We Sold our House at a Profit and Still Lost Money

A while back, we argued that purchasing our house in the suburbs was a good financial move for us and the actual cost of ownership would compare to a $703 per month rent. To know the actual true cost of house ownership, the only accurate way to know for sure is to look back at the past 3 years and count every penny we have put in the place.

This was a great exercise, not only for our own finances but to give you a clear idea of the actual costs of home ownership. Some expenses would still incur if we were renting, therefore, in that situation, we just calculated the difference in cost.


Inevitable buying costs

To purchase a property in Canada, we have to go through a notary. They are basically real estate lawyers. As the buyer, we had to pay $1,200 to close on this house. This cost varies a lot depending on where you are, some will charge as low as $500, while some lenders even pay for it.

In addition, our municipality charged a land transfer tax equivalent to roughly 1% of the property value. We paid a total of $2,550 in land transfer tax at the time of signing. This varies between cities, Toronto for example, charges a tax on top of the provincial one so you end up paying almost 2%.

We also did a house inspection before putting in our final offer. This protects buyers from any hidden faults with the property. They go through the house and look for all the possible issues with the property. Of course, this by no means guarantees that nothing will go wrong with your property but it is a good safety measure to take and it gives you negotiating power if the inspector finds small issues.

We paid $700 for our inspector and after she mentioned that the shingle roof had to be replaced in the next 3 years, we negotiated with the seller to get all appliances included. They were all brand new, stainless steel appliances, so we saved roughly $4,000 there.


CMHC insurance (or PMI)

At the time of purchase, we decided to put only a 5% down payment on the house so we had to pay mortgage insurance. This added a total of $8,079 to our mortgage. The only way around this would have to put a $54,000 down payment, which we did not have on hand at the time.

In the United State, PMI would be very similar. For the same amount, PMI would add 117.79 to your payments for the first 90 months which comes out to $10,601 in total premiums.

Sometimes, it makes sense to spend a little on insurance to put less money down. Depending on current interest rates and your expected rate of return on investments, it can be more profitable to invest your money in the market rather than in your home.

The same goes for paying off your mortgage faster but sometimes, it is not all about the numbers. Feeling financially safe has its value too.


Home owner’s insurance

During the three years, we paid $39 per month in homeowners insurance to protect against fires, theft, damages, liability etc. The total cost over the years adds up to $1,404. Compared to renter’s insurance, which only covers liability and your furniture, we were paying $14 per month so the difference here over the three years is $900.


Municipal and school taxes

Every year, we paid $2,800 in municipal taxes and $450 in school taxes. This adds up to $9,750 in taxes over the three years. We also had a small issue with our subversive pump recently and that added $600 to our water tax bill so that didn’t help.


Maintenance and remodeling

The general rule of thumb for maintenance costs is 1% of your property’s value. U.S. News and World Report say that homeowner’s spend anywhere between 1% and 4% of a home’s value each year on maintenance and repairs.

In our case, we have very little maintenance expenses over the three years we were there. The only thing we changed was our hot water tank before it got too old. Total cost: $450.

We did spend on small remodeling projects but never spent a considerable amount of money. We always did our projects ourselves so we saved a lot on labor.

The first thing we did was to paint the dining room. Total cost: $60.

We then changed the cabinet’s handles to give a modern look to our kitchen. Total cost: $100.


How much does it cost to buy a house


One of our weekend projects was the accent wall in our master bedroom. We bought flooring on sale at the hardware store and glued it to the wall with PL. We invited a friend over and made it a day. Total cost: 100$. (Plus $20 for the beers!)


DIY cheap remodelling projects


Inspired by this DIY, we remodeled a bathroom with the same technique as our bedroom since that wall turned out so well.

Instead of tiles, we waited until the wood flooring was on sale and given the smaller surface, we barely spent anything. We even had some leftover glue and paint. For the mirror, we found a nice one in a discount store for $40. We then ordered LED strips on eBay for $10. Total cost: $90.


Weekend projects


We also changed the electric baseboard heater of our bathroom simply for aesthetics and noise and changed the bathroom fan for a silent one since it felt like we had a turbojet in there every time we took a shower. Total cost: $240.

This summer, we redid our patio since we never liked the one originally built. The old deck was grey, started to rot, and unappealing.

We sanded the base, changed the look of the railings completely, and secured a closed off section for the pool. Then, opted for modern steel balusters to give a brand new look to the place.

At the hardware store, we had the option of premade railings that went for about $120 per 6’ or we could assemble our own railings for about $30 per 6’. We went the DIY route and saved another 15% off the purchase price since we waited until a sale.


Patio renos


The worst part of the project was to get the stair railing to fit properly. We could not get the balusters to fit, the angles we off, and we ended up starting over 3 times before getting something solid in place.

After replacing some rotten beams, redoing a section what was not well supported, and building our railings, we ended up buying $150 of wood. Our biggest expense here was the steel balusters. Total cost: $450.

Finally, after having our house on the market for months and months, we had the floors sanded and varnished to spruce up the property. After getting a few estimates, we went with a guy who did the whole job in a day for $1000.


Water Heater 450
Paint: 60
Kitchen Cabinet’s Handles 100
Bedroom Accent Wall 100
Bathroom Accent Wall 90
Heater and Fan 240
Deck 450
Floors 1,000
Total $2,490


Yard care

We never paid anyone to mow our lawn or to spray pesticides on our lawn but we do get some pretty nasty winters up here in Canada. We moved in the spring but for the next two winters, we spent $250 for a plowing service. This adds up to $500 for the three years we were there.



When we were living in a smaller condo, we were paying under $50 per month in electricity. Now that we had much larger square footage, we spent roughly $120 per month on electricity. This includes our heating since the whole house was heated by baseboards. Over the three years, we spent $2,520 more as homeowners.


Furniture and appliances

We were fortunate to get all major appliances for included when we bought the house since we negotiated it in our offer. We got a brand new stainless steel fridge, stove, and dishwasher and used washer and dryer.

On top of all of this, we also negotiated to get the lawnmower, a weedwhacker, a hedge trimmer, and a few tools for free which saved us a lot of shopping.

In terms of furniture, the only piece we bought brand new was our couch. We got it for $600, on sale. Everything else came from hand-me-downs or we got it used from Kijiji or Craigslist. Finally, we furnished two guestrooms, which we later used to earn a few extra dollars on Airbnb, and office space.

We did not spend more than $1,000 in total.


Opportunity cost

By renting, we could have kept our down payment invested in the market. Since the day we bought our house, the S&P500 increased 20.154% (with dividends reinvested). Therefore, our $13,500 down payment would have grown to $16,220 if kept it invested. We are assuming a single holding portfolio here for simplicity but it gives us a total opportunity cost of roughly $2,700.



Each month, we paid $1,300 in mortgage payments. Out of that, about $535 has been going towards interest. Over the three-year period, this comes out to $19,260 in interest payments to the bank. As JL Collins puts it; interest is the cost of renting money.

There’s no free lunch in real estate.


Transaction fee

At the start, we tried the DIY route and chose to advertise our house on a flat-fee website. Selling our house seemed easy, we did the visits and open houses. The package we bought gave us the exposer we needed to find the right buyer and all the support one could need to sell a house. The total cost for this was $699 for their basic package. However, after months and months on the market and multiple offers which did not go through, we ended up hiring an agent.

We negotiated with the real estate agent a lower commission and signed a contract until the end of the year hoping to sell in a few weeks.

We were at the peak of the market, received multiple offers but, again, none of them went through. Finally, after a year on the market, we finally sold our house for a total of $35,000 more than we had bought it three years ago. In the end, we ended up paying $11,800 in commission for the transaction.


Appreciation vs inflation

In many cases, a home is not a great investment. However, it is not always terrible. Especially as your main residence, it is hard to see how renting would be better. A longer holding period would have helped us absorb more of the fixed costs such as the purchasing expenses and the realtor’s commission but no matter what it still costs a lot to buy and sell real estate. Even if the value of the home increases, it does not mean you are making any profits.

In this calculation, we did not even calculate inflation but that also eats up some of that $35,000 increase.


The actual true cost of home ownership

In the end, the actual cost of owning this house was pretty high. Once we include every single expense, it is surprising to see how much we have actually put in this place.


Notary 1,200
Land transfer tax 2,550
CMHC (or PMI) 8,079
Home owner’s insurance 900
Municipal and school taxes 9,750
Maintenance and remodeling 2,490
Yard care 500
Utilities 2,520
Furniture and appliances 1,000
Opportunity cost 2,700
Interest 19,260
Transaction fee 11,800
Total 62,749


Of course, we sold the house for more than we bought it so we can subtract that amount: 62,749 – 35,000 = $27,749. So, over a three-year period, we spent $9249 per year or $771 per month to live there. Pretty close our $703 estimate from the New York Times rent or buy calculator.

For $27,000 over three years, there is no way we could have lived a similar lifestyle as renters. We now downsized to a small condo downtown and even this small property would rent for a lot more than $771 per month.

Unless you are moving every year, it is hard to see how renting would be better than owning. If you have any thoughts, please comment along. 🙂





How to Invest in Index Funds (Beginner’s Guide)

Starting investing is not always easy. It can actually be frightening.

Investing is one of the best things you can do to your money and future self so if you are just starting out, or never thought about it yet, this is the perfect beginner’s guide to help you become an index investor. Throughout this guide, you will learn the must-know basics about index investing, how to open a brokerage account, how to build the perfect portfolio and how to start investing like a pro.


What you will learn in this post



First of all, let’s go over a few terms before we start.

  • An index or stock market index is a measurement of a section of the stock market. In other words, it is simply a bundle of stocks and it tracks the prices of said selected stocks. It is a tool used by investors and financial managers to describe the market and to compare the return on specific investments. The Dow Jones Industrial Average (DJIA) is the most common one and one of the oldest. Other examples across the world are the S&P500, TSX, the Nasdaq Composite, or the Nikkei 225.
  • An index fund is a mutual fund or exchange-traded fund (ETF) designed to track a specified basket of underlying investments.
  • An index investor or indexer is an investor who prefers using index funds rather than trying to beat the market. Active investors try to use their skill (or luck) to pick the best stocks or funds but this may take a lot of time, skill, and luck. Statistically, the odds are against them. Out of all actively managed mutual funds, a whopping 82% of them did not constantly beat the index over the last decade. That is why the index investor prefers to be passive. They look to match the market returns instead of trying to pick stocks or time the market, they manage their expected risk and return by diversifying their investments.


How does an index fund work? From Youtube


Index investing is so effective

Index investing has been around for a while and it has been great to the ones who stuck with it. Trying to pick the next big winner or trying to time the market is, statistically, a loser’s game. The majority (over 80%) of professional actively managed fund managers cannot beat the index benchmark over the long-term. If even a cat can beat professionals three-folds, who to trust?


Share of U.S. stock funds outperformed by their indexesSource: Year-End 2014 SPIVA U.S. Scorecard from S&P Dow Jones Indices


As an average investor, your chances are even slimmer! This super interesting study found that average investors are often underperforming the market by 4 to 5 percent, often because of failed attempts to time the market. The time, fees, knowledge, and luck involved simply work against you.


The latest study looks at the 20-year period that ended Dec. 31, 2009:

  • Average investment return = 8.20 percent
  • Average equity investor return = 3.17 percent

If you had put money into an S&P 500 index fund 20 years ago and just left it there — no buying, no selling, just investing and forgetting about it — you would have earned (minus fees) about 8 percent. – Carl Richards


As a passive investor, you simply buy all of the assets represented in the indexes you chose. In this example above, a passive investor would have grown his wealth, on average, 8.20 percent per year. That’s doubling your money every 8.8 years!


Managers of an index or passive approach believe it’s difficult to outthink the market because markets are highly efficient—at any moment, prices reflect what is known about each security. – Vanguard


The efficient-market hypothesis is a theory that states that stock prices fully reflect all available information.  Since no one actually the true value of a certain stock and everyone has all available information, there is an equal chance that stocks are under or overvalued at any point in time.

In other words, it is impossible to “beat the market” consistently on a risk-adjusted basis since market prices should only react to new information. The market should always price stocks correctly.


