Millionaire Teacher Sells $50,000 of bonds

OK, I’ll admit it.  That might not be the most striking headline in the world.

But I’ve decided to sell some of my bonds to add more money to my stock indexes.

I typically do this to rebalance my account.

I’m not smart enough to know where the stock markets are headed over the short term, and I don’t really care. But when my portfolio’s alignment drifts from my desired asset allocation (roughly 40% bonds, 60% stocks) then I either do one of two things:

1.  I add to the lagging index (in this case, the stock index)


2.  I sell some of my bonds and buy the lagging stock indexes with the proceeds.

I don’t earn the kind of salary that will allow me to buy enough stock indexes over the next few months to bring my portfolio back to alignment, so I’m going to sell some of my bond index and buy stock indexes with the proceeds.

By no means is this a “market call”.  It will still leave me with a percentage of bonds that will be very close to my age (I’m 41) and with luck, the markets will fall a lot further.

What will I do then, if the markets fall further?

Rinse and repeat.

  • I did the same thing after the World Trade Centre collapse on 9/11/2001.
  • I did the same thing during the beginning of the 2003 Iraq war.
  • I did the same thing during the financial crisis of 2008/2009.
  • And I did the same thing in June, 2010, when the U.S. and International stock markets were roughly 12 percent lower than they are right now.

These weren’t “market calls”.  Yes, the stock markets increased dramatically, in short periods of time, after those rebalancing sessions.  But that wasn’t what I wanted.

I’m a relatively young man.  If I’m going to be purchasing something for many years (whether it’s gasoline at the pump, apples at the supermarket, or insurance for my home) why would I want to pay higher prices for those items?  Today, I’m a collector.  Perhaps in 15 or 20 years (when I’m selling my collection) I should hope for the prices of the collected items to rise.  But why would I want to pay higher prices, as a collector, while I’m still collecting those goods?

Think of yourself as a stock market collector – if that’s what you are.

And learn to rewire your thinking:

  • Cheap prices for the things you’re collecting = A Good Thing
  • Rising prices for the things you’re collecting = A Bad Thing

Although stocks and bonds don’t always move inversely to each other, they usually do.  For example, when people are selling stocks, they often put money into mattresses and bonds, putting their mattresses at a slightly higher elevation above the bed, and pushing bond prices higher as well.

Check out the recent stock market drop below, compared to my short term Canadian government bond index (XSB).

You can see that the bonds have risen in price as the stocks have fallen.  The green line represents the total world stock market index (VT) and the blue line represents my Canadian government bond index.  In the past three months, the world’s stock market index has dropped 13% and the Canadian government bond index has risen 3%.


Selling $50,000 of government bonds and buying stocks with the proceeds will still leave me with a bond allocation that’s very close to my age.

It’s a much smaller rebalancing sum than the money I shifted in 2008/2009 and smaller than the amount I rebalanced in June, 2010.

The markets haven’t dropped much, so a large rebalancing act isn’t really warranted right now.

But if I’m really lucky, the markets will fall further.

And I’ll rinse and repeat: allowing me to pay cheap prices for the coveted pieces of stocks that I’ll be adding to my collection.

To read more about my investment philosophy you can order my book – Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School.


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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38 Responses

  1. DIY Investor says:

    I like the "collector" analogy. Great way to put it. The move out of bonds into stocks as part of the rebalancing will add to the bottom line over time.

    I have to admit that I couldn't take it …after being bugged by thinking constantly about the 2% 10 year Treasury note and the 4% Intel dividend and the thought that the whole world wants a cell phone with all the entertainment ever been invented at their fingertips I went out and bought a few thousand shares of Intel. And you know I prefer index funds!

    I hope someone reminds me to look at them 5 years from now.

  2. Hey Robert,

    For guys who have watched the markets for years (like you, and to a lesser degree, me) it's almost surreal that Intel pays a dividend at all, don't you think? For so many years, it was a non dividend paying stock. It would be fun to go back in time a decade, speak to a younger Robert and say, "You'll buy Intel, one day, for a high dividend yield."

    It's such a well-financed business though. You're right. And the great thing about Intel is its track record during economic diversity. We've seen Intel face that adversity and continue to do well.

  3. Nu2this says:

    Hi Andrew,

    I'm really enjoying reading your posts.

    What would you recommend for those of us who are new to this way of thinking and have all stocks and no bonds? Would the importance of a balance between stocks and bonds (proportional to my age) trump buying stock indices at a time when stocks are dropping week by week and therefore looking much more attractive than bonds? In other words, would you invest any available money only into bonds if you were me to move to a more balanced portfolio?

