Millionaire Teacher Prepares To Buy

I spend roughly an hour a year maintaining a seven figure investment portfolio. 

I don’t need to read stock market news or catch the latest fad.  Sound investing is far simpler than many people think.

If it’s exciting, or taking much more than an hour a year, you’re probably doing something wrong.

On June 5, 2012, I wrote a blog post titled, Millionaire Teacher Adds $29,000 to International  Index.  

Unfortunately, as of today (August 5, 2012) the index I purchased two months ago has risen 10.8%.  It’s represented by the blue line below.

VEA Chart Vanguard MSCI EAFE ETF ETF Chart

 As a relatively young man (I’m 42) I don’t like the stock markets to rise.  If you’re young and employed, nor should you.

Falling or stagnating stock markets are far better for young investors. 

As Buffett himself has said, if you’re going to be adding to the stock market over (at least) the next five years, you should prefer falling stock prices to rising ones.  Celebrating stock market gains is like celebrating the rising prices of groceries. 

I started this series of posts, titled Andrew’s money, to offer some kind of a guide.  The trick to wealth accumulation in the stock markets is to ignore the media, ignore market forecasts, and stick to a solid game plan.  I’ve outlined that plan in my book, Millionaire Teacher, and I’m outlining it here as well.

You can invest very well following three simple rules:

  1. Buy a low cost, short term government bond index
  2. Buy a U.S. stock market index
  3. Buy an international stock market index

If you’re between 30 and 40 years of age, you could split the money evenly between the three markets above.  If you’re older or younger, consider having a bond component that’s roughly equivalent to your age.

For example, if you’re 50 years old, you may want 40-50% of your money in a bond index.

Do you think that’s too conservative?  I don’t.

Like me, it will allow you to sell portions of your bond index to buy into the stock market indexes when the stock market drops.  I did this (as did all rebalancers) after 9/11, at the start of the 2003 Iraq war and during the economic crisis of 2008/2009.

And it will give you the power to sell some of your stock indexes, to buy bond indexes, if the stock market rises considerably, which it did from 2003-2007 and from 2009-2010.  You wouldn’t be making a guess about the market’s direction.

 You’d just be getting your portfolio back to its original alignment through a rebalancing process.

With enough emotional equanimity, you can profit off the euphoria and fear of others.

During periods of high volatility, rebalancing your portfolio once a year can add serious kicks to your profits.  And buying the lagging index with your monthly savings ensures that you’re never joining the bandwagon of silly folks who purchase what’s currently popular. 

My portfolio looks roughly like this:

  • 42% Canadian bonds
  • 31% International stock index
  • 27% U.S. stock market index

Considering that I want my bond allocation to equal my age (I’m 42) and I want my stock market indexes to be evenly split, what should I be purchasing this month?

  • The U.S. stock market index?
  • The international stock market index?
  • Or the Canadian bond market index?

If you require a hint (or a bit more detail) check out the following posts:


andrew hallam

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 (Wiley 2011) 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.

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59 Responses

  1. Barry says:

    Hi Andrew

    On the links provided the dates you re-balanced were AUG 2011, MAY 2012, JUN 2012 and now AUG 2012

    How often are you re-balancing or looking to see if you should re-balance?

    The JUN 2012 link also says your allocation goals are 40% Bonds (XSB), 30% U.S. Stock Market (VTI) and 30% International stock market (VEA). Are you sticking with 40% or the age/bond allocation i.e. 42?

    Regards

    Barry

  2. Hi Barry,

    I'm 42, so I keep my bond allocation somewhere around my age. I don't get too crazy about being exact though…as long as I'm close. As for the dates mentioned, I rebalanced during two of those dates, not four. When I bought the international index ($29,000) I had cash from dividends and interest, mostly. I didn't sell anything to come up with that money. On average, I rebalance about once a year. Some years, more than once, other years not at all. It all depends how far out of alignment I get with the portfolio. If I'm out by more than 10-15%% or so, I usually rebalance. It's not a taxable account (there aren't capital gains taxes in Singapore) so I can rebalance without taxable penalties.

  3. Barry says:

    Thanks Andrew,

    Ours is with Superannuation so in addition to dividends it would the quarterly payments where we would look to allocate funds/re-balance the portfolio

  4. A&S says:

    hi, the singapore bond index is not active.

    any suggestions for a good alternative?

