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Tag Archives: Money
This is a part of the Investing Series.
If you want to invest in index mutual funds or index ETFs, and you want to track how much you are paying as well as your own personal investing strategy or allocations in each fund, I suggest making the following chart, and updating it once or 4 times a year, each time you decide to rebalance.
EXAMPLE OF A MUTUAL FUND PORTFOLIO / CHART
Name of Index Mutual Fund or ETF
Pretty self-explanatory. It can be redundant for people who have memorized the symbol or ticker, but I like having a name put to it.
This is helpful so that you know WHICH one you’re buying. There may be variations of the same mutual fund, held in different currencies (e.g. CAD versus USD), or have a slight twist to them (e.g. being currency neutral).
This lets you know exactly which one it is.
This is your personal allocation to each index mutual fund or ETF.
I put these generic averages up there, but you might want to put less in International, and more in your own country, etc etc.
Listed MER %
You can find this on the website, of what the Listed MER % is for the fund or ETF you are buying. Just look for something that says “MER”, and that percentage is what you should enter.
Weighted MER %
This is the Listed MER % multiplied by your portfolio %, and it lets you know how much you’re really paying, no matter what the listed MER says.
Note: It is tricky to figure out MERs because they may change on a daily basis, and you need to do a rather complicated calculation of the assets of the fund each day, multiplied by the MER, and then trickling down to what you actually have to pay as an investor. This is why I like having a rough idea of what I’ll pay, but it may not necessarily be very accurate.
More details can be read here: What makes up an MER?
Effective MER %
This tells you how much you are paying in dollars (a rough amount), based on where your portfolio is allocated, and how much MER is being charged.
You can get to the same number without having to break it down by each mutual fund, but I like seeing more detail than is necessary.
I’d like to give a big thanks to Canadian Couch Potato for having made many charts similar to this one, which I have since used as my model, with a very small tweak.
THE CHART’S FORMULAS IN DETAIL
STEPS AND CALCULATIONS THAT WENT INTO THE CHART
( 1 ) CREATE YOUR PORTFOLIO PERCENTAGE
Choose your strategy of where you want your money to be, this is the most time-consuming part because you have to do your research to find ALL the index funds offered by your bank/brokerage, and then choose which ones you want to buy.
I really suggest not putting all your eggs into any one basket.
Few things to consider:
- Stick to holding either all index mutual funds at a bank, or all ETFs; to have an efficient portfolio
- Invest in your own country (mine is Canada, hence the Canadian Index fund)
- Invest in another stable trading market and/or major trading partner (U.S. is a global benchmark)
- Don’t forget the world – Europe is an international index to consider
- International indexes can also be emerging markets (BRIC*) but are considered riskier
- Allocation of bonds depends on age and how close you are to retirement.
*BRIC = Brazil, Russia, India, China; all generally considered “emerging markets”, that aren’t quite stable for various reasons, but have a strong potential for future growth.
( 2 ) FIND ALL THE LISTED MERS FOR YOUR CHOSEN FUNDS
Now that you’ve chosen your funds and what percentages you want them to be, go to their pages, read through them thoroughly and find the MER %.
It is usually on the first page of most mutual fund or ETF pages, and may be pictured in a box that looks like this:
Or sometimes on each individual fund, it looks like this:
If you are using Excel, do not make the mistake of typing in “.33″, and expecting it to be a percentage.
To be accurate, you have to format the cell as a % first with the Excel % button, and then type in “0.33″ in the cell.
( 3 ) WEIGHTED MER & ( 6 ) TOTAL WEIGHTED MER
For each mutual fund, multiply the numbers from ( 1 ) Portfolio % x ( 2 ) Listed MER %
Calculations from the above chart:
- TD Canadian Index e-: 30% x 0.33% = 0.10%
- TD U.S. Index -e: 30% x 0.35% = 0.11%
- TD International Index -e: 30% x 0.51% = 0.15%
- TD Canadian Bond Index -e: 10% x 0.05% = 0.01%
The total weighted MER is just a sum of each individual weighted MER.
( 4 ) INDIVIDUAL PORTFOLIO AMOUNT & ( 7 ) TOTAL PORTFOLIO AMOUNT
I do this backwards, going from the total up to the individual.
Instead of going from each mutual fund down to the total, I enter a ( 7 ) Total Portfolio Amount at the bottom (e.g. $10,000), and then do a formula for each mutual fund by multiplying it with the ( 4 ) Portfolio %
( 5 ) EFFECTIVE MER %
Another simple multiplication of : ( 2 ) Listed MER x ( 4 ) Individual Portfolio Amount.
DO NOT FORGET TO ADD IN THE COST OF TRADES PER YEAR
If you have to pay for buying ETFs, or you have a no load mutual fund, it will cost you money to buy and sell each fund.
(Questrade, I might add, does not charge you commissions for buying ETFs, but they charge you for selling them.)
Add that trading cost to your total MER cost, and you will have a rough idea of how much it costs to hold your portfolio in index funds.
COPY METHOD A. COPY AND PASTE THIS CHART (NO FORMULAS ENTERED)
You can also try and copy and paste this example Excel chart, and put in the formulas listed above (might make things easier).
- Highlight this entire table.
- Right-Click and Copy
- Go into Excel and open any blank sheet
- Right-Click and Paste as Special
- Select Text
|Name||Symbol||Portfolio %||Listed MER %||Weighted MER %||Portfolio Amount||Effective MER|
|TD Canadian Index -e||TDB900||30%||0.33%||0.10%||$3000||$9.90|
|TD U.S. Index -e||TDB952||30%||0.35%||0.11%||$3000||$10.50|
|TD International Index -e||TDB911||30%||0.51%||0.15%||$3000||$15.30|
|TD Canadian Bond Index -e||TDB909||10%||0.05%||0.01%||$1000||$0.50|
You will see the values appear in their proper columns.
Aside from customizing it for yourself, and you will need to adjust the following columns to add in the multiplication formulas listed above:
- Weighted MER %
- Portfolio Total and Portfolio Amounts
- Effective MER
Still too much work?
Here’s the laziest way possible:
COPY METHOD B. COPY AND PASTE THIS CHART (FORMULAS ALREADY ENTERED)
Copy and paste this table with the formulas in it, into cell A1:
Note: May be a bit tricky to get your cursor right to the edge of the last bottom-right cell.
So I suggest going backwards, and trying to highlight it from the bottom-right cell (just before the X) up to the beginning of Name in the top-right corner.
|Name||Symbol||Portfolio %||Listed MER %||Weighted MER %||Portfolio Amount||Effective MER|
|TD Canadian Index -e||TDB900||30%||0.33%||=D2*C2||=$F$6*C2||=F2*D2|
|TD U.S. Index -e||TDB952||30%||0.35%||=D3*C3||=$F$6*C3||=F3*D3|
|TD International Index -e||TDB911||30%||0.51%||=D4*C4||=$F$6*C4||=F4*D4|
|TD Canadian Bond Index -e||TDB909||10%||0.05%||=D5*C5||=$F$6*C5||=F5*D5|
You can copy this table with the formulas in them by highlight the entire table above from my blog post as pictured below:
Now right-click on the highlighted section and select Copy.
Now go into Excel, and right-click in the cell A1 (the first upper-left column), and select Paste Special.
Select Text, or else the columns, spacing and formulas won’t work properly, like so:
It should look like this in your Excel when you’re done.
POST-COPYING CLEANUP REQUIRED
1. You may decide you want to format the cells with $ or % formulas (note how the weighted MER is at 0.00099 instead of 0.10%)
(When you do the above for percentages, it will look like 0% because they’re fractions of a percentage. Use the little blue arrows to the left and right to increase or decrease decimal points)
2. You will have to delete out the “.” in the bottom row one they’re in there and the “X” (if you copied it by accident), I only needed them as column/text spacers so it would be easier to copy.
3. You will also have to adjust the columns out to fit the words (just double-click on the column lines up by the A, B, C, D, E sections, and it’ll do it automatically.)
4. [Optional] Beautify it with some colours and borders (I’m a freak for pretty charts).
If you buy ETFs, or are not buying no-load mutual funds, don’t forget to add the cost of trading to your final “Effective MER” total, to get the full picture.
Anything that is a flat or static number without any formulas in it, you can change/touch, e.g.:
- Portfolio %
- Listed MER %
- TOTAL Portfolio Amount (at the bottom, the $10,000)
So you have a budget and you want to see where you can chop it, but everything looks just so.. NECESSARY, doesn’t it?
(I hear you on that, my necessities include boxes of macarons.)
There are a 3 ways you can trim your monthly budget: Trim, Chop and Shave.
They all work only if you’ve already done the best you can with your debt as in:
- You are currently making payments on your debt
- You haven’t accumulated MORE debt
- You have called your debtors and asked for a lower interest rate or else you’ll default
- You are slowly paying down the debt with the HIGHEST interest rate first
- You are not also saving money aside for some fancy vacation you can’t afford to take
The following tips are for people who are in debt and really think that they can’t find anywhere to chop in their budget.
You don’t have to chop everywhere all at once, but slowly reducing one category one month, and another the next, might just be the way to get ‘er done.
LEVEL 1: TRIM THE BUDGET
This is the easiest level because you just have to go through your truly frivolous variable expenses and trim them down.
Follow or don’t follow the advice, but hopefully it’ll get you thinking about it.
Go through the following budget categories:
- Eating Out — Always a money sucker; you have to become more organized and meal plan!
- Lunches Out — It’s too easy to nip down to the local subway shop, so make your own lunch
- Alcohol — You can always cut down on this budget somehow; Drink less and your liver will smile
- Clothes — Unless you’re a super minimalist with a 10-piece wardrobe, you may not need more
- Makeup — Ditto. Basic makeup should do for now, and I’m fairly sure you already have enough
- Tea/Coffee — You have probably heard this one to death, but a $3/day coffee is $90/month
- ATM fees — Taking money out of a third-party ATM because you’re too lazy is unacceptable
- Candy/Snacks — Going to the convenience store to pick up some chips almost nightly is a waste
- Fancy Vacations — Think about not taking one this year and save the cash instead
- Books/Magazines — Know where your nearest library is? No? Find out where it is & get a card
- Gifts — Nice to have a big heart, but you have to take care of yourself before you can help others
- Charitable Contributions — See above; How can you help others when you’re in $$ trouble?
YOU CAN STILL HAVE FUN, BUT IN MODERATION
I am not saying to not have ANY fun at all, but if you can’t make your budget balance to the point where you have a comfortable amount that you’re saving in addition to covering your bills, then you do need to:
- make a sacrifice and/or
- make more money
Sacrifices include not taking a vacation, buying less clothes, and in general, less luxuries.
If you say to me: But what will I do if I DON’T go out and party all weekend? I’ll be SO BORED!
Get a part-time job.
An extra job will cure that boredom because it makes you tired, you don’t want to go out after putting in long hours at your regular job and your part-time job. You’ll want to stay in.
Any free time you have, you’ll want to spend it buying groceries, running errands, napping and cleaning your place.
