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Mar 17 2013

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Millionaire Teacher Buying $50,000 of Canadian Bond Index





I hate it when stock markets rise. 

If you’re at least five years away from retirement, you should too.  If you’re 20 years away from financial freedom, pray for a market crash.  Keep your head when it happens, and you’ll thank yourself, many years from now, as you benefit from discounted stock market products. 

The last time I wrote about my investments, I reported purchasing $21,000 of the U.S. stock index (VTI).

I wrote about this purchase on October 2012, and my portfolio looked like this:

  • 41.3%  Canadian bond index (as a Canadian, I have a home country bond bias)
  • 30.4%  International stock index
  • 28.3% U.S. stock index

The U.S. stock market index that I bought in October has risen 13 percent, including dividends.  That’s a pity.

On March 17th, 2013, my portfolio looked something like this:

  • 38%  Canadian bond index (as a Canadian, I have a home country bond bias)
  • 30%  International stock index
  • 32% U.S. stock index

As mentioned in my book, Millionaire Teacher, I’m comfortable having a bond allocation roughly equivalent to my age.  Adding $50,000 to bonds this month will bring my portfolio closer to my goal alignment.

No, I won’t be selling anything to rebalance my portfolio. 

Fortunately, I can rebalance it, somewhat, with an influx of fresh cash.  My account pays roughly $45,000 in annual dividends, which I couple with savings to make purchases (from freelance writing, our teaching salaries and proceeds from my book). My brokerage, DBS Vickers, doesn’t allow for the automatic reinvestment of dividends. 




To Recap My Recent Buys:

 I’m not trying to “time the market” and I don’t think anyone can.  Rebalancing (or adding to the lagging market) doesn’t always increase returns, either.  But it ensures that you’re always a bit fearful when others are greedy and greedy when others are fearful.

And if you follow such a strategy, over your investment lifetime, you’ll do very well.

Just keep your costs low and your emotions in check.  Rebalancing, after all, can require an iron gut.

 





About the author

andrew hallam

I'm a freelance finance writer, lucky enough to have been nominated as a finalist for two Canadian National Publishing Awards. I'm also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School, a book explaining how I became a millionaire on a teacher's salary, while still in my 30s. Working to empower people financially, I'm available to motivate and inspire people on basic retirement planning and index investing. I'm happy to comment on your questions, first, please read the Terms of Use.

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52 comments

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  1. avatar
    Sheryl

    Hi Andrew

    Great article – Good to know that you are of the view that the stock market seems to be over-priced.

    I understand that you use DBS Vickers as well – as they do not indicate the price that you purchased something at, do you use their custom portfolio to track how much you paid for something? How do you keep track of your portfolio, in order to rebalance it? Excel?

    Grateful if you could enlighten!

    Also, I have purchased a few lots of SG ETF – and prices have gone up since. I am tempted to sell them off and wait for prices to go down to go in again, and use the proceeds to buy into bonds. This is going against your philosophy, i suppose?

    Just wanted your thoughts on this.

    Many thanks!! have an awesome weekend!

    Sheryl

    1. avatar
      Andrew Hallam

      Hi Sheryl,

      I don’t actually think the markets are overpriced. The U.S. market trades at a historically average PE ratio at the moment, and the International market trades below the historical norm. Rather than basing my purchases on whether I think markets are high or low, I simply to try keep the same allocation with my portfolio. Removing what I think, from the equation, allows me to be dispassionate.

      As a tracker, Smartmoney.com would work, or you could use Excel.

      Cheers,
      Andrew

      1. avatar
        Jonathan

        To tract my portfolio, I use Google Spreadsheet online for it automatically give me the current share price of the specific ETF. I will try to create one and share a sample with you guys.

        1. avatar
          Andrew Hallam

          That would be great Jonathan, thanks!

    2. avatar
      Andrew Hallam

      One other thing Sheryl:

      What you are proposing, with the Singapore market, is called market timing. I don’t recommend selling all of your equities and then trying to buy them back at a lower price. There may not be a lower price. Instead, consider a more disciplined approach of ensuring that your portfolio is properly balanced between the allocations you set for yourself.

