Month: July 2023

Best Time to Invest in the Stock Market

Most investors are interested in a definitive answer to question of when is the best time to invest in the stock market. And for good reason. After all, no one – and I mean no one – ever wants to lose money. We work very hard for our paycheques. It stands to reason that you would want to buy at the very best time in order to ensure that your investment realizes the maximum return.

For my part, I’ve been investing in the stock market since I was 21. My method isn’t perfect, and I’m sure that there are other ways to do things. However, I’m going to share my 3-question strategy with you and let you decide for yourself if it will work.

Question 1 – Is the stock market heading down or dropping?

If the answer is yes, then I invest.

Here’s my reasoning. When the stock market is dropping, that means stocks are on sale. My exchange-traded funds are comprised of stocks, so my the price of each unit in my ETF is lower too. In other words, I can buy more units in my ETFs when the market is down than I can when the stock market is up.

It’s akin when my favourite coffee is on sale at the grocery store for $4.99 instead of its regular price of $8.49. I stock up when the price is lower because I know the price is going to go back up! I need my coffee and it’s best to buy it a lower price.

The same principle can be applied to investing in the stock market. I need the capital gains and dividends that my investments generate each year. Those returns are consistently re-invested for compound growth. When I retire, my portfolio will continue to generate capital gains and dividends. At that point, I can stop re-investing them and use the money to fund my retirement.

To re-cap, if the stock market is down, I invest and take advantage of the sale on stocks.

Question 2 – Is the stock market going up?

If the answer is yes, then I invest.

Let me explain why. Bear markets are when stock markets are going down. Bull markets are when stock markets are going up. If we’re entering a bull market, that means the value of my ETFs unit will be going up and it also means that the value of my overall portfolio is going up. Companies within my ETFs might decide to increase their dividend and capital gain payments, which means my ETFs will pay me more money each month.

In order for me to benefit from those increased dividend and capital gain payments, I will need to own as many units as I can in my ETFs. One of the only ways to own more is to buy more. The other way to own more is allow my dividend re-investment plan to buy more units each month. However, I think you’ll agree that buying more with my monthly contribution + relying on the DRIP-purchase means that I’ll acquire more units more quickly than by relying on the DRIP-purchase alone.

So when the market is on its way up, I want to invest so that the value of my portfolio also benefits from the increase in the stock market value.

Question 3 – Is the market going to go up or is it going to go down?

This is just a trick question. Whether the answer is “yes” or “no”, I invest.

See, I’m not a professional stock trader. I don’t spend my days staring at the stock market screens or doing in-depth stock analysis. I’m just a Blue Lobster who likes spending time in my flower garden, cooking tasty things, playing with my littlest family members, going to theatre & dinner with friends, traveling at home and abroad, reading good books, and getting enough sleep.

I have no inclination to learn about stock market fluctuations, nor to track them day-to-day. I would rather invest monthly into an equity-based, broadly diversified ETF and let time do the rest. (For the record, I still have my dividend ETFs, but I’ve been investing my monthly contributions into VXC since October of 2020.)

My strategy for finding the best time to invest in the stock market is very, very simple. I invest in the stock market every 4 weeks, which works out to 13 transactions in a year. My next step is not sell what I buy. It’s what’s called the buy-and-hold strategy. I buy – I hold – I re-invest – I repeat. This is how my strategy has resulted in very nice, very passive cash-flow that’s equivalent to an entry-level, full-time job. My dividend ETFs continue to pay me a 4-figure amount every single month, and that amount is continuously increasing. My equity-based ETF pays me a 4-figure amount each quarter. All of my ETFs pay me capital gains at the end of the year.

The way I see it, the best time to invest in the stock market is when I have the money in my bank account to do so. Up, down, or sideways – my portfolio is paying me cold, hard cash on a regular basis. When I automatically re-invest that cash and add it to my monthly purchases, I’m effectively giving myself a licence to print money. Each month, I earn a few more dollars in dividends than I earned the month before. It’s a wonderfully passive way to grow my portfolio, without having to worry about picking the “best time to invest”.

There You Have It

This is my 3-step strategy for picking the best time to invest in the stock market. Your mileage may vary. I’m humble enough to admit that there may be better ways than mine to decide when to invest. What I can tell you from personal experience is that my method works. I’m a self-taught amateur investor who has managed to create a portfolio that will comfortably support Future Blue Lobster. I continue to read and learn. Some tips I like. Some, I don’t. The one constant theme in everything that I learn about investing is that you have to invest your money. It’s the absolutely most important step you simply must make to successfully grow your investments.

