Tag: Never Stop Investing

Taking it Day By Day

It’s been 4.5 months since the World Health Organization declared that the globe was in the grips of a pandemic. Since then, there has been much upheaval in people’s lives due in no small part to the financial impacts of lost jobs, the inability to travel, and social isolation. What are we supposed to do when going outside means taking the risk that we’ll contract a disease about which so much is still unknown?

We have to take things day by day.

By nature, I’m a planner. For example, I enjoy planning my travel. It’s fun to peruse all the websites, read up on the various sites, figure out where I want to go. In 2018, I went to Ireland for the first time. I crossed an item off my Bucket List – booking my time off then looking for a good travel deal. My biggest regret about that trip was that it was somewhat last-minute, in that I booked it only 6 weeks before getting on a plane. In the deep recesses of my travel-planner heart, I hadn’t given myself enough anticipation-time. Six weeks wasn’t enough time to dream about my upcoming trip and to imagine all the cool things I’d be seeing & doing.

Of course, in hindsight, I should have taken more time off and visited Northern Ireland and Scotland while I was over there. Who knew that a global pandemic would crush the airline & travel industries?

COVID-19 has changed things…

Today, I’m not doing as much travel planning. As you can well imagine, it’s difficult to get excited about flying anywhere when my personal view is that airplanes are the petri dishes of the sky. Similarly, long road trips are in the not-just-yet category since I’m not keen on staying in a hotel or going to restaurants.

Right now, I’m taking things day by day. My natural urge to plan has been channeled into cooking and baking. I’m already at home. My kitchen is right there. I have the ingredients and the tools to cook and bake delicious things for myself. Meal-planning is finally receiving the attention that it’s due. Trips to the grocery store are less frequent, but I do buy a lot more when I go. Once home, I start figuring out what to eat right away and how to meal-prep for the upcoming week.

As for investing, I have no choice but to take things day by day. The last time there was a big drop in the stock market was in 2008-2009. I made a huge mistake by stopping my contributions to my investment account!!! Thankfully, I was smart enough not to sell anything but I wasn’t smart enough to keep investing on the way down.

To date, the highest point of the Toronto Stock Exchange was reached on February 21, 2020. Then the market plunged, and kept plunging until March 23, 2020. The TSX has been slowly re-gaining ground since then. (Man oh man was I glad that I didn’t have access to cable TV during this time. I would’ve been a basket case listening to all the “experts” talking about investing.)

Sticking to the Plan

This time around, I stuck to my saving and investing plan. I ignored the headlines. I trusted the example set by history that the stock market will recover. No one knows precisely how, nor can anyone guarantee when the recovery will happen. This time, I decided to take things day by day and to continue to save & invest for my future.

I had a few things going for me. Firstly, I’m still fortunate enough to have my job. There are millions of people who aren’t in the same boat so they’ve had to decide whether to eat today or eat tomorrow. Secondly, I was already debt-free before the pandemic hit. I don’t have to worry about creditors or missing my mortgage payments. My financial foundation is firm. Thirdly, I don’t have cable so I missed a great many of the interviews with the people who predicted that “this time would be different.” I didn’t hear the stories from people who believe that the market could not possibly recover from COVID19.

Finally, I’m older and wiser today than I was in 2008-2009. I’ve learned from my mistakes. Had I continued to invest back then, I’d be so much closer to my retirement goals. My inexperience and fear caused me to sit on the sidelines while the market recovered. In other words, I wasn’t investing when the stock market was on sale. When I finally did re-start my investment program, I’d promised myself that I would continue to invest during the next downturn.

So when COVID19 came long and took a great big bite out of the stock market, I kept my promise. Money earned – money saved – money invested – repeat!

My portfolio still hasn’t recovered completely but I’m much farther along than I would have been had I stopped investing. I’ve been able to my more units in my dividend exchange traded funds. As a results, my monthly dividend payment has gone up considerably. This is a very good thing. I was fortunate enough to be able to make a contribution to my Registered Retirement Savings Plan. As per the advice of an independent financial planner, I invested those funds into a global equity ETF. Boom! I firmly believe that my choice to follow his advise will add a nice little kick to my RRSP in the coming years.

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Weekly Tip: Allocate your money in a way that allows you to invest in the stock market for atleast 15 years. Use broad-based ETFs to invest your money in equities. ETFs move in the same direction as the stock market. They simultaneously eliminate the risks of trying to cherry pick the next Apple/Tesla/Facebook stock. If you absolutely cannot stop yourself from stock picking, then please limit this hobby to only 5% of the equity portion of your portfolio. The other 95% of your equity investments should be allowed to chug along in a broad-based ETF for a long period of time.

Experience is a Great Teacher

How are you doing today? I hope that you’re ignoring the gyrations of the stock market and going about your business of self-isolating, washing your hands, and self-distancing. They might not be the most exciting activities, but they will flatten the curve and help to avoid overburdening our hospitals.

