Like many DIY investors, my investing journey began with something simple — a strategy I could understand.

That’s normal.

You don’t start investing and instantly understand capital allocation, total return, and portfolio architecture. Even financial advisors don’t necessarily specialize in stock selection. Most investors begin with what feels intuitive and relatable.

For me, that was dividend income.

Money was always discussed around our dinner table. My parents retired early and managed investments that included both real estate and stocks. In a way, my parents achieved FIRE (Financial Independence Retire Early).

But investing in the 70s and 80s was different. Interest rates were high. Everything was compared to the interest rate. When rates began declining, dividend income became more attractive relative to fixed income. Naturally, my parents’ portfolio shifted toward dividend-oriented stocks.

That shaped me. Upbringing matters. It gives you a framework — sometimes even an advantage.

So I did what many young investors do: I built what looked like a retiree’s portfolio. High yield. Reliable names. Banks, utilities, telecoms.

The income was attractive. But something wasn’t adding up.

Using the Rule of 72, I realized that doubling my capital would take far too long. Even with dividends reinvested, the growth rate was modest. The income was fine — but the capital wasn’t compounding at equity speed (compouder speed).

And I didn’t need income yet. I had 20+ years of working life ahead of me.

Realization:
→ My portfolio wasn’t growing at true equity speed.
→ Most income growth came from contributions, not business expansion.

That was the turning point.

Be aware of the yield trap.

A stock yielding 5% but growing earnings at 2% will double in ~36 years.
A stock yielding 1% but growing at 12% can double in ~6 years.

I began asking a better question: Would I rather have $40,000 in annual income — or a $5 million portfolio?

That question changes everything.

Around that time, I discovered a dividend growth screen known as the 10-10 rule: companies that grew dividends at least 10% annually for 10 years. That’s not a small feat.

Alimentation Couche-Tard was one of the companies that passed the test.

When I compared those businesses to traditional REITs, telecoms, and utilities, the difference was obvious. The dividend growth names delivered much stronger appreciation.

The 10-10 screeners, combined with the Chowder Score, became my filter. In Canada, NA, IFC and ATD became meaningful positions.

Realization:
Very few Canadian companies meet strict dividend growth criteria compared to the U.S.

That realization led to the next evolution.

When the Canadian dollar reached parity after the financial crisis, I shifted aggressively into U.S. equities within my RRSP. It was a no-brainer. Historically, it’s rare for the Canadian dollar to match the greenback, so it was an opportunity to profit from currency appreciation down the line.

Over time, my RRSP became fully U.S.-denominated.

Why?
→ Better investing options.
→ The largest economy in the world.
→ Access to mega-cap businesses operating globally.

Owning Microsoft doesn’t give you U.S.-only exposure. It gives you global exposure. Over time, as I found and added compounders, portfolio growth accelerated.

Realization:
Total return — not yield — became my primary metric. And yes, many mega-cap technology companies now pay dividends.

My core holdings included Microsoft, Apple, Costco, and AbbVie. This wasn’t just “tech investing.” It was business quality investing.

Total return investing is often misunderstood.

It isn’t about placing a big bet on one stock and hoping it works out. It isn’t about chasing performance from year to year. And it certainly isn’t about measuring success over a 12-month window.

Total return investing is about understanding how capital compounds over decades.

That sounds simple — but in practice, it requires far more discipline than income-focused investing.

When you shift your focus to total return, you stop looking only at dividends deposited into your account. You begin looking at the entire capital base. You begin asking whether the businesses are reinvesting effectively, whether earnings are growing, and whether your ownership stake is increasing in value over time.

And to do that properly, you need clarity.

If you want real clarity, you have to track your portfolio the way a business owner tracks capital. You must monitor contributions carefully. You must separate growth driven by savings from growth driven by compounding. You must know your true internal rate of return.

That requires effort.

