My Money

 If you’re someone who has read a number of personal finance blogs, you’ve likely run across plenty of penny pinching bloggers living in penury to claw their way out of debt or invest as much money as they can.

That was me for two full decades: tighter than bark to a tree.

I began investing when I was nineteen. I paid for my own college expenses, and I stacked my investment account at every possible opportunity.

I built a million dollar investment account by the time I was 38 years old, on a school teacher’s salary.

Today, I can afford to relax. I’m no longer especially frugal.

If you’re interested in how my money is invested (and how I’ll keep investing it) please read on:

1. I used to invest in stocks and index funds. But I recently sold my stocks, added to my indexed holdings, and I won’t ever switch back to stocks. You can read about the day I did it here:

2. I don’t know where I’m going to retire. My wife and I are “people of the world”—or so we like to think. For that reason, I don’t have a huge lean towards one financial market over another. I believe that you should have the bulk of your investments in the market representing the currency you’ll be paying your future bills in. I have no idea where my wife and I will end up. So our portfolio is globally represented (with a slight lean towards my home country, Canada).

My investment account has only three index funds in it. Here’s the composition:

  • 40% Short Term Canadian bond market index
  • 30% U.S. Stock Market Index
  • 30% International Stock Market Index

3. Over the past decade especially, I have made very significant profits by rebalancing my account. I don’t wait for a specific time of year to do it. I just purchase the lagging index every month. If one of my indexes has underperformed the other during a given month, that’s the index I put fresh money into. I used to initiate this rebalancing with individual stocks, bond indexes and stock indexes. But now—as mentioned—my account is comprised solely of the three index funds above.

4. I love falling stock markets. Only retirees or people hoping to retire within the next five years should hope for rising stock markets. For the rest of us, falling stock markets and news of economic meltdowns should be our best friends (as long as we can keep our jobs). When markets have fallen heavily I have taken advantage of public fear to sell hundreds of thousands of dollars in bonds to buy stocks (or stock indexes) at bargain levels.

Here are three time periods that set a precedent for huge personal profits:

  • September 2001 (World Trade Centre Crash)
  • 2002/2003 (Iraq War)
  • 2008/2009 (Financial Crisis)

The markets fell. I sold bonds. And I bought stocks (or stock indexes) like a sex starved man in a harem. When the stock markets began rising again, putting my portfolio out of alignment, I sold off some of the stocks (or stock indexes) to ensure that I had my desired allocation between stocks and bonds. For the past ten years, I have had an allocation of bonds equivalent to my age. I’m 41 years old, so roughly 41% of my money is in bonds. Those without future pensions to look forward to, I believe, should have bond allocations running roughly parallel to their age.

5. If you stick to a disciplined allocation between stocks and bonds (buying the laggard and/or rebalancing when markets go crazy) you can make a fortune in a volatile market.

6. I’m not a “trader” and I don’t follow the economy. And because of those two factors, I invest circles around most people who do. You can read a post on my view here

 

 

 





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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73 Responses

  1. Excellent post.

    I love the line "I bought stocks (or stock indexes) like a sex starved man in a harem"…too funny!

    I'm really intrigued & fascinated by your departure from stocks and into index funds, and more particularly, how you are completely comfortable owning only 3 index funds in your entire portfolio.

    This is what I find to be so great about investing. Like you, I began investing at an early age, and whether I'm watching BNN, reading an article in MoneySense or Cdn Money Saver, you see so many people with varying investment strategies and risk tolerances.

    I personally tend to gravitate to owning equities directly though discount brokerage accounts but lately I have been purchasing small positions in a couple of ETFs of interest. I also have to have a solid chunk of change invested in fixed income and cash or cash equivalents so I can sleep at night.

    Nice post…I found it very interesting.

    • Hey Wealthy Canadian!

      You're certainly right. There are as many different risk tolerances as there are personalities. I'll tell you why I own just three indexes (two of them stock indexes).

      If I listed my stock holdings within the indexes, the numbers would run into the thousands: large stocks, small stocks, tech stocks, mining stocks, real estate stocks, old economy stocks, European stocks, Singpaporean stocks, American stocks….. The list would be pretty impressive. That's why I'm comfortable with two equity indexes. Because they're broad and diversified, I own thousands of stocks within them, from all kinds of different geographic regions.

      The only reason I don't own VT (the world international index) rather than a U.S. index and an international index, is because the expense ratio of having the world index is slightly higher than it is with the other two. But if Vanguard's world stock market ETF had an expense ratio of 0.15% or lower, I would probably only have two indexes to my portfolio: one stock index and one bond index.

      Your blog looks great! And I look forward to following your investment journey as well.

      • Thanks for the props on my new website, it is greatly appreciated!

        Andrew, if I'm looking at your approach correctly based on your focus on owning three indexes, I take it that income from dividends and/or distributions are less of a priority for you, correct?

        I noticed that iShares XSB pays a monthly distribution of roughly 3.0%, which seems fairly good, yet I am curious what your thoughts are about ETFs and how many don't offer an enormous a lot on the dividend/cash distribution side.

        I also noticed on the iShares site that XSB has the following in terms of management fees:

        "Management Fee 0.25%

        *Estimated Annual HST 0.02%

        *Management Expense Ratio (MER) 0.26%

        *MER Before Waivers and Absorptions0.27%"

        Do you know what the overall management fees are for this ETF given the above information? The thing is, I just recently bought my first ETF (SOIL..a fertilizer play) and I find that sometimes the actual fee structures with certain ETF providers can be a bit hard to nail down.

        I continue to be fascinated by how you are totally comfortable in having your entire nest egg in 3 indexes. I think it's also a prudent move that you have a 40% balance in this ETF, which provides for solid safety.