On the plus side, you get more money to clear that debt faster.
TREAT THOSE ABOVE CATEGORIES LIKE LUXURIES
They’re little, daily luxuries.
Treat them as such because once you get used to them, they stop being luxuries and turn into habits.
So until you get to the point where you really don’t need to freak out about spending $3/day at Starbucks, you really can’t afford to be frittering money away like that.
Get out of debt first, have a safe financial cushion in your retirement accounts, and then you can enjoy your money, stress-free.
Photograph I took in London, England (2011) of a typical English day
WHY DO YOU SAY NO FANCY VACATIONS!?
Because you’re in debt.
Want another reason? Because you wanted to get out of debt quicker, no?
Note: What you consider “debt” is up for debate. If you have a house and a mortgage, but are otherwise financially responsible, by all means, save for that vacation.
If you’re paying 30% interest rates on your credit card debt, and desperately want to be free of those plastic shackles, yet you feel like you deserve a $2000 vacation then you simply have to accept that you will take longer to clear your debt, pay more interest in doing so, and you aren’t allowed to whine.
Another point I will bring up is that vacations are a wonderful escape from reality. I myself, escape from reality when I go on vacations.
It is really a downer if you go on a great escape to another dream life for only 2 weeks, only to have reality smack you hard in the face 50 weeks of the year with 30% interest to boot.
I’m putting my money where my mouth is because until I was out of debt, I didn’t take a single vacation, and I was a lot happier to be out of debt sooner versus going to Paris.
I wanted to enjoy my vacation, not go there, rack up more debt (how can you NOT shop in Paris!?) and then come back only to face a bigger pile of debt.
Granted, I’ve always been more of a “work now, play later” sort of person, but this ”treating yourself” business or that you “deserve a break for working so hard” can be a slippery slope to justifying things you can’t afford. (I know of what I speak of. )
Think of your being debt-free as the vacation, the break, and the reward from financial stress which will drag on your mood more than you know.
LEVEL 2: CHOP THE BUDGET
These areas are a lot harder to trim because it takes a little effort, perhaps on the phone and/or in-person:
- Banking Fees — You better not be paying any bank fees but if you are, you should switch banks
- Cellphone — Consider lowering down your data plan, or getting a very low-cost phone altogether
- TV — Eliminate those fancy channels except the ones you actually watch; or stick to basics!
- High-Speed Internet — You can probably go down to the lowest tier in terms of High-Speedy-ness
- Telephone – If you have a Home phone, why have a Cellphone? Or vice versa?
- Groceries — About $200/person is considered reasonable to most folks; otherwise, it’s chop time!
- Life Insurance — If you don’t have any dependents (kids), you’re basically wasting your money
- Utilities — Start turning off the lights; shutting down laptops and using less of everything
LOOK FOR BUNDLING OPPORTUNITIES
Look for a competitive provider in your area, and give your provider a call every 3-6 months to threaten to switch. They’ll generally give you a pretty good rate to try and get you to stay.
This probably only works in big cities, so use with caution.
There are so many no-fee options out there! Why are you still paying an account fee?
Consider at least keeping the minimum in your bank account so that you can have that fee waived.
CELLPHONE VERSUS TELEPHONE
BF and I use a cellphone between us. We treat it like a portable home phone. It works out great because he doesn’t need a cellphone for his personal life, and frankly, neither do I.
We’re just more organized as a result, and we make plans ahead of time.
As a result, we don’t have a home telephone. If we had an apartment for more than a year, I’d consider getting a home telephone and scrapping the cellphone.
For us, it’s one or the other. We’re currently with Virgin Mobile and we pay $21 a month for the whole bill, or about $10.50 each.
I don’t like chopping Groceries because I value good food a lot, but most people find that $200/month is sufficient for a single person.
For fancier foods, we spend about $300/month each, going up to $400/month if you include the alcohol that goes into cooking it, or other fancy treats.
As a result of our fancier budget, we don’t eat out as much.
In fact, it’s near $0 in Eating Out between the two of us as a couple.
I only eat out if I am out with friends for a meal, and that is not a weekly, let alone monthly expense.
You know, little things like shutting down your computer, turning lights off and not leaving the water running while you’re doing something, using your dishwasher on off peak hours… it actually all makes a difference.
We did an experiment when we were living in an apartment, and we had $20 for utilities every month.
Not much, right?
Well we started turning everything off (the microwave was on a switch, we turned it on, only to use it), we unplugged every electronic device or put it on a power bar, and lo and behold, our utilities budget came in at $10 the next month!!
$5 of that was service fees (we couldn’t avoid paying the flat charge), and the other $5 was our usage, down from $15/month.
Now it sounds like small potatoes, but this was in a small studio. Can you imagine the savings if you’re living in a 2000 square foot house?
You don’t need to go to extremes as we did in our experiment, but just remembering to turn off the lights, or being conscious of your usage can make a difference.
LEVEL 3: SHAVE THAT BUDGET
This is when you really want to get serious.
You’re thinking: I have done all of those levels, and I AM STILL in need of a budget boost somehow.
Aside from going out and just earning more money at a part-time job, I only have two areas that tend to eat a lot of money:
- Rent — Sell & move to a cheaper and/or smaller apartment farther away; Or get a roommate
- Car — Sell it altogether and save on gas, car insurance, maintenance; Take public transportation
People spend about 35% of their budget on Housing. It’s the biggest part of your expenses, and no one wants to move, let alone have to go through all that work of finding a new place to live.
That said, maybe you bought a house that is simply too big for you.
Or you’re living in a shoebox, paying sky-hight rent prices, when if you just commuted about 15 minutes to half an hour a day, you could cut that in half.
Sell the car if you can’t afford to maintain it. You’ll save on gas, car insurance, maintenance and accessories, not to mention parking, tolls and other things that come with the convenience of the car.
Frankly, we only use our car for groceries because it’s a lot to carry and there’s no direct bus to the grocery store.
For that, we could actually just rent a car for the day or use a car-sharing program where we can rent it by the hour, and not have to worry about paying for a full-time car.
Figure out how much your car is costing you, and make the decision. I know it isn’t easy in some cities, but mid-sized cities and larger, tend to have a public transportation system of some kind, even if it isn’t convenient and easy.
IT’S YOUR LIFE AND YOUR MONEY
Some of these decisions can’t be taken lightly, because it means an upheaval of your life, but once you make the change, you can start seeing the money roll in.
Start slow, and make it happen.
Find a place to cut each month (perhaps making your lunch every day?), and get used to that change before embarking on another.
If you try and do all of these changes at once, you’ll feel overwhelmed, upset and probably abandon this (valuable) exercise altogether.
Sacrifices may have to be made, and it’s up to you to choose which ones to take — do you want to sacrifice your time, or your expenses to clear your debt quicker?
I know I talk a lot about money and being financially independent as soon as possible but having a career, and having a life is not about living for the money and working like a dog.
(Unless you really love doing that, then by all means….. would you mind sending me a cheque? )
You have to enjoy the job you are doing as well, seeing as you spend 40+ hours a week at it.
There is no point in having all of that money in retirement if you suffered, and felt miserable through the majority of your life to get it.
Be happy with your lot, or change and find something that may pay less, but will make you 10X happier.
This is why Harvard Business Review’s Top Five Career Regrets struck such a chord with me. I’ve taken quotes from each regret:
Career Regret #1: I wish I hadn’t taken the job for the money
Lamented one investment banker, “I dream of quitting every day, but I have too many commitments.” Another consultant said, “I’d love to leave the stress behind, but I don’t think I’d be good at anything else.” Via
Career Regret #2: I wish I had quit earlier
Said one sales executive, “Those years could have been spent working on problems that mattered to me. You can’t ever get those years back.” Via
Career Regret #3: I wish I had the confidence to start my own business
Even Fortune 500 CEOs dream of entrepreneurial freedom.
Admitted one: “My biggest regret is that I’m a ‘wantrepreneur.’ I never got to prove myself by starting something from scratch.” Via
Career Regret #4: I wish I had used my time at school more productively
A biology researcher recounted her college experience as being “in a ridiculous hurry to complete what in hindsight were the best and most delightfully unstructured years of my life.” Via
Career Regret #5: I wish I had acted on my career hunches
In 2005, an investment banker was asked to lead a small team in (now) rapidly growing Latin America. Sensing that the move might be an upward step, he still declined. Crushingly, the individual brave enough to accept the offer was promoted shortly to division head, then to CEO. Via
Via Harvard Business Review: Read the entire Top Five Career Regrets in detail here.
Pretty powerful, no?
Here’s my take:
DON’T JUST LOOK AT THE INCOME
Instead of focusing your energy on getting more income, why not focus it on seeing how LITTLE you can spend for a comfortable life, so you can have a wider range of career possibilities?
If you spend a lot of money, like $80,000 a year because you have a house, 2 cars, and all the trappings of a middle-class existence, then you will be forced to stay in that job forever.
But if you change your spending habits and only spend about $30,000 net a year, you only need to make about $48,000 gross.
What jobs and careers open up for you then?
BEING YOUR OWN BOSS IS NOT ALWAYS THE ANSWER
Not everyone wants to do it, so don’t focus on it being the solution if deep down, you know you don’t want to be on your own.
It is NOT an easy life to be your own boss, to own your own shop or business and to be the only person accountable for every damn thing including making sure you have enough money to survive through the tough years.
It is a Feast or Famine lifestyle.
I know at least 2 freelancers who became their own boss, rather liked it for the money at the time, but then re-joined a company at the end of it all for various reasons:
- Had no idea how to create a budget and stick to it
- Had no savings & spent every penny they earned & when the famine hit, they starved into debt
- Preferred a stable career with a manager, a structure, colleagues and the whole 9 yards
- Didn’t want to be a Lone Wolf (many freelancers are fiercely independent Lone Wolves…a hard life)
NEVER SAY NEVER
I can safely say that I’ve avoided turning all of the above Career Regrets into Lifetime Woes.
Hit all of them.
At school, I didn’t work THAT hard once I got into business school, partly because I was working 2 full-time jobs to stem the pain of student debt, so I sort of enjoyed those years (Avoided Regret #4).
Then I literally took the best-paying job for the money to clear my loans (Avoided Regret #1), and by luck, ended up loving it.
I couldn’t take dealing with managers any more, so I quit after a few years (Avoided Regret #2), and found my own way in the industry by starting my own business (Avoided Regret #3) by acting on my career hunch (Avoided Regret #5).
It is never too late to change, but it will always be too late for regrets.
This is a part of the Investing Series.
VANGUARD IS NOW IN CANADA!
So I’m pretty excited to tell you that Vanguard is NOW IN CANADA!
Not only that, their Management Expense Ratios (MERs) for their ETFs are at about half of TD E-Series Index Mutual Funds, and significantly lower than iShares ETFs.
COMPARISON BETWEEN TD E-SERIES, ISHARES AND VANGUARD FOR INDEX FUND INVESTING IN CANADA
(In case you’re wondering, a mutual fund is the same as an ETF, the only difference is in the way it’s bought, priced, and sold. More on that topic is available in my Investing Series.)
