Millionaire Teacher Sells $80,000 Of Stock Indexes

U.S. and International stock markets are rising like muffins juiced on Lance Armstrong’s breakfast. 

As a result, my bond allocation has slipped to just 37% of my portfolio’s total.  I’ve been buying nothing but bonds during the past few months with my personal savings, but to no avail. 

Purchases from my salary aren’t realigning my portfolio back to my goal allocation.  As you can see below, U.S. stocks have gained more than 30% during the past 12 months; international stocks aren’t far behind.  My bond index, as noted by the red line, has dropped in price.

 

etf-graph

As a 43 year old without an upcoming pension, I can’t mess around with money.

I want my bond allocation reflecting my age, with the remaining money split between a U.S. stock index, and an international stock index. 

I manage the money with the strategy I describe in my international bestselling book, Millionaire Teacher.  

I don’t speculate where the markets are headed.  Nor would I ever dissuade someone from building a fully diversified portfolio because of speculation that one asset class is higher than a kite and the investor should “wait.”

Waiters belong in restaurants.  Pondering the question, (Should I wait?) means you’re asking your gut or some other part of your body for the answer. 

Pieces of our anatomy rarely make sound decisions. Just look at teenaged pregnancy stats.

So…today I sold $80,000 in stock indexes:  roughly $50,000 of my U.S. stock index (VTI) and roughly $30,000 of my International stock index (VEA). 

With the proceeds, I bought $80,000 of my Canadian short-term government bond index (VSB).

I don’t know where stock markets are headed.  And I never will. 

Re-balancing my portfolio from time to time, however, means that I’m always a little bit greedy when others are fearful and a bit fearful when others are greedy. 

If the markets continue to rise, fine.  I have plenty of money in global markets.

But if the markets collapse, I’ll be dancing on rooftops. 

With nearly 7 figures invested in Canadian short-term government bonds, I’ll be able to deploy them into falling stocks…just when most investors are jumping ship.

Most people speculate.  Most people buy high and sell low.  Don’t be most people. 

Build a diversified portfolio of index funds or ETFs, and rebalance dispassionately when markets go nuts.

 

 

 





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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156 Responses

  1. cate says:

    I’m curious, Andrew, as to why you selected Vanguard’s short term option, VSB, over VAB, for example. I need to add a bond fund to my TFSA so based on my age (comparable to yours), I was thinking VAB would be the better option, no?

    • You could flip a coin Cate. But I like having short term government bonds. Also VAB didn’t exist when I started this portfolio. New ETFs will always be popping up. And it’s best not to own a gazillion different ones.

      Cheers,

      Andrew

  2. Gabriel says:

    hi andrew,

    i would like to know why you chose to select US total stock index and Total International instead of just the Total World stock?

    • Gabriel,

      Choosing a total stock index would have been just as good. To answer your question specifically, no global stock market index existed when I began this portfolio. And because I already had the isolated components (and at a lower cost) I wasn’t about to switch my portfolio in 2008 when the total world index (VT) became available.

      You will find that a gazillion new ETFs come on the market all the time. Investing well has more to do with our emotional control than through the nuances (and they are very minor) between one ETF and the next.

      Cheers,

      Andrew

      • Shannon says:

        Andrew, or anyone else that may know,

        As an ex-pat Canadian, I have opened a TD International Luxembourg account recently. Should I be purchasing ETFs on the Toronto Stock Exchange or on the New York Stock Exchange?

        For example:

        Vanguard U.S.Total Stock Market – VTI is on the New York Stock Exchange; However, there is a new one in Canada called U.S. Total Market Index ETF – VUN. Which one should I buy? I assume the Canadian one would be the best because then I would not have to worry about inheritance taxes if I invested long term in Canadian ETFs.

        Finally, I plan to retire in around 2035. I see that Andrew mentioned the 2030 and 2035 Vanguard ETFs in previous posts. Does anyone see any benefit of having one fund that invests in 4 ETFs as opposed to managing 3 or 4 separate ETFs on their own? Is this a simple and reasonable alternative? I only see it listed on the US Vanguard website and so assume then it is traded on the New York Stock Exchange, is that right?

        I have US and Canadian cash accounts in my TD International Luxembourg account, so I’m also wondering if I should be buying as many ETFs as I can on the Toronto Stock Exchange in order to save on exchange rate commissions for purchasing US ETFs.

        Thanks.

        • Hi Shannon,

          You can’t buy a blended ETF, as you described from Vanguard. It doesn’t exist in ETF form, and only Americans can buy Vanguard’s target retirement mutual (indexed) funds.

          So you will need to build your portfolio separately, with individual indexes. If given the option (and you have this option through TD International) always buy off the Toronto exchange instead of the New York. Buying U.S. domiciled ETFs (for expat Canadians) can trigger estate tax upon your death for your heirs. That’s a headache you (or they) can avoid, when you purchase Vanguard’s ETFs off the Canadian market.

          In about 10 months, I’ll have a book coming out for expat investors which will explain all of this, and more.

          Have a great new year.
          Andrew

          • Shannon says:

            Hi Andrew,

            Thanks a lot for taking the time to explain that to me. Your website is full of useful information and I’ve learned a lot just by reading the various posts here. Also, I bought your first book and really enjoyed it. I look forward to getting your next one.

            Happy New Year!

  3. Jon says:

    Andrew,

    I’ve set up my portfolio following your advice. I am in similar situation as you and need to increase my bond allocation by 5%. Is there any part of you that is concerned that the bond market could collapse?

    Might it not be prudent to hold onto cash for the time being?

    Thanks,

    Jon

  4. Neil says:

    For the purpose of convenience and due to no substantial difference in rate of return, what are your feelings on substituting cash for bonds? I ask because I live in the UK where, in spite of the Bank of England Base Rate being 0.5%, it is still possible to get a tax free return of over 2% on cash.

    • You could certainly do that Neil. I prefer bond indexes because they fluctuate in price. As such, by rebalancing, I get more than the yields in overall profit. For example, when equity prices rise, bonds usually drop and vice versa. When rebalancing a bond index over many years, you can capitalize on those price movements. Vanguard UK’s bond index has earned roughly 27% cumulatively since 2009, which is much more than a bank account would have paid. Those rebalancing it in a portfolio would have earned slightly more. Best of all are the price fluctuations. For 2013 (for example) it’s down just over 2%, much as my Canadian bond index is. Here’s the link: http://www.trustnet.com/Factsheets/Factsheet.aspx?fundCode=FPFD7&univ=O&pagetype=performance

      • Neil says:

        Thanks so much for your prompt and informative reply Andrew. It seems I have vastly underestimated the wealth building power of bonds over cash.

      • Barry says:

        Thanks Andrew

        That site also had Vanguards Australian cousin VGB, though only went back a year. Interesting to look at the cumulative performance chart whilst the actual index price continues to ever so slowly fall http://www.trustnet.com/Factsheets/Factsheet.aspx?fundCode=G2FEF&univ=E&pagetype=performance

      • The Investor says:

        @Andrew — Bonds have their place but there’s a time for all things, and also mathematics for all times, too. In today’s ultra-low yield environment, private investors have been easily able to get a better yield on cash, without risking excessive downside from the slow unwinding of the bond bubble.

        What’s more, it’s not either/or. You can have bonds and cash, as well as equities and so forth.

        As for an excess rebalancing gain, sometimes you’ll get it, sometimes not. i.

        The chief benefit from bonds is risk/volatility reduction, and especially in a low-rate environment cash can be a substitute.