        Interesting stuff!

        • Hey Wealthy Canadian,

          I think you're right about the expense ratio on XSB. I know that I can find a lower expense for a similar product, but I'm reluctant to shift. Here's why:

          I believe that the biggest detriment to an investor's success is not the cost of their funds, but the results of their behavior instead.

          The ETF industry is offering new products every month. By doing that, they're exciting investors to move their money around (which plays into their hands in the long run).

          I know that many other couch potato investors are shifting their money all over the place, when new offerings come available. But those new offerings won't stop. So most of them will keep shifting. In the end, a consistent, dispassionate approach will beat the returns that most "chasers" will earn.

          My average expense ratio, for my whole account, is roughly 0.15%. Yeah, it could be lower. But I know that the biggest potential enemy to an investor's account is the investor himself (or herself).

          • Hi Andrew,

            I think your average expense ratio for your whole account (0.15%) is quite good.

            When I was referencing XSB, I was more curious if you knew what the actual expense ratio really is for this ETF because when I read the explanation on the iShares site (the four items I listed), I can't decipher what the true expense ratio is because I have limited experience in investing in ETFs.

            It seems like the total management expense for XSB is 0.26% but the range seems to be listed between 0.25%-0.27%, which is what I find a bit odd, that's all.

            I totally agree with you – the investor's behavior has a much more of a profound effect on future gains and i remain to be very interested in your approach.

            Good stuff!

  2. Jonathan says:

    Nice post, good summary of the right things to do. I wish I had enough capital to rebalance back in 01 as well. The more I save, the less I think I'm going to "retire" as well, but I'm definitely going to work less and only on things I want to do. =)

    • Hey Jonathan,

      It's interesting what you say about retiring. I remember wanting to retire at 40–even though I enjoyed my job at the time.

      If you enjoy your job, I think early retirement is a strange goal. I think people have to feel purpose on a daily basis to live fully.

      What do you think? I get the impression that your philosophy is similar.

  3. Stanton says:

    Hi Mr. Hallam,

    Thanks for sharing this! I'm always caught by surprise by how easy it can be for one to find a desired allocation of assets. It also doesn't feel intuitive at first to rebalance based on a falling index, but come to think of it, that makes great sense.

    Also, what are your thoughts on how much percentage allocation should be put into cash instruments like savings accounts?

    • Hey Stanton!

      There’s a general rule of thumb suggesting that people should have enough liquid money available to cover 3-6 months of living expenses.

      But I have never followed that myself. I’m being totally honest here, but this is what happens with me at the beginning of each month, when I get paid.

      I figure out what I can survive the month on. Then I invest every single dollar above what I think the month will cost me. I keep in mind what my Visa bill is when I make this calculation, ensuring that I can pay it “in full” every month. If I'm planning a holiday that month, I calculate what that will cost me as well.

      I watch my spending so that I don’t spend more than what I have in my account. For surprises, there’s always Visa. But as mentioned, I never carry a balance, so Visa doesn't make interest off any of my money.

      (Sidenote: Back in 2003, before my Visa payments were automated, I once had to pay about $20 in credit card interest, and I was furious. I had gone on a holiday and forgot to clear the Visa's balance before leaving)

      Because I invest so much at the beginning of the month, I don't usually have much left at the end of the month. At most, I might have $2000 in my savings account left at the end of the month. More often, it's down to about $200. Not exactly enough to cover 3 months worth of living expenses, is it?!?

      On two occassions, during the past nine years, I was caught with expenses that I didn’t expect. So I sold some of my bonds. It’s a tax sheltered account (because I’m a Canadian in Singapore) but over here, there’s no tax penalty for withdrawing money–whenever I want to–from my investment account.

      I spend more than I used to, so what I “require” for the month has increased. But if you want to build wealth, nothing motivates more than a touch of fear! At least, that’s what worked for me. If I had enough money in a savings account to cover living expenses for three months (which is probably wise/prudent for most people) I probably would have spent more! As a result, I would have invested less.

      And if that was the case, my book would have to have a different title.

      But you will probably find the middle road that suits you best. I’m not recommending that people should be as hard core as I was. If nothing else, you can get a chuckle at my expense!

      Cheers,

      Andrew

  4. The Dividend Ninja says:

    Andrew this is a great post!

    I sure wish I understood all of this when I was 19 😉 I'm surprised you would only hold 3 index funds, becuase you have the capital to diverisfy widely among assets and countries. Curious?

    "Those without future pensions to look forward to, I believe, should have bond allocations running roughly parallel to their age."

    I completely agree with this, and would even argue even if you do have a pension, keep bond allocation at your age anyway.

    "When markets have fallen heavily I have taken advantage of public fear to sell hundreds of thousands of dollars in bonds to buy stocks (or stock indexes) at bargain levels."

    Great. I agree with that too!

    "Over the past decade especially, I have made very significant profits by rebalancing my account. I don’t wait for a specific time of year to do it. I just purchase the lagging index every month."

    That's the way to do it!

    Cheers

    The Dividend Ninja

  5. Great post Andrew!

    You have a valid point about retirement in #2. I too, believe you should have the bulk of your investments in the market representing the currency you’ll be paying your bills in. But I think that's not only a good "retirement thing" to do, irrespective of home bias, I think that's a prudent investment move at any stage during the investor's lifecycle. Thoughts?

    I also liked point # 3, simple rebalancing by buying the laggard. Would you advocate this over synthetic DRIPs of ETFs? The latter is certainly on autopilot. You could always rebalance semi-annually with this approach, or even once per year. Around a birthday is a good reminder for me. Thoughts?

