Stop Working : Here's How You Can!: Using the Strategy of Canada's Youngest Retiree

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Review by Dividend Growth, 2008-07-24

This review originally appeared on dividendgrowth.blogspot.com

After finding the book "Stop Working" from Derek Foster on Amazon, I feverishly read it from cover to cover in about 3 - 4 hours. To those of you who haven't heard anything about the book before, it's written by Derek Foster, who is touted to be Canada's youngest retiree.

Apparently the author of this book was able to "punch out" of the workforce at the tender age of 34. He was able to do this by investing a fixed amount of money every month for a period of about 12 years. Initially he bought only mutual funds, and later focused exclusively on dividend paying stocks.

Personally I thought that the book was very inspirational, because it shows the reader that they might not need as much as their financial advisors tell them to save for retirement. It also tells in a way the story of a dividend investor, gives a couple of dividend stock picks, and explains how dividend income is a better source of income compared to earnings from one's job. The book strongly focuses on cash flow, in particular cash flow from stable dividend companies with long history of dividend increases. I also how he compared taxable income from wages to taxable income from dividends. If you check out his "sample portfolio", you will notice that it was yielding about 6% in 2004/5, which is not unachievable. He did mention however, that you need to buy the stocks when they are trading at bargain prices. He also mentioned that had you bought the stocks in his sample portfolio at their bargain prices you would have paid about $100,000 for them, rather than $300,000 in 2004/5. And thus your yield on cost would have been 18%, rather than 6%.

The misleading part about this book is the fact that the author mentions how he saved $200/month plus his tax refunds in the stock market for 12 years. At the time of his retirement however, Derek Foster had a portfolio worth about $300,000 - $400,000, a fully paid house as well as a rental property. The numbers simply don't add up for me. I have read in other sources that he made large leveraged directional bets in Altria in early 2000, which paid off well. Without this "gamble" I do not know whether he would have made it or not. One cautionary thing to add is that he wrote the book right after he retired at 34. I would want to see how he has adapted to changing market conditions (elimination of the income trust structure in Canada in several years) in 2015, 2025, 2035. I hope he will still be able to be retired even when he is in his 60's. Another cautionary thing to add is that this strategy worked in Canada, where healthcare is practically free. If you lived in the US, however, you would need to save more simply for the rising healthcare costs.

Overall I considered the book to be very inspirational dividend book. If you keep saving a fixed amount of funds from your paycheck every month and you invest your money in quality companies which have a strong history of increasing dividends, you will be able to retire earlier that you thought possible.

Review by Michael Davey, 2008-05-01

I've read Derek Foster's book "Stop Working, Heres how you can". Personally, I think it's a good beginner book for someone who is interested in investing, retiring at some time in their life and wants a relatively safe way to invest their money. I thought Mr. Foster made it pretty clear what kind of retirement he was talking about, having a few vacations a year, perhaps working part time, (perhaps not) and having some money coming in to cover the bills and pay for those vacations. More importantly, to have the CHOICE of what you want to do. For many right now, they have absolutely NO choice in their life. They have to work, every day, sometimes two or three jobs in order to make ends meet. As for the previous reviewer who stated that this is not 'sailing-my-yacht-in-the-south-of-france" type wealth, all you need to do is wait longer. If you setup an spreadsheet, you can see that the wait between 'low income replacement' investment size and 'S-M-Y-I-T-S-O-F' type of investment size is not that much. One you get past the 15-20k per year returns, the money REALLY starts compounding. What the author does do is tell you how he invested his money so he could reach a point where he could do what he wanted to do. Isn't that what investing is all about?

"Stop Working" also talks about 'simplifying' your life so you can free up some money to invest. The simple fact is that most Americans, (Canadians as well) spend every dime they get and live paycheck to paycheck. They often purchase things they don't really need, and can't really afford. They go into debt to fund a more extravagant lifestyle. They absolutely have to have that flat panel wide screen LCD TV. And put it on a credit card at twenty-four percent interest, then pay monthly payments. In the end they wind up paying three times the cost of the TV to a credit card company. Canadians and Americans need to simplify their lives and start living within their means. Sooner or later the price tag for this behavior will come due and it's going to be a very high price indeed. Unfortunately it will impact more people than just the ones who lived beyond their means. But those who have saved for a rainy day will be far better off than those who didn't. It's not just me who is saying this. A lot of people are getting very concerned, including Warren Buffett. Anyways,...

The best part of this type of investing is you never have to sell your nest-egg to fund your dream. This is the basic premise of the book, that you purchase investments that will give you money every year, four to twelve times a year. Because you invest in businesses that are healthy and growing, they increase the dividends every year. So you get paid more, every year. And as you get paid more every year, you are re-investing those dividends in more stocks that give you more dividends. So on and so forth. This method is tried and true and works. This method is one of the safest equity investing methods. This method is supported by a lot of research, including "stocks for the long run" and "the future for investors" both by Jeremy J. Siegel, and many others, too numerous to mention here.

Yes, there are many books which will promise to get you a yacht in a couple of years. They are also likely to get you broke even faster.

Stop Working gives you a simple, easy to understand look at his method of investing, namely buying dividend stocks and reinvesting the dividends in more dividend stocks. Foster suggests that the RRSP (a Canadian registered retirement investment account) is not the best way to go, because of various limitations, including the age at which you must wait to access the funds, and the high tax rate when the funds are accessed. Foster recommends a regular investment brokerage account and using the tax loopholes (in Canada) to receive some dividend tax credits.

Unfortunately, after the book was printed, the 2008 federal budget introduced a staggered phasing out of much of those dividend tax credits. On the upside, (very upside, in my opinion) they have replaced it with a new Tax Free Savings Account. There are no tax credits with the account, but then there are no taxes at all on any investments you make in this account. There is a $5000 dollar maximum investment limit each year, and unused amounts can be carried forward. Amounts can be removed at any time and replaced any time, without penalty.

For low income people the tax dividend was better, but this is pretty darned good too.

I purchased this book for my son, he had problems understanding much of the investment books he had read up to that point. When he read "Stop Working" the light went on. Stop working isn't the end all and be all on dividend investing. Far from it. But it is a very good introduction. "Stop Working" is geared for the Canadian market, but I would suggest that the information is very transferable to American investors. The one thing I don't like about this book is that it does not have an index. Every non-fiction book should have an index!

The one caveat I will say, is that for the time period Foster was talking about in his book that enabled him to go to part time and basically do whatever he wanted for the rest of his life, saw some of the highest increases in business earnings in a very long time, which translated to some back to back, year after year hefty increases in dividends. We may not see increases like that again for some time. We might see the next twenty years with similar increases.

I can't wait to find out!

Review by Donald Leger, 2007-10-20

Hello all,

This book has much useful information and is entertaining but the end result may surprise you ... I went to his website, noted the phone number and called ... no answer ... but surprise surprise he called me up a while later - I had called him at his home and I suppose he used his call display to track me. After reading the book I did some additional research and found out that yes, he had retired at 35 but his wife works full time while he plays Mr. Mom to his growing family and makes extra money selling this book and is preparing a forthcoming book. He also extolls the virtues of simple living ... by this token almost anyone can claim to be work-free ... this is not a case of sailing-my-yacht-in-the-south-of-france type wealth but rather one of simple living with someone else (his wife) bringing in the bacon - his investments providing a steady if modest income. Yes, anyone can retire young but many people(such as myself) are sole breadwinners and aspire to greater wealth when buying such literature. Is a street person financially independent? Think about it.