    • Hey Nu2this:

      I think you asked a similar question on my post: "Quick Primer Question For New Investors" and I answered in detail on that post.

      In short, the markets have not really dropped that far. They are higher than they were 12 months ago—even including the recent drop.

      If you are a government employee who will enjoy a future pension, then you could keep your money as is, if you have a high tolerance for risk. But if you won't have a pension to look forward to, I would ensure that you create a balanced portfolio as soon as you can.

      • Mark says:

        Thanks for both replies.

        To be honest, I couldn't remember the name of the other blog. 🙂

        I'm self employed so I have no pension other than my RRSPs.

        Is there a master list of previous blogs that would make it easier to read through them?

  4. The Dividend Ninja says:

    Andrew, superb post! I just love your money-making bond & stock machine, it works perfectly. I'm wishing I had more bonds this time around, as I'm at 35% but should have 45%. There's no excuse for that, I just got lazy. But I'm sure glad I have at least that much in place, just like I did in 2008 & 2009 🙂

    It was only a few months back many bloggers were critical of holding bonds in their portfolio, but really you can't beat the income and the cushion they provide in these kinds of market declines (and as you point out its not even a deep one yet). Then you can rebalance and buy cheap equities -Nice!


    The Dividend Ninja

    • Thanks Ninja,

      I like to think of my bonds as my account's stability and opportunistic dry powder. Having them, and using them during downturns over the past decade, has given me hundreds of thousands of dollars in profit that wouldn't have materialized otherwise.

      Your bond allocation is higher than the bond allocation of most of the people I know. I think you're going to do at least as well as I will, going forward. Nice work Ninja!!!

      What I'd like to emphasize to other readers, is that I didn't try "timing the market" ever. I just rebalanced when my allocation of stocks and bonds got grossly misaligned. Not letting our hearts influence logic is the key, isn't it?

  5. Ha – I too, love the “collector” analogy.

    I'm still in my 30s, and my bond allocation in my RRSP is about 30%. I don't hold any bonds unregistered, all dividend-paying stocks instead. I do however, have a defined benefit pension which, now 11 years in, is like a big bond so I'm not too concerned I don't have enough.

    If we're both lucky, markets will tank and we'll start buying more equities. Till then, I'm going to watch my bonds DRIP just like my equities do; shares and units buying more shares and units every month, every quarter.

    I like watching my money work since that means someday, I won't have to! 😉

    Great stuff Andrew, I love reading how your brain ticks.

  6. Hey Mark!

    Keeping those highly taxable income sources (interest from bonds, in this case) in a registered account, while the rest of your money is in a taxable account, is really a smart thing to do.

    If I were you, I would probably have the same percentage of bonds that you do—or less. That defined benefit pension plan is something I don't have, and it's definitely extremely valuable, and I think that it's more than a replacement for a large bond component in your portfolio.

  7. Karim says:

    Hi Andrew,

    Great post!

    Now that you have sold a portion of your equities and purchased fixed income, what do you intend to do with new funds when available?

    Would you start buying back even if the purchase price is grater than what you just sold or would you wait for prices to further drop?

    Thanks as always


    • Hi Karim,

      I sold bonds and bought into the stock market immediately with the proceeds from the bond sale. I think you misunderstood…believing that I actually did the opposite.

      I'm not trying to time the market, and I don't sell something, and then end up buying it back at a lower rate later. I'm a simple guy who just rebalances his account when it gets out of alignment.

  8. I was thinking of your strategy given the recent market volatility and whether or not it warranted an adjustment in your portfolio. 🙂

    Based on the size of your re-balancing, it's apparent, as you mention, that a large scale move was not in order.

    Nice job. I really enjoy reading about your overall strategy. It's great to see investors executing successful strategies and sticking to their plans through thick and thin. Your strategy continues to intrigue me.

    Although I am nowhere near of being a seasoned index investor, my interpretation of things as it relates to your strategy is that the index funds selected seems to be of crucial importance.

    I think it's a good thing that you have selected VT for example, because it's covers the total US market index. Would other index funds like XIU have made the cut? What do you think? The ETF seems to have had similar prices depreciation since July.

    I suppose you view VT as offering more of a broad-based index which encompasses the larger US market. Or could it because of the the lower MER?

    Selection seems to be key, and it appears as though you've done a superb job at selecting your index funds.

    Great job! 🙂

    • Hey Wealthy Canadian,

      I might be a bit unusual in my view here but I don't think the selection of which index you buy will make a big difference, long term.

