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How One Blogger Turned His Investments Around





This is a guest post by Eric @ Passive Income Earner

I am in my late 30’s nearing the big 40 and it’s only over the past few years that I’ve developed a decent investment plan. Interestingly enough, I’m relatively knowledgeable about money but never knew enough about successful investing until recently. Here is my story on how I turned my investments around – I’ve made many mistakes and I hope I can help someone avoid them.

Starting with Lack of Knowledge …

In my 20′s, my lack of knowledge in investing had me start with mutual funds – expensive mutual funds at that. I read books and magazines and I was swindled in the theory advertised about mutual funds.

Unfortunately, very little was advertised about the fees and the drag on performance over time. I was also reading the wrong books.  Another reason I went with mutual funds was due to the high stock trading fees. Back then, discount brokers weren’t as competitive as they are now.

I thought I was smart with my mutual funds especially with a financial advisor selling them to me.  After 5 years of investing in mutual funds and being unsatisfied, all my mutual funds ended up in dividend paying mutual funds as I just did not like what was offered. I had decided that I preferred a known return with dividends over the potential of a large capital gains. That’s when I started forming my dividend investing goals.

My suggestion for the young generation, gather a lot of information and interview others (especially those with success) to understand what’s ahead. These days, the TFSA is a great tool and I strongly recommend it.

Still Naive & Hitting For The Fences

Even as I was starting to save enough money to buy stocks without feeling the pinch of the discount broker fees, I was struggling with defining my investing strategy and I ended up experimenting with the bad news and momentum strategy. I made money with Apple and RIM but lost money with many others such as Crocs and shipping companies. The strategy wasn’t working and losses compounded during the financial market crash of late 2008.  To make matters worse, the portfolio was leveraged.

The Lazy Investor book by Derek Foster really helped me see stocks from a different perspective.  I could relate to his concept about investing in what I know and understand. After reading that book, here’s what I did:

  • I focused on learning about Computershare to allow me to invest small amounts and to get my kids started early.
  • I started the blog to help teach what I learn, hold myself accountable and try my hand at being an entrepreneur.
  • I took a more systematic approach to researching my investments.

My Three Year Turn Around Journey

As my blogging journey started, I decided to part ways with my mutual funds and financial advisor.  It took me 3 years to redirect my investments and establish a strategy that has been working for me.   Below are the high level steps I took over time.

  1. I got setup with Computershare;
  2. Made use of Scotia iTrade (e*Trade Canada);
  3. Re-organized my RRSP by investing in stocks and selling my mutual funds;
  4. I established my TFSA account and maximized my contributions;
  5. Started investing in US conglomerates in my RRSP;
  6. Switched to RBC Direct Investing;
  7. Setup my RESP account and transferred my investments with mutual fund companies over;
  8. Sold RESP mutual funds and bought stocks; and,
  9. Continue to research stocks fitting the simple and easy to understand businesses with an economic moat strategy.

As you can see, my investing journey has been far from perfect. It’s important not to give up and adjust your plan when necessary.  All the best in your investment journey!

About the Author: Eric @ The Passive Income Earner is a DIY investor and software engineer by trade. He has a passion for building a retirement portfolio to retire from the income it generates.





41 Comments, Comment or Ping

  1. 1. SST

    “I read books and magazines and I was swindled in the theory advertised about mutual funds.”

    The financial industry has pumped out many a swindl…er…schem…I mean “theory” over the years in order to accomplish this:

    “I thought I was smart with my mutual funds especially with a financial advisor selling them to me.”

    Congratulations on taking control and continued success.

  2. 2. thefiscallyfit

    great job on everything. my only concern is the continued discussion about how certain types of investments are “bad” and others are “good”. They are simply different and have to be matched accordingly. It is like the constant debate about TFSAs vs RRSP and how one is bad and the other is good. They are simply different tools for different jobs. The same is with fees/MERs. The issue is not the fee or MER, it is the lack of risk mitigation or excess return given these costs. I would happily pay high commissions, fees, MERs, etc. IF it got me excess returns and a low std dev. The problem is that this is hard to find haha…. I am also curious to know if the average investor knows what their personal alpha, beta, or portfolio risk actually is? As I know we would never compare an apple to an orange….Bottom line is that I am getting sick and tired of people saying this is BAD and this is GOOD and “insert blanket statement here” lol sorry for the rant

  3. 3. Goldberg

    The old 1885 Travers story of “but where are your client’s yachts”

    Without trustworthy guidance, it is a learning journey full of errors. Welcome to the club!