      • The Investor says:

        @Andrew — Bonds have their place but there’s a time for all things, and also mathematics for all times, too. In today’s ultra-low yield environment, private investors have been easily able to get a better yield on cash, without risking excessive downside from the slow unwinding of the bond bubble.

        What’s more, it’s not either/or. You can have bonds and cash, as well as equities and so forth.

        As for an excess rebalancing gain, sometimes you’ll get it, sometimes not. i.

        The chief benefit from bonds is risk/volatility reduction, and especially in a low-rate environment cash can be a substitute.

      • The Investor says:

        @Andrew — Bonds have their place but there’s a time for all things, and also mathematics for all times, too. In today’s ultra-low yield environment, private investors have been easily able to get a better yield on cash, without risking excessive downside from the slow unwinding of the bond bubble.

        What’s more, it’s not either/or. You can have bonds and cash, as well as equities and so forth.

        As for an excess rebalancing gain, sometimes you’ll get it, sometimes not. i.

        The chief benefit from bonds is risk/volatility reduction, and especially in a low-rate environment cash can be a substitute.

        • Investor, you sound like a market timer, if you’re interested in choosing the right time or the wrong time to buy bonds. John Bogle says he doesn’t know anyone who even knows anyone who has done that consistently. I prefer setting an allocation, and sticking to it. That way, I never have to speculate, allowing me to invest and rebalance as dispassionately as possible. It has allowed me to do much better than most people (dare I say more than 95% of investors?) during my past 25 years of investing.

          Cheers,
          Andrew

          • The Investor says:

            Andrew, I’m not interested in a tit for tat scrap. My comments and views are perfectly reasonable.

            You “sound like” someone who turns up to cause arguments by advocating your way or the highway.

            I think we’ve both said our piece here.

          • Thanks Investor,

            I certainly didn’t mean to come across as an aggressor. My apologies for that.

            Cheers,

            Andrew

          • The Investor says:

            Andrew, there is absolutely no consensus as to the right way to rebalance. The historical data is inconsistent, and the future unknowable. Costs vary for different investors, as does motivation and stomach for volatility. Over some periods of time, rebalancing over 5-10 years will prove advantageous, while at other times massive funds have added value with tiny daily rebalancing, which is obviously out of the reach for the likes of us.

            As for market timing, Ben Graham, the father of modern security analysis and a far better and more influential investor than I or I dare say you will ever be, was completely at ease with shifting allocations depending on market sentiment. (From a minimum of 25% in equities to a maximum of 75% in equities, with the balance on bonds, depending on market conditions).

            Everything you write is perfectly reasonable and it obviously worked for you and would work for others, but it’s one way, not the only way, and not definitively proven to be the best way.

  5. Shine says:

    Andrew,
    Is there a threshold that you set for re balancing? The general rule of thumb that we follow is once a year.
    Thank You,
    Shine

    • Shine,

      Once a year is an excellent idea. I don’t follow a clear-cut rule. If my allocation is out by about 5% and my fresh purchases (after many months of trying) aren’t pushing it back to where I want it to be, then I typically will rebalance. I think I’ve done it three times since 2010. There’s no study suggesting that one method is better than the other. So stick to your disciplined plan. Over time, you’ll do really well with it. Perhaps even better than I will.

      Cheers,

      Andrew

  6. Murray Hill says:

    Hi Andrew,

    To what extent do you have to deal with Capital Gains Tax when rebalancing?

    Thanks,

    Murray

    • Hi Murray,

      If you’re an American investing in an IRA or a Canadian investing in a RRSP, you won’t pay any capital gains taxes to rebalance. Nor would you pay taxes to rebalance if you’re a non-American expat. Outside of tax sheltered accounts, some capital gains would be paid, but such taxes aren’t high for Americans (if it’s long term gains held more than one year) or Canadians (in which case, you would be taxed on only half the profits). Also, most people aren’t selling a crazy amount when rebalancing, and are only paying taxes (if applicable) on the profits incurred. You can see why the answer gets complicated, depending on your nationality, where you live, and whether you have maxed out your tax sheltered accounts.

      Andrew

  7. Mathew says:

    Hi Andrew,

    Thanks for another great posting. My ratio is now slightly out of alignment – target 70/30 stock/bond and now is at 72/28. I don’t think that’s enough to warrant re-balancing, but I also can’t help but think I’d like to lock in some of these gains. Apart from adding some savings to buy bonds (to re-balance but not withdraw) – are there other options in your view?

    Thanks again for the great insights,
    Mathew

    • Andrew Hallam says:

      Hi Mathew,

      It doesn’t sound like you need to rebalance. Just keep adding to the lagging index. I find that I have to rebalance a bit more often now because my fresh purchases do little to swing the account’s allocation much. Having said that, I probably average about once a year.

      Cheers,

      Andrew

  8. Oscar says:

    Hi Mr. Hallam,

    For my 18th birthday I received an account to invest as I wish. I want to set up an account based on your strategy. I took your class and I know you suggest having a bond allocation that matches, or is close to, one’s age. However, I am young and ok with accepting more risk in return for more potential reward. For someone like me, would you still suggest a 15-20% bond allocation? Would 5-10% be more appropriate for me?

    Also, would you advise short-term US treasury bonds (SCHO) or General US treasury bonds (SCHR)?

    Thanks in advance,
    Oscar

    • Hey Oscar!

      It’s exciting to know what kind of potential your account holds over time, considering your current age. Here’s something to consider: you have roughly years before reaching (even) an early retirement age of 60. As such, I would likely opt for 100% stocks until you’re in your late 20s, if you can handle the volatility. Syndicated columnist Scott Burns would disagree, suggesting you should keep half your money in an inflation adjusted (or short term) government bond index. His argument makes sense. Most young people would find themselves flustered if they lost money four or five years in a row. And they would bail on the idea of adding fresh money. But I don’t think you’re “most people.” I think you understand the realities of investing, the probabilities of the unknown, and the realization that risk diminishes considerably, based on the amount of time the investor has. Go for the 100% stock portfolio Oscar. And of course, make it international. The U.S. is having a great run, but what wins today, often loses tomorrow. I’m thrilled to consider how well you will do over time Oscar. Rip it up!

  9. Kf says:

    Dear Andrew,

    I am still building up my portfolio to my desired allocation and currently, my VTI and VEA are the ones that are lagging behind substantially. Given the current situation, do you think it is wise to continue buying the 2 indexes? Or should I instead add to my bond (A35) and STI (ES3), which are already more than my target allocation? It’s really a tough choice. Thanks.

    • KF,

      The answer should be simple. You have a goal allocation in mind. What do you need to buy to ensure that you’re closest to that goal allocation? Buy what you need to, to ensure that allocation. Easy breezy.

      • Kf says:

        Ah…. Thanks Andrew! 🙂

        • Bee says:

          Dear Andrew ,

          I am Malaysian age 52 .
          How could I Build a diversified portfolio in Malaysia market. Which index funds , ETFs,Bond to look for. Am I too old to set up my portfolio for retirement fund . Appreciate your advice. Thank you.

          Best Regards,
          Bee

  10. Josh says:

    Kf, with exposure to A35 and ES3, looks like you are a Singaporean. I hope you are aware of the US estate tax exposure on your VTI and VEA investment that exceed USD60k combined. Cheers

  11. Rahim says:

    Thanks for your insight on this topic! I recently rebalanced my portfolio and added money to my Canadian Gov’t Bond Index fund to bring my portfolio back to my target allocation, but hesitated because of all the confusing talk about bonds this past year. Thanks for confirming I made the right choice 🙂

  12. gibor says:

    Andrew, just wondering…why VSB and not for example CBO?
    Also, what do you think about FATCA? Is it gonna affect you?