You can click to make it larger:
NOTE: This chart is valid as of February 1st 2013.
Buying ETFs on Questrade is now commission-free. You will only pay commissions on selling them. Other fees not related to commissions, still apply in buying or selling.
(Scroll down further to read more about buying ETFs commission-free.)
Now the savings with Vanguard at $248 a year may not seem like a big deal to you, but over the course of 30 years, and with a portfolio that will only continue to grow in size, the savings will be enough to want to make a change today, when it doesn’t cost you an arm and a leg.
I mean, why would you waste money on fees when you can just do a little work ONCE a year and save?
AT WHAT AMOUNT SAVED DOES THIS MAKE SENSE FOR ME TO SWITCH?
Before, you had to have about $120,000 saved before it became interesting or worth your while to switch over to index fund ETFs rather than an index mutual fund at a bank.
Now, you only need about $60,000 before it becomes interesting.
At $60,000 invested in TD E-Series Mutual Index Funds, the cost is about $244.80.
This is equivalent to Vanguard Index ETFs, being rebalanced once a year (buying ETFs only, not selling any in this rebalancing), costing about $241.60.
If you wanted to sell an ETF, it would cost $9.95 each time you sell.
I TRADE ONLY ONCE A YEAR, WITH 4 INDEX FUNDS
You may be wondering why I only put 4 trades, it’s because I balance once a year. I either buy or sell once a year, but now with commission-free ETFs, I’m going to just be BUYING ETFs if I can help it.
Commission-Free Buying of ETF with Questrade starting Feburary 1st 2013, Selling ETFs will still cost you money
It is even CHEAPER now, you can do the trades with index fund ETFs COMMISSION-FREE with Questrade.
That means that if you buy ETFs with Questrade, you won’t pay their $4.95 – $9.99 commission fee (other fees may still apply, applicable by the government).
- You’ll pay the ETF commission at the time of purchase, but we’ll rebate you in two business days
- There are no minimum number of shares you have to buy. Hold them for as long as you’d like
- Buying ETFs for free is only available if you’re trading on one of the Questrade IQ platforms
- ECN fees or any other incidentals charged by the markets are your responsibility
- Your standard commissions will apply when you sell an ETF
So basically, if you sell your ETFs, you WILL pay a fee or if there are ECN fees and so on, but you can use your $50 in free Trades because of my referral ID.
However, you can avoid fees altogether, if you buy ETFs every 3 months (or once a year), and rebalance your portfolio at the same time.
Something along this strategy:
- Put money into the ETFs you want in March (pay no commissions)
- Check your portfolio in June to see where you need to rebalance
- Put more money into ETFs to rebalance out the portfolio without selling any ETFs
- Check your portfolio in September to see where you need to rebalance
- Put more money into ETFs to rebalance the portfolio without selling any ETFs
- Check your portfolio in December to see where you need to rebalance
- Put more money into ETFs to rebalance the portfolio without selling any ETFs
Or, just do all of this rebalancing and buying (not selling, if you can help it) ONCE, at the end of the year (December).
You can basically not pay $20 – $40 a year, which is easy pickings, and adds up over time.
It’s also a great way to direct your paycheque towards investing and buying ETFs on a regular basis, especially if it’s commission-free with purchases at Questrade AND you pay lower MERs.
WHERE CAN I GET $9.95 PER TRADE AT A DISCOUNT BROKERAGE?
Questrade is where I’m at if you haven’t noticed.
I think they’re awesome, and have thought they were great since I started investing.
If you use my referral ID with Questrade, you can get up to $50 in free trades.
You can enter this code o0soehds when you open your new account.
After pressing “Enter”, it should immediately display what the deal is ($50 in free trades!!).
You can also hold RRSP and TFSA accounts in Questrade as well, and trade stocks or more ETFs in them. I personally use my TFSA contribution room for stocks.
The minimum is $4.95 a trade up to $9.95 as a maximum.
After the $4.95 charge, it is $0.01 (a penny) a stock as a fee.
So between $4.95 to $9.95, you can buy about 500-ish stocks (at a penny each), before the $9.95 charge always applies and it becomes the standard charge.
Oh, and I get $70 in cash if you do decide to go with them (don’t ask, I didn’t make up the rules.)
IF YOU GO WITH TD WATERHOUSE HERE ARE THEIR PRICES:
I emailed and got this:
Investors executing more than 150 trades per quarter will pay a flat rate of only $7.00 per Canadian or US equity trade.
Investors executing 30 – 149 trades per quarter will pay a flat rate of only $9.99 per Canadian or US equity trade.
No matter how often you trade.
Clients with household assets of $50,000 or more with TD Waterhouse Discount Brokerage will pay a flat rate of $9.99 per Canadian or US equity trade. You must also sign up for eServices to qualify for this rate.
Trades for Canadian or US Options will be subject to the same flat rates plus $1.25 per contract.
It’s pretty expensive to pay about $7 – $9.99 PER trade, flat, not even depending on the number of shares you buy.
IT IS CHEAPER TO GO WITH VANGUARD AT THIS POINT, ESPECIALLY WITH QUESTRADE’S NO-COMMISSION ETFs
I mean if you just look at the near-$500 it costs to stay at TD e-series, it is cheaper to buy Vanguard Index ETFs by a long shot.
If I had a million dollars, the savings with Vanguard would be $2100 just in fees each year compared with TD E-Series Index Funds!
Sounds like small potatoes to you (what’s $2100 a year!?!?), but it’s actually $175 a month back into your pocket for pretty much the same index fund strategy.
Even if you sell ETFs let’s say 4 times in a year, that’s $40 out of the $2100 you’d be saving. It’s still $2060 in your pocket.
It’s like paying bank fees for nothing, I’d basically be burning my money out of sheer laziness.
They haven’t added all the funds in either, so the list is pretty slim right now, but I have total faith they’ll create something as robust as iShares, or as their U.S. ETFs.
A NOTE ON U.S.-BASED ETFS THAT PAY DIVIDENDS
Please note that if you do invest in U.S.-based ETFs and receive dividends, you WILL be indirectly taxed 15% on any dividend gains, that is, they take out the money in the U.S. for dividend taxes before you get them in your portfolio in Canada.
The only place where you won’t get the 15% dividend tax is if you hold index ETFs in your Registered Retirement Savings Plan (RRSP) because it is recognized by the tax treaty between U.S. and Canada as being a tax-sheltered account, in which case, you can simply apply for a dividend tax refund when you do your taxes.
For Americans, Canada only recognizes 401Ks as a tax-sheltered account.
Finally, Tax-Free Savings Accounts (TFSAs) are not under this tax treaty, and if we were in the U.S., the Roth IRAs would not be under this Canada-U.S.A. tax treaty either.
Edit: This post was written before my other one where I asked if anyone felt guilty for their success.
Some great points & comments came up in the post, and I realized I wasn’t clear enough regarding my position (blame it on amateur writing!!).
Hopefully this post helps clarify a bit.
This BBC World News – Changing Fortunes (New Patterns of Wealth), had a great Episode #4 on Feminine Power.
You can see clips from the episode, but I wasn’t able to get the full episode, although I watched it on TV on February 23rd 2013.
STATS FROM THE VIDEO:
- The #1 vector for global growth for the past 10 years has been women
- Globally, $20 trillion is now controlled by women, which will rise by 40% over the next 5 years to $28 trillion
- The richest women in the world are by virtue rich from inheriting or marrying into it, but the number of self-made women, is on the rise
The video profiles 3 amazing women with their incredible rise from poverty:
- Zhang Lan – South Beauty Restaurant Chain Founder and Owner
- Natalia Vodianova – Top supermodel
- Kalpana Saroj – Real Estate magnate owner
ZHANG LAN (CHINESE)
She used to be part of the Imperial Family but during Chairman Mao’s “Great Leap Forward”, her entire family (she was a baby), were banished to the mountains.
They had nothing to eat, no milk for her as a baby, and she got rickets at the age of 3 from malnutrition.
She ended up picking and eating mushrooms that grew on people’s graves after the rain.
The family was eventually allowed to return to Beijing, and in 1989 she moved to Canada to live with her uncle. She made in one hour, the equivalent of one month’s salary in China.
She saved $20,000 2 years later, and moved back home to Beijing to follow her dream.
NATALIA VODIANOVA (RUSSIAN)
She lived in an 18 square foot room with 4 others in her family in Russia and if they had something to eat the next day, living day to day, that would be great.
For instance, they 1 box of apples and 1 box of bananas to sell on the street – they had to manage the Russian mafia, police, and pay everyone off.
Then they got into debt, and faced eviction, and at 16, she got a lucky break from an international modeling scout and went to an audition, and 6 months later she was in Paris.
After landing a Calvin Klein contract, she knew she had made it.
KALPANA SAROJ (INDIAN)
She now owns about $270 million in real estate in India, but in the 1990s she grew up with nothing in the slums, and her daughter still remembers the days when they had nothing.
She had her parents, her 2 sisters, and her brother, for a total of 6 people living in an area of 400 square feet, which included a counter for the “kitchen” and a wall in the corner to indicate it was a bathroom.
She wanted to be educated but the society she was in, it wasn’t important to educate girls, especially in India.
In the 7th grade she got married at the age of 12; her in-laws swore and beat her. Her father took her back 6 months later, and she tried to commit suicide by taking poison. She was saved by a doctor, and decided to change her life by starting a small sewing business and saving enough money ($5000) for a downpayment on a building that was overrun with gangs in the area, which later grew to $100,000 in value.
In a meeting, 4-6 men wanted to assassinate her, but one well-wisher went to her home, and told her to get out before she got hurt. She refused and bought a revolver (gun), which is why people call her “The Iron Lady”.
MANY WOMEN GROW UP WITHOUT NARY A CHANCE TO SUCCEED
I am very, VERY lucky to live in a country, and to have grown up in a society that allows women to work and climb the ranks if they choose to.
$0.78 to a $1.00 or not, I am happy that there is a chance to make anything, considering that many countries don’t even acknowledge women as citizens.
It was even in the most recent times that we were allowed to work, and I think sometimes we forget that.
They’re in the background, covered, and/or non-existent in terms of economic power.
From what I’ve observed in reading about them, and watching documentaries, women in Africa, tend to do 90% of the work. They cook, clean, raise the kids, grow food, harvest it, and try to make a living selling what they’ve grown.
The men? They seem to sit around doing jack squat under the trees most of the time, blabbing to each other about their situation while their wives work their butts off.
Of course, this differs from country to country in Africa, but the main message I get from African women is:
In Africa, it is better to have been born a boy than a girl.
That’s just heart-breaking that something like whether you have reproductive organs or not, and something so natural and not at all decided by anyone, determines and colours the rest of your life.
Then you look at the Middle East where young girls are being beaten, raped and harassed for wanting to go to school and get an education, being called ‘sluts’ for showing their ankles, and you are ever more grateful for what you have, no matter how little it may seem to you.
Finally, you look at India.