      Cheers,
      Andrew

      1. avatar
        Rob in Europe

        I agree, I tried a bit of TA only to find out that market moves are totally random, the stock I wanted rose instead of falling and the stock I bought dropped instead of rising. Seen that many times so decided after this I stick to my mechanical trading system (David Stanely’s BTSX) marketing timing is for losers.

        BTW enjoyed your book (and have given away 8 copies to friends) but ultmately decided to stick with DRIP stocks. But am planning on adding some bond funds for rebalancing.

        1. avatar
          Andrew Hallam

          I’m glad you liked the book Rob. If you’re disciplined and reinvest dividends into a bunch of blue chip businesses, you will also do well (as you know) over time. Thanks so much for helping me to educate people by giving away those books as gifts!

          Cheers,
          Andrew

          1. avatar
            Rob in Europe

            It’s funny everyone who has read the book makes the same comment about Banks and MER, the staff being clueless.

            One of the reasons I’ve given away so many copies is that I love talking to young couples about money and I always tell them the same story, if someone had talked to us about money 30 years ago it would have saved us so much finacial pain.

            Rob

      2. avatar
        Sheryl

        Thanks for your advice Andrew – appreciate it! I’ve decided to hold on to my ETFs and re-balance in a couple of months time. I have 20% VEA 20% VTI 40% STI ETF and 20% SG Bonds A35

        I’m thinking of buying stocks of companies which I have faith in, to hold for the next 20-30 years.

        One of them would be Coca-cola – seems like it’s quite expensive now though…

        Also, going by your recent article about Value-buying, now wouldn’t seem like the right time to buy…

        cheers, and have a great weekend!

  2. avatar
    Jonathan

    As you always tell us your reader to not to time the market. But when I start looking at the time intervals when you buy stocks/bonds index, there are intervals are not consistent. To illustrate this, base on your sample I plot it below:

    March 2013 – 5 months from October 2012
    On October 28, 2012 – 1 month from September
    In September, 2012 – 1 month from Augus 2012
    In August, 2012 – 2 months from June 2012

    If you don’t time the market, why is it that sometimes it took you 1 month to buy, sometimes 2, sometimes 5 months before you buy stocks/bonds index.

    Currently what I’m doing is I try to buy every month (As soon as I receive my salary) irrespective of the bonds/stocks prices to just to keep my stock allocation of 32% ISHG (same as my age), 30% VTI, 38% VEA.Am I doing it blindly wrong?

    1. avatar
      Andrew Hallam

      You’re doing it the right way Jonathan. I usually invest monthly, but I don’t always write about it. If I’m inspired, and/or notice that I have accumulated a large sum in dividends (my brokerage doesn’t automatically reinvest dividends) or I receive a particularly large monthly pay, then I’ll document what I’m doing for that month–if I’m inspired to do so. I don’t time the markets, and don’t even follow its movements very often.

      I’ll have guys at work ask, “what do you think of the market’s rise over the past couple of weeks?” And I’ll often respond, very honestly, that I didn’t know whether the markets had fallen or risen during the previous fortnight. I certainly don’t have any kind of magic formula, nor do I think there is one. It fits the lazy part of my personality. Those who know what the markets are doing on a daily basis (in my experience) are usually ineffective–and overactive–investors who allow the market to tug at their hearts.

      Cheers,
      Andrew

  3. avatar
    Karen

    This article is so timely for me. The market has been hitting all time highs, and I was getting nervous. My husband was thinking we should take some money out of our Vanguard US Stock fund and put it in the US Bond fund because he was watching the news and some pundit says we are getting ready for another crash. I should have known then to ignore it because my gut reaction was, “great, then we can buy more stock!” But then I started getting worried that we would lose the gains we already had this quarter (hubby is VERY close to retirement, I have 11 years yet). I’m so glad you wrote this. Even though I read your book, I need the little reminder now and then. Our allocation is right in line with where we want to be. Besides, we shouldn’t be watching so much TV!

    1. avatar
      Andrew Hallam

      Hi Karen,

      Yes, predictions on television can certainly be troublesome. I don’t watch stock market based television because it tends to either bore me or set my heart racing. It’s one of the reasons Warren Buffett prefers to work from Omaha versus New York. He says that Omaha allows him to ignore the “noise” of Wall Street.