    • Hi Gibor,

      I’m not an American, so FATCA doesn’t affect me.

      As for CBO, I like short term Canadian government bonds, and VSB is the cheapest way I know for me to accumulate them via an index. New ETFs will keep popping up, of course. And considering the very large commissions I would need to trade them via DBS Vickers (it’s a big account too) it’s not worth me jumping about.

      Cheers,

      Andrew

  13. Daniel says:

    Andrew, my wife has 400k sitting in cash at Vanguard in her 401k. Per your advice I want to put the cash into the 2040 fund. But, the 2040 fund is at an all-time high. I am trying to stay consistent with your advice of not buying expensive products. What should we do? Wait until the 2040 drops and keep the money in cash? Is there somewhere else to park the 400k?

    • Hi Daniel,

      Markets rise two out of every third year, on average. Someone living many years sees new market highs more often than they see silly celebrities in People magazine. A new high is not necessarily an apex before a crash. Considering your interest in the Vanguard 2040 fund, your wife sounds very young. Embrace the risks of the market and allow the fund to rebalance as markets shift. A true market high, also, should be measured based on price, relative to business earnings. By this yardstick, markets are far lower now than they were for much of the 1990s.

      Cheers,

      Andrew

  14. Barry says:

    Hi Andrew

    How would property investing compare to Bonds?

    I also recently read…

    “Recent nervousness over a possible bubble in sovereign fixed income securities have prompted some investors like Norway’s sovereign wealth fund Norges to get out of government bonds and jump into real estate.

    Reports suggest others like JP Morgan and the Canadian Pension Plan Investment Board (CPPIB) may soon follow suit, attracted by the gap in prime yields between bonds and property.”

    • Hi Barry,

      This is one of the reasons I like short term bond indexes. They don’t fluctuate much in price and beat inflation over time. Also, my attraction to them has little to do with their interest payment. Instead, it’s in the dry powder they provide when I sell some of them to buy into a falling asset class.

      Have a look at my bond price index chart, and you will clearly see that a price that has hardly budged in a dozen years, can’t be in a bubble. In this chart, you should be able to see it compared to the Dow. http://sg.finance.yahoo.com/q/bc?t=my&s=XSB.TO&l=on&z=l&q=l&c=&ql=1&c=%5EDJI When looking at a bond index chart, always ensure some reference point. I used the Dow for this one.

      Real estate can be part of an investment portfolio as well…..even in ETF form when buying real estate income trusts. But rather than speculating that one asset class is going to fall or rise, it’s far more effective (whether as a government, endowment fund, or individual investor) to rebalance over time when things swing, rather than trying to anticipate swings. In aggregate, human beings make lousy investment forecasts.

      Cheers,

      Andrew

      • The SPY Surfer says:

        Hey guys,

        When buying bonds it is important to look at the Weighted Average Duration (yrs).
        XSB shows a 2.73 Weighted Average Duration which means that if the interest rates go up by 1%, bond price goes down by 2.73%
        At the opposite side of the spectrum there is TLT (long-term US treasuries) with a 16.2 duration.
        The shorter the duration the less volatile to IR.
        😉

  15. Gabriel says:

    Hi Andrew,

    I am singaporean, and would like to ask if it is better to do monthly dollar cost averaging of a total world etf (VT) or to do a lump sum purchase once a year?

    I’m currently struggling between choosing because in a monthly DCA, there is alot of currency conversion from sgd to usd to buy the vanguard total world etf. But the advantage is I will be able to get a better average price over time.

    For the lump sum there is lesser currency conversion losses( banks give very bad conversion rates ), but I will not get a good average cost over time as the once a year purchase might be done on market highs, which could lead to potential capital loss

    • Gabriel,

      You may want to invest once you have roughly $5000 SGD to do so. You will lose some money on currency conversion in and out, but there’s no way around this if you want to invest in foreign equities. I believe DBS bank offers a RSP to invest small sums into the Singapore stock index. They charge 1% per transaction, but it sure would be convenient. And the expense ratio (which is more important than the commission) is very low indeed.

      Cheers,
      Andrew

      • Gabriel says:

        thanks andrew!

        I will stick to not timing the market and just invest at least $5k as a lump sum into total world stock etf. I might get bonds later when I am older….

  16. Ros says:

    Hi Andrew,
    I was wondering if you could tell me why you are not invested in Canadian equities beyond the international index fund?

  17. gibor says:

    Andrew, do you DRIP dividends?

  18. Alex says:

    Hi Andrew,

    I am a 27 year old teacher that is trying to become a millionaire. I have only $3000 to invest right now. Would it be a good idea to put it all into Vanguard’s Total Stock Market index fund (VTSMX)? There is a minimum initial investment of $3000. I want to also invest in Vanguard’s Total International Market index fund (VGTSX) and Vanguard’s Total Bond index fund (VBMFX), but those also require a minimum $3000 initial investment. How do I allocate my assets when I don’t have enough money for the initial investments in all three funds? Thanks for any help that you can provide me.

    Alex

    • If you’re an American, Alex, you could opt for a Vanguard Target retirement fund. Within it, you would have exposure to the three indexes you want–all wrapped into one. I’m going to guess that Vanguard’s Target retirement 2035 would be suitable for you. https://personal.vanguard.com/us/funds/snapshot?FundId=0695&FundIntExt=INT

      Ignore the date on the name; it means nothing. Instead choose your dated fund based on the allocation of bonds and your risk level, as I mentioned in the 6th chapter of my book. And remember that you could hold and contribute to the 2035 long after that date. It’s just a name.

      Cheers,
      Andrew

      • Brandy says:

        Dear Andrew,

        My husband (32) and I (34) are both instructors teaching in the States but plan on going overseas again. Therefore, looking to build up our retirement funds. We are able to save about $3000/mo. currently. We would like to start investing but have a couple of questions:

        1. We really want to try and retire early. When we go back overseas we were thinking of rolling our 401k into a Roth IRA with Vanguard. We don’t know which is better, to have an IRA, to invest all our money into the three indexes you mention in your book (VBMFX, VTSMX, VGTSX or similar), or both?

        2. After building up an emergency fund of 3-6 months expenses, should we invest the entire $3000 every month in the index funds/IRA to “catch up” because we are now just starting to invest?

        I am nearly finished reading your first book and it is great. Thank you for helping so many people (including us)!

        Brandy

        • Hi Brandy,

          Are you planning to do all this after you have claimed residence overseas. If so, you must ensure that you qualify to invest in an IRA. If your income doesn’t exceed $92,500 USD while overseas, you will not be able to invest in an IRA. Your invested money will all have to be in a taxable account–all the more reason to use index funds when doing so.

          Cheers,
          Andrew

        • Hi Brandy,

          Are you planning to do all this after you have claimed residence overseas? If so, you must ensure that you qualify to invest in an IRA. If your income doesn’t exceed $92,500 USD while overseas, you will not be able to invest in an IRA. Your invested money will all have to be in a taxable account–all the more reason to use index funds when doing so.