  5. Matt Alden says:

    Good post. I love lines like this:

    "Unfortunately, as of today (August 5, 2012) the index I purchased two months ago has risen 10.8%."

    I was attempting to explain to my father (age 76) a while back why it's a good thing for stocks to go down. He asks about my portfolio from time to time and I'm like "unfortunately it's doing pretty well…"

    I had trouble explaining it to him in a way that convinced him about why I want my stocks to perform poorly, so I gave it a rest for a while.

    And then Warren Buffett's shareholder letter came out a while back, where he specifically used his IBM holding as an example of why he wants the markets to go down. As he explained, the worse IBM stock does (as long as the company itself does well), the more shares their large share repurchase program will buy, and the more value it will create for IBM shareholders like Buffett over the next 5 years. So I pointed my father to that and explained that this is exactly what I meant, and he believes it now because Buffett said it. 🙂

    • Hey Matt,

      It's funny how the expert from afar (Buffett in this case) is given more weight than the expert who's near. That's always the case, of course. It's not just a "Buffett thing" with the Oracle versus you, in the eyes of your dad. Your blogsite, by the way, is amazing. But perhaps I think that because you're my "expert from afar" and if you rented my basement suite, I'd unfairly view you as a quack. You never know!

      Cheers,

      Andrew

  6. Barry says:

    Hi Matt

    Love that story, If Warren says it, it must be true, who can argue with his investing or wealth track record :o)

    • I'll admit, Barry, that I've used Buffett one more than one occassion when looking for an authority to convince people. He's definitely synonymous with "genius" in most households today. Ten years ago, Jimmy was better known.

  7. Value Indexer says:

    Andrew, I've gotten so used to seeing regular financial news that I was pleasantly surprised by the end of the sentence "Unfortunately, as of today…" 🙂 Maybe you can be Buffett's successor in bringing some common sense to the media. Unfortunately most people still won't listen to one of the richest men in the world, even when they are reminded of the past times when they failed to listen to him and lost money.

    Matt: for someone of that age it might be harder to understand in their personal portfolio. But for anyone younger I would like to ask why they want stock prices to go up. They'll probably reply "so I can sell and make a profit". Then you can ask them how much they are planning to sell in the next month… and sit back with a smug look 🙂

    • Hey Value Indexer,

      Thanks for the comment! I'm glad you're aligned with the right philosophy yourself. When people ask me how the markets are doing, I'm less excited when they're rising. They can hear it in my voice. But market drops and stagnations are like yard sales where folks are giving away cheap Rolexes, thinking they're broken Timexes. Could you imagine the headlines? "New Rolexes, unfortunately, are now selling at the yard sale on 1st and 5th for $50. We're hoping they soon find their way back into luxury watch shops for $5000 a piece. You never know, they might be a good future investment once prices turnaround."

      • Value Indexer says:

        Haha, only one section of the newspaper could write that! Then again I'm sure there was a better watchmaker that sold watches for only $50 and eventually went out of business because they seemed too cheap.

  8. Kent says:

    Hello Andrew,

    I've really enjoyed your blog and investment philosophy. I've been devouring everything I can find on your website! However, I have a question that I've either not seen answered or overlooked it.

    I am a 43 year old college professor at a public school in California with a pension. Assuming the pension actually survives 20 more years until my retirement (and that's a big IF in California), how will that affect my current investment allocation? It seems like a pension, being more conservative and steady, might replace some of the bond allocation implying I should invest a larger portion in stocks. So instead of 60/40, perhaps I should look at 80/20, 90/10, or even 100/0?

    I'd appreciate your thoughts!

    • You're absolutely right Kent. I talked about this in my book. In your case, you may wish to keep your bond allocation to just 20-25% of your total. We're roughly the same age, but I won't have a pension, so I should stick to something more conservative: matching my bond allocation to my age.

      • Kent says:

        Thanks so much, Andrew. I opened a Vanguard account last week and setup an 80/20 allocation so I'm glad I was on the right track! I only just discovered you & your website, but your book is on my shortlist to read. Thanks again!

  9. Ted says:

    I have a big chunk of money sitting in cash. I want to invest in indexes but with the prices of the markets so high right now, I'm having trouble leaping in. What to do? Should I just buy now while things are high anyway?

