Quick Primer Question For New Investors

Let’s assume that I want the following portfolio allocation:

  • 40% Bond Index
  • 30% U.S. Stock Index
  • 30% International Stock Index

I’m 40 years old and I don’t have a pension coming.

Let’s also assume that I had this allocation 3 months ago, and that I’m ready to make a new deposit with fresh money. 

In other words, when I checked my account three months ago, 40% of my money was represented by my bond index, 30% was represented by my U.S. stock index and 30% was represented by my international stock index.

But things have changed in the past three months.  Stock markets have moved.

Here’s a three month performance chart representing each of the above indexes. 

  • The blue line is the Canadian short term bond index
  • The red line is the S&P 500 U.S. index
  • The green line is the first world international index

If I was going to add fresh money to my account today, which index would I buy, and why?


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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 (2nd Ed. Wiley 2017) and The Global Expatriate’s Guide To Investing: From Millionaire Teacher to Millionaire Expat (Wiley 2015). 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. However, please read the Terms of Use, Privacy Policy and the Comments Policy.

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36 Responses

  1. Felipe says:

    I believe you would purchase Int'l Index, as it is the cheapest option at that time.

  2. Huali Xiong says:

    I think you should buy the first world international index as it dropped the most. Thank you so much Andrew for your wisdom, experience and time. I am learning slowly but will be there:)

  3. Anthonyq says:

    Buy Int'l…because you buy where others are scared to tread…and fund managers don't buy into "tanking" markets…smart investors do.

  4. Louise Donaghey says:

    I wasn't able to attend you recent talks but I'm going to say " the first world international index" because when others are selling it's the best time to buy. I don't consider myself to have much, if any, financial intelligence but I do see the logic in your simple strategy. It's like more bang for your buck and you have time on your side if you are looking at not cashing in on these investments until you retire.

  5. Hye Ra Chu says:

    Hello Andrew,

    When I look at your allocation aligned with your age, you are right on this formula. Your age 40 matches with 40% of your Bonds allocation. Your portfolio is on stable ground. That is, you don’t need to make a decision to rebalance your portfolio.

    Therefore, it’s time for good buy. With your fresh money, you can purchase the cheapest index at this point— VEA (your international index).

    I enjoyed this question. It gave me a moment to think back what I learned yesterday.

    Hye Ra

  6. Nataliee says:

    You will need to buy the intl stock indexs.

    Since the stock markets fell, your portfolio would now have a lower percentage of stock indexs and have a higher percentage of your money in bond. To rebalance your porfolio to it's original goal of 40% bond and 60% stock indexs, you will need to buy the intl stock indexs at the discounted price so as to bring back your account to it's orginal portfolio.

    Warren Buffet says 'Be greedy when others are fearful and fearful when others are greedy."

    Do I win a prize?

    • Why can I feel confident buying a falling international index?

      There are many independent country indexes that haven't performed well for more than a decade. In cases like Japan, the Japanese market is far far lower than it was in the late 1990s.

      What's the difference between buying a falling Japanese index (as my international component) and buying an international index, like the one above? Why would you feel more confident buying an international index when it's taking a nosedive, versus buying a single foreign country index?

      • Nataliee says:

        When I first ventured on this journey to learn the strategy of investing, my millionaire teacher shared much of his wisdom with me. I'm still in the learning process but this is what I have learnt thus far:

        1) You must feel confident on buying a falling intl index because buying the stock market is the same as shopping for groceries. Would you rather pay more for your groceries or stock up when there is a sale? If you enjoy organic food and will eat organic food your whole life, would you hope for the price to be cheap or do you want it to rise? The same thinking should hold true for the stock market as well.

        2) Diversity your portfolio. That is why in the first place, you have to buy international index and not a single country’s index. Your best odds of success come from owning every stock in a given market. If you’re buying index funds, you should be buying broad (total) stock market index funds. They’ll provide you with the highest statistical chance of success. You can be greedy and buy when it’s cheap but you have to be smart too. I don’t believe that there is such a skill as ‘stock picking’ – I definitely don’t have that ability.

        Your portfolio will be too risky if you only own a foreign country’s index as your international component (in this case it’s Japan) as compared to buying a diversified index composing of all the other countries in the world as your international index.

