How we invest
With over 1,600 published articles and 38,000 comments on the site, we thought it was time to write a pillar post about how we invest – to look back on our financial journey and summarise where we are today. We will continue to update this post as things change over time – and we know they will!
Your comments and How to invest And why. 🙂
How we invest
Your finances are yours This phrase gets repeated a lot on my site for many good reasons: no two investors are the same. Every individual and household has different goals, different risk tolerance, different spending plans/wishes, and many other things.
But a common theme among most wealthy people is that we all want to grow our money and our investments. Of course, there are many ways to achieve this: private equity, real estate, investing in yourself, growing a business, investing in stocks, etc. The idea of someone telling you how to invest is foolish in my opinion, just like having someone tell you how to spend your money. These decisions are up to you and can be very unique, but at the same time, I hope they are also informed decisions.
Source: The Behavior Gap, Carl Richards.
In my opinion, investing is a completely different endeavor than saving. Investment is primarily the process of saving money or buying assets over a long period of time with the expectation of profits. Savings is money set aside for short-term expenses. Savings may be guaranteed, but investing is not. Hence, investing is riskier than saving. It is the price of admission that is worth the risk with the expectation of profits.
A few years ago, I began my DIY investing journey by selling my expensive mutual funds in 2007-2008 and instead started moving my assets in the following major directions.
- Hold dividend stocks for income and growth;
- ETFs that bring value appreciation.
In addition to #1 and #2 above, we also kept some cash aside for the “what ifs” in life. We saved up an emergency fund and still maintain that balance to this day.
reference:
We Did It — and Why We Have a $10,000 Emergency Fund
During my years of DIY investing, including the “early days” around 2008-2009, I owned a variety of stocks but barely traded them. Some stocks cut their dividends, some stocks split and then rose in price, increasing shareholder value over time. Other stocks were bought up, and some stocks were sold because they no longer fit my/our long-term investment plan.
reference:
Past and Present – Johnson & Johnson (JNJ)
Throughout our ETF journey, we've held bond ETFs, dividend ETFs, and even some simple broad market ETFs. In recent years, and especially since 2016, we've started to simplify our portfolio, which means holding more of this all-in-one ex-Canadian ETF that should provide long-term price appreciation beyond the basket of select Canadian stocks that we hold.
Then and Now – XAW
Although concentrated stocks are a real way to get wealth as shown by the ultra-rich(!), rather than targeting specific stocks to make huge profits, my investment style is more conservative and cautious. We diversify stocks, never allowing any stock holding to exceed 5% of our personal portfolio value, and avoiding any one stock reaching 10% of our portfolio. This is how we invest. Just in case Stocks that seem good now may not perform well in the long term…
In an investment plan, diversifying your portfolio means investing in different geographies, industries, and asset classes (stocks, bonds, real estate, etc.) However, we no longer invest in real estate outside of our primary home.
reference:
How much real estate should you have in your portfolio?
To smooth out your investment returns over time, you can put your money into many investments that are uncorrelated with each other. Stocks and bonds are a good example. Many DIY investors I've observed over the years have been successful in reaching their goals with a 60/40 or 70/30 allocation between stocks and bonds. It might work for you too…
When I first started investing, I held a few bond ETFs, but then I decided to abandon the bond funds and invest primarily in stocks instead.
reference:
Then and Now – Rethinking the Need for Bonds
This is because as I get older, stock market fluctuations aren't necessarily my biggest risk. My investment behavior is. Many DIY investors find it hard to stick to an investment plan. I've struggled with every stock market crash, but I've gotten better at celebrating when stocks go down because it gives me a reason to buy more when they go on sale.
That being said, I am preparing Stock market corrections: they can and do happen.
How long will the stock market correction last?
As you get older, cash flow becomes more important and having more cash/cash equivalents will help you sleep better at night – it also helps with your money psychology.
“We do this because cash is the oxygen of independence and, more importantly, because we never want to be forced to sell the stocks we own.” – The Psychology of Money
How much cash you want to hold is a personal matter.
How much cash should you hold?
Investment policy as of summer 2024
Here's a summary of how I've invested over the past few years and how I'm investing now:
- We keep a small amount of cash in an emergency fund.
- We invest in a lot of Canadian stocks (and some U.S. stocks) for income and growth.
- We invest in some low-cost ETFs for growth.
- We do not hold any REITs.
- We do not hold any bonds.
- We have maxed out our TFSA and RRSP contribution allowances, and while I work full time I focus and prioritize contributing to my TFSA over my RRSP.
- We are increasing our cash/cash equivalent holdings over time to provide additional financial security, including when we are not working.
I have no debt, I own my home, and I am very fortunate to have a new car.
NO MORTGAGE!!! What next???
We will continue to update this important page with a list of some of our favorite stocks.
We also constantly update this page that lists the low-cost equity ETFs we recommend and why we hold them.
Our plan is to remain primarily invested in stocks over the long term. To achieve this, we will continue to hold a mix of stocks and ETFs. We will increase our cash position over time. We hope to remain debt free. We will continue to minimize asset management fees that make others wealthy.
How to invest This is reflected in our journey to financial independence, which shows no signs of slowing down.
I hope the same for your journey.
Financial Independence Update
I look forward to hearing how you all are investing in the comments and updates below, and I will keep you posted as things develop here as well. 🙂
Thank you for reading.
mark
mark
My name is Mark Seed and I'm the founder, editor and owner of My Own Advisor. I'm my own financial advisor and I want to start semi-retirement sooner than most people. Find out what I did and what you can learn to pave your own path to financial independence. Join the newsletter that thousands read every day. It's always free.