      For a laugh, check out the market predictions tracked by CXO Advisory. Of the dozens of high profile pundits they track, currently their market timing track record (as an average) is running at 47%. We would be better off “timing” the market based on coin tosses than based on the information from the economists and experts making predictions on television. http://www.cxoadvisory.com/gurus/

  4. avatar
    Whitney

    Having read all your stuff in the past, it makes sense, but still a nice reminder.

    1. avatar
      Andrew Hallam

      Glad to hear it Whitney,

      As you know, it isn’t rocket science, but it does require emotional equanimity.

      Cheers,

      Andrew

  5. avatar
    Clive

    Hello,

    I’m in the process of getting started at the late age of 50. I’m looking for an appropriate online broker and the appropriate ETFs.

    I live in Canada and interest rates here have been at “emergency levels” for several years and only have one way to go, which is up and likely this year as indicated by our government.

    In terms of Bonds, which at my age should be half of my portfolio, I’ve been considering XBB or XSB (short term bonds). The concern is – and I’m not sure if it is over-stated – that bond prices will fall as interest rates fall. I recognize this presents a buying opportunity over time, but, at the same time, I would like to get off to a good start.

    Would I be better off with the short term bonds or stick with XBB? Thanks!

    1. avatar
      Andrew Hallam

      Hi Clive,

      You would be better off with short term bonds (like VSB) if interest rates rise. The current holdings will be replaced by newly issued bonds on a regular basis. So when interest rates rise, you capitalize on that sooner than you would if you owned a longer term bond index like XBB.

      As for an online brokerage, I know that the commission fees are a little higher, but I really like QTrade.

      Cheers,

      Andrew

      1. avatar
        Adam Harrold

        Hi Andrew,

        If I have already purchased VAB, should I sell and replace with VSB?

        Thanks for you help,

        Adam

  6. avatar
    David

    Hi Andrew,

    I’m just starting out with index investing and came upon your blog. I like how you’re teaching us beginners how to do invest without emotion, and rebalance like robots. One question I have is why do you only buy short term bond? And why no allocation to the Canadian stocks? Thanks.

    1. avatar
      Andrew Hallam

      Hi David,

      I don’t have a Canadian stock allocation because I’m not sure what country I’ll eventually end up in. I have nothing against the Canadian market, and if I knew that I was going to eventually retire in Canada, then I would have a Canadian stock bias as well as a Canadian bond bias. My account, if I lived in Canada, would look something like this:

      40% Canadian bond index
      20% Canadian stock index
      20% U.S. stock index
      20% International stock index

      I own the short term bond index because I should keep pace with inflation with that one. When interest rates rise, my new bond yields (when current short term bonds within my index are renewed) will be renewed at a higher interest rate. So…it’s my way of ensuring that my money will outpace inflation—perhaps not every year, but over every three year period it should.

      1. avatar
        David

        Thank you Andrew for your answers. Interest rates can only move up (unless it goes into negative territory), and now I understand your reason for buying short term bond ETF instead of something longer such as XBB.

  7. avatar
    Scott

    Andrew,

    I have been wondering about this lately. So my question is my account does auto reinvesting of dividends so in order for me to rebalance I would need to sell out of my vangard u.s. and international funds. I have been putting my payroll contributions only into my vanguard bond index for a couple months now, but it is still a little out of whack based on the market increases. Would you do a full rebalance in light of the percentages my account is off or just keep putting into the bond index semi-weekly?

    Scott

    1. avatar
      Andrew Hallam

      Hi Scott,

      If you are out by 10% or more you may want to re-balance by selling some of your stock index to balance with you bond index. For example, if your goal allocation is 70% stocks and 30% bonds, but you have 81% stocks, 19% bonds, then you may want to re-balance. But if you are out by less than 10%, I wouldn’t bother. Just keep buying the lagging index (the bond index, in this case).

      Cheers,
      Andrew

  8. avatar
    Dianas Report

    Andrew, if you knew for certain that the stock will collapse would you do anything differently?

    Sell everything except your bonds or keep as is and ride the waves?

