September, 2023 - Millionaire on the Prairie

Regretting Financial Mistakes Is a Waste of Your Time

Regret has no place in your financial plan. You’re not perfect and you will make mistakes with your money. Once you’ve identified a money mistake, don’t spend your time regretting it. Simply make a course correction to stop making that mistake and move forward. The past cannot be changed so learn from your mistakes and resolve not to make the same ones in the future.

When I started investing, I picked a dividend investment strategy. I started by buying into dividend mutual funds. Eventually, I learned about management expense ratios (MERs) and discovered that I was making the mistake of paying 10x as much for mutual funds when I could acquire the same assets through exchange-traded funds (ETFs). There was no way to recoup my time or those MERs, so I simply moved my money to ETFs. I made a course correction and moved on.

What is the point of spending time regretting choices that were made when I didn’t have the best information available to me?

Once I learned better, I chose better.

Dividends vs. Growth

A doozy of an investing mistake still hurts. I can only blame myself for this one. My belief in the wisdom of my own choices meant that I didn’t properly consider what was going on around me. I wasn’t learning the lesson, no matter how many times it was hitting me in the face…sigh…

Remember that phenomenal bull-run that was experienced in the stock market between 2009 and the onset of the pandemic in 2020? The one where the S&P/TSX Compound Index grew by 125%? The one where the S&P500 increased by 378%?

Guess who was still investing in a dividend strategy instead of investing in US-growth equities?

That’s right. Me.

It was a huge mistake in my financial planning. I had so much faith in my own choices that I missed out on a fantastic opportunity to invest over the long-term. I made sub-optimal investing choices for 11 years!!! At any point, I could’ve realized how I was missing out on growing my portfolio much, much faster… but I didn’t.

Instead, it wasn’t until October of 2020 that I finally saw that I was again missing out. I was determined to benefit from recovery that followed the pandemic-induced stock market plunge. So I course-corrected. I started investing in an equity-based, well-diversified ETF and I haven’t looked back.

Regret has no place in my financial plan. Of course I wish I had made optimal choices at every single point throughout my investment life, but horses aren’t wishes so this beggar can’t ride. I’ve done what I’ve done and I get to live with the consequences.

And all told, my choices weren’t the absolute worst ones out there. To date, I’ve been investing for 3 decades. My dividend portfolio will ensure that my retirement is nice and comfy. I chose to start young, which is always preferable to starting when old. As far as mistakes go, I could’ve done far worse.

Now, all of my investment contributions are going into the equity-based growth ETF. Its performance is giving my portfolio higher returns, which is always appreciated. I have no plans to stop investing in my ETF, even after I retire. It will continue to mimic both the volatility and growth of the stock market, which is a good thing over the long-term.

Taking a Break vs. Riding the Rollercoaster

I made another huge mistake during the crash of 2009. Instead of continuously investing, I stopped my contributions. Thankfully, I didn’t make the mistake of selling anything while the price was down! Yet, it would’ve been smarter to ride the rollercoaster of volatility during that crash. I would’ve been buying into my dividend-paying companies when they were all on sale!

Woulda. Coulda. Shoulda.

No regrets, remember? Instead, I resolved to never stop investing. As we all remember, the stock market took a huge plunge when COVID-19 was declared a pandemic. Between you, me, and the fencepost, I lost a third of my portfolio’s value on paper. I know because I checked my brokerage account daily during those first few months.

Truth be told, I really don’t know how many paper losses I suffered because I stopped looking at the number after I’d lost that first third. It was too painful.

But you know what I didn’t do? I didn’t stop investing! Even though the market plunged steeply between February 21, 2020 to March 23, 2020, I continued to buy into my dividend-ETFs. And throughout the recovery between March and October of that year, I stuck to my investing schedule and bought many, many, many units in my ETFs-of-choice.

The mistake of 2009 was not to be repeated! Instead of taking a break from investing, I rode the rollercoaster of the stock market. It paid off. Buying those ETF-units when the market was down allowed me to accumulate way more units that I would have otherwise. Each of those units pays more dividends today than they did in 2020. The end result is that my monthly dividend payment is much higher than it was before the pandemic.

