Continuing Education

I received an accounting designation 2 years ago, after around seven years of tedious distance education. For three of the seven years, when the courses I was taking became too difficult to allow for the amount of procrastination I was accustomed to, I had to give up a good portion of my hobbies and interests in order to give myself a chance to pass the courses I had decided to take. As in most schooling I’ve been part of, there were many things that were not applicable to either real life or any accounting work that I’ve come into contact with, but it seemed very important at the time.

As part of my accounting designation, I have to fulfill 40 hours of professional development per year. This year, I took a two day course on auditing standards (was actually better than it sounds) and will probably scrape together enough free webinars offered by financial companies and accounting bodies to fulfill the necessary requirements to keep my license. I don’t mind the learning part, it’s the cost of learning that makes me a little angry – the Chartered Professional Accountants of Canada / Ontario essentially have a monopoly on the courses offered now, and price accordingly.

Besides continuing my education for my chosen career, I am also trying to continue to teach myself to be a better investor. I would be the first to admit that I read fewer personal finance and investing books than I did five or six years ago, when I was deep in the middle of creating a personal finance plan for my wife and I. At the time, I read most of the personal finance and investing books that my library had available, trying to sponge up all of the information out there. These days, my intention is to learn more nuance – instead of the previous strategy of “learn everything at a time, and hope that some of it’s right”.

I’m much more comfortable with my financial situation. My wife and I have gotten our monthly expenses to a reasonably low level that allows us to save enough to hopefully achieve our end goal of being financially independent in about nine and a half years. What I need to learn right now and into the future, are ways to limit (as much as possible) investing mistakes that could put my finances in peril. In addition to risk avoidance, my goal is to reduce the opportunity costs of my investment decisions – if there is a more profitable place to put my money, I’d like to at least be aware of it.

So, for now, I have a pretty big list of books that I’m planning on reading, taking notes on and applying (if what has been written makes sense) to my investment decisions. I’m hoping that sometime in the future, I will have less doubt when I make a purchase or sale of a security, but I have a feeling that as I get older and my investment portfolio gets larger, the wariness and worry will probably always be there.

Separate Lives

I think that most people who meet my wife and I, wouldn’t really guess that we were in what I would call an exceptional financial position compared to an average household. Most people see my wife and I on weekends, when I’m golfing all summer, and we are hanging out at backyard barbecues or patios at bars, the same as any other D.I.N.K (dual income no kids) couple would do in our situation.

Other than the weekend stuff though, we’re mostly pretty boring people. We both read quite a bit, we watch some Netflix, and try not to make our house too messy, but really don’t have many other hobbies that would cost a lot of money. These “intensely indoor” activities are significantly different than our more extroverted social outings that we take part in on weekends with our friends. Our “boring” indoor hobbies are part of the reason we have money to save towards retirement at the end of every month.

I like our separate lives – I’m mostly an introverted person, and if I spent all of my time around other people, I think I would spend a good amount of it in a grumpy state. Additionally, most of the activities that I like to do when I’m out and about involve either eating or drinking or both, which would adversely affect my ability to maintain a healthy body weight if I were to indulge like that all the time.

For me, I try to maintain a balance. I balance my hobby spending, by saving for my ridiculously expensive golf addiction for the whole year, while barely spending anything else on any of my other interests. Health-wise, keeping a low-profile life during most of the week gives me more time to talk myself into going to the gym on a regular basis, as well as to get enough sleep and lets me shove less unhealthy food in my face.

Having Any Investing Plan is Better Than None

I try not to be a money snob. I don’t discriminate between short-term “Early Retirement” planners, the longer-run value investors, or the more average index investor. I think that each method has both benefits and pitfalls, depending on risk tolerance, market conditions, and capital availability. Over the long-term, I think there is probably a “winner” in all of these investing strategies – there have been many studies showing how each will turn out over time, including risks of each method of investing.

One thing I know, is that given the choice between any method of investing for retirement and not investing at all, I’d take something over nothing. I have many people in my life who seem to take a long-term “hope it all works out” approach to retirement planning, and not really do anything (save and/or invest) that may help them when they can no longer work.

I don’t think everyone needs to retire at 35 or 45, or even 60. I think that there should be some recognition however that at some point in a person’s life, they may either not want to get up in the morning to work for money, or they might no longer physically be able to work anymore. It’s so easy to put off that inevitable day in return for vacations, a new car, a bigger house, or any number of purchases that could be made by an “average” middle class household.