Total return investing also requires emotional strength. When you concentrate capital into high-quality compounders, volatility increases. A stock that represents a meaningful percentage of your portfolio will move the needle — both up and down.

You have to be comfortable seeing large swings without reacting emotionally.

That’s where conviction comes in.

Conviction isn’t blind faith. It’s an understanding of the stocks you own and why it deserves capital. It’s knowing the difference between volatility and deterioration.

Over decades, total return rewards patience. But patience only works if you can withstand discomfort along the way.

Optimizing for total return means accepting that your portfolio won’t always look smooth. It means accepting concentration when quality warrants it. And it means trusting compounding more than quarterly performance.

That shift — from yield focus to total return discipline — is what allowed my strategy to evolve.

And ultimately, it’s what made the Layer Cake possible.

Traditional diversification tells us to “spread across sectors.” For decades, that framework made sense. Economies were more industrial, businesses were more localized, and sector exposure often reflected economic sensitivity.

But the diversification world has changed.

Modern businesses don’t fit neatly into sector boxes anymore. A sector label doesn’t tell you how a company actually makes money, how scalable its model is, or how resilient it may be during economic stress.

Take Bell Canada, Walt Disney Company, and Alphabet Inc.. All classified as telecommunications. Are they truly comparable? One operates as a regulated telecom infrastructure provider. Another monetizes intellectual property and entertainment assets. The third dominates digital advertising, cloud infrastructure, and global data platforms.

Their business models are fundamentally different.

Sector-based diversification assumes companies within a sector behave similarly. In reality, two businesses in the same sector can have completely different revenue streams, competitive advantages, capital intensity, and growth trajectories.

The global economy today is interconnected, vertically integrated, and increasingly driven by scalable platforms. Mega-cap companies operate across borders, across industries, and often across what used to be separate sectors. Trying to rotate between sectors as if they were cleanly defined economic buckets oversimplifies how value is created.

Diversification, in my view, should not be about ticking sector boxes. It should be about owning high-quality businesses with durable competitive advantages, strong capital allocation discipline, and resilient earnings models.

The question isn’t, “Do I own every sector?”

The question is, “Do I understand how this business makes money — and whether it can continue doing so over decades?”

That’s a much higher standard of diversification.

Realization:
Limiting exposure to the same industry is, however, important but no framework actually do that from I have experienced.

Software and educational materials are still focused on sector diversification.

I’ve always liked the idea of rebalancing.

At a high level, it makes sense. Between broad asset classes — like bonds and equities — rebalancing works beautifully. When stocks outperform, you trim a little and add to bonds. When stocks fall, you add to equities. It forces discipline. It encourages buying what’s temporarily out of favor and trimming what has run ahead.

At the asset-class level, it’s elegant.

But when you move from asset classes to individual stocks, the process becomes far more complicated.

Hard rules like “cap each holding at 5%” sound disciplined and responsible. On paper, they look like risk management. In practice, they can create unintended consequences — especially when you own high-quality compounders.

When I only owned Microsoft as my primary compounder, I found myself trimming it repeatedly. It kept outperforming. It kept growing. And every time it crossed an arbitrary percentage threshold, I would reduce it.

The discipline felt rational. But in hindsight, I was trimming strength.

As I added Apple, AbbVie, and Costco, something interesting happened. The portfolio began to balance more naturally. Multiple compounders grew at different speeds. Leadership rotated organically. The need for rigid trimming diminished.

That experience forced me to question the rule itself.

A hard cap doesn’t distinguish between a deteriorating business and a thriving one. It treats both the same. It assumes size equals risk, even when the underlying quality of the business may have improved.

Too often, strict rebalancing rules lead to “trimming flowers and watering weeds.” You reduce exposure to your strongest performers and redirect capital toward weaker or slower-growing holdings simply to maintain symmetry.

That may preserve visual balance — but it doesn’t necessarily preserve compounding.

This doesn’t mean rebalancing is wrong. It means it must be contextual.