    I too, love falling stock markets. I'm going to feel this way for as long as I hold my dividend-paying stocks actually. As long as those holdings are paying me handsomely, I'll own them 🙂

    Lastly, I love your point about a trader. Traders are not investors. Trading implies you're barganing. Investing is about ownership; stocks, bonds or otherwise.

    Great stuff.

    • Hey Mark,

      I absolutely agree with you on point #2. Investors should have the bulk of their investments in the currency that they'll eventually be paying their future bills in. If I was definitely going to be retiring in Canada, you would see a Canadian equity component to my account as well. And naturally, I would be adding to that, along with the rest of my holdings, while I'm working. Despite not having Canadian equity exposure, I have roughly 40% in Canadian dollars (in bonds) so it's my highest represented currency.

      Regarding DRIPs, to be honest, I would let the dividends reinvest (with DRIPs) for sure, and I would look at the balance of the total holdings at the end of the month (including what the dividends bought) and purchase the lagging index based on how it performed, in total. Unfortunately, I don't have that luxury with my DBS Vickers account in Singapore. The dividends just get tossed into my cash account, so I have to manually reinvest them every month. I just add that money to the fresh money that I'm depositing into my account, and make one purchase per month.

  6. The Dividend Ninja says:

    Andrew, this is another excellent post!

    Though I am surprised with the amount of capital you have available you would only hold three index funds. You have the capital available to diversify across both assets and countries. Curious?

    I especially like these points:

    "If you stick to a disciplined allocation between stocks and bonds (buying the laggard and/or rebalancing when markets go crazy) you can make a fortune in a volatile market."

    "I love falling stock markets… When markets have fallen heavily I have taken advantage of public fear to sell hundreds of thousands of dollars in bonds to buy stocks (or stock indexes) at bargain levels."

    "Those without future pensions to look forward to, I believe, should have bond allocations running roughly parallel to their age."

    I would even go further and say everyone should do that anyway, regardelss of their pension plans. No gaurantees in this day and age 😉

    Cheers

    The Dividend Ninja

    • Hey Ninja,

      I'm already diversified across nearly every country as it is, so I don't feel the need to slice and dice further.

      As for other asset classes, long term, there's no evidence to suggest that doing so (slicing and dicing) would beat a simple portfolio like mine. Yeah, small cap stocks, commodities and REITs have done well lately, so a sliced and diced portfolio containing ETFs in those categories may have performed better over the past 20 years, compared to a simple portfolio like mine. But the recent past, as we know, isn't a very good prologue indicator.

      I was particularly inspired by John Bogle's latest book, titled "Don't Count On It"

      He went through the slice and dice model, comparing it to something similar to my portfolio (actually, an even simpler portfolio) and he found that there were times when slicing and dicing underperformed a simple total stock index/bond index combo, and there were times when it didn't.

      I do know that small caps have outperformed over a long period of time (not during every period, but during long periods) but I also know that this assessment isn't including the higher bid/ask spreads of small cap stocks over time. And many of the backtested formulas for this kind of data mining include stocks that are too small to be purchased anyway. So the data isn't that reliable.

      Within my two equity indexes, I own everything anyway: small cap stocks, medium cap stocks, large cap stocks, value stocks, growth stocks, real estate income trusts, commodity based companies.

      Besides, if you twisted my arm and made me speculate, I would suggest that commodity indexes and small cap indexes will underperform in the next twenty years, relative to the market as a whole. Add high dividend stocks to that list as well. As soon as something becomes popular, based on recent outperformance (even 10 years is recent) then I think its growth expectations get factored into its price, thereby ensuring weaker future returns.

      Having said that, I wouldn't listen to anyone's forecast, least of all, mine! Forecasts aren't worth the paper they're written on, as we both know.

      I really love the simplicity of my portfolio though.

      • The Dividend Ninja says:

        Hey Andrew,

        That's a great point! Actually in my Index Portfolio I only have 4 index funds, and I intend to keep it that way. As you pointed out simplicity wins the day, and already gives you great diversification.

        Cheers

  7. Stanton says:

    Wow, that is hard core.. Thanks for the reply, Mr. Hallam–can't wait to get my hands on the book!

    • Hey Stanton,

      You'll laugh at some of the stories in the book….if you think that's hard core!

      On another note, what's your full name? Did my wife teach you Spanish? What year did you graduate from SAS?

      • Stanton says:

        Didn't realize I haven't introduced myself all along–sorry about that. Stanton Yuwono, Class of '10. I didn't take Spanish, but if I'm not mistaken I think you had my brother (Samson Yuwono) for English? At the very least, some of my best from SAS had you for English.

  8. Good post Andrew.

    Do you have an specific thoughts on what sort of bond holdings to purchase? I've always felt fairly arbitrary about purchasing bond funds, so perhaps you're more intentional about it.

    -Why specifically short term Canadian bonds?

    -Any thoughts towards bonds from the US compared to Canada, or corporate bonds compared to government bonds, or short, medium, or long term bonds?

    • Hey Matt! (aka Dividend Monk)

      I have a short term Canadian bond index because I figured that's an easy way to stay ahead of inflation (keeping short term bonds) and it's a Canadian index because my wife and I may end up retiring in Canada (maybe!) so we want to have a nice chunk of money in the currency that we may be paying our future bills in. Currently, we both live in Singapore.

      Corporate bond indexes are probably a decent idea as well. They're very very slightly riskier, but with a promise of higher returns than government bonds.

      My wife and I hold U.S. bonds in her Vanguard account: the Vanguard total bond market index. This has such a broad combination of bonds within it. I didn't list it in my post above, but we do own it within her Vanguard account.

      My wife's account is actually very similar to mine–with the U.S. bond index in place of my Canadian bond index.

