Our Financial Path.

Start Saving, Investing and Reach Financial Freedom.

Open Book – Are we Crazy?!

This is part of our Open Book series, you can start here if you did not read our first post.

 

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 our high savings rate and constant tracking of our progression with tools such as Mint or Personal Capital.

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.

 

The Grand Totals

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. Xyz

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.

 

 

6 Comments

  1. Nice work! ETFs are the way to go for sure. It’s crazy just how much high fees from brokerages & mutual funds can eat into a portfolio.

    I like how you also have a little fun money invested. Like you said if it goes to zero you wouldn’t be mad but you’re also giving yourself a decent return should the cryptocurrency continue.

    • Xyz

      November 12, 2017 at 9:31 pm

      It’s little innocent fun. And the fees are super low just like for ETFs. It is true how fees can literally eat away most of your profits over the long-term!

  2. Nice job. Our goal is also to retire in 10-11 years. The early you start, the better. This post supports that fact. I have not read much on the Vanguard small value fund recently. That fund should serve you well if you hold onto for the long haul.

    • Xyz

      November 14, 2017 at 8:39 pm

      We looked a lot into the Vanguard Small-Cap Growth ETF (US ticker VBK) and it historically did better than the total market. We are hoping to hold for the long-term so not too worried about the volatility.

  3. I just want to share my thought about investing in cryptocurrencies, If you have responsibilities, then sure dumb idea to choose it, but surely if you are a young aggressive risk taker then choose it.

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