When someone asks if this is best time to invest in the stock market, the answer is “Yes!”

Start Planting Your Money Tree

Everyone wants their very own money tree. Financial problems would be so much easier to solve if you could just pick money off a tree and pay whatever needs to be paid. Well, I’m here to tell you that you do have the power to do this. All it takes is a little bit of disposable income, a plan, and time.

By keeping such a magnificent type of fauna alive and at your disposal, you’ll reap the rewards of the harvest for a good long time. The key is to plant the moeny-seeds. In layman’s terms, you have to start investing your money. Then you have to consistently continue to invest your money. The sooner your money-seeds are planted, the sooner they will grow into an orchard of money trees. And who wouldn’t like an orchard filled with money trees?

Planting Seeds Leads to an Orchard

Each time I invest a portion of my paycheque, I’m planting seeds. They’re simply money-seeds, or atleast that’s how I like to think of them. They’re deposited to my portfolio account so that I can buy more units in my exchange-traded funds. Those ETFs are on the dividend re-investment plan. When the ETFs pay me dividends and capital gains, those monies are automatically re-invested into more units of the same ETFs. This creates a perpetually growing dividend-and-capital-gains-paying cycle.

I liken this cycle to the growth of the tree. In other words, my money tree gets bigger and bigger each month as my dividends and capital gains are re-invested.

When I retire, I can let the cycle continue to grow month-in-month-out, or I can stop the cycle by cancelling the DRIP. The dividends and capital gains will still be paid out every single month. Instead of being re-invested, they’ll go towards making my retirement just a wee bit more comfortable. You know – flying first/business class on my travels, monthly massages, grocery-shopping without scrutinizing the prices, whatever little extras my heart desires…

Money I Didn’t Have to Sweat For

Planting money-seeds leads me to earning money that I didn’t have to work for. Dividends and capital gains are passive income. Once I’ve laboured to earn the money-seeds, my labour stops once I’ve invested them. Thirty years ago, I opened my first RRSP and invested my contribution. That investment is still generating money for me… and I haven’t had to lift a finger.

Most of us work hard for our money. In colloquial terms, we have to sweat for it. Some of us have to bleed for it. Wouldn’t it be nice to earn money the easiest, legal way possible? Can you imagine having money just flow to you every single month?

There is a way to do it, and it’s called investing. You put in the work up-front and invest part of every paycheque that you earn. The third step is to sit back and watch the money roll in.

I will be very honest with you. Dividend investing takes a very long time, unless you have 5-figure sums to invest every month. If you do it long enough, you’ll be earning amounts every month like this Anonymous Fellow. In the interests of transparency, I’m willing to admit that it’s taken me 12 years to get to an annual dividend amount that would sustain my current lifestyle. However, I’m an amateur dividend investor. Had I made smarter choices way back when, then I would be in a much better situations. No sense dwelling on it now because I cannot go back and change things.

What I can do is give you some suggestions of people to learn from if you have any interest in learning how to plant a money tree for yourself:

Tawcan

Dividend Dream

My Own Advisor

And I’m sure there are many others out there. These are just the people whose stories I’ve followed for the past few years. They’re teachers. They’re transparent. They’re honest about the challenges they’ve faced and the mistakes they’ve made. I’ve learned a lot from them and I wish they’d bee around when I started my own investment journey. But since I’m almost older than the internet, I won’t blame myself too, too much for not having found them sooner.

Choices Have Consequences

We’re all old enough to know that there are consequences for everything we do… and don’t do. It’s no different with investing. If you invest consistently & profitably, for a decent period of time, you’ll have a nice cushion of cash waiting for you in the future. Planting your money tree today is one of the very best things you can do for Future You.

It’s always a good idea to choose yourself. Unless you’re a child, you’re the only one responsible for identifying what you want from you life and how to make your dreams a reality. Doing so will take some planning, a fair amount of time, and definitely a little bit of money. And as one dream made real, you’ll be able to set your sights on make another one come true. In the words of Ramit Sethi, you need to know how to build your Rich Life.

And if you choose not to invest, well… then you’ll have to depend on the kindness of strangers, your family & friends, or a job for the rest of your life. You’ll need money until the day you die. Pretending otherwise is foolish and short-sighted. At the end of the day, it’s better to take control now and take the steps necessary to build up a cash cushion that will keep Future You fed, warm, and happy. And don’t you want that for Future You?

Making Easy Money With Dairy Cows and Steers

Yay! The time has finally come. You’ve opened your brokerage account and you’re ready to start filling it with money-makers. It’s time to ask yourself if you want dairy cows or beef cattle?

