how to invest in stocks – Our Financial Path.

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%.

Source: 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.

Source: 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.

If you are wondering how to pick the right stock, you are looking at wrong places. There is no single magic stock that will make you rich, no one can guess that.

I keep repeating that you cannot predict the market and that you are better off investing in an index fund rather than trying to beat the market and this article from The Guardian is simply the single best way to prove my point.

Stocks go up and down and even the professionals cannot figure it out. In this British study, wealth managers, stock brokers, finance students, and a cat were given £5,000 to trade 5 stocks and competed for a whole year.

**Just let the pros at it**

Every three months, they could change their portfolio and could exchange any stocks, replacing them with others from the FTSE All-Share index (a London Stock Exchange index comprising around 1000 of more than 2,000 companies).

While the professionals used their decades of investment knowledge and traditional stock-picking methods, the cat selected stocks by throwing his favourite toy mouse on a grid of numbers allocated to different companies. – Mark King

By the end of September the professionals had generated £497 of profit compared with £292 managed by Orlando. But an unexpected turnaround in the final quarter has resulted in the cat’s portfolio increasing by an average of 4.2% to end the year at £5,542.60, compared with the professionals’ £5,176.60. – Mark King

This cat returned a 10.08% return over the year compared to the professionals’ 3.53% return. As a benchmark, the year of the study (2012), the FTSE All-Share index returned 12.32% once dividends were included (total return).

So, how should you invest?

Instead of opening a trading account for my cat, I prefer investing in a diversified, properly allocated, index fund portfolio and let my cat play in the yard. 🙂 Index fund investing is the ideal way to start investing and it leaves luck and gambling for the “pros”.

To start your own asset allocation and start trading, you can open a brokerage account with Ally or open a Vanguard account to invest in their ETFs for free. We also really like Wealthsimple given their low fee financial advice and robo-investing options. They offer qualified financial planners t help you reach your goals without paying huge fees.

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

Start your automatic investment account today!

Just enjoy your free time

Now that you are not always looking out for the next big stock, what should you do with all your free time?

Consumerism is a norm in America and most people go to the mall because… why not? The Motley Fool reported that the typical woman makes 301 trips to the store annually, spending close to 400 hours a year buying clothes, books, food, and toiletries. This is a LOT of hours! But does shopping actually make you happier?

Simply by looking at the increasing average credit card debt, one can quickly see how this is not sustainable. From solely a monetary point of view, the average shopper is taking out credit card debt (usually around 20% interest) to buy stuff. Lots of stuff.

Is shopping the answer?

Not only can shopping be bad for your wallet but all this stuff needs to be produced (mostly in China) by low-wage workers with bad working conditions, shipped around the world, staged on a shelf in a big mall that needs to be heated, driven to, and takes up a bunch of space. Shopping is not a very environmentally healthy habit either.

A recent survey from Ebates found that among 1,084 adults ages 18 and older and 501 teens ages 13-16, 96% of adults and 95% of teens replied that retail therapy was good for the soul. I found this article interesting but of course, it has to be taken with a grain of salt. After all, it was written by an online retail company.

More than one-third of American adults say that shopping makes them feel better than eating pizza, followed by working out (36%) and ice cream or other sweets (34%) – Ebates

What to do instead of shopping?

In the American culture, shopping has become a hobby or something we do just because we are bored. I think that there are much better things you could do with your time. Instead of spending money, you can find a ton of free activities or you might even make a little money on the side while doing something you like.

Check out your local community sports and signup in a league or a class. This is usually really cheap and it is super healthy.
Start meeting your neighbors. This is a great way to make new friends and build a strong community.
Visit a free museum or a local zoo. Even paid exhibitions usually offer free entry on Sundays or on specific days of the month.
Cook some meals in advance. This can be for your work lunches or future dinners and it will save you money.
Try a basic meditation technique like focusing on your breath. I recently tried the Calm app and really enjoyed it.
Go on a wandering walk in your neighborhood or go hiking up in nature. I find this is a great way to relax.
Donate some unwanted things to a local charity. This is the opposite of shopping and it will help others!

You might have noticed that throughout this whole list of things to do, none of them will get you into credit card debts and all of them will make you grow as a better person within your community. The whole purpose of leisure, whether it is spent shopping or walking in the park, is to make you happy right? Shopping must make you somewhat happy if so many Americans spend so much time at it.

More things won’t make you happier

Looking at the chart below that categorizes purchases by the level of happiness it brought to its purchaser, you can notice that experiences are generally what brings us the most happiness.

Top Purchases that Make American Adults Happiest	Percent of Adults Who Said This	Top Purchases that Make American Teens Happiest	Percent of Teens Who Said This
Entertainment (i.e., books, movies, music)	42%	Tech/Electronics	51%
Travel	40%	Entertainment (i.e., books, movies, music)	43%
Tech/Electronics	38%	Travel	22%
Furniture/Home Décor	33%	Furniture/Home Décor	17%

Entertainment and travel are the purchases that bring adults the most happiness. I completely relate to this but there is a lot of ways to entertain yourself and travel cheaply. Try to find cheap or free hobbies and travel with rewards to get cheaper or even completely free trips!

To conclude, I do not think that shopping makes you happier but rather the experiences you could get from it. Once you understand this, you can easily find experiences that will make you happy without spending a dime.

Almost 69% of American adults shop online when they find a great deal they can’t pass up. – Ebates

You know what is an even better deal; don’t buy it in the first place!

That is like 100% off !!!

I hope you the best of successes in your journey and remember, be happy! Xyz.

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