        Is it worth it to own such a risky portfolio? If you are still comfortable taking such high risks for a slightly higher return potential, have you thought of what it would be like if the Japan market didn’t move for a duration of time? You’ll have to gain more to break even. This is just as risky as not having a bond component in your portfolio allocation. You make the call 🙂

        Here’s one excellent read:


        • Nataliee,

          Wow! You're a fabulous student of the stock markets!

          Now here's a question:

          All stock market indexes (and Exchange Traded Funds) have internal fees to manage them…..as do all mutual investment products.

          The average Canadian mutual fund charges about 2.4% annually, with an extra cost of roughly 0.25% to 1% from invisible trading costs (as the fund managers buy and sell stocks). So the total cost is about 2.75% to 3%+ annually. If the markets make 6%, you'd give 50% of your profits away to hidden fees.

          In Singapore, that total average unit trust cost (mutual fund cost) amounts to roughly 2% per year.

          How about an index fund now?

          If you are buying a total market exchange traded index fund (or a total market index from a financial institution) what would be the maximum fee you'd think about paying? (Remember, these fees are hidden, so you'd have to look them up)

          • Nataliee says:

            Thanks for the compliments, Andrew. It feels good to know that I understood what you've shared so far.

            I had to refer to your previous posts for clues and I also needed to check that the terms I used are correct and can be understood.

            The latest question is a little tough but I'll try. Keep a lookout for my comment. I need to do some homework before replying.

          • Hey Nataliee,

            My most expensive stock market index fund is this one: Vanguard's first world international stock market index.

            The ticker is VEA. Here's a link to it.


            Can you see what my expense ratio is?

          • Hey Nataliee,

            I'd still feel comfortable paying the hidden costs associated with the total world stock market index. Its ticker symbol is VT

            Can you tell me what its expense ratio is? Use that previous link as a starting point, then enter the symbol, and then click "profile" which you can find on the left. That's your homework! What's the expense ratio for VT?

          • Nataliee says:

            Dear teacher,

            Geez……. it's been so long since I had any homework to do. I'm on pm leave today so I'm heading off now. Being a responsible student, I'll do my homework at home – I'm not a Math person but i'll give a shot and post the answers once I'm done with my 'research'.

            Have a great rest of the day!

          • Nataliee says:

            My answers to your last two questions. Expense ratio for:

            VEA is 0.12%

            VT is 0.25%

            VTI is 0.06% (in case you thought of asking me)

            Your blog is addictive and I've definitely learnt alot! 🙂 Thanks.

          • Nataliee says:

            Hi Andrew,

            I'm back! Here's my answer:

            The maximum fee I would pay for a total market ETF (index) from a financial instituition is nothing more than 0.3% for a U.S. stock index or 0.4% for an International stock index.

          • Hey Nataliee,

            Those would definitely be acceptable fees to pay. Well done!

          • Nataliee,

            You rock! You found the expense ratios.


  7. Nataliee says:

    Correction – it should be Buffett, with two t.

  8. Davo says:

    I go with Nataliee & Mike… International; Green is Go!

  9. Davo says:

    … and Felipe as well !

  10. Hey Felipe,

    You're absolutely right. That's the index I'd buy. But what do you mean by "it's the cheapest option?"

    Think about my target allocation. That's the key.

  11. Hye Ra says:

    I need to add more explanation on the part, “the stable ground” in my previous comment. Despite the changes on the market, your money values on those bonds maintain 40% according to your chart. But the values of your international index went down. I couldn’t read the exact percent decrease of a number from the chart. But your international index dropped more than US index. So you end up having less percentage than your actual allocation of 30%. So you can buy more VEA.

    • You're right Hye Ra,

      That chart, though, does not represent my portfolio's allocation. It just represents how much the indexes have changed over the past 3 months.

      But based on that, certain assumptions can be made. For instance, it's likely that my U.S. stock allocation is now higher than it was 3 months ago.

      It made up 30% of my portfolio three months ago. And today, it likely makes up more than that because (as you can see) it has risen about 4% in the past threee months. We can also assume that my international index (which you correctly pointed out) is worth less than 30% of my portfolio today because that index has dropped roughly 2.5% in the past three months. So if I was going to add fresh money to one of those indexes, it would be my international index. This would align my allocation similarly to how it was 3 months ago, when I had the 40/30/30 split.