      I don't have all the answers, naturally, but if I were an American, I would feel pretty good about Vanguard's total bond market index, or Vanguard's short term government bond index. As you have probably gathered, I like to keep things simple!

      • Thanks for the reply.

        In one of my retirement accounts, I have a pure indexing approach, except I go with four holdings instead of three. US stock, international stock, total bond, and treasuries.

        For other accounts, I like corporate bonds and short term total bonds to go along with the dividend holdings.

        • Hey Dividend Monk,

          That sounds like a great strategy to me. I think that as long as we find a solid plan (whether it's two indexes, three, four or five+) if we stick to our plan, assure that we don't dance around, and ensure that we're diversified over stocks and bonds, we should rock over the long term.

  9. BadCaleb says:

    Andrew,

    Each time I read your blogs I am slowly being drawn to the light. My hair has basically caught up with yours and hopefully a simple investment portfolio will soon follow.

    Cheers man.

  10. Flower says:

    Hi Andrew,

    If you do have a pension to look forward to, what allocation to bonds would you have? As many teachers in Canada, we have a pension and as a result I kinda think that our allocation to bonds should be significantly less.

    What do you think?

    Jordan Flower

    • Hey Jordan,

      If I had a pension to look forward to, I would probably have just 25% of my portfolio in bonds, down from roughly 40%. The teacher's pension in my home province (British Columbia) is pretty sweet!

      What's your age and bond allocation Jordan?

  11. That sounds pretty similar to my approach 🙂 When you say you sold bonds if the stock market fell, did you just return to your target allocation, or put in a bit extra if you thought there was good potential for a recovery? If you do that, do you try to follow specific targets or just do what seems right?

    • Hey Value Indexer!

      What an amazing question! I certainly should have overweighted in stocks when the markets fell, but I just returned back to my original allocation. If I ever get an opportunity like 2008/2009 again, I will probably sell far more bonds the next time around.

      Of course, it looks so easy in retrospect, but I remember shaking like a leaf when I sold off six figure chunks of bonds to buy stocks at cheap market levels. I knew that it was the right thing to do, but it still scared the crap out of me at the time!

      How about you? Did you do something similar?

  12. Paula @ AffordAnythi says:

    I love this post for several reasons:

    1) The simplicity of your allocation. Too often, people get overwhelmed with options. I like that you break it down into plain-and-simple broad indexes.

    2) The fact that you rebalance by buying the lagging index. Yes!! I can't tell you how many times I've read the advice that you should rebalance by buying/selling once a year. Isn't it better to rebalance by investing NEW money into the market?! This way you're always capitalizing on the index that's fallen behind! I, too, am always buying the laggard.

    3) The advice to think about what currency you'll pay your future bills in. I've never heard anyone say that, but it absolutely makes sense.

  13. Karim says:

    Hi Andrew,

    Great post again….you make it sound so easy.

    I was just wondering if you changed your bond / equity allocarion when markets have fallen heavily or during the bull run of 1996 to 2000? Or do you decrease your equity expousre in line with your age?

    Thanks

    Karim

    • Hey Karim,

      I definitely increase my bond allocation as I age and when the markets really mess with my allocation, I do rebalance. In the late 90s, however, I made many of the same mistakes that many other people were making. My bond allocation was pretty low at the time.

  14. Thanks for the compliment on the question! At the time I didn't have much to rebalance so I thew in extra cash when I saw a nice drop. By October 2008 I was out of extra cash – early like all good market predictions 🙂

    I am working with more now. It's still not quite at the levels you've managed, and that can never be easy to do with large sums. But I would have liked to see bigger drops today. I take it as a good sign that people are starting to talk loudly about the end of the world (economy) again. A few more negative shocks may bring out some really nice prices!

    • You are wise, Value Indexer. Let's both hope for some serious discounts soon. How about five more five percent drops in a row? Ahh, should I really get so greedy?

      • Jean says:

        @Value Indexer and @ Andrew,

        I'm amazed that I've now been following this approach just long enough to notice that my own psychology is changing. I'm with you both, having wished that the stock markets had dropped even further this week! Of course, I'm young enough to have wished that, but maybe not quite as 'greedy' as you, Andrew. 🙂

      • Only time will tell if I can keep it up 🙂 But I like your idea!

  15. Jeff Berg says:

    Andrew,

    I loved this post. I clipped the entire thing to my Evernote account and have shared it with a few friends.

    I have a question regarding taking advantage of market volatility to produce better long term returns. In your mind, does it make any sense to use leveraged ETFs to accelerate the use of that volatility? (I realize that a leveraged ETFs do not exactly mirror the index they follow.) Using the example you gave from 2008/2009, it seems one could have used greater bond returns to purchase more of a lagging stock index – thus leading to greater returns in 2010.

  16. Hey Jeff,

    Thanks for the question. I wouldn't use leveraged returns myself. I'm an investing wimp, and wouldn't want to take that kind of risk. That said, being an investment wimp has worked well for me. But everyone has a different comfort level, of course.

  17. Martin says:

    Hi Andrew… Nice blog and really like your approach to index investing. Similar to Allan Roth's book that I just read.

    I see myself possibly retiring in S'pore and would like to adopt the index investing approach. I know that there are some index funds for the S'pore market, but what if I want to buy some of the Vanguard index ETFs? What are your thoughts about forex risks and what I can possibly do about it?

  18. Hi Martin,

    If you create a diversified account of ETFs, you won't have to worry about Forex risks. For instance, let's assume that you bought a British stock market ETF, via a U.S. brokerage. You would take a foreign exchange risk based on the British pound, even though you made your purchase via a New York Stock Exchange ETF, via DBS Vickers.

    But if you allocate your funds across the globe: an international stock index, a home country stock index, a Singapore bond index, an international bond index…… then you're essentially spreading your money around every available money currency.