    It comes back to the old saying of “nobody cares more about your money than you do.” The financial advisor cares about his own interest, just like the insurance salesperson has his… so I would never trust either one for advice.

    Listen, I went to buy running shoes at Foot Locker last week. The wall was full of shoes yet the salesperson said I recommend these ones… They were the ugliest looking shoes ever! I looked online, low rated too. High injury rate… not comfortable… Why did he first showed me those? Highest commission. He did not care at all about about me, potential running injury or looks. Just highest commission. That’s also the financial and insurance industry!

  4. 4. pj

    How did you start with computershare?

  5. I dont quite understand Goldberg’s analogy. I dont think the foot locker guy was out to get you, nor do I think that their compesnation structure is so lucatrive that they would sell you “high comission paying” shoes????

    As a Financial Planner in real life, i see the merits of DIY investing, and even ETFs. What i dont understand is how anyone can say all mutual funds are bad, just like you can’t say all ETFs are great. There are good products and bad. I’m also very concerned in the “I could relate to his concept about investing in what I know and understand”

    This sort of thinking can get one in trouble. First, i think everyone had to admit its almost impossible to understand what you are investing in when investing in invidiaul stocks. I dare anyone to explain to me how a stock like Bank of America works. If you think you understand it, i dont think you have enough inforamtion.

    I’m very much in favor of ppl being more interested in their finances, and understanding how they are invested, but Im more concerned about mismanagement. I’ve heard this statement more times than i can count…”I’m a very conservative investor, i only invest in GICs. Oh, and 20% of my rsp is in Telus stock” It’s a large disconnect betweeen risk/reward from my experience.

  6. 6. thefiscallyfit

    well said Danesh. The average person (including the DIY investor) has very little idea of how much risk they are taking in their portfolio relative to the returns they are achieving. DIY is great, but make sure we are comparing apples to apples. You never ever ever try and chase “potential” future returns. You figure out the amount of risk you can take on and aim for the best return given that amount of risk. If you are only concerned about potential returns (as so many people are) head to your local casino or buy a lotto ticket… great potential return. lol

  7. Nicely done Eric. Continued good work on your blog, I like our healthy dividend income competition :)

    Mark

  8. 8. SST

    @#5 Danesh: “What i dont understand is how anyone can say all mutual funds are bad…”

    Read here:
    The Great Mutual Fund Rip-off:
    http://money.ca.msn.com/savings-debt/alison-griffiths/the-great-mutual-fund-ripoff

    And here:
    The full paper:
    http://onlinelibrary.wiley.com/doi/10.1111/j.1540-6261.2012.01798.x/full

    @#5 Danesh: “First, i think everyone had to admit its almost impossible to understand what you are investing in when investing in invidiaul stocks.”

    Do you know exactly how your automobile or house operates?
    Probably not, yet you still bought them and use them.

    Do you know exactly how your government operates on all levels?
    Probably not, yet you still give them money every single day.
    (And if not for taxes-by-law, would ANY of us buy ‘Gov’t Inc.’ stock? I think not.)

    No one can know everything about a company in which they are investing, even the insiders (no one knows what the future holds, either). This is part of the risk you assume by giving other people your money in hopes for a return from the work the company conducts.

    @#5 Danesh: “I dare anyone to explain to me how a stock like Bank of America works.”

    Their stock works on HFT.
    Their company works on government sanctioned criminal activity.
    I don’t put money into either, even on a dare.

    At the very least, and I think the point of this article, is that Eric (PIE), went from having no investment knowledge and no financial plan beyond giving his money to someone else, to jumping on the education train and taking control of his finances, assuming responsibility for losses and gains alike.
    Definitely many steps in the right direction.

    A perfect world would consist of the investor learning from those with proven skill in the field, and then applying that knowledge first-hand to their own situation.

    It’s a weird relationship, people and their money.