To summarize the Efficient Market Hypothesis: An investor cannot earn a return without an appropriate amount of risk. A return without risk would be an abnormal return, and this is nonexistent in an efficient market. – Dr. S


Think about it this way; most investors, professionals and individual investors alike, lose to the market.

Therefore, market returns are actually above average!

What Are Index Funds? From Youtube


Index investing is so affordable

One of the biggest reasons that index investing is so effective is because it is so darn low-cost. No one can predict the market, no one can control returns, but one thing you can control is your costs. Most companies now offer funds with fees around the 5 basis points.

That is effectively 0.05%. We are far from the 1%+ most active funds charge.

Matt over at Mom and Dad Money wrote a great article about the effectiveness of cost on returns. He mentions that the investment research company Morningstar conducted an interesting study to see which variable was better at predicting a mutual fund’s future return and they found that the lower cost mutual funds in their study outperformed the higher cost ones in 100% of the comparisons they ran.

By controlling your cost, you can save hundreds of thousands of dollars over the next few decades. That’s right, hundreds of thousands!



  • An annual expenses ratio or management expense ratio (MER) is a fee, shown as a percentage, to pay for the expertise and administration to manage a fund. If you invest $1,000 in a fund which charges a 1% MER, for example, you would pay $10 per year to the fund company. This would be paid whether the fund goes up or down.


According to Morningstar, the average equity mutual fund MER in Canada is 2.35% and the average account over the investment lifetime is $229,000. This tally up to an average management fee of $323,654 over a lifetime!

Think about this figure for a minute.

The average equity mutual fund MER is more than 10 times more than Vanguard’s index funds average expense ratio of 0.18%. This means the average investor losses roughly $300,000 in fees.


Investors wasted more than $100 billion over the last decade on expensive advice. – Warren Buffett


Index funds the very simple job to track the market and they do it without the pros and their big bonuses. That simplicity keeps costs low, and those low costs are passed on to you in the form of higher returns. The other beauty of indexing is that it does not require much of your time and it will let you focus on other things!

Become an indexer

The best way to know how much a fund will cost is to look at the fund’s overview or fund fact.

For Vanguard funds lookout for something like this:

U.S. stock funds fees


Notice the Expense ratio of 0.04%. This is one of the lowest in the business.

For Fidelity funds lookout for something like this:

Fidelity fund fee


For Blackrock funds lookout for something like this:

Blackrock iShares fund fee


To find this information, and much more, you will need to look at the fund’s Factsheet.

The factsheet is a document provided by the fund manager that gives you an overview of the fund. It includes key information such as the fund’s investment objective, its top 10 holdings and how it has performed in the past.

This can help you decide whether the fund is a good match for your portfolio or not. You can click on the example below for more details.


How to read a fund factsheetSource: Standard Life Self-Investor


Index funds are (mostly) diversified

Apart from the cost, a huge factor in their effectiveness is their diversification. Diversification is just another fancy word to say; don’t put all your eggs in the same basket.


Plan your Health


If you invest in your favorite companies, let’s say 10 of them, or even 50 of them, you are not really diversified. Your chances of success are pretty slim.

Even if you would be able to cover most sectors of the economy, such as technology, financial services, consumer cyclical goods, or utilities, you will miss some and/or be overweight in certain ones.



  • Being overweight in a sector on a particular investment, as part of a three-tiered rating system, along with underweight and equal weight, refers to the balance of your investment portfolio. If you own $80 of bananas and $20 of oranges and the market represents $5,000 of bananas and $5,000 or oranges, you would be overweight bananas, underweight oranges. An equal weight representation in this example would be to own $50 of bananas and $50 of oranges to have a similar weighting as the total market.
  • An asset allocation is the representation of your portfolio. In the previous example, your asset allocation would include bananas and oranges.


Asset allocation is one of the great tools investors use to lower risk and increase returns without significant additional costs. Harry Markowitz even proposed the idea that diversification is, in fact, the only free lunch in investing.

As Vanguard puts it, indexing is a great way to spread out your investments to avoid losing your shirt to a bankruptcy or a particular sector crashing. Instead, it allows you to participate in the market as a whole.

Vanguard risk of indexing

Source: Vanguard


Risk spectrumWhen an investment is said to be risky, that simply means that there is uncertainty about its returns. Stocks, for example, can swing up and down every day and, over the long-term, can generate double-digit returns but might not be ideal over the short-term.

On the other hand, keeping all your money in guaranteed investments such as a savings account is unrecommended for a long-term objective since inflation will likely wipe out your returns and the opportunity cost would simply be too large.

You can read more about the risks and rewards in investing in this article from Vanguard or this one from The Balance.

Unfortunately, picking an index fund does not guarantee it is diversified. Any Dow Jones index fund will lack diversification, for example, because the Dow is a stock market index that tracks only 30 large publicly owned companies based in the United States. It does not include all the sectors of the economy, only tracks large companies, and is only based in the U.S.

However, a fund which tracks the S&P500 would include 500 companies, but again, focuses on large companies in the U.S.

When choosing index funds, you should consider three main things. Firstly, the total number of stocks held, then, the annual expenses ratio or MER, and lastly, the ease of use, ie. how easily tradable it is, (we will get to this).

  1. A good index fund should hold at least 1500 individual stocks,
  2. should have a low management fee (0.05% to 0.30%),
  3. and should be easy to buy and sell at no or very low cost.

Diversification can be an amazing tool but beware of di-worse-ifying. Having too many funds might be worse than too little. We will cover different portfolios later but try to keep it simple.

Invest in a handful of largely-diversified funds, in investments you understand are ready to hold for the long-term.


More helpful videos

More helpful tools

More helpful links



When to start investing?

Now that we have covered the basic, it must sound so simple to just throw money in these funds and make a quick buck but it is not that easy.

Indexing is not a get-rich-quick scheme, on the contrary.

Index investing takes time, consistency, and perseverance but it can be very rewarding over the long-run.

Index investing is easy to start, but hard to keep up.

As the great Warren Buffett puts it; Put your long-term investments in an index fund, learn to save, and when it falls, buy, don’t sell.


Financially Blind


The secret is to start investing early and to stay consistent. Over an investing career, consistency can be the difference between working until 55 or 75 years old! The chart below is the perfect argument for consistency. If you try to time the market, missing only the ten best days of the year cut your average return by almost half!


Historical returns of marketSource: JP Morgan Funds


Start early and keep investing, no matter the moods of the market. In the example below, we illustrate how a constant $5,000 yearly investment can grow over time in different scenarios.


How to start investingSource: JP Morgan Funds


A long time horizon also amplifies the advantages of tax-differed accounts but we will get to those shortly.

Over and over again, the market had huge run-ups and crashes but high savers with a long-term investment goal should be happy and jump on those bargain prices. Staying on the sidelines will not make you rich.

The best day to start investing is today.


What if the market crashes?

As JL Collins would say; The market always recovers.  




He explains in his amazing Stock Series that the market is simply the single best performing investment class over time and it always goes up. Over the long-term of course.

He goes on to say that the market is self-cleansing, the bad companies die off and the new ones appear. When a company goes bankrupt, its stock goes to zero. It is a 100% loss. However, when the winners thrive, their stock can rise 200, 300, 1,000, 10,000% or more.  There is no upside limit!

Owning stocks is owning real companies, employing real jobs, making real products. When you invest in index funds, you are investing in thousands of companies. You are investing in the economy.

Even if you where to invest today and the market crashes tomorrow, you will still be fine over the long-run.

There is a classic example of Bob the world’s worst market timer. In this example, Bob invests at every high of the market, just before every major recession. His plan was to save $2,000 a year during the 1970s and bump that amount up by $2,000 each decade until he could retire at age 65 by the end of 2013.

Bob did not invest early, instead, he waited to see huge market run-ups before, finally, investing his savings. The market dropped nearly 50% in 1973-74 and Bob had invested everything at the peak of the market right before the huge crash. The same thing kept happening to Bob but he never sold. He stayed the course, staying constant and saving a bit more every year even if he always waited for run-ups before investing.


How to time the marketSource: A Wealth of Common Sense


Even investing only at the very highs of the market, Bob would still end up with major profits (around 10.1% annualized since 1970) if he simply sticks to index investing and does not panic. He still ended up a millionaire with $1.1 million in investments simply because he did never sold and kept his consistency.

Market crashes are actually healthy for investors. It is very unlikely you will end up investing like Bob but even if you do, it’s fine. We covered in-depth the reasoning behind this in a past article but indexing would not be the same without the occasional corrections and crashes.

The beauty of crashes is that it gives the advantage to long-term investors who are still buying in and reinvest their dividends. When everything is down, everything is on sale!


Step one: Choosing your account

Alright, now that we covered the basics, you can take the first concrete steps towards building your wealth. There are many options you could use such as your bank’s services, mutual fund companies, independent brokers, or robo-advisors but with so many options comes so many price-points and fees.

Just as we mentioned earlier, fees are super important. Keeping your costs low can save you thousands of dollars along the way. Below are the top low-fee options we think are the best for you. They each have their own characteristics but they would all be a fine pick to start your investment journey.


Ally: Best overall broker

Ally Invest tutorialIf you do not already have a self-managed investment account, we suggest Ally. They are, by-far, the best low-cost online broker available. They offer fixed, low, $4.95 commissions and other bells and whistles such as forex trading and automated portfolio management.

For new clients, they offer a $200 cash bonus or 90 days or free trades. Their customer service is great, fees low, and their online platform was recognized as #1 for usability by Barron’s.

Ally Invest, formerly TradeKing, won multiple awards and recognition over the years.

  • 4-stars from Barron’s “Best Online Broker” review for every year since 2007.
  • Barron’s distinguished as one of the “Best for Options Traders” and one of the “Best for Long-Term Investing”.
  • SmartMoney Magazine named them #1 in customer service in 2008, 2010, and 2011 annual rankings and  #4 overall in 2011 annual rankings (#1 overall in 2006 and 2007).

They do not require any minimum balance to open an account and the whole process may take you about 15 minutes.  The only drawback is that they do not support 529 accounts yet.


Free trade with Ally


The first step to open your account is to fill out basic personal information. Then, you will be able to fund your account and start trading.


Opening an account with Ally

Opening an account with Ally2

Opening an account with Ally1Source: Ally account opening


Once your account is open, you can explore the Dashboard and start investing. They offer plenty of information and fun tools but if you are sticking to an index fund portfolio, you will not need all this. We will cover the basics of buying orders in the next section below.


Vanguard: Trade Vanguard funds for free

Vanguard TutorialThey offer free trades for their mutual funds and ETFs but do charge almost double than Ally for any other trade ($7) which is much less attractive. However, they do offer the option of 529 accounts not offered by Ally.

The first step to open your account is to fill out basic personal information. Then, you will be able to fund your account and start trading.


Opening an account with Vanguard1

Opening an account with Vanguard2Source: Vanguard account opening


Wealthsimple: Best for hands-off investors

wealth simple logoThey offer a fully-hands-off approach to index investing. They can help you build smart portfolios and can give you advice on how to achieve your financial goals. In only 5 minutes, you can sign up online, answer a few questions, and they will figure out the best investment strategy for you.

They will buy a diversified mix of low-fee index funds optimized for your situation and manage those investments for you. Unlike the brokers discussed earlier, Wealthsimple is a robo-advisor which will rebalance your account to make sure you stay optimally diversified as the value of your investments changes. We will show you how you can do all of this on your own later but if you do not want to spend the time needed for DIY investing, Wealthsimple is a great option.

How to invest with Wealthsimple

Wealthsimple iphone appWhat we like about them is that their fee structure is simple and low-cost. They only charge a management fee once your account surpasses $5,000 and do not charge any other account management fee or hidden fees.

  • 0.0% fee for accounts below $5,000
  • 0.5% fee for accounts up to $100,000
  • 0.4% fee for accounts above $100,000

If you are looking for a hands-off approach to passive investing, Wealthsimple is the way to go.



Wealthsimple-whats-your-primary-reason-for-investingSource: Wealthsimple account opening


Questrade: Best broker for Canadians

questrade account openingFor Canadians, both Wealthsimple and Questrade are great options. Questrade is a self-directed broker and offers free purchases of exchange-traded fund purchases (ETF) and super low commissions of 1¢ per share on all the rest.

