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.

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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

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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.

How I deal with not having bonds in my portfolio

New year party with friends

I want to share what are my market expectations and how I deal with not having bonds in my portfolio.

Ever since I started studying finance I have learned a few recurring themes:

  1. Over the long run, stocks outperform bonds
  2. People add bonds to their portfolio to reduce volatility
What are my portfolio expectations

A few research papers suggest that on average, the stock market (Canadian/US) goes up about 10% per year. Other researches say that the market has become more competitive and now we can expect returns of about 8% per year. Taking all this information, I have decided that I will be happy if my overall return is 6% per year. If I earn more, great. If I earn less, I will be disappointed.

This is a weekly graph of the the TSX for the past 12 month. The blue line represents the ups and down of the Toronto Stock Exchange, the red line represents my expectations from the market which is the 6% line.

During the past 12 months I have built a margin of safety of 5.8%. The TSX had gone up 11.8% and I would have been happy with a return of just 6%. This means that If the TSX drops tomorrow by 5.8%, I am still good. At the same time, if the market doesn’t drop, I feel as if I had won the lottery. Imagine that one day the insurance company calls me and tells me: “Ever since we have been insuring you, you haven’t had any accidents, we would like to give you your money back.” This is the same idea. I imagine that the money above the 6% is NOT my money, it’s the insurance’s money, but if nothing happens, I get to have my money back.

When people invest in bonds, they are reducing their volatility, but they are cutting their returns as well. I believe that if they just change their mindset, they will be able to better handle volatility. Remember bonds ARE NOT safer than stocks, they are lest volatile. Over the long run, stocks are as safe as bonds.

Let’s face it, over the last year bonds had a yield of about  2%, the TSX had a return of about 12% and the S&P had a return of about 12.5%. If had a 50-50 portfolio, my return would have about 7%. Good, but nothing to brag about. .

As for my real portfolio. I am ⅓ in Canadian stocks, ⅓ in International stocks and ⅓ in US stocks. My total return for the past 12 months was about 11% and my margin of safety is 5%. In my mind I have gained 6% and I have a 5% insurance policy.

In my next blog I will talk about how to reduce overall portfolio volatility by adding an assortment of uncorrelated assets.

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.

Passive investment outperforms active managers in and outside Canada

Going to the movies with friends.

The robots are outperforming the humans. According to SPIVA, a research group which measures the performance of mutual funds managers vs passive index,  the Canadian Index (S&P/TSX) has beaten active mutual fund managers hands down.

This is how the S&P/TSX had has out performed active managers.

  • 1 year: 73.5%
  • 3 years: 76.9%
  • 5 years: 71.2%

There are many reasons for the index outperforming:

  • Management fees are 2% to 2.5% versus 0.10% for index funds. That is a  2% difference. This is a big drag on performance.
  • Many managed mutual funds are closet indexers. This mean that they tell the public that they do active management but most of the stocks they own are the same as the stocks in the index. So their portfolio is similar to the index and then they slap a 2% markup to compensate for their salaries and marketing expenses.
  • Cash drag. Managers keep a portion of their portfolio in cash, they do this to have money for redemption or to be ready for opportunities. Either way, cash money is money that is not working for you.
  • Trading expense. It costs money to buy and sell stocks, even in today’s low commission environment, when you buy/sell millions of dollars in stocks, this will add up to the cost.
  • Buy & sell spread. When you buy stocks you buy them at the price which they are offered and when you sell them, you sell the at the price some one else is willing to pay for them, this spread between buy and sell is small in big companies and larger in smaller companies, but it is there, always creating a drag on your performance.
  • Trailer fees. I call this the kickback which mutual funds pay to advisers who recommend their fund. If an adviser sells you fund XYZ, he will get compensated, every year, for as long as you keep your money in that fund. The trailer fee is generally 1%. This is one percent which doesn’t add to your performance, it goes straight to the adviser’s pocket.

Many investors are waking up to this reality. Thousand of people are dumping their actively managed fund and buying whichever index best represents their investments goals.


If over 70% of actively managed mutual funds don’t beat the index, why pay for inferior performance? Get an index fund and dump your actively managed fund.

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.

Investing in the US for Canadians

Eating with friends before going to the movies. Dec 20/2016

My portfolio is ⅓ Canadian, ⅓ US and ⅓ international. In addition, the US portion is in US dollars.

Most investors, all over the world, have a country bias. They like to invest in what they know and of course, they know their national companies therefore that’s where they invest.

It is important, specially for investors of small (economically speaking) countries such as Canada (Canada is only 2% of the global economy) to diversify outside of their country’s economy.  A person invested exclusively in Canada, is a person who is under diversified and is highly exposed to Canada’s specific risks. In fact, the Canadian economy is mostly dependent in natural resources, in particular oil. A big drop in oil prices could be devastating for the Canadian economy.