    Personally, I don't have all of my money based in any single currency or stock market (as you can see). Nobody really knows what currencies will do well over the next year, ten years or fifteen years, so it's best to diversify. Also, keep in mind that if an ETF reports in U.S. dollars, it doesn't mean that it's necessarily affected by the greenback at all. The British stock ETF I mentioned in my example above could be priced in U.S. dollars, but if the U.S. dollar falls, it doesn't have negative consequences for you. For example, if the British stock market didn't fall or rise for a year, and if the U.S. dollar plummeted in value, then the quoted price (in U.S. dollars) of your British stock index (if purchased off the NYSE) would rise in proportion to the U.S. dollar's drop, even though the British stock market stayed put. There's no U.S. currency risk getting taken by purchasing a foreign stock index off the NYSE. You will pay a very minor spread when you make the transaction, but that's it. And that's a one-time deal, which typically amounts to far less than you would pay if you were buying a Singapore based unit trust, and paying a commission. And we can't forget that a locally sold unit trust would also deal with small currency spreads every time it made a foreign purchase. I hope that answers your question.

  19. Martin says:

    Thanks Andrew. That was very helpful.

  20. C says:

    Love your website and philosophies.

    So if you could go back to when you were 21 years old would you have chosen to invest in ETF Index Investing (with such little dividends) like you are currently choosing or would you have done it with almost exclusively dividend stocks like you did?

  21. Chris says:

    Love your website and philosophies. So if you could go back to when you were 21 years old would you have chosen to invest in ETF Index Investing (with such little dividends) like you are currently choosing or would you have done it with almost exclusively dividend stocks like you did?

  22. I must have returned to read this page on 50 occasions…figured I'd leave another comment for good time's sake.

  23. DAVID LOI says:

    hi, great blog. based on this post (point 3), there is one part that i have difficult grasping. you said that your allocation is 40-30-30. when "I just purchase the lagging index every month. If one of my indexes has underperformed the other during a given month, that’s the index I put fresh money into." would it not put the % out of whack if new money goes to just the fund that has dropped the most or do you rebalance to 40-30-30 each month by putting more money into the laggard and less to the other two? another approach i am thinking of adopting is to allocate 40-30-30 to each fund each month regardless which fund is up/down and only rebalance to the target % once a year – is this how one should do it if one does not want to spend more then ten minutes each year? this latter approach would be dollar-cost-averaging throughout the year. regardless, by investing fresh money one is going to DCA.

  24. Matt says:

    Andrew,

    I'm really intrigued by your posts and just got done reading the book. It was great and really opened my eyes. I can tell you're a teacher. I'm a teacher too and really appreciated all the analogies you used to help explain things.. I'm a newbie investor, and was actually just getting ready to book an appointment with a financial advisor to find out where to put my money. I think I'm sold on index funds and was just wondering if TD was still the place with the lowest rates for indexes. I bank at RBC and was wondering if their rates were competitive. Thanks

  25. Rob says:

    Hi Andrew!!

    First off, congratulations on your book Millionaire Teacher. I tried to order it on Amazon and I think it is currently a month back-ordered!!!

    I am also a Canadian-expat International teacher. My wife and I currently work at the American School in Dhaka, Bangladesh (I think you know Joe Lingle who moved here this year from SAS). Unlike my Ontario teaching colleagues, we are on our own to build our pension for when we retire. I have a interest in personal finance and have absolutely been engrossed in your blog and comments since stumbling upon it a few hours ago. What an amazing resource!!! Anyways, I have a few questions and issues that I am interested in hearing your opinion about as I do not think I am alone in this being "tensions" for me with my International Teaching Adventure. Thanks for your time and can't wait to get my copy of Millionaire Teacher!

    Index Funds – Where can I get an account?

    I have really enjoyed reading this blog post about where and how you have invested your money (almost think that should be mandatory for any investment broker!). Your balanced, three index fund approach makes a lot of sense to me. Keeping yourself balanced with bonds in terms of your age also makes a lot of sense, as does having funds in the currency you plan on spending time in. Teaching overseas for the last 5 years has left my wife and I with a lot of cash. I have been trying to understand how and where to invest our money for the last few years as I really did not like our Friends Provident fund that seemed in our first year of overseas teaching, the ONLY approach (in all honestly, I thought it was simple and I had no idea where to put our money……all I knew is that it can't go back to Canada). I read that you have your account with DBS Singapore. Is that available for foreigners outside of Singapore? Bangladesh does not have near the financial options as a place like Singapore and I am just wondering if you have recommendations where a Canadian expat might be able to open an overseas/offshore index fund account?

    Canadian Non Residency Issues

    My wife and I moved away from Canada when we were young and at a time in our lives when we did not hold any significant assets. We did not own any property, cars, etc…Over the last 5 years we have slowly rid of more and more secondary ties to Canada (letting our driver's license expire, closing credit cards and bank accounts). The only thing that makes me a little nervous is that I did not file a NR73 form when leaving Canada. Is this something that you and your wife filed? We have heard so many different opinions on the NR73 from mandatory to "hell no!". Just wanted your opinion so that, down the road, an expensive back-tax bill does not show up in the mail box!!

    Retirement (Geography and Currency Issues)

    Like yourself, my wife and I consider ourselves somewhat "people of the world" and plan on spending a lot of retirement living from season to season. Canada being our home country and where most of our family lives, we would probably spend most summers there and most winters somewhere around the world. We do love France (the South in particular) and have family there and would probably spend some time there. If we plan on living a considerable time of our retirement in Europe, what kind of holdings might we be looking at? Any Europe based Index fund? Does the current situation in Europe and the Euro have short term and long term consequences of us investing there?