They do charge an inactivity fee if you do not execute one commissionable trade per quarter (3 months) or hold at least $5,000 in value within your account.

Use the promo code 595806512417973 and receive up to $250 once you’ve opened your account.


How to open an account with Questrade

Questrade coupon 250 code

Source: Questrade account opening


How To Open A Questrade Account From Youtube


To recap, each of the options above has different purposes and different structures but they are all great to start investing. Ally is our best pick overall and Questrade is right up there with them but for Canadians. As for Vanguard, we absolutely love their funds but their trading accounts only offer advantageous commissions on Vanguard products. For a more hands-off approach, Wealthsimple is an amazing robo-advisor and operates both in the U.S. and Canada. If you are still wondering if DIY investing is for you or not, we will cover trading in the next section.



Best discount broker



Once you have chosen the option which best suits you can begin your account opening, you will need to choose the type of account you wish to open.


  • Traditional 401k – This is a plan established by your employer to which eligible employees may make salary deferral (salary reduction) contributions on a post-tax and/or pretax basis. Earnings in a 401(k) plan accrue on a tax-deferred basis.
  • ROTH 401k -This is also an employer-sponsored plan but where contributions are made with after-tax dollars, investments grow tax-free, and withdrawals are also tax-free.
  • Traditional IRA – A traditional individual retirement account where contributions are tax-deductible, investments grow tax-free, but withdrawals are taxed as income. The maximum annual contribution limit is $5,500 and eligibility for this account depends on family income (or single income). To qualify for an IRA, you need to make a combined income of less than $186k.
  • ROTH IRA – Similar to the traditional IRA, the Roth contributions are made with after-tax dollars but the contributions are not tax deductible. Investments grow tax-free, and withdrawals are also tax-free. Just like the traditional IRA, there is a maximum contribution limit of $5,500 with the same eligibility rules.
  • SEP IRA – This is an IRA for small business entrepreneurs and allows for large lump sums to be deposited into a tax-sheltered account.  The guidelines can be found here.


best-retirement-accounts-chartSource: Let’s Automate Your Money


In Canada, it is simple,

  • TFSA – This is an account that does not charge taxes on any contributions, interest earned, dividends or capital gains.  The contributions are not tax deductible but withdrawals are tax-free.  The contribution limit was increased every year since its creation in 2009 and stands currently at $5,500 annually.
  • RRSP – This is a retirement saving and investment vehicle for employees and the self-employed in Canada. Pre-tax money is placed into an RRSP and grows tax-free until withdrawal, at which time it is taxed. This account has many features in common with 401(k) plans in the United States.


Which account should you start with?

With so many different investment accounts available, you should prioritize and contribute where your dollar will do best.


Investment accounts you should prioritize, in order.

  1. Contribute to your company’s plan (401k, 403b) to get the full employer match.
  2. Participate in your employer’s stock option plan if they offer a match.
  3. Contribute to a Health Savings Account (HSA) if available.
  4. Contribute the maximum to an IRA, traditional or Roth.
  5. Contribute to the maximum limit of your work-based plan for tax advantages.
  6. Contribute to taxable investing accounts.


Investment accounts you should prioritize, for Canadians

  1. Contribute the maximum to your RRSP.
  2. Participate in your employer’s stock option plan if they offer a match.
  3. Contribute the maximum to your TFSA.
  4. Contribute to taxable investing accounts.


Best ways to start investing


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Step two: Building your portfolio

Once you have chosen a broker, you will need to fund your account and start investing. With all of them except Wealthsimple, you will need to do your own research, build your portfolio, place your own orders, and rebalance your holdings every now and then. Before we dig into all of this, let’s cover a few terms.



  • A mutual fund and an ETF both represent professionally managed collections, or “baskets,” of individual stocks or bonds such as index funds. Most funds are offered in both options but they do differ. ETFs offer greater flexibility when it comes to trading but usually involve a trading commission. However, they usually have lower expenses than a similar mutual fund and have better tax treatment.
  • A ticker symbol is used to trade on the exchanges. Mutual funds, for example, usually have 5-letter tickers such as (VTTHX) and ETFs usually have 3-letter tickers such as (VTI).
  • A stock is a share in the ownership of a company while a bond is a debt security issued by a corporation or government. On the risk spectrum, stocks are considered riskier than bonds.
  • A dividend is a distribution of a portion of a company’s earnings. In the case of index funds, the dividend represents all distribution from the companies held within the fund.
  • An asset allocation is a way one splits his portfolio’s assets according to his goals, risk tolerance, and investment horizon.


Before you even start building your portfolio, you need to decide how much you are ready to invest. We discussed the difference between lump sum investing and dollar cost averaging in a previous article and concluded that the best thing to do is to go all in at once. If you have $1,000 to invest, do not try to time the market by investing $100 at the time when you feel the market is low, research has shown that you are more likely to maximize your returns by investing all of your $1,000 right from the start.

How to start investing



Jack Bogle on Asset Allocation and Market Collapse From Youtube


Having a strong investment plan and being diversified will not save you from a market crash. It is healthy for the market to correct itself. Ups and downs simply mean that the market is volatile but you can use this volatility to your advantage with dividend reinvestment and consistent investments.How to use an etfNow, once you funded your account, you need to choose the funds you wish to invest in. As discussed earlier, diversification is a great way to manage your risk and returns. We covered example portfolios before but let’s look at a few concrete examples.Tips to invest in index etfYou would be surprised to find out that the dozen different mutual funds your advisor used to diversify your portfolio could easily be replaced with only 2 funds; a U.S. Total market fund such as VTSAX (ETF ticker VTI) and a bond fund such as VBTLX (ETF ticker BND). JL Collins explains this concept beautifully in his Stock Series, we highly suggest the read. He goes into the details of default risk, interest rate risk, and inflation risk in his Part XII-Bonds.

We have discussed bonds before, they are essentially a debt security issued by a corporation or government. They offer interest and on the risk spectrum, they are considered safer than most other investments, although, they are not guaranteed. Generally, adding bonds to your portfolio tends to lower both risk and potential return.


Potential reurns stock vs bondsSource: Vanguard


Learn how to invest

There are an infinite amount of portfolio combinations but really, the simplest ones are often the best. There is no perfect portfolio but keeping it down to only a few funds will be cheaper, easier to manage and rebalance, an, hopefully, increase your total returns over the long-term.


All-in-one portfolios

The simplest portfolio is the one-fund solution. When your portfolio includes a different fund for each asset class, it is easy to dwell on the individual parts rather than the whole and lose sight of your long-term goal.

Some funds adjust their asset allocation over time. Called lifecycle or target-date fund, these are a great one-fund solution. The dates in their names refer to your anticipated retirement dates as these funds start off more aggressive (more stocks) and end up holding a more conservative portfolio (more bonds) by the retirement date.


How to buy funds vanguardSource: Vanguard


iShares offers many of these as with expense ratios around 0.43%.

  • iSharesiShares S&P Target Date 2020 Index Fund (TZG)
  • iShares S&P Target Date 2025 Index Fund (TZI)
  • iShares S&P Target Date 2030 Index Fund (TZL)

Vanguard offers similar funds with an average expense ratio of 0.13%.

  • Vanguard TutorialVanguard Target Retirement 2035 Fund (VTTHX)
  • Vanguard Target Retirement 2040 Fund (VFORX)
  • Vanguard Target Retirement 2060 Fund (VTTSX)

Charles Schwab offers with an expense ratio of only 0.08%.

Charles Schwab target funds

  • Schwab Target 2025 Index Fund (SWYDX)
  • Schwab Target 2035 Index Fund (SWYFX)
  • Schwab Target 2050 Index Fund (SWYMX)


Another option is asset allocation funds offer varying exposure to stocks and bonds depending on how aggressive a portfolio you want. Unlike target-date funds, they do not change over time. If you invest in a balanced fund, it will keep that allocation.


iShares offers many of these as with expense ratios around 0.46%.


  • iShares S&P Conservative Allocation Fund (AOK)
  • iShares S&P Moderate Allocation Fund (AOM)
  • iShares S&P Aggressive Allocation Fund (AOA)

Vanguard offers similar funds with an average expense ratio of only 0.14%.

  • Vanguard TutorialLifeStrategy Conservative Growth Fund (VSCGX)
  • LifeStrategy Moderate Growth Fund (VSMGX)
  • LifeStrategy Growth Fund (VASGX)

Charles Schwab offers with an expense ratio of 0.59%.

Charles Schwab target funds

  • Schwab MarketTrack Conservative Portfolio (SWCGX)
  • Schwab MarketTrack Balanced Portfolio (SWBGX)
  • Schwab MarketTrack Growth Portfolio (SWHGX)


How to buy funds Schwab

This Schwab fund, for example, is composed of American stocks, international stocks, emerging markets stocks, bonds, and cash. This would be a suitable one-fund option but we prefer the Vanguard funds given their lower fees.

In Canada, Vanguard has recently released tree all-in-one funds. The Vanguard Conservative ETF Portfolio (VCNS) holds 40% stocks and 60% bonds, while the Vanguard Balanced ETF Portfolio (VBAL) uses the opposite proportion. The most aggressive version, the Vanguard Growth ETF Portfolio (VGRO), is 80% equities. All three ETFs carry a very competitive management fee of just 0.22%.

Dan from the Canadian Couch Potato has done a great piece on Vanguard Canada’s portfolios.

Useful guide to index investing

Alternatively, you could also try Vanguard’s Investor questionnaire. Knowing your risk profile is the key to a proper investment portfolio. If you take on too much risk for your appetite, you might sell at the wrong time or make rash decisions.

Finally, the Total Stock Market Portfolio is a very popular choice for long-term investors. The Vanguard Total Stock Market Index Fund (VTI or VTSAX), for example, offers great diversity at a hyper-low cost.

It holds over  3613 American companies, ranging from small- to large-sized. The average rate of return on this portfolio since 1972 has been 7.5%.

Some argue that owning only American companies does not provide enough diversification while others argue that most U.S. companies operate internationally anyways. We have talked about global returns in the past and we believe having a global exposer is important to diversify a portfolio. One way to build a globally-diversified portfolio is to follow the relative size of each market across the globe.


Relative sizes of world stock markets, How to build your asset allocation and invest in a diversified portfolio.Source: Credit Suisse Global Investment Returns Yearbook 2014


Another way would be to own a risk-appropriate proportion in accordance with your own risk profile. Since global markets have, historically, been more volatile than the U.S., your allocation might be slimmer in said markets.


Source: Vanguard


For a global exposer, you can look into the iShares MSCI ACWI Index Fund (ACWI), with 2,467 stock holdings and management fees of 0.35 percent. A lower-cost option would be the Vanguard Total World Stock ETF (VT), with 2,894 holdings and management fees at 0.25 percent.


Other DIY portfolios

If you want a bit more control over your investments, you can create your own asset allocation. Let’s start with the Classic 60-40 which is comprised of 60% Total Stock Market and 40% Total Bond Market. This often serves as the benchmark in most portfolio discussions and has been around for ages as the go-to portfolio.

Best asset allocation portfolio for your age

Possible fund combinations:

  • Vanguard Total Stock Market ETF (VTI), expense ratio of 0.04% 
  • iShares Core S&P Total U.S. Stock Market ETF (ITOT), expense ratio of 0.03% 
  • Schwab Total Stock Market Index (SWTSX), expense ratio of 0.03% 


  • Vanguard Total Bond Market ETF (BND), expense ratio of 0.05% 
  • iShares Core U.S. Aggregate Bond ETF (AGG), expense ratio of 0.05% 
  • Schwab US Aggregate Bond ETF (SCHZ), expense ratio of 0.04% 


With an average rate of return since 1972 of 5.8% and a  low standard of deviation of 11.6%, this portfolio has been a stable winner over the past decades. If you are looking for considerable returns, without taking on too much risk, this is a good option.

Another great option is the Three-Fund Portfolio. It is very similar to the Classic 60-40 but includes in international exposure to the mix. For this portfolio, we include 3 funds; 40% Total Stock Market, 40% Total Bond Market, and 20% Total International Market.