    They wouldn’t let someone into their home every evening to sequester their remote control and relinquish hours of teevee program selections, yet they are more than willing to hand over their hard-earned cash to a “professional” to do as he/she sees fit.

    We get what we pay for, etc., etc.

  9. @SST
    Thanks for the comment. I hope I can help others.

  10. @thefiscallyfit
    I agree that it’s not always about right or wrong. I believe it’s about understanding the investments and accounts that is important and then you can make an educated decision. I held on a dividend mutual fund for a long time because it continuously paid 8%. The reason I sold is because I got better at dividend investing and I know the dividend growth can outperform a fixed yield for mutual fund.

  11. @Goldberg
    thanks for hilighting the conflict of interest of sales people. Don’t forget the bank – always there to help -uh I mean always there to sell a product. (Note that there are good people out there but it’s hard to find them and if you are not educated in the subject first, it’s hard to know.)

  12. @pj
    I got on the board at dripinvesting.org on the beginner thread and just requested a share from there. There is lots of people there to help out. I believe having someone selling you a share is the cheapest way to do it. I have bought 13 different companies through the board.

  13. @Danesh Parhar
    You are right that even investors are conflicted and not always strong psychologically to stick to what they want. I think it’s all in the learning and being educated which is what is missing for many.
    - The more you know the less you get swindle
    - The more you know the better you can partner with someone to reach your goals.

    I have had to learn more about my cars to understand the maintenance requirement and reduce my cost. I have learned about home construction to know more about renovations we did. I had to learn more about investments to take control of them. We are on our 3rd home and through experience I have learned about real estate agents too.

    As I said, there are good people in all sectors and then there are those looking for their own interest and it’s a matter of knowing how to choose. I respected my financial advisor but I wasn’t interested in mutual funds anymore although I had a good dividend paying fund with high MER too.

  14. 14. thefiscallyfit

    @ the passive income earner

    I understand what you are saying and that makes sense. I guess you (or anyone) has to believe that your ability to buy and sell your dividend producing investments is better than for example, Eric Bushell (and his team). AND the opportunity cost of your own time and transaction cost do not exceed the MER that Eric has on one of his funds (signature high income class A MER 1.6%). I guess my final question would be what is the beta (correlation to the market), alpha (your ability as a portfolio manager to create additional returns per unit of risk), and std deviation (volatility) of your portfolio?

  15. Good work, Eric! No one cares more about your investments than you do. The Lazy Investor was a great book, imho.

  16. @ thefiscallyfit
    Thanks for your comment. I think we are getting sidetracked … I took control of my portfolio and took charge of my own return and growth. It’s not even about beating the index or beating a mutual funds but about what I am confortable with, what I understand best and what satisfies my goals. When I had a financial advisor selling me mutual funds, I did not like the process. My goals never changed but the products I was offered changed a lot based on the quartile performance for the past year … I guess I struck out when picking a financial advisor and many do. The fee remuneration of the business is not in favor of the customer either and that’s proven.

    Taking control and being confortable with your finance is understanding the boundaries. For me dividend investing work and for others it doesn’t. Again, it’s not about comparing with an index, it’s about what works for the investor.

    Tax situation and retirement plans all play a factor in everyone’s finances. 50% of my portfolio is in index funds through my defined contribution plan for example.

    As for your questions, I can’t answer them because they really don’t matter to me to be honest. I could go and try to generate them but it’s not something I care to have and compare as comparing is not the goal.

    I read a podcast from Preet Banerjee this week where he interviewed a former mutual fund manager and they discussed how the fee structure was and how none of it was in the best interest of the clients. At the end of the day, there are many products that are worth it based on where you are in life. Another interview Preet did was about the Black Swan ETF and I thought that was pretty cool to protect against major Black Swan event (which is identified by a 20% drop in the markets within a month).

    The moral of the story is that no one is better than you to look after your money. Pick a strategy that works and meet your goal. Don’t be afraid to make adjustments.

    Thanks for the discussion!

  17. 17. SST

    “I guess you (or anyone) has to believe that your ability to buy and sell your dividend producing investments is better than for example, Eric Bushell (and his team).”