    • Hi Ted,

      Thanks for asking the question. I can tell you're very new to investing, based on your belief that the markets are high. I can't blame you though. If you look to the past couple of months and use the market's general direction as your guide for the price level, you could very well come to that conclusion.

      The markets have historically traded at price to earnings levels of 14X earnings. But for most of the past 15 years, they have been priced much much higher than this. During periods where the markets have traded at higher PE levels, there's generally a reversion to the mean (eventually) when markets either stagnate for a period of time, or drop.

      The U.S. market currently trades at a PE ratio of 14X earnings. This is half the level that the markets traded at 12 years ago, so no, the markets are not expensive. And this aligns with historical norms. Check the link: http://sg.finance.yahoo.com/q?s=vti&ql=1

      The first world international market is even cheaper, trading at a PE of 11X earnings. http://sg.finance.yahoo.com/q?s=vea&ql=1
      Again, this is less than half of what the level was 12 years ago.

      Ignore recent movements and focus on the big picture: create a diversified portfolio of stock and bond index funds that you can rebalance. If the stock market falls short term, you'll be able to take advantage of that with your bonds (selling some to buy stocks) and vice versa, if the stock market starts to soar.

      Cheers Ted,

      Andrew

      • Jake says:

        Is there somewhere you can see a chart of historical P/E ratios for different stocks/ETFs? How would I know that today's P/E ratio is historically average or low without you telling me?

  10. Andrey says:

    Hello Andrew!

    Enjoying your posts as usual.

    So, will you be buying Canadian bond index this month?

    Also, I have a question.

    The idea of no tax on Capital gains in Singapore sound very tempting.

    Was it the reason why you moved to Singapore? Or because you like traveling?

    I live in Canada, Vancouver. We have tax on Capital gains which I believe is 25%.

    That's kind of a lot, don't you think? Should I be thinking of going to Singapore and building my wealth there instead of Canada? Because, at the end of the day time really matters. Looks like in Singapore I can become wealthy much faster than in Canada.

    What are your thoughts?

    Thank you,

    Andrey.

    • Hi Andrey,

      Oddly, I appear to currently have a portion in bonds that reflects my age, so I will likely be buying the U.S. stock market index. That decision could change, however, between now and when I get my first pay check for the school year…depending on what my allocations are at that time.

      As for moving to Singapore, I believe that most expats end up with less money at the end of the day, not more. To buy a VW Golf GTI, for example, would cost you $170,000 CDN. To buy a 6 year old Toyota Yaris would cost you $40,000, and yet, you would only be able to drive it for 4 years before:

      A. The car had to be scrapped

      or

      B. You paid another $70,000 to the government for an option to drive the same car you already own, for another 10 years.

      If your company decided not to pay your rent, you would pay through the nose there as well. Our apartment costs roughly $4000 per month.

      So yes…income taxes and capital gains are lower, but if you plan to live like a Canadian (cars, decent housing) and you catch the expat's consumption disease, you would arrive home with potentially less money than you left with, and you wouldn't have contributed to the Canada pension plan while away.

      Having said that, if you get the right overseas package (including rent) and you don't spend excessively on transportation (think buses) you could definitely expedite your wealth.

  11. Barry says:

    Hi Andrew

    Just curious as to the size of the portfolio and the strategy i.e.

    42% Canadian bonds

    31% International stock index

    27% U.S. stock market index

    With $1M and to rebalance to 40%, 30%, 30% without any additional funds, just based on %'s you would sell (-) and buy (+)

    -$20k Canadian bonds

    -$10k International stock index

    +$30k U.S. stock market index

    With a Porttfolio of only $100k and to rebalance to 40%, 30%, 30% without any additional funds, just based on %'s you would sell (-) and buy (+)

    -$2k Canadian bonds

    -$1k International stock index

    +$3k U.S. stock market index

    So does size (and costs incurred) factor with rebalancing and portfolio size?

    With a smaller portfolio would you need to get a higher disparity before rebalancing is viable/required?