      I mean, as long as you are diversified across your own market, and the international markets, and as long as the indexes are "low cost" I don't think it matters much which index you buy.

      For example, we know that the DOW Jones industrial index has just 30 stocks in it. and we know that the S&P 500 has five hundred stocks in it. Over short periods of times, there are performance differences between the two of them, but not over the long term.

      I see the same thing with the TSX. There are TSX indexes with just 60 stocks, heavily weighted in financials. Then there are broader TSX indexes, encompassing many more stocks.

      Over the short term, there can be a difference between the two indexes, but over the long term, that isn't the case. They have historically performed similarly.

      Take the Australian index, the British index, the U.S. index, the German index. Nobody knows which one will outperform the other over the next decade or two. But historically, with all dividends reinvested, their long term returns are about the same.

      For this reason, I don't think people should sweat about the specifics of their indexes, as long as they're cheap, and the overall portfolio is somewhat diversified.

  9. Carlos says:


    I'm more and more intrigued by your strategy! It seems to be genius in that the bond ETFs and Stock Market Index's seem to have a negative correlation. Meaning that when you rebalance Your selling high and buying low. I do however have a couple of questions!! Regardless of what you ise to invest, indexes or stocks it seems like a good idea to have a large percentage in bonds ready to fire when the market drops.

    1. From what I can tell you hold your bonds in a CAD ETF and your indexes in USD ETFs. Doesn't that mean that when you rebalance you are subject to whatever the exchange rate is at that moment?

    2. More general but I can't get my head around how an index can track a market and yet be sold as a stock. If lots of people invested in an index fund would that not raise the price of the index share more than the value of the index it is following and vice versa? Or is each dollar invested used to create more shares?



    • Hey Carlos!

      When you rebalance, you are subject to whatever the current exchange rates are. But over a lifetime, exchange rates differences will likely end up a "wash". Sometimes it comes out in your favor, other times it won't. I don't ever think about exchange rates when making purchases. For starters, I don't know how I would measure losses and wins. I live in Singapore. And the Canadian dollar is at an all-time low. In the 8 years I have been here, the Canadian dollar has never been as low as it is right now. My perspective, therefore, might be different to yours, or most people's. I don't care about currencies, because I don't think any single currency has any importance to me, at this stage. When I choose to retire, I would likely want the vast majority of my money in the currency that I'll be paying my future bills in. But at this point, that's unclear to me. I do have a Canadian bias, and have included a large Canadian bond component for that reason. But I don't own Canadian equities.

      As for the ETF, think of it like a business. When new money gets added to an ETF, the ETF itself has to add more money to the stocks it owns, in proporation to the respective stocks' representation in the market. Buyers into a ETF create demand for it. That increases its price. But there's a direct correlation occuring with the stocks it holds, because fresh money will mean fresh, new purchases into stocks (on behalf of the ETF) which also increases the value of those holdings.

  10. Thomas says:

    Hey Andrew!

    Very informative post! It's exactly like your book, which I've been glued to this whole day. I'm nearly done with it in fact.

    I'm an international student studying at Singapore Management University, and I'm currently in my first year. One thing I thought I'd start up here in Singapore is investing.

    Now that I more or less know what to do, I don't really know where to start or which brokerage to use. I'm looking at DBS Vickers and UOB Kay Hian. Any thoughts?

    • Hey Thomas,

      I'm glad you like the book.

      It's nice to have the blog, and to use it to show how I rebalance my investments.

      The brokerage that I use, in Singapore, is DBS Vickers. You could create a portfolio of ETFs, with a home country bias. Where are you from? Do you plan to live in your home country again? I have a section of my blog, under the "Expat Investing" that you might find useful.


  11. In reading your post once again, I think you're right in that the specific indexes you choose shouldn't make a huge difference, long-term – as long as you are well diversified across markets.

    The point to recognize as you mentions is that although stocks and bonds don’t always move inversely to each other, they often do.

    I compared other indexes to your three month example (where the world’s stock market index has dropped 13% and the Canadian government bond index has risen 3%) with other index funds, and the opportunity to take advantage of being a "stock market collector" as you mention presents itself in many variations.

    Great stuff. 🙂

    In the past three months,

  12. joe says:

    Hi there i had some stock and bonds a few years back now but the only complaint i had was i didn't know how to read the market or fully under stand their gibberish in there statements but i would like to understand it better so i can make better choices. and have some money to retire with or have money to buy a house that me and the wife wants and have money when my three sons decide to go to college, like i'm 28 yrs old so i got some time to make things count

    • Great stuff Joe! You have plenty of time. I recommend that you embark on a strategy that will enable you to beat 90% of the professionals without any work at all: by creating a diversified, low cost portfolio of indexes. My book will show you how, and after reading it, if you have questions, please be sure to ask me, and I'll see what I can do to help.