    This is what the Morningstar Fund Manager of the Decade (and his vaunted fund) managed to achieve:
    Signature Select Canadian Fund (Class A) had compound annual returns of 10 years: 8.3% (2000 – 2010).

    10 year Compound Annual Returns
    Gold: 12.26%
    Silver: 14.84%

    Weird. I wonder who was managing gold and silver?

    Every C$1 invested in Signature Select Canadian Fund (Class A) at inception (May 13, 1998) is now worth $3.80.

    Every C$1 invested in gold over the same period is now worth $3.75.
    (coincidentally, 1998 is when I initially invested in gold and silver)

    Wow.
    The TOP FUND MANAGER and his ALL-STAR TEAM could only manage to beat a high-risk, do nothing, shiny rock by a mere 1.3%.

    Oop. Forgot about his fees.
    With a 2.43% (!!!) MER, that drops the over-all return of TOP FUND MANAGER OF THE DECADE to -1.13% below that of manager-less gold.

    Stunning performance. Bravo.

    I only keep mentioning gold and silver because everyone keeps mentioning how awesome stocks/mutual funds/financial advisors are. Maths and facts tell a different tale.

    I invested in a low-risk private equity deal which returns a guaranteed minimum of 10.5% per year for each 5-year contract. Capital gains and dividends are on top of that. Does this make ME a TOP FUND MANAGER since my returns are beating the financial industry wonder-boys? Where’s MY major award?!

    Besides that, it’s also been proven that 90% of a funds’ returns are generated by the top 10% of holdings (paraphrasing, as I don’t remember the exact percentages, but it’s close). Thus, to mimic a top fund manager’s returns, without the fees et al, all I have to do is visit their website and check out the composition of said fund.

    **FREE FINANCIAL ADVICE!**
    Buy TD, CIBC, Suncor, Eli-Lilly, and Gold.

    (WHAT?!? What is GOLD doing in the top holdings of the TOP FUND MANAGER of the decade?!? Doesn’t he and his crack team know how risky and do-nothingy gold is?!? Where is the dividend? Where are the earnings?! )

    And any fund manager who thinks her/she can control market risk and/or volatility, I’ve got two words: LIBOR and HFT.

    The Permanent Portfolio, which contains 25% stocks and 25% gold, has been proven to give returns which are fractionally less (<1%) of that of a 60/40 and/or all-stock portfolio over the last 40+ years, but with much less risk and volatility. That is, the greater risk assumed with stocks does not translate into greater returns.

    As for "opportunity costs of your own time "…gimme a break!
    The author assumes addition "costs"/looses "opportunity" if he forgoes income to manage his own portfolio. If Passive Income Earner conducts his financial studies at 10 o'clock at night, he only gains. Heck, even Derek Foster estimates his $1,000 in financial education "opportunity costs" has reaped him $500,000 over simply buying mutual funds through a financial advisor. Can't argue with a true-blue millionaire, right?

    Again, it's the financial industry doing nothing more than pushing their product. They are a business, after all, and it is comforting to know they can sell their products and services with the full government legal backing of 'zero liability' behind them. That about says it all, really.

    Next step, Passive Income Earner, search out other asset classes — this means NOT stocks! — in which to grow your money. You'll expand your economic education by leaps and bounds once you start mingling with actual business types instead of just financial industry types.

    Well done in dumping your mutal funds and financial advisor.

    Have a great weekend and don't stop learning! :)

  18. 18. Sampson

    So after a long post SST,

    you prove that one CAN get rich by investing – you seem to be doing very well, and would/should reach the million dollars the industry touts.

  19. 19. thefiscallyfit

    @PIE

    Very well said. My only concern is why you are not concerned with these metrics? How do you track your process or ability to manage your portfolio without these things? Besides RoR, as we can’t use a single metric to measure performance as stated by SST, what do you use?

    @SST

    What are you talking about? I assume that your understanding of everything finance has you at several million dollars of investable assets, making 10% annual returns with zero risk…. I also assume for your ability to invest that you mange money and invest for a living…. correct?

    I agree with you 100% that people should be engaged and that there is opportunity to make a profit in every asset out there but what are you even talking about?

    Who cares about signature select cdn fund, I mentioned Signature high income…. different mandate, different analysts (some overlap), different fund… a fund that has done very well for a small amount of risk relative to the gold positions you are talking about.

