Tag: Investing

Time to Take a Breath

Welcome back! How are you doing? What’s been troubling you financially? Maybe it’s time to take a breath?

It’s been kind of a crazy time for the past few months, hasn’t it? All the headlines and media platforms are screaming about inflation and debt and financial turmoil. No fun for anyone, right? They’ve amped up the financial fear to the next level, and it’s normal to be troubled by that.

I want you to take a breath, maybe even take two breaths. Turn off the media and news reports for 24 hours. Trust me. The bad news will still be there tomorrow. If you miss one day of it, you’ll be helping yourself and no harm will come to the one delivering the bad news to you. Take a breath – relax.

Get Back to Basics

You cannot change the interest rates, and you’re not going to single-handedly bring down the rate of inflation. Those things are out of your control. However, you do hold the power to pay attention to your own financial situation. Focus on your sphere of influence.

Start by ensuring that you’re still living below your means. If you’re not tracking your expenses, start. And if you’re already tracking them, keep doing so. It’s the only way to know where your money is going. Make sure that you’re not spending every nickel. Whatever you don’t spend should split between your emergency fund, debt repayment, and investing for long-term growth.

Inflation is problematic for all of us. What can you do to limit its impact on your life? If you have the space, try bulk buying of staples. Switch to a cheaper grocery store. Try the generic products and see if they’ll do. Cut back on the number of streaming services.

One of the best ways I’ve found to save money is to stay at home. And I know this one might be tough, considering that we’ve just emerged from 2-years of pandemic-related lockdowns and limitations. However, the reality is that staying at home helps me to not spend money. I’ve got the entire library available to me on my tablet, so I can read to my heart’s content. I watch movies on my streaming services. My neighbours are friendly so I get a chance to chat with them while tending my garden. And my garden is a delight since everything is in bloom.

Obviously, I don’t know where you live or what your circumstances are. However, I’m still going to suggest that you consider staying home a tiny bit more than you already do and assess whether this step will keep a touch more money in your wallet. And if doing so doesn’t work for you, then go out. (Please wear a mask though – as of today’s post, the pandemic isn’t over!)

Get Out of Debt

Like I said above, you can’t control the interest rates. Banks are quick to raise rates in line with increases from the central bank. This means that you’re paying more for your variable rate loans – things like your line of credit and variable rate mortgages. I haven’t yet heard of credit card companies jacking their interest rates, but it wouldn’t surprise me if they did.

Again, take a breath. Relax.

Go back to what I said about tracking your expenses. Find the extra money, and apply a portion of it to your debts. You’ll have to make your minimum monthly payments, just like you were doing previously. The extra money will become an extra debt payment.

Very importantly, don’t take on any new debt. This might not always be possible, but you’d be doing yourself a very huge favor if you moved Heaven and Earth to avoid acquiring any new debt.

Whether you use the debt snowball or the debt avalanche is up to you. Both of them will get you out of debt. Once you’re out, stay out.

Build Your Emergency Fund

Your emergency fund probably needs to be bigger.

Relax – take a breath. You can do this too. It won’t happen overnight but it will happen in less time than you think.

Take a portion of that extra money and automatically send it to your emergency fund. I really don’t care how much you contribute. I’d suggest $50 per week, but start with what you can and work your way up. There is an emergency in your future and the odds are very, very good that it will have some kind of financial component.

The time to prepare for it is now. So take a breath. Review your automatic transfer to your emergency fund. Can you increase that amount? Even by $1? The more you can save today, the more grateful you will be tomorrow when you need the money.

As your debts are paid off, use a quarter of those former debt payments to fund your emergency fund. (The other three quarters will be re-directed towards the other outstanding debts, as per the debt snowball or debt avalanche method.) Your debts will eventually disappear, and your emergency fund will be growing at the same time. This is a very good thing.

Invest for Long-Term Growth

The third part of that extra money you found is going to be invested in the stock market for long-term growth.

You’re going to ignore the media. Over the long term, the stock market goes up. Full stop.

You’re investing for decades, not for weeks or months. What happens in the short-term is almost irrelevant. Again, you’re investing for decades. So set up your automatic contribution to your investment portfolio, re-balance it every year, and go on about the rest of your life. Compound interest works best with a long time horizon and steady, consistent monetary contributions.

In the interests of transparency, I can say that I started to focus on my investment portfolio in 2011. I chose to invest in dividend-paying exchange-traded funds. I’m happy to share that I’m on track to earn $30,000 in dividends this year, barring dividend cuts. I’ve learned to ignore the Talking Heads of the Media and to focus on ensuring that I did my part, i.e. using automatic contributions to fund my investment portfolio. Had I known then what I know now, I would’ve invested in well-diversified equity-based ETFs and I would’ve benefitted from even higher returns.