Realization:
Individual stocks don’t move in opposite directions the way bonds and equities sometimes do. They no longer follow cycles the wayt they used to.

Strong businesses can remain strong for years. Weak businesses can remain weak for years. Forcing mechanical balance in that environment can work against the natural power of compounding.

Retirement isn’t about bond percentages Although it’s a form of layer cake strategy with two layers. It’s about the role each dollar plays inside your portfolio.

I think in layers.

1️⃣ Foundation → Own the system → Capture the long-term return of the global market.
2️⃣ Stability → Smooth the ride → Deliver reliable income and reduce portfolio volatility.
3️⃣ Engine → Power retirement income → Grow income faster than inflation over time.
4️⃣ Compounders → Expand long-term wealth → Multiply capital through sustained earnings growth.
5️⃣ Accelerators → Press when conviction is high → Amplify upside opportunistically when conditions are favorable.

Each layer has a job. And as you approach retirement, you don’t flip a switch overnight — you gradually rebalance the importance of each layer.

There are no set ratios per layer. The ratios are up to you based on where you are at in life. But ultimately, volatility is inherent to each layer.

The purpose of the layers is for you to properly classify your holdings and capture the expected volatility, growth and income. You could be 100% in the second layer and that’s fine. But I have also seen retirees in that layers asking about the fifth layer because of portfolio shortcomings.

Even retired dividend income investors do the above without realizing. This way, there is a process and structure.

Definition: Broad market index exposure.
Role: Capture the long-term return of the global market.

This is your structural core. It ensures you participate in economic growth without relying on individual stock selection.

Examples:
→ Canada: Vanguard FTSE Canada All Cap Index ETF (VCN), iShares Core S&P/TSX Capped Composite Index ETF(XIC)
→ U.S.: Vanguard Total Stock Market ETF (VTI), SPDR S&P 500 ETF Trust (SPY)

Definition: Durable companies with consistent earnings and dividends.
Role: Deliver reliable income and reduce volatility.

These businesses provide psychological and financial ballast.

Examples:
→ Canada: Royal Bank of Canada, Toronto-Dominion Bank, Fortis Inc., Vanguard FTSE Canadian High Dividend Yield Idx ETF (VDY)
→ U.S.: Coca-Cola, PepsiCo, Schwab US Dividend Equity ETF (SCHD)

They are not designed to explode upward — they are designed to endure.

Definition: Dividend growth companies.
Role: Grow income faster than inflation.

This layer becomes increasingly important as retirement approaches. Rising income protects purchasing power across decades.

Examples:
→ Canada: Canadian National Railway, Alimentation Couche-Tard
→ U.S.: Johnson & Johnson, Procter & Gamble

The goal isn’t high yield — it’s rising yield over time.

Definition: High-quality businesses reinvesting capital at high returns.
Role: Multiply capital through sustained earnings growth.

These are the wealth expanders.

Examples:
→ Canada: Constellation Software
→ U.S.: Apple, Microsoft, Costco

They may not fund today’s income — but they secure tomorrow’s capital.

Definition: Tactical, higher-volatility tools.
Role: Amplify upside opportunistically.

Examples:
→ Canada: BetaPro S&P 500 2x Daily Bull ETF
→ U.S.: ProShares UltraPro QQQ

This layer is never required for retirement survival. It is optional. Used in moderation, it enhances returns. Overused, it increases fragility.

The biggest retirement risk isn’t low returns — it’s poor returns in the first 5 years of withdrawal.

The true power of the Layer Cake is revealed when you reach your retirement number.

You don’t retire immediately. You transition. You shift for retirement income.
→ Accelerators shrink.
→ Compounders moderate.
→ Engine and Stability grow in importance.
→ Foundation remains constant.

Financially, retirement is not a date, it’s a portfolio redesign.

And when each dollar has a defined role, the portfolio becomes resilient — not because markets cooperate, but because structure does.