    As for the opportunity cost, you have to include it. Many times I would say it is in your favour like you mentioned but you still have to include it. This cost may not even have a dollar figure, it may be time at the gym, relaxing, etc.

    Given your outrage in the fact that someone claims a mutual fund “could” be a good investing tool…. what metrics do you use to measure your ability to invest?

    a great fund… IMO

    https://research.tdwaterhouse.ca/research/public/MutualFundsProfile/Summary/ca/CIG686

  20. @SST “low-risk private equity deal” —> I’m not entirely sure those exist. And while i see some merit to your comments, you can’t compare the purchase of gold to a Signature Select Canadian Fund. The risk of buying gold is way higher than buying a fund like that. Its not a apples to apples comparison. Going forward 10 years from today, could you say the risk of owning gold is the same as that fund? Of course not. And sorry if it seems im picking on you, not my intention, but its those types of comments that scare me about people managing their own money.

  21. 21. Bet Crooks

    Hi, Eric,
    I’m not sure if you mentioned whether any of your holdings are fixed income? If so, what do you invest them in? We have most of ours in bond funds (because through work pension plans the only fixed income choice is a bond fund) and in GICs. We counterbalance the extreme conservative-ness of those with a selection of stocks.
    PS I think it increases your credibility as a financial writer when you admit what you’ve tried and why it did or did not work for you.

  22. 22. Goldberg

    I agree that generally stating RoR without stating risk is without context, as SST did with the gold example (one of the best performing non-diversified investment, that actually performed poorly for decades in the 80s and 90s).

    However I disagree with thefiscallyfit. The author is not talking about investing in junior mining stocks. He is not trying to beat the 32,000 analyst on wall street, actively trading as if he was smarter or knew something they don’t and taking huge risk in the process…

    He is buying blue chips dividend paying stocks and passively holding for a long period. This strategy is very low risk, low cost, and likely close to index performance. Beating on him about his need to know his alpha and beta is silly.

    He is happy generating a return that beats inflation and compounds over time, all at low risk, in a way he understands and has responsibility over.

  23. 23. thefiscallyfit

    @Goldberg

    Well said Goldberg. My only issue is that if you don’t have a metric to measure risk, how can you know how low risk you are? I agree that the strategy is lower risk if done properly but relative to what? How do truly know how much risk you are taking unless you have a metric to measure it.

    I might be beating a dead horse but how can we ignore an intricate part of investment process? The risk/reward relationship is a pillar of investment mgt.

    Thoughts?

    @SST
    all returns reported are net of MERs as you most likely know

    risk, in this context defined as volatility (std dev.) doesn’t translate in higher returns? what are you talking about??? obviously more risk doesn’t translate into higher returns all the time. That is my point. Don’t take on additional risk if there is no reward. How do you know how much you are taking on… you have to measure it with a quantifiable metric.

    low risk private equity @10.5%? you are correct, that is the going rate for private dollars, but low risk? the very reason the lending rate in that world is so high is due to the very nature of the higher level of risk involved. If there is no risk whatsoever, what person would want to borrow money from you for that rate? I’d be concerned with lending to a person or business that doesn’t understand this but again I don’t know the details of that deal so take my thoughts with a grain of salt.

    I would also assume you are a professional investment manager charging a premium for your investment advice? if no, why not?

  24. 24. alex

    Meh.

    I’ll take the track record of index mutual funds over stock pickers every single day and twice on Sunday.

    Lots of research into stocks, does not a successful strategy guarantee.

  25. 25. thefiscallyfit

    haha i think the real winner is frugal trader. more comments = more traffic. more traffic is higher revenue for MDJ lol

  26. @Goldberg I agree with your point about the author’s intentions. However, i dont feel comfortable in saying this is “very low risk” A stock porfolio of blue chip dividend payers that lost about 30% in 2008 can’t be deemed to be very low risk. Now as a long term investor, i can appreciate that it appears that stocks always bounce back and long term they work out great. But when I look at examples of Japan, or the US stock market for the entire 2000s, you see zero gains.