In the video above of Kalpana Saroj who rose from devastating poverty, even she admits that they’re misogynists as a culture there. Women aren’t allowed to rise above their station, so to speak.
It’s tough to be poor, it’s even tougher to be poor in a country like India.
LOOKING AT MY OWN MOTHER, THE ROLE MODEL
She’s not a millionaire by any means, and doesn’t even think she’s that lucky, but she grew up very much like those women, living hand-to-mouth, in the same kind of country with that kind of mentality of women being subpar to men.
There were many hungry days, she said, and I think her rather matter-of-fact stories stuck with me when I was a kid, growing up, and listening to how she lived.
There’s no posturing, there’s no whining, just .. matter-of-fact re-telling.
I couldn’t fathom not having anything to eat, and I would prod her and prod her to tell me what they REALLY ate, because having grown up with a full belly pretty much my entire life, it boggled my mind to think that someone could go hungry and not have the cash to even buy a banana to eat.
She could just look at me, shrug, laugh and say:
Whatever we could find, whatever we could steal from the neighbour’s trees, and what was given to us by the church and countries bringing food rations for the poor.
It only struck me just recently that I can’t even go 12-hours without eating to take a blood test, and she went days without food. I think I would have had to make do and accept the fate while trying as hard as possible, as most people in poverty end up doing, but just to imagine no food at all, is painful enough.
This is the reason why I am a bit soft-hearted to those who grow up in poverty (believe it or not).
They don’t have the same life opportunities to be with people who are all going to go to college too, and the groupthink is so different at that level. You aren’t thinking about going to college, you’re thinking about what you’re going to eat tomorrow, if your brother will be able to make some money, if you can sell those vegetables you grew for more money to be able to help feed your family.
When you take all of the above into account, it is a stellar accomplishment of my mother to have made it out of such dire, horrible poverty to a middle-class kind of life.
She made it, and I tell her how amazing that is each day that she did.
Her leap out of poverty is far greater than if I, a middle-class-reared kid, will reach the echelons of the upper-middle-class, even the 1% in Canada.
It is nothing for me to move from middle-class to upper-class, because the hard work has already been done by my mother moving from dead-end poverty to middle-class.
That is attainable, which is also why I am so hard on fellow middle-class folks who whine and bitch about their situation, and how they’ll NEVER become rich, without really knowing that it could be a lot worse (and it is, for a lot of women).
They don’t even need to think about where to even earn an income to buy food, and if they don’t want to sacrifice their little luxuries like driving a car instead of walking to the corner store, then they don’t get to bitch about it, if the solution has already presented itself.
All they have to do is save by sacrificing the unnecessary to reach their goals.
All of the above, makes me even more grateful for what I have.
Investing Series: What is the difference between an Exchange-Traded Fund (ETF) and a Mutual Fund (MF)?
This is a part of the Investing Series.
A common question that I had when I started investing years ago was what the difference between a mutual fund and an exchange-traded fund was.
QUICK & DIRTY ANSWER:
If you’re familiar with mutual funds and how they work, Exchange Traded Funds (ETFs) are basically the same thing.
The major difference lies in mostly in how and where you buy or sell it.
You can buy an ETF on the stock exchange like a stock, but you can only buy certain mutual funds at the banks that created those mutual funds.
If you want to know what index mutual funds and index-ETFs to buy for U.S. or Canada, scroll to the bottom of this post.
LONG & DRAWN OUT ANSWER:
I like to start with the basics instead of assuming everyone knows everything, so here goes.
Skip sections as you see fit.
WHAT IS A MUTUAL FUND?
Already wrote a post on this.
Read: What is a mutual fund?
WHAT IS AN EXCHANGE-TRADED FUND?
It’s the same idea as a mutual fund: people pooling their money together to buy stocks.
The difference is that while mutual funds are usually only offered by the banks themselves, ETFs are traded and readily available to anyone on the stock exchange.
This matters because since mutual funds are only offered and “professionally managed” via banks, you can only buy a TD Mutual Fund at TD Bank and only if you are a TD customer.
Likewise, you can only buy a ScotiaBank Mutual Fund at ScotiaBank and if you’re a ScotiaBank customer.
ETFs are different in that anyone can buy them because you can buy them on the stock exchange, which is open to one and to all, and theoretically speaking you can sell them when they start to go down in price, and buy them again when they’re on the upswing.
(However I would just suggest buying them and not trying to time the market or trade them often)
Take for instance Vanguard or iShares ETFs that are based in the U.S. — Canadians can buy them on the stock exchange, even though we don’t live in the U.S., we are still able to buy them in U.S. dollars (although Vanguard is now in CANADA!! Yay!! Vanguard CANADA!!).
Vanguard also issues mutual funds directly on their site, that are the exact copies of what they offer as ETFs as well.
Same stuff, but with a different way of buying into it.
SO WHY WOULD I BUY A MUTUAL FUND AND NOT AN ETF?
Taking index-tracking funds out of this particular answer, and looking at actively managed funds, you’re presumably buying expertise and experience.
Actively managed mutual funds run on the idea that you are buying into the expertise of the managers who have been hired by these big banks, and these bank managers secretly kind of look like this**:
**Okay so while they don’t really look like this toy, I see their ‘expertise’ as such — all fun and games, in your face, and delivering flashy returns but when things go down south, they shrug and say “Ooops”, because it wasn’t their money in these funds.
They’re banking the sweet, sweet bonus that they earned that year from SELLING those funds.
It kind of goes like this:
So-and-So at Bank Whoozit has this-and-that degree in Whoo Finance, and she is such a dynamo, she can pick amazing stocks in this actively managed mutual fund and get you a return of 50% a year, guaranteed.
In contrast, if you went to a different bank, Bank Whizzit who claims to have THE BEST fund managers you can find, you’d find another So-and-So there, who claims to be able to get you a return of 51% a year!
You get the drift.
If you bought an ETF, you’re also buying into the same expertise, possibly with another person or company, and probably with someone who doesn’t work at your bank.
It just depends on what kind of expertise and whose expertise you trust more with your nest egg and how much you’re willing to pay for it.
WHAT ABOUT IF I JUST WANT TO INVEST IN INDEX FUNDS?
If you’re only investing in index funds, it basically works out to be the same thing whether you are with an index mutual fund at a bank, or an ETF that tracks an index on the stock exchange.
As I mentioned above, sometimes it’s exactly the same thing — it’s just how you want to buy it (with an account, or on the stock market).
I mean, if you’re already thinking of index funds rather than actively managed funds because in the very long-term it always outperforms actively managed mutual funds, it means you’re already on the right track.
Photograph I took of the Shanghai Maglev train station
So assuming you invest in these 4 categories for index funds:
- Canada (or your country’s index fund; I put Canada because I’m Canadian)
- U.S. (generally a standard country to invest in, as it drives a big part of the world economy)
- International (I classify this as: “Not North America” ; includes Europe, Asia, Africa, Australia)
- Bonds (your country’s bonds)
You can find these types of index funds at basically any bank (just look for the ones that say words like “this fund seeks to track the index of…“, and they’re available as ETFs as well.
ETFs may have lower MERs or fees than index funds at your bank*, but you shouldn’t neglect the fact that it will also cost you money to buy and sell ETFs, because they’re traded like stocks.
*This is very true with TD Canada Trust mutual funds, even with their their e-series mutual funds.
I should note that some banks may charge you a fee to buy and sell mutual funds (also called a “load fee”), but from my experience with mutual funds, generally they’re no-load at banks, and essentially free to buy and sell if you’re the bank customer.
The main difference between choosing index mutual funds or index-tracked ETFs comes in when you look at the FEES you pay which of course, hinges on how much you have in assets.
SO HOW MUCH DO I NEED IN ASSETS TO BUY ETFS OVER INDEX FUNDS?
Where it generally matters is if you have about $120,000 in assets or more, but this has changed with the entrance of Vanguard Canada.
Now you need maybe about $50,000 – $60,000 in assets for you to buy ETFs and gain lower MERs than index mutual funds.
You can get a little bit of a deal by buying an index-tracking ETF instead of an index mutual fund at a bank.
You save slightly more money in terms of fees over the long-term, about $500 – $750/year if you’re willing to dive in to a slightly more complicated situation, and by that I mean:
- you have to sign up for another account altogether, which also leads to more paperwork
- you have to learn how to buy and sell an ETF on the brokerage system like Questrade Canada (which by the way, now lets you BUY them for free; Selling is another story.)
- you have to know what you’re doing in when you go to re-balance your portfolio (buy/sell ETFs)
- you can only rebalance about 3 times a year (assuming you buy 4 index funds) for these savings
The last point is especially important because if you touch your ETFs more than 3 times a year, either buying or selling those 4 index funds (which costs you money each time), you’ll lose out on any benefits in terms of fees, than if you just stayed at your bank with their index funds.
WHY THIS HAS CHANGED WITH THE ENTRY OF VANGUARD CANADA
However with the NEW entry of Vanguard Canada into the market for Canadians, their MERs are a lot lower than iShares or TD E-Series, think: 0.15% as an MER instead of 0.35%!
I have a post coming up on this next week in my Investing Series, and you save a significant amount of money even if you trade more often than 3 times a year with 4 ETFs.
WHAT ABOUT U.S.-BASED ETFS LIKE VANGUARD?
CAN I BUY THOSE IN CANADA?
Yes, you can.
In fact, the ETFs I am listing below from iShares, are U.S.-based.
There are two main points I want to bring up for this:
1. IF YOU BUY AND TRADE IN US DOLLARS, YOU’LL NEED US DOLLARS (and vice versa!)
If you buy and trade in U.S. dollars (this goes for buying stock, like Starbucks SBUX for instance, only trades in USD), you need to already hold USD in your account.
Otherwise, if you buy a USD stock or ETF, you will NOT have your CAD money convert automatically into USD to purchase the stock. They’ll let you buy it on margin (a.k.a. “credit”), and at the end of the month they usually ask for you to pay it back.
I really want to warn you to be careful about buying on margin because they WILL ask for the money at the end of the month to square up your account.
If you need to convert $CAD to $USD, they’ll charge you about 1% in currency exchange fees. It’s a bit of a headache.
That said, to avoid headaches, you can do what I do, and hold a U.S. dollar chequing account at a bank, and just link that up to your account.
Then you can just funnel in U.S. dollars into your brokerage account, and as they’re already converted, they’re ready to use.
I usually do a conversion of $CAD to $USD in my bank account (at TD who charges a fee for this) before I create a Pre-Authorized Debit (PAD) request in Questrade to take the $USD.
2. BE AWARE THAT U.S.-BASED ETFS HAVE AN APPLICABLE DIVIDEND TAX OF 15%
One thing I will point out for Canadian investors is that to be careful with ETFs that are based in the U.S. such as iShares or Vanguard, because any dividends you may be eligible to receive, will be subject to a 15% tax withholding by the U.S. government if they are not held in retirement savings plans such as an RRSP or a 401K.
This 15% tax is taken out before it reaches your account, even if you buy the Canadian version of this ETF (it’s just the U.S. ETF held in a Canadian shell).