Secret Sauce

Like I’ve said before, the secret sauce isn’t being bright. Rather, it’s being persistent. The genius of the secret sauce is following 3 basic steps, over and over and over again.

Make the choice to invest. Then invest. And don’t stop investing.

Everything after that is simply a detail. You follow the steps, and you course-correct when you make your inevitable mistakes. Don’t waste your time on regret. There’s nothing to be gained from that activity. Instead, always remember that you’ll do better when you know better.

Into the Minutiae: Lowering your MERs While Meeting Your Goals.

You should be lowering your MERs, i.e. management expense ratios whenever it makes sense to do so. In short, the MER is the price that you pay for the investment product that you’re buying. It’s a percentage of your investment that is paid to the company that put the product on the market. MERs can range from as low as 0.04% to 2.75%.

As I’ve said before, success with money is within everyone’s grasp because the secret sauce isn’t being bright. Take it from me. I’m not the smartest lobster but I’ve managed to set myself up quite nicely by reading a little bit and following a few simple steps. I’ll share them with you right up front so you can start doing these things for yourself too. I promise that Future You will be very happy if you start and continue doing the following 3 things:

Live below your means so that you always have money leftover to invest. Track your expenses. Cut down on the things that aren’t essential to your survival. Use that money to invest for the future and to build your emergency fund.
Invest 20% of your net income for long-term growth in a well-diversified equity exchange-traded fund (ETF)***. You’ll find the 20% by completing step one. If you can’t find 20% right away, then start with whatever you can and work your way up to 20%.
Re-invest all the dividends and capital gains that your portfolio generates. Do not spend this money! Your dividends and capital gains will bolster the money that you invest from your paycheque. They will exponentially increase the compound growth of your investments. The result of re-investing dividends and capital gains is having your portfolio growing bigger and faster without any extra work from you.

Consistently investing a portion of your paycheque every time you’re paid will vastly improve the odds that you won’t be homeless, hungry, and cold when you’re a senior citizen. If you follows these 3 steps faithfully, you’ll do very for yourself.

My favourite sibling and I were talking about investments and my sibling stated that I hadn’t optimized my investments over the years. I couldn’t disagree. The truth is that I have made mistakes over the years, and I could’ve made smarter choices sooner. However, I don’t flagellate myself too, too much over the choices I’ve made because no one is perfect. For all of the reading I’ve done and people I’ve talked to, here’s the truth. No one has an ideal investment track record. Every single person could’ve made atleast one better choice at some point. Everyone has made mistakes when it comes to their investment journey.

The only mistake that is fatal to building wealth is never starting. Working paycheque-to-paycheque for a lifetime is pretty much guaranteed to ensure that there is no retirement money waiting for you when employment ends.

Thankfully, that is one mistake that I didn’t make. I’ve been investing since the age of 21. Have I done it in the best way possible? Absolutely not! If I could go back and make different investment choices, you’d better believe that I would do so.

The one area where I didn’t screw myself too badly was in relation to MERs. As soon as I understood what they were, I made sure to lower them as quickly as I could.

Again, if you follow the first 3 steps that I’ve set out, Future You will be very happy.

Optimizing your MERs is simply delving into the minutiae.

Check out this expense ration impact calculator to see the difference that MERs make on your returns. Just for fun, plug in a starting investment of $0, an annual investment of $5200, expected return of 7%, and an investment duration of 30 years. Now, change the expense ratio from 0.04% to 2.75%. Carefully review the difference in the future value of total investment and the total cost of the fund.

Keep playing with this calculator, and use your own numbers. Maybe you’re not starting at $0, or you can’t invest $100/week, or the lowest MER you can find for the ETF you want is 0.35%. The point is that higher MERs mean that you keep less of your money over time. If you lower your MERs, then you will keep more of your money. Your time horizon is decades long and you’ll eventually have a 7-figure portfolio size.