Best asset mix for you

This one shows an average rate of return since 1972 of 5.8% with a low standard of deviation of 11.4%. It is very similar to the Classic since the stocks and bonds allocation is the same.


Possible fund combinations:

  • Schwab Total Stock Market Index (SWTSX), expense ratio of 0.03% 
  • iShares Core S&P Total U.S. Stock Market ETF (ITOT), expense ratio of 0.03% 
  • Vanguard Total Stock Market ETF (VTI), expense ratio of 0.04% 


  • Vanguard Total Bond Market ETF (BND), expense ratio of 0.05% 
  • iShares Core U.S. Aggregate Bond ETF (AGG), expense ratio of 0.05% 
  • Schwab US Aggregate Bond ETF (SCHZ), expense ratio of 0.04% 


  • Total International Market (VXUS), expense ratio of 0.11% 
  • iShares Core MSCI Total International Stock (IXUS), expense ratio of 0.11% 
  • Schwab International Equity ETF (SCHF), expense ratio of 0.06%


As for us, we the core of our portfolio in 4 index funds; Vanguard Total Market ETF (VTI), Vanguard FTSE Canada All Cap Index ETF (VCN), Vanguard FTSE Emerging Markets ETF (VWO), and Vanguard Total Bond Market ETF (BND). We have a slightly different approach since we are Canadian but you can see our exact asset allocation in our Open Book series.


Mr. Asset Allocation Mrs. Asset Allocation
  • 40% ♦  US Market
  • 30% ♦  Canadian Market
  • 25% ♦  International Market
  • 5%    ♦  Bonds
  • 45% ♦  US Market
  • 40% ♦  Canadian Market
  • 10% ♦  International Market
  • 5%    ♦  Bonds


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Step three: Placing your orders

Once you have found out your risk profile and investment horizon, you can choose your own asset allocation and start placing purchase orders.



  • limit order is an order to buy or sell a security at a specific price or better. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher.
  • market order is a buy or sell order to be executed immediately at current market prices.
  • The ask price is what sellers are willing to take for a security. If you are selling a stock or a fund, you are going to get the bid price, if you are buying a stock you are going to get the ask price.


The basics look almost the same with any broker; you open a trade, then, select the ticker and quantity you wish to purchase with the limit price you wish to pay.


ally-invest-live-review-4Source: Ally order entry


You need to go under the trading tab, enter the ticker symbol under quote as shown in the fund’s Factsheet or online. For the Vanguard Total Stock Market ETF, for example, you would enter the symbol: VTI.

How to buy a stock

Then, it will quote you the current price as well as the bid and ask. If you simply put a market order, you will pay the ask price and if you are selling a stock or a fund, you are going to get the bid price.

There is also an additional risk to putting market orders since you do not know the exact price you will be paying or selling.

We suggest putting a limit order, you can then choose your own price. In the example beside, the current bid is 137.51 and ask is 138.16. If you were to set a limit order to buy at 138.00, you will most likely find a seller willing to meet you at that price and you will have saved 16¢ per share. You could also look at the day’s or 52-week range and enter a lower bid, hoping the price will drop. You would then enter a duration for your trade such as Day if you want your order to be valid for the whole day or select a future date if you are making a low bid.

For the quantity, you will need to divide the amount you want to invest by the price you will be bidding per share. For example, if you wanted to invest $5,000 in VTI at $138.00, you would place a limit order for 36 shares.

Beginners guide to index investing

With Vanguard, the process is fairly similar but their order screen is much simpler and to the point.

Stocks ETFs order entry with Vanguard

For mutual funds, the whole process is much easier. All you need to do is enter the ticker symbol and the amount you wish to invest. Mutual funds do not trade on the market all day so you will simply get the closing price of the day. All you need to do is say how much you wish to invest and where is the money coming from.


QuickStart_VanguardFundsSource: Vanguard order entry


Similarly, Wealthsimple is super simple! They even include it in the name. To start investing with Wealthsimple, all you need to do is fund your account and they will do all the rest. They will help you with financial planning and building the perfect portfolio of ETFs, automatically rebalance your account, and help you make the tough decisions when the markets are going down.

How to invest with Wealthsimple

Finally, placing orders with Questrade is just like with Ally. If the process is still unclear for you, we suggest the video below which looks at the whole process in details.


How to Build an ETF Portfolio at Questrade From Youtube




Once you have built your portfolio and are ready to sit it out for the long-term, you still need to make sure things stay within your risk profile over time. At least once a year, but not too often, you should review your portfolio and rebalance if your asset allocation is getting away from your original plan.

Original Allocation  Current Allocation
U.S. Index 50% 45%
International Index 25% 30%
Bond Index 25% 25%


As you can see in the above example, our original asset allocation was spread across the major indexes. Over the year the international equity has increased by 5%, while the U.S. index has decreased by 5%.

To rebalance we would simply “switch” 5% of our international equity into U.S. equity. If you would be using ETFs,  you would sell some International Index and then buy some U.S. index. By sticking to this strategy we’re essentially selling high and buying low while sticking to our original risk profile.



Final thoughts

Congrats! You are now an index investor. Now, the secret is to stay constant and continue investing, no matter what the markets are doing.


The markets are up, great continue investing.

The markets are crashing, great continue investing. It’s on sale!

The markets are flat, great continue investing.


If you keep this up with a long-term horizon in mind, your portfolio will continue growing and you will reach unimaginable wealth.

If you have any questions, anything, don’t be shy to ask in the comment section below.


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Personal Capital vs Mint – Honest Review

There are a few options if you want to start tracking your spending and investments. You could always write things down on paper or start an Excel spreadsheet and track everything manually. However, this method has its complications.

  1. How to keep a proper budgetFirst of all, it is very time-consuming,
  2. secondly, it is too easy to forget things,
  3. and lastly, you then need to constantly update it manually if you want to keep an accurate representation.

Even if you get everything right and don’t forget anything, you will need to go back to it every month just to keep it up to date. I can easily think of better things to do with my time and I am sure you can too!


Investment Tracking SpreadsheetYou can easily see how this can get out of hand…


Thankfully, there are better options out there!  Two of the most popular web-based personal finance trackers out there are Personal Capital and Mint.

They offer similar services, but they each specialize in key areas. On one hand, Mint offers great budgeting tools, automatically tracks your expenses pretty accurately. It can help you track all your accounts under one simple dashboard.

On the other hand, Personal Capital offers hyper-accurate expense and income tracking and aggregates all of your accounts on one page but also offers one of the best retirement calculator and tracking tool available, focuses on investments with top-of-the-line portfolio management tools, and offers advisory and wealth management services. Another huge plus is that, although both services are absolutely free to use, Personal Capital does not run on ads.


Personal Capital vs Mint

Mint tool review

Mint is a free web service to aggregate all of your financial accounts, including bank accounts, investment accounts, credit cards and other loans.

Once you completed the integration, Mint will automatically track your income and expenses and alert you when things are out of your normal activity. They offer a great tool to see your entire financial situation in one glance.

The sign-up process is extremely simple, all you need is a valid email address and a strong password and you are up and going! You can then link your bank accounts, credit cards, and investment accounts, and then they will update in real time.

Their bill reminders are pretty useful and email alerts let you stay on top of your finances. Alerts will be sent when there is a large purchase, an upcoming bill payment, late fees, loan rate changes, and when you may be in danger of going over your budget.`s strong suit is their budgeting platform. Once you sync your accounts and transactions, it will automatically sort them into appropriate categories going forward. Below, you can see how our transactions automatically got assigned to specific categories. This gets really useful once you want to create a budget or simply track your spending.


Mint Alternatives


For any transaction which does not get sorted properly (which can happen a lot with Mint) you can go select the proper category manually. Personal Capital offers the same thing, however, it has much fewer reported synchronization issues. They use a different aggregator (Yodlee) and it runs much smoother.


Proper budget with Mint


Our annual Spending

Once all of your transactions are properly categorized, you can then budget (planning future expenses). Another option is to look at your spending trends (looking into the past expenses). We prefer looking at trends to discover where we can do better rather than imagining a budget and trying to follow it.

What is better than a budgetIt is never fun to plan a budget and see how miserably

you failed only halfway through the month…


Another useful tool on the Mint application is goal-setting. This can include saving money for specific purposes like college, retirement, a vacation, or paying off debt. Personal Capital also offers a goal-setting tool which goes even more in depth.


Mint Goals


Mint’s business model is to recommend new products and, hopefully, make you save on credit cards, investing, insurance and loans. However, we have found these suggestions to be irrelevant to our situation and clearly just advertising.


How to get free credit score


Other cool features Mint offers are credit score monitoring and bill payments. You can pay bills directly in the app and never be late on a payment again. What is nice about their credit score monitoring service is that it even shows you the impacting factors, and how to use them to improve your score.


Pluses of Personal Capital

Personal Capital offers free tools to aggregate your finances and help you track and master your money. Once you have signed-up, simply link your investing, savings, checking, credit cards and other loan accounts and let it do its magic.

Where Mint excels at budgets, Personal Capital excels at wealth management tools. Their focus on investments is what makes them, according to the many awards they have won, one of the best financial tools currently on the market.

The sign-up process for Personal Capital is free and super simple. All you need is a valid email address and a strong password and you are up and going! You can then link your bank accounts, credit cards, and investment accounts, and then they will update in real time. However, they do not offer tools for Canadian yet.


Personal Capital vs Mint


They have a growing community and their support staff is very responsive. Unlike Mint, Personal Capital offers quick responses to any questions you might have. They are very responsive and usually fixes issues under 24h.

Just like with Mint, you can easily track your income and expenses with Personal Capital and create a budget. Their spending tool allows you to monitor your spending habits and adjust your lifestyle to achieve your goals.


personal capital spending tracking


On that note, their goal setting tool is great to forecast planned spending events.  The functionalities are pretty similar to Mint but they go more in-depth in the execution. Their array of tools actually guide you towards your goals rather than simply tracking them.


Goal setting in Personal Capital


Made by investors, for investors

Unlike Mint, they analyze your investments and can tell if you are on track. Using their retirement planner, for example, helps determine your ideal asset allocation and lets you play around with different scenarios.

Using real data and Monte Carlo simulations they estimate realistic financial scenarios for your retirement. If you have a 401(k), they can also analyze it to make sure you are not overpaying in fees and that you are in line with your risk tolerance.


Free retirement planning advice


Personal Capital determines your risk tolerance, life’s goals and personal preferences to determine how much risk to incorporate into your investment portfolio.



One of our favorite features is their fee analyzer which helps you look at your portfolio holistically. This makes is much easier to see if you are overpaying.


Investment fee calculator


Their focus on investments really makes it the best platform available for DIY investors like us. It even automatically analyzes your current portfolio and compares it to an ideal target allocation designed to maximize your returns while minimizing risk. Pairing this with their fee analyzer is a great way to build a strong portfolio in line with your goals.


Free asset allocation analyser


For a quicker view, their dashboard is a great way to glance at your portfolio and follow your asset allocation.

Using all these free tools, you can manage the risk and fees of your portfolio but if you are looking for a more hands-off approach Personal Capital’s Wealth Management program can take direct control of your investment portfolio and an investment advisor can actively manage everything for you.

They mainly invest in broadly-diversified ETFs supplemented by a portfolio of stocks to benefit from tax loss harvesting strategies to minimize the negative impact of income taxes.


Proper asset-allocation


Personal Capital is in line with our values

Personal Capital recently announced a new service that caught my eye. If you are using their robo-advisor, you can now choose their Socially Responsible Personal Strategy® portfolio which focuses on sustainable investments.


There has been a surge of investor interest in aligning their money with their values. –  Craig Birk, Executive Vice President of Portfolio Management at Personal Capital.


Their investment methodology screens U.S. equity holdings based on environmental, social, and governance (ESG) factors to find best-in-class companies in each domestic peer group. Ratings are provided by Sustainalytics, a global leader in ESG and corporate governance research with a history spanning 25 years.

Just like with any of their portfolios, the socially responsible component of Personal Strategy® portfolios will be managed with automation and investing tools including; tax loss harvesting, tax location, rebalancing and fully transparent reporting.



