Hedging Against Inflation
Hedging is the act of reducing your financial risk to potentially negative events, not unlike an insurance plan. Gold for example, is a popular hedge against inflation. With the rising cost of living, consumers are forced to spend more all the time. Can we do anything about this? Yes! We can hedge our cost of living and pay less for everyday expenses, without compromising our lifestyle or consuming less. That is what I intend to do here with…
The Dividend Subsidizing Hedge Fund (TM)
The idea here is to amass a pool of money (or fund) to buy shares or units of profitable, dividend paying companies whom I do business with regularly. This way, if a company starts charging its customers more money for its goods and services, then instead of just being gouged as consumer, I will also be on the other side of that business transaction and benefit as a shareholder. Eg: Hedging against higher banking fees by buying dividend growing bank stocks, so as other people give more money to the banks, the banks will become richer, which means my shares in those banks will either appreciate in value or grow their dividends which are of course paid back to me! Below are some examples of how much I spend on certain categories and which dividend stocks I currently have to offset (or “subsidize”) some of those expenses.
Note: All expenses and dividend incomes below are based on monthly averages.
Transportation Costs (Car insurance/maintenance + Gasoline + Public Transit)
Total Expenses: $150
Dividend Subsidies: $286 (191%)
| Company | Type* | $/Share | # Shares | Mkt Value | Div Yield | Avg Div/Mth |
| CVX-N | A | $90 | 35 | $3150 | 5.6% | $15 |
| HAL-N | B | $12 | 102 | $1224 | 1.5% | $2 |
| APR.UN-T | B | $9 | 219 | $1971 | 9.0% | $15 |
| CPG-T | C | $2.27 | 75 | $170 | 5.3 | $2 |
| SU-T | A | $24 | 2173 | $52,152 | 3.5% | $152 |
| CNQ-T | B | $24 | 597 | $14328 | 7.0% | $84 |
| KEY-T | B | $20 | 103 | $2060 | 9.5% | $16 |
| Total | $75,005 | 4.6% avg | $286 |
Housing (Mortgage, building maintenance, property tax, management, hydro, hot water, and other building amenities)
Total Expenses: $330
Dividend Subsidies: $242 (73%)
| Company | Type* | $/Share | # Shares | Mkt Value | Div Yield | Avg Div/Mth |
| REI.UN-T | C | $16 | 344 | $5504 | 9.0% | $41 |
| AP.UN-T | C | $40 | 100 | $4000 | 4.0% | $13 |
| SRU.UN-T | C | $21 | 270 | $5670 | 8.7% | $41 |
| NLY-N | C | $6.5 | 180 | $1170 | 15% | $15 |
| CAR.UN-T | C | $47 | 150 | $7033 | 2.9% | $17 |
| BEP.UN | B | $46 | 98 | $4508 | 4.7% | $18 |
| BEI.UN | C | $29 | 60 | $1740 | 3.5% | $5 |
| TRP-T | C | $58 | 103 | $5974 | 5.6% | $28 |
| ENB-T | C | $41 | 214 | $8774 | 7.8% | $57 |
| SNC-T | B | $22 | 95 | $2090 | 0.4% | $7 |
| Total | $46,463 | 6.3% avg | $242 |
| Company | Type* | $/Share | # Shares | Mkt Value | Div Yield | Avg Div/Mth |
| RCI.B-T | C | $58 | 106 | $6200 | 3.4% | $18 |
| INTC-Q | B | $59 | 166 | $9910 | 2.2% | $18 |
| AAPL-Q | B | $335 | 21 | $7054 | 1.0% | $6 |
| T-T | C | $23 | 1221 | $28,083 | 5.1% | $119 |
| VOD-N | C | $16 | 45 | $720 | 10.8% | $6 |
| CMCSA-Q | A | $40 | 80 | $3200 | 2.3% | $6 |
| QCOM-Q | B | $84 | 30 | $2520 | 3.1% | $7 |
| BCE-T | C | $58 | 50 | $2900 | 5.8% | $14 |
| T-N | C | $30 | 80 | $2416 | 6.9% | $19 |
| VZ-GS | C | $56 | 22 | $1232 | 4.4% | $5 |
| Total | $64,235 | 4.1% avg | $218 |
~Hedging potential: Med. As communication servers, cell phones, and technology become cheaper to make and operate, tel-cos and chip manufacturers should see better margins and higher profits.