          Cheers,
          Andrew

  19. Barry says:

    I was looking at CNBC

    Nobel Prize winner warns of US stock market bubble

    Should he be correct, rebalancing into Bonds is a good move :0)

    Barry

    • Perhaps…but he’s probably as good at guessing the market’s direction as a shoeshiner at the local mall. Interesting though….considering that PE ratios aren’t really that high. Warren Buffett suggests prices are reasonable—not too high, not too low. But even he says he doesn’t predict market directions–and that he doesn’t have a clue.

  20. Hi Ros,

    As someone not planning to live and retire in Canada, I already have a tremendous amount of Canadian dollar exposure with my Canadian government bond index. If fact, my portfolio probably has far too much “Canada” in it, but I have a natural soft spot for the country I grew up in.

    The Canadian stock market comprises just 4% of global market capitalization. But if you reside there, embrace that market with a healthy chunk of your money.

    Cheers,
    Andrew

  21. Cameron Sapaugh says:

    Hi Andrew,
    I really enjoyed your book and have been following your advice. One questions. If the stock market does fall soon, does that mean that bond prices will soar? The majority of my investments are in bonds, and I’d like to rebalance into my stock indexes, but I know now wouldn’t be a good time to do so.
    Thank you,
    Cameron

    • Hi Cameron,

      If stocks really took a dive, you would likely see a slight increase in the price level of your bonds, but bonds don’t jump around as much as stocks do, so it would likely be very slight–a two or three percentage point rise at most…even if stocks dropped 15%. It does sound, however, like you’re falling into a very human trap by trying to speculate.

      Cheers,

      Andrew

  22. Otis G says:

    Hi, Andrew

    I’m a retired post-secondary instructor living in Canada and I highly recommend your book to my friends and other contacts.

    I have an excellent, defined benefit pension so I can afford to lighten up on bonds. Given the currently high valuations of US stocks, would you consider it a good idea for someone like me to reduce risk by purchasing units of a minimum volatility product such as the iShares MSCI USA Minimum Volatility Index Fund (XMU). rather than a more standard product such as VTI, XUS, or ZSP. for the U.S. equities portion of my portfolio? The MER is about 0.15% higher but this approach could be worth it whenever the US market has a significant downward correction. Comment?

    Thanks.

  23. Ted says:

    Hi Andrew,

    A reader of your book and big fan of your articles in the Globe. Thank you for a very clear and concise introduction to financial management and indexing. Millionaire Teacher is definitely one of the best books written on the subject, in my opinion. Malkiel, Bogle, and Ferri cover the same subject matter, but you really explain it in layman’s terms and without 300+ pages.

    I have two questions.

    1) I’m curious, are you a believer in Efficient Markets? Or just in the superiority of indexing over other investment strategies?

    2) I’m trying to help a family member pursue an indexing strategy using a lump-sum investment but she is concerned about the “high” level of the stock market indices as well as other cyclic indicators (Shiller PE10) and economic policy (government bond buying programs). This makes her fearful to pursue the indexing strategy as she feels there will be a crash a la 2008/9 which will then provide a “perfect” opportunity to buy equities.

    I believe that the only free lunch, so to speak, is in a properly diversified and passively-indexed multi-asset class portfolio and that this combined with an agreeable asset allocation (one with a volatility and standard deviation that is palatable) will mitigate the risk of investing no matter where the market is headed.

    My question to you is this: wait on the sidelines with cash and time the market, or dial down the equities exposure until a suitable level of risk is achieved? I don’t want to force anyone into investing if they are not comfortable, but I feel that her fear is irrational and that market timing is a very poor idea.

    • Hi Ted,

      You’re right. Market timing is a very poor idea. It’s one of the reasons the average American made only 3.83% on equity investments between 1990 and 2010, when the markets exceeded 9.14%. Fees only accounted for a part of the shortfall…attempts at market timing the rest. But that’s what makes investing simple, yet difficult. And the more I learn and see, the less I think most people are “wired” to invest their own money. A lump diversified sum across different asset classes has a higher percentage of beating a dollar cost averaging approach, if she has the money. But does she have the emotional fortitude required? Investing can be largely Darwinian.

      Cheers,
      Andrew

  24. Liam says:

    Hi Andrew,

    Could you help me to understand if there is any tax differences between which stock exchange you buy ETF’s from? I’m not asking for you to advise which is best but rather if there are certain factors that should be considered. I’m a British expat working in asia.

    For example, I think the US government taxes dividends from ETF’s on NYSE whether you are a US citizen or not (I could be completely wrong about this though!), would the tax charges be different if I bought from another exchange? How can I find the information to decide which is the best option for me?

    I know there is loads of information out there but it is confusing and I’m struggling to make sense of it, something that your book did an excellent job of explaining for the investment strategy.

    Thanks again!

    • Liam,

      There definitely are differences, and with the increasing numbers of options available to expats now (not amazing options yet, but an increasing number) there are better choices than others. Buying off the U.S. exchanges should be avoided if you can. Not long ago, this was easily said than done…such as when I opened my brokerage account in Singapore. Here’s an example. If I buy a U.S. index off the Canadian market (Saxo allows access to British and Canadian markets, as does TD International) then my heirs won’t be liable for U.S. estate taxes upon my death. Nor would I have to pay a 30% witholding tax on dividends…it would be less. Then there’s the option of going into swap based ETFs, such as many offered by Horizon. In that case, dividends are reinvested automatically to increase the price level of the ETF and no dividend taxes are due because the third party (in this case, National Bank of Canada) actually holds the equities on the side, and you don’t really own the entity itself. You just have a promise from the National Bank to compensate you the total return of whatever market they are tracking, including reinvested dividends. This is a lot to digest and explaining takes much more time than I have, but look into it. It’s a big topic in my upcoming book, but that won’t be out for another 11 months. But I’m writing as fast as I can.

      Cheers,
      Andrew

  25. ACMZ says:

    Hi Andrew,
    Just curious as to the location of your bonds when you rebalance. Are they sheltered? Or is the Singapore structure such that taxes on bonds in a taxable account are not as much of an issue as in Canada. From a canadian perspective, i am finding that it would be wiser to purchase a GIC with the fixed income rebalance amount and migrate it to bonds (ETF) in RRSP and TFSA as room becomes available. Location and allocation go hand in hand when you are in for the long haul.
    Thanks Andrew

  26. Kf says:

    Dear Josh,

    I understand, now I’m wondering what to do when I reach 60k of US ETF. Any ideas?

  27. Kf says:

    Thanks Andrew! I feel enlightened.

  28. garry says:

    Hi Andrew,

    I’m a Singapore and reside in Singapore. How can I purchase the Canadian government bond index?

    Thanks.

  29. KF says:

    Hi Andrew,

    This may seem like a silly question, does buying U.S ETF from Canadian market means that instead of making the purchase in USD, I will be purchasing in Canadian dollars?

    Currently, I am purchasing USD from DBS bank (because of the favorable exchange rate they offer), then deposit into my Standard Chartered Bank trading account via cheque. Does it mean I have to do the same if I use Saxo Bank?

    Also, do you know what are the taxes involved if I buy from the Canadian market? I am Singaporean. Thanks again!

  30. Tony says:

    Hi Andrew,

    Looking forward to your next book – but in the meantime I wonder if you could give me your thoughts on my next step please?

    As a British ex pat in Singapore I have been investing via DBS Vickers in:
    VT 40%
    EWU 20%
    ISHG 40%

    I’ve been following your blogs and am concerned about the US estate taxes so I think I should buy the Vanguard ETF’s on the Toronto exchange. Would the following spread be similar to my existing plan?

