Investing/saving

[rmorelan]

Wow I did not realize the 2000s were that bad for stocks. I thought it was just the one time crash. Thanks for the info. Important stuff to be aware of.

 

Anyways can I ask you another question. What would you say is the most optimal way to buy an index fund like IWB? My mom received some inheritance money and she has no clue about money and so now I'm trying to invest it as best we can.

 

Ok obviously I am going to be careful on giving advise on the forum Just like with med apps the devil is in the details. What I am trying to - both for medical school admissions and when this stuff comes up is to cut through the bull, and make sure people understand that this isn't that hard to understand and you don't need a ton of outside superior expensive guidance.

 

I am also not specifically recommending IWB as an index fund except to say that it holds to the pattern I think you should pick for an index fund (another example is VTI actually a index fund from the company whose owner invented index funds. I am not saying IWB is bad either - I mean I have some I would say significant money in that ha) - I mean there are now (of course, everyone wants in on the action) a ton of stupid "micro" index funds now (say all the gas companies combined) - I mean that is not the idea at all. Bankers - always trying to make things complicated for no good reason.

 

It is supposed to be about diversification and low fees - being exactly aware of financial industry is out to basically get your money. They are NOT your friends. Mutual funds, and all this encouragement for rapid constant trading of individual stocks is only so banks and brokers can cash in. 96% of all mutual funds don't make the market performance over a sustained period. These are professionally managed funds that are doing worse than passive investing - 96%. Look at that number. I will say it again - 96%. Doesn't stop them from collecting all their fees. Fees when you buy, sell, management fees, transaction fees, currency fees.....

 

So first step I would advise is to do some reading - learn how all this stuff works. It will literally take you about 4-5 hours of reading a book to set you up for life. I am a bit a finance junkie and you actually caught me on my bi-monthly "read a new finance book" day but that is a bit nuts (some people play video games - I study finance. What ever relaxes you, ha- have to use my economics degree somehow). Understand WHY index funds work. plus just like medical school - you need a plan. What are the financial goals? Hard targets here - put a number on paper. Everyone like to quote Warren Buffet with investment advise - he clearly says for 99% of the people out there index funds are the way to go.

 

As to how to buy it - simple. Open a direct trading account at your favourite bank. For tax savings you should get a TFSA and possibly a RRSP - that is something to go over a bit when you understand your goals (kind of my point - you need an overall plan, it isn't that hard to do actually but it is SOOOOO important). You can buy these index fund just like a stock on those trading systems - cost you about 10 dollars for a trade and that is it. These ones are US funds so I use a US TFSA account so I don't lose money in currency exchange.

 

Like anything with stocks you have to be ready for the long haul. DO NOT sell if an index fund goes way down. that is when you buy (buy low, sell high - same as it ever was, same as it ever was). In my case I did see the Can dollar was through the roof a few years ago - so i thought well that is darn high isn't it? which means US stocks are comparatively low - time to buy US stocks. Now we are more in the middle of things.

 

Take your time. Learn how it works - become an "insider" to the rules of the game. When people talk about knowledge being power - THIS is what they are talking about, and yeah it is power. Ask questions, be curious, and you will be successful

[canucks_14]

Thanks for all the info! Literally changed my life.

 

What triggered me thinking about investing today was that I had basically forgotten about the wonders of compounding. The money had been sitting there for some time. I started doing some calculations and I can't fathom about how much money I'll have in 25 years. I had basically just been doing straight income/expense calculations before, but now with compounding my projections are significantly different. The result is me being excited about being a lot wealthier than I expected before. Feels a bit odd. Also don't worry I'm well aware of unexpected expenses as well.

Obviously anything can happen with the market though. But it's a risk I'm willing to take.

[rmorelan]

Thanks for all the info! Literally changed my life.

 

What triggered me thinking about investing today was that I had basically forgotten about the wonders of compounding. The money had been sitting there for some time. I started doing some calculations and I can't fathom about how much money I'll have in 25 years. I had basically just been doing straight income/expense calculations before, but now with compounding my projections are significantly different. The result is me being excited about being a lot wealthier than I expected before. Feels a bit odd. Also don't worry I'm well aware of unexpected expenses as well.

 

Obviously anything can happen with the market though. But it's a risk I'm willing to take.

 

awesome! compound interest is the 8th wonder of the world (well according to Einstein - and I happen to agree )

[rmorelan]

If you have a 1/2 an hour this is kind of an interesting video as to how the economy works. Not everyone agrees with this - but does map out well many of the economic cycles we have seen over quite some time

 

http://www.economicprinciples.org/

[peldima]

If you have a 1/2 an hour this is kind of an interesting video as to how the economy works. Not everyone agrees with this - but does map out well many of the economic cycles we have seen over quite some time

 

http://www.economicprinciples.org/

Great video rmorelan! Do you mind sharing your top 3-5 favorite finance books?