Invest in ETFs with low MERs. When you pay lower MERs, more of your money will remain invested over a long period of time. Money that isn’t paid out as fees will benefit from compound growth. That means it stays in your pocket instead of going to the ETF-provider. Look for ETFs that have MERs of 0.5% or less and try to only buy those. You’ll be doing yourself a huge favour.

MERs shouldn’t be the first thing that you consider when you’re looking for the right ETFs to add to your portfolio. But if you want to optimize the returns on your investments, MERs shouldn’t be ignored either. If you have to choose between two ETFs that will allow you to meet your financial goals, pick the one that has the lower MER.

*** In the interests of transparency, I invest my money in VXC. This ETF is from Vanguard Canada. I like Vanguard because their ETFs have low MERs and they give me the diversification that I need to grow my portfolio over the long-term. I am not recommending that you invest in this ETF. I don’t know your circumstances and I’m not qualified to recommend financial investments to anyone. Do your own research and pick an ETF that will best help you meet your goals. If you do decide to get advice, go to a qualified financial advisor.

Easy Money Is My Very Favourite Kind!

I love money. I always have, mainly because it allows me to buy all sorts of things. Hard money is good too, but easy money is better.

Hard money is the kind you have to sweat for. It’s what shows up in your paycheque after you’ve traded away a portion of your very precious, very limited time here in this world. You’ve shuffled a little bit closer to the end of that mortal coil in exchange for some money.

Great! Fabulous! You made the deal, and you got what you were promised. Hard money is earned through hard work.

Yet… if you’re fortunate enough to learn about it before your days are done, there’s a way for you to also receive easy money. This is the money that you don’t have to work for. It just arrives in your bank account – easy peasy, lemon squeezy. Whether you show up at the office, whether you get out of bed, whether you’re at home, at the top of a mountain, on a beach, or at sea. This money flows into your coffers without you having to do a thing.

Is it obvious yet? Easy money is my very favourite kind.

Some of the people in my family have acquired $44,000 in less than 5 years. How did they do that? It’s quite simple, really. They invested under the following conditions:

when the stock market was doing well before COVID-19 arrived;
when the market plunged at the start of the pandemic;
during the tepid recovery between late 2020 and the end of 2021;
during the turbulence of 2022; and
they’re still investing in 2023.

My family members invested in the stock market without fail and turned contributions of $21,000 into $44,000 without batting an eye. A minimum of $3,000 per year was invested into broadly diversified equity ETFs in each of the past 5 years. In the past 2 years, the contribution amount increased to $6,000 per year.

The initial $21,000 contribution amount is broken down like this:

2019, 2020, 2021 = $9,000 invested ($3,000/yr into equity-based ETFs)
2022, 2023 = $12,000 invested ($6,000/yr into equity-based ETFs)

Despite the ups and downs in the stock market during those 5 years, the invested money has more than doubled. Not bad… not bad at all. Money went in and it didn’t come out. My family members left it alone to do its thing, and “its thing” was to grow quickly in a short period of time. That’s all, folks. It wasn’t more complicated than that.

Someone had to work to get the initial $21,000, right? That was the hard money that has since been turned into easy money… the additional $23,000 of value that no one had to sweat for.

You can do the same thing for yourself, if you’re so inclined. Can you find $100 per week? That’s $5200 per year. Maybe you can only find $25 per week? That’s $1300 per year.

Whatever you can find, then you start investing with that amount and you move up from there. Wiser minds that mine suggest investing in growth stocks. They have a track record of higher returns. For my part, dividends worked for me but it took a long time to get where I am right now. If I had to go back, I’m not so certain that I would make the same choices. My sack of gold is heavy, but it could’ve been much heavier had I been smarter sooner.

C’est la vie, right?

You’re quite lucky in that you get to decide for yourself whether you want to only earn hard money. If you can read this blog, then you can start to make easy money. Slice off some portion of your paycheque every time you’re paid and send it to your brokerage account. I’d suggest opening a brokerage account at a place that has a list of commission-free ETFs that you can buy. As soon as you can buy one unit of a commission-free ETF, do so. When the dividend or capital gains from that investment rolls in, re-invest it and do not spend it.

