Refreshingly Simple Investing

My method of investing is one that I could teach a fifth grader in an afternoon. 

And that kid could go on to beat more than 90% of professional investors over a lifetime.  After taxes, this strategy will beat even more than that.

You can read all the finance magazines you want, study all the newsletters you want, read all the economic news that you want, or research all the companies you want.  It won’t matter.  The odds are about 1 in 10 that you’ll beat (over your investment lifetime) a simple, low cost diversified basket of index funds.  After taxes, the odds are probably about 1 in 12. 

Ridiculously Easy

At the end of January, I got paid.  So the big question was, “Where should I invest my money?”

I own three index funds.  Here’s the financial breakdown that I aspire to:

  • 40% short term Canadian government bonds (XSB.TO)
  • 30% total U.S. stock market index (VTI)
  • 30% first world international stock market index (VEA)

When I ask my hypothetical 5th grader (after that fabulously hypothetical afternoon I spent teaching him) he says:

“Do you still have the same percentages in each of your funds, after the markets have moved a bit?”

I check my holdings and realize that….no, I don’t.

Over the past month, my bond index dropped 0.04%, my U.S. stock index gained 3% and my International stock index gained 2.7%.

The fifth grader pulls through:

Guiding me, the fifth grade finance kid says, “Buy the bond index.  It hasn’t done as well.”

Ahhh, that kind of logic warms my heart.

When I went to make my monthly purchase, I noticed that bonds only made up 38.5% of my investment account.  I wanted them to make up 40%.  So I had to top them up with the fresh money.

What would the average investor do?

Most investors would do one of two things:

1.  They’d look at forecasts to see which of the following indexes (bond, U.S. stock, International stock) was likely to rise or fall over the next short while, and they’d base a purchase decision on that information.


2.  They’d buy the highly performing stock index (in this case, the U.S. market index)

Both choices would be silly.

By mechanically putting fresh money into whatever index is lagging behind, I’ll be paying slightly lower than an average cost over time, for each index, and I will beat the vast majority of the professional investors.

They’ll sweat away trying to figure out what to invest in, while I’m travelling, hanging out with family and friends or enjoying some sporting activity.

And most of them will lose to me…badly.

It hardly seems fair.  But I’m not complaining. 

Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School and Millionaire Expat: How To Build Wealth Living Overseas. My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I'm happy to comment on your questions.

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20 Responses

  1. DIY Investor says:

    What do they say? Common sense isn't common.

    I just got back from a referral. When I asked what he thought I could do for him he said that his current advisor has messed him all up and one of my clients (his mother actually) told him he needed to talk to me. In fact, he is down over 60% from 2006. His advisor had bought just 6 stocks and had bought them on margin. When he said his investments were messed up that translates to me that he didn't have much to invest which was true. He had a decent amount several years ago but now not much. You really don't want to know what he was charged by the advisor that lost him 60%.

    As a point in fact the advisor had gone into this new client's church and had signed up about 20 people. I asked if he had talked to any of these people about their investment experience and he basically said he was too embarrassed to bring it up! The advisor, by the way, stopped attending the church.

    I've shared this info with a local law firm with the hope there is a possible class action suit. These predators need to be stopped.

    The good news is that the new client is 40 and seems to understand dollar cost averaging so we're going to get to work accumulating. I told him we need to hope markets trade off over the next year and I think he gets it.

    The plan is to use the exact approach you've described and hopefully, my newest client will be beyond being shell shocked, rebalance as you've outlined, and actually be able to do his own investing in about 9 months or so.

  2. @DIY Investor


    That's an amazing story. And unfortunately, it's probably far more common than we think. I met a woman in Singapore whose broker went on leverage to buy some Chinese stocks and her account also got royally hammered. I'm glad that the guy you met is in such good hands now….and it's even better that he's young, so he has plenty of time to financially recover.

  3. Sylvain says:

    Hello Andrew !

    Excellent post ! If you were still living in Canada, what allocation would you use ?

  4. Great post.

    Refreshingly simple = overwhelming results.

    That said Andrew, I think there are some refreshingly simple (read in, no brainer) stocks to invest in as well.

    In the U.S. = KO, JNJ, PG, XOM, CVX and MCD.

    Any Canadian bank = RY, CM, TD, BMO, BNS or NA.

    The only thing that should concern an investor with these selections because they are dividend stalwarts is a decent entry price. Thoughts on that?



  5. @My Own Advisor

    Hey Mark,

    Hey Mark,

    I think it's best to be pretty consistent with entry prices.

    Average the last 3 years worth of EPS. Then divide that by the share price. If the earnings yield exceeds that of a 10 year government bond by at least 10%, then you're being paid a premium that justifies the risk of a stock over a bond.

    Take JNJ as an example. If it earns its estimated EPS for 2010 of $4.75 per share, then its average EPS over 2008, 2009, 2010 would be $4.65 per share. Based on a price of $63 per share for the stock, that would give an earnings yield of 7.5%.

    As I write this, a 10 year government bond yields 3.61%. So the earnings yield on the JNJ stock is 100% greater than on the bond. So paying $63 for JNJ is a fabulous price.

    Take another time period as a comparison. In 2001, the 10 year U.S. government bond paid about 6%.

    Averaging JNJ's earnings over 1999,2000 and 2001 came to $1.70 per share, and the stock price was trading at about $50 per share during that time. That gives an earnings yield of 3.4%. In that situation, only a fool would have bought JNJ at $50 because the earnings yield on a government bond was almost 100% higher than the earnings yield on JNJ stock.