    Barry

  12. Barry says:

    Hi Andrew

    Just curious as to the size of the portfolio and the strategy i.e. Goal Allocation is 40-30-30 but stands at

    42% Canadian bonds

    31% International stock index

    27% U.S. stock market index

    With $1M and to rebalance to 40%, 30%, 30% without any additional funds, just based on %'s you would sell (-) and buy (+)

    -$20k Canadian bonds

    -$10k International stock index

    +$30k U.S. stock market index

    With a Porttfolio of only $100k and to rebalance to 40%, 30%, 30% without any additional funds, just based on %'s you would sell (-) and buy (+)

    -$2k Canadian bonds

    -$1k International stock index

    +$3k U.S. stock market index

    So does size (and costs incurred) factor with rebalancing and portfolio size?

    With a smaller portfolio would you need to get a higher disparity before rebalancing is viable/required?

    Barry

  13. Hi Barry,

    The account above is worth $1.7 million. But I don't get too carried away about exact percentages, and I don't think anyone else should either. When you have fresh money, make your purchases to buy the lagging index (as this relates to your goal allocation) but don't worry about rebalancing (ie. selling to buy) unless your portfolio gets out of whack by 10-15%. At least, that's my general rule of thumb.

  14. Barry says:

    Hi Andrew

    Thanks for the quick response, its all still part of my learning curve and i appreciate your feedback to myself and others on your site

    Barry

  15. Jeff Hanna says:

    Hi Andrew.

    I am a teacher and have purchased your book.

    I am 50 years old and would like to start a portfolio (hopefully not too late).

    If I go with 50% Bonds, what would the other 50% comprise of?

    Thanks Andrew.

    Jeff

    • Hi Jeff,

      If you're a public school teacher with an upcoming pension, you won't likely need to be as conservative (with 50% in bonds). You may opt to build a portfolio with just 30% in bonds instead. That said, of course, the risk level is up to you, but your pension will allow you to take more risks, hence lowering the bond portion a bit. To answer your question very specifically about where the rest of the money should be invested, considering that you already have the book, you'll find the very specific answer to your question between pages 109 and 114. Please let me know if you have specific questions after re-reading these pages. If those pages aren't clear, then I really want to know. I did my best. But I could always use the feedback for improvement. Thanks Jeff!

  16. theSPYsurfer says:

    Hi Andrew,

    Great stuff!

    I understand that you have 3 ETFs in your portfolio: XSB, VTI and VEA

    What do you think about the 5 ETF Ivy portfolio (VTI, VEU, BND, VNQ, DBC) with the same rebalancing method?

    Cheers,

    theSPYsurfer (Vancouver, BC)

    • Hey SPY Surfer,

      I think it would be a wonderful option. If you have the discipline to rebalance during good times and bad, you will do very well over time…as long as you are patient. Good luck!

      • Nick says:

        Hi Andrew, I’m looking at buying ETFs with BMO. Which 3-4 Low mer ETF do you reccomend ?

        • Hi Nick,

          I’m sorry, I don’t understand the specifics of your question. If using BMOs ETFs, build a diversified portfolio of Canadian, U.S. and International stock, plus a bond index.

          Cheers,
          Andrew

          • Nick says:

            Hi Andrew,

            Thanks for the quick response. Sorry I did not explain my question a little better, by looking at what BMO offers there seems to many options and I was overwhelmed by the options or ? I’m thinking ZCN, ZSP, ZEA and either ZAG or ZCS bonds would be good ? In your opinion do short term bonds pay more in the long run? Also what are your opinions on investing in Gold index ETF ?

            Thanks

  17. ed says:

    Is there any reason you pick VSB vs VAB?

    • Hi Ed,

      I really should own VSB instead of XSB. It's basically the same thing, but VSB has a slightly lower expense ratio. VSB is also a relatively new ETF. If it had been available years ago, I would own it instead. I didn't exist when I accumulated much of this money. I'm going to switch over to VSB soon, but not looking forward to the commissions I'll have to pay. When you're selling and then buying about $800,000 of a single ETF, nobody is willing to give you a $9.99 trade. That said, the lower expense ratio would make up the difference before next summer. Here's the link to VSB in case anyone is interested: http://sg.finance.yahoo.com/q?s=vsb.to&ql=1

      • Vic says:

        Dear Andrew

        thanks for your post.