You can recover this 15% tax as a partial credit if you’re conscientious and keen on keeping track of all this, but you have to fill out some tax forms to do so, which may not be your cup of tea.
That said, American-based ETFs are generally cheaper so it may be worth your time and trouble.
I have a post coming up in this Investing Series on dividends as an investment strategy that you might want to wait for, to learn all the Canadian tax implications of buying U.S.-based ETFs.
WHAT IS AVAILABLE FOR ME TO INVEST IN CANADA OR THE U.S. FOR INDEX MUTUAL FUNDS OR ETFs?
DISCLAIMER: The following is by no means a comprehensive, or detailed list of all the Index Funds or ETFs available in Canada or the U.S..
When reading the lists below, you are still responsible for doing your own research and asking a third-party professional to assess your situation if you need help.
WHAT ARE SOME INDEX MUTUAL FUNDS IN CANADA?
From my experience, TD Canada Trust E-Series is the best and cheapest set of index mutual funds you can purchase. No load fees (you don’t get charged to buy or sell them), and they have the lowest MERs I’ve found (in the e-Series only).
It is also the easiest way to deal with index fund investing in Canada, but not the cheapest depending on how much you have to invest.
Here’s the list of TD Canada Trust E-Series Mutual Funds.
If you’re already a customer (either with TD Canada Trust or TD Waterhouse*), you can buy these index fund names:
- CANADIAN BONDS = TDB909 TD Canadian Bond Index – e
- CANADA = TDB900 TD Canadian Index – e
- U.S. = TDB902 TD U.S. Index – e
- U.S. = TDB952 TD U.S. Index ($US) – e ***
- U.S. = TDB904 TD U.S. Index Currency Neutral – e **
- INTERNATIONAL = TDB911 TD International Index – e
- INTERNATIONAL = TDB905 TD International Index Currency Neutral – e **
*You do NOT need to open another account with TD Waterhouse to buy TD Canada Trust E-Series funds.
**Currency-neutral means it takes into account currency exchange fluctuations and takes into account the risk of that currency losing its value (also known as the practice of “hedging”). Generally speaking, the NON-Currency Neutral Mutual Funds are more volatile, and currency-neutral are less volatile.
***When it says ($US) like that, it means it’s held in U.S. dollars. Again, the fund hinges on how the USD fares.
WHAT ARE SOME INDEX EXCHANGE-TRADED FUNDS (ETFs) IN CANADA?
Remember, with the new policy that Questrade has going into effect for February 1st, you can buy ETFs FOR FREE. No commissions on the purchase, but if you decide to sell them, you will have to pay something, so try and save your $50 rebate in free Questrade trades to put them to good use.
This makes it even juicier of a purchase.
These are just some of the U.S.-based ETFs available in Canada to purchase.
They are pretty much the same as the U.S. ETFs offered by iShares (BlackRock) listed below, they just have a different ticker symbol and trade on the TSE.
- BONDS = XBB.TO – iShares DEX Universe Bond Index
- CANADA = XIC.TO – iShares S&P/TSX Capped Composite Index
- U.S. = XSP.TO – iShares S&P 500 Index C$-Hedged
- INTERNATIONAL = XIN.TO – iShares MSCI EAFE Index C$-Hedged
New entrant into the Canadian Index ETF market, and they’re cheaper.
Post coming up next week on the comparison.
- BONDS = VAB — Vanguard Canadian Aggregate Bond Index ETF
- BONDS = VSB – Vanguard Short-Term Bond Index ETF
- CANADA = VCE — Vanguard MSCI Canada Index ETF
- U.S. = VSP — Vanguard S&P 500 (CAD-hedged) ETF
- U.S. = VFV Vanguard S&P 500 Index ETF
- INTERNATIONAL = VEF — Vanguard MSCI EAFE ETF (CAD-hedged)
WHERE YOU CAN BUY STOCKS OR ETFS IN CANADA – QUESTRADE
If you use my referral ID with Questrade [ o0soehds ], you can get up to $50 in free trades, but you can buy those ETFs for free as they are now commission-free. If you sell them afterwards or change your purchase order, you will have to pay a fee.
You can enter this code [ o0soehds ] when you open your new account and after pressing “Enter”, it should immediately display what the deal is ($50 in free trades).
You can also hold RRSP and TFSA accounts in Questrade as well, and trade stocks or more ETFs in them.
Seeing the “.TO” at the end of Ticker Symbols:
Stocks or ETFs on the Toronto Stock Exchange, may have a .TO at the end of their ticker symbol depending on who you use to trade with, so don’t be surprised if you can’t find “XBB” on Questrade, but you find “XBB.TO“.
This is to differentiate between the same company ticker symbol being traded on different stock exchanges.
Questrade for instance, uses .TO in its ticker symbols.
Photograph I took of NYC
WHAT ARE SOME INDEX MUTUAL FUNDS IN THE USA?
What I will say is I’d really suggest looking outside your bank towards Vanguard or iShares, because they’re more than reasonably priced especially if you’re based in the U.S. with such a wide range of cheap index funds to purchase from.
Otherwise, talk to your bank, or poke around the internet to find some U.S. bloggers who might be able to help you specifically.
I really didn’t like the banks in the U.S., to be honest. They were throwing all these books and pamphlets at me of ALL THE FUNDS that they re-sell under the bank name, and if they thought I was going to sift through 300 funds in a book to pick a few that I wanted, they were crazy.
They didn’t have them available online to look at either. You NEEDED their books.
But I guess that was the point.
They wanted to confuse me with all this nasty paperwork so that I would tell them: Do whatever you want with my money! Just make it grow!
Then they’d erode my money over the years like a bunch of locusts…….
So if your bank offers mutual funds, they are sure to offer index funds as well but they may not be the cheapest in all of the U.S. in terms of MERs.
WHAT ARE SOME INDEX EXCHANGE-TRADED FUNDS IN USA?
Here are some index fund ETFs you can look at for the U.S. It is DEAD EASY to set up an account with them and ABSOLUTELY worth it.
All of their funds are listed online so you can peruse them on your own time.
- U.S. = VOO Vanguard S&P 500 ETF
- U.S. = VTI Vanguard Total Stock Market
- BONDS = BND Vanguard Total Bond Market ETF
- INTERNATIONAL = VEA Vanguard MSCI EAFE ETF
- INTERNATIONAL = VT Vanguard Total World Stock ETF
- U.S. = ITOT – iShares Core S&P Total U.S. Stock Market ETF
- U.S. = IVV – iShares Core S&P 500 ETF
- INTERNATIONAL = IEFA – iShares Core MSCI EAFE ETF
- INTERNATIONAL = IXUS – iShares Core MSCI Total International Stock ETF
- BONDS = AGG – iShares Core Total U.S. Bond Market ETF
- BONDS = ISTB – iShares Core Short-Term U.S. Bond ETF
- BONDS = ILTB – iShares Core Long-Term U.S. Bond ETF
I think that does it.
I hope I’ve given a painless (as possible) overview of mutual funds, ETFs and the differences and benefits between the two, taking into account some Canadian and American perspectives.
If anyone sees any discrepancy or problem with the above information PLEASE TELL ME IMMEDIATELY!
- The difference between mutual funds and ETFs are how they are sold and bought, but they’re essentially the same concept
- Mutual Funds are funds you can buy either directly with the institution or the bank
- Many bank mutual funds are only offered at your bank, and only if you’re their customer, but may contain the same stocks as other banks who offer their flavour of mutual funds as well
- ETFs can be purchased by pretty much anyone with a brokerage (stock market) account
- ETFs (true in Canada) are generally cheaper in terms of MERs than mutual funds at a bank, but may cost you more in terms of how much it costs to buy and sell them (Questrade charges no commissions on buying ETFs; only on selling them)
- Mutual Funds (with no load fees), don’t cost you anything, but almost definitely take a higher MER cut
I’ve been requested several times to write a post on how to do this, so here it is. I will be posting on how to cut your budget later.
FIND OUT YOUR NET INCOME
Gross income is what they tell you that you make when you’re negotiating a job offer.
Net income, is what you actually get in the bank account after everyone dips their paws into your honey pot and takes out their cut, and this would include:
- Prepaid taxes (also known as ‘tax withholdings’ in the U.S.
- Health insurance
- Social Security (also known as CPP or Canadian Pension Plan)
- Employment Insurance (EI in Canada)
- ..and whatever else you have to pay for out of your cheque
If you don’t know your net income, you should at least know how often you get paid*, so look at the NET amount that gets put into your bank account or is printed on your cheque, then figure out what it should be monthly.
So if you get $2000 in your bank account bi-weekly (every 2 weeks), you earn $4000 net a month.
THAT is what you should budget with.
*Because everyone loves payday. It’s my favourite day of the week.
You also do not have to break it down the way I have with categories.
Pick and choose what works for you.
FIND OUT WHAT YOU SPEND AS FIXED EXPENSES
Now you’re wondering WTF a “fixed” expense is. It’s basically anything you MUST pay each month that doesn’t change as an amount.
This is stuff like Rent, or even your Cellphone if you don’t go over your minutes or data plan.
If you want a general idea of what fixed expenses are, here’s it is.
A GENERAL LIST OF FIXED EXPENSES
Just make a list of all the categories.
- Mortgage Payments
- Car Payment
- Debt Repayment (your minimums, assuming you aren’t incurring more debt)
- Cellphone (assuming you don’t go over your minutes and/or have an unlimited plan)
- Health Insurance
- Car Insurance
- Home Insurance
- Transportation — This can be a fixed expenses if you buy a metropass for instance
FIND OUT WHAT CATEGORIES YOU HAVE LEFT THAT ARE VARIABLE EXPENSES
Just like fixed expenses, you have variable ones that are under your control each month.
For the second part of your budget, figure out what your NECESSARY variable expenses are. This does not include eating out or entertainment.
I’m even debating putting Cellphone/Telephone/Internet on there as “necessary”, but for the sake of normalcy, let’s call them necessary.
Those are UNNECESSARY variable expenses for the purposes of setting budget priorities.
A GENERAL LIST OF NECESSARY VARIABLE EXPENSES
- Utilities to run the home — Electricity, Gas, Water, Heat
- Office — Postage, Delivery, Paper, Pens, Pencils and so on
- Household Supplies — Toilet paper, Cleaning supplies
- Toiletries — Toothpaste, Soap, Toothbrush, Floss, Shampoo, Conditioner
- Medicine — Vitamins, prescriptions, pills
- Parking/Gas — If you have a car
- Pet Food
- Basic Clothing
- Grooming — For a haircut twice a year
- Home maintenance
- Furniture purchases
Now that you have fixed expenses, you should list all the rest that is technically “fun” and unnecessary.
A GENERAL LIST OF UNNECESSARY VARIABLE EXPENSES
- Eating Out
- Alcohol — Drinking
- Clothing — Beyond Wardrobe Essentials (even my list is a bit over the top..)