  13. Dane says:

    Hi Mr. Hallam,

    Could you please elaborate on your comment, "Keeping those highly taxable income sources (interest from bonds, in this case) in a registered account, while the rest of your money is in a taxable account, is really a smart thing to do."

    I am really new at this and will be investing in TD e-series funds. Should the allocation of stock and bond index funds be the same in all investment vehicles (e.g. TFSA, RSP, non-registered)?

    I am 25. Should the allocation in each of my accounts (TFSA, RRSP and non-registered) be 25% bond index, 25% US stock index, 25% Canadian stock index and 25%? Or is there an advantage to having, for example, all bond allocation (that still makes up 25% of total portfolio) in my RRSP while having the stock indexes in non-registered or TFSA accounts?

    Apologies if this is a common sense question, just having a little difficulty wrapping my head around it.

  14. Kat says:

    Hi Andrew,

    I'm 54 years old. Is it too late for me to start using this strategy? Currently I hold much of my RSP holdings in stock and balanced funds (at my advisor's suggestion) and I would think its a bad time to sell. But I do have about $25000 in cash. Since I have a pension coming my way, I'm thinking of putting this money into a stock index. In your opinion, is that a wise move at my age? And is this a good time to buy a stock index without the balance of the bond index?

    PS: Loved the book..I'm on my second reading…

    • Hi Kat,

      I'm glad you liked the book. Now is not a bad time to sell your expensive mutual fund investments if you just switch the money over to a more efficient strategy right away. Think of it this way. Imagine that your house is poorly insulated. But imagine that there's a better insulated house across the street. But you are not keen to sell and move because you have paid more for your home than its current value. In your eyes, it's a bad time to sell. However, if you sell and buy the house across the street, you would be going "market to market". Sell cheap, buy cheap. If the market is down, the market is down. If the market is high, the market is high. Timing isn't an issue when you're selling one asset for another, as long as it's the same asset–but a more efficient one.

      I would consider switching all of your money into more efficient products. It's a lot easier to do than selling a home, and you'll be far better off for it.

  15. Rocco says:

    Hello Andrew,

    I wanted to describe my 2012 strategy. I am planning to invest in the Dogs of the Dow method. I will invest into the five highest yielding stocks in the Dow and use the proceeds to reinvest in the stocks. This methoid has proven to be a winner in the last ten years. It also falls in to my conservative approach to investing.

    In 2011 I bought Kraft, Pfizer and Johnson and Johnson and I was happy with my returs.

    In 2012 my picks are Intel, Dupont and AT&T…

    Your thoughts


  16. If this is going to be your strategy, then make it your strategy for life (not just for 2012)—keeping a bond allocation that somewhat matches your age as well. Don't switch strategies year by year. There are plenty of ways to make money in the markets, and this can be a very good one. But even if it underperforms for a decade (which it might) you stand the best odds of success if you stick to it. Few people have the guts to do that, but if you can do that, and ensure that you have a healthy bond component, you'll likely do quite well. Your account will be a lot more volatile than mine, but over the long haul, you will do well if you stick to the plan.

    This is a high risk account if you don't have bonds–especially as you get older.

  17. Steve Booth says:

    I recently read your book and have decided to implement your strategy of investing using Vanguards ETF funds recently available in Canada. I have about 50K to start off with. I was wondering if it would be wise to purchase the ETF's all at once or spread the purchases over a few months. I plan on investing an additional 1500 per month and am thinking of purchasing new ETF's when I have about 4k to invest per fund to reduce my commissions.

    Your thoughts?

    • Hi Steve,

      Considering how much you are saving, relative to the $50K, I would invest it all at once. The markets certainly aren't at nose-bleed levels, and $50K is only double your annual savings. Make sense?

      And if the markets fall while you're purchasing, don't think about that $50K. It's peanuts, relative to what you're saving. Psychologically embrace the falling markets, if they fall. If not, oh well, hopefully you'll get a enjoy a great market dump at some time in the future.



  18. Dan says:


    Any suggestions on choosing the correct/right 403b plan. There is a lot of variety, but with variety come a lot of fees. I am 30 and have a ways to go before retirement.

    Thank you for all the time you put into this site.