    40% VDU – Developed ex North American Index
    20% VUN – US total market index
    40% VSB – Canadian Short term bond index.

    Also – I think these funds are available hedged against the Canadian $ – what difference would it make using these ETFs instead?

    Thanks very much for all your advice.
    Happy New Year!
    Tony.

  31. Barry Spencer says:

    Looking at the year from an Australian perspective it’s approx

    VTS (US) Fund +55%
    VEU (WORLD EX-US) Fund +28%
    STW (ASX 200) Fund +12%
    VGB (AU BONDS) Fund -5%

    Plus dividends and bonuses from DCA through the year

  32. Alex says:

    Andrew,
    Thank you very much for putting so much time into helping others out financially. I’m a young special education teacher (27) married to a school nurse (26) and we are trying to figure out what exactly we should be doing with our extra money. We both worked throughout college and once we got married began only living off of my salary and saving hers. We are currently kidless. I just recently read your “Millionaire Teacher” book and you’ve fully convinced me to invest in index funds. I hope you don’t mind if I ask you some financial questions. If it’s too much, no big deal, just thought I would throw it out there in the comment section so hopefully I and some others can learn from it. Here’s my current situation:

    *Debt-Free
    *Own a house (25% in) and paying about $150 extra a month on the mortgage
    *Work for a public school so I will get a pension, but still contribute 5% to a non-matching 403b that has about $14k in it (should I keep doing this?)
    *Have a Roth IRA worth $6,700 that we opened with wedding money a few years ago (should I continue to contribute?)
    *Then we have money just sitting in our savings accounts ($15,000) that we don’t know what to do, along with each month’s check that we save of my wife’s money. Should I keep about $5,000 of it in the savings account as an emergency fund and then invest the remainder in three index funds (U.S. Total, International Total, U.S. Bonds)?

    Sorry for the book of an email. It’s just with you being a teacher I think that you would be the abosolute best person for me to talk to about this and then I can relay that information to any co-workers that need it. Thanks so much for the help!

    • Alex,

      It sounds like you’re off to a great start. And I think your idea of keeping $5K in a rainy day/emergency fund is a good one. As for the 403B, it’s a shame it’s not a matching one. Do a bit of digging to see what you’re actually invested in before deciding to continue contributing. If it’s a variable annuity, you should probably stop. These are commonly sold to U.S. school teachers/districts, mostly because those in positions to accept them (at the district admin level) have no idea how detrimental they are. They carry costs of roughly 3% per year. If it isn’t a variable annuity, and you have some low cost fund options instead (mutual funds charging 1% per year or less) then you could keep contributing. Best of all, would be indexes. I have heard from teachers who petitioned their districts to have indexes added to their actively managed 403B options. You may consider doing this, if you’re in this situation. As for your remaining $10,000, it sounds like you know exactly what to do with it.

      Cheers,
      Andrew

  33. Stan says:

    Andrew

    Do you believe that HXT and HXS should be used in both the RRSP and the taxable accounts or should VCE or VUN be substituted in one or both accounts? What do you think of MacDonald’s one minute portfolio rather than a fixed equity allocation?

    Thank you.

    • Hi Stan,

      I’m not sure if too many people know what a MacDonald’s portfolio is. I don’t, so if you can enlighten. As for specific ETFs, much depends on you. To be honest, I don’t get too carried away about specific selections: an investor’s behavior will impact him or her portfolio a hundred times more than minutiae with respect to ETF selection.

      Cheers,
      Andrew

  34. Kf says:

    Hi Andrew,

    Just wondering, when you are re-balancing your portfolio to buy the lagging index, how do you decide when to use fresh funds and when to sell your existing ETFs for the money?

  35. Danny says:

    Andrew I am also about to rebalance back to 60 % equitys and 40% bonds. Currently my bonds are canadian with T.D (tdb909) they are down -1.92%. This is my first time rebalancing and just wanted some reassurance that this sounds correct..Everyone keeps telling me that interest rates are going to rise which means bonds will drop..Any thoughts. I am 45 and in here for the long haul so not trying to time the markets.

    • Danny, as a couch potato investor, you need to ignore what “everyone is trying to tell you.” You have a solid plan, and you need to stick to it for life. Speculation is the reason the average American earned roughly 3.14% per year on their investments between 1990 and 2010, while the markets earned more than 9%. Don’t fall for the same kind of trap.

      Cheers,

      Andre

  36. Sara says:

    Hi Neal,

    I’ve recently decided to take control over my finances and picked up your book which was GREAT to read! I hate thinking about this stuff, but you made it very easy to understand. Thank you 🙂

    I met with my investment advisor and he tried to convince me that investing in index funds will NOT outpace actively managed mutual funds (just like your book prepared me for!). He even showed me a graph (I think it was the last 60 years) that proved how my actively managed mutual fund always beat out the S&P. I tried to argue that he wasn’t accounting for the taxes and fees, etc…he said the graph was based on net.

    He flat out told me that my actively managed mutual fund WILL beat the S&P. He also did NOT know that Vanguard was a non-profit 😉

    Even though I was somewhat prepared to face him because I read your book, I still folded! He had graphs and other things to prove that he was right. He also said I should not base my decision based on ‘some book I read’…

    Long story short, I want to do the right thing! I feel like index funds are the right thing to do mostly because all the investors I spoke to, ALL think it’s a “bad” idea! (they are making money off me of course it’s a bad idea to them)..and then they say they invest in mutual funds too…like that’s supposed to make me feel better.

    If I had the confidence to know which indexes to invest in and could have a goal $ amount by my retirement date, I believe I would take the leap…I just need a little hand holding…I don’t know anyone that invests like this either which makes it hard to take the leap as well…

    Any advice?!

    Sara

    • Hi Sara,

      There are, perhaps, hundreds of books written on mutual funds. There are two categories of mutual funds. Passive (which are indexes) and active (which are actively managed funds). You will not find a book suggesting that actively managed fund portfolios will outperform passive indexed portfolios. The book doesn’t exist because nobody would dare write that. Every academic study supports the opposing thesis. Only a salesperson would disagree. If you are American, my 6th chapter suggests exactly what funds you could buy. What’s your nationality?

      Andrew

  37. Sara says:

    I have to apologize for calling you Neal! I read a comment from Neal and typed that instead of ANDREW!

    I am in America. Should I keep my money in my ROTH IRA or transfer it to index funds? Also,

    I’m 26, so just to clarify, I’ll need about 25% in bonds, right? And when I balance I take it back to that 75:25 target right?

    • Sara,

      No worries about the name. I do that a lot!

      You can transfer your Roth IRA to Vanguard, keeping the money within a Roth IRA without taxable penalties. Call Vanguard and let them know what you would like to do. Then, yes, the allocation you suggested makes sense, unless you have a defined benefit pension to look forward to. In that case, you could take more risk, with fewer bonds.

  38. Ted says:

    Hi Andrew,

    What’s your position on using leverage for a passive portfolio? As an “efficient” portfolio comprised of multiple asset classes, an indexed strategy should post superior risk-adjusted returns over an active or stock picking strategy. Wouldn’t this make it a good candidate for leverage as this would increase the potential gains while downside risk is mitigated? I know that both gains and losses are amplified by leverage but the whole point of indexing and multi-asset class investing is to achieve superior risk-adjusted return. Applying leverage to the portfolio as a whole would amplify this return (and yes, the potential of loss as well!) What are your thoughts?

