Monthly Archives: May 2017

Investments: Percentages vs. Absolute amounts.

Jan 14. Spending time with friends

In investing

Practically every  investment website or book talks about investments in percentages terms instead of absolute amounts. They says things like… “you should invest X percentage in stocks and X percentage in Bonds.”

But believe me, investing 50% of your $5,000,000 portfolio in stocks doesn’t feel the same as investing 50% of $50,000.

A person with $5,000,000 could have 100% of his portfolio in bonds. At 2 % he will earn $100,000 per year. No need to think about diversification.

A person with a portfolio of $50,000 invested 100% in bonds at 2% will get only $1,000. This person will have a hard time living out of his investments.

Those are very dramatic differences, yet the percentages are the same.

My approach would be to figure out what is the bare minimum a person needs to live. Let’s say a person lives with $2,000 per month or $24,000 per year. Now, I will make the assumption that the stock market will continue growing the the rate of 8%. Then I will divide $24,000 by 8% = $300,000. I would like to have $300,000 in stocks before I put one single cent in bonds.

One of my friends, his name is Elijah, 32 years old, started investing for the first time this year. His initial capital was $3,000. Does it make sense to have one single dollar of his saving in bonds earning less than 2%? Of course not. I asked him to invest 100% of his portfolio in the Canadian index. As he accumulates more money, we will try to diversify into the US index and some International index.

I have seen plenty of portfolios in which the financial adviser allocates a big percentage of the portfolio in bonds, even if the client has a small amount of money.

In Management fees

Money leaving your hand and into the financial adviser’s pocket

Most actively managed mutual funds in Canada charge 2.5% – 3% as management expenses ratio. On $100,000, that would be $2,500 to $3,000.

When you compare that with the expense ratio of and index fund or ETF of 0.10%, we realize that people who have actively managed funds are getting screwed. The dollar amount an index fund or ETF is about $100.

Of course, financial adviser who work on commission, don’t want you to see the real numbers, they rather work with percentage, they rather keep the figures abstract. It is up to the consumer to do the math to realized how much the adviser is taking out of his pocket.


When deciding how much money to allocate to each asset class, think of it in absolute money amount. And when a financial adviser tell you that he will charge you a “small” percentage for his services, please do the math.

Coaching services

I am a money coach, don’t hesitate to write me if you want to talk about money or anything else that is going on in your life.

What is the S&P 500 and how can Canadians invest in it.

Spending time with friends

When people ask: “How is the US stock market doing?” They general refer to how is the S&P 500 doing.

The S&P 500 is an abbreviation from “Standard & Poor’s 500” which is an index of the 500 biggest companies in the US.  This index is market capitalized, which means that the biggest companies have bigger weight or a bigger percentage of index than smaller companies. Until now, this index is considered to be the best representation of the health of US companies.

So how do we buy the index?

We can buy the S&P 500 through Index funds and ETFs.

I will just cover my favorite index fund which is the Vanguard 500 Index fund. This fund has an expense ration of 0.14%, this means that you pay $14 of fees for every $10,000 invested. It has a minimum of $3,000 US to buy it and after that you can deposit as little a $1 to make subsequent purchases.

But I prefer to buy ETFs instead of index funds. I will not go into details of the differences of index funds and ETFs, just think of them as almost identical products with some slight differences which I will not explain at the moment.

In the ETF realm there are two which overshadow all the rest.

US Dollars

  1. The iShares S&P 500 Index Fund (IVV) with an expense ratio of only 0.04%, and
  2. the Vanguard S&P 500 ETF (VOO)

CAN Dollars

  1. The iShares Core S&P 500 Index ETF
  2. the Vanguard S&P 500 Index ETF (VFV)

Whenever I suggest to my friends to have some US in their portfolio, this is my suggestion the S&P 500. Generally, I suggest to my friends to have 1/3 of their portfolio in Canada, 1/3 in the US, and 1/3 in international stocks. In other blogs I will share my favorite Canadian and International ETFs

Coaching services

I am a money coach, don’t hesitate to write me if you want to talk about money or anything else that is going on in your life.



Smooth ride versus rocky road

For the past 20 years, the S&P has had a compounded annual growth of  about 8%.

So why people are not earning that kind of money?

In my previous article “What kind of return to expect from your money” I spoke about the DALBAR’s report which states that the average investor in the S&P 500 earns less than 2.5%.

The reason is simple. When you tell people that the stock market has earned 7, or 8 % over the past 20 years, they imagine a smooth line like the one shown in this picture.