Steers are grown to become beef. You buy the calves, grow them up, then send them to slaughter. If you’re very lucky they grow nice and big while you own them, then return a good price to you once sold. Of course, between buying the calf and selling the steer, you’re going to have to hope that it doesn’t get sick or getting into any kind of accident that damages its value. You’ll have to wonder about the kind of feed its getting and whether the rancher is taking good care of it on your behalf. And you most definitely don’t want the animal to die, since that means you’ve as good as burned your money in a pyre. Raising a calf to a full grown steer entails a lot of hope that nothing goes too terribly wrong between buying and selling.

On the other had, dairy cows produce milk. Good ones produces 9 gallons each day! Such a cow is never sold, just the milk that’s produced. So long as you own healthy and productive dairy cows, you’ll get paid when the milk gets sold. It’s reliable, steady income – all you had to do was buy the cow. Easy peasy, lemon squeezy.

So which one do you think you’d prefer to own in your brokerage account?

Blue Lobster… what’s wrong with you? Why are you talking to me about cows?

For some newbie investors, thinking about cows is easier than thinking about financial products.

Since this blog is simply a collection of my rambling thoughts about money, I’m using an analogy that I heard this week. Investments that produce dividends are like dairy cows that produce milk. However, growth stocks are like beef cattle. You want to buy these stocks when they’re cheap (young & small) and sell them when they’re expensive (big & strong) so that you can reap the increased value.

For my part, I was a staunch believer in dividend-paying exchange-traded funds, i.e. the dairy cows. I still love watching dividends pour into my brokerage account every month.*** Every month, a modest 4-figure amount of money flows into my account and is automatically re-invested into more ETF units. It’s a wonderful self-perpetuating cycle that generates more and more dividends every month.

That said, I’m learning more and more about growth ETFs and mutual funds. They might pay dividends or capital gains, but they might now. These are products that are focused on growth companies. Generally speaking, they are way more volatile than my dividend-paying products. Their returns are higher and their losses are deeper, but over the long run they are probably the better bet for long-term investors. Again, I’m suggesting – not guaranteeing – that investing in a broadly-diversified, equity-based ETF will give you higher returns over 10+ years. If you’ve got a long investing horizon, then that’s where you should put your money.

I want to make another thing very, very clear.

I do not invest in individual stocks.

Before continuing, please go back and re-read the last two sentences. I don’t want there to be any confusion whatsoever. I do not invest in individual stocks.

I’m not interested in learning how to master that art, but I can see the benefits for those who do. If learning how to buy individual stocks is something you’re interested in, then visit Tawcan’s blog. He buy individual dividend-paying stocks and is earning a very impressive amount of dividends each year. Let’s just say that his herd of dairy cows is sizeable! I’m pretty sure the same analytical principles can be applied to buying growth stocks too, but that’s not my field of expertise or interest so enjoy yourself. I’ll stay here and stick to ETFs since they’re cheaper than mutual funds and easier for me to understand. Also, I’m a bit lazy and don’t mind paying minuscule MERs to someone who’s already done the work for me.

Finally, there’s no rule saying that you can only have one and not the other. Maybe you want a bit of both. For my part, all of my new money is going into VXC with Vanguard Canada. I switched to buying steers when the market was on the upswing in 2020. Had I been paying attention, I would’ve started buying steers in March of 2020 when the market was at its bottom. Oh, well – better late than never! I wised up and switched my investments to growth-oriented ETFs. It was the right move for me.

Keep in mind, I didn’t sell my dairy cows. In other words, I kept my dividend-paying ETFs. After nearly 10 years of faithfully investing part of my paycheque, the dividends from those ETFs are going to comfortably support me in my retirement.

So nearly 3 years after the stock market was pummelled at the start of the pandemic, my portfolio is the healthiest its ever been. You have the power to do the same thing with your portfolio. Despite the doom and gloom of the headlines, you’re in this for the long haul. Like investors who came before you and who didn’t sell at the bottom, you can make money over the long haul. All you need to do is add some dairy cows, or some steers, or a little bit of both, to your portfolio. Invest a little bit of every paycheque you earn and do so no matter what. Don’t spend your dividends and capital gains. Instead, re-invest them every year and let time do the rest while you go about building the life that you want for yourself.

It may not always be easy, but it really is just that simple.

*** For the very first time ever, I’m on track to receive enough total annual dividends to cover all of expenses for the year barring any big financial emergencies! It’s a very good feeling.