I’m strongly urging you to set up your investment portfolio. If you’ve already done so, then continue to make consistent contributions. So long as you don’t add new ones, your debts will go away. There will come a point when your emergency fund holds 6-12 months’ worth of expenses. At the point, you can use re-direct two-thirds of the former debt payment & emergency fund contributions to investing. The other one third can be used to pay for the nice-to-have’s.

Take a Breath.

Step back from the news for a day, maybe two. The chin-wag of the media isn’t tailored to your personal finances, so you ought not give it too, too much attention. You have a plan for surviving today’s turbulent times. Focus on what’s within your power to control.

Relax.

The Other Side of BRRRR.

There’s a subset of FIRE adherents who religiously follow the BRRRR method that has been made famous by the good folks at Bigger Pockets. BRRRR is an acronym which stands for Buy Renovate Rent Refinance Repeat. Essentially, an investor buys a property, renovates it, and puts a renter in it. Renovations increase the value of the property. The investor withdraw the new equity by refinancing the property with the bank then goes on to find another property in order to repeat this process.

When the BRRRR method works, real estate investors make very good money. The investor only undertakes renovations in the belief that they will increase the value of the property and extract equity. If they don’t believe they can do that, then they have no motivation to buy the property in the first place. New tenants are generally found to pay the new, higher monthly rental and that should be enough to pay off the mortgage over time. Good cash flow also puts profits into the investor’s pocket. Refinancing the property at the higher assessed value means the investor can withdraw money to fund the purchase of the next property and start this process all over again.

Great plan for the investor! Great plan for the bank!

Not so great a plan for the people who lived in the property before it was renovated. The previous tenants may not be able to afford the new rental prices. It stands to reason that the investor would not have bought the property and poured money into renovations if she didn’t believe that higher rents could be charged to offset the costs. In other words, the goal is to acquire higher-paying tenants in each unit.

What happens to the renters who cannot pay the new, higher rents?

This is the other side of BRRRR… and proponents of this method never discuss the issue of what happens to the poor people. Some people in society simply cannot afford to pay more for their accommodation. What happens to them?

Again, under the BRRRR method, rents increase after the renovations are done. Existing tenants are always welcome to stay in their units if they can afford the new, higher rental rates. Even those who moved out during the renovations are welcome to return… if they can afford the new, higher rental rates.

Adherents to the BRRRR method don’t talk about what happens to the poor people, or those who have otherwise lost access to a rental unit within their budget. (Maybe the adherents do talk about this privately, but never publicly?) When implemented as designed, the BRRRR method necessarily pushes the poorest renters to the margins. They lose their homes because they don’t have enough money to pay the higher rents. Perhaps it’s naive of me to wish that proponents of the BRRRR method acknowledged this, and maybe consider taking slightly less profit by letting a few of the poor tenants live in the renovated units at their former rental rates.

I don’t have any easy answers for the people profiled in the attached CBC article. The bottom line is that the renters profiled in that story need money to pay higher rents. Hopefully, they get it from someone. Rents are not going down any time soon. It’s difficult to build a nest egg when every penny of income has to be spent on the daily costs of living.

And the solution is…

Presently, I do not have any solutions for people who are already caught in poverty’s trap. Most of my suggestions are aimed at people who have some disposable income, aka: fat to cut from their current spending habits. It’s trite but true – you need money to make money. You might not need a lot to get started, but you do need a little something. You cannot invest $0 because $0 is not enough to buy anything.

For my part, I encourage people to have emergency funds and passive income so that they have a buffer of sorts. Passive income bolsters any money earned through the sweat of your own brow. And if you have enough passive income, then it’s the equivalent of a second salary. Should you choose to rent your accommodation, having passive income increases your odds of always being able to pay for the inevitable rental increases.

Ideally, your regular job pays for your all of your expenses before retirement, while your passive income builds a cushion for you. To be extremely clear, you should also view investing for Future You as an expense to be paid from current income. If your investments do very, very well, then your passive income will continue to grow while also paying for the expenses of your retirement. This will allow you to absorb the increased costs of living after your working years are over. Inflation won’t stop just because your employment income has.

For myself, I love receiving income from dividends and capital gains. Money from my day-job buys me shares in dividend-producing companies. Every month, a little bit of dividend money is automatically re-invested to buy more shares in dividend-producing companies. At the end of the year, I receive capital gains. I’ve been doing this for a very long time. So far, my passive income is almost equivalent to a full-time job at minimum income in my province. It’s not enough to live on, but it’s certainly a good amount to re-invest every year.

The past cannot be changed.

I was fortunate enough to read the book, The Wealthy Barber by David Chilton, when I was a newly-minted adult. That book set me on the path of learning about personal finance. (I think you can still get this book from the library.)