You can even exclude any stock or sector you do not want to hold and customize your automatic portfolio. This is a really cool feature if you want to exclude certain companies that might be green or ethical but still not in line with your values. We explored this topic before and having this customizable portfolio really helps.


We’re excited to give our clients the ability to select a personalized socially responsible investment strategy with our signature promise of a single flat fee as an alternative to paying high fees for an actively-managed portfolio or a tax-inefficient mutual fund. – Craig Birk


What others are saying about Personal Capital


Business Insider feature

Business Insider calls it; “an excellent robo advisor for its target audience of high net worth investors.”


Should I download Personal CapitalSam from the Financial Samurai shares; “It’s my belief that Personal Capital is hands down the best free financial tools you can find online to help manage your finances and achieve a more secure retirement. I’ve tried everything from Excel, to Mint, a plethora of other financial apps, and nothing comes close to Personal Capital’s tools.”


Mr Money Mustache review

Pete from Mr. Money Mustache tried it and admitted; “After five months of skepticism and trial, I have to reluctantly admit that this company is a worthwhile addition to the modern financial landscape.

While not a clear win over Mint in all areas, I feel that Personal Capital is a much better investment monitor, and works as an interactive teacher in that area as well.”


Jeff Rose Good Financial CentsJeff Rose from Good Financial Cents compares Mint to Personal Capital and mentions; “if your primary emphasis is on budgeting and monitoring your credit, then Mint is the clear winner. But if you’re looking primarily for investment expertise and management, then Personal Capital should get the nod. This is especially true for high net worth individuals, who may be particularly interested in wealth management, private banking services, tax optimization and estate planning.”


J money reviewJ. Money over at Budgets Are Sexy shares;

“I stumbled into this amazing tool over a year ago and I find myself using it almost every day.”


The Mad FientistMad fientist thoughts on Personal Capital free asset management says; “For years, I’ve used to track and categorize my spending. Since Mint is primarily a budgeting tool, it works great for those purposes but it isn’t as great for portfolio management. I’ve been searching for a better investment management tool for a long time and a few weeks ago, I finally found one – Personal Capital”


Jim Wang reviewJim Wang over at Wallet Hacks agrees with us that; “Personal Capital is better than Mint if you are focused more on investing than budgeting. If you’re looking for a budgeting tool, Mint is better.  [..] Personal Capital was built as a tool to facilitate long-term planning and investing, with budgeting tools added later.”


David Weliver Financial App ReviewDavid Weliver from Money Under 30 mentions; “Over the years, I’ve used and tested dozens of different personal finance apps, but most lose their novelty after a while. I keep coming back to Personal Capital because it’s the one program I’ve found that gives me insight into my entire investing portfolio, which is spread across several different brokers.”


GCC budget app reviewJeremy from Go Curry Cracker shares; “After 20+ years of practice and experience, I now rely primarily on Personal Capital to do it all for me. It does everything that my old spreadsheet did in a fraction of the time. It’s great… plus, you know… free.”


Joe Retire by 40Joe from Retire by 40 says; “They are bringing financial planning to the masses through their website.” And thinks; “this will help many regular people who are unsure about financial advisors to understand financial planning better. The main website and portfolio analysis tools are free which is awesome for most of us.”


NerdWalletNerdwallet budgeting app review praises Personal Capital’s free tools and rates them service a 4 out of 5.

“Personal Capital targets high-balance clients by offering a service that combines robo-advisor algorithms with human advisors. [..] Separate from its managed accounts service, Personal Capital also offers a slew of financial and investment planning tools that are completely free. Users can link their existing accounts and track spending, net worth, portfolio performance, retirement progress and fees.”


The verdict

All-in-all, we think Personal Capital is everything we could have dreamed of. They do offer pretty much the same features as Mint, but with the investment tools cranked up to the max. On a fun-to-boring scale, their service is right up there with ice cream and hula-hoops.

OK, maybe not that fun but give it a try, it’s free!





Budgeting Investing

Our Investment Portfolio Example and Spending

A lot has changed over the past 12-months. Mainly; Mrs. got pregnant, we started investing in cryptocurrencies, and planned for a long-term leave from work that will start really soon. In this update, we will share our latest portfolio strategies and our spending for the previous year.

We built our own investment portfolio but if you are looking for a more hands-off approach, we suggest Wealthsimple.

Given everything that is coming up soon and the slight changes in income that will follow, we beefed up our emergency fund and are holding most of our investments in non-restricted accounts to be able to withdraw if needed.

By holding most of our investible assets into TFSAs (Roth IRAs) we benefit from tax-free growth and do not have to pay any taxes on the dividends we receive. The best thing is that we can withdraw any amount at any time, tax- and penalty-free.


What does our investment portfolio look like?

Currently, we are each holding our targeted asset allocation and do not plan to withdraw anytime soon but still like to have the option.

For Mr., we try to keep a portfolio holding in 40% American stock market, 30% in the Canadian stock market, 25% in international equities, and 5% in bonds.

For Mrs., we try to keep a portfolio holding in 40% American stock market, 30% in the Canadian stock market, 25% in international equities, and 5% in bonds. Within these, we include small play money investments such as cryptocurrencies in our American allocation and more recently, a cannabis index fund in our Canadian allocation.


Below is a breakdown of my whole portfolio, as of February 25th, 2018:

VTI ♦ 28% of my total portfolio is invested in the Vanguard Total Market ETF. I did not contribute any more money to the U.S. Total Market since our last installment in the series so my allocation actually dropped from 31% to 28%. In addition, the American market has also dropped considerably this month so I am not surprised my allocation is lesser now.

VCN ♦ 22% of my total portfolio is invested in the Vanguard FTSE Canada All Cap Index ETF. This fund also dropped considerably since the beginning of the year. Both sides of the border got hit pretty bad lately but we are not worried about our long-term prospects. We are investing for decades to come and daily movements are the last of our worries.

VWO ♦ 13% of my total portfolio is invested in the Vanguard FTSE Emerging Markets ETF. This fund performed well in the past few months, keeping our allocation steady since our last installment.

ETH ♦ 6% of my total portfolio is invested in cryptocurrencies and tokens such as Litecoins and Etherium. I started investing in cryptocurrencies with only 3% of my portfolio but this quickly grew to 8% of my total asset allocation. Even after the large swings we saw in January, my crypto portfolio is up almost 200% since last November. It now constitutes 6% of my asset allocation.

&&& ♦ 6% of my total portfolio is invested in my Employee stock option. Since this is my current employer, I will not share the ticker symbol or name of this holding. I have set up an automatic investment plan with my employer and they offer a 50% match so I went for the maximum contribution allowed.

VBR ♦ 6% of my total portfolio is invested in the Vanguard Small-Cap Value ETF. This is a purchase I have made a bit more than a year ago to tilt my portfolio towards small-caps. It worked out great so far and even if it does fluctuate more than the S&P 500, for example, it does grow over the long-term. I have not made any new contributions to this fund since it has risen beyond my expectations and kept up with my desired asset allocation.

HMMJ5% of my total portfolio is invested in the Horizons Marijuana Life Sciences Index ETF. This fund seeks to replicate the performance of the North American Marijuana Index and provides exposure to the exciting marijuana industry starting in Canada. This fund goes against all our requirements for a good ETF; it holds very few stocks (only 28), it is sector-centric, it is speculative, and it has a high MER of 0.75%. However, it is the first exchange-traded fund in Canada to focus on the cannabis industry and seemed like a fun play to make. I do not recommend this as an investment and that is why I only invested 3% of my total portfolio in this gamble. It grew to 5% of my allocation within the past months but it stays a gamble.

BND ♦ 4% of my total portfolio is invested in the Vanguard Total Bond Market ETF. My views on bonds have not changed much and I am keeping this low allocation for the foreseeable future.

VGK ♦ 3% of my total portfolio is invested in the Vanguard FTSE Europe ETF. This fund has been performing great since I bought it and have no plans to sell anytime soon.

Investing with ETFVEA ♦ 3% of my total portfolio is invested in the Vanguard FTSE Developed Markets ETF. This is an international, developed world index fund very similar to VGK since so much of it (54%) is invested in European companies.

VRE ♦ 2% of my total portfolio is invested in the Vanguard FTSE Canadian Capped REIT Index ETF. I did not invest any more into this fund yet simply because of our current exposure to the residential real estate market but plan on increasing this allocation gradually. The American version of this ETF is symbol VNQ.


Our final asset allocation

I try to keep a strict asset allocation and rebalance my portfolio about once year. I always re-invest dividends and automate most of my investment contributions on each payday but any contributions I do manually gets invested in sort to rebalance my allocation.


Current Asset Allocation Desired Asset Allocation
  • 42% ♦  US Market
  • 35% ♦  Canadian Market
  • 19% ♦  International Market
  • 4%    ♦  Bonds
  • 40% ♦  US Market
  • 30% ♦  Canadian Market
  • 25% ♦  International Market
  • 5%    ♦  Bonds


In my current situation, I should either sell some of my Canadian holdings to reinvest into the International market or I should make a new contribution and put it all into the International market to stay in line with my desired asset allocation.


Mrs. Xyz investment portfolio

My wife has a very similar asset allocation as me and has kept it fairly simple. Ever since she started her investing journey, she has held four index funds with Vanguard (VTI, VCN, VWO, and BND).

  • 34% ♦ Vanguard Total Market ETF (VTI)
  • 32% ♦ Vanguard FTSE Canada All Cap Index ETF (VCN)
  • 11% ♦ Vanguard FTSE Emerging Markets ETF (VWO)
  • 4%    ♦ Vanguard Total Bond Market ETF (BND)

These still represent the majority of her holdings. However, she recently made a few plays which literally exploded and now represent a huge portion of her portfolio.

Instead of focusing only on the main cryptocurrencies like me, she explored many smaller, lesser-known, coins and token. She took a bigger gamble for, hopefully, bigger returns. In a few months, her small initial investment grew to a whopping 16% of her total asset allocation. She is still following it closely and thinking of rebalancing soon.

In addition, 3% of her portfolio is now invested in the Horizons Marijuana Life Sciences Index ETF.


Mrs. Xyz Current Asset Allocation Desired Asset Allocation
  • 50% ♦  US Market
  • 35% ♦  Canadian Market
  • 11% ♦  International Market
  • 4%    ♦  Bonds
  • 45% ♦  US Market
  • 40% ♦  Canadian Market
  • 10% ♦  International Market
  • 5% ♦  Bonds

If all of this sounds too complicated, we suggest Wealthsimple.

Start your automatic investment account today!


How much are we spending?

With today’s online tools such as Mint or Personal Capital, it is super simple to track our spending and tracking is the first step to a good financial plan. How can you improve if you do not know how you are doing?

Looking at our Big 3 categories, we are still spending most of our income on Housing, Food, and Transport. Controlling these is the key to financial freedom. Once you understand that cars are much more expensive than they seem to be, restaurants are a luxury and housing costs can make or break your savings, you are golden!


How to track your spending


What our spending looks like for the past 12 months (in Canadian $)

Home $21,758
Food & Dining $8,285
Auto & Transport $5,014
Shopping $3,297
Taxes $3,102
Bills & Utilities $2,590
Uncategorized $1,134
Health & Fitness $1,591
Pets $1,401
Travel $1,174
Business Services $558
Personal Care $450
Total $50,354


Let us go through these expenses one by one. To begin with, our total House spending includes the $21,758 (mortgage, renovations, and maintenance) and the annual property Taxes of $3,102. This brings our total housing costs to $24,860. Almost $2,000 less than the previous 12 months.

In our Food and Dining category, we roughly spent five thousand dollars on groceries and the rest on restaurants. We cook most of our meals at home and eat out roughly once per week.


Budget Planning


To continue, our Auto and Transport category includes the maintenance, gas, and repairs of our two cars and the subway tickets we sometimes purchase to skip traffic. Each car costs us about $2,500 per year, which is amazing considering that similar cars would end up costing us over $10,000 per year in payments alone if we bought them brand new!

Our spending on Shopping is pretty high, however, this also includes all store purchases we did as gifts. We bought a few things for the Baby off Amazon and bought a new laptop this year which bumped that figure a bit. Unfortunately, my new employer does not pay for my work clothes so I had to buy a few suits this year.