    Once again, congrats on your book's success and I can't wait to keep updated with your blog!

    Go Leafs Go 🙂

    Rob

    • Hi Rob,

      Your best option will be taking a trip to Singapore and opening an account of ETFs from there. It's not convenient to make the trip, but once you set up an account, you can wire money to your Singapore account. Many others have done this from outside of Singapore.

      As for the papers you didn't file, I wouldn't worry about it. But I would also stop listening to people who aren't non-resident tax specialists. We can get all kinds of recycled advice. There's a guy in Victoria named Kerry Blain. I'm sure you could find him onlne. He's a specialist in Canadian non residency issues, and he should be able to set your mind at ease.

    • Hi Rob,

      Your best option will be taking a trip to Singapore and opening an account of ETFs from there. It's not convenient to make the trip, but once you set up an account, you can wire money to your Singapore account. Many others have done this from outside of Singapore.

      As for the papers you didn't file, I wouldn't worry about it. But I would also stop listening to people who aren't non-resident tax specialists. We can get all kinds of recycled advice. There's an accountant in Victoria named Kerry Blain. I'm sure you could find him onlne. He's a specialist in Canadian non residency issues, and he should be able to set your mind at ease.

      • Rob,

        Come and see me in Singapore when you come over to open the account. I'll see what I can do to help. And if you can bring other Canadians from Bangledesh, all the better. All of you could get set up your accounts at the same time.

        Contact: investlikebuffettATgmail.com

  26. Hi Chris,

    If I were to go back in time, I'd put every penny in Microsoft, Fastenal, Apple, Simpson Manufacturing…all the stocks that I KNEW would make a killing.

    But if history was unknown to me, and I went back knowing everything about investing I know now (except future market prices and future stock prices) I would do exactly what I am doing today: indexing, and being greedy when others are fearful.

    It's about odds. And the odds are best with a low cost indexed strategy—especially after taxes.

  27. Bob F. says:

    Hi Andrew,

    Fantastic article on the basis of K.I.S.S. by someone who initially invested succesfully in stocks for >10 years! I especially appreciated your logic re selecting Vanguard Total Stock Market Index over a "slice and dice" approach combining U.S. LB, LV, SB, SC as advocated by some others.

    Your money is in (3) Index funds with a 60:40 EQ:Bond allocation which you personally rebalance monthly by investment in the laggard (i.e. what is on sale) and

    periodic gross rebalance by exchanging the leader(s) for the laggard(s) (sell high, buy low) which allowed you to realize large gains in recent times of volatility.

    For an investor just beginning (or for accounts with smaller balances), will a single fund with similar 60:40 allocation such as Vanguard Life Strategy Moderate Growth (VSMGX) in which allocation balance is maintained by Vanguard by daily investments and exchanges achieve similar returns?

    Thank you for the making me think!

    Best regards,

    Bob

    PS: I purchased Millionaire Teacher for my 21 year old son for his 22nd birthday. He just performed research (I teach like you, by asking questions to make others think and by pointing them to data and tools) and opened his 1st ROTH IRA as he is working only summers while in college and graduate school. I explained that (3) years of funding this ROTH while he owes no US federal taxes will provide him a nice tax free "pension" when he is in retirement…

  28. Bob F. says:

    Hi Andrew,

    Fantastic article on the basis of K.I.S.S. by someone who initially invested succesfully in stocks for over 10 years! I especially appreciated your logic re selecting Vanguard Total Stock Market Index over a "slice and dice" approach combining U.S. LB, LV, SB, SV allocations as advocated by some others.

    Your money is in (3) Index funds with a 60:40 EQ:Bond allocation which you personally rebalance monthly by investment in the laggard (i.e. what is on sale) and periodic gross rebalance by exchanging the leader(s) for the laggard(s) (sell high, buy low) which allowed you to realize large gains in recent times of volatility.

    For an investor just beginning (or for accounts with smaller balances):

    1) will a single fund with similar 60:40 allocation (combining (3) equivalent funds) such as Vanguard Life Strategy Moderate Growth (VSMGX) in which allocation balance (or rebalance) is maintained by Vanguard by daily investments and exchanges achieve similar returns?

    2) Would there be a benefit to the investor (when the account balance is large enough) to exchange the VSMGX to buy the (3)underlying Index funds in the same allocation ratios so he can perform rebalaning on monthly by investment and / or gross on annual or as required basis?

    Thank you for making me think!

    Best regards,

    Bob

    PS: I purchased Millionaire Teacher for my 21 year old son for his 22nd birthday in Feb. He just performed research with my coaching. I teach like you, by asking questions to make others think and by pointing them to relevant data and tools. He opened his 1st ROTH IRA as he is working only summers while in college and graduate school. I explained that (3) years of funding this ROTH while he owes no current US federal taxes will provide him a nice tax free "pension" when he is older or in retirement…

    • Hey Bob,

      It's great to hear that your son is off to such a great investment start!

      As for your question, I love the Vanguard Target Retirement funds. To be honest, nobody is really going to be able to tell us what will do better: a Vanguard Target Retirement fund or a similarly allocated "stick shift" account with a variety of indexes within it.

      For that reason, I don't think it would necessarily be a better option to relinquish the automatic transmission of the Target fund for a stick shifting account.

      I wish every country had a "Vanguard". I absolutely love them.

      If you have time Bob, and if you have an Amazon account, I'd be thrilled if you could give my book a review.

      And of course, if you have any other questions, I'll do my best to answer.

      Cheers,

      Andrew

  29. Bob F. says:

    Hi Andrew,

    I know the Vanguard Target Retirement funds are composed of excellent underlying index funds identical or similar to your current investments including:

    Total US Stock Market,

    Total Int'l Stock Market &

    Total Bond Market.