Disclaimer: The proper financial term “hedge fund” actually means something completely different than what’s depicted on this page. I just thought the term made sense to describe a fund used to hedge against inflation and daily expenses. Also, nothing in life is free; the price to pay for these subsidies and hedges is the capital required to buy and hold the dividend stocks in perpetuity.
I like your idea to cover your expenses by buying stock in the same sector as your spending is. I have way more to buy in telecoms then haha !
The nice thing about our telecom companies in Canada is they have a solid history of increasing dividends.
I dare you to buy in Italian telcom. LOL
According to above, it was Oct 15 when this was last updated. If you don’t mind could you update these numbers for your visitors.
Thanks
Thanks for reminding me. Just updated it now. Increasing subsidies came from a combination of buying new stocks, DRIPs, and dividend increases by a few different companies since last year. Another thing that really helped is that my spending for these particular expenses didn’t go up since my last update.
I love the concept !!!
I need to buy more Timmies, Endbridge, Bell, IMO, Telus and RioCan wouldn’t hurt
Do it! They’re all brilliant names as far as I can tell.
I love your setup!!! It’s really nice to see how you organized it and how it can help cover the cost of living. I might just try to organized mine that way to see if I cover my expenses.
I bet your hedge fund would look really interesting because you have a family and your expenses would look very different from mine.
You should add a food/eating out fund 🙂 Some of my best investments are derived from that.
Love this idea, need to go through this page more thoroughly when I get the time, I’ll be bookmarking this one 🙂 great blog!
Looking at my gas/electricity bill last month reminded me of exactly this idea and I even looked (very briefly) at share prices for utility companies. I have to applaud you for having the foresight to do this as a couple of things occurred to me. 1st one was I should have done this much much sooner as the prices are a bit more than they were 10 years ago, and the 2nd was the P/E ratio of around 14 seemed a bit high to be good value for me. That’s a lot of money to tie up for now, so I’ll stick to paying off more debt for the moment.
I do think banking shares are cheap at the moment though.
Don’t forget to consider income taxes on your dividends and interest. Your bills are paid with after tax dollars, and your “hedge” income is pre-tax.
A commenter on my site just let me know that you and I both came up with this concept independently! Too funny, check it out: http://pretired.org/pretirement-how-to/dividend-mapping/
It’s interesting to see how companies increase their dividends over time.
I have something similar, except instead of hedging sector by sector I just targeted 2 variables, oil prices and USD interest rates. These 2 basically affect everything else.
Years later & I still love this concept. Are you still actively pursuing your hedge fund to subsidize your expenses 100%? Maybe I missed a blog post… whoops.
You didn’t miss anything. I just haven’t updated this page in awhile lol. Earlier this year I added more than $100,000 of new stocks to my portfolio during the bear market so I’ll be changing my hedge fund numbers to reflect that soon. 🙂
That’s awesome, thanks for sharing! Love the blog, including this section 🙂
Hey Liquid! Love this post and this concept. My partner and I recently decided to move into a Toronto Riocan rental building, we got a great COVID deal but it’s not rent controlled unfortunately. I’ve been thinking about buying the RioCan REIT to hedge against future rent increases, and it reminded me of this blog post. I haven’t read much into REIT investing however, so far we have just invested in index funds, so I would want to learn more first about the fundamentals of REITs. Do you have any go-to resources to learn about REIT investing?
That’s great to hear you got a nice deal on your new place. 🙂 With the cost of living increasing so much lately every financial win counts.
I own RioCan myself and simply let it DRIP a new unit every month. Many other REITs can have their distributions automatically reinvested as well if you don’t need to spend the earnings right away. I find this article from MoneySense to be a good place to start for anyone looking to invest in REITs. https://www.moneysense.ca/spend/real-estate/what-you-need-to-know-about-reits/
Hey Liquid, I recently started to follow your blog and Utube. I love your discipline and analytical investment approach that started out so early in life, you are inspirational to all who want to be financially free whether young or old! I am too looking into the Dividend stocks to provide the monthly income stream. There seems many bargains in the market now, I especially notice that U.S. Telecom giants like AT&T and VZ are pumping great yield. AT&T is under its book value even with the recent dividend cut, but it seems good to start cumulating the shares at this price. I am curious of your perspective on this…. Thanks and keep up the great work! P.S. I love your $10K option premium challenge, it helps me with money-making ideas with options.
Cheers!