    1. avatar
      Andrew Hallam

      Hi Dianas,

      You’re asking me what I would do if I could see the future? That would be nice, of course. But nobody has that power, unfortunately.

  9. avatar
    My Own Advisor

    On October 28, 2012, I bought the U.S. stock market index. Unfortunately…
    In September, 2012, I added to my Canadian bond index. Fortunately….
    In August, 2012, I bought the U.S. stock market index. Unfortunately….
    In June, 2012, I bought an International stock market index. Sadly….

    Too funny but of course, very well done!

    Too bad VTI is priced so high right now. Would like to buy more for my RRSP.

    For your international stock index Andrew, have you considered VXUS? Or this that the one you own? I can’t recall. I don’t own that yet, but am considering buying it.

    Keep up the great work. I will highlight this article in my next Weekend Reading roundup!

    Mark

    1. avatar
      Andrew Hallam

      Cheers Mark!

      I don’t own VXUS because it has exposure to China. I have a bias against the Chinese market, wanting nothing to do with it.

      That said, VXUS has very little Chinese exposure and is a good index.

      My post, before this one, explained why I won’t invest in China.

      Cheers!

      Andrew

      1. avatar
        André

        Hello Andrew,
        I guess we have an interest in China owning VTI and VEA since most of the largest companies making those funds have exposure to China.
        Also, because the way you invest takes advantage of volatility and because emerging markets are volatile animals, don’t you think that some exposure to funds like VWO and EEM might actually be not such a bad proposition?
        Having said that, I don’t own any of those funds for the same reasons you have mentionned.
        Salutations!

        1. avatar
          Andrew Hallam

          They certainly sell products to the Chinese Andre,, so I suppose there’s some indirect exposure. But I try to sidestep owning Chinese companies if possible.

          Cheers!

          Andrew

  10. avatar
    Adam

    Hello Andrew,

    I’m a fellow international teacher living in Asia. I bought your book yesterday, read it cover to cover, and an excited to invest! I’m 27 and have just paid off all of my loans. It’s time to start investing, and thanks to you, I now know how!

    So, I have one question. (BTW- I’m American and want to invest through Vanguard)

    1. I’ve read a little bit about ETF’s but I’m not sure whether they are better for me than Mutual fund indexes. Do you still recommend the standard index funds above ETFs?

    So, would I want to invest in
    1)VBMFX, VTSMX, and VGTSX (mutual fund indexes)

    OR

    2) VTI, ?….?…(i’m not sure the names of the ETF equivilants…help me out if possible).

    Thank you so much for sharing your talents and skills, you are an amazing teacher.

  11. avatar
    Eric Johnson

    These are my favorite posts that you do. It would be great to have one every month.

    It might be fun to see a single web page on your site with a list of your investment choices and some stats and maybe a short comment. Oh. I just noticed you have an ‘Andrew’s Money’ category. Well thats close to what I wanted.

    1. avatar
      Andrew Hallam

      I’m glad you like them Eric, and I’ll try to post them more frequently.

      Cheers,

      Andrew

  12. avatar
    Dan C

    After reading your book I am in the early stages of investing with e-series funds. I noticed your book refers to TDB905 international index fund. After investing in this I noticed it is currency neutral. Should I have invested in TDB 911 instead? Wondering if the fund name changed since the e book was published. Any advice would be appreciated.

    Dan

    1. avatar
      Andrew Hallam

      Hi Dan,

      TDB 911 is a non hedged version, and over a long period of time, it will do better. I should have mentioned that one in the book instead. If you’re interested in reading an article on hedging international indexes (and why you shouldn’t buy the hedged products) you can read my Globe and Mail piece here: http://www.theglobeandmail.com/globe-investor/investment-ideas/strategy-lab/index-investing/hedging-against-forex-moves-dont-waste-your-money/article8916824/