        I was wondering if you would consider:

        1. CLF – expense ratio 0.17, average duration 2.63, average coupon 4.56%, vs

        2. VSB – expense ratio 0.15, average duration 2.7, average coupon 3.1%

        the CLF coupon looks attractive, though it has a slightly higher expense ratio. CLF is mainly government bonds though

        would appreciate your thoughts on that

        cheers

        • Sure Vic,

          That would be fine. Keep in mind that the yields on these ETFs will fluctuate over time. You can't say, for sure, that one will be better than the other (based on the two options you provided).

          The far far more important aspect isn't going to be the selection of your ETF. It will be your reaction to the markets over the next twenty years. That's where you (along with all of us) will be thoroughly tested as investors. If you read market news and think it has any merit, then you will likely not be able to stick to your plan. Having this discipline is going to be far far more impactful than your selection of ETFs, which in the two cases above, is like splitting hairs.

          Good luck. You can do it!

  18. ed says:

    Thanks Andrew

    So why do you use short term bonds instead of the long term?

    • Hi Ed,

      Sometimes long term bonds perform better, but short term odds have higher odds of keeping pace with inflation. When inflation rises, bond prices drop. If you have a short term bond index, then the newly purchased bonds (by the index) will have higher yields. Remember that a short term bond index keeps bonds with short maturities. Most expire within 1-3 years. Then the index has to replace those with newly issued bonds, when the holdings expire. If interest rates rise, those newly issued bonds will have higher interest rates, based on the falling bond price. You don't have to choose short term bond indexes yourself, but I go with where the odds are always statistically best. I don't forecast where I think interest rates are going to go. I have no clue. But of course, nobody else really KNOWS either.

  19. Ryan says:

    Hi Andrew,

    In your book you write about how to, if you must, pick stocks. You say to look for undervalued large cap stocks.

    I'm just wondering what you think of Morningstar's new EFT MOAT. This ETF is designed to pick the most undervalued companies with the largest business 'moats'.

    http://www.vaneck.com/funds/MOAT.aspx

    What would your thoughts be about using such an ETF in replace of a total US stock market ETF?

    Best,

    Ryan

  20. Hi Ryan,

    Personally, if I were picking my own stocks, I would want to do the work myself. But of course, you might be comfortable putting your U.S. asset mix in something different. Over the long term, will it beat the market? Probably not. If it were that easy, all active managers with very low costs would beat the market. But they don't.

    • The "moat" ETF made me curious so I took a look. It's based on an index published by Morningstar (the mutual fund reviewer that encourages too much performance chaser). An index is only as good as its construction, and the purpose of this one sounds interesting if it's done well. This one is based on 5 factors that are hard for competitors to overcome (Intangible assets/brands, Switching costs, Network effect, Cost advantage, and Efficient scale).

      Not bad, but that makes it just a very simplified fundamental analysis which isn't very original. I disagree with some of their example categorizations where I have industry knowledge. And then they turn it into an "active index" with this: "The index comprises the 20 stocks that are trading at the largest discounts to our analysts' fair value estimates, reviewed on a quarterly basis".

      So the index, and the corresponding ETF, are just active management that is very slow to respond (3 months vs hours for other managers). The right way to do it would be to have an index of all companies that fit the criteria and let investors decide if the index is overpriced.

      I'm impressed by one thing though. If active managers are trending to MERs under 0.6%, they might come closer to keeping up with the market in the future which would be good for investors.

  21. Barry says:

    Hi Andrew

    How Liquid have you found these bonds to be with regards to purchasing and/or selling?

    I'm presuming no issues on your side of the pond?

    I'm just looking at the below and there's not a lot of volume, I though Vanguard had their own Market Makers also? Maybe iShares/Balckrock or similar maybe more liquid?

    http://markets.businessday.com.au/apps/qt/quote.a

    (VGB) VANGUARD AUSTRALIAN GOVERNMENT BOND INDEX ETF

    Barry

  22. Hi Barry,

    You asked about liquidity. Those trading on the NYSE and TSX (the ETFs I own) have very high volume. Unfortunately, you might pay slightly higher spreads based on the lower volume in Australia.. Things will improve when your housing market crashes (I'm only half joking) and more people turn to equities.