One Day At A Time

There’s no doubt about it. Anyone who’s slightly aware of the news is hearing that things aren’t good, that we’re heading into a recession, that inflation is climbing, and all other manner of negative stuff about personal finance.

You know what I want you to do about it? I want you to take things one day at a time.

If I’ve learned anything during my few decades on this little blue ball we call home, it is this. No one knows what tomorrow will bring. People will guess and predict and estimate and prognosticate. They will do all kinds of worrying about all kinds of stuff. And you know what?

The future unfolds one date at a time, for everyone. There is no way to be 100% certain about what will and what won’t happen at any given moment. So do yourself a favour and don’t even try.

Instead, focus on what you can control. Do what you can then go about the business of living your life.

Top Up the Emergency Fund

At the very absolute least, have $100 in your emergency fund. It’s certainly not enough but it’s better than nothing. Squirrel away every extra nickel you have into your emergency fund until you have one month’s worth of expenses in there.

Oh, you have that much already? Okay – then your goal is to get yourself to two months’ worth of expenses. I want you to increase your emergency fund until you have one year’s worth of expenses ready to be deployed in the event of a true emergency.

When the emergency hits, you will be very pleased that Yesterday You had the foresight and brains to set something aside. Whatever your emergency winds up being, adding debt to the situation will likely not make it better.

Don’t Stop Investing

If you’ve been following my advice for any length of time, then you have an automatic transfer in place to whisk part of your paycheque from your chequing account to your investment account. You then invest that money into an equity-based exchange-traded fund for long-term growth. You’re doing this month-in-and-month-out, while ignoring the Talking Heads of the Media.

I want you to continue doing this. Look. The economic cycle has its ups and downs. Right now, we’re in – or heading towards – a bottom. For you and me, that means everything is on sale. It’s good to buy things when they are on sale. And due to very fact that the economic cycle is a cycle, the value of the equities – aka: the stock market – is going to go back up.

For those of you who haven’t started investing, start today. Set up your automatic transfer. Pick an ETF or index fund that invests in equities. Invest your money on a consistent basis. Set up a dividend re-investment plan – aka: DRIP – so that your dividends and capital gains are automatically re-invested. Ignore the Talking Heads and go about the business of living your life in the way that makes you happiest.

Spend Consciously

It’s your money so you get to spend it however you want.

That said, might I suggest that you only spend on things that bring you the most joy?

I’ll use myself as an example. At one point, I had 4 streaming services. I was considering adding a fifth when I stopped to ask myself if I was really loving having the initial four. The answer was “No”. Sure, I watched all of them at random times but I could go weeks without watching atleast one. So I cancelled the one that brought me the least amount of quality entertainment.

You see – I was spending to spend and not because that fourth streaming service adding something extra special to my life.

Look at where you’re spending your money. Unless every nickel spent is making your life better, consider cutting some expenses and seeing how it goes. After all, the beauty of our capitalist system is that they will always take your money at some point if you decide to give it to them again. By “them”, I do specifically mean anyone who is currently taking your hard-earned money and giving you a product or service.

Live in the Present

Like I said at the beginning, no one knows what the future will bring. The economy will recover, but I can’t tell you exactly when. Neither can anyone else. And I’m fairly certain that you will sleep easier knowing there’s a cushion of cash waiting for you in case you need it.

Do what you can do then live your life. Spend time with those who renew your soul. Do something creative. Read a book – better yet, write a book! Do your hobby, or start a new one. Talk to someone new. Visit a park or a garden to spend time in nature. Put down your phone & shut off the computer or tablet. Sit quietly for 10 minutes. Take a nap.

Listening to the Talking Heads will not calm your nerves. Their job is to get ratings, not to be right. If you can, rerun the tapes from 6 months ago and see who – if anyone – had correctly predicted every single thing that’s happening today. None of them accomplished this impossible feat! If they couldn’t do it 6 months ago, then it’s highly likely that they still can’t do it today.

There’s no benefit to worrying, or fretting, or considering endless what-if scenarios. Worrying and fretting changes nothing. There will always be a what-if that you didn’t contemplate. Taking the actions that I’ve articulated above will put you in the best position to survive – financially – whatever tomorrow will bring.

At most, you control your choice to live below your means and to invest for the future. Once you’ve chosen to do so, then your next best step is to take things one day at a time.

Retirement Is Not An Age. It’s A Bank Balance.