    My thoughts are that most investors do require some bond components and almost all DIY investors i come accross don’t add that down side protection to their porfolio. They look at blue chip canada stocks and say, they returned an average of 10% in the 2000s and believe they will continue to do so. I’m very positive about teh stock market going forward, but it does scare me to think that some investors believe these returns will go on forever. In no way am i saying that the author believes these returns are permanent, but the fact that they only invest in Canada stocks that pays dividends…well that’s just not diviserified enough for me. If they understand the risk and potential rewards, but all means, the more power to them. But to say that others(and most likely less informed others) should follow this isn’t a good idea.

    Just because I have the ability to learn how to fix my car whenver it breaks down, does that mean i should never take it to a mechanic? Or better yet, if i can fix my car, does that mean i should recommend that everyone learn to do so?

    Again, i believe the basic concept of this article is to encourage readers to learn more about the finances, know what MERs are and how they effect returns. I think that is great advice! But i just dont think you can use the same brush to paint an entire picture.

  27. 27. Al

    @ fiscallyfit

    Despite what the propellor heads on wall street would have you think, volatility is not risk, nor is beta. Business people don’t value their ownership in their company every day – they think about the guy in the next town that is competing with their business, they worry about new products comepting with theirs, they think about their customer going bankrupt and them losing their receivables, they worry about making rent on their premises, they worry about having inventory – those are real risk. Stock investors should think of their ownership in companies in the same way because company ownership is what a stock actually is. Equities are not a math equasion.

    Consider cash, it has no volatility but I can assure you with certainty that it will buy less of whatever it is you want to buy in the future – if you have a resonably long time horizon that makes it one of the riskiest assets possible.

  28. 28. thefiscallyfit

    @ Al

    huh? … and all those things dictate the revenues and profits of the corp…. of which the stock price is based on (future and current earnings of the corp). This is over simplified but you get what i’m saying. I’m not talking about what you buy or when you buy it or for what price, I’m talking about a metric used to measure how well you’ve done given the exposure you have created for yourself. If you can get the same return for less risk, why not do it? if you get more return fore the same risk, why not explore that option. I am simply stating that to have any idea of how you are doing, you have to measure it… some way. Do you measure your rate of return? why? so you know how much money you are making lol. same principle

  29. 29. Fisher25

    I am a Financial advisor for a major bank. In the past I was against Mutual Funds but I now realize that it depends on the investor. Prior to working as a Financial Advisor I worked for TD Waterhouse as a Investment Representative for their discount brokerage. What I found is that most DIY investors go into investing on their own with the right Idea but get easily sidetracked. They panic, they leverage excessively, they are HIGHLY concentrated.

    For those who love to insult financial advisors, I put ALL my clients in index mutual funds that the MER averages to about 1%. Also we do not do FEL or DSC. Our clients benefit from having someone to help with their banking, get tax information, and also given a Financial Plan.

    People on this sight may be looking after their investments but the reality is that most DIY investors end up blowing their life savings through capital losses and paying the brokerages commissions etc. I only refer clients to our discount brokerage after assessing their knowledge of the markets and also assessing how much time they have on their hands.

  30. 30. SST

    Oh, boy.
    I’ll have to split this one up into multiple postings.

    @Sampson: “…you seem to be doing very well, and would/should reach the million dollars the industry touts.”
    @thefiscallyfit: “I assume that your understanding of everything finance has you at several million dollars of investable assets…”

    Your assumptions would be very wrong.
    If you pay attention to the mathematical facts, you would know that only ~1% of the Canadian population will ever reach that millionaire status, regardless of financial understanding.
    I don’t chase the near-impossible, instead focus on wringing the most return out of every dirty dollar I earn.
    I’ll retire in relative comfort and enjoy spending my money while I am alive.

    @thefiscallyfit: “…also assume for your ability to invest that you mange money and invest for a living…. correct?”

    Again, wrong assumption.
    But, that was exactly my career path in earlier days.
    Long story short, after doing an internship at Wood Gundy, I lost my taste for the industry as a whole (among other reasons).
    However, I could very well say that, yes, I do indeed manage MY money and invest for MY living. Is there a difference?

    @thefiscallyfit: “Who cares about signature select cdn fund”
    The awards people do! It’s the “flagship” fund which won the manager the title of ‘Top Fund Manager of the Decade’. So it must mean something to someone. But, I guess we are all free to cherry pick our favorites.