  19. Hey Dane!

    I'm sorry I missed this comment/question. There's no way I ignored you on purpose! If you want to be really organized and streamlined, you could keep your bond index in your TFSA and RSP accounts. Then the interest won't be taxed. Think of your total portfolio, rather than viewing it on an account by account basis. For example, if you have $10,000 in e-Series funds, with 20% in the bond index, perhaps you could have all the bond money in your tax sheltered accounts. Your allocations, per account, wouldn't fit the couch potato profile, in each case. But your overall assets would. Does that make sense? It was great seeing you in November Dane! I'm so sorry that I missed your question!!

  20. Andrey says:

    Hello Andrew.

    Will the growth from my Index funds that I keep in my TFSA and RRSP taxable?

    If not, wouldn't it make more sense to keep Indexes there, assuming you get a higher growth from them than from bonds?

    Thank you.

  21. Hi Dan,

    I'm sorry that I didn't see your question earlier. If you show me your options, in detail, I could give you my 2 cents.



  22. Julie says:

    Hello Andrew and thanks for the great book which we enjoyed reading and have also purchased for both of our kids. Now we want to put your suggestions into practice and although we are in our fifties we plan to invest in CDN bonds for the first time.

    I see that we can buy XBB short to long term bonds or XSB short term bonds. Do you feel interest rates will go up over the next few years and if so would it be best for us to invest in the XSB short term bonds?

    Thanks in advance for any insights you might have to offer!

    • Hi Julie,

      I don't believe anyone knows where interest rates will go over the next little while. But I own XSB, the shorter term bond index. If inflation rears its head, the shorter term bond will do better because it picks up new bonds, faster, at the newly increased interest rates. But I don't buy it because I'm a speculator. Short term bonds have the highest statistical likelihood of beating inflation, so I stick with where the odds are highest. Many thanks for the kind words about my book. If you have time, I'd be thrilled if you could write a few sentences (a little review) on Amazon. Here's the link, if you can:

      Thanks Julie!


  23. Barry says:

    Hi Andrew

    I'm not sure if it's been mentioned before or I'm going to convey it accurately below, however here goes

    Are you re-balancing when an individual allocation goes out by 15% as part of the 'total" or "individually"?

    i.e. If I had 4 funds with an allocation of 25% each (maybe like the Canadian Divorcee) rough example below..add extra 0's if required

    $1,000 in an International government bond index

    $1,000 in a U.S. bond index

    $1,000 in a Canadian stock index

    $1,000 in a Global stock index

    If the Global Stock index moved up 10% or $100 and all other indexes remained constant, then the overall difference to the portfolio is 2.5% only

    4100-4000/400*100 = 1/40 or 2.5%

    Am i waiting for the individual Global Stock index to move up to 15% or more, or the overall difference to the portfolio to move from 2.5% to 15% before I consider selling some funds and re-balancing?

    I'm thinking as you start to add zero's the second scenario would get harder?

    Did I make sense, or just lose/confuse myself?



    • Barry says:

      With the markets now moving the other way

      Bonds somewhat static and the International and US markets moving northwards are you near to you re-balance triggers?

      Or are taxes and a monthly attempt to re-balance to rein in the tearaway’s also a consideration?

      • Hi Barry,

        I’m nowhere near my personal re-balance triggers. I’ve been buying the lagging index each month, which has played somewhat of a re-balancing role, I look for at least a 10% discrepancy between my goal allocation and my current allocation before manually re-balancing. But that doesn’t mean your portfolio isn’t ready to re-balance. How far are you from your goal allocation?


    • If the global stock index is 10% higher than your goal allocation go ahead and re-balance it Barry.



  24. Thomas says:

    Hi Andrw,

    I’m a racent canadian graduate in my 20s looking to save and plan for retirement. I’m in the health sciences and have very minimal understanding of finances. I’m very glad to have stumbled on your book, and really enjoyed some of the simple analogies you used to explain certain financial concepts.

    Having completed your book, my first question is how do you determine when the economy has bottom out enough to purchase the stock index.

    My other question now that i’m paying a bit more attention to world markets and indexes, i notice that when there’s a drop in world indexes due to poor economic forcasts it’s usually the gold prices that rise. I’m not sure about other bond markets, but I find the canadian bond index barely fluctuates. So why isn’t gold used as an alternate to bond?

    Finally, prior to reading your book i guess i was a bit of a conservative and bought a lot of bonds and GICs. i wasn’t really sure what i was doing…. Since then i’m 60 bonds 40 stocks. I get the general sense that stock indexes still seem to be increasing (especially US), should i wait for the market to slow down a bit before rebalancing again?

    thanks for reading, sorry for the lengthy msg and if you’ve answered these questions in a previous post!

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