    • Hi Ted,

      I’m a wimpy investor, so it’s not a strategy I would personally employ. We often look at 1929 as the worst possible decline, but who’s to say something uglier in the future can’t occur. History doesn’t repeat itself, but it rhymes. Such a scenario would crush anyone who dared to leverage. It took many years for the markets to recover. And multiple asset classes wouldn’t have helped much.

      Andrew

  39. Leanne says:

    Hello Andrew,
    We are beginners at all of this. Wow you book is great.
    – Is it ever a good time to bail? Options for liquidity.-

    We are in Victoria, BC. After reading your book (am reading a 2nd time). I realize that we may have funds in the wrong places,& not diversified. I have about $14,000 in RRSP/matures in 2016 & a $5,000 TFSA/matures Jun/2014 in a local mortgage investment corp. making about 5%. With the Cdn economy & real estate on a downward slope, more mortgages will default and I could lose the money in this mortgage investmt corp. Is it better to suck up any penalties and transfer my monies to an online broker to start my Millionaire Teacher balanced portfolio of ETFs? (I gather that you must use the online brokerage that your bank or credit union is attached to?? Qtrade is with Coast Capital credit union). Sorry but we are not good with computers.

    2. Aside from that money, we are debt & mortgage free, are in our mid 50’s, will likely be working for another 10-15yrs because we enjoy our work and have scrounged, & lived very frugally to have saved just under $500,000 which is in hi-int sav, TFSAs, RRSPs at the credit union.

    We have a small acreage which is our business & residence and have been hoping to be able to buy a larger property within the next year or two depending on if we can find something we can afford. The question is, we were thinking that $200,000 would be used for a down pymt. I realize that investing the way you suggest is for longterm only. My husband says that if we put all our money into the portfolio mix of bonds, Cdn stocks/International stocks, that when we need to get the money out, we could have lost money if the markets are down at that time. What are your suggestions for money that needs to be accessible, knowing full well that we may not find an affordable place for 1 or 2 years.

    I have ordered some of the other books you suggest. Could you put a preschooler youtube up for how to open an online Cdn portfolio or maybe call it a grandma’s youtube. I appreciate all your info, book and website. Thank you so much. Better late than never.
    Leanne

  40. Rick Ussher says:

    Hi Andrew

    Thoroughly enjoyed reading your book. Unfortunately we have fallen foul of the unit trust based shisters out there , also Singapore banks trying to sell you life insurance based investment portfolios. We are New Zealand expats living in Singapore. We are looking at a beginning a portfolio based on:
    25% NZ stock ENZL,
    25% Global stock VT ( I see there is now a service offered by Vanguard in Singapore)
    25% US short term bonds SHY
    25% international ETF ISHG

    I am 55. Is it better to open an account with DBS Vickers or HSBC. We have accounts with both. We have one single stock investment worth $42K. Other investments are in NZ based property.

    Are we thinking along the right lines?

    Thanks

    Rick

  41. Rick says:

    Seems DBS Vickers trading costs have gone up. Who is it better to open an account with in Singapore? Will Vanguard Singapore deal with individual investors?

    • Jeffro says:

      Rick, I’m in the process of opening an account with Saxo in Singapore. DBS Vickers put up too many obstacles for me (e.g. they wanted me to fly to Singapore and apply to open a bank account BEFORE I could apply to open a trading account, etc).
      My goal is to purchase a portfolio of ETFs traded on Toronto Stock Exchange via Saxo. (I’m Canadian and want to avoid potential U.S. estate tax nonsense.) You may wish to try Saxo, depending on where you live. Since I live in a ‘suspicious Third World Developing Country’ — my quotes, not Saxo’s — I went through an enormously convoluted application process to get the thing started. They don’t make it easy, but I’m hoping it will level out once the account is set up. Cheers….

    • Hi Rick,

      If you can find a way to transfer currencies yourself, Saxo Bank’s brokerage is a cheap option. But don’t let them transfer currencies for you–they charge plenty to do so.

      Andrew

  42. Jo says:

    Hi, Andrew,

    Just purchased and finished your book – many thanks, so enlightening! – convinced me I should get out of my high-fee MFs and pursue indexing with discount brokerage even nearing retirement as I am (with a portfolio weighted maybe 50-50 or 60-40 towards bonds).

    Selling MFs would leave me with low 6 figures-sum to invest. I have a low-reasonable DB pension (am Canadian if that makes any diff) so perhaps could go a bit higher on bonds than my age would suggest.

    My dilemma: should I do it all at once with an ETF portfolio of equities and bonds such as recommended in your book, or leave some in cash and purchase more slowly, e.g., 1/4-1/3 of it now and remainder over year or so? (Advice I read somewhere recently.)

    I realize this might verge on attempting market timing but would appreciate your comments.

    • Hi Jo,

      It does verge on market timing. Studies show that taking the plunge is better than dollar cost averaging roughly 65% of the time. No guarantees, but once you make your decision, don’t look back.

      Cheers,
      Andrew

  43. Danny says:

    Andrew, Do bond INDEX funds work the same as stock funds as far as when they are down you are buying them on sale? Or is it different and you are just throwing good money after bad? My bond fund is down about 2% and i try to rebalance to 60%equity to 40% bonds. I am currently at 70% equity to 30% bonds and going to rebalance soon.Should I sell and go to 60%equity 30% bond and the other 10% leave in cash. Or keep the 60 40 split. (will not need this money for 20 years.)
    Thanks.

    • Hi Danny,

      When rebalancing your account, treat bonds as you would stocks. But ensure that you are buying a short term government bond index, for maximum safety and the higher likelihood of outperforming inflation over time. Yes, your account is ripe to rebalance.

      Cheers,
      Andrew

    • Rahim says:

      Hi Andrew,

      When you say that you recommend “short-term” gov’t bonds, how short is “short-term”? The bond portion of my index portfolio is the RBC Canadian Gov’t Bond Index. The fund report shows that approx. >57% of the fund has maturity of 1-5 years. Is this considered short-term?
      http://funds.rbcgam.com/pdf/fund-pages/monthly/rbf563_e.pdf

      Thanks in advance!

  44. Leanne says:

    I noticed your Model Indexing Portfolio in the Globe & Mail recently. Would those choices be good for beginner Cdn investor?

    I have not started yet, and wasn’t sure if I should plunk it in all at once (into balanced bonds/EFT’s etc) or just buy the low priced things first. Reason being that if something is high right now, I likely shouldn’t buy it yet. One of your students videos said to just get into the market and start, but buying high is not so good, or do you just ride the wave knowing that it will even out in the end?

    Also wanting to know where I can find the information that tells you if the prices are high or low. I am older, so am behind in my investments, however, I don’t want to lose money by buying high.

    tks

    • Hi Leanne,

      Nobody really is going to be able to tell you with certainty whether the markets are “high” or not. The media will have headlines touting “all time highs” but expensiveness isn’t measured by price levels, but by price to earnings levels. This is tougher for the average person to understand, so the media doesn’t bother with it. The market, although priced lower in 2000, was double the price it is today, for example. The average business traded at 30X earnings, today it trades at 16X earnings. Rather than not speculating, build a responsible, diversified portfolio today. If you want to be conservative choose a bond allocation that’s slightly higher than your age. For example, if you are 50, you may want 55% in a short term bond index.