- Starbucks/Teavana — Buying coffee outside, or other drinks
- Spa — Facials, Massages
- Grooming — Beyond just a haircut, includes Manicures, Pedicures
- Books/Magazines — There is a library for a reason
- Fees — They’re generally unnecessary if you avoid ATMs and incurring fees
THE CATEGORIES ARE FINISHED, NOW ESTIMATE ALLOCATING MONEY TO THEM
You will notice that you have separated your budget categories out by Fixed, Necessary Variable and Unnecessary Variable.
Those are your PRIORITIES of where you should think about adding or cutting money as required.
The actual budgeting comes in, when you apply percentages to them — here’s an ideal household budget with its percentages.
So if for instance, you’re spending more than 35% on Shelter, and more than 25% on Life (going out, eating, having fun), you need to either cut back in one or the other.
I’d actually try and cut back on ALL the expenses, including fixed ones (get a roommate, move to a cheaper apartment that’s a studio not a 1-bedroom), and see what you end up with.
You can’t have everything if you don’t have the net income to pay for it and save money.
Remember to use your net income against those percentages.
You probably haven’t been tracking your expenses at all, so in the meantime just estimate what you THINK it costs, track your expenses, and see what the actual cost per month turns out to be.
At the end of the first month, you will probably notice (as I did), that what I THOUGHT I spent, was way off from what I actually spent. In a bad way.
Once you continue to diligently track your expenses, and learn where you make mistakes, adjust your budget accordingly.
SOME BASIC BUDGETING NUMBERS TO START WITH
Here are some basic personal amounts to start with, and you can adjust as you go along your budgeting path:
(Real numbers are better, especially for fixed expenses like rent or mortgage or your debt.)
Note: These numbers are for a single person renting an apartment in Canada without a car and no debt.
- Rent: $700
- Apartment Insurance: $15
- Cellphone: $50
- Transportation: $130
- Groceries: $200
- Utilities: $50
- Household Supplies: $25
- Toiletries/Medicine: $25
- Parking/Gas: $250
- Internet: $50
- Clothing & Gifts: $50
- Eating Out: $50
Total = $1595 a month
As you run through the list, you may be thinking: Hey I pay more/less than that!
That’s where you have to adjust for yourself, and add in or remove categories that don’t apply to you.
Someone recently asked me if I felt guilty that I could charge so much money per hour as a consultant, and I could basically making in a month or two what some people make in a year on minimum wage.
I paused, and said: “No, why should I? I worked hard for it.”
This kind of answer surprised them I think, because I was being honest (a little too honest?), seemingly arrogant (I like ‘confident’ instead), and it was a rather harsh answer for a society that tends to try and put the guilt trip on those who make good money, and to not be so selfish with it.
(For the record, I don’t think I’m selfish with it. There are plenty of people who make the same amount of money but don’t donate any of it. I have some inkling of a conscience.)
I’ve already talked a bit about those who inherited their wealth rather than having worked for it here: Imagine if you were Born Rich (documentary) of heirs and heiresses, and Nietzsche had it right when he said ‘guilt is a useless emotion’.
MAKING GOOD MONEY IS ALL RELATIVE TO OTHERS
There’s always going to be someone else making more money (or less) than I, so it’s relative to my perception of how much I make.
That’s great news to me, because I can control what I feel and think, which lets me have a rosy, shiny attitude on my life, rather than a dark, grumpy grey one.
See, beside someone like Beyonce, who pulls in double my average salary in a day ($140K), I’d feel downright poor if I chose to feel poor.
(And she looks .. incredible to boot, with perfect hair and symmetrical features. Of course she does.)
It’s easy to think: It’s not fair. She has more than I do.
..until you realize what she did to get to that fame and stardom.
Example: I can’t imagine going on a crazy fad diet of just drinking cayenne-laced water with lemon and maple syrup just to lose weight — that is some serious dedication to your craft, albeit unrealistic and unhealthy.
If I was told to do that diet to keep my job, I’d find another job.
That’s the lazy and rather ridiculous way out, saying how people with more, should share it freely with people who haven’t done jack squat to earn any of it.
It also depends on who you end up socializing with that colours how you look at money.
I’ve never really felt guilty about making a lot of money, although I can understand (somewhat) the people who do feel like they don’t deserve it.
I MAKE MORE MONEY BECAUSE I TOOK THE RISKS WITHOUT A GUARANTEED REWARD
I started making that kind of cash at 26, because I did a few major things that no one else in my profession did at my age:
- Took the risk of not having a steady paycheque to become a freelancer
- Quit a very solid company only after having been there for a year or two
- Learned very quickly how to budget my irregular income as to not let it go to my head
Can others say the same? If you don’t take the risk, you can’t get the potential reward.
(Please don’t liken this to buying a lottery ticket so you can be in it to win it.
That’s not even close to what I’m referring to.)
A bit of luck was on my side because I quit at the right time, but luck is what you create for yourself, by putting yourself in front of a wide range of opportunities, and seeing what sticks.
I could have just as spectacularly failed with my little strategy, but that’s the whole point of risk versus reward.
WORKING HARD IS ALSO RELATIVE TO WHAT YOU DO
If I worked hard for it, I deserve it.
Maybe your idea of working hard, is that you have to be there at 5 a.m., work with only a short 10-minute break every hour or so (as dictated by your union), and then punch out at 3 p.m., free to go home, put your feet up and eat a can of beans, forgetting and putting aside the entire day you just had.
It’s more physical than mental.
You absolutely deserve every penny of that paycheque you got.
(Assuming it’s fair wages…)
Mine, is that I have to (as part of my job) basically put up with people for long hours, who don’t care about their jobs enough to do a good one.
I have to step in to fix it, cajole them into working properly and make sure that they can’t do weird (or illegal) things to sidestep putting in the effort, and screwing their colleagues around them who are expecting Result A, but get Result X2471 and end up creating a company snowball of crap that spreads everywhere like a disease.
It’s more mental than physical.
I have to try and convince everyone to do their jobs correctly for the sake of their colleagues, but I can’t be there, babysitting them for every minute of the day.
I always tell them I WILL be leaving at the end of the project, which means they can’t just say: Oops, sorry. I need you to come and fix this. Again.
I may not seem like I’m “working hard” because I’m not getting down and dirty in the furnaces and come out with a sore, aching back, covered in soot, but I am equally as (perhaps more) exhausted at the end of the day.
On top of it all, I am unable to switch my brain off after work because I’m trying to figure out how to solve the 10 problems I ran into this morning in an efficient manner without costing more money in the long-run, or making people’s workload heavier for no reason.
The physical job is in some ways, a lot easier, and dare I say that most people wouldn’t be able to handle the mental part of it, or would choose NOT to?
(Yeah, I said it.)
So I too, absolutely deserve EVERY penny of the paycheque I got.
SOME PEOPLE FEEL GUILTY BECAUSE THEIR PARENTS MADE FAR LESS
Another way that people choose to let themselves feel guilty is because they don’t know anyone else around them who makes that kind of money.
It’s a limiting world view.
My parents made near to nothing for most of their lives, working mostly at minimum wage, half the time.
They accepted that they weren’t good enough at that point in their lives to make more money (or were just downright lazy and delusional about winning the lottery.)
I too, have accepted that I have less of a net worth from the past 2 years because I didn’t work.
I’m not mad about the situation because I chose it for myself. The key is to choose these things, rather than have them chosen for you.
I am not my parents, and they are not me.
It’d be like comparing a raspberry to an orange. They’re two different things.
They couldn’t imagine quitting a steady job just to give something a shot, with a 50% chance that it would stick.
My mom almost cried and pleaded heavily upon hearing that I wanted to quit, but now she’s just mollified and proud that it worked out so well in the end, because I took the risk to do it.
She freely admits that the whole idea of quitting one’s steady job is the antithesis to how she has been raised to think about life and work. She didn’t get it then, but she does now.
Instead of being jealous, she’s thrilled.
OPPORTUNITIES ARE MISSED EVERYDAY
It’s also a question of opportunities you come across, and I don’t feel guilty because I tried to take every chance I had presented to me.
I took on some strange jobs for a kid, but as Steve Jobs would say, I connected the dots in hindsight:
- Paper route as a kid (then I corralled other kids into working as a group while I took a small cut)
- Selling virtual items for real cash on eBay (story coming up on this)
- Selling thrifted clothing but putting in the hours to present it well on eBay
- Freelanced in high school on weekends while working a minimum wage job flipping burgers
- Worked as an assistant superintendent of a building to get subsidized rent & deal with cranky college students…..while attending the same college as these tenants
All of the above (to some extent) let me see clearly, and craft an opportunity out of what I was given once I started working.
I saw that jobs were not black and white, neatly typed titles in companies that came with “roles” and “responsibilities”. They were what you made them out to be, if you chose to work differently.
Even today, some people have the best job in the world (mine, obviously), and can’t see the forest for the trees because it is a job they are not meant to do, but they can’t quit because the money is holding them into a job they hate.
I’ve always thought: “What an awful way to live your life, chained to your job only because of salary.”
If you don’t love your job, it is an awful way to live, just to work for the money.
Why would you do something you aren’t meant to do?
You are meant to do it, if you love to do it, would do it for free and most importantly: are good at it.
We always gloss over the last part of being good at something we love to do.
I can understand that not everyone can become a singer, songwriter, dancer, actor, chef or fashion designer, but they aren’t meant to do those jobs either.
I love playing the piano, but I am not as good as people who are naturally talented. I got to where I am just from hard work, but it’s not enough, and my passion is not there.
Those are hobbies, not careers, if you don’t have any recognizable talent. It means you haven’t searched deep down inside yourself and honestly said: I suck at this. Maybe I should do something else.
(Yeah I said it again.)
You’d be surprised watching reality shows how many people think they have talent.
The ones who do have any scrap of talent, don’t understand that they don’t have AS MUCH talent, relative to others, and should stick to it as a hobby and find something else to do as a career.
They are mediocre in the face of those who are simply better than they are at their chosen field.
Even the ones who win those singing competitions — do we know who they are?
Are they as famous or more famous than singers like Sarah McLachlan, Alanis Morissette, Christina Aguilera, Beyonce, Britney Spears, Rhianna, and other solidly A-or-B-List vocal powerhouses?
I think not.
(And those are the ones who “made” it, and won the singing competitions or other talent competitions!)
They’re good, but they weren’t meant to sing for their bread. (Literally.)
REALLY LET’S JUST CALL IT WHAT IT IS — LAZINESS & DENIAL
I chalk that up to sheer laziness and denial, actually.
Denial is a strong, effective drug that most of us are happy to drink in, and coupled with laziness, it’s a perfect cocktail for doing nothing.
They’re too lazy to get up off their asses, go back to school, find another job, quit, start a side business or do anything that could potentially change their life for the better.
Do that singing, designing bit as a hobby.
If it takes off, it takes off and you were just an undiscovered diamond in the rough, but don’t bet your whole life on something that probably won’t pay your basic bills, and then moan about how you are SOOOO freakin’ talented but no one sees it.
If you can’t do the job (sing, dance, write, cook, design, etc), then you should be the one trying to teach and help others achieve greatness.