    However, if you select by your age (Target Retirement Year), Vanguard maintains a 90:10 Equity:Bond allocation until you are 40 years old, which may be right for an aggressive 20 yr. old but seems very aggressive for a 40 yr. old. Then when you reach retirement, ie the 2010 fund, the Vanguard asset allocation is 30:70 Equity:Bond/Fixed and Vanguard recommends changing to the Target Retirement Income fund which is also a 30:70 Eq:Fixed allocation, which seems somewhat conservative if you plan to not run out of money until 100 years old based on Larry Katz (Director of Research at Merriman) research including:

    1) http://www.fundadvice.com/articles/retirement/inv
    2) http://www.fundadvice.com/articles/retirement/ret

    So my questions are how appropriate do you think these Vanguard Target Retirement asset allocations are:

    90% equity for ages 20 and for ~40 yr. old?

    30% equity from age ~65 and older?

    Best regards,

    Bob

    PS: My son has not yet received or read your book. However, at 22 yr. old, he independently reviewed his risk assessment, potential worst 12 & 60 month declines in value and the 3 yr. std. dev. for each investment option. Then he chose a 60% Equity fund in Vanguard LifeStrategy Moderate Growth (VSMGX). I had explained that a decline in market value is NOT a loss unless you sell at that time and commended him on his 1st investment choice as it will be easier for him to live with when reviewing his account in times of volatile markets and easier to make future contributions or additional investments possibly resulting in a slightly greater equity allocation.

    • Hi Bob,

      As I mentioned in my book, my suggestion is to ignore the date on the Target Funds and focus on the allocation within. As a 41 year old without a pension to look forward to myself, if I were an American able to buy these products (unfortunately, I am not able to buy them as a Canadian) I would buy the Target Retirement 2015 fund. I believe it has a 40% bond allocation.

  30. Freezie says:

    Hi Andrew,

    Just ordered your book and I am anxious to read it and switch directions investing wise. I played the mutual fund and stock market game but haven't faired as well as you did. I decided to take on a new route and invest my money in indexes going forward. As a Canadian with the intent of staying in the country, the TD e-series is appealing due to my limited funds (a lot of it is tied up in stocks that have not yet recovered). I noticed Vanguard has ETFs in Canada now – what are your thoughts on them? Too early to tell? I know I get dinged on currency charges every time I purchase an American investment so how are you avoiding those charges eating up your profits?

    Thanks!

  31. Greg D. says:

    Hi Andrew,

    My wife and I just finished reading Millionaire Teacher and I can now say I understand why it makes sense to have a bond component in my portfolio. I have been a reader of the Canadian Couch Potato blog for a while now, but it was your book that helped me finally understand how this works.

    I'm in Canada and since your book was published, Vanguard has opened up here. Would you recommend their ETFs over the iShares ones mentioned in your book?

    iShares S&P TSX 60 (XIU) 0.17%

    iShares S&P 500 (CAD hedged) (XSP) 0.24%

    iShares MSCI EAFE (CAD Hedged) (XIN) 0.50%

    iShares DEX Universe Bond (XBB) 0.30%

    Horizons S&P/TSX 60 (HXT) 0.07%

    Horizons S&P 500 (CAD Hedged) (HXS) 0.15% (+30bps swap fee = 0.45% ?)

    Vanguard MSCI Canada (VCE) 0.09% (Broader index than TSX 60)

    Vanguard MSCI U.S. Broad Market (CAD-hedged) (VUS) 0.15% (Broader index than S&P 500)

    Vanguard MSCI EAFE (CAD-hedged) (VEF) 0.37%

    Vanguard Canadian Short-Term Bond (VSB) 0.15%

    Vanguard Canadian Aggregate Bond (VAB) 0.20% (includes longer term bonds)

    – Does it make sense to buy the Vanguard ETFs which have lower fees and broader market coverage?

    – Is MSCI EAFE a broad enough index for world coverage? It only covers large first world economies. Is there a better broader index fund?

    – Horizons S&P/TSX 60 (HXT) is a swap based index, so it should be an exact match to the index performance minus the management fee. Does it make sense to use this rather than iShares or Vanguard.

    Thanks,

    Greg

  32. Hi D,

    I actually invested in indexes and stocks: roughly 50-50. Today, I just invest in indexes. To be honest, although dividend paying stocks are in vogue right now, I usually avoided them when I used to buy individual stocks. Even now, I would do the same if I were buying individual stocks. Dividends get taxed twice: at the corporate level and then at the investor's tax level. I preferred investing in companies with high rates of return on total capital, with low (or no) dividend yields at all. I know, I sure don't fit into the modern ideological trend with that philosophy, do I?

  33. Mike T. says:

    Finished reading your book and I cannot me more upset at myself for wasting many years with my broker and banker. That little voice in my head kept telling me to stop wasting my time and money but I just didn't know what to do.

    Over the years I was very weary of investing money in the stock market. This is due to the fact that my parents were strongly against it since my father lost quite a bit during his life time.

    My father was a big believer in real estate and taught me everything he knew. Today I am happy to say that I am very successful with my real estate investments and recently cashed out on some of my holdings. Vancouver's real estate was very good to me.

    The problem is now that I have quite a bit of cash sitting in the bank; I'm really not quite sure if it is a wise idea to put all of the cash I have and putting them with 60% index funds and 40% Bonds.

    This allocation is relative to my age and I would like to diversify my portfolio since it is weighed too much on local real estate.

    I've finished paying off our house mortgage and have no other debts.