What is your yearly spending budget?


On the Bills side, we include our two cell phones, home internet, and electricity. Our heating is all electric so the utilities go up considerably in the winter. Last month, we switched Mrs. cell phone plan and saved $30 per month opting for a lower data plan and my contract ends this summer so both our plans should be much cheaper for the year to come.

The Uncategorized category includes all the smaller categories not represented here. (Entertainment, Education, ATM withdrawals, or any purchase that was not automatically categorized.) The good thing is that our entertainment expenses are pretty low; we pay $10 per month for Netflix and rarely go out for expensive activities. Most other expenses in this category were very small amounts.

The Health and Fitness category represents Mrs. yoga, pharmacy purchases, and Mrs. massages. That one is pretty straightforward.

Furthermore, Pets represents cat food and one large veterinary expense incurred this year.

For the Travel category, it gets really interesting. Not too long ago, we were spending almost $10,000 per year on travel but now that we started using travel rewards for flights and hotels, we were able to drop this ten-folds! The thousand dollars we spend this year represents taxes on rewards flights and a few hotels we could not find for free.


Travel for free


Under Business Services, only products and services purchased to run this blog are included. Finally, in the Personal Care category, we included hairdressers, salons, and spas for Mrs.

Even after all of this, we still had a good chunk of change leftover. We invested most of it following our desired asset allocation mentioned above and kept the rest to beef up our emergency fund. Our future income might slightly drop and we want to have enough saved up to cover that gap.

How about you? What is your Big 3 spending categories?




Our Crypto Investment and ETF Portfolio

Winter is coming and it has been a while since our last Open Book series. We try to be as accurate and transparent as possible to give you a proper idea of our finances. We attribute most of our success to our high savings rate and constant tracking of our progression with tools such as Mint or Personal Capital. By sharing our investment strategies and diversification strategy with you, we hope you will be inspired to save and invest even more and attain your goals quicker!

Saving more of your hard earn dollars makes (almost) any goal attainable. For example, becoming a millionaire is pretty attainable if you start early. If you wanted to reach the million by age 50 and started saving right out of college at 22 years old, you would only need to save $1,152 per month, that is not even the maximum 401k contribution! At 25, this jumps to $1,443 and by 35, you would need to be saving $3,439 per month. This assumes you would invest, and stay invested, over the whole period and average a 6% return, which is very attainable with an index fund portfolio like ours.


Source: Nerdwallet


In our case, our goal is to retire 9 years from now, roughly 11 years after we first discovered financial independence was even possible. We are currently on track with over 29% of our objective saved up and invested as of today. We are mainly invested in broadly-diversified index funds and mainly using tax-advantaged accounts.


Below is a breakdown of our portfolio as of November 2017. We will do His and Hers so let’s start with my whole portfolio:

VTI ♦ 31% of my total portfolio is invested in the Vanguard Total Market ETF. I hold this exchange-traded fund, like all our other ETFs,  in both my RRSP (401k) and TFSA (Roth IRA) with Questrade so I do not pay any capital gains tax nor do I get taxed on my dividends. Another great advantage of Questrade is that they do not charge any commission to purchase ETFs. For our American readers, we suggest Ally or Vanguard for easy, low-fee investing.

VCN ♦ 27% of my total portfolio is invested in the Vanguard FTSE Canada All Cap Index ETF. This is my little home bias. We are planning to retire in Canada and spend Canadian dollars in retirement so having this portion of my portfolio in Canada is a way to hedge against currency risk. Although the Canadian equity market is not nearly as large as some other markets around the world, I still allocate a good portion of my portfolio in it.

VWO ♦ 14% of my total portfolio is invested in the Vanguard FTSE Emerging Markets ETF. To balance out home bias and benefit from the ever-changing global economy, I invest a significant portion in emerging markets.

VBR ♦ 6% of my total portfolio is invested in the Vanguard Small-Cap Value ETF. I am slightly tilting my portfolio towards smaller caps since small-cap stocks averaged an annual return 2.20 percent higher than large-cap over the long-run. My biggest holding, VTI, holds all market capitalizations, from small to large, but I like to hold a bit more small-cap than the market’s weighting to (hopefully) increase returns over the long-term.

BND ♦ 5% of my total portfolio is invested in the Vanguard Total Bond Market ETF. We both chose to hold bonds to smooth out our returns while holding a certain security in case of emergency or opportunity. The reason we hold some bonds, although a very little percentage of our total portfolio, is to have flexibility. The flexibility to buy the dip if we feel like it. The flexibility to use it as an emergency fund if we go through our current savings. It will not save us from the next crash but again, what would?

&&& ♦ 4.5% of my total portfolio is invested in my Employee stock option. Since this is my current employer, I will not be sharing the exact name of this holding. Every week, I automatically invest in this Canadian bank stock and get a 50% match from my employer. I currently contribute to get the maximum match and sell whenever my position becomes too large.

VGK ♦ 4% of my total portfolio is invested in the Vanguard FTSE Europe ETF. This is a little bet to beat the US market over the long-term.

ETH ♦ 3% of my total portfolio is invested in different cryptocurrencies and tokens such as Litecoins and Etherium. I decided to play a bit in the cryptocurrency world with a few dollars to (maybe) strike the new Bitcoin. If this investment doubles, I will be happy. If it goes to zero, I will still be happy.

I might be crazy but this kind of play money will not affect me much but it is fun to have some skin in the game. I have been looking into a few different coins and tokens but with the recent Bitcoin raise (up almost 70% in the October alone), I have been paying extra attention to find the next big thing.

No one can guess the next Bitcoin or even know if Bitcoin will be up another 70% in a month from now but you cannot win if you are not playing. New coins now offer faster transaction time, new technologies, and a brighter future than Bitcoin so it’s dominance might come to an end. This is why I invested a tiny part of my portfolio into a few cryptocurrencies this month. This is a long-term play that could be very profitable if cryptos become broadly accepted over time. I will keep you informed of any developments over the next few months.

VEA ♦ 3% of my total portfolio is invested in the Vanguard FTSE Developed Markets ETF. This is an international, developed world index fund but I prefer focusing on the emerging markets since it is less correlated with my main holdings. I never sold this ETF but stopped contributing new funds to it at the moment.

VRE ♦ 2.5% of my total portfolio is invested in the Vanguard FTSE Canadian Capped REIT Index ETF. The American version of this ETF is symbol VNQ. Again, I never sold this ETF but stopped contributing new funds to it at the moment.


If all of this sounds too complicated, we suggest Wealthsimple.

Start your automatic investment account today!

Diversification strategy

I always re-invest dividends and have automated most of my investment contributions at each payday. However, even with my new investment in cryptocurrencies, I still keep a strict asset allocation via ETFs and rebalance every year. In terms of asset allocation, I considered cryptos as part of the US Market since they are priced in American dollars.


Current Asset Allocation Desired Asset Allocation
  • 40% ♦  US Market
  • 34% ♦  Canadian Market
  • 21% ♦  International Market
  • 5%    ♦  Bonds
  • 40% ♦  US Market
  • 30% ♦  Canadian Market
  • 25% ♦  International Market
  • 5%    ♦  Bonds


Using my desired asset allocation, we are looking at an average historical average real return (after inflation) of 8.8% since 1970 with a standard deviation (the risk factor) of 17.3%.


Average returns portfolioSource: Portfolio Charts


If we use the US Total Market as a benchmark (orange), my portfolio (purple) slightly over-performed over the past half-century. Past performance does not indicate future returns but I am optimistic about my chosen allocation.


Compounded investment returns portfolioSource: Portfolio Charts


Mrs. investment portfolio

My wife has a very similar asset allocation as me and has kept it very simple. She holds only 4 index funds with Vanguard (VTI, VCN, VWO, and BND) and only invests in her TFSA (Roth IRA).


Mrs. Xyz Current Asset Allocation Desired Asset Allocation
  • 41.5% ♦  US Market (VTI)
  • 41% ♦  Canadian Market (VCN)
  • 12% ♦  International Market (VWO)
  • 5.5%    ♦  Bonds (BND)
  • 40% ♦  US Market
  • 40% ♦  Canadian Market
  • 15% ♦  International Market
  • 5% ♦  Bonds


For the past few months, the American market has been on a nice raise and our portfolio grew over 5% since we last shared this summer. This is some nice gains but we are not looking at it over the short-term. This is the main reason why we do not post monthly portfolio updates, we simply do not want to look at it too often!


Stay happy, invest plenty. Mr. and Mrs. Xyz.




Bonds Explained, Why Invest in Bonds?

When you are buying equities (stocks) you are buying part of ownership in a company. The price of stocks greatly varies and is affected by a lot of factors but in broad terms, the price is determined by the potential future earnings.

If a company is seen by investors to have great earning potential, they will be ready to pay more to get a piece of the action than if a company is showing meager prospects.

Stock prices can jump up as fast as they can drop down and so the risk associated with stocks is perceived to be high. You can always mitigate this risk by diversifying into a lot of different stocks such as buying an index fund or you can lower your exposure by holding other investments such as bonds.


Bonds are boring. They are made to be boring.

On the other side of the spectrum, the bond market represents debt investments where you loan your money to a company or a government for a defined period of time at a fixed or variable interest rate. They are designed to stay relatively steady and generate income for the debtholders.

Bondholders do not get a share of company’s profits but rather collect interest at an agreed upon rate.

If a company finds itself in financial troubles, the stock would tumble and might even go to zero but bondholders get priority claim over stockholders if the company gets dissolved. In other words, if the company has any assets, such as equipment or inventory, the bondholders would get paid back before any money goes towards the stockholders.

For the issuers, it is a simple way to raise capital for new equipment, new schools, or new war efforts without giving away equity.


Why buy bonds?Source: Vintage Ad Browser


For the holders, bonds hold two main functions; hedging against equity risk and generating steady income. By holding a diverse portfolio of stocks and bonds, you can choose the level of risk and reward you wish to take on. Bonds tend to return less but have been historically steadier than stocks.

The chart below shows the growth of $1 invested in stocks using the S&P 500 Index versus $1 invested in bonds using the Barclays Capital US Aggregate Bond Index.


Should I invest in bondsSource: Russell Investments


As shown, over this time period, an investor would have made $112 out of his dollar in stocks compared to only $24 if he had invested in bonds. The choice seems obvious.

However, just look at the chart now and notice how bumpy the stock roller coaster was compared to the smooth sailing bonds. In rough times, bonds will be there to balance things out and that is their main attraction.

Investing in bond-index funds, such as the Vanguard Total Market Aggregate Fund (BND), involves inflation and credit risk but long-term returns have historically been stable. According to the average rollover of the fund, the risks are minimal if you are holding it for over 7 years.


The average maturity of the Vanguard Aggregate fund is about seven years, which means that over that period, its entire portfolio has been rolled over to new bonds. It also means that it is virtually impossible to lose money by holding this fund for seven years, – Cullen Roche


The fixed income market has been disappointing lately, now that interest rates are so low, but over the long-term, bonds should still provide considerable returns.

However, there is room for fixed income in a portfolio even in a low-rate environment.


Managing risk with the bond market

The main benefit of holding a good part of your portfolio in bonds (let us use a balanced 60% stock / 40% bonds allocation) is that you will be able to sleep well during the next major crash.

During the latest bear market in 2008, we saw stocks plummet drastically but the  Barclays U.S. Aggregate bond index had a positive return of more than 5% in 2008 and almost 6% in 2009.

A balanced portfolio would have dropped but not nearly as much as a 100% stock allocation. Depending on your risk profile, you might be tempted to sell when your portfolio falls 40% but that is exactly the worst time to sell!

Holding a good part of your assets in bonds will lower the swings of your portfolio and might save you from selling at the bottom.


Historical Returns (1926–2016) for a 60% Stocks, 40% Bonds Portfolio
Average annual return 7.8%
Best year (1933) 27.9%
Worst year (1931) –18.4%
Years with a loss 16 of 91


Looking at historical data from 1926 to 2016, Vanguard compiled the variations in different portfolios. For a balanced portfolio, the worst year only drops 18.4%. On the other hand, if you look at a 100% stock portfolio, the worst year dropped your portfolio’s value by a whopping 43.1%.