S&P 500 returns smoothed over 20 years.

But the stock market is anything but stable. The stock market is rocky, there are sharp declines which test our confidence, our convictions that market will continue its upward trend. People see their investments drop and then they sell out. Eventually, the market starts recuperating and eventually people gain confidence and get back in.

In following this behavior people sell low and buy high, which hinders their performance.

This is a real picture of the market during the past twenty years.

S&P 500 volatility over the past 20 years.

How many people got out after a significant drop in the year 2000, 2001, 2002, only to get back in late 2003, 20004.

How many people got out at the bottom of 2008 only to get back in at the end of 2009?

The market does NOT guarantee smooth returns, the market is volatile, there are many violent ups and downs, enough to shake out the people who don’t have a strong convictions.

It is my believe that people can have the stomach to withstand that volatility under three conditions.

  1. Ignore completely the market news. Set it and forget it, and never think about it.
  2. Educate yourself enough to know that volatility is part of the market and that eventually the market will continue generating attractive returns.
  3. To have a “Fee Only” financial adviser to hold your hand on time of uncertainty. The reason why I say “Fee Only” is because commission based advisers have the conflict of interest of their commission, one of their principal motivation is to sell a commission based product with high fees.

I will share with you my own personal technique. I invest with the hope of getting a 6% return on my investment. If my investment continues producing over 6% year after year, then I am happy.

Bellow is a weekly chart of the TSX (Toronto Stock Exchange) and a 6% line. As long as my investment continues growing in excess of that line, I know I am doing well. The market might fluctuate up and down, but in the long run, I feel optimist that it will continue trading above my expected return.

The TSX has been growing at a much rapid rate than my expected return.


Eating Korean food. Jan 13

My message to investors is as follow: In the long run, stocks have higher returns  than bonds. I like to diversify my holdings by having ⅓ Canadian broad based index, ⅓ US broad based index, and ⅓ International broad based index. When you put those three together, the volatility of your portfolio will decrease and you will be better able to withstand the ups and down of the market in one particular geographical area.

Although past returns are not guarantee of the future, chances are that as long as there is a capitalistic system, stocks will continue doing well in many decades to come.

Coaching services

I am a money coach, don’t hesitate to write me if you want to talk about money or anything else that is going on in your life.


What kind of returns to expect from the market

At Toastmasters with my friends. Jan 3rd

Financial gurus make their money from selling programs

Last week a few of my friends invited me to a 3 day seminar on how to become rich trading stocks.

I have seen these amazing marketing campaign before. A guru is going to teach the secret formula. All you have to do is pay $999 and you will the key to wealth. You will go to your computer and a torrent of cash will be spited out of your screen.

Spoiler alert! Anyone with a trading advantage, will keep it to himself, he will not be traveling from city to city in order to sell it for $999.

In the 1960, professor Edward O. Thorp, discovered in a formula to trade options. Instead of revealing his formula, he kept it secret. Today, the professor is worth about 800 million.

How much can a regular investor expect from the market?

We can only look at the past and conclude that if the future will have any resemblance to the past, we can expect about 8% to 9% return.


What the market gives and what investors get are two different things. Investors tend to under perform the market by a wide margin.

When we talk about the market, we generally think of the S&P 500 (in the States) or the TSX 300 (in Canada), so the question is: How much can a regular individual expect from the market.

According to a research done by DALBAR’s Quantitative Analysis of Investor Behavior (QAIB), investors have been earning 2.5% while the market has been earning about 8%.

How is this possible? The reason is that  investors buy and sell at the wrong time. Sell when stocks are cheap and buy when storks are expensive. People tend to buy stocks when the see that stocks have been going up for a while, by this time they will catch only a small part of the uptrend. Investor tend to sell stocks when stocks have been declining for quite some time, by this time, they will be getting out too late.

How do we fix this problem?

The best thing to do is to do nothing. If you buy the S&P 500 or the TSX 300 and you ride the ups and down of the market, on the long run you will do quite well.

This is very difficult to do because we are exposed to the media and to the noise. The media is there, not to help investors, but to sell advertisement. In order to draw attention the media tend to prioritize catastrophic events. This makes investors nervous and they sell.

How to beat the market

Let’s say that you buy stocks once a month. Let’s say you invest $1,000 on the first of every month. With this simple rule, when the stocks are cheap, you can buy more stocks and when the stocks are expensive, you can buy less. The cumulative effect of this strategy will help you earn more than the market.

Coaching services

I am a money coach, don’t hesitate to write me if you want to talk about money or anything else that is going on in your life.