As I approach my golden years, I’ve come to accept the maxim that experience is a great teacher. Additionally, I’ve also realized that I can learn from other people’s experience as well as my own. I need not make every single mistake myself. Watching others’ mistakes can be just as instructional.

Today, I’d like to share one of my investing mistakes so that you don’t have to make it yourself.

Back in 2008, the stock market tanked. I remember hearing about the demise of Bear Stearns, and I was shocked. I don’t recall why it was so upsetting since I wasn’t a hedge fund manager at the time, nor was I an economist or any other kind of expert. All I know was that Bear Stearns was a major investing bank and that it’s demise meant that something very bad was happening in the stock market.

So what did I do? I made the second worst mistake available to me. I stopped investing while the stock market plunged.

I’ve made no secret of the fact that I’m a buy-and-hold investor. My investment plan is simple. First, save money from each paycheque. Second, transfer those savings to my investment account. Third, buy units in my chosen exchange-traded funds. Fourth, rely on the dividend re-investment plan to invest the dividends. Fifth, go back to the first step.

I’ve designed the plan to take advantage of dollar-cost averaging. Each month, I invest in my ETFs regardless of the unit price. I completely avoid trying to time the market. “Is this a good time to buy?” is a question that I never ask myself. When I have the money, I buy into my ETF – easy peasy lemon squeasy. This method of investing is know as dollar-cost averaging. I first learned about it in The Wealthy Barber, a great book authored by David Chilton.

Back in 2008, I was not as smart as I am now. Twelve years ago, I freaked out and I STOPPED INVESTING!!!

This was a huge mistake! I should have continued to dollar-cost average into the market during the six months between the demise of Bear Sterns and the recovery which started in March of 2009. I would have been buying during the downturn.

Buying during the downturn is a fancy way of saying that I would have been buying when the stock market was on sale.

It’s good to buy things when they’re on sale. If you want a new pair of shoes, aren’t you happier making the purchase when they’re priced at 35% off? I have a feeling that if you had a choice of buying the identical pair of shoes for $100 or for $65, you’d opt to buy them for $65.

The stock market is no different. On February 22, 2020, the value of the stock market plunged. In other words, it went on sale. The Talking Heads of the media could barely keep from peeing their pants with glee! They had so much to talk about, so much fear to stoke in their viewers and readers. Buy this! Don’t buy that! It’ll be a V-shaped recovery! No recovery for 2 years! Avoid cucumbers!

Okay … maybe they didn’t say anything about cucumbers. But the rest of the statements aren’t too far from the truth.

Once again, experience is a great teacher. I’d already made the mistake of listening to the Talking Heads in 2008-2009. As a result, I did not take advantage of the cheaper prices on the stock market that were available at the time. As the recovery wore on, the stock prices didn’t fall but I did start contributing to my portfolio again. However, I could not overcome the error of not buying stocks when they were super-cheap. My failure to make the right choice 12 years ago means I’ll be working a little bit longer than I’d projected.

I see no sense in making the same mistake this time. So while I’m self-isolating, while I’m washing my hands, while I’m social distancing, I am also continuing to invest in my chosen ETFs. Yes, you read that right. I’m still investing even through this period of excess volatility.

Did the value of my portfolio plunge in February of 2020? You bet your sweet ass it did! And did the value continue to drop throughout March as the stock market roiled due to the COVID19? Again, that’s a big 10-4!

It’s been just 5 weeks since the plunge. My portfolio is recovering, just like the stock market is.

The Talking Heads won’t ever encourage others to follow my simple plan. Despite its effectiveness, my way of doing things is boring and boring isn’t good for ratings.

You see, the stock market is supposed to go up and down. It always has. It always will. Never in its history has the stock market only ever gone up, just like it has never only ever gone down. If you’re going to invest, then do so consistently and automatically. Do your research. Find a broad-based equity exchange-traded fund (or mutual fund if you insist on paying higher management expense ratios). Invest on a regular basis. Ignore the Talking Heads. They can’t tell the future any better than you can.

And in case you were wondering, the biggest mistake you can make right now is to sell your stock market portfolio. For the love all that you deem holy, do not sell! Right now, the prices are low and that’s why you should be buying them.

Like I’ve said, experience is a great teacher. You can learn from mine instead of making the mistakes yourself. Don’t stop investing right now. Stick to your investing schedule and build your portfolio while the stock market is on sale. The second biggest mistake you can make is to halt your investment contributions.

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Weekly Tip: Pay cash for your next car by making a monthly car payment to yourself for as long as possible before you head to the dealership. The payments to yourself will be the down payment, if you’re forced to finance your vehicle. Ideally, you’ll stay out of debt completely because your accumulated savings will be sufficient just pay for your next vehicle with cash.