[canucks_14]

Great video. Rmorelan when do you think the market will bottom out from brexit?? I'm trying to decide if I should buy more vti and iwb Monday morning because I thought it is relatively cheap right now as it dropped a few percent the other day.

 

I don't know if I should put in the order for Monday morning and be happy buying the funds 4 percent cheaper, or if I should wait and see if the market will continue to go down some?

 

(I should be paying you for all the advice you give me!)

[rmorelan]

Great video. Rmorelan when do you think the market will bottom out from brexit?? I'm trying to decide if I should buy more vti and iwb Monday morning because I thought it is relatively cheap right now as it dropped a few percent the other day.

 

I don't know if I should put in the order for Monday morning and be happy buying the funds 4 percent cheaper, or if I should wait and see if the market will continue to go down some?

 

(I should be paying you for all the advice you give me!)

 

most likely people are going to be adjusting to this for a bit - really the markets don't like surprises ha. That is a guess of course - no one really knows on the day to day basis what the markets are doing as the markets are affected but human emotions and we haven't figured out how to track that yet

 

Had quite a run on the markets these past 7-8 years. There is also the issue about how much longer in general they can go. Personally I do try to ignore most of the day to day adjustments and worry where we will be in 30 years. Things go up, and things go down. Of course if there is a clear recession I do try to up the investing (buy low, sell high!).

[daftjustice]

How does one go about deciding on ETFs to purchase?

Let's say for someone with zero debt, 30K to invest (separate from emergency funds), and has above-average risk tolerance?

 

I'm not looking so much for being told "do X, Y, and Z with your money". It's more along the lines of "how do I evaluate how I would split up X amount of dollars among various ETFs"

 

Thank you to anyone for any advice on this

[Bambi]

Look at ZLB.TO which is a BMO low volatility Canadian Equity Fund, with a 52 week low of 22.37 and a 52 week high of 27.98.

 

Also in New York, IGM , ishares North American Tech ETF, with a 52 week low of 78.05 and high of 114.96. You can see the basket of each of their holdings.

 

Then there is VIG (New York), Vanguard Dividend Appreciation ETF, with a 52 week low of 47.70 and high of 83.57.

 

It is a question of timing when to buy and these are potential long term holds, not to go in and out of. You can check out their market history over the last years.

[daftjustice]

Look at ZLB.TO which is a BMO low volatility Canadian Equity Fund, with a 52 week low of 22.37 and a 52 week high of 27.98.

 

Also in New York, IGM , ishares North American Tech ETF, with a 52 week low of 78.05 and high of 114.96. You can see the basket of each of their holdings.

 

Then there is VIG (New York), Vanguard Dividend Appreciation ETF, with a 52 week low of 47.70 and high of 83.57.

 

It is a question of timing when to buy and these are potential long term holds, not to go in and out of. You can check out their market history over the last years.

Thank you for this!

 

[NeuroD]

How does one go about deciding on ETFs to purchase?

 

Let's say for someone with zero debt, 30K to invest (separate from emergency funds), and has above-average risk tolerance?

 

I'm not looking so much for being told "do X, Y, and Z with your money". It's more along the lines of "how do I evaluate how I would split up X amount of dollars among various ETFs"

 

Thank you to anyone for any advice on this

This guy outlines some basic strategies for splitting up your money.

I'm looking to get started as well. Based on my reading, I would start with the basic even split:

 

Bond Index (25%)

Canadian Stock Index (25%)

U.S. Stock Index (25%)

International Stock Index (25%)

 

and then move up to 15% from the bonds into the other sections, depending on how much risk you want: 

 

Bond Index (10%)

Canadian Stock Index (30%)

U.S. Stock Index (30%)

International Stock Index (30%)

[rmorelan]

 

This guy outlines some basic strategies for splitting up your money.