  13. avatar
    Leila

    Hi Andrew!
    I just finished reading Millionaire Teacher in one day, and I’m excited to start investing! It’ll be my first time, and I’m 32, but I know…better late than never! :)
    My question is this:
    I’m Canadian, and I understand that my portfolio should be 30 – 35% CAD bond index fund with the rest divided equally among the CAD stock index, US stock index & international index funds. I’ve looked into the TD eSeries funds you recommended…but Vanguard has since established itself in Canada, and I was wondering if they have the same funds that TD offers? I can’t seem to figure it out by the names. Would they be better to use than TD?
    Also…the main thing that has me confused is this: do I buy these bonds & stocks and shelter them in an RRSP or a TFSA? Or both? Or just as non-registered mutual funds? Any advice you could give would be so greatly appreciated!
    Thanks for everything! Can’t wait to learn even more about investing! It’s so exciting :)

    1. avatar
      Andrew Hallam

      Hi Leila,

      I’m glad to hear that you have started investing. Congrats!

      Unfortunately, Vanguard does not offer index funds in Canada like they do in the U.S. Vanguard does, however, now have a nice collection of exchange traded funds that trade on the Toronto Stock Exchange. To buy these, you would need to open a brokerage account and pay a commission for each purchase. Commissions, depending on the brokerage used, would cost anywhere between $9.99 and $25 per purchase. This is the main reason I suggested, in my book, that investors considering ETFs versus TD’s e-Series indexes (which can be purchased commission free) should consider table 6.6 in my book, on page 113.

      If you are just starting out, and you will be adding small sums each month, the e-Series products make a lot of sense.

      To keep things simple, you may want to build the same portfolio in your RRSP as in your TFSA. Then, when you have maximized your contribution room, build the same portfolio in a taxable account. Hopefully, if you’re a great saver, you’ll maximize your tax sheltered contribution room and then start building the taxable account.

      Cheers,
      Andrew

      1. avatar
        Leila

        Thanks so much Andrew!
        Your advice really is priceless. When I’m 65 years old, and rich, with no financial worries, I’ll have you to thank! :)

        Just one final quick question:
        When I go to rebalance my portfolio (either every month, or once a year in January)…do I sell some of the 1 or 2 funds that are performing best & then buy up the 1 or 2 that are doing the ‘worst’? Or do I leave the top 1 or 2 alone…and just funnel my monthly investment into the lower 1 or 2?

        Thanks again for your awesome work! You’re the best!
        Leila

        1. avatar
          Leila

          P.S. I said the same thing in a book review that I wrote for you on Amazon :)

        2. avatar
          Andrew Hallam

          Thanks Leila!

          If you can “re-balance” your portfolio buy buying whatever asset allocation group is lagging your goal allocation then go for it. This is much better than selling to re-balance.

          In other words, if your goal is 33% bonds, 33% international stocks, 33% U.S. stocks and you find that at the end of the month, you now have 30% in bonds, 35% international stocks and 35% U.S. stocks, you would buy bonds for that month. It doesn’t matter if you get over-weighted on the purchase…as might be the case when you are first starting out and your account is small.

          Or, as Jason points out below (thank you Jason) you could opt to use a brokerage offering commission free ETFs, such as Questrade. In that case, with a fresh monthly purchase, you wouldn’t risk over-weighting a particular index (ETF) with your monthly purchase because you could buy more than one index, in small amounts, and not be charged a commission. It’s a total game changer, in many ways.

          Jason, how is Questrade’s customer service? I haven’t used them, but I haven’t heard great things. What have you found?

      2. avatar
        Jason

        Hi Andrew and Leila, I noticed your conversation about the ETFs v. mutual fund costs and wanted to point out that Questrade (a discount online broker) has started offering commission-free ETF purchasing. (http://www.questrade.com/pricing/etf.aspx). This commission-free etf purchase causes one to re-examine the costs of the TD e-series v. Vanguard ETFs.

        I have an account with Questrade and have found them to be low-cost and great for the occasional trader like myself.

        Great book by the way Andrew – I moved my money from a high cost off-shore mutual fund provider (Skandia…now Old Mutual) and into low-cost solutions you discussed in your book. Thanks!!

  14. avatar
    Adam

    Hello Andrew,

    I’m a fellow international teacher living in Asia. I love your book and, and i’m excited to invest! I’m 27 and have just paid off all of my loans. It’s time to start investing, and thanks to you, I now know how!