  31. 31. SST

    Hooked on Metrics!

    @thefiscallyfit: “How do truly know how much risk you are taking unless you have a metric to measure it.”

    “Don’t take on additional risk if there is no reward. How do you know how much you are taking on… you have to measure it with a quantifiable metric.”

    etc.

    Alpha and Beta were introduced into the world of high finance in order to measure the failings of fund managers!

    What did all the stock market investors do for 100 years before bad mangers created the need for METRICS! ? How did Livermore measure risk and volatility back in the day without such METRICS! ?

    YOU may need such measurements to subdue your own fiscal precepts, others do not.

    Besides, how do you use these metrics to measure market affections you cannot measure, such as rouge traders, corrupt management, HFT algorithms, global fraud schemes, irresponsible government policy, et al?

    re: Private Equity — seems there is a misconception. “Private equity” in my world means ‘not public’ aka not the stock market. I invested in a private company and their business. Their RoR is not due to increased risk as they deal in a very stable product which is in high demand and some-what short supply. I also invested money in private oil wells with similar returns.
    (As a side bar, I know a family who owns three wells in Alberta. Talk about generational wealth!)

  32. @everyone

    Thanks for the discussion :) I also appreciate all the views and compliments.

    One of the features that I found appealing RBC is that I can compare my portfolio against any index. I don’t sit there and watch that, but that’s an interesting feature nonetheless. As I mentioned, 50% of my portfolio is indexed already but it performs below my dividend portfolio for the record. Will it always be that way – who knows …

    Another thing is that it takes time to figure out a strategy that works for you, your family and all the variables. You need to take your time and learn. I have posts where I discuss my diversification and target goals and it takes time to save the money to reach these goals with stocks as you build it. You also have multiple accounts with different tax advantages.

    I am not going to argue the best path for anyone, I am just one guy investing in a way that works for me :) and it sure beats losing money.

  33. 33. SST

    @Danesh: “you can’t compare the purchase of gold to a Signature Select Canadian Fund.”

    Exactly the point.
    Gold isn’t supposed to be a mutual fund (even though that mutual fund owns gold).
    What I compared was the returns of different assets.
    That’s all that matters in Capitalism — money in hand.
    That’s why we all “invest”, isn’t it?

    *”The risk of buying gold is way higher than buying a fund like that.”

    How so? What’s your measurement?
    Because it has no company, because it has no manager, because it has no dividend, because it has no growth, because it has no earnings, because it produces nothing, because it has no MER?

    Gold has been around for 5,000 years as an investment vehicle, how long have the S&P 500 constituents been alive? I’d say one has more to prove than the other.

    Obviously for the last 10+ years gold has NOT been a risky investment.
    Risk and volatility are what drive gold, and what has consumed the world (financial and otherwise) over the last decade if nothing but risk and volatility?

    As well, as I’ve pointed out, Browne’s Permanent Portfolio contains 25% gold, and has lower risk than a 100% or 60% stock portfolio over the past 40 years.

    The math and facts are there for all to enjoy.

    *”Going forward 10 years from today, could you say the risk of owning gold is the same as that fund? Of course not.”

    You are 100% correct.
    I’ve stated many a time that I am not a “gold bug”.
    There will most definitely be a time to sell gold and move into the next depressed asset class.

    To end, and to add to Passive Income Earner’s financial theory, a great quote from one of my favorite all-time great investors, Jim Rogers:

    “Take your money, put it in T-bills or a money-market fund. Just sit back, go to the beach, go to the movies, play checkers, do whatever you want to. Then something will come along where you know it’s right. Take all your money out of the money-market fund, put it in whatever it happens to be and stay with it for three or four or five or 10 years, whatever it is. You’ll know when to sell again, because you’ll know more about it than anybody else. Take your money out, put it back in the money-market fund, and wait for the next thing to come along. When it does, you’ll make a whole lot of money. Your default position should always be short-term instruments. And whenever you see anything intelligent to do, you should do it.”

    Happy investing to all, whatever your metrics may be!