I'm looking to get started as well. Based on my reading, I would start with the basic even split:

 

Bond Index (25%)

Canadian Stock Index (25%)

U.S. Stock Index (25%)

International Stock Index (25%)

 

and then move up to 15% from the bonds into the other sections, depending on how much risk you want: 

 

Bond Index (10%)

Canadian Stock Index (30%)

U.S. Stock Index (30%)

International Stock Index (30%)

 

 

there are are so many of this - everyone has their own recipe for diversification - sometimes is possible to get really obsessed about them - getting the "perfect formula to maximize things". You have to admire the pursuit on some level, but it is also a bit dangerous as:

1) No one really knows what the markets are going to do and when. For instance we just had Brexit - something that was quite a surprise in the economic circles. Markets are driven in part by HUMAN factors (fear, panic, greed, even joy) - which are extremely hard to predict and are not logical ha. That means to a large degree there is some form of luck involved in the short term. In the long term things tend to even out (for instance in the long term and short term the returns in both the Europe and US markets are about the same over the last several decades)

2) If your goal is perfection then you are going be really, really tempted to "change the formula" all the time - that is dangerous too as when you change something that means selling and buying - that introduces major tax repercussions (as a doctor you will have way too much wealth to hide solely in a tax shielded investment account eventually), and you often it means people are buying high and selling low (oh my Europe stocks suck - I will sell them and buy more US ones as they are doing well - well that is buying low and selling high, and you just broke rule #1 of investing then. Don't do that). When your portfolio is doing badly that is often the time to invest more into it - assume it is already well diversified.

 

What most of these portfolios are saying for the people in their 20s is that you should have a high risk tolerance because you have plenty of time and won't need the money for anything in the short term - and thus will NOT be tempted to sell any of the shares for a couple of decades. Note the first thing is to make sure that is actually true - maybe you don't have a high risk tolerance - you just cannot handle a drop of 20%+ of your stocks either financially or just mentally and that WILL happen - we had one 10% drop this year for instance already that we recovered from. Not having a high risk tolerance is ok - I know for instance people in my family just cannot handle that - they would be so stressed out it would be painful. They can either learn to look past it or simply have lower risk investments - it is personal finance - that means it is PERSONAL. Your personality, your goals, your life is important. Also you may actually be saving for something - a wedding, a house, a fancy vacation........and thus have some short term goals that need managing. Cannot have everything in high risk investments then

 

There are some key points there though - the more diversified you are generally the safer things are and the more risk you are willing to take the more long term profit you will make.

 

Many of the mixes above are good - solid, well supported, commonly thought to be well done.

 

I would like to comment on a couple of things more for discussion really - why have roughly 1/3 of your investments in Canada?  We are on the world stage a small country with a not completely diversified economy. Other than being patriotic, what would be the advantage? Historically because of the limitations a smaller less diversified economy means Canada has a somewhat lower return - they don't actually justify why they are using Canadian stocks other than the fact that others do commonly.

 

International stocks - one thing to be careful of is what exactly does that mean - many index funds for international stocks will have a large US portion. That isn't bad as of course the US is a large part of the world economy - but you just bough US stocks directly, so that isn't as diversified as it could be etc. Maybe that is what you want though - just be aware of it. Really have to look for proper diversification there and really, really watch those blasted fees.

 

Why have bonds at all? Ha, dangerous statement Bond usually sure as a foil to stocks as they are more stable in value. You most likely will need a progressively larger amount of bonds as your investing career moves forward but many authors say at this point there is simply no point - you don't need guaranteed income, you need growth. 

 

Again people argue about these all the time - the most important step is simply getting started and get started right with well diversified index funds with low fees, preparing yourself mentally to accept there will be market drops (don't sell - that is how you lose in this game), enjoy the highs (like right now where stocks have more than doubled over the past 5 years - that is fun to watch I tell you), be consistent and invest regularly by living well but also below you means. Pay yourself first, get proper insurance, shun credit, when you start as staff remember that is a key point in time - do not just increase your standard of living to match your new income. Save the money and gradually increase your take home pay. Do that over 5 years and you are set for life in a pretty pain free way. It is just that simple.  Trying to do it later is harder because it means reductions in lifestyle.

 

For low fee funds with an excellent reputation and wide diversification I would consider looking at Vanguard funds. There are some very particular reasons why they are typically the lowest - the creator of the company basically invented index funds and they are the largest mutual fund company in the world now. They have very low management fees and cover all the large indexes in one of their funds (and would cover all the divisions people have mentioned above). Their fund VTI would be a strong option for the US stock market portion for instance  mentioned above.

 

What do I have - I have a pretty aggressive stock mix right now because I have diversification in other ways - which is why I haven't immediately jumped up with what I have. I have real estate investments, and rather than bonds index I have mortgage investments. I am invested stock wise in low cost index funds primarily in the US but but also with some international exposure - again through diverse low cost index funds. I know I can take on higher risks because I mentally have already been through multiple crashes and my reaction was "great! stocks on sale, stocks on sale - buy, buy, buy...  and I have no short term need for the money. I learned my risk tolerance. I also know that I will be a doctor (unless something bad happens, ha!) and my income there will be able to smooth out any issues restructuring my portfolio in a few years (scary actually - I am an R4 now - in theory with a typical fellowship I am out there in 3 years, ha).