Historical Return (1926–2016) for a 100% Stocks Portfolio
Average annual return 10.2%
Best year (1933) 54.2%
Worst year (1931) –43.1%
Years with a loss 25 of 91


If you are risk-averse, the worst thing you can do is sell as soon as you see your portfolio drop 43% but having bonds would have enabled you to keep your calm, hold on, and ride the market back up.


Withdrawal strategy in retirement

Even if historically, a 100% stock portfolio has returned more than a balanced portfolio, Monte Carlo simulations actually show a higher chance of success when you add some bonds.

Running Monte Carlo simulation using available historical returns data from January 1972 to December 2016, the historical return for a 100% stock portfolio for this period was 11.71% mean return (10.18% CAGR) with 15.53% standard deviation of annual returns.

Using the 4% rule and historical inflation with 4.02% mean and 1.32% standard deviation based on the Consumer Price Index (CPI-U) data from January 1972 to December 2016, the simulation calculated an 86.23% chance of success over a 30-year period.

Now, when using a balanced portfolio with a 60/40 asset allocation, the historical return for the same period was 9.30% mean return (8.76% CAGR) with 9.35% standard deviation of annual returns.

Lower returns indeed but the chances of success over a 30-year period now jumps to 97.64%.

As shown, having a nice cushion to smooth the ride is crucial when in the withdrawal phase. Having bonds will minimize the need for you to sell stocks during the worst bear markets.

As discussed earlier, selling stocks at their lows is not preferable so if you are depending on a withdrawal rate to live, having bonds would allow you to hold on and ride the market back up.

Another option would be to hold a year or two’s worth of living expense in cash but then you would miss out on potential bonds returns. They have been low lately but, historically, has returned more than cash-equivalent holdings.


Buying the dip

If you are not withdrawing and are still in your accumulation phase, bonds could also be used as a lever when stocks do very poorly. You could sell bonds while they are high (assuming they keep their value in during that crash) and buy stocks when they are low.

This can be achieved with cash too, we currently hold our money in a 1.90% savings account on top of the 5% to 10% of our portfolio in Vanguard’s Total Bond Market index fund.

In a situation where the market would dip considerably, you could sell some bond index fund and buy some Total Market Stock index fund for cheap. This might sound like market-timing. Well, that is exactly what it is.

However, this strategy offers all the benefits of bonds mentioned above and our bond allocation is so low that we might consider it a reasonable gamble to take.

If we see our portfolio cut by 40% in the next crisis, our 5% to 10% bond allocation will not really smooth the ride as much as a balanced portfolio would. We are talking about a few percentage points difference compared to a 100% stock portfolio.

However, switching these into equities would greatly increase our total returns if the market then goes back up.

Should you buy the dip


Using the fictional representation above, doing a switch from a 90% stock to a 100% stock portfolio anywhere in the blue zone would increase our total returns.

From the absolute bottom of a 40% drop (it is impossible to time it but let’s use a round number for the math), our new purchase would have grown 66.66% once it recovered to its original high.

Our total portfolio value would then have grown 16.67% more than if we had kept the same allocation. Of course, this assumes that the bond market would be steady, or increase, at the time when the stock market is crashing.

Another big assumption here is that you are able to buy within the blue section. If you do not buy near the bottom, you are missing the dip.

So in the end, a 10% switch from bonds to stocks increased returns 16.67% in our fictional recession. The lower your portfolio dips, the more profitable this switch would be. In this example, we used the absolute bottom of 40% but this is nearly impossible to do in real life.

We highly discourage market timing since it is a gamble. When will it be profitable to buy the dip? Will you miss opportunities waiting for the right time? No one knows.


when to buy the dip


The chart above shows a real market this time. If you had been waiting for the right time to buy the dip, would you go at the first or second drop or those were too slim?

What if you finally went on the fourth dip? Then, you would have probably been better off with a 100% stock portfolio from the beginning.

Holding on for too long, in the hopes to buy the dip, might not increase your returns. The yield on a U.S. 10 Year Treasury Note, pretty much the safest bond you could get, has fallen from 14% in 1984 to 8% in 1994 then to 4% in 2004 and to under 2% today.

If all of this sounds too complicated, we suggest Wealthsimple.

Start your automatic investment account today!

The verdict

In the end, we choose to hold bonds to smooth out our returns, while holding a certain security in case of emergency or opportunity.

The reason we hold some bonds, although a very little percentage of our total portfolio, is to have flexibility.

The flexibility to buy the dip if we feel like it. The flexibility to use it as an emergency fund if we go through our current savings. It will not save us from the next crash but again, what would?



Financial Independence Investing

Our Honest Personal Capital Review

This is a re-edition of our Personal Capital review posted on March 20th, 2016.


If you are like us and you want to achieve financial independence, you need to know where your money is going. You need to know how you are investing your hard-earned dollars. We highly suggest you use the best online tool available today and sign-up with Personal Capital for free.

In this Personal Capital review, we will show you exactly why you should consider them as a vital part of your financial independence plan.

Their free tools aggregate all your accounts in one spot and will help you optimize your spending and investing. It is primordial to know where all your money is going and how are you spending it before you even think about savings. Their advance product offering simply overpasses the competition. Since it is completely free, there is no reason not to try it out.


Track your expenses, cut, and save

With the beauty of the internet, you can now see all your banking and investing in one single place with a single login. Their platform is clear and very simple. By having all your different accounts in Personal Capital, you can easily see your overall financial health and take the time to relax and enjoy life. Once you can see all your accounts in one place, you will be able to know your progress towards your goals and achieve them quicker.


Networth tracker for free.

As we mention again and again on this blog, it is critical to spend less than you earn. The first step toward financial freedom is to know where you are spending your money. Then, you can focus on how to invest your savings. PC will help you track your income and spending to the cent and categorize your spending. If you have to use Mint, this is just like it but with fewer errors and manual corrections needed!


Personal Capital vs Mint?

Personal Capital review

We have used Mint but Personal Capital goes one step further and offers great tools for investors such as their Portfolio Fee Analyser that will show you how much you are actually paying to run your investment portfolio. Mint is great for budgeting and simple tracking of bank accounts but what we love about PC is that it was built by and for investors. Their whole platform offers much more to manage your portfolio and includes not only your banking accounts but also your 401k, 403b, HSA, Roth and more. By aggregating all your accounts in one spot, you will optimize your spending and investing.


Made for investors by investors

Any investor, even the smartest ones, can end up overpaying management fees. You might not feel it now but fees can be a huge deterrent to your total investment returns over the long run. Their free platform offers a clear view of your investment portfolio and allows you to optimize your holdings. Once you know what you are paying, you can easily assess your investment needs and change your holdings to lower costs options. Another option you could choose is their advisory services which will do it all for you.

If you are looking for investment advice or portfolio management, they offer advisory services at very competitive prices. Their annual fees are only 0.49% to 0.89% depending on the size of the portfolio. Compared to a traditional adviser, charging upwards of 1% a year, Personal Capital is very affordable you need to seriously consider it if you are looking for advice on your portfolio.


how to save on mutual fund fees



Free investment checkup

One of the most important aspects of your retirement planning is not the exact holdings you choose but the asset allocation you choose. With Personal Capital’s Investment Checkup, you can easily see where you are imbalanced and how to make smart adjustments to your holdings to minimize your risk.


free Investment Checkup - wealth management


Personal Capital will also give you an idea of where your current allocation is on the Efficient Frontier Curve. The efficient frontier curve is the best returns for a certain level of risk. You want to be on the curve rather than above or below. It will then suggest the exact dollar amounts you need in each asset class to succeed and attain your goals. With their asset allocation recommendation tool, you can optimize your portfolio to increase returns without necessary increasing risks. There is really no reasons not to try it out. In addition, another great metric we like to look at even though This is a great tool for any DIY investor that wishes to manage its own portfolio.


asset allocation planner.

Why is Personal Capital simply the best?

Finally, their retirement calculator is simply the best on the market right now. They use real data and Monte Carlo simulations to estimate realistic financial scenarios for your retirement. We like the Monte Carlo method because it estimates your chance of success with your given allocation and gives you the result in percentage. With little inputs and information, it forecasts your chance of supporting your goals in retirement.


Free Retirement Planner


Signing-up for your free Personal Capital account is your first step to financial freedom. Over 1 million people use their award-winning tools to manage their entire financial life. We are sure that it will be your go-to tools for many years to come. We wish you the best of luck on your path to financial freedom and remember, stay happy! Sincerely, Mr. and Mrs. Xyz.


Sign-up today for your free Personal Capital account 


P.S. This review contains affiliate links so we will receive a small incentive if you choose to sign-up with Personal Capital, we thank you in advance for supporting our blog!



The Stock Market Crash is Coming!

The next big stock market crash is right around the corner. Which corner? Who knows? Anyone who does claim to know exactly when the next stock market crash will occur is simply playing a probabilities game until he or she gets it right. In other words, it is just luck.

Jim Cramer for example, the famous host of Mad Money, shares stock picks every night but these stocks only returned 64.53% over the last 15 years (2001 to 2016) compared to 126.06% for the S&P 500 over the same period. He has a hedge fund manager background and actually invests in what he preaches but again, he cannot predict the next stock market crash.


Cramer, unlike many other TV finance personalities, actually manages a stock portfolio that invests in many of his stock recommendations made on his television show Mad Money. – Jonathan S. Hartley, Matthew Olson


We do not know how the market is going to behave but one thing is sure; one day it will drop. When it will fall 20%, 30%, 40%… we will be ready. We are both too young to have lived through any major recession as investors but we are mentally ready to withstand these kinds of losses.

In the latest major stock market crash in 2008, for example, the S&P 500 index lost 37%. The Bloomberg Barclays U.S. Aggregate Bond Index, the benchmark of the Vanguard Total Bond Market Index ETF, gained 5.2%. That year, a 50% S&P500 and 50% bonds portfolio would have lost roughly 16% while a 70% stocks and 30% bonds mix would have dropped 24% and a 90% stocks and 10% bonds mix would have taken a 33% hit on paper.


These last two words are key; on paper.


The value of your portfolio would have dropped drastically but the only ones who actually lost money are the ones who sold. If you have the guts to withstand the crisis and stay invested, you will be just fine. The market has recovered, and more.


The go phase

We already talked about this in the past; if you are just starting out and in your accumulation phase, the best thing that can happen is a recession. Buying in a stock market crash lets you enjoy a huge discount on high-quality investments. When others are fleeing, you can accumulate highly diversified investments such as index funds and stay put for the ride up.

Not only can you benefit from drops by purchasing more of your favorite funds but you can also magnify your returns with dividend reinvestments. Reinvesting your dividends is the easiest way to ride the wave.


The smell the finish line phase

When you are so close to financial independence that you can smell it coming, less than 3 years or so, a recession can hurt and push away your finish line a bit. For this example, think of John who had $700,000 in a S&P 500 index fund as of January 1st, 2015 and was planning to retire in 3 years with $900,000. He would then live off a 4% safe withdrawal rate on a $36,000 per year budget, counting for inflation. Unfortunately, John had quite a surprise.



S&P 500 Annual Returns

End of Year Balance













S&P 500 returns source: Stern University


This is striking; when using the 4% rule, John’s potential budget went from $36,000 to $22,680 a year. That is quite a difference!

John could choose to either; cut his expenses and live on less, or continue working a bit longer to survive the drop. Fortunately for him, it was not too long before the market shot back up.



S&P 500 Annual Returns

End of Year Balance
















S&P 500 returns source: Stern University


Once John was at or above his target, he could start taking out a 4% safe withdrawal rate or lower. If he pulled the plug in 2013, he could withdraw fewer than 3% of his portfolio ($38,514 per year) followed by inflation-adjusted withdrawals in subsequent years and would historically been safe from any stock market crash (100% chance of success according to FIREcalc with the lowest ending balance being $560,971 in the simulations).

Even a 3.5% safe withdrawal rate is considered to withstand any recession while a 4% safe withdrawal rate has very high probabilities of lasting over 50 years (96.6% chance of success according to FIREcalc). Here, we used FIREcalc for these fictional portfolios but to see your actual historical chance of success, we suggest Personal Capital’s Retirement Tool. Try it for free today and see how your portfolio rates.