  34. 34. thefiscallyfit

    great discussion guys

    @sst

    haha I know what you are saying about oil, I live in AB. Oil and farms lol

    Living here is most likely why I have such biased opinions regarding risk haha too many people not comparing apples to apples. I think the more informed you can get the better. I just see so many people putting an emphasis on potential returns and really nothing else. Well if we want to maximize potential return and don’t include “risk”… casino and lotto ticket here i come! haha

    cheers to all and have a good weekend

  35. 35. Sampson

    @SST – What assumptions have I made? I state that with your realized rates of returns, one CAN become rich by investing – if anything, based on your experience, I would expect you to be fully aware and supportive of investing to make money.

    You always tout the statistic that only 1% of Canadians are millionaires. This is not because of investment returns, this is because of abysmal savings rates.

    A healthy savings rate (18% of income, median being around $40k – therefore $7200 saved per year), combined with your returns would make millionaires (inflation adjusted) out of all Canadians.

    The low savings rate has more to do with the problem then the ‘lies’ you always refer to.

  36. 36. SST

    @Sampson: Disagree. But that’s what’s great about being alive. :)

    As for the “lies”, if you view them as such, please, feel free to use math and facts to prove them otherwise.

    Other than that, you can read about savings rates vs. stock market return rates in my book.

    Speaking of books, perhaps everyone who opens a savings account should be given a copy of ‘The Millionaire Next Door’. Let them into the dirty little secret that there are actually other investment avenues apart from the stock market and mutual funds for accumulating wealth.

    Saving is hard work. Investing is hard work. Becoming wealthy is hard work.
    Handing over your money to a “professional” with zero-liability and hoping for the best is easy.
    What’s the saying? Easy come, easy go.

    See you at $1,000,000!

    p.s. — I’ll extend the challenge to provide a mutual fund and/or fund manager with a 35-year 10% average annual return.

    VFINX is about the only one off the top of my head.

  37. 37. Sampson

    Not really sure what there is to disagree about.

    What is the average and median savings rate in Canada?

    5% savings rate
    http://www.statcan.gc.ca/pub/13-605-x/2012002/c-g/c-g04-eng.htm

    on median household income around $70,000 or lower. That amounts to $3500 saved per year.

    You don’t believe this is a major reason why average Canadians aren’t getting rich?

  38. 38. Sampson

    Regarding getting to $1M.

    I can’t post an excel table here, but do the calculation yourself. $75000 household income, 18% savings rate, 5% real rate of return. You get to $1M after 31 working/saving years.

    Of course this is household savings.

    I will retract that all Canadians can be millionaires, of course a healthy income is necessary. Individuals whom earn >$60,000 probably can do it, they just need to save.

  39. 39. SST

    @Sampson: I do believe the long-term Canadian savings rate is ~10%. Guess it’s a mix of lack of savings and lack of returns, or something like that. There is BLS data appointing a 16% savings rate for high-income households. Wondering the reasons behind the poor saving less? ;)

    Good to see you will be joining the ranks of the 1%. Well done!

    To address another point:
    “…the opportunity cost of your own time…do not exceed the MER…”
    (average Canadian fund MER ~2%)

    Lifted from ‘The Millionaire Next Door’:
    “Prodigious accumulators of wealth spend nearly twice as many hours per month planning their investments as under accumulators of wealth.”

    Annual median single net income ~$26,000;
    saving 10% gross = $3,000 for 35 years:
    7% Return – 2% MER = $278,000
    7% Return w/o MER = $430,000
    Difference = $152,000 ($4,300 a year)

    That sum equates to just under an hour a day (47 minutes) of median pay work, or ~10,000 total hours (an interesting sum for other reasons).

    I guess it’s up to the individual to decide if the “cost of opportunity” is worth $4,300 a year for someone to manage their $3,000 investment.

    Maybe this is why so few people become millionaires, because so few people invest TIME in tandem with money.

    The author, Passive Income Earner, decided the return of investing time in independent study and self-management was worth the risk of abandoning “professional” management.

    Time will tell.

  40. 40. thefiscallyfit

    one of the best discussions in a long time guys!

  41. 41. Shadowmarket

    PRECCIOUSS METTTALLLSSSS

    Oh the discussion was over?

    teehee

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