 

You know when I started talking about investing on here and personal finance I was surprised there was so much interest in it. It is a premed forum after all I am glad people are taking an interest in it though - Not to be the focus of all things in life but still to ensure there is a strong future for them and for the people/things they care about. I will know we as a field get ripped off all the time, and it really well makes me angry. The more we know the better we can manage things and the brighter our future can be. Be educated my friends.

[NeuroD]

Very insightful post rmorlean! You brought up a couple of great discussion points that I hadn't even considered, like why the bias on canadian investments? and making sure your "diverse" portfolio is actually diversified. So let's discuss!

 

Why a canadian bias? I bet its part patriotism, part "the devil you (think) you know", and part belief that Canada is generally more stable. I get patriotism, but I don't think that does, or should, guide the majority of investments. I also get "the devil you (think) you know". It's sort of like picking securities based on what you know and understand. I think there is some value in that, if that is indeed one's approach, and if you want a little more activity in your passive investing. In terms of Canada being safer - I guess that argument is subject to the same narrative as bonds: invest based on your risk aversion. Even if that's the case I imagine it would be wise to actually find out which countries are more stable/less volatile than Canada.

[Bambi]

Look at Canada Pension Plan Investment Board for guidance. 19.1% of investments in Canada, 39.7% in US, 7.5% in UK, 12% in Europe excluding UK, 9.1% Asia excluding Japan, 6.5% Japan, 2.9% Latin America, 2.8% Australia and 0.4% other in terms of global diversification.

[rmorelan]

Very insightful post rmorlean! You brought up a couple of great discussion points that I hadn't even considered, like why the bias on canadian investments? and making sure your "diverse" portfolio is actually diversified. So let's discuss!

 

Why a canadian bias? I bet its part patriotism, part "the devil you (think) you know", and part belief that Canada is generally more stable. I get patriotism, but I don't think that does, or should, guide the majority of investments. I also get "the devil you (think) you know". It's sort of like picking securities based on what you know and understand. I think there is some value in that, if that is indeed one's approach, and if you want a little more activity in your passive investing. In terms of Canada being safer - I guess that argument is subject to the same narrative as bonds: invest based on your risk aversion. Even if that's the case I imagine it would be wise to actually find out which countries are more stable/less volatile than Canada.

 

could easily be a combination as you say of just you see something local, you understand it, and have some loyalty to it.

 

take another example - canada savings bonds. Now these earn less than GICs and really those are just two names for the same thing - some form of interest bearing investment. Canada savings bonds have and will perform worse than GICs which are given by banks. The argument for that is the government is more stable than a bank and thus lower risk. Lower risk = lower return. Ok, but the government also guarantees GICs up to a rather large amount so in reality BOTH are backed by the government and gain from the government's stability. So why would anyone ever invest in canada savings bonds?

 

and yet they do. All the time.

[rmorelan]

Look at Canada Pension Plan Investment Board for guidance. 19.1% of investments in Canada, 39.7% in US, 7.5% in UK, 12% in Europe excluding UK, 9.1% Asia excluding Japan, 6.5% Japan, 2.9% Latin America, 2.8% Australia and 0.4% other in terms of global diversification.

 

ha, you have to love that a Canadian pension plan - which is political etc is not investing all that much in Canada. It makes sense - but it is also relying on people not looking too closely at that or I am sure we would have a firestorm

[Bambi]

Look at Canada Pension Plan Investment Board for guidance. 19.1% of investments in Canada, 39.7% in US, 7.5% in UK, 12% in Europe excluding UK, 9.1% Asia excluding Japan, 6.5% Japan, 2.9% Latin America, 2.8% Australia and 0.4% other in terms of global diversification.

 

As a comparison, the Ontario Teacher's Pension Plan Board, which made 13% for 2015, had the following investment diversity:

44% in Canada, 23% in US, 6% in UK, 7% in Europe excluding UK, 8% in Asia, 3% Latin America, 1% Australia & New Zealand, 6% other and 2% rest of world.   

[rmorelan]

wildly different mix  - You can go nuts trying to figure out what works in the short term   you bet they both have very educated people arguing their way is the best.

[Bambi]

Canada Pension Plan Board made 18.3% return compared to 13% by the Ontario Teacher's Pension Board in 2015.

 

Also, it is noteworthy that the CCP made money in public equities overall, but lost in the public Canadian equity market in 2015.​