For me, working towards financial independence is a long-term goal that I try to keep in mind anytime I start thinking about doing something foolish with lots of money. It’s the kind of goal that stops me from what I would deem frivolous spending. I would rather work towards an end goal with my available funds.

A different, probably less aggressive goal could be anything that would ensure that both my wife and I have enough money when we’re done working. Instead of a 40 – 60% savings rate, a more reasonable 10 or 15% rate would ensure a small fortune in savings over a 35 or 40 year period at even a very conservative rate of return, because the way I see it, any savings and investing plan is better than none.

Fight Lifestyle Inflation

I like new gadgets. I am mostly successful at stopping myself from purchasing too many new things. I don’t like to waste money and I know that within a month or so of purchasing something like a new phone, I’ll be eyeballing the next version that does almost the exact same thing, but looks just a little bit different. I have staved off buying anything new, mostly because there’s nothing inherently wrong with my current phone.

Most electronics have been made to become obsolete fairly quickly. Over time, programs stop working, buttons start being a little finicky in working and the overall user experience just isn’t the same as when you got the item. In the case of a phone, I’ve noticed my 3-year old phone is starting to get really “laggy” over the past couple of months. If all I used it for was a texting machine and camera, this would be fine, but I use it as my main source of reading news and social networks for most of the day and evenings, so it is becoming a bit more of a pain to use.

Phone companies creating the contract dates – Ideally, something that costs between $500 and $700 would last for more than 2 or 3 years (the length of time most people wait between “upgrades” due to changes in cell phone contracts. I know I’ve fallen into getting a new cell phone more than every 3 years, starting with various flip phones, and moving to two different smartphones in the last five years.

Going into retirement, the desire to constantly buy the newest and best stuff would be a huge burden on our savings plans. Living with a 10 year old television that still shows HD, but doesn’t show sports in 4k is something we might just have to live with, same as dealing with an 8-12 year old car or 3 year old cell phones. One of the reasons we are able to even contemplate retiring significantly early is because we have kept our expenses much lower than our income coming to this point in our financial lives.

Buying into the consumer lifestyle too far for things that really won’t change our lives that significantly will not allow us to retire early. Beyond the initial rush of buying and being able to compare the new shiny thing to the old beat up “heap” it replaced, living with the “old” will allow for less of a possibility of outspending our savings.

The Hope for More Free Time

I follow a few local fitness people on Facebook, they sometimes post good deals on classes or have interesting articles. This week, one overly ambitious business, which focuses on mobility and flexibility had the following question posted: “Are Pelvic Control Drills Part of Your Exercise Routine?”. My answer to this question, is that first of all, I don’t even know what a pelvic control muscle is, or why I’d need it, and secondly, why would I work on this pelvic muscle instead of just going for a walk.

In an ideal world, I wouldn’t have to go to work, and would have a solid 2 or 3 hours per day to lift some weights, go for a walk, and then work on things like flexibility or other physical things that will allow my body to stay together in the next (hopefully) 50 years. With work, I really don’t have the time to do much more than make sure that I don’t spend all of my time sitting around and doing nothing.

Besides not having time to work on pelvic control drills, and other things that I should be doing to get in better shape, there are other things that slide due to a lack of time. One example is the fact that I should be much better versed in investing. In order to reach the goal my wife and I have set out, we have nine and a half years to save and invest enough money to allow us to be financially independent of our jobs. This kind of “responsibility” should take up a good chunk of my available time, but seems to slide to the back burner some weeks to make room for the latest library book, round of golf or Netflix show.

I’m hoping that I’ve gained enough knowledge over time that I won’t look back in horror at the investing decisions I’m currently making in the future when I will be hopefully much more confident and savvy. Once my wife and I are out of the workforce, I will hopefully be able to leverage some of the free time I gained into better returns for our portfolio. Until that time, I battle procrastination, and trying to get everything done all at once, rather than having to rush to get things done in my free time.

A Big Question – How Long Do I Think We’ll Live?

It’s kind of a morbid question to ask how long you plan for a retirement account to last for. Ideally, once I’m done working there will always be money in the bank, but realistically, I’d rather sort out a way that my wife and I are not over-saving now to have a massive “war chest” of money that we’re never going to touch.

Personally, I have used firecalc to assess my retirement plans, including withdrawal rates for spending, additional dollars being earned (through either my own pension fund, the Canadian Pension Plan, or potentially Old Age Security). I have found it a useful tool, as it has “told” me in several retirement setups that there’s a good chance my money will run out before I need it to.