The first step towards diversification ( for a Canadian) should be to invest in the US. The US has a more mature economy, it is broadly diversified and we are already familiarized with most major US companies.

The most efficient way of investing in the US is by buying broadly diversified ETFs or mutual funds which represent the whole US Economy. With one click you can buy the S&P 500 index which represents the largest 500 companies in the US. Or the Total US market index.

The next question should be: If I invest in the US market, should I do it in US Dollars or Canadian Dollars. For most Canadian, investing in Canadian Dollars should be good enough.

How do we invest in the US?

I like investing through a company called Vanguard. They have built a great reputation of low cost and reliability. Another leader in the industry is Black Rock. But be aware that all major Canadian banks offer similar ETFs and Index funds.

Which one are my favorites?

In US Dollars I like Vanguard’s VOO which represents the S&P 500 and it has an expense ratio of only 0.04%. This means $4 for every $10,000 invested. I also like VTSMX which provides exposure to the whole US stock market. This one has an expense ratio of 0.15%.

If you invest in Canadian Dollars, I like the VFV (S&P 500) with an expense ratio of 0.08% and the VUN (Total US market index) with an expense ratio of 0.16%.

Disclaimer. Please note that I am sharing my personal situation with my personal risk tolerance. Don’t blindly follow what I share in this article. Talk to a “fee only” financial adviser and share the idea of diversifying out of Canada with them.

Pay lower taxes by investing in Index funds

Celebrating Christmas with my friends.

Taxes is our biggest expense

Our biggest expense is neither food, nor housing, nor transportation. No, our biggest expense is taxes.

Here in Canada, we have many privileges not found anywhere else in the word. We have a stable government, low crime, acceptable medical service, job opportunities, etc. But we pay dearly for all those benefits, we pay some of the highest taxes in the world.

There are ways to pay less taxes

The first thing is to take advantages of all the tax shelters offered by the Canadian government. Some of those tax shelters are RRSPs, RRIFs, RESPs and TFSA. We will talk about each one of those in future posts, but in general, you can eliminate completely, or postpone for many years, taxes on the money earned within those tax shelters. The biggest problem with those tax shelters is that there is a limit on how much money you can put in them. For example, I can only put $5,500/year in my TFSA.

How can we invest the money that can not be protected from taxes?

Stay away from bonds or any kind of interest revenue. This kind of revenue is taxed as regular income. You pay more taxes on $1 earned from interest income that in $1 earned from dividend income of capital gain income.

The income which is taxes at the lowest rate is capital gain income.

Then problem arrives when you buy actively managed mutual funds. Those mutual funds have a lot of buying a selling within them, and you the investor, you are responsible for paying for those capital gains. This is surprising for most investors because as far as they know, they are not actively buying and selling, they are buying and holding. It is very unpleasant to see a tax bill at the end of the year.

The best way to lower your tax bill or  is to invest in Index of ETFs.

Index funds are highly tax efficient because there is not an active manager constantly buying and selling securities. The index fund represent a basket of stocks which mostly stay the same.

For example, the Index fund which represent the 60 biggest Canadian companies is composed of the 60 biggest Canadian companies. The Index fund which represents the Dow Jones industrial Average, always has the same 30 companies. There is no much change in one of those indexes from one day to the other, for the most part, the index fund, never buys and never sells.

Index Funds and ETF not only offers the highest returns in the stock market, when compared against mutual funds, but also offer the most tax efficient way to invest in the stock market.

I think that we should forget completely about actively managed funds and embrace completely Index funds.

Do you own any actively managed funds? Any index funds? Let me know in the comments.

How to save money while getting fit

This is my home gym

I have been going to the gym for years. When I was younger I used to do lots of sports, among them bodybuilding and power lifting. At that time I used to desire to have a body like Arnold Schwarzenegger and I used to put the hours to in the gym to achieve my goal.

As I grew older, my goals shifted to just being in good shape.

I tried two gyms in my neighborhood. One is called “La Cite,” and the other one is called “M Fitness.”

home exercise equipment.
This home gym belongs to a good friend

La Cite it was in the basement of a building. It had all the equipment I could ever need. I went there for about three or four years and I was generally happy except for one little thing: there was not a place in the gym where I could look and not have a TV screen right in my face. Over the years it became intolerable and eventually I left for the other gym in the neighborhood.