      Cheers,
      Andrew

  45. Jason says:

    Hi Andrew,

    I just picked up a copy of your book. Thanks for a great read, and this website. My wife and I are teachers in the US working in a state with a Defined Contribution retirement system, and no Social Security. We plan on moving to a state with a Defined Benefit plan, or moving into international teaching by the ’15-’16 school year. Currently, we both have Roth IRA managed by Horace Mann. Mine is valued at $16,000 and hers is around $3,000 (we each contribute $300 a month). We also have about $30,000 in investments spread across a number of managed mutual funds by LPL Financial, and $12,000 in a rainy day money market.

    I want to roll our Roth IRA’s into Vanguard. We are both 35 years old. Would you still recommend: 35%-VBMFX, 35%-VTSMX, and 30%-VGTSX for my $16,000? At $3000, would it make more sense to roll my wife’s IRA to a Vanguard target retirement date with 35% bonds? Also, what do we do with the $30,000? I’m hesitant to roll it into our Roth’s because I’m not sure our $12,000 rainy day money market is enough to a truly “rain day.” I’m also wondering if we would have to pay capital gains by rolling the $30,000 from LPL to Vanguard sense the money is not tied to a retirement account.

    I’m very new to all the investment terminology, so I hope hope half of what I wrote was coherent. 🙂

    Thanks,

    Jason

  46. Tim says:

    Andrew,

    In your book you tell a great story to illustrate the value of investing early and regularly in order to harness the power of compound interest. In the story you use an annual interest rate of 10%, the average annual stock market return over the last 90 odd years. However, I fear this maybe somewhat misleading as, in reality, no one would actually be foolhardy enough to put all their money into stocks, but rather a balance of stocks and bonds with the bond component increasing over time. With this in mind, do you not think a more realistic average return, factoring the increasing bond component over time, would be 6% or 7%, which would obviously make the chances of one becoming a millionaire in one’s lifetime considerably less likely than at an average 10% return?

  47. Jason says:

    For a 35 year old you recommended in your book: 35% Total US Stock Market Index, 35% Total Bond Market Index, and 30% International Stock Market Index. I noticed Vanguard doesn’t offer the tickers you listed in your book ( VTSMX, VBMFX, VGTSX) on their general list of funds. Are there new tickers you could recommended? I now you mentioned short term government bonds, so 35% in VSBSX?

    Thanks,

    Jason

  48. Mathew says:

    Hi Andrew,

    Not that you need any additional ammunition in your case for a balanced portfolio of index funds; but I thought an article in last week’s economist would still be interesting for you and the other readers of this site. Titled “Against the odds: The costs of actively managed funds are higher than most investors realise”; Buttonwood starts by saying that “EVERYONE knows that if you go to a casino, the odds are rigged in favour of the house. But people still dream of making a killing. The same psychology seems to apply to fund management, where investors flock to high-cost mutual funds even though the odds are against them”.

    Among his main points, he cites a very interesting study, titled “The Arithmetic of ‘All-In’ Investment Expenses”, Financial Analysts Journal, Volume 70, Number 1” which has shown that adding in all the costs that managed funds charge – the net return to investors may be reduced by 2.66 points a year!. It’s a great (and concise) article – I’d say a must read for any of the remaining non-believers out there.

    Just thought you’d like to know
    Keep up the great work,

  49. vojtas says:

    Hi Andrew,

    thanks for the book and this site, it’s really helpful. I have backtested your strategy on TLT (30%), GLD (5%), SPY (65%) ETF’s (since I am not from US and therby must build portfolio through ETFs), I have used commision $5 flat per trade and from 2002 I have managed to get approx 8% p.a. top, average is about 6-7% p.a. if I randomly enter the market (+- 1000 days) and rebalance portfoliio in 30 days (+-5 days).

    For example, if I had entered market in bad point (just before market decline) I would get only just 3-4%, so it heavily depends also on luck when you enter the market 🙂 For example, just now – market is mostly overbought and lost of hedge managers are looking for some sort of decline. What would you suggets in this circumstances?

    Are you sure about 10% gain from this strategy even in actual conditions?

    Thanks for your good work,

    Vojtas

    • In any given five year period, you could lose money. Am I sure about a 10% gain? No. But over the next 30 years, the odds of averaging that are good. The markets have averaged between 9-11% on average during nearly every 30 year first world period, yet….they hardly have individual years that fall within that range.

  50. Rick says:

    Hi Andrew,

    I am in Canada,

    What Vanguard Index ETS would you buy now? Would you buy the bond and say emerging markets and then wait for the price to come down on the cdn and US Equity ones?

    Thanks,

    Richard

    • Hi Rick,

      I never wait for anything…because that’s speculating. If starting out today, I would start build a fully diversified portfolio and keep it going, rebalancing with fresh purchases, and making trade adjustments once a year if necessary just to maintain my allocation.

  51. Jason says:

    Hi Andrew,

    Well, I am a teacher living in Alaska. We have a Defined Contribution retirement, and no Social Security. I just read your book, and plan to move my Roth IRA to Vanguard Index Funds with 35% bonds (my age).

    As teachers, my spouse and I are both 100% invested in the Alaska Target Date fund 2045. I am new to all this, and our Defined Contribution retirement scares me. This is a list to our investment options:

    https://akdrb.gwrs.com/wrFundOverview.do?accu=AlaskaWR&groupID=98214-04&db=pnp

    Can you provide guidance on how to invest, or is the Target Date fund our best option? Are there VTSMX, VBMFX, VGTSX equivalents with in our investment options? With a Defined Contribution and no Social Security, should we flee Alaska ASAP?

    Thank you!

  52. Hayden Garrett says:

    Hi Andrew,

    Firstly, I want to say a big thank you for opening my eye’s and making me realize that I was not planning for my retirement and financial independence. I purchased your book and many more like it.. (The Intelligent Investor by Benjamin Graham, Warren Buffets essays etc) and for a novice you have woken me up. I am 32 and my wife is 27. We have just had our first baby and I would have been worried if I hadn’t of read your book and started to think about where I wanted to be at 55. We all want to be rich but we didn’t have a platform.

    In the last five years we have paid off all our debts for school etc totaling $97,000. We now are debt free alas we do not own a home yet.

    I now have about $14k in retirement which is not much and after Tithing 10% we are left with $800 a month for retirement as we are on one income. You mention the Target date fund to utilize. Should I only have this or look at a Total International index fund, US stock Fund and a US Gov bond fund?

    Sorry I know this is ‘another’ question that is the same as many above but I need a starting point that I know I will feel comfortable with.

    Regards

    Hayden

  53. Alfred says:

    Hi Andrew,

    First and foremost, thanks for writing the book. It is really helpful and insightful.

    I am starting to employ your strategy.

    Say I have already decided on my asset allocation (i.e. 70% on the World ETF and 30% in bonds), how do I start to accumulate to reach the desired percentages?

    Do I buy them all at once or in stages?

    The entry point is tricky.

    Appreciate your help on this.

    Alfred

    • Hi Alfred,

      Just close your eyes and buy if you have the money. Ensure that you have a few thousand dollars before doing so to reduce commission charges. If you have less than $5,000 to start, just buy one. Then when you have another $5,000, you could buy another. Just keep alternating purchases when you have the money. Ignore price levels. Just go for it. These things will fluctuate, but will be worth much much more when you retire.

  54. Randall says:

    Andrew

    I was interested with the re-balancing of your portfolio with the VSB bond ETF so I did the same and bought $48,000 last year. Apart from the dividend, the fund is just holding its own. I guess I should relax and not regret the sale of my Vanguard VTI and VEA ETFs which are doing phenomenally well.