I picked age 100 for my wife and I when I run these test calculations. I don’t know if in 60 years medical science will have obtained a significant breakthrough regarding age reversal or not*, but this seems to be a conservative age for early retirement planning, with the current average lifespan is much less than that at 81.24 years for Canadians. There are more and more people living past 100 these days compared to even a decade ago, due to enhancements in medical science. While I hope that I won’t be “inefficient” in my planning by working longer than I need to, it does seem prudent to save a bit of extra money just in case either my wife or I does make it past the average expectancy.

My hope is that with my dividend paying portfolio I will never have to touch the principal investments I have made and can essentially live off of some of the earnings, while re-investing the rest. To me, this is one of the benefits of investing in dividends (whether it’s the most efficient way overall to is in question) – hope for some capital return, and take the dividend money off the top. As long as the underlying security remains valuable, my hope is that we will never have to worry about running out of money in old age.

It is an important question to ask when setting up any sort of retirement portfolio, whether you’re planning on leaving the workforce in your 40s or you wait until your 80s – do you have enough money saved to maintain the lifestyle you want to have?

 

 

* I’m currently reading an interesting sci-fi book titled “The Postmortal” by Drew Magary that looks at the downside of humans finding a cure for aging. I would recommend it to anyone interested in the world of speculative fiction and likes this kind of story.

My Planned Portfolio

The last few weeks, I have written about a few of my holdings in my retirement portfolio – something which I hope will support my wife and I from the time we decide to stop working until we don’t need money anymore. Today, I’m going to lay out my current “end game” for when I am fully invested.

Over the course of reading many investing and personal finance books to come up with a plan that meets both my risk profile as well as providing the necessary cashflow that my wife and I require. There are so many points of view on what “proper” securities are, and what you should stay away from that making up a financial plan gets very confusing. Because retirement investment plans cover such a huge expanse of time (I’m hoping for another 60 years, which would get me to 95), the stuff I’m investing in today at age 35 may not make any sense to me by the time I turn 45.

The following represents the 3 main categories that will make up my portfolio.

80% – Income Producing Securities

These investments will made up of dividend producing stocks and Real Estate Investment Trusts. The purpose of this group of investments is to hopefully replace the income that my wife and I are each currently spending 40 hours every week working.

There are risks with having an equity allocation this high, it is contrary to at least 40% of investing and personal finance books I’ve read. I’m not sure who wrote it, but I prefer to follow the tenant that I’d rather have 20 or 30 sources of income (separate stocks I’ve invested in) than depending on one salary now. As long as I’m correct on the vast majority of my investments in this category, I think my wife and I will be okay being dependent on these investments.

15% – Bond Funds

The purpose of the bond funds are to stabilize the retirement portfolio. The stable bond yields will decrease the overall portfolio yield, they are “safer” investments due to the more stable and predictable nature of bond yields.

One thing that I hadn’t thought about, but Nelson from Financial Uproar wrote about was the benefit of having bonds available to sell in down markets in order to buy more stocks. He writes that because in a down market, bonds generally increase in value, they are a good source of cash when there are buying opportunities.

5% – Value Stocks / Speculation

This percentage of my portfolio may increase as I get more comfortable with investing. I am mostly too impatient with investing in stocks that would be deemed “value” stocks, mainly because the return on these types of investments requires the rest of the stock-buying public to be involved with the stock. I think there is merit in having these kind of investments, and that they could result in significant capital gains if done correctly, but I’m not willing to invest huge amounts of money in this category at this time.

So, that’s a proposes bird’s eye view of how I’m currently investing in securities. What does your plan look like, and how did you decide on it?

Boxed In?

My wife and I decided 6 years ago that we wanted to be financially independent from our jobs by the time I was 45 (she will be 42 at the time, but doesn’t think it would be fair if I had the opportunity to retire and she didn’t, so we settled on a co-retirement). 45 is an arbitrary date, and we may end up changing our end goal, depending on how our finances are looking at the time, or if there are any changes to our current goals.

Working towards a concrete goal with a date in mind is helpful to me because it gives incentive to follow the plan I have set out in order to meet the set goals. I’m a procrastinator by nature, and not having any financial goal would lead to leakages, and an eventual “collapse” in the entire plan, along with probably a lot of inefficient spending made by my entire household.