Be the agent, the broker, the coach, or the in-betweener.
All the hard work in the world will not make up for the lack of natural talent, especially up against someone who has natural talent in spades and who works hard. They’re wasting their precious energy and time on something that is not meant for them.
You will reach a level of competence from hard, HARD work, but you’ll never surpass those who are simply better than you are.
HERE ARE SOME OF THE EXCUSES I HEAR:
Other people, can’t even see the opportunities in front of them because of a number of reasons:
- “That’s beneath me and I deserve a better job than that”
- “I have no clue what I’m doing in that field”
- “It sounds so hard / I don’t have the money” (Read: I’m lazy and I don’t want to change)
For those who think a job is beneath them, maybe the hard truth is that it isn’t.
It’s exactly the job that you deserve.
There are people who start out at fry cooks at McDonald’s, and after 30 years, have worked their way up to Director at a company.
It was exactly the job they deserved, and they saw the opportunity in rising in ranks, doing something they enjoyed and were good at.
But if they started as a fry cook with the mentality moaning about how they don’t deserve to flip burgers, they’ll never see the missed opportunities in front of them, and will work there for the rest of their lives as a fry cook.
Or maybe that’s just what they deserve for all that whining and lack of action.
I can understand people who freak out because they have no idea what they’re doing in that particular field and think they need years and years of experience to do it right, but the reality is that NO ONE knew what they were doing before they started.
Are you smart enough to learn and figure it out in a short amount of time?
I’ll let you in on a secret — about 50% of the time, I encounter things I can’t remember or have never done before. I make lots of notes, obviously… but still.
I can’t remember everything all the time.
Instead of freaking out or saying: I dunno, I dive right into learning all I can about it, in the shortest amount of time possible, and I usually come out of the situation to realize that I know more about that subject than someone who has been doing it for 25 years.
I have a lot of confidence (obviously) in my ability to figure things out, and to deal with unknown circumstances.
The last group of folks that don’t want to change, can just refer back up to my paragraph about being lazy.
So as this long-winded answer comes to the same end I started with at the top of this post:
No. I don’t ever feel guilty for what I make as an income.
Why should I? I worked for it and I’m good at it.
(Incidentally, women are always the ones who feel guiltier and less deserving than men.
Stop thinking that, it’s a stupid way to limit your income-making potential. You are no less deserving than anyone else.)
DO YOU EVER FEEL GUILTY? WHY?
(I AM GENUINELY CURIOUS, NOT TRYING TO BE CONDESCENDING)
I was reading through my Harry Potter books the other day, and it started a train of thought about death, our mortality and how it shapes the decisions we make, especially in regards to spending money.
I promise this won’t be a depressing post. At least, it wasn’t to me. It frees you up to think about what you should be doing today.
WE WILL EVENTUALLY PASS ON, ONE DAY OR ANOTHER
Some sooner than others, but eventually everyone dies. Hopefully it’s in a bed, where your body gives out gently with no pain or any diseases to speak of.
But eventually, we will all die.
Death and taxes, these are both certainties and facts of life.
I see this as a rather good thing because it gives us a flexible and also inflexible view on what we should choose to do with our time and our life.
We know our time is limited, so we plan accordingly by saving for retirement for when we are too old and creaky to get up at 6 a.m. to go to work.
WHAT IF EVERYONE LIVED FOREVER?
I couldn’t think of a more horrible idea than living forever.
At first glance, it sounds great.
You, your friends, family, everyone living forever and having a grand old time.
(Despicable Me screenshot. I love this film!)
Not only would this put a serious strain on our planet’s resources, but aside from practical reasons, you’d all get bored eventually.
Maybe not with your friends or family (or maybe WITH them?), but you’d get bored of life because it has no finite time period attached to it.
You’d hear about, read about and talk to the same people for the next infinite number of years, and there wouldn’t be anyone new or interesting to change it up, and anyone who grew up in a world of immortals, would be seen as too young to know anything – they’d more than likely not be allowed to rule a country.
THAT’S SICK, I MISS MY GRANDPARENTS!
I miss my elderly neighbour and my one grandmother too!
(Never really interacted with the rest of my grandparents as a kid or had much extended family.)
But while there are plenty of people whom I wish were still alive today, but I cherish them and their memories even more by the fact that I wish desperately to be more like them — less impulsive, calmer, more rational — these are all things I have to work on, and am finding it very hard to do without a role model to guide my thoughts, either dead or alive.
Sometimes my memories of them are rosier than what the reality was like, and I think I’d prefer it that way.
TIME WOULD BECOME A LESS VALUABLE RESOURCE
Would we even bother caring about saving for retirement?
We’d never retire!
We’d work just to stave off boredom.
That great trip around the world you wanted to take?
You could do it, or put it off for the next 100 years out of sheer procrastination or laziness.
Photograph I took of Lisbon, Portugal
Time becomes less valuable rather than being the finite resource it is today.
Want to learn about a specific subject in detail? Why bother studying for it today? You can just do it sometime in the future, like say in 1000 years.
IT FREES YOU UP TO REALIZE THAT LIFE IS LIMITED SO DON’T WASTE IT
Rather than being a depressing chestnut being tossed around of:
What a life.
You work, you owe money/taxes, and by the time you get to actually enjoy your life and the fruits of your labour, you’re ready to die.
You realize that your time is limited.
This in and of itself, freed me up to ask 3 questions that basically made me realize what kind of life I want to live:
- Is this what I want to be doing for the rest of my life?
- Is what I am doing able to sustain me for when I don’t want to work in retirement?
- Are the people I am meeting and spending my precious time with, the people I want to see?
Sounds a bit harsh, maybe elitist to some, but I really do choose where to spend or not spend my time and money.
It’s mine to spend, after all.
FOR WHO I WANT TO SEE:
I am not in the slightest bit interested in talking or meeting with some people I have met over my life.
They’re perfectly lovely, nice people, but they’re not who I want to see for whatever the reason may be.
That’s absolutely fine, because I too, am someone whom another person doesn’t want to meet with either, and I’m thrilled that such choices exist in polite society.
This lets me RSVP to things I want to say like:
No thank you, I don’t want to accept that invitation to go to your baby shower, because you were someone I really didn’t get along with in business school, and we both know it.
I’m pretty sure you’re just doing it because you want all the attention (AGAIN) and I’d even have to fork over an expensive registered gift to boot, for your child whom I have no desire of ever visiting once he or she is born.
Thank you for your invite, desperately fishing for gifts, but I’d rather keep my money for people I actually love and care for, because they were there for me even when I didn’t want to become a ruthless investment banker like you, and as a result, backhanded our mutual friends for marks.
In reality, I write a nice brush-off that is accepted as good social etiquette everywhere:
Please accept my thanks in having been invited to your baby shower, but unfortunately, I will not be able to attend.
Some of you might ask: “But who will go to YOUR baby shower!? FREE GIFTS!”
Who says I’m even having one when I have kids?
For one thing, there’s nothing that I want to buy that I can’t buy for my own future kids.
Money is nice, but I don’t need it either. Maybe the person giving it, can’t afford it and should very well keep that money for their bills.
I don’t even particularly think that people enjoy giving basic essentials at a baby shower, which is what I thought the whole point of a baby shower was.
It’s always something cutesy, or impractical that they’ll grow out of in 2 minutes.
The last baby shower I went to, I gave the most practical things on her list — all those nipple cover things, diapers, receiving blankets, soothers, everything that I could think of that would help a new mother.
Others went bonkers off the registry, and instead of buying diapers, bought fun, exciting, pretty toys that I can predict, will go unused for the most part (hope she got a gift receipt to return it all).
I’m also fairly sure that I too, will end up with junk I and the kid will never use, with more to come once the kid actually comes out and has regular, annual birthday celebrations.
“But the social interaction to celebrate his/her new life and how big you got”, you cry..!
Then the whole thing of trying to guess how fat I became while being 8 months pregnant?
I can do without that, thanks.
Or trying to wrap toilet paper around me to guess how big I got?
Again, no thanks.
I do like the idea of getting together to celebrate a new life, but my instinct tells me this will be happening regardless of a planned baby shower.
I’m pretty sure I’ll be cooed over, petted, asked to sit down a million times, and have overeager strangers come up and excitedly rub my belly for good luck.
All of that is tolerable for me, because it’s nice to see how a baby can bring such joy to strangers who don’t even know what kind of person you can be sometimes, but mostly because it’s what I’ve been doing to my friends who have been pregnant
(sans the belly rubbing thing; I already know that it’s impolite to do so without asking, especially as some creepy stranger who doesn’t look like a grandparent)
The attention will already be there, I can do without the rest of it.
FOR WHERE I GO:
As a traveler, I have no interest in the slightest in visiting Africa, Russia, or the Middle East.
I know plenty of adventurers who are thrilled at the chance to visit such untouched, beautiful landscapes, to interact with cultures so very unlike their own, and to live on the edge of danger in some cases, but I am not one of them.
Photograph I took in Portugal of a very old stone home — this is as untouched as it gets for me.
I also don’t go to events that are a waste of my time.
I avoid parties and get-togethers with people I don’t enjoy talking to because I’ve already met them once, twice, even thrice, and they were insufferable each time.
I don’t need (or want) to go out of my way to be mean to anyone, but why should I force myself to interact with people I don’t like, when my time is already limited?
Life really is too short.
Although I must admit that I enjoy going to events to meet new people, such as meeting readers, blogger meet-ups, or anything where I think I might meet an interesting stranger to talk to and share ideas with.
You never know.
Even if I don’t meet anyone for a long period of time, I’m okay with that too.
I’m more of an introvert than an extrovert (I don’t thrive off the energy of others), and I’m content with being by myself and having fewer, but higher quality interactions.
FOR WHAT I DO:
I also don’t spend my money on hobbies and activities that I don’t want to do.
Playing the piano?
Yes please. I’ll put in a few thousand for a nice digital piano that can travel around with me.
(I really want this Roland 700NX some day. It plays like a dream.)
Playing the violin?
Put that thing away, I was never a fabulous student at it even after 5 years. I can play it, but I don’t enjoy it as much as listening to the real virtuoso who can make my heart sing like Joshua Bell.
It just made me think of a tortured cat, and I was doing it to myself.
But only to countries and areas I actually want to visit and take an interest in, and am able to explore and live like a local for a temporary period of time.
Photograph I took in Port Stanley, Canada
Don’t ask me to go to the Caribbean with you to sit on a beach, get skin cancer, feel down right covered up in my one-piece bathing suit, and have to politely refuse cocktails every half hour because I don’t like to drink.
That is more stressful than relaxing for me, especially if you think about all the armed guards with machine guns patrolling the borders of the resort.
LIVING FOREVER IS NOT THE ANSWER
Living forever is not the answer. Making the most of your time today, and living in the Now, is.
Don’t waste your time in a career that you won’t enjoy.
Slash your budget, live on less, and open your possibilities up to doing WHAT you want rather than what you should, because you have a car payment on a vehicle you couldn’t afford in the first place.