You’re building a cash-machine. It will take some time. The dividends and capital gains will be paltry at first. Given time, they will multiply. I’ll never forget the first time my cash-machine spit out $100 in a single month. That was awesome! You know what was even better? The first time it generated $1,000 in a single month! Believe you me, the first $5,000 dividend payment has been the nicest yet.

So start today. You too can earn easy money. And if you love your job, great! No one’s telling you to quit. You can do your job for as long as it makes you happy. Earning easy money in no way eliminates your choice to work. However, if there’s the slightest, tiniest possibility that you might not always enjoy working for hard money, then follow my advice. Take the steps now to earn some sweet, sweet easy money later.

Your Emergency Is On Its Way – Prepare Now!

“I have too much money during this time of emergency!”
No One Ever

If you’ve been paying any kind of attention, you’re no doubt aware that natural disasters have touched many people’s lives in fundamental ways. Threats of fire forced the evacuation of the city of Yellowknife in the summer of 2023. A wildfire in Maui destroyed the city of Lahaina, on the island of Maui. People in both cities are displaced and trying to figure out their next steps. I can’t even begin to imagine the stress and anxiety that they are feeling. However, this blog is about money and protecting yourself for the negative consequences that come with not having any.

Being evacuated from your city is an emergency. It is precisely the kind of situation for which one builds and maintains an emergency fund. The people fleeing from Yellowknife had to convoy along a 12-14 hour trip to next major center. That wasn’t free. They had to pay for gas. Those without family or friends had to pay for accommodation if they weren’t willing to stay in the shelters. With only hours to flee, there wasn’t sufficient time to think of everything. Once in a safe location, they had to pay for food, clothes, toiletries, and pet food. It’s doubtful anyone had budgeted for an evacuation that month. For those working hourly jobs, there’s no more income until they go back to work. The emergency fund exists to cover these costs.

Right now, you should be assessing your emergency fund. Ask yourself some hard questions. Is my emergency fund enough to sustain me if I couldn’t work for a month? If I had to flee from a natural disaster, do I have enough to cover my expenses until I can get back on my feet? And if I don’t, then what am I doing to build my emergency reserves?

Unless you’re one of those very fortunate people who have a year’s worth of expenses tucked away somewhere, you should be adding to your emergency fund every time you’re paid. Even if it’s only $10, $25, $50, add it to your fund and leave it alone. When the day comes that you need to rely on those reserves, you’ll be very happy with yourself that the money is there waiting for you.

In my opinion, emergency funds are not “dead money” sitting in a bank. These aren’t the dollars that are meant to fund your retirement, or your short-term goals. You’re not looking to invest your emergency fund to earn a big return.

Your emergency fund is your safety net.

It is there when your income disappears. It exists so that you don’t go into debt when the universe lobs a grenade that blows up your life. Even if you have insurance and you’re going to be reimbursed, insurance companies sometimes take longer to pay than you may like. They might even try to fight you and you may have to appeal their decision on what is covered and what isn’t. Your emergency fund pays for the necessities while you get yourself re-established.

Even after becoming debt free and building my investment portfolio, I still contribute to my emergency fund. My goal is to have a year’s worth of necessities socked away. If anything goes too terribly off-course, I want the comfort of knowing that I can survive for a year. I’ll be able to make decisions without the pressure of needing to earn money immediately. My emergency fund offers me peace of mind. It gives me time to breathe and to think carefully before making my next move.

There’s no reason to wait. If you have an emergency fund, contribute to it from every paycheque. Every dollar counts. The more you can stuff away during non-emergency times, the better. If you can afford it, save an amount equivalent to your age. Increase the amount when you can. Start your emergency fund today if you don’t already have one. Opening an account is as simple as clicking a few links on any bank’s website. Automatically transfer money from your chequing account to your emergency fund.

There’s an emergency headed your way, but you can’t know when it will arrive. Today is the best time to prepare for it financially. When that emergency eventually hits, finding the money to deal with it should be the last of your concerns. Adding money to your emergency fund is entirely up to you. Choose wisely.