How to invest your money
It’s human nature to want what we don’t have. To assume some alternative to what you currently have is somehow better. Over the last while I’ve felt this phenomena regarding my investments. I recently explored some alternative routes to my investment strategy. See an analysis here.
Now that I’m teaching English in China, and upping my online teaching hours I have some serious cash flow to dump into my investments. So I felt it necessary to review my plan of action moving forward.
Based on my findings in the link above on my simple and limited analysis between dividend stocks and total market growth ETFs, I will be sticking to my currently strategy. Of total market funds.
Why I use index funds and total market funds
The benefit to using total market funds, is you take away the necessity of needing to either see the future, or do incredibly in-depth due diligence when picking individual stocks. In buying the whole market you take the winners, with the losers. But the great thing, is that the losers are filtered out. The market is a giant cluster of companies working to turn a profit. Most do, some don’t the ones that don’t are dropped and replaced by ones who will. You might not have 600% growth that you see some internet or weed stocks. But you also avoid ever logging into your trading account to see your retirement savings look like this.
They say slow and steady wins the race. Consistency and avoiding as many mistakes as possible is the surest way to a reliable return in the long term. And that’s what total market funds mean to me.
I’m in my mid to late twenties, but most regards I’m young and can tolerate some risk. Don’t worry, I will show later in this article how I am taking some strategic risk to amplify my returns.
How to invest for retirement
Without further ado, here is the market chunk breakdown of where my portfolio will be headed in the near future and my target weights for each fund. I’m Canadian so all these funds will be Canadian funds in CAD$
~30% US total stock market (VUN)
This is currently close to 50% of my portfolio. Though I will limit it to no less than 30%, many of the companies in other funds probably increase my weighting in US because so many US companies are so international now. The US has historically been the strongest market in the world, and while I see emerging and international markets growing stronger, I think it’s a bad idea to bet against the US. They hold many of the world’s largest companies, who do business is so many countries around the whole. Holding the US stock market is almost like holding the world’s market.
VUN has a +7% 15 year growth rate which is safe and allows me to reach my retirement goals. It also have 0.16% management fee which is like.. 15x less than many mutual funds out there. Fees matter over the long term. Significantly.
~15% International Markets (XEF)
This fund covers markets from all over the globe. Focusing on Asia, Europe, and Australia. Mainly The UK and Japan. This is a very diverse fund and gives me exposure to the global markets.
XEF has a +11% 5 year return and tracks the index fund MSCI EAFE IMI which has a ~6% return over a +20 year period.
~15% Emerging Markets (XEC)
This baby gives me my exposure to rest of Asia such as China and South Korea. And also very prospective but volatile markets like South Africa and Brazil. Living in China and South Korea has definitely opened my eyes to the importance of these countries in a portfolio. Just keep exposure limited as they play by different rules than we do in the west. Emerging markets have historically under performed American markets, Canadian Markets, and other International markets, but I think they will favorable futures, especially China.
XEC has a ~10% 5 year return on investment and tracks the index fund MSCI Emerging Markets IMI which has an 18 year return of +10%
~30% Canadian Market (XIU)
Safer than emerging markets, yet not as historically profitable as the US market is the Great White North. My homeland. My exposure to this fund will probably be a bit less than 30% as we just don’t have the industry than America does. And our consumer debt, real estate issues are a little concerning to me. Canadian banks absolutely kill it though. And this fund is made up heavily of financials. Investing money in Canada is mandatory for me in part.
Fun fact, XIU was the world’s first ETF. It is extremely liquid – can easily trade in and out – and has a ~7% return since inception in 1999. It tracks the S&P/TSX 60 index
~20% individual stocks, Crypocurrency & speculation
Remember saying I would take some strategic risk earlier in this article? Where here is where I go big or go home. But limited to a small portion of my portfolio. Early in my investing career I made some lucky plays in Cryptocurrency and Weed stocks. I’ve limited my position in both, saving myself some losses and missing some serious wins, unfortunately. 20% of speculation in a retirement portfolio is a little irresponsible in my opinion, but I can stomach the risk. I’ve felt the 5 figure wins and losses in this part of the portfolio which is huge for where I currently am in my investing career.
I would suggest everyone looks into Cryptocurrency and Marijuana stocks at least a little, the potential for wins in the future are too big to at least not consider. But do your research and consult professionals before buying. That goes for everything I’ve wrote about. This is not financial advice.
This is the area I may also invest in REITs and individual small cap companies that have the potential to kick off. For example internet companies in China or technology companies focusing on AI in America, and start ups.
Best Investments. What do you think?
What’s your opinion on my target portfolio? As the years go buy I plan to reduce the amount I have in equities and go more into stable bond or preferred share ETFS to preserve my wealth. I will also limit the speculation percentage.
The 80% of my safe portfolio generates a ~7% return on investment. And remember..
$500 invested each month at 7% return is +$1,000,000 in less than 40 years!
$1,000 invested each month at 7% return is +$1,000,000 in less than 30 years!
I would love to hear what your doing, or if you think I can be making improvements. Thanks for reading!