    Thanks

    Mike

  34. Joei says:

    I'm 41 years old and I'm afraid I'm starting late in investing my money. I'm from the Philippines. Most of my money, I have invested with my mom who places it in real estate and she's done a superb job. However, when I had my first child three years ago, I wanted to do my own investing which I did in the Philippine stock market using a simple cost peso averaging. Currently, I regularly go to Singapore for my chemotherapy and was thinking of investing a small amount of savings ($5,000). I don't know whether to invest in Singapore stocks (SIA engineering, Maple Tree Reit, Kepple Land) as advised by my friend or index funds (international) since I just finished reading your book. I also wish I could meet up with you or attend your seminar if it's possible.

    • Hi Joei,

      With your $5000, you may want to buy a world stock market index. The ticker symbol is VT, and you could buy it through a discount brokerage (like DBS Vickers). It will give you balanced exposure between a variety of countries' markets at a very low cost. And because it isn't concentrated in a single market, it's far more diversified. More baskets for your 5000 eggs.

  35. Joei says:

    Hi Andrew : ) You are always saying how important it is to start investing early but what if you happen to be one of those foolish people who start late like in their 40s or 50s? Is still there hope for them to amass enough for their needs and will it be a harder struggle?

  36. Frank says:

    Hi Andrew

    Great Book!!! Woke me up to the world of indexing. I have a question, i have been pondering this for a few years but the biggest risk or should I say lose in pulling my mutual fund investments from my current investor is the ugly word of DSC's. I wasn't very savvy at the time I was introduced to the world of investing in mutual funds but after I found out several years later that 90% of my funds are tied up with DSC's this is my big dilemma. I have a hefty chunk of dollars that will be taken away. Would you take the plunge and move on or I guess the questions are what factors are involved. Please help.

    Investment $350000

    Age 46 years

    have been invested with the company over 20 years but investments have been moved several times within. Not sure exactly what the cost may be (DSC) only estimate.

    • Hi Frank,

      Give your advisor a call and make him earn his fees by asking this:

      "If I pull out every penny, what will it cost me in DSCs?"

      If your portfolio is worth $350K, you could likely save about 2% per year once you buy some low cost ETFs. That would amount to about $7000 in the first year alone, $14,000 over two years. I'm curious to know what your total sales charges would be, but you would likely want to weigh up the lower cost alternative to see if you could make up the difference inside of two years. Will you let me know? Thanks! Andrew

  37. Frank says:

    Thanks Andrew, I will definitely call and find out the cost and get back to you. I'm afraid to find out!!!

    • Frank says:

      Hi Andrew,

      My advisor finally got back to me about the DSC's and I was surprised to find out it was lower that I was originally thinking. $3850 But then I starting thinking about what I had lost for the year already on my investments and then over the years and it all started adding up. Well I guess I have to chalk this all up to a BIG learning experience. I have already passed your name onto some friends and hopefully they get on the bandwagon too. Getting back to the DSC's original question I had for you, I think it is a no brainer but your thoughts and suggestions would be encouraging and great fully appreciated.

      Thanks again for your book

      • I agree with you Frank. You should most certainly do it–the costs aren't nearly as great as the benefits, and you'll recoup your losses easily within the year (comparative losses, I mean. Nobody knows the direction of the market, but we know the long term hammering of fees)

  38. Jas says:

    Hi Andrew,

    What do you think of the concept of "valuation-informed indexing" ?

    After big market changes (like 2008), would you consider changing your basic bonds/equities allocation to take advantage of the low prices of equities? Did you always respect your allocation plan (bonds = age) during the periods you mentioned in your post (September 2001, 2002/2003, 2008/2009) ?

    Here is a blog post on the subject:
    http://balancejunkie.com/what-bogle-says-about-va

    Thanks!!

  39. Jas says:

    Hi Andrew ,

    What do you think of the concept of "valuation-informed indexing" ? After big market changes (like 2008), would you consider changing your basic bonds/equities allocation to take advantage of the low prices of equities? Did you always respect your allocation plan (bonds = age) during the periods you mentioned in your post (September 2001, 2002/2003, 2008/2009) ?

    Here is a blog post on the subject:
    http://balancejunkie.com/what-bogle-says-about-va

    Thanks!!

    • Barry says:

      Hi Jas

      I just read that link and funnily enough two comments down is a reply from Andrew in September 2011

      Posted below for posterity as you've already provided the link………………

      "I’m not sure if I would be considered a value indexer or not. To be honest, I don’t think I’m smart enough to know when stocks are at fair value and when they’re at double fair value so I probably wouldn’t fit the mold.

      I think it’s a lot easier (especially when markets are volatile) to simply rebalance a portfolio than trying to determine when it’s above or below fair market value. A lot of money, I believe, can be made by rebalancing when markets go nutty. And the only way I know of determining when they go nutty is when my allocation of stocks/bonds gets significantly out of alignment.

      Bogle isn’t a fan of rebalancing, suggesting that it doesn’t necessary work in the long run. He might be right. I don’t know.

      But about 12 years of rebalancing my portfolio has given me returns that exceed 12% annually, during the “lost decade”. Buying the lagging indexes every month, and rebalancing when things have gotten crazy (2001,2003,2008/2009) has been incredibly profitable. I didn’t wait until the end of the year to rebalance. I bought the lagging index every month (whether it was a stock or bond index) and if the markets sent my portfolio allocation to crazy levels of misalignment, I simply rebalanced.

      I’m not smart enough, as mentioned, to know fair value when I see it. But I can tell when my bond allocation rises to 60% of my total, versus the 40% target allocation that I have. When it does, I sell bonds to buy stocks, bringing my portfolio back to the allocation I initially set for it (no more, no less) During a long bull run, this wouldn’t work as well. I realize that. But I’m OK with that. Being frugal, investing over 20 years and rebalancing over the past 11 or 12 years has served me pretty well."

      Andrew Hallam

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