If you are close to attaining your number and wish to preserve some of your assets, financial planners usually say to increase your bond allocation. As previously stated, this will lower the volatility of your portfolio but can also decrease potential returns over the long-term. A 50/50 stock and bonds portfolio would have lost roughly 16% in 2008 but you need to keep the 4% rule in mind.


It is appropriate to advise […] a stock allocation as close to 75 percent as possible, and in no cases less than 50 percent. – William P. Bengen


Unfortunately, a bond allocation over 50% drastically decreases the potential longevity of your portfolio. Historically, withdrawing the 4-percent rule allowed a 50/50 portfolio to last at least 30 years under almost all periods since 1926 with a 96.6% chance of success according to FIREcalc.


how to retire earlySource: William P. Bengen


Rates are at their lowest right now with returns of bonds far below the historical average of 5.18% but a strong stock allocation should prolong your portfolio’s longevity. Holding fewer bonds did historically increase total returns but a 100% stock allocation is certainly not for everyone. If you are not sure about your risk appetite, we suggest you try Vanguard’s risk tolerance-asset allocation questionnaire to get a rough idea or try Personal Capital for free today to dig even deeper into your finances.


If all of this sounds too complicated, we suggest Wealthsimple.

Start your automatic investment account today!


The freedom phase

Now, if you are already in your withdrawal phase and enjoying retirement, a large decline in your portfolio might frighten you a bit more. Fortunately, you have a good nest egg to sit on and the 4-percent rule survived through almost all major stock market crash in the past so you will most probably be fine.

  • Stay on course
  • Only cash out what you need
  • Be flexible

If you had already planned to live off $36,000, for example, you could continue to withdraw such an amount but you could also be slightly more flexible in down years to lower your spending. You can always tweak your budget or start a little side gig to generate a small income if you are worried about selling a fraction of your portfolio.

It might sound crazy but you could even go for a long-term travel through South-East Asia to lower your spending! Enjoy the ride, Xyz.



What is the Efficient Frontier and Why is it Important?

With high market valuations and an ever-lasting bull market, one might get scared to invest in equities (stocks) and stay on the sidelines. We are not and continue to hold an aggressive portfolio of low-fee index funds (see our actual holdings). Over the long-term, the market has historically greatly rewarded equity investors but there is a balance to be found. With the help of the efficient market theory, we try to build a diversified portfolio which will support us throughout our journey.


How to balance between stocks and bonds?

Gathering data from 1928 to 2017, Aswath Damodaran from the Leonard N. Stern School of Business tallied that the average return of the S&P 500, which closely represents the American stock market, summed up to 11.42% per year before inflation.

Over the same period, 10-year Treasury Bonds averaged 5.18%. The short-term 3-month Treasury Bills averaged a return of 3.46% before inflation.

With this said, wanting higher returns and holding a large portion of your portfolio in stocks like we do is risky. By risky, we mean volatile. You will never lose a dime if you do not sell, but it will be a bumpy ride. One way we use to get a smoother ride is by holding an efficiently diversified portfolio.


The modern portfolio theory to the rescue

The modern portfolio theory developed by Harry Markowitz in 1952 states that it is insufficient to take a single investment approach or single asset class approach, but rather take a mixed-asset approach.

Better returns and less risk can be achieved with a combination of investments or an “efficiently diversified portfolio”. Having different asset classes does not mean to hold shares of Coke and Pepsi but rather holding investments that are not perfectly correlated or are, ideally, negatively correlated.

You can diversify your portfolio by investing in U.S. stocks, international stocks, bonds, real estate investment trusts (REITs), or emerging markets for example. You can get a free portfolio analysis with a customized efficient frontier chart with Personal Capital.


Efficient Frontier Optimal Portfolio

Source: Morningstar


Worldwide diversification

Holding a balanced portfolio can potentially increase your returns while greatly diminishing risk. We do not hold many bonds in our portfolio but we are greatly diversified across continents and asset classes.

To get into numbers, using asset class return statistics from the S&P TSX Composite Index returns, the DEX Long-Term Bond Index returns, and the S&P 500 Index returns from 1970 to 2009 provided by Standard & Poor’s Index Services Group, we can see in the table below how diversification can increase the average yearly returns while greatly diminishing the risk, or volatility, of your portfolio.

Holding a globally diversified portfolio with 40% bonds, for example, historically reduced risk by 41.64% while increasing returns by 0.64% per year over a Canadian stock-only portfolio. Over the whole period (from 1970 to 2009) this slight edge adds up to a 28.25% higher end balance.


Asset Class

Average Yearly Return

Standard Deviation (Risk)

Risk Reduction

Canadian Stocks



Balanced Portfolio
60% Canadian stocks, 40% bonds




Globally Diversified Portfolio
20% Canadian stocks, 20% U.S. stocks, 20% International stocks, 40% bonds




Source: The Index House


We do not expect history to repeat itself but the basic concept still holds; investing in different asset classes around the world and benefiting from the non-correlation of the markets over the long-term.

Over the past decade, the correlation between markets has generally been on the rise. This makes proper diversification harder but still possible. In the chart below, absolute correlation is represented by 1.00.


Market correlation in portfolioSource: Charles Schwab


It makes sense when you look at today’s economy. Most American companies have now expanded across the globe and now operate everywhere from Texas to Rio de Janeiro.

Not only does most major company now depend on emerging markets for growth but another major factor is the ease of information the internet has brought us. Information now spreads quickly across markets and anyone can now have access to the same information only large institutional investors used to get.


Controlling your fees

Going forward, we cannot predict returns nor can we guess which asset class will perform best. The one thing we can know and control is the fees associated with our portfolio.

We keep our fees low by holding index funds from Vanguard and using Questrade to trade for free.

The following graph clearly shows the impact of fees on your portfolio over the long-term. Over an investment lifetime (here results are shown since 1974) management fees can diminish total returns over threefolds.


Effect of fees on your portfolio

Source: Germak


At the very bottom, the blue line represents the historical returns of $10,000 invested in the S&P 500 after a 2.5% management fee commonly charged by Canadian mutual funds.

With almost twice as much total returns, the gray line illustrates the returns after a 1% fee and further up. The yellow line shows the potential after a 0.42% annual fee such as the average fee of TD e-Series funds.

Lastly, the blue line shows the historical returns after a 0.15% management fee charged by most ETF providers such as Vanguard and the green line represents the S&P total returns over this period.

It is astonishing to see how the simple fee structure of exchange-traded funds has tripled the returns of investors when compared to highly-priced mutual funds. We suggest you try out Personal Capital’s Fee Analyser for free to see exactly how much your portfolio is costing you.


If all of this sounds too complicated, we suggest Wealthsimple.

Start your automatic investment account today!


We cannot get an edge in the market but we can certainly get an edge by reducing our fees to the minimum. Find your ideal portfolio and start growing your wealth. The best day to start investing is today, Xyz.



Can you Retire at 55? Bet you Can do Even Better!

Over the years, prosperity rose, quality of life improved, and life expectancy increased drastically. Life expectancy in 1900 was only 46.3 years old for men and 48.3 years old for women while just fifty years later in the 1950s, it was up to 65.6 years old for men and 71.1 years old for women. Nowadays, the probability for a baby boomer to live through his or her 80s is almost half. With all of this, it is nearly impossible to guess how much to save for retirement.


How old will you live - How to plan retirement

Source: JP Morgan Funds


With life expectancy going up, so does the average years one will enjoy in retirement. Even when retiring at an average age of 62 years old (in the U.S. as of March 2016) one can expect a long retirement ahead with considerable inflation to come over that period.


How much will I spend in retirement

Source: JP Morgan Funds


Now, you can imagine what inflation can do to your spending if you plan to retire early (like at 35, for example). Using historical data, an early retiree that would have enjoyed retirement from the age of 35 (retiring in 1972) to 80 (present) would have experienced a 483.3% increase in the consumer price index. This means that the dollar saved in 1972 would only be worth 20¢ today if kept under the mattress.

Looking back at the last 75 years, we can clearly see how spending has increased over time in some of the most expensive categories such as healthcare, transportation, and housing.


Inflation and your retirementClick to zoom in. Source: How Much


Americans are now spending more and trends are only pointing up. Even after inflation, health care spending has more than doubled over the period while transportation has almost tripled. As for housing, the average American now spends twice as much as in the 1940s.

Health care prices, for example, have mostly been influenced by policies and regulations. With many for-profit hospitals marking up prices 1000%, it is not surprising to see the average spending increasing.

On the other hand, transportation spending has been fueled by some of the biggest advertising budgets in marketing to convince regular people to buy bigger and pricier cars. In 2015, the automotive industry was the 2nd biggest advertising purchaser in the U.S. with General Motors alone spending over $3.1 billion dollars.

With easy financing and more luxurious car options, the average new car purchase price has now risen to over $34,000. The cars our grandparents drove did not come with screens, leather seats were only in high-end German cars, and SUVs were for the countryside, not for the glamor.


Land rover suv’72 Range Rover. No leather seats, no chrome rims, and not for suburban moms.


It is hard to believe that the average American spent more on food than on housing in the 1940s but with better production methods, international imports, and raise of fast-food, the cost of food has dropped over time.

As per housing, we cannot argue that there were some local pressures that skyrocketed prices in markets such as New York or San Francisco and population growth played a big part but one of the biggest increase in spending came from the immense expansion of the average American house. Average new homes are now 1,000 square feet larger than those in 1973, and the average living space per person has doubled over the last 40 years.

Your grandparents, even your parents, probably shared rooms as a kid and only had one living room. Houses were built with a single bathroom and you could not walk in a closet. All this space does come at a cost.

The best advice we can give you to counter these trends is to combat lifestyle inflation. Your biggest obstacle is not yearly inflation, it is your own materialistic wants and wishes. We drive ten-year-old cars and they are perfectly fine for our needs. We do not need two living rooms and you probably do not either.

Minimizing your spending today means that you will need less in retirement and, therefore, means that you will be able to reach financial independence sooner.


How much to save for retirement

Whatever your number, it is critical to invest if you want to have any chance of reaching your goals.

That dollar saved in 1972 would now only be worth 20 cents if kept under the mattress but if it had been invested in a simple S&P 500 index fund with all dividends reinvested, it would have grown 8061.975%. This is still a total return of 1299.190% after inflation, an annualized return of 6.039%. In this case, a dollar would have grown to $12.99 after inflation.

The secret is to start investing early and to stay consistent. In the example below, we illustrate how a constant $5,000 yearly investment can grow over time in different scenarios.


how much to save for retirement

Source: JP Morgan Funds


In addition, a long time horizon also amplifies the advantages of tax-differed accounts. If you start investing early and invest in a tax-advantaged account such as an RRSP (401k), you can greatly increase your potential retirement savings.

In the chart below, we illustrate how a long-term investor would benefit from a tax-differed account even after paying taxes at withdrawal. In this example, one would invest a lump-sum of $100,000 for a 30 year period and would be in a 28% tax bracket.


how much to save for retirement

Source: JP Morgan Funds


Even if you need to pay taxes once you withdraw from your RRSP (401k), the long-term benefits of tax shelters are staggering. Depending on your withdrawal method and time-horizon, you could also end up paying no taxes at all in retirement like bloggers GoCurryCracker.


Time in the market, not timing the market

In the end, whether you choose to invest in tax-advantaged accounts or not, your biggest gains will come from a few, amazing days in the market.

Missing only 10 of the best days resulted in returns of nearly half the actual market returns and missing the 30 best days actually averaged negative returns.


Historical returns of market

Source: JP Morgan Funds


The thing is; no one can predict which days will turn out to be the best ones. In 2015, the best day of the year occurred only 2 days after the worst day of the year! Guess what happened to everyone that tried to time the market or sold when the market was down because they thought they could out-smart the market? They missed the best day of the year.

If we cannot guess the top days before it is too late then invest in the market and stay in the market to optimize your returns.

When planning for your retirement, time is on your side. Use it. Invest in a broadly-diversified index fund (or a combination of them like us) and stay invested for the long-run.

Best of luck, Xyz.