Otherwise, find a career you enjoy that makes good money as well (right, I might as well tell you to go search for a black unicorn right?).
…but it’s really true that you just have to sometimes sit back and not force anything to happen.
Look for jobs, take on things you normally otherwise wouldn’t try, and you never know what you’ll end up in.
Most of all, choose the life you’re living, and do what you want to do, taking into account all the sacrifices you will have to make to live with your choices and values.
DO YOU WANT TO LIVE FOREVER? HAVE YOU EVER THOUGHT ABOUT IT?
This is a part of the Investing Series.
There are plenty of reasons to invest in index funds, and in generally, it’s suggested as a solid strategy for 90% of people, a sentiment that I agree with wholeheartedly.
This is why I’m going to start with index fund investing, which is what I’ve been doing for years, and what I’d recommend someone else to be doing with their money as well.
It is easy, it is passive and it doesn’t take a lot of time if you don’t have the inclination or interest to put towards it.
In the Investing Series, I’ll also go into other strategies and other questions that may have come up during my years of learning about my money, but this is the first thing I want everyone to learn about, and that is about index funds.
WHAT ARE INDEX FUNDS?
Index funds are a type of mutual fund.
Read: What is a mutual fund?
It’s a name given to mutual funds that basically track the stock market of a country.
Other mutual funds are called actively managed mutual funds, which are not “index mutual funds”, which are considered passive.
Actively managed funds means there’s a manager who is paid to take care of that fund and spend time reading, researching and finding stocks to pick for the best return, like this manager:
WHAT IS AN EXAMPLE OF AN INDEX FUND?
S&P 500 for instance was published in 1957, and is just a list of the top 500 U.S. companies.
As a result, it is considered a good representation of the U.S. stock market, and there are mutual funds built out there that mirror or track the S&P 500.
Other names an index mutual fund could be called by:
- Tracker fund
- Index-tracking fund
- Index Tracker
- Index fund
SO STANDARD AND POOR (S&P 500) IS NOT THE WHOLE STOCK EXCHANGE?
No, it isn’t.
It’s basically a listing of the top 500 common stock companies (hence S&P 500) that trade publicly on the U.S. stock exchange.
INDEX FUNDS ARE SIMPLE AND PASSIVE
You may be wondering: How hard can it be to track an index in a mutual fund that is basically already published for the world to see and use?
Not hard at all.
This not only saves you money because you won’t be paying for an actively-managed fund with an active fund manager, but they’re simple to understand and follow.
INDEX FUNDS DON’T NEED MUCH MAINTENANCE
Unlike stocks and keeping a stock portfolio, there really isn’t much to do except re-balance your portfolio 1-4 times a year.
INDEX FUNDS ARE CHEAP
An actively managed mutual fund has higher Management Expense Ratios (MER), not to mention other hidden fees like buying and selling these funds (also called “no load fees”), and this is because you’re paying for someone to actively watch over the market, toss out stocks that are underperforming and pick up the winners.
The problem with all of this buying and selling is that it’s time-consuming for the fund manager, and they incur a lot of costs in doing so, which are all passed on to you — the unwitting investor.
The lowest funds in this list, are the ones that barely give you a return to justify that Management Expense Ratio (MER):
Just look at it — money market, bonds.. all of that is equivalent to “cash” to an investor’s eyes.
So if my “cash” is just sitting in the bank, barely making any money, why am I being gouged 0.16% to 0.77% for keeping my money in the bank each year?
I’d be better off putting it in a high-interest savings account. At least I’ll get the (possibly) higher 1.8% return on my money, AND not get charged a 0.16% – 0.77% fee per year.
The highest MERs are always the ones that are the riskiest like Emerging Markets or High-Growth markets like Asia or Brazil.
They charge almost 3% in MERs:
Now if we look at the difference between TD Mutual Funds and TD e-Series, the difference is sickening:
TD MUTUAL FUNDS — S&P 500 INDEX FUND
TD E-SERIES MUTUAL FUNDS — S&P 500 INDEX FUNDS IN CAD
The exact same fund but held in U.S. dollars, charges the same 0.35% MER, and the only one that charges more is the Currency-Neutral one:
So 0.54% versus 0.35% is a difference of 0.19%.
For currency-neutral, it is 0.89% to 0.51% or a difference of 0.38% (wow are they EVER gouging you!).
It may not seem like a lot of money to you right now (who cares about a percent of a percent!?), but if you start investing and building a larger and larger portfolio, it becomes a significant amount of money that you could keep in your pocket, simply because it’s e-Series and you have to learn how to click on a button to “exchange funds”.
Or learn how to buy them online (dead easy).
Want an even BETTER deal?
Just look at Vanguard Canada’s list of index ETFs:
I’m drooling over here.
The worst one is 0.49% and that’s for the super risky emerging market index, which as you might recall, TD Canada Trust doesn’t offer in their E-Series, and they were charging a 2.89% MER for it, or a difference of 2.4%!!!
THE ONLY ACTIVELY MANAGED FUND TO DO CONSISTENTLY BETTER THAN AN INDEX FUND COSTS $145,000 PER SHARE
I think the only famous and actively managed fund that has consistently returned more money than the average index fund, is Berkshire Hathaway led by this guy:
Warren Buffett, the Rainmaker
The problem is that Warren Buffett is ONE GUY out of millions who think they can do the same thing.
He has a memory for numbers that is a gift that ordinary people cannot replicate no matter how hard they try.
He is one in 6 billion, literally.
Now that we’ve established Buffett is a genius, do you know what Buffett says about the average investor?
“Warren Buffett said on Sunday most investors are better off putting their money in low-cost index funds”
Hmm you don’t say.
WHY INVEST IN THE AVERAGE INDEX FUND VERSUS AN ACTIVELY MANAGED MUTUAL FUND?
If you invest in index funds, you’re investing in the average of the stock market.
Sounds boring right?
This is exactly the reason why a lot of people don’t invest in index funds.
SHEER FREAKIN’ BOREDOM.
You don’t have really do anything with an index fund strategy.
It is literally SET and GO. You just check on it once a year, if that.
It’s just so much sexier and enticing to read about an actively managed fund that returned 50% last year, and only had a MER of 2%.
So if you read that a passively managed index fund returned 10% last year in comparison, even though its MER was only 0.15%, you’d probably lose interest pretty quickly, even if it’s a steady, consistent return.
The one thing we miss out on, is that we should take a long-term look at the stock market in general, not a short-term look (1-year to 5-years is considered a short-term view).
If we look at an index fund representation of the stock market for the long-term of at least 25 years, it would look something like this:
S&P 500 Total Return (including dividends) since 1988 (25 years)
According to Standard & Poor’s, the dividends were responsible for 44% of the total return of the index over the past 80 years.
(I also recommend dividend investing for those of you who have mastered index fund investing, are bored with it, and are interested in learning something more time-consuming, but I will go into more detail later in this Investing Series about why it rocks.)
Even if you retired at the dips of the stock market in between 2000 and 2005, and 2005 to 2010, you’d still be ahead from when you started.
If you want play around with these numbers, check out Don’t Quit your Day Job’s S&P 500 Dividends Reinvested Price Calculator (With Inflation Adjustment) here.
Index investing is basically investing in the idea that the stock market over a long period of time will go up as an average, because as the world gets bigger, the economy will grow, and the stock market will go up.
REMEMBER TO LOOK AT AN INDEX OF A STOCK MARKET WITH DIVIDENDS REINVESTED
You have to remember to look at the TOTAL S&P 500 Return with dividends reinvested. They make up over 40% of the actual growth of an index (makes sense), and you’d be silly to just look at the S&P Index without taking into account the rest.
TD Mutual Funds E-Series do handle this:
The key words are: “Total Return”, here.
You can check out other indexes such as:
- Dow Jones Index (USA)
- Wilshire 5000 (USA)
- S&P/TSX Composite Index (USA and Canada)
- FTSE 100 (UK)
- FTSE All-Share (UK)
Keep in mind that indexes tied to a specific country will go up and down based on how well the country does.
INDEX FUNDS AREN’T SCHIZOPHRENIC
They have ONE investing style — the general, overall broad stock market.
There’s no jumping back and forth in strategies depending on whether the fund manager changes her mind, or whether they change out the fund manager for someone else.
One style. One idea. One path.
INDEX FUNDS VERSUS STOCKS
In regards to stocks, a lot of people will say that investing in index funds is silly and boring because you could earn so much more than the average on the stock market.
This is partly true because stocks that return more than the average stock market do exist, but the problem always comes in finding and choosing those winning stocks.
We simply don’t have enough money to invest in all the stocks that we want. Index mutual fund investing allows us to invest in hundreds of stocks (500, if you look at the S&P 500), without putting out a huge amount of cash.
It’s discouraging to add up the numbers and think: Wow, just ONE stock could cost me $600. I barely save that in 2 months!, and some people might give up at this point if that was what investing was all about.
Index fund investing is for the majority of folks (like me, when I started out) who have at least $25 a month to get started.
Look, if we all knew that Google or Apple was going to take off the way it did early on, and if we had plunked all of our money down on these two stocks, we’d be millionaires today.
Unfortunately, we don’t own crystal balls, and predicting the future of a stock (no matter how good it looks on paper), has 2 major flaws:
- Human investors are irrational and we are prone to panic like wildebeests in a stampede
- Even running all the numbers, doesn’t necessarily confirm whether it’s a good stock to buy or not
It’s still a bit of a guessing game with a lot more risk.
WHY I INVEST IN INDEX FUNDS
I currently have about 50% of my portfolio in index fund investing, this is for a few reasons:
- I don’t like heart attacks and panic attacks on my money going up then down, then up…
- I don’t want to spend my every waking minute checking the performance of stocks
- I like that over time, index fund investing beats actively managed mutual funds
- It’s low cost and I don’t like paying fees especially when I want moderate, stable returns
- I also have a strategy for investing in stocks with dividends that make sense to me (more later)
- I’m hedging my risk in a way, by investing in the overall stock market & also in specific stocks
- I also have a third (mini) strategy for investing in stocks for capital gain (more on that later)
Basically, buying stocks and even researching dividend-paying stocks is time-consuming, you have to care about it, and do a lot of research.
It is basically sucking up at least 10 – 15 hours a week because I am in the midst of building a portfolio. If I buy a lot of companies, I have to spend the time to review each and every one.
Index funds? Kind of passive. Boring. Mundane.
It’s just as good as stuffing it into a savings account in my opinion, and a solid strategy for most investors who don’t want to bother with reading about financials on a stock, doing calculations, agonizing in their chair with a cup of tea of whether or not they should pull the trigger and buy the stock.
For playing with individual stocks for capital gain, I never play with more than what I can afford to lose, which is about 5% of my net worth.
I’m doing any kind of stock investing for fun, and I am not interested in losing the bulk of my wealth over night.
If you want MORE convincing from far smarter people than I, you should read this book I was given when I first started my career and then started investing: Index Funds: The 12-Step Recovery Program for Active Investors
It is as funny as the title
Or at least, as funny as you can make index fund investing seem.