  55. Lynn says:

    Hi Andrew

    I’m a bc teacher retiring in a few years. I read your book two years ago and got myself organized with td ishares. have passed your book on to friends and i read you have another soon to come….looking forward to reading it. my investments have reached “vanguard” status I believe. almost 400k Now I’m wondering about brokerages and a “plan” to trade my rrsp, tsfa, and nonregistered amounts for vanguard etfs you’ve advised…allocation for and almost 60 yr old is a little overwhelming also. I’ve looked at Qtrade, questrade, virtual, ????? it’s one big question mark for me. Are you able to give me some direction as far as trading to Vanguard?

    thanks
    Lynn

  56. Barry says:

    Hi Andrew

    It would be great to get an update on “Andrews Money” now that you have made some changes

    Regards

    Barry

    • Thanks Barry,

      I’ll try to find the time. The only change to my original portfolio is that I wanted to avoid U.S. estate taxes so it’s now comprised of Canadian domiciled ETFs. Same indexes though. Just domiciled differently, so the ticker symbols are different.

      Cheers,
      Andrew

  57. Matt says:

    Hi Andrew,
    I am a Brit living in Singapore. Loved your books. I have just set up a permanent portfolio. In your recent book you mention companies that will convert currency in Singapore cheaper than banks or brokers. Can you recommend any? Saxo charge 0.5% on a conversion.

    Thanks,
    Matt

  58. Barry says:

    Hi Andrew

    Its been a long time since posts here, now your into retirement (or semi-retirement) it would be great to have an update on “Andrews Money”.

    Barry

  59. Victor says:

    Hi Andrew,

    I am sure you must have heard this a million times but I don’t mind mentioning this again. Your book Millionaire Teacher is brilliant. I am based in Canada with my money invested in “actively managed mutual funds”. It has been there for almost 5-6 years with minimal growth. I have liquidated the mutual funds and will request some advice from you.

    i) I have almost 40,000$ in TFSA but I am not sure if I should invest in TD eSeries index funds or Canadian based ETFs? If ETFs could you kindly recommend a good portfolio? I was thinking more on the lines of 90% equity index funds or ETFs (30% cdn, 30%us and 30% global) and 10% bonds. Even though I am 35 I am taking some more risk with equity because I have a pension plan with my employer.

    ii) I also have around 12,000 in RRSPs which I plan to use towards the e-Series funds. I am not planning to us ETFs since I plan to contribute monthly to the portfolio (thinking 25% each in the 4 asset classes).

    iii) I also have money invested in RBC Target funds for my kids RESP? Any recommendation how to go about this?

    iv) Finally, I am reading my second book on investing (after Millionaire Teacher of course). Both the books actually provide actual examples of mutual fund returns for different periods which I sincerely appreciate. But is there some book or reading material which actually shows the numbers behind the numbers and how calculations are done? For example. what data is being used to calculate the returns of mutual funds. Or how does one calculate the different numbers that appear on a morning star report showing fund performance.

    Thanks again Andrew for opening my eyes to index investing.

    Sincerely,

    Victor

  60. Shane says:

    hi Andrew

    I have a few questions about this post.

    First, based on the tickers it seems that you run a dual currency portfolio of CAD and USD. I am curious about whether you ever find it awkward or tricky to manage. I ask because I myself run a euro / USD portfolio. What are you thoughts on dual currency portfolios in general?

    Second, in your piece, you write that your monthly salary contributions were insufficient to bring your portfolio back into line with your target percentages. Presumably this is because you have a very large portfolio. However, for people with small portfolios (say, 60k), monthly contributions will have a much greater impact on the percentages. Let’s say my portfolio is 60k and I add 5k every month. That 5k will really shift the percentages allocated to each ETF. How do you advise new investors with young portfolios to deploy their monthly contributions without skewing the target percentages too much?

    Thanks in advance (PS I got 6 people to buy your new book last week)

    • Hi Shane,

      It’s cool that you’re educating others. Awesome!

      Don’t worry about skewing the percentages too much. It’s not a huge deal if the float a bit once you make contributions. As the portfolio grows larger, your contributions will hardly budge it. The market movements, year to year, will have a much bigger impact.

      You’ve set yourself on a great path. Well done!

      Oh, incidentally, none of my ETFs are domiciled in the United States now. I wanted to avoid the U.S. estate tax issue, so my investments are now Canadian domiciled only.

      Cheers,
      Andrew

      • Mathew says:

        Hi Andrew,

        Just wondering: “none of my ETF’s are domiciled in the U.S. anymore… Wanted to avoid estate tax issue”

        Can you elaborate on this point? I suspect a number of folks based internationally are taking advantage of US dollar ETF’s – did I miss something with respect to tax implications?

        Thanks as always – a regular reader of your blog.

        Mathew

        • Hi Mathew,

          When researching for my book, The Global Expatriates Guide To Investing (published in November 2014) I learned something new. In March, I made all of my ETFs non U.S. domiciled. There is no advantage to having U.S. domiciled ETFs–quite the opposite, in fact. This article explains it: http://assetbuilder.com/andrew_hallam/how_us_estate_taxes_could_hammer_non_american_expats

          • Mathew says:

            Hi Andrew –

            Wow – that’s quite surprising. The long arm of the US just got longer….

            Do you see any performance differences in the former VTI and the ‘new’ VUN? I know that the expense ratio has been driven very low on VTI – do you think VUN can achieve the same?

            We have a portfolio that would require moving almost 7 figures of US denominated funds so it’s a big decision.

            Thanks for the wonderful insights.

          • Mathew,

            It can’t perform differently. It’s exactly the same product, simply trading on a different exchange.

  61. Newbie says:

    Hi Andrew just a quick question on US domiciled etfs. My wife and I buy our etfs using a joint trading account (Kim eng) and If one of us dies, the other can just take over before the taxman comes after the estate taxes. Is that an alternative to selling off our U.S. Domiciled etc and then buying Canadian domiciled ETF? Just want to make sure I am making a right decision. Thanks for your advice!

  62. Michael says:

    Hi Andrew,

    I am a 32 year old Singaporean trying to build a simple portfolio of

    30% A35 bonds
    35% ES3 local ETF
    35% IWDA Global ETF

    I have already purchased my bonds and local stocks, but I am a little torn between VWRD or IWDA. Both seems like they got their pro and cons, though I prefer IWDA for the simple fact that they auto reinvest the dividend. But I realised IWDSA doesnt cover Emerging markets. Any advise?

  63. Michael Waugh says:

    Love the books and the blog. I’m looking for some advice on how to reinvest some money.

    I’m a 40 year old married with 2 children living in the Philippines (working at Brent IS and love what’s going on at SAS by the way).

    I’ve just sold my actively managed funds in which my expense ratios were higher than I’d like. I now have a good chunk of cash on hand, and I’m nervous to reinvest all of it at the current market levels fearing a relatively soon correction. Any ideas on how to hedge against any drastic market downturns.

    Much appreciated.

  64. M says:

    Hi andrew,

    I’m a 25 year old Singaporean who just started working. Read your book, inspired by it and decided to start my investing journey proper. Have set up a 80/20 iwda, abf sg bond fund portfolio, with the intent to inject 20k annually into the portfolio.

    Would like to seek your opinion on the fund set-up!

    Cheers

  65. Patrick says:

    Hi Andrew, I have read both your earlier and current editions of Millionaire Teacher and find them extremely helpful. Your US investor example suggests a potion of the portfolio in an intermediate bond index fund. Is it more prudent to invest in a short term bond fund as i have read in some of your articles regarding your own allocations?

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