Consistency is One of the Keys

This week, I listened to a story that blew my mind! It was a testament to the power of consistency in investing, through good times and bad. Diane was her name – a lady in her 60s who’d survived divorce from an alcoholic, while raising 4 kids, taking 8 years to get her electrical engineering degree, and starting her professional life at age 42. By the time she’d retired, Diane was worth $5,500,000…. and did I mention that she never earned more than $82,000 per year?

Check out episode 99 on Millionaires Unveiled to hear the rest of her story, a podcast that has recently caught my attention. They focus on interviewing millionaires and the stories are fascinating.

The Financial Independence Retire Early (FIRE) community loves to tell stories about people who figured out who to make a lot of money quickly in order to retire in their 30s and 40s. And to those who can do it, I say “More power to you!”

I would have loved to have retired in my 30s too, but that wasn’t the way that my cookie crumbled. I learned about the FIRE community in my 30s, though the regular channels – Mr. Money Mustache – and went from there. However, no one has been able to teach me how to turn back time so I’ll be retiring in my 50s.

What I loved about Diane’s story is that she had challenges in her life, including cash-flowing college for her children. I mentioned that she had 4 children, but did I tell you that there was a 16-year spread from the oldest to the youngest? Diane was paying for college for 16 years straight and she still wound up debt-free with over $5Million in her kitty.

How in the hell did she do it?

Consistency is the key. Throughout her podcast, Diane emphasized that she and her husband saved atleast 10% of their income throughout their working lives.

Single People, please don’t roll your eyes at this point. Kindly avoid the trap of believing that it’s-easier-if-you’re-married-because-there-are-two-incomes! Diane was very clear that she kept her money separate from her husband’s.

In other words, the money that she has not is solely Diane’s money. Being single is not an impediment to becoming wealthy. It’s possible to become a millionaire even if you don’t become a spouse.

Diane committed to saving 10% of her income from the time she started working in her 20s. At the time of the interview, she was in her 60s. That’s 40 years of investing in the stock market! Diane mentioned that she’s been told to allocate her funds into a 60%-equity & 40%-bond portfolio, but she prefers to keep 70% in equity and 30% in bonds.

That’s two lessons we can take from her story. She chose to save something every payday by living below her means and she invested her savings in the stock market. Time in the stock market helped her investments to grow.

The third lesson from Diane’s story is that you don’t need to make a six-figure income to do what she did. Diane never earned more than $82,000 while she was working. I’ll agree that she earned more than the median income for the average bear, but keep in mind that she was raising children on this income. It’s reasonable to assume that the costs of childrearing ate into whatever was left of her income after she’d set aside her savings.

Creating Wealth for her Family

Diane has also set an example for her children, one that they will hopefully pass down to her grandchildren. Through her actions, Dians has shown her children that consistency is one of the keys to building wealth and that saving money has to happen no matter what. If I understood her correctly, Diane already had children by the time she returned to school at age 34 to study electrical engineering. She worked full-time while studying, and she graduated at age 42. Throughout those 8 years, Diane continued to save and invest from every paycheque like clockwork. At the age of 50, Diane was divorced…and she was worth a cool million dollars. The rest of her money came from the compounding over the next 15 years!

Creating a multi-million dollar nest egg was the first step towards ensuring an intergenerational transfer of wealth within her family. If she chooses, Diane can pay for the post-secondary educations of her grandchildren. By alleviating this financial burden, Diane would effectively be helping two generations of her family. Her children could invest their money towards their financial security and her grandchildren could study and graduate without the burden of student loans. If they are wise, Diane’s children will then use their money to pay for the educations of Diane’s great-grandchildren when the time comes so that the grandchildren can build their wealth.

Do you see how beneficial this cycle of intergenerational wealth can be? Diane’s example of consistently saving and investing for decades is a gift to her children, if they choose to follow it.

Save. Invest. Learn. Repeat.

Just like the rest of us, Diane won’t live forever. It’s time for her to enjoy some of her money while the bulk of it continues to compound and grow. According to the podcast, she is using her money to fulfill her dreams of travelling with her family and creating lasting memories. Good for her!

If you haven’t already started to save and invest, then start today. Open a savings account – set up an automatic transfer so that you save something from each paycheque – invest in the stock market through a broad-based index fund or exchange-traded fund. Live below your means so that you have the money to invest. Save – invest – learn – repeat.

There’s nothing to suggest that Diane had the ability to spend all of her money on her own personal priorities for her whole working life… I’m looking at your Single People Without Children. If you’re a Singleton, then you’re the only person making decisions about where your money should go, which of your dreams to fund, how much you’re willing to invest so that you can create a retirement nest egg for yourself.

Ignore the talking heads in the media. They deliver nothing but a steady stream of hype-and-fear in order to drive ratings. “It’s time to buy! It’s time to sell! It’s time to buy! It’s time to sell!” They have no personal stake in whether you achieve your goals or not, so ignore them.

Saving a little bit of money at a time and investing that money in the stock market will lead to more than a million dollars after a few decades. While your money is working hard for you in the background, you go about the business of living.