Truth be told, retirement is a bank balance. People commonly think that of retirement in terms of an age. Traditionally, it’s been age 65 and lately it’s been cropping up to age 70. For a little while in the 90s, age 55 was the catchy second half of a very successful marketing campaign called Freedom 55.

I’m here to tell you that age doesn’t determine when you retire. Your bank balance does that. Think about it for a minute? If you hit age 55, 65 or 70 with $17.89 to your name, can you really consider yourself retired? Is there even the slightest possibility that you’ll have to keep working because you won’t have enough money to live?

On the other hand, if you have $23,000,000 in your bank account by the time you’re 30, 35 or 42, then it’s quite like that you have the option to retire. Whether or not you do so is entirely up to you. The fact is that it is the amount of money in your bank account that determines when you’re financially able to retire.

Age has little to do with when you can retire. The more you invest, and the sooner you invest, the faster your net worth will hit an amount that will allow you to retire. This is the premise behind the hard-core-retire-as-soon-as-humanly-possible articles from FIRE people who are willing to live on the absolutely least amount of money. Some people are willing to save 70%, or more, of their incomes so that they can live off their dividends and capital gains without working for someone else. More power to them!

Myself, I choose not to save quite that much. Make no mistake. I do want to retire early, but I don’t want my life’s journey to be miserable. Living on 30% or less of my take-home pay would make me miserable. You might be able to do it with ease, but maybe not. You’re the only one who can make that call.

But back to my main point…

Spending Every Penny

If you spend every penny throughout your life, and borrow to spend more, then you get to retire never. It’s a harsh truth. You need to have extra money available to divert from today’s spending.***

That money has to be invested for long-term growth. This is why I repeatedly suggest that you invest a portion of every paycheque into equities and to re-invest whatever dividends and capital gains your investments generate. Unless you’re saving huge amounts of money, it’s going to take a long time to build the cash cushion that will fund your retirement.

Again, there’s no magic to the age 45 or 50 or 65 or 70. You can retire as soon as your portfolio generates enough money to replace the money from your paycheque. You’re also going to want your portolio’s annual growth to outpace inflation. No one aims to dust off their resume at age 90! You need your money to grow faster than inflation so that your purchasing power isn’t eroded over time.

In other words, retirement is a bank balance. Once you have enough money in the bank, you can retire. Live below your means so that you always have money for investing. Stay of out debt too. Money spent on repaying your creditors is money that cannot be invested for your desired retirement.

Semi-Retirement

If you need more motivation to save and invest for your future, always remember the following. Employment options widen considerably once your portfolio generates enough to cover the living expenses that won’t be covered by a potentially lower salary. Happiness – and semi-retirement – might be just one employment move away if you have enough money stacked to pay your bills.

The principles of saving for retirement apply equally as well to semi-retirement. Maybe you hate your current job with an unholy passion, but all the jobs you truly want to be doing will pay you less. You earn $75,000, your annual expenses are $60,000 and you invest $15,000. The job you really want to do only pays a salary of $40,000 and your portfolio generates $30,000 per year. (These are net income numbers, not gross.)

Since your portfolio covers half of your $60,000 expenses, then you can take the lower paid, but soul-enriching job. And in this example, you will still have $10,000 each year to invest into your portfolio (= $40,000 – $30,000), so your portfolio would still be growing. Admittedly, you’re saving $5000 less per year and you may have to work longer. Yet, you wouldn’t hate your job and you wouldn’t be miserable while working. Only you can decide if you hate your job enough to take a pay-cut.

No Downside to Saving & Investing

If there’s even the slightest chance that you don’t want to work until the last breath leaves your body, you should be saving and investing as much as you can.

Absolutely spend on what brings you joy, but ruthlessly cut out everything else. When you spend your money, I want you to be getting maximum utility and joy out of that purchase. Your money shouldn’t be wasted on that which adds nothing to your lived experience. What sense does it make to spend your money on things that don’t bring you joy?

Again, retirement is a bank balance. It is not an age. If you start today, then you can reduce the risk of having to work into your dotage. If you’re still working at age 70, 80, or 90, then make sure that doing so is a choice and not a requirement.

Do what you need to do to increase the odds of having the retirement you want when you want it.

*** Our economic system is designed so that people at its bottom live hand-to-mouth for their entire lives. These are the folks who legitimately have nothing to save because they are just barely surviving from one paycheque to the next. This article – and most retirement advice – is not for them. People in financially-precarious situations are forgiven for focusing all of their energy on surviving from one day to the next. Everyone else has no excuse. If you’ve got some fat to trim in your budget, then you’ve got the money for saving and investing. You’re simply choosing not to.