have any questions, feel free to email me there.
This interview has been edited and condensed.