    Now you try it, on this site, with a stock you're interested in.

  6. @Sylvain

    Hi Sylvain,

    If I lived in Canada, I'd use 40% Canadian short term bonds (XSB), 20% Canadian equities, 20% U.S. and 20% international.

    The exact percentage in each doesn't matter as much as the discipline to rebalance or continually purchase the laggard. Speculating which markets are going to do better than others doesn't seem to work for people because of the unpredictability of markets. The above allocation allows for diversification, and low costs (with ETFs). The rest is up to the investor's discipline. Can they rebalance and/or buy the laggards with each monthly purchase, even when markets go nuts?

  7. Too much common sense for me to handle, and not enough excitement. 🙂 My portfolio is a slightly more complicated version of this, but very similar.

  8. Hey Biz,

    We'll both beat the vast majority of the pros, but we'll make for dull conversationalists when our less successful investing friends start talking about the excitement of investing.

  9. Being dull never bother me as long as I am in the top 75% or higher in performance. 😉

  10. KiwiGeoff says:

    Hi Andrew,

    In new zealand it costs about $30 brokerage per trade, how often should i purchase/rebalnce in that case… I like buying monthly but brokerage adds up fast!



    • Hi Geoff,

      Don't give up any more than 1%–that's a decent rule of thumb. If you're paying $30 in commissions, wait until you have at least $3000 to invest before pulling the trigger. For me, I wait until I have at least $5000 to invest…as a minimum. I like to keep my costs really low!

  11. Matt says:


    Do the TD e-series funds that you recommend in your book allow you to inject fresh money in whatever index fund you want, or when you set up the automatic monthly withdrawal, do you have to indicate where you want the money to go at that time? Not sure if this is too TD specific a question, but I figured I'd give it a go. Thanks 🙂

  12. Matt says:


    Do the TD e-series funds that you recommend in your book allow you to inject fresh money in whatever index fund you want, or when you set up the automatic monthly withdrawal, do you have to indicate where you want the money to go at that time? Not sure if this is too TD specific a question, but I figured I'd give it a go. Also wondering about the merits of rebalancing monthly versus doing it annually. Thanks 🙂

    • Hi Matt,

      I believe that you have a choice. You could manually choose each month, and make the online purchase or the purchase could be automatically set. Please let me know if you find out anything different.



  13. valferdinandcaro says:

    Hi Andrew,

    It us again at page 45 of 64 and just filling the gaps here. We’ve been wanting to ask which one would be better? US (VTI+VEA) or Canada (VUN+VDU)?

    Granting we don’t care about the estate taxes as portfolio is still around S$54K. Is the US version worth it since it has lower expense ratio? Or does the Canada withholding tax outweighs it? We checked Chapter 14 questions 5 and 8, and we are not sure if we did the correct math.

    – VTI (0.05%) + VEA (0.9%) vs VUN(0.15%) + VDU(0.19%)
    – withholding tax on dividend US (30%) vs CN (15%)

    Let us know your thoughts on this.

    BTW, we are in our final stages in our DBS Vickers SG account (quiz passed, market approval, etc…). We also want to be global as we don’t know yet where to retire but have an SG bias since we just applied SG PR.

    Again, thanks for writing both books. It really helped us as it is our 1st/2nd book in financial literacy. And we really enjoy spreading it to our friends… 🙂

    P.S. Write more travel/lifestyle/cycling stuff…

    Val + Hanna

    • Hi Val and Hanna,

      I’m glad you like the lifestyle writing. I’ll admit, writing those kinds of stories is a lot more fun than writing about money. Do you prefer the “retire abroad” pieces or the adventure pieces?

      Because you aren’t American, avoid the U.S. domiciled ETFs for sure. You may have just $54K SG right now, but look how close you are (already) to the $60,000 USD threshold. Your money will grow. And you’ll also keep adding your savings to it. Before long, you will pass that $60,000 threshold. Then you’ll need to keep selling the US domiciled ETFs to keep you under the $60K threshold. Stick to the Canadian domiciled ETFs (if you’re Canadian).

      • valferdinandcaro says:

        Hello Andrew,

        We enjoy any of those adventure and retirement articles of yours. Especially those cycling, couchsurfing, house sitting, travelling, etc… It gives us reason to look forward in life. Money would be a second thing.

        Nope we are not Canadians nor Americans. We are your typical expat Filipinos or FTs as they say 🙂 , as always looking for greener pastures. Or maybe as most of us thinks that the meadow on the other side is greener.. 😛 That is why we are trying to build a global portfolio.

        Anyway, back to our question, pretending we don’t care about the US $60K estate tax. Does it the US VTI+VEA outweighs the Canada VUN+VDU?


        Val + Hanna

        • Hi Val and Hanna,

          I’ll admit, I am fascinated by something. Why would anyone not care about the U.S. estate tax?

          Don’t even consider U.S. domiciled ETFs, if you aren’t American. Think of them as toxic. Buy ETFs off any other exchange.


        • Val and Hanna,

          Incidentally, the financial difference would be too minimal to count. U.S. withholding taxes are 15% higher, which would eat into any advantage that the tiny expense ratio difference would show. But truly. Forget about those U.S. domiciled ETFs. Buy off the UK market, the Aussie market or the Canadian market. Even if you don’t have children, you don’t want to donate big portions of your money to the U.S. government when you die. There are better places for your philanthropy.


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