Unfortunately, no one can go back in time and make different choices with their money. The renters in the article need help today. Regretting past decisions won’t help them with their current problems. The impact of the BRRRR method is forcing them to seek new shelter now. The limitations of their funds are preventing them from acquiring a new home that they will like as much as the one they had to vacate. Wondering what could have been done 20 or 30 years ago does not help them today. They are facing the very real risk of losing their homes as a result of the BRRRR method.

My question to you is this. Do the investors following the BRRRR method owe anything to the people that they displace?

Is it Better to Invest or Pay Off Debt?

One of the perennial questions in the sphere of personal finance is whether it is better to invest or pay off debt. The answer is nuanced and there is no one right answer for anyone.

Money has to be invested in the stock market for as long as possible. Time is required so that capital gains and dividends can be accrued and re-invested on a consistent, long-term basis. In other words, compound growth works best when given a long time horizon. These facts favour paying the absolute minimum on your debts while investing money into the market.

On the other hand, paying debt for longer than necessary means that you’re sending interest payments to creditors. Consumer debt can have double-digit interest rates. Unless you’re paying 0% interest on your debt, you can be guaranteed that you’re paying interest to someone for the privilege of having borrowed their money. Debts have a way sticking around much longer than we’d like. From that perspective, it makes sense to pay off debt as fast as possible and to delay investing.

Both good options. Which one is best?

This is where nuance must be applied. Each person’s situations is different. Yet, the following remains true. Dollars spent to repay money owed to creditors cannot be invested in the stock market for long-term growth. If you devote 5 years to pay off non-mortgage debt, aka: consumer debt, then that means you’ve lost 5 years of compound growth for your investment portfolio. It might take longer than 5 years to eradicate your debts. The bottom line is that your money needs to be invested today, preferably yesterday, so that it can grow as quickly as possible.

Why not do both simultaneously?

As I’ve matured and gained wisdom, I’ve started to ask myself why the choice has to be so stark. Is there a really good reason why a person cannot do both? Why not invest and pay down debt at the same time?

Presumably, you are not living paycheque-to-paycheque. This means that there’s some extra money in your budget. If there wasn’t, then this question wouldn’t even come up in the first place. The reason you’re asking the question is because you want to make best use that extra money.

Let’s say you have an extra $250 per month. Why not send half to your investment portfolio and send the other half to your debts? I call this the Half-and-Half Method.

If you invest on no-commission platform, then you’ll be investing $125 each month for the Care and Feeding of Future You. This is a respectable start. (As you earn more money and pay off your debt, this amount should be increased.)

The other $125 can be put towards your debt as an extra payment. Some people apply extra money to the lowest balance, in order to get rid of it faster – the Debt Snowball Method. Other people choose to direct extra money to the debt with the highest interest rate, in order to pay as little interest as possible – the Debt Avalanche Method. Personally, I like the snowball method because it delivers a sense of accomplishment sooner rather than later.

Remember that nuance I was mentioning earlier? Well, there are two factors that I look at in any situations. There are probably more, but I’ve yet to ponder them sufficiently to discuss them with you in this post.

Age

The younger you are, the longer the time horizon. For this reason, I think you can devote slightly more to your debt repayment than your investments. If you’re under 30, then I’m okay if 60% of your $250 goes to debt repayment while 35% goes to investments.

Every compound growth chart out there shows that younger people can invest much less money each month to achieve the same final amount as someone who starts investing at later ages.

That said, I don’t want you to think that investing $0 is acceptable. It is not. You should be aiming for atleast $100 per month when you’re in your 20s. Again, as you pay off debt and/or increase your income, you’ll need to increase this amount.

If you’re 30 and older, definitely use the Half-and-Half method. You don’t want debt payments in retirement, especially if you’ll be living on a fixed income. However, you’ll also want to build a nice cash cushion for your retirement. The Half-and-Half method allows you to do both.

Length of Time To Pay Off Debt

This one appears to contradict my Half-and-Half method. Still, I do like the sense of accomplishment that it provides. If you can knock out a debt in 90 days or less, then commit the entire $250 to doing so and forego contributing to your investments for 3 months.

The caveat here is that this is a one-time option. I don’t want you to delay investing for 90 days, then delay investing for another 90 days to knock out another debt, and then delay investing again. Serially focusing on paying off one debt at a time is simply focusing on paying off debt. If you pay off a 90-day debt only to incur another debt that can be paid off in 90 days, then you’re better off using the Half-and-Half method. Clearly, debt is going to be a structural feature of your life so you need to be investing atleast some of your money for the Care and Feeding of Future You.

Too Long, Didn’t Read!

Is it better to invest or pay off debt?

The answer is to do both at the same time. The need to provide for Future You does not diminish just because you’re paying off debt. Contribute to your investment portfolio while you’re paying off your debts. Eventually, your debts will go away and there will be a nice cash cushion waiting for you later on down the line. It’s the best of both worlds.

Power thru the volatility & stick to your knitting

There’s no doubt about it. We’re in a period of volatility in the stock market. For the first time, in a long time, there’s been a run of “down” days. The stock market has been in the red and the market has closed lower than the day before. I do not claim to be any kind of expert on such things, but even I can see that the value of my portfolio is dropping too. This is entirely due to the fact that I’m invested in the stock market.

So what’s my next move? What steps should I take to make my portfolio go up?

Short answer: it’s time for me to stick to my knitting!

I can’t do anything to move the stock market the way I want it to go, which is up. The factors I control are how much I contribute, how often, and into which investment. Everything else is out of my hands. Over the long term, the stock market goes up. This has been proven repeatedly in the past. I have no reason to think it won’t go up again in the future. So I’m going to power thru the volatility.

And you should power thru the volatility too.

I view what we’re experiencing now as a correction. It’s happened before, and it will happen again. Corrections are completely normal! Do the Talking Heads of economic media generate a lot of jibber-jabber about them? Yes, they do…. because that’s their job. The jibber-jabber results in viewers, which translate into ratings, which translate into money.

Pay them no mind. Stick to you knitting.

When the 2009 correction rolled around, I made one of my biggest ever investing mistakes. I stopped making regular contributions into the market. In other words, I halted my dollar-cost averaging system of investing. I froze like a deer in the headlights because I focused on the jibber-jabber. I stopped my contributions for 3 months. Yikes! Huge mistake! Doing so meant that I wasn’t investing at the bottom, when the market was at its cheapest. I waited until the recovery and then I re-started my investment system. This was one of the stupidest moves I have ever made, and I promised myself that I would never make that particular mistake again!

Learn from mistakes wherever you find them.

You need not make this mistake yourself. Don’t stop contributing to your investments just because we’re in a period of volatility. Trust in your plan. You’re investing for the long-term, remember?

There have been subsequent corrections, and I’m happy to say that I’ve kept my promise. No matter what, my automatic transfer funnels money from my chequing account to my investment account and I buy units in my ETFs on the appointed day. My investment strategy has remained consistent ever since 2009.

These past two weeks haven’t been fun. No one likes to see the value of their portfolio decrease, including me. I’ve decided to stop checking the value of my portfolio for a little while. Before this correction started, I would check the value each day and smile to myself. Lately, my smile’s been turned upside-down. I’ve chosen not to torment myself. My transfer will remain in place, and I will continue to invest in my selected ETFs. However, I’ll check my portfolio’s value less frequently.

This is the lesson I learned from the 2009 correction. The stock market will never go to 0. It will go up and down, but it will never go all the way down to 0. I’m investing for the long haul. Even after retirement, there’s a good chance I’ll be around for another 20-30 years. This means I still have decades of investment ahead of me. (Whether I’ll be investing as much during retirement as I do now remains to be determined.) There is no point in worrying about the day-to-day gyrations of the stock market when I’m still invested for the long-term.

Allow me to very clear on this next point – I am not an expert. My wisdom, such as it is, comes from years of personal experience. I cannot predict the future, and I don’t know your particular circumstances. I am not qualified by anyone to give you expert advice. What I say is based on what has worked for me & for those in my circle who discuss such things. I fully admit that my experience is not going to be the same as yours.

That said, I want you improve your odds of ensuring that Future You is financially secure. Continue to invest in the stock market. Take a long-term view. Keep atleast 60% of your portfolios in equities. Invest on a regular basis. Stick to your knitting and ignore the jibber-jabber. Save – invest – learn – repeat. Power thru the volatility and enjoy the rewards on the other side of this correction.

Is now a good time to invest in the stock market?

Yes.

Short though the answer may be, it is accurate. Today is the best time to invest in the stock market.

Since the start of 2022, my portfolio has seen a lot of volatility. My personal definition of volatility is that its value has moved between $7,000 and $15,000 in one day. Some days the swings are negative, and my portfolio value has dropped. Other days, the swings are positive and my portfolio has increased. Either way, I count it as volatility. During the Big Market Drop of 2020, my portfolio lost $247,000! It might have lost more, but I simply stopped checking it at that point.

Do I enjoy volatility? Not particularly, but it doesn’t bother me very much. I’m the same as most everyone who invests – I don’t want to lose money. No one wants to lose their investment! After all, we’ve worked incredibly hard to earn the money to invest in the first place and a loss means that all that hard work was in vain.

One of the secrets I’ve learned over my many years of investing is to never lock in your losses when the market is volatile. If you buy at $10/unit, and the price drops to $5/unit, then that’s a 50% loss. If you sell when the price is down, then you’ve locked in your loss – and that’s not a good thing. The key is to keep your money invested because the stock market’s trend over the long term is to go up.

Check out this image from personalfinanceclub.com which visually explains why stock market investors should ignore short-term volatility. It’s a picture of a person walking up the stairs while working a yo-yo. The yo-yo’s up and down movement represents the daily gyrations of the stock market. The stairs represent the long-term upward trend of the stock market.

If you stay invested for the long term, you will be financially rewarded. Your portfolio will be bigger than your initial investment. Yay for you!!!

Now, I have to caveat that last statement. This works for equity-based exchange traded funds and for equity-based mutual funds. If you decide to invest in a single stock, then you’d better have far more insight and wisdom than I do. You’ll do what you want, but I would suggest that you stay away from individual stock picking until you’re a sophisticated investor. It is between extremely hard and impossible to determine which stocks are the ones that will make you rich over the long-term. For my this very reason, I don’t invest in single stocks.

All of my money is invested in exchange-traded funds. ETFs are very diversified because they hold a basket of stocks that have done well over time. When one of those stocks starts doing poorly, it is removed from the basket and replaced with something else. When I invest in my ETFs, I don’t need to do the stock analysis to determine which stocks are good and which ones aren’t. That analysis is done for me. I can spend my precious time doing other things I enjoy. For example, last night I tried this absolutely delicious recipe for Thai Yellow Chicken Curry instead of poring over a prospectus. My portfolio continued to work in the background while I tried my hand at something new and tasty.

Money needs time to compound. The sooner compounding starts, the bigger your money will grow. Now is a great time to invest in the stock market! War breaking out? Check! Social unrest somewhere? Check! Inflation spiraling? Check! Devastating natural disaster? Check! There will always be some world event that makes the stock market volatile. That’s just how life goes with 8 billion people on the planet. Don’t let those extremely disturbing events stop you from investing in the stock market. Money that is not invested today never benefits from compound growth. You can’t go back 20 years and start your investment portfolio. You have today so start today. Once lost, time can never be recovered.

Do Future You a favor and start investing in the stock market via equity-based exchange traded funds. Start today. Set up an automatic transfer to your investment account so you’re investing on a regular basis. Personally, I invest every month. I know others who invest every 90 days. There are those who invest once a year. The key is that the investment gets made. Once you’ve started your investment journey, continue to learn about personal finance and investing. Start where you are and build from there because when you know better, you do better.

The Basics Never Change

No matter how you slice it, the basics don’t really change. This blog is about money, so I’ll stick to the financial basics.

  1. Live below your means so you have some money to save and invest.
  2. Invest your money so that it grows over time.
  3. Go back to step one and repeat.

Everything else is about the details.

  • Where should the money be invested?
  • How low should the management expense ratio be?
  • Are mutual funds better than index funds?
  • Should one invest in index funds or exchange traded funds?
  • Is real estate better than the stock market for investment returns?

Start where you are, and go from there. One of the best tools I’ve found for managing my own money is a spreadsheet. Thanks to Numbers, I’ve been tracking my expenditures for the past few years. I could’ve used an app on my phone, but I prefer to personalize the spreadsheet to my own requirements. An app has a built-in structure that may not be suitable for me.

By tracking my expenses, I’ve been able to see where I splurge and where I don’t. The past two years haven’t produced as sharp a drop in expenses as one would have thought. I spent just as much in 2020 & 2021 as I did in 2019 & 2018. Yet, in the past two years, I haven’t been to a concert, a movie theatre, overseas, or inside of restaurants. I’ve been at home, partaking in Netflix, homemade food, and lots of computer games. Despite my at-home-hiding-from-coronavirus existence for the past two years, my annual expenditures have been the same or slightly more than they were in the Before Times.

I’m paying the same amount of money to purchase fewer things. That’s called inflation.

Despite the arrival of this particular money-eater, the basics haven’t changed. I still have to live below my means and invest for growth. My spending power will hold its ground against inflation so long as my returns are higher than the inflation rate.

You owe it to yourself to spend a little bit of the present thinking about the Care and Feeding of Future You Fund. It need not be a lot of time. After all, life is meant to be enjoyed and not wished away. The right amount of time is however long it takes you to set up an automatic transfer from your chequing account to your investment account. When you get paid, a chunk of money should automatically be sent to your investments. Then you forget about that money and go back to your daily life, doing what makes you happy.

Three weeks of 2022 are already in the past. Time flies so very fast! It’s important that you don’t let procrastination stop you from sticking to the basics. You need not know everything before you start. Instead, you start today and you learn as you go.

Get some books from the library. Do a Google search. Spend some time at YouTube University. Check out the education section of Investopedia. Maybe start following some personal finance bloggers. You don’t have to understand everything before you set up an automatic transfer. Have the money accumulating so it’s in place when you’re ready to make your first investment.

In the interest of transparency, I want to tell you a bit more of my story. I started with guaranteed investment certificates. I didn’t understand that GICs don’t beat inflation and that my money wasn’t growing the way I needed it to. At the time, I was concerned with safety. I didn’t want to lose my money. Perfectly understandable! You don’t want to lose your money either, right?

However, I borrowed books from the library and I learned about these things called mutual funds. They were offered by banks and they would give me better returns that GICs. So I switched my money to mutual funds. After a time, I learned about index funds and exchange-traded funds. They were better than mutual funds because they charged lower fees. Today, I’m still investing in ETFs while learning about crypto currency and NFTs. I’ve done some real estate investing but certainly not enough to consider myself an expert.

If anyone were to ask, I’d tell them that I have made many mistakes in my investments. I didn’t have all of the answers when I made my choices. I didn’t always understand the implications of my choices. If I could go back and make different decisions, then I most certainly would. That’s not possible so I continue to follow the first three rules articulated above. Save – invest – learn – repeat.

Wherever you are on your personal finance journey, you should be putting the basics to work for your money. You work hard for it. The least you can do is make sure that your money is working just as hard for you. There’s no time like the present. Take the first step today. Congratulate yourself. Then work on figuring out the next step. Take that step too. Before you know it, you’ll be saving and investing for Future You while still enjoying the gift that is today.

One Less Impediment!

For those about to invest, we salute you! There is now one less impediment between you and your financial goals.

Back in the dark ages, which is when I first started my investment portfolio, buying securities through a brokerage was expensive. For many years, I had automatic contributions withdrawn from my bank account by a private investment company. While I was busy learning about new products, individual investors were gaining the ability to access various products due to the rapid growth of technology. By the time I had learned about exchange traded funds and the importance of low management expense ratios, it was relatively cheap to do online transactions with my brokerage. It took some convincing but I finally moved my portfolio from the investment company to my brokerage. Regardless of who held my portfolio, I continued to dollar-cost average my way into the market each month.

Today, I’m happy to write that market competition has partnered with technology to make investing even easier for today’s investors.

As the number of financial services firms expands, the Big Banks are being forced to stay competitive with trading platforms that offer commission-free trades. This means that the banks’ brokerage arms allow customers to buy certain securities without paying a commission. In other words, it’s free to invest your money in more and more places!

This is is fantastic news. Why? It normally costs $9.95 to place a buy/sell order. For people who believe in dollar-cost averaging into the market, it costs roughly $10 each time a purchase is made. Long-time readers know that I divert a chunk of my paycheque to my investment portfolio every payday. Every 4 weeks, I buy more units in my chosen exchange-traded fund (VXC). I care not whether the market is up or whether it’s down. My plan is to buy and hold for the long-term. The execution of my investment plan is simply: buy more VXC units every 4 weeks and hold onto them.

So I was tickled pink when my brokerage*** announced that it would allow customers to purchase certain securities without paying a commission. My favourite dividend ETFs were both listed (XDV & VDY). Unfortunately, my happiness bubble was quickly pricked by reality. The fates have conspired to keep my equity ETF off the list of the commission-free securities!

This is great news!

Even though I’m still paying commissions, it’s fantastic that there are now so many commission-free options from which people can choose. The upshot is that there is one less impediment between people and their investment goals. Fees, MERs and commissions are all hurdles to clear on the journey to your investment goals.

Think about it. Any money that is not paying for commissions can be re-directed towards investing for your future. You and I both know that compound growth needs time to work. The sooner you start investing your dollars, the better.

Commission-free investing means that you can invest more frequently. Like I said, my dollar-cost averaging plan entails monthly purchases. I made 13 trades each year since I invest every 4 weeks. However, should there ever come a day that my ETF of choice makes it onto the commission-free list, I will be buying more units every two weeks.

Why increase the frequency of buying? Two simple reasons. It would be free to buy more frequently. Also, my money can’t grow unless it’s invested. I want to give compound growth as much time as possible to work its magic.

Do your due diligence.

My brokerage is with one of the Big Six banks. I’d be surprised if all of the big brokerages didn’t have their own list of securities that can be purchased commission-free. If you’re already investing, find out if you still need to pay commissions. And if your brokerage isn’t offering commission-free trades, ask yourself if its other benefits are worth paying commissions. If not, move your portfolio!

I spend a lot of time telling you to be cautious about the management expense ratios that you’re paying. (Again, any MER over 0.50% is way too high!) Commissions are another area where you should be paying close attention. Most big banks will charge you roughly $9.95 to make a trade through their online brokerage platform. It will cost even more if you make the trade over the phone with a human being, assuming that you can connect to real live person.

If you’ve already started to invest, then great – keep it up! Should your securities be on a commission-free list, even better. Now, you can bump up your contribution amount by whatever amount formerly went to paying commissions. Compound growth works faster if your money is invested now instead of later.

And if you’ve not yet begun investing for the Care and Feeding of Future You, what are you waiting for?

There is one less impediment to doing so. Start today!

*** Full disclosure – my investment accounts are with BMO Investorline. While I’d prefer to not pay a commission, I’m certainly not going to alter my investment plan due to this situation.

Inflation is the Non-Stop Money-Eater

Today, I read a Twitter thread about inflation and its impact on money. So many people feel that their paycheques are not going as far as they did before. Their net income is going to shelter, groceries, and utilities. Yet, they feel that it’s harder and harder to survive from one paycheque to the next. Costs are going up while their pay remains the same. They are caught in the grip of inflation, which I like to call the Non-Stop Money-Eater.

I’ve noticed it too. The bulk package of chicken breast at my local grocery store was $27 this time last year. When I went to buy the same package 6 weeks ago, I paid $42. That’s a price jump of $15 in 12 months, or an increase of 55%. That’s inflation at work. My $27 won’t buy me as much chicken today as it did last year. And I’m a Single Person. Every time I leave the grocery store, I wonder how people with families afford their grocery bills. (As a matter of fact, I asked a friend of mine how much their 6-person family spends on groceries in a month. The answer was $2,000. Even accounting for cleaning supplies and personal care products, that’s a huge grocery bill!)

Inflation is a serious problem, for everyone. The lower your income, the more severe its impacts on your household finances. If you’re fortunate enough to have extra money in your budget, then you can better absorb the increased prices. However, your paycheque or investment returns have to continuously outpace inflation. If they don’t, you will eventually reach a point where your income is not enough to cover the higher costs resulting from inflation’s impact on everything.

Inflation Erodes Purchasing Power

Simply put – the Non-Stop Money-Eater will decimate your finances, if given enough time. You can only tighten your belt so much. Even if you got a second or third job, there are only so many hours in a day. You were not put on this Earth to simply work and pay bills. There should be more to life than scrimping from one payday to the next.

At the time of this post, inflation in Canada was at 4.2%. This is the macro number used by the government. Your personal inflation rate might be higher, or lower, depending on your personal expenses. Whether a large number or a small one, the result is the same. Your income is not buying you as much today as it did yesterday. It will take more money to buy the same amount. That means you have less money for everything else. So unless you want to live off your credit cards, or lines of credit, and pay interest to do so, you will have to eliminate something from your budget. Fewer streaming services? A cheaper place to live? Giving up your car?

Again, your life should be more than the daily grind of working, getting paid, paying bills, then working some more. You should be able to breathe without financial anxieties. We can’t all own private jets, third houses, and a stable of Arabian horses. However, you should be able to find your happy medium between barely scraping by and a life of unfathomable extravagance.

For those of you whose incomes are still growing, congrats! You may not have to alter your lifestyle since your purchasing power is keeping up with inflation.

A Few Suggestions

What is the answer to fighting inflation on a personal level? I honestly don’t have a perfect answer that will work well for everyone. I’m not an expert about such things. What I will do is share my opinion on how to dull inflation’s impact if you’re fortunate enough to have some extra money in your budget after you’ve paid for the necessities.

My first suggestion is make good use of your kitchen. I’ve written before about how financially prudent it is to cook the majority of your food at home. A hamburger with fries at restaurants around me will run you atleast $17, and the bottomless soft drink is another $3.50. After tax and tip, the bill is atleast $26. The same money spent at the grocery store combined with 30 minutes in your kitchen will result in far more than 1 hamburger with a side of fries.

Don’t let lack of cooking skills stop you. Thanks to YouTube, you can learn to cook just about anything by watching a few videos and paying attention. Start small then work your way up to the more complicated meals. Maybe you start making your own muffins and cookies so that you don’t have to buy them each day. Then you move on to making simple breakfasts and tasty lunches. Afterwards, you tackle dinner and turn your attention to batch cooking. Your freezer and pantry become your happy places, since they are key to making your tummy and wallet happy too. Much like piano playing and walking, cooking skills get much better with repeated practice. You’ll figure out what you like to eat, and then you’ll master those dishes. Cooking for yourself should be your default choice when you start to feel hungry.

And it’s not too early to start planning for next year. One of my favorite personal finance bloggers has a vegetable garden. Each year, he plants vegetables and harvests them as they ripen. You better believe that his veggie garden saves him a good chunk of money each year. We’re well into autumn and winter’s just around the corner so now’s the time to start thinking about planting next spring. Do you have the room for your own garden? Is there a community garden nearby? Do you have a balcony that can hold a few planters? If you’ve never planted a garden before and you want to, use your downtime in winter to watch and to learn from some gardening videos on YouTube.

My second suggestion is to use your freezer and to stock up on things when they’re on sale. Low-sodium bacon was on sale last week. My mother, my aunts, and I all made sure to get some for our respective freezers. In my corner of the world, bacon is now $1/slice! That was unheard of last year but I doubt the price will fall back to its former level any time soon. My mother and her sisters are all ladies in their 70s & 80s, so they use an old-fashioned app called “a telephone” to share the great prices that they find at the grocery store.

I’m willing to be that you, Dear Reader, have a cell phone. I’ll go out on a limb and assume that you’ll probably want to use apps on your phone to find good prices when you are grocery shopping. Never forget that coupons are your friend. I have an app on my phone that sends me weekly offers on things that I buy most often. When I buy those things, I get points and those points translate to dollars off my grocery total. It’s fantastic to have a bill of $110.77 and only have to pay $0.77 because my points-into-dollars covered the rest.

It should go with out saying that price-matching is an essential tool in your arsenal. Some grocery stores will match a competitor’s price on the same item. This is another way to save money without going to several grocery stores in order to buy the same product at the lowest price. You need to eat, but you don’t have to pay more than necessary to do so.

My third suggestion is to continue investing for the long-term. The capitalist system is not designed to make employees rich. Read that sentence a few more times, and let it sink in until you’ve memorized it better than the alphabet.

Employees’ salaries are a cost of doing business. Every business has a profit-motive. This means that every business benefits by lowering its costs. Lower costs translate into higher profits. Your employer has little, if any, incentive to pay you more money to do your job.

In sharp contrast, there is a built-in incentive to align the interests of investors with the interests of business owners. The corporations need shareholders’ money, or else they wouldn’t sell stock in their company. By investing in low-cost equity exchange-traded funds, you will increase your chances of creating a cash flow that can sustain you. By all means, keep your job if you need it to survive. What I’m telling you is to wear two hats. Be an employee and an investor. If all goes according to plan, then you’ll be doubling your sources of income. Should inflation erode the income from your job, you’ll have your investment income available if you absolutely need it to survive.

No Easy Answers For Everyone

In my humble and inexpert opinion, inflation is not going away any time soon. The cost of necessities will continue to rise, which is not going to be fun. You will need to sit down and figure out how you are going to deal with Non-Stop Money-Eater. What will it take for you to limit its impact on your finances?

Are you doing what you want with your money?

Two thirds of 2021 are in the rearview mirror. You should probably spend a few minutes figuring out if you’re doing what you want with your money.

In other words, is your money moving you closer to or further from your life’s goals?

Maybe dealing with your money is just one-more-thing, and you’re dealing with enough. I get it, really! The pandemic is lasting way longer than we’d expected. The climate change consequences are no longer something to worry about later. The impacts are being seen and felt right now, every single day, all over the world. There’s a lot going on and it’s not all good, so that might make it harder to focus on mastering money.

Be that as it may, there have always been lots of significant events going on in the world. Gues what? There always will be. However, while we’re striving to make the world a better place, you still need to put your money to work. The state of the world doesn’t absolve you of the responsibility you have to Future You.

There is a straight-forward way for amateur investors such as ourselves to invest. It’s our best bet to improve the odds that we’ll be able to live comfortably when we’re no longer sending our bodies and minds to work every day.

Allow me to share my secret with you, again. Put your money on auto-pilot! You’ve got enough to worry about and investing money for your future need not be on that list. Set it up once then let the magic of computers do the rest.

  1. Set up an automatic transfer of a set amount of money from your chequing account to your emergency fund.
  2. Set up a second automatic transfer to your investment account. This can also be your retirement account.
  3. Buy units in equity-based exchange traded funds or index funds with management expense ratios below 0.25%.
  4. Don’t withdraw money from your investment account.
  5. Save. Invest. Learn. Repeat.
  6. Live on whatever’s leftover after these transfers have gone through.

Doing these few things will save your bacon when the time comes. You might feel that you want to spend all of your money right now. After all, tomorrow is promised to no one and you only live once, right? There’s a certain seductive allure to that perspective. Resist! You’re going to need money for all of the tomorrow’s headed your way. You might not know how many of them you’ll get, but the odds are very good that you’re going to need money for most of them.

The bottom line is that you should be doing what you want with your money. If you’re not, figure out why and do what needs to be done to change that situation.