- Investment Workshop 59: Are Robo-Advisors Compatible With FIRE? - June 22, 2020
- Reader Case: Grounded in Vancouver and Dreaming of FIRE - June 19, 2020
- Real Estate Agent Gets Crushed by Real Estate Math - June 8, 2020
Yeesh, has it been a year already? And Holy Shit, WHAT a year it’s been. A completely topsy-turvy presidential election, repeated attempts (and failures) to kill Obamacare, 3 devastating hurricanes, and that’s just in US news. When we started this Workshop we were sitting on a beach in Cambodia, and now we’re sitting in a coffee shop in the Frozen North.
Through it all, we’ve been posting these Investment Workshop articles, and slowly but steadily built up an investment portfolio week after week. All in, we’ve invested $12,000 Canadian and $12,000 American for the purposes of this workshop (depleting our own cash cushion in the process), and now 52 weeks later we are ready to draw this little experiment of ours to a close. So how did the portfolio do? We’ll get to that in a minute.
But first, let’s do a brief recap of what we’ve learned about investing over the year.
Investing Is Easy
This is really the big lesson we’ve been trying to teach with the Workshop. Investing really isn’t that complicated.
With mind-numbing regularity, we put more money into the portfolio every two weeks and if that seemed a bit boring to you, that’s exactly the point. Walk into any bank or turn on your local business channel and you’ll hear all sorts of smart-looking guys in $1200 suits gabbing on about alphas and futures and put/call options and risk spreads. We didn’t mention ANY of that because you don’t need to know any of it.
Buy the Index, put money in every 2 weeks. That’s all investing is.
Predicting is Really Really Hard
That being said, predicting what direction the stock market will gyrate is really really REALLY hard. When we first started this Workshop, I was convinced. CONVINCED we were entering an economic recession. Trump had just gotten elected, the Dow had tumbled 1000 points in overnight trading, and I was like “Welp, guess a 2008’s happening again.”
And I was wrong.
Utterly and completely wrong. Instead, the Dow had recovered by opening bell the next day, and has been on an upward tear ever since. As of the time of this writing, the Dow is sitting above 24,500, having smashed record after record on it’s way up. And now that Trump and the Republicans are on the verge of passing their tax plan dropping corporate tax rates from 35% down to 20%, it looks like this rally isn’t over yet.
If I had listened to my emotions and the screaming news headlines a year ago, I wouldn’t have invested money into the stock market for this Workshop. Hell, I may even have SOLD some of the equities in my “real” portfolio. And if I had done that, I would have missed out on one of the biggest stock market rallies since I started working in 2006.
But I didn’t, and that’s precisely the right thing to do. Investing decisions should never be based on trying to predict the stock market. Investing decisions should be made analytically, using cold hard math, and that’s why we’re sitting on such a big gain one year later.
Set Your Asset Allocation Unemotionally
The biggest and most important decision you’ll make in designing your retirement portfolio is setting your asset allocation, and you do that based on your age, time to retirement, and personal risk tolerance.
If you’re 15+ years away from retirement, you might want to have a higher equity allocation like 80/20. If you’re closer to retirement like us, make your portfolio take on a more balanced allocation like 60/40. Every other decision (how much to put in US vs International, whether to currency-hedge, etc.) will make a small difference in your portfolio’s performance, but by far the largest impact is your equity/fixed income allocation.
Make that decision unemotionally, then stick with it.
Rebalance, Rebalance, Rebalance
The only skill you need to learn when it comes to the day-to-day management of your portfolio is how to rebalance it, because every transaction essentially boils down to it.
Stocks go up? Rebalance.
Stocks go down? Rebalance.
Adding in money? Rebalance.
Taking money out? Rebalance.
Every 2 weeks when we deposited more money into the account, we did the same rebalancing calculations over and over.
Step 1: Figure out what your current asset allocation is.
Step 2: Figure out what your target allocation would look like.
Step 3: Calculate what transactions you need to do to get there.