M Fitness was smaller but cleaner and better organized. Also, it was in the third floor of a building and it had plenty of sunlight. I was happy… for a little while. The one thing that started to bother me was that the music was too loud. “Hey, this is not a bar, I’ve like to listen to my own headphones.” My complains were to no avail. I was never able to listen to my audio books nor to my favorite podcasts.

friend hugging each other
Mastermind meeting

To all of you gym owners or managers, certain people go to the gym just workout. If someone wants to watch TV, I am sure they have a good TV at home. If someone wants to listen to loud music, there are hundreds of bars in the neighborhood.

Frustrated with my lack of choice, I decided to workout at home. I bought a few weights, a yoga mat and started to work out in my own ambiance. Now I love working out at home.

These are the reasons why I love working out at home
  1. I am master of my ambiance. I put my favorite podcast or
    Norma’s excise machine

    audio book and I don’t have to worry about the noise some one else is making.

  2. I save tons of money. My workout equipment cost me about $100. That’s it. I don’t ever have to renew a membership. From one year to the next I might buy more weights, but that will only from $20 to $50 a year.
  3. I save lots of time. Imagine the time it takes to put on winter clothing, boots, gloves, etc, walk to the gym, go to the locker room, take it all off, put on the workout gear, take it all off, put on the winter gear again, go back home and change clothing yet one more time.
  4. I hardly ever miss a workout. Many people miss their workout because they don’t have the hour and a half that requires going and coming back from the gym, but if anyone creates a discipline of working out at home, on any busy day, they can always drop to the floor and do a few push ups.

Many people feel that they need to go to the gym, that they cannot concentrate at home, but everyone can adjust. Some routines take as little as little as 4 minutes, some of them take as long as 30 minutes.

Here are some examples
  • This personal gym belongs to Steven Tang

    Alain (me): I do 15 minutes of stretching and 15 minutes of weightlifting

  • My friend Cheryl does 1min15sec of plank, 3 sets of 10 pushups, 3 sets of 15 squats with 8lb weights
  • Rosina does yoga, essentrics, and qi gong
  • Yraida  dances and does cardio exercises following some videos from internet
  • Jang on the weekends, he gets his cardio doing the Just Dance video game.
  • Annie: Usually daily push ups and my 15-20 hours a week of swing dancing is my exercise but when I don’t hit the dance floor much I either swim at the free local pool or do some cardio and muscle exercise at home the only tools I use is a yoga mat, a 5$ skipping rope and some small weight (I got for free on kijiji).
  • Kelli: I do yoga, Pilates, hula hoop and dance, and I do all those activities with my baby now
  • Raja: I stretch for about 5min, I run outside for 20min, then I do a full body workout for about 20min: abs, push-ups, upper back, shoulders, squats with weights, kettle bell swings. Then I stretch again for 5min. Feels
  • Norma: 15 minutes cardio with the Rock’Roll stepper (very good for dancing training) plus 5 minutes cord and 10 minutes stretching

And you? Do you workout at home? Why? What is your routine?

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.


I bought a used car

Used car Hyundai Elantra
This is my new toy.

I have been driving since for about 35 years. All my life I have bought second hand car. Some have lasted a long time, some have died soon after the purchase. In my mind, I have always gotten a good deal.

Here are some examples:

  • I bought an old Hyundai Pony for $500 and it lasted one year (My first car in Canada).
  • A friend gave me a Chevrolet Cavalier which lasted about 6 month.
  • I bought an Honda civic for $1,000 which lasted 2 years
  • I bought a Hyundai accent for $3,000 which I kept for 5 years and gave it up because I didn’t need it any more.
outdoor fire place.
Winter will be over soon. 🙂

On the hunt for a newer car

  1. It has to have low gas consumption
  2. It has to provide a great return for my money.
  3. And I have to like it 🙂

Here is the result.

I bought a 2013 Hyundai Elantra for $6,000 CAN. After I paid all the registration, taxes and permits, my total cost was about $7,000.

If the car lasts me about 10 years without any major repair, I am looking at about $700 per year, or about $60 per month. When I drive for Uber, I make $60 in 3 hours. In short. I believe I made and OK investment.

Why a 5 year old car?

  • A car starts losing value the minute you drive it off the dealership.
  • Within the first few days your car will lose about 10% of its value.
  • Within the first year your car has lost almost 20% of its value
  • After 5 years the car has lost about 60% of its value.

I think that buying a 5 year old car for only 40% of its original value is a good deal.


I really like this car. It is slick, fast, it’s like a toy. I have been driving it for a couple of weeks and every time I jump on it I have a lot of please with the acceleration and the shifting of gears.

What was the last car you bought? Do you think you got a good deal? Did I persuade you to buy used instead of new?

Please share your comments below.

Source: How Fast Does A New Car Lose Value

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.