      Great job Hye Ra!

  12. Cathy Casey clarke says:

    I would buy international index as this has fallen

    Below my 30% allocation!!

  13. You're absolutely right Louise! You're a natural!

  14. Damn, everyone took my answers 🙂

    Good stuff Andrew. You have a very large, loyal following!

    @Nataliee – when are you starting her blog and sharing her journey?



    • Nataliee says:

      Hi Mark,

      You've got humor! Yeah, Andrew's great and it's amazing how he always makes time for people – to teach and empower individuals.

      I'm still a student so I'm reading regularly to learn as much as I could. Personally, I have never considered having a blog but sharing my journey is on the top of my list. I believe in sharing what I have and what I know.

  15. Buy the red one obviously, it's doing the best!

    Ok I'm kidding; go with Internationals, and re-balance your portfolio back to 40/30/30.

  16. Thanks Mark,

    I'm really pleased with the blogging venue as an educational tool. Thanks for the encouragement!


    Check out Mark's blog as well. I think you'll find it interesting. Go ahead and ask him questions in his comment sections as well. He's a smart chap with a great head on his shoulders.

  17. Nu2this says:

    Hi Andrew,

    This seemed to be the most appropriate thread for my situation.

    At 52 years of age, I understand now that I should be roughly 50% in bonds (I'm Canadian so perhaps the XSB-to) and perhaps 25% in an ETF like VEA and 25% in an ETF like VTI.

    However…I have no bonds. I have several mutual funds set up through a financial advisor. That's going to change! I've also bought individual stocks through an online broker (ScotiaMcLeod). To make matters worse, I followed the recommendations of The Motley Fool, so they've all tanked! I also have cash which I've been been setting aside waiting for capitulation in the market.

    Now, however, after reading your recent article in MoneySense and your blogs, I understand that I am totally out of balance and need to own a significant amount of bonds to rebalance my portfolio. But…with the market dropping significantly the way it has over the last couple of weeks in particular, it would seem foolish to be buying bonds when the VEA and VTI ETFs are on sale.

    I'd appreciate your advise on this. I preordered your upcoming book and I know you're very busy now but you'll be REALLY swamped once it comes out so I'd better ask you now. 🙂


  18. Hey Mark,

    As you know, nobody really knows where the markets are going to go over the short term, but at the same time, despite the recent market drop, the stock markets are still higher than they were 12 months ago. I believe that the U.S. market is roughly 3% higher, and the Canadian market is close to 5% higher than they were at their respective August 19th, 2010 levels. You can see both stock indexes on the chart here: http://sg.finance.yahoo.com/q/bc?t=1y&s=XIU.T

    So, to look at your dilemma from a different angle, would you have been interested in creating a balanced portfolio 12 months ago? You probably would have been more psychologically willing to do it. And if, 12 months ago, you would have willingly rebalanced your portfolio (selling stocks to add bonds) then it only makes sense that you would be more comfortable doing that today, with the markets higher than they were 12 months ago. It's normal that our decisions get influenced by the media, and short term stock movements, but it's not always logical.

    I think your idea to create a balanced portfolio is a good one, and it's probably a good idea to do that right away, especially if you don't have a corporate/government pension to look forward to. If you will be collecting a government pension (like a teacher, city parks worker etc) then you probably don't even need bonds—or you could create a portfolio with a lower bond component. But otherwise, having that 50% bond component would probably be prudent.

    Because you're Canadian, you might consider the following:

    XSB (short term government bonds)

    XIU (Canadian stock market index)

    XSP (U.S. stock market index)

    XIN (International stock market index)

    They all trade on the Toronto stock market. You could have 50% in the bond index (XSB) and split the remaining money between the other three indexes.

    What do you think?

  19. Mark says:

    Thanks, Andrew

    I know this is a logical approach. I must admit that it's hard to think in terms of putting all my spare money into bonds in order to get a more balanced portfolio when I see the stock market dropping day after day, even though it's still higher than it was a year ago.


    • Hey Mark,

      The toughest thing to do, as an investor, is to always try to do what's logical. Very very few people can do that because most of us allow our hearts (fear and greed) to influence our logic. Short term, perhaps an investment decision based on the heart can end up looking like the right decision if a person gets lucky, but over an investment lifetime……

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