    • Barry says:

      Thanks Andrew,

      Housing here and the demand/supply equation is always a topic of heated discussions, higher yields are usually found in remote and/or mining towns where there is usually additional risk. Growth however has been found in many areas, especially those of high population growth and with the recent mining boom, in those remote and/or mining towns also

      Vanguard Australia provided this for me as I try to construct my portfolio

      https://www.vanguardinvestments.com.au/retail/ret

      Thanks Teach'

  23. Brian White says:

    Dear Blog Readers,

    I used to work at the Singapore American School with Andrew. Last year after reading his book, I converted my privately managed investments to low cost Vanguard index funds- total stock, total bond, and total int stock. I balanced them according to my age…roughly 60 stock 40 bonds.

    I've recently moved to a school run by the Aramco corporation. They use Vanguard for their 401k program. I am contributing 9% and they contribute 9%. They problem is that I am not allowed to fund my previous three index funds.

    My question I was hoping you, Andrew's blog readers, could assist me with is if you had to select from the following list (http://www.kivalia.com/plans/plan-funds/414) what would you choose and why? I am 40 years old, married, with one child who is three. I would like to retire by age 60.

    Thanks in advance.

    Sincerely,

    Brian

  24. Brian White says:

    Hello Blog Readers,

    I used to work with Andrew at the Singapore American School. I emailed him and asked if it would be ok posting a question to you, his very knowledgeable readers, to get some advice.

    I am currently invested in Vanguard's index funds according to the advice posted in Andrew's book (40% Total Bonds, 30% Total US stocks, 30% Total international). I recently moved to a new country and am working for the Aramco corporation. The 401k here allows us to contribute 9% with a matching 9% from the company into Vanguard funds. However, none of the three funds I listed above are part of the investment program.

    I was wondering if you could look at the list below and tell me in your opinion which Vanguard fund(s) you think would be a good fit for me and my family. I'm 40, married, with a 3yr old son. I would like to retire at 60 (or sooner if possible)! We currently have a good portfolio with almost 300,000 plus a piece of property outside the US.

    Thanks,

    Brian

    Saudi Aramco Income Fund

    Vanguard Capital Opportunity Inv

    Vanguard Explorer Fund Investor

    Vanguard Extended Mkt Index Signal

    Vanguard FTSE Social Index Inv

    Vanguard High-Yield Corp Fund Inv

    Vanguard International Growth Inv

    Vanguard Prime Money Mkt Fund

    Vanguard STAR Fund

    Vanguard Target Retirement Income

    Vanguard Target Retirement 2005

    Vanguard Target Retirement 2010

    Vanguard Target Retirement 2015

    Vanguard Target Retirement 2020

    Vanguard Target Retirement 2025

    Vanguard Target Retirement 2030

    Vanguard Target Retirement 2035

    Vanguard Target Retirement 2040

    Vanguard Target Retirement 2045

    Vanguard Target Retirement 2050

    Vanguard Target Retirement 2055

    Vanguard Total Bond Mkt Idx Signal

    Vanguard Wellington Fund Inv

    Vanguard Windsor II Fund Inv

    Vanguard 500 Index Fund Signal

    • Hi Brian,

      The Target Retirement 2020 fund is almost exactly what you currently have. It holds roughly 37% bonds, with the rest split between the total U.S. market index and the international stock market index. You can see its Vanguard prospectus here: https://personal.vanguard.com/us/funds/snapshot?F

      The beauty of these funds is that they rebalance annually and increase their bond allocations as you age. Ignore the date on the fund itself. It doesn't mean anything. You could buy the Target Retirement 2010 fund and continue to hold it, even though the "date" has passed.

      Vanguard actually does a poor job naming these funds. But the funds are awesome. Many people think that should use their retirement year as a benchmark for which fund to buy. But as mentioned in my book, the investor should ignore the name/date and find the fund with the bond allocation that would suit them. Considering that the 2020 has roughly 37% in bonds, it would likely suit you well. I'm thrilled that your school is so progressive with this. Are you now paying into social security as well?

      Cheers,

      Andrew

      • Brian says:

        Andrew,

        Thanks for the advice. To answer your question….no we are not paying into Social Security.

        There are still a couple of points about the plan I have to ask around here about. There is a bonus to the plan that occurs at the 5 and 10 year mark. Apparently the 10 one is a big windfall. We'll see what I find out.

        Also, I will still be throwing a large chunk of change into our own Vanguard accounts each month. With this in mind, would this change your answer to the above?