Hopefully through mind-numbing repetition we’ve taught you how to do this yourself, but if you’re still having trouble (or are just lazy), we built a tool to help you do it. Feel free to use it whenever you want.
Don’t Pay Fees
Keep your portfolio MER’s low and don’t pay fees.
In my entire investment career I don’t think I’ve ever paid a single dime in transaction fees, account maintenance fees, or transfer fees and I’m happy to report that with this workshop we’ve kept that record.
Fees suck, and will eat away at your portfolio little by little like a thousand tiny termites if you let it. The nice thing about ETFs is that because they’re traded on the stock market, you’re not tied to any brokerage company like you would be with a mutual fund.
Which is great because when/if your brokerage company starts acting like a jerk, you can take your ETFs and skedaddle to someone else.
That is MY money, and nobody gets to put their greedy little mitts on it.
Don’t pay fees.
Watch Your Money Grow
If you followed the workshop, opened up the accounts I wrote about, and actually built this portfolio, you’ve pretty much learned all the investment skills you need to retire. This is the same portfolio we used to survive the stock market crash of 2008/2009, it’s the same portfolio that allowed us to become millionaires, and it’s the same portfolio (with some tweaks) that we now use to live off of.
For this portfolio to go up in value, all you need to do is wait. Because it’s built off of Index funds, it can NEVER go to zero and will ALWAYS go up over time. The fact that it went up this year is a nice surprise, but if it had gone down (as I fully expected it to when I started it), all you have to do is keep putting money into it, buy into the storm, and wait for it to recover. In fact, that was my initial intention with this Workshop. Thinking we were going into a stock market crash following Trump getting elected, my plan was to demonstrate how to invest despite everything falling, and then just keep running the workshop for however many years it would take for the portfolio to recover. The fact that it made money in one year was a bit of a shock for me.
So how much money did we make?
Well, here’s the Canadian portfolio:
And here’s the American one:
So that’s 12699.75 / 12000 = +5.8% up for the Canadian one and 12848.29 / 12000 = +7.1% up for the American one. The difference between them was caused by the relative underperformance of the Canadian Index compared to the US one (though to be fair, EVERY index underperformed compared to the US one this year).
And remember, because we built the portfolio from scratch over a year, we would generally expect about half the upside/downside of the underlying assets. So if the combination of ETFs we picked went up 10%, we would expect to see our portfolio be up 5%. Conversely, if it went down 10%, our portfolio would only be down 5%. This is the natural effect of dollar-cost-averaging since only half the portfolio was invested throughout the year (on average).
On our actual fully-invested investment portfolio which most closely mirrors the Canadian portfolio, we’re up 11% YTD, and that matches up the performance we’d be expecting in our workshop portfolio, so that’s great. 11% ain’t nothing to sneeze at, since for us this is a gain of over $100k. Other FIRE bloggers we’re talking to are seeing even more impressive numbers depending on their equity allocation and portfolio size.
Thank You and Good Night
So that it. That’s how you build a low-cost Index-hugging ETF-based portfolio that will help you get to early retirement, and then fund your retirement once you’ve pulled the trigger.
This has been a great year and running this Investment Workshop, though a lot of work, has been a blast. Many many people over the year have emailed me saying they finally “get” how to invest now and they’re no longer scared of the stock market, which is great. I hope we’ve all learned something from this experience, and with that we are signing off.
I know I said this was the end of our workshop, but actually, we decided to extend it by adding an investigation into Robo-Advisors! Click here to check it out!
How much does it cost to participate in the Investment Workshop? NOTHING. Because that's how we roll. All we ask is that you sign-up using the following affiliate links to keep it free forever:
Or, prefer to use a Robo Advisor? Check out Wealthsimple, and get your first $10,000 managed for free!
Disclaimer: The views expressed is provided as a general source of information only and should not be considered to be personal investment advice or solicitation to buy or sell securities. Investors considering any investment should consult with their investment advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decisions. The information contained in this blog was obtained from sources believe to be reliable, however, we cannot represent that it is accurate or complete.