    So, I have one question. (BTW- I’m American and want to invest through Vanguard)

    1. I’ve read a little bit about ETF’s but I’m not sure whether they are better for me than Mutual fund indexes. Do you still recommend the standard index funds or would you recommend ETFs? I want to put regular small amounts into my vanguard account every month.

    Thanks for any info!

    1. avatar
      Andrew Hallam

      Vanguard indexes are fabulous Adam. To open an account with Vanguard, you will need to give them a U.S. address. I own ETFs, but if I were American, I would own the standard, Admiral shares index funds through Vanguard. As a non American, I can’t buy them, so the ETFs do the trick inistead. I’m glad you like the book. If you have a couple of minutes, I would love it if you could write a quick review on Amazon. Here’s the link, if you have time. Thanks Adam: http://www.amazon.com/Millionaire-Teacher-Wealth-Should-Learned/dp/0470830069/ref=sr_1_1?ie=UTF8&qid=1363872977&sr=8-1&keywords=Millionaire+Teacher

      Cheers,

      Andrew

      1. avatar
        Adam

        Hi Andrew,

        Thank you so much for the info! I wrote you a review and have urged a couple of friends to pick up your book. I wish you continued success.

        1. avatar
          Andrew Hallam

          Thanks so much Adam!

          Take care,

          Andrew

  15. avatar
    Barry

    Hi Andrew

    Have you discussed Margin Lending at any point in one of your threads?

    Barry

    1. avatar
      Andrew Hallam

      I haven’t Barry. I’m far too conservative for that kind of thing, which can devastatingly scuttle an investment portfolio when it falls. The margin call that follows is like a message from the investment world’s grim reaper, often forcing a sale on low. Ouch.

  16. avatar
    Andrew Hallam

    Hi Adam,

    The first option (with the Vanguard funds) would likely be easiest, and it's especially cheap once you qualify for the Admiral shares. I'm a lazy guy. If I were American, I would opt for Vanguard's Admiral fund indexes over ETFs. They're just as cheap, but more user friendly.

    Cheers,

    Andrew

  17. avatar
    Robyn

    Hi Andrew,

    Thanks for your book! I'm so glad I found it. I read it last Fall but have been uncertain about the "best" move to make as my previous "mistakes" have already cost me time and money. I'm also Canadian (and my father was a high school teacher too!)… :)

    I was particularly interested in Dan's post about updates to the TD e-series. Do you still stand behind your original recommendations in your book for the other 3 funds mentioned (TDB900, TDB902, and TDB909) or are there better versions out there? I'm not sure if these are considered hedged or not….I'm not that well-versed with those sorts of products.

    Also, I have looked around the Vanguard Canada site, etc. It appears that they do not purchase fractional units and will refund portions as cash to your account. Is this normal? Do you see this as a disadvantage? I'm pretty sure I've been able to buy fractions before in other non-Vanguard funds. Is this going to create a mess in terms of gains and losses at the end of the year?

    Finally, I read somewhere that Vanguard Canada does not offer a "deal" on commissions to those who have over a certain amount in their account (unlike Vanguard in the States). I think this may conflict with your book. Is this true?

    Thanks for your help and your wonderful insight!

  18. avatar
    Robert

    Enter the stock symbol and the attribute in a cell in your google spreadsheet

    http://support.google.com/drive/bin/answer.py?hl=

    For example the following will pull the latest price on Sabana REIT

    =GoogleFinance("m1gu"; "price")

  19. avatar
    Barry

    Hi Andrew

    Are you increasing your bond (age) allocation at your annual re-balancing anniversary or at another time (birthday)?

    With your annual re-balancing, how far out would this be in many cases as you are also allocating funds monthly to the lagging indices? I'm assuming that monthly fund allocations/ top-ups aren't enough to re-balance fully once you start getting into $2M +?

    Regards

    Barry

  20. avatar
    Randeep

    I have 10 k to invest, i live in Canada how should i go about this for investing? I also read your book, great book.

    1. avatar
      Andrew Hallam

      Hi Randeep,

      If you follow the suggestions in my book, you’ll know exactly how to allocate that money. Read chapter 5 and 6 again. I did my best to make it as clear as possible.

      Cheers,

      Andrew

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