On the other side of having this kind of plan, my wife and I have so far dedicated ourselves to a pretty aggressive route to retirement. On a day to day basis, most of the financial stuff takes care of itself – we don’t spend very much and therefore passively accumulate quite a bit of money naturally. Where our plan has kind of “boxed” us in a bit is that we require a fairly significant amount of money coming into our investment accounts on a regular basis in order to fund our financial plan.

I worry sometimes that we’ve limited some of the flexibility we may have in our working life by going down the Early Retirement path we’re on. Realistically, we don’t really require very much money to live on. We have no debt and could maybe right now add some flexibility to our lives. For example, instead of working 40 hours right now, we could reduce our hours to a percentage of that at jobs that pay less, but may allow for a different or more rewarding experience on a day to day basis.

Our main tactic to ensure that we aren’t “stuck” with a decision we made a number of years ago is communication and flexibility. If my wife or I decided tomorrow that we wanted to go for a job that paid half as much as she’s making now, we would have a discussion over the impact to our future plans and work it out – this kind of long-term plan requires buy-in from both my wife and I, and if either of us were unhappy with what we’re doing for most of our waking hours, the whole thing won’t work.

Portfolio Teardown – Stock #3

To see Part 1, where you can read about my adventure in hedging against a non-existent oil price spike.

To see Part 2, where I write about holding onto a stock because it’s worth less than the transaction cost.

Investment #3 – XIN.TO ETF – ISHARES MSCI EAFE INDEX ETF (CAD-HEDGED)

Current Percentage of Portfolio: This investment makes up 3.7% of my portfolio

Reason for the Investment: As anyone who may be keeping up with my project of self-evaluation of my investments, you may note that in some cases I may not have had an amazing plan behind some of the things I put money into. This keeps with the general trend of not really having a good hypothesis for purchasing the security.

I’m hoping that my new long-term strategy, which will at least have some level of reasoning behind future investments besides the “I read a thing written by one guy that made lots of sense so I’ll throw some money at it” plan that I had ten years ago.

Out of the three securities I’ve written about, this one at least has a positive return – providing a return of 19.2% over the approximately 8 years that I’ve held onto it.

This investment wasn’t exactly a mistake, but I’m sure there would have been a better place to put my money, or at least something that I understood a little better. The MSCI EAFE index is made up of “large and mid-cap equities across developed markets in Europe, Australasia and the Far East, excluding the U.S. and Canada” and does provide some geographic diversity to my almost exclusively North American centric portfolio. What it doesn’t provide is the cashflow that I’m looking for from a security.

Current action: I’m going to sell it to add to the small amount of money I’ve accumulated to buy something that aligns with my retirement fund plans, which I will outline in more depth next week.

Portfolio Teardown – Part 2

As I wrote about previously, over the next few weeks, I’m going to align these “old” investments to fit my current financial goals. of creating a cashflow large enough to fund my wife’s and my lifestyle. I’m starting with small holdings and working large. The stock I’m going to write about this week is probably one of my first purchases, and as you’ll see has not done very well at all.

Stock # 2 – Goliath Film and Media Holdings (GFMH)

Current Percentage of Portfolio: This investment makes up a miniscule portion of my portfolio, at 0% (You’ll see why in the explanation below).

Reason for the Investment: I bought this stock as part of the “Little Book that Beats the Market” experiment investment phase that I went through almost 10 years ago. At the time, I didn’t have much money to invest, and only put a total of $50 into this stock (eight whole shares!), along with probably another dozen stocks. The idea of the writer of the book is that you’d buy stocks monthly (2 or 3) based on his “magic formula”, hold them for only a year and sell these same stocks. The intention of the exercise was to find value stocks and that several of the securities purchased over the year would work out significantly well.

At the time, this strategy was as good as any for me, and I had the benefit of 40+ years of an investment window to make mistakes, with the upside touted as a 17-year annualized return of over 30.8%. 30.8% sounded terrific to me, and I figured I would be a millionaire in 5 years. Unfortunately, the problem with any value investing model is that at some point, you have to “eat” your losses. Carrying out a value investing strategy as a poorer debt-ridden 20-something, I lost interest in this method after the market tanked significantly over a period of months.

Current action: I’ve held this particular company in my portfolio because it is worth a grand total of $0.03. It would cost me more in commissions to sell it than it’s worth, so it will probably stay in my portfolio forever – reminding me of the time I bought a stock that decreased in value by 99.9% in less than a year.