        Thanks,

        Brian

        • No, it wouldn't really change anything Brian. But make sure you contribute as much as you can with your employer, so you can maximize matching contributions. Once you have filled the contribution room that they agree to match each year, then invest with your regular Vanguard account with the rest of the money you're saving, because it's cheaper. It doesn't have an intermediary.

          Cheers,

          Andrew

  25. Roger says:

    Andrew, always interested to read your blogs but, slow down and take care!! "One you know the " should presume be "Once you etc. Dad.

  26. Tyler Wolfe says:

    Hi Andrew,

    I just finished your book. What a great read! I will be recommending it to several of my coworkers who are in similar financial situations to myself. I have a couple questions that I could use some clarity on. Let me provide a snapshot of my current situation.

    I have approximately 29k in a Roth IRA with Edward Jones (26 in mutual funds and 2900$ in Vertex pharmaceutical stock). My wife has an Edward Jones Roth IRA with approximately 27k, all in mutual funds. I am 29 and work as a police officer with a guaranteed pension collectible at 50 years old. Wife is an RN at contributes the maximum matched amount to a 401k through her hospital. We are likely to receive a sizable inheritance from her family some day. We both contribute monthly to our Roth IRA to meet the yearly maximum. I have approximately 60k in outstanding student loans with 6% interest rates that I make monthly payments on.

    After reading your book, we want to move our investments out of mutual funds and into a more balanced, index fund based, portfolio. Now on to my questions regarding making these changes, and our investments going forward.

    1. I have read a great deal about "ETF's", but I'm not sure I have a full grasp of them. Are these similar to mutual funds or are they more along the lines of index funds? Do you still recommend the standard index funds above ETFs?

    2. Will I need to contact my Edward Jones agent in order to change my investments over to a Vanguard account? I can foresee a battle much like you described in the book with my current agent. Also what sort of fees, etc. are standard when transferring an account over to Vanguard?

    3. Considering our situation, I plan to hold our Vertex stock (approx 10%) (is this possible if I leave Edward Jones?). I'd like to put approximately 20% into a bond index, and split the remaining 70% (35% US index, 35% Int'l index). Does this sound reasonable to you? Also do you suggest any specific Vanguard indexes? I noticed that some cover the entire stock market, some cover only part of market (S&P 500,)

    I realize this is a very long post, but I just want to thank you again for your book. It has gotten me excited about saving and investing. I feel that I've learned invaluable lessons. I always felt that I wasn't receiving what I deserved from my "financial advisor", and this book confirmed it. I certainly appreciate any other advice or information you could provide! Thanks again! Sincerely,

    Tyler Wolfe

    San Diego, CA

  27. jmp says:

    Is andrew investing entirely in non-retirement accounts? I know he's pulling out money annually. Please advise. thanks!

  28. mike says:

    Would be interested in this question as well!

    Also, my other question is if this is the case, should i contribute only the employer's match for my 401k with the same strategy or should I not even bother? The account is currently vested at 20%, and my employer is matching 50 cents to the dollar. Expense ratio is about .50% for the S&P Index fund and $0.77 for the cheapest bond (government).

  29. Joon says:

    Hi there,

    Read, love, and have recommended your book left, right, and centre!

    I’m a Canadian living in Canada, no plans to leave. I’m currently set up according to Canadian Couch Potato’s model portfolio, which includes a significant portion (20-30%, balanced to aggressive) in Canadian stocks. I continue to be very uncomfortable with this (consistent losses since set up, limited diversification of sectors relative to US index), so am trying to learn more.

    Above, you indicate that you have Canadian bonds, but no Canadian stocks. The post is from 2012. Is this still the case? Do you NOT recommend that a Canadian living in Canada have a bunch in Canadian equity index?

    Also, is there a way to receive all your new posts by email vs only by RSS feed?

    Thanks!

  30. Andrew Hallam Andrew Hallam says:

    Hi Joon,

    I believe that a resident of Canada should have a high percentage of his or her portfolio in Canadian stocks. Don’t give up on them, if you’re upset by their recent (5 year-ish) poor performance. They will, once again, rock. Just rebalance and stay the course.

  31. Joon says:

    Thank you very much, Andrew (and David!) 🙂