Mailbag – How do I Diversify and Allocate Assets Without Tearing My Hair Out?

We started our mailbag segment last week and are hopeful it will continue to pay dividends (and capital gains for that matter).  Today we’ll take a look at a follow up question from the same reader (Rachel) as last week:

I am finding myself a little confused over concepts like ‘asset allocation’ and ‘diversification’ when it comes to ETFs, and I was wondering if you had any posts or podcasts about that area. Does one need to diversify with ETFs? Doesn’t their span of content take care of that for you? I also find asset allocation tricky to wrap my head around because our assets are spread so thinly when we use them. If our assets are tied up in stocks, sure we want to allocate them well, but do we worry about asset allocation as much with ETFs?

And lastly, are there ETFs for the asset class of ‘Cash & Equivalents’? I assume yes, but if we passive investors are doing a hands off, long-term thing, are C & E’s even worth going for? They seem like a really unappealing group to me. 

Hey Rachel,

It’s best to think of asset allocation as the big picture and diversification with each asset class as the smaller details.  If you think of your entire investing portfolio as a pie chart (original I know) asset allocation is how big a slice each type of asset will take up.  Some of the pie will be Canadian stocks, some will be USA stocks, maybe a slice will be international stocks, and a slice will be bonds or other low-risk investments.  How big each of these slices are is basically the concept of asset allocation.  Most people would say that as you get older you should have a bigger and bigger slice (or part of your portfolio) in less-risky assets such as bonds.

How do I Diversify and Allocate AssetsAlso, while I’m not a proponent of these asset classes, I should mention that some people would recommend gold & precious metals, real estate, commodities, and few other types of asset classes that could have a spot in your portfolio.  If you’re just starting out though I would try to keep things as simple as possible and ignore those asset classes until you’ve done some research and feel comfortable with them.Continue Reading

May 2015 Networth Update 363202 (+1.1%)

Slow and steady wins the internal race, right?  Thankfully my ZPR shares aren’t hemorrhaging as badly compared to earlier in the month (I was down 2300 at one point, now just down 800 in unrealized losses).  I was quite excited about the increase in TFSA contribution room and of course I funneled the $4500 money into my TFSA very soon after the announcement.  I didn’t do anything this month in terms of buying or selling shares but I am thinking about buying some more bank shares (perhaps not more BMO.TO likely something else) or adding to my Fortis shares.

One major purchase was using some of my Aeroplan miles to travel hack my way to Asia next month.

As some of you following may know, my goal is to have a net worth of $385,000 by 2016 or $400,000 including my pension.  I am just over $400K net worth with my pension contributions and and have under $22,000 to go if I do not include my pension.

Okay, so here’s the breakdown for May 2015 (+3900, +1.1%)


CASH: $25,900 (+1.2%)

Net Worth Update

  • I’m going to try and save up about 6 months living expenses in my emergency fund, and then funnel the rest into my mortgage or investing
  • I added up my chequing and savings accounts (High Interest Savings Account). I automatically deduct money from my chequing account and have it siphoned to the HISA account (paying yourself first)

Non-Registered: $95,800 (-3%)

  • I moved some money from my non-registered account to fuel TFSA
  • These are stocks that capture the “moment in time”, including unrealized gains or losses in my BMO Investorline and Questrade accounts.Continue Reading

Mailbag: How Do I Get Started?

Sometimes writing articles can get lonely.  You’re not sure what people really care about or what information people actually need in order to make a difference, and you miss the personalized back-and-forth that human interaction is used to be synonymous with.  Because of this disconnect it’s easy to lose positive writing momentum when a blank page lies in wait and your own expectations seem like a mountain rising before you.

There is one thing I never dread or lack focus for however: personal emails.  Logically speaking, writing an article that is viewed by many people should be a more effective way to communicate and help large groups of people than responding individually, but there is just something that is deeply satisfying about helping one person solve their specific problem.  Watching someone have an “aha moment” or having a person thank you for getting them back on track is really gratifying and just a huge overall energy boost.

At heart, I am often a lazy man looking for efficiencies that will allow me to continue to be lazy.  Because of this unflattering truth, I had a brainwave over the past week that will allow me to channel my energy for personalized communication with my goal of helping a broader group of people: a mailbag.

The idea is simply to take actual questions and comments we get from readers and answer them in a public context so that everyone might benefit from the back-and-forth.  I think there is value in using the questions generated from the brave souls who will admit they’re not sure about something, