Tag: Investing

Money Mistake – Not Buying Equities

I think I’ve made a money mistake.

According to the personal finance blogs that I follow, the stock market has been on a bull-run since 2009. A “bullish” stock market is one where the stock market is rising. A “bearish” stock market is one where the stock market is falling.

Since 2011, I’ve been busily building my army of little money soldiers and I’ve been rewarded with nice, plump dividend payments every month. I don’t use those dividends for living expenses – instead, they’re automatically re-invested into buying more dividend-producing assets. I’m proud to say that I’ve created a lovely cash-flowing side income for myself that will supplement my other retirement income when the time comes.

After hearing about pension failures and the impacts on retirees, I wanted a source of cash that would allow me to survive during retirement if my monthly pension payment happened to be cut or eliminated. I’m a Singleton. This means that I can’t depend on someone else’s salary or expect that anyone else will take care of me. Creating a portfolio that pays me dividends every single month eases my worries about how to survive if my pension disappears.

That said, if I had invested that same money into the stock market over the same time period, my net worth would be a lot higher. I would be that much closer to early retirement!!! I hate to admit it but I’m realizing that choosing not to buy equities since 2009 was a very big money mistake.

Choosing dividends over straight equity investments was very definitely not the right move to make in 2011. According to the good folks on the Internet, the stock market returns have been higher than the returns on my dividend portfolio. In my defence, I wasn’t as knowledgeable as I am now. I succumbed to one of my many flaws – I’m stubborn. I was utterly convinced that my path was the absolute right one for my circumstances.

So now it’s time to fix this money mistake.

My new plan is to invest in an exchange-traded fund that invests in the global market place. This is an equity ETF and I plan to hold it for a very long time. I do believe that over the long-term, the stock market rises.

One of the wisest things I’ve ever read on the internet was an article that stated that one shouldn’t invest believing that age 65 is a portfolio’s end date. It persuasively argued that one’s investment horizon ends at death, not at retirement. People are living into their 80s and 90s, which means that a 40-year old still has a 40+ year timespan over which to watch their money grow. That bit of wisdom shook me up. I’ll need the growth from my equity investment to power my portfolio until the end of my life, not just until the end of my career.

I’ve also decided not to divest myself of my dividend-producing assets. They’ll continue to grow over the next few decades. I’ve accepted that their growth will be slower since I won’t be adding new money to that part of my portfolio. Once my equity holdings make up 40% of my investment portfolio, then I’ll start to consider re-directing new cash into buying more units in my dividend ETFs.

So my portfolio will continue to churn out dividends, and my new money will go towards buying units in my global equity-focused ETF.

What about the recession that’s coming?

Yes – I’ll admit that the Talking Heads of the Media have been nattering quite a bit about the upcoming recession. It caused me concern for about 3 minutes, then I chose to ignore them. I won’t allow their incessant chinwag to dissuade me from my chosen path.

First, no one has been able to tell me when the recession will start, how long it will last, nor how bad it will be. There’s nothing I can do about the recession.

Second, there will be a recovery from the upcoming recession. There is always a recovery from a recession. I have no reason to think this time will be any different. Much like the recession itself, the recovery’s details are a mystery. No one knows when the recovery will start, how long it will last, and how good it will be.

Third, recessions are a natural part of the economic cycle. Stock markets do not rise forever. They go up and they go down. It’s normal and natural. The best bet is to ignore the hysteria from the Talking Heads, to invest early & often, and to go about the daily business of life.

Fourth, I plan to be in the stock market for the long-term. I’m not timing the stock market. I’m starting to put time into the stock market. The only way for me to have time in the market is to start buying now. I’m going to follow the advice of J.L. Collins, who wrote The Simple Path to Wealth, by buying into an equity product and letting the stock market do its thing for a very long time.

I’m never going to make the perfect investment choices all of the time. However, what I am going to do is continue to learn and think about how best to achieve my money goals. And when I find that I’m making a money mistake, I’m going to stop making it.

When you know better, you do better.

Start Today

There’s no one perfect way to become financially savvy. Yet, I can promise you that you won’t obtain the knowledge you need unless you start today.

There are very few people in your life who will care about your financial health as much as you do. If you’re lucky, your family will take it upon themselves to teach you what you need to know to be successful with money. Once you’re an adult, you owe it to yourself to build upon the lessons that your family taught you and to share that increased knowledge with those closest to your heart.

Your employer pays you to do a job. She really doesn’t care what you do with your money so long as it doesn’t negatively impact how you perform as an employee. She doesn’t care if you save to pay cash for your goals, whether you pay off your debts, or if you invest for your retirement. At best, she cares that you don’t ask for her to pay you any more than you currently earn to do your job.

On the other hand, the AdMan cares about your money very much, and so does his trusty sidekick, the Creditor. They care about taking it away from you. The AdMan’s sole goal is to convince you to give your money to someone else – a restaurant, a retailer, a car dealership, a pharmaceutical company. The AdMan doesn’t care who you give it to, so long as you give your money away.

The Creditor simply wants you to give your money to him. The Creditor will lend you money because he wants you to pay it back with interest.

Your ability to avoid falling into a deep debt hole is contingent on learning how personal finance works. Creating effective strategies to achieve your goals and dreams is going to be somewhat dependent on how you handle the money that comes your way. Part of self-care is learning the lessons of money.

Start today. Whether you need to pay off a debt or you want to save for next year’s vacation, I want you to start today. It may take a while to achieve your goal and that’s perfectly okay. The sooner you start, the better off you’ll be. No one has ever regretted handling their money in a way that allows them to meet their life’s goals.

Don’t be too hard on yourself. No one has ever learned it all at once, and you won’t either. Believe me when I say that you won’t pick the perfect investment – no such thing exists. You can start immediately – there’s no need to wait until January 1 of next year. There’s no time like the present. Transfer $1, $5, $10 to your savings account. If you don’t have a saving account, open one then make the transfer. Commit to one no-spend day per week or per month. Figure out how to prepare and cook more of your own meals. These are small changes within your locus of control. They will help you reach your goals.

Your money situation won’t change by itself. Nothing changes until you do. Start reading books and blogs today. You don’t have to master it all at once. Open a savings account – set up an automatic savings plan – accumulate your first $1,000. And while you’re doing that, read books and consume blogs about investing so that you feel more comfortable with the topic. Again, don’t be too hard on yourself; no one knows everything so you’re not alone. And when you are finally comfortable making your first investment, I want you to only invest in things you could explain to your grandmother. If you don’t understand an investment product, do not invest in it until you do. Never let anyone bully you into putting your hard-earned money towards something you don’t understand.

Today is the best time to plant your money tree. The sooner it’s planted, the longer it has to grow.

Start learning – don’t ever stop. Start saving money – don’t stop! Start taking care of yourself financially so you’re not dependent on others to do so.

Knowledge is power. Take the small steps first. Start today.

Personal Finance – the Greatest Hits

This post is going to be short and sweet. If you’re new to the world of personal finance, the following gems are the building blocks of wealth. If you’re an old hat at the mastery of money, then I would ask that you forward these greatest hits on to anyone who might need them.

If I knew more, this post would be much longer. I don’t know as much as I wish I did, but I’m still learning. These old chestnuts will get you well on your way to a place of financial stability. I’ve written them down for you but it’s up to you to put them into practice in your own life.

Pay yourself first – always.

I don’t have too much more to say on this point. If you don’t pay yourself first, then you’ll never have money for investing. There might be money leftover after you pay everyone else, but it’s highly unlikely. Most of us don’t have anything leftover to save before the next paycheque rolls in. If you pay yourself first, then you can spend the rest and you’ll have the comfort of knowing that you kept a little something back for yourself.

Emergencies don’t make appointments.

(Credit for the insightful phrasing of this bit of wisdom goes to Patrice Washington.) You need an emergency fund so start building yours today. In my humble opinion, this kind of fund needs to hold atleast 6 months worth of living expenses. No one has ever regretted having too much money on hand during an emergency.

Automate your money.

This means setting up an automatic transfer to fund your priorities. Needs come before wants, but wants are prioritized too. You’ll need an automatic transfer to your emergency fund so that life’s little surprises don’t require you to live in your overdraft or to carry credit card balances from one month to the next.

The next automatic transfer you’ll need is to your retirement fund so that you’re saving for Old You. A portion of each paycheque must be saved for the day when you stop working. You cannot assume that you’ll be wholly in control of when you retire. Time flies and Old You will be here in two shakes of a lamb’s tail. Do what needs to done today so that Old You has sufficient money tomorrow.

Track your expenses.

Yes, you know where this is heading. I want you to keep track of your money. What gets measured, gets managed. This is an old adage that I heard around the office and it has always stuck with me. If you want to know where your money is going, then you have to keep track of it. You’re a Singleton so you’re the only person who’s spending your cash. If you don’t keep track of it, no one else will.

Invest in an equity-based exchange-traded funds.

There are low-cost investment products that allow you to put your money to work in the stock market. While you’re busy figuring out the”best way” to invest, your money might as well be working hard on your behalf in the interim. This is money that you’re setting aside for retirement and long-term goals. In other words, this is where you put the money that you won’t need for atleast 5+ years.

Never stop learning about investing. Don’t get cocky! You’re not an expert, and you don’t have a magic touch. Investing in ETFs is a way for you to get profitable exposure to the stock market, without relying on market timing or picking the next Netflix. There will be volatility and I want you to ignore it. Just keep investing and compounding your money over a long period of time while you continue to learn.

Only spend your money on what brings you the most joy.

Unless I’ve been seriously misled, each of us is entitled to have some fun & pleasure in our lives. This greatest hits list would be incomplete if I failed to acknowledge that money is also meant to be spent in order to create joy for ourselves and for others. I’m not talking about mindless consumerism or rote daily purchases.

I’m talking about the special treats, the little extra something that makes you feel special. It’s something different for all of us. Whatever yours is, make sure that you’re spending some of your money to acquire it.

So there you have – the short and sweet list of the greatest hits of personal finance according to the Blue Lobster. Do with it what you will!

Dollar Cost Averaging is a Great Tool

As the warm days of spring roll in and push harsh memories of winter to the recesses of your memories, you may find yourself enjoying the sunshine and asking yourself: What is exactly is dollar-cost averaging?

I’m here to tell you that DCA can be a powerful tool for investors.

In a nutshell, dollar-cost averaging is a method for systematically investing your money. Investors who use DCS invest the same amount of money into an investment on a regular schedule. That schedule can be whatever the investor choose – weekly, monthly, quarterly, annually, or any other increment. The purchase of the underlying asset occurs regardless of the asset’s price.

There are a few of good reasons to use this investment methodology.

Dollar Cost Averaging or Lump-Sum Investing?

Firstly, the DCA strategy facilitates quicker investment in the stock market. Investors can align their investments with their paycheques. Since one my guiding financial mantras is spend-some-save-some, I make sure that a part of my paycheque is promptly & automatically re-directed to my investment portfolio.

There’s a school of thought which says that lump-sum investing is better than DCA because the entire value of the lump-sum amount is put to work in the stock market all at once. If your plan is to invest a large amount in the market, the proponents of lump-sum investing recommend that you invest the entire amount at once. Check out this article from the wise fellow at www.fourpillarfreedom.com for a good discussion of the benefits and drawbacks of the two investment methods.

Theoretically, I have no quarrel with the lump-sum investment style. However, the practical reality of my life is that I don’t have large lump-sums of money lying around. I invest when I get paid because that’s when I have the money available. The money is deposited into my chequing account, then it’s shunted to my investment account, where it sits until it’s invested. For most people without large chunks of money at their disposal, DCA is a better option – in my opinion – because they can invest when they’re paid.

No Need to Time the Market

Secondly, DCA eliminates that temptation to try and “time the market.” Investors who time the market are trying to buy an investment at its very lowest price. Perhaps you’ve heard recent chatter in the system from economists about the impending recession?

What you will never hear from any of those experts is the exact date on which the recession will start. And absolutely none of them will tell you date on which the stock market will be at its very lowest point. People lucky enough to buy at the lowest point will have the best investment returns when the market recovers. Market-timers are always trying to pick the very best time to invest.

Like all investors, market-timers are trying to maximize the profits from their stock market investments. Unlike market-timers, investors following the DCA-method simply invest their money on a consistent basis. They do not bother themselves with trying to buy at the very lowest price. They’re not concerned with the very best returns. They understand that time in the market is more important that timing the market.

Automation Pairs Beautifully with Dollar Cost Averaging Investing Method

Thirdly, the power of automation complements the DCA investment strategy very nicely. If you intend to invest in the stock market, then automatically transferring money from your chequing account to your brokerage account is an excellent strategy.

Let’s say you decided to invest on the 15th of each month. Your automatic transfer will ensure that a chunk of money is in your brokerage account for the purchase. On the 15th of the month, you’ll buy as much of the asset as your funds will allow regardless of the asset’s price. Then you won’t think about investing again until the 15th of the following month. Maybe you want to invest quarterly? That’s fine too. Put the power of automation to work! Gather money in your investment account until it’s time to buy some assets. Never forget the DCA can’t work for you unless you’ve set aside some savings.

This is how I invest. Every month, I invest money into my dividend-paying investments. I don’t follow the price of my exchange-traded funds from one day to the next. Instead, I buy as many units as I can when it’s time to buy. Then I don’t think about my investments again until the dividends roll in.

Easy-peasy, lemon-squeezy – rinse & repeat!

I’ve been using the DCA method to invest my money since 2011. I wasn’t interested in learning to be a wizard at picking stocks. The DCA method was easy to implement and even easier to understand. Much like every other investment method, it’s not perfect and it’s not suitable to for everyone. However, it works for me. I’m confident in this method and I’ll continue to use it until something better comes along.

Prepare for Burnout

Do you want to know a secret about burnout? Here it is… almost everyone keeps burnout a secret from everyone else.

I’ve attended many graduation ceremonies in my time, my own and those of loved ones. I’ve also had various mentors over the years. While they weren’t all great, they all taught me something valuable. And I’ve also had the opportunity to read many, many books & blogs about career-planning.

Here’s the secret… Not a single one of those sources has ever told me that burnout is a thing, and that I might one day face it. Not a single one of my mentors gave any hint that they were dealing with or had ever dealt with burnout – not a single one of them said a word about it. There was never a hint that decades in a given career could lead to anything other than stability, satisfaction, and challenging work.

It’s astonishing! When you think of how many people you might know who just go through the motions, it’s really quite remarkable that there’s an almost coordinated collusion by those-who-have-gone-before to never tell those-who-are-coming along that they won’t always be happy, engaged, or fulfilled by their chosen career.

Quick! Do you love your job?

Whether the answer is yes or no, you should save money now in case you get burned out at work at some point during your working life. In my humble opinion, people don’t talk about the possibility of burnout when planning their careers. If you’re lucky, you start out eager and happy and engaged. And if you’re very, very, very lucky, you’ll continue to be enthusiastically engaged with your career for a long as you have it.

Not all of us are so fortunate. There are people who simply get burned out and simply. Can’t. Do. It. Anymore! They can’t drag themselves into work another day. If you were to ask them to be honest, they would say that they feel like their lives are being wasted as they grind it out. In short, they hate the lives that they’re living. 

Of course, maybe it’s not your job that’s causing your burnout. Maybe you have obligations to extended family that are stressful. Perhaps you’re having trouble getting out of debt. There could be an undiagnosed physical illness. Whatever the reason, the end result is burnout as you try to handle everything that’s on your plate. The ugly reality is that burnout drains your ability to feel joy, to laugh with abandon, to experience that joie de vivre that makes life so much more enjoyable.

If this is you, then know that this is not a good way to live the only life that you have!

The antidote to your burnout might be a break from work. Definitely speak to a medical professional for a proper diagnosis. At the very least, a doctor can figure out if what you’re feeling is caused by something other than your job. And your doctor is the one who can put you on stress leave if that’s what you need to recover from the horrible feeling of burnout. 

Build Your Stash

Trust me when I say that the bills won’t stop during your recovery period!!!

What do you mean, Blue Lobster?

Money in the bank and cash flow from investments gives you some options when you’re facing burnout. Instead of being miserable and continuing to feel the bleakness that penetrates to the very depth of one’s soul, you have money so that means you can quit if you need too. You have the financial wherewithal to leave employment situations which make you want to cry.

Having a nice, fat cash cushion alleviates any concerns about how to pay for life without a job. Think of your recovery as a mini-retirement, or a little sabbatical. There might not be any income coming into your household, but the cash cushion means that you don’t have to worry about that. You can focus on doing what you need to do in order to feel some joy in your life again.

It would be unfair if I didn’t recognize that there are some great employers out there who recognize that burnout is a reality. If you have burnout and work for such an employer, then you’re quite lucky despite how you feel about your job. If you’re considered a good employee, then you may be able to get time off from you employer to recuperate. In other words, good employees may be offered a sabbatical. Great! Kudos to employers who recognize the benefits of helping their best employees to deal with burnout. However, sabbaticals need to be funded with real money.

And let’s be realistic – this is a benefit that is very rare. Be brutally honest with yourself. Would your current employer give you months off to recover from burnout?

Hopefully, you’re reading this when you don’t have burnout. And if the deities are kind, you will never experience this horrible condition. But as the Wise Ones know, hope is not a plan. Take steps today to start preparing financially for a time when you just might need to take more than a week or two of vacation to re-charge your batteries.

No one likes to think about bad things happening. Sadly, this preference won’t stop burnout from occurring. Be proactive! Take steps now to financially cushion yourself just in case you need to walk away from your job to protect your mental health.

Is the higher MER worth it?

Cherished Readers, I have come to an uneasy decision and I’m not sure if I’m right.

I used to buy units in the XDV exchange traded fund (ETF) issued by iShares. When Vanguard came to Canada, I stopped buying units in XDV and started buying units in VDY. Why did I make the switch? Both ETFs satisfied my desire to build my army of money soldiers by making regular monthly purchases through my brokerage account. However, the MER for VDY was 0.22% while the MER for XDV was 0.55%. I listened to the wisdom of the Internet and decided that I should only pay the lower MER for essentially the same product.

Except….

It’s been two years since I started buying units in VDY. The monthly dividend payment per unit varies wildly, and I haven’t been able to figure out why. Both the VDY and the XDV are Canadian-based dividend products, which means that there is a great deal of overlap between their holdings. Yet, my XDV dividend payment is relatively consistent from one month to the next. The VDY dividend payment varies wildly – one month, it’s $0.13/unit and the next month it’s $0.05/unit. On the flip side, the XDV dividend payment is relatively consistent from month to month. It may be $0.087/unit for three months, then fall to $0.078/unit for a few months, before going back up again. There are never wild gyrations from one month to the next, so my monthly dividend cheque stays roughly the same or increases a little bit due to the acquisition of new units via my dividend re-investment plan (DRIP).

Given that one of my goals is to be able to live off my dividend payments, I prefer some reliability in the amount of money that I’ll be getting from one month to the next.

So my uneasy decision is this. Starting with my next contribution, I will go back to buying units in XDV even though it will mean paying an extra 0.33% in MERs to do so. I spent a little time with my calculator on a recent trip out of town and I figured out that if I had stuck to buying units in XDV over the past two years, instead of switching to VDY, I would be earning an extra $300 per month in dividends on top of what I’m earning now. That’s not enough to live on, but it certainly would be enough to buy a month’s worth of groceries for this Singleton.

So my question remains – is the higher MER worth it? The more dividends I earn each month, the faster they can compound through my DRIP, and the sooner I can reach my target of earning atleast $2000/month in dividends by the time I retire.

Is it really so bad to spend an extra 0.33% in MERs if doing so allows me to meet my goals on the timeline that I’ve set for myself?

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Cherished Readers, I have changed my mind. This is allowed because a wrong decision should be corrected as soon as possible in order to mitigate any negative consequences. I will continue to buy my VDY units at Vanguard even though the monthly dividend payment will most likely continue to fluctuate wildly. I calculated the average monthly dividend payment per unit of both investment products and realized that the average VDY payment per unit is higher. It’s the best of both worlds – a lower MER and a higher average monthly dividend payment per unit.

There’s nothing I can do about the fluctuations – that’s utterly out of my control. However, I can continue to purchase units in VDY each month. Eventually, I will have just as many units in VDY as I do in XDV. At that point, my regularly anticipated amount of monthly dividends will be higher – barring any dividend cuts from the underlying companies – and the fluctuations won’t have as much impact on my monthly budget.

For all of my reading and learning about personal finance and financial products over the years, I’ve yet to find a single article that explains the ins-and-outs of how funds distribute their money. I can appreciate that payments are going to be different where the underlying assets comprising the ETFs (or index funds and mutual funds) are quite diverse. In my case, the underlying assets comprising my two ETFs – VDY and XDV – are almost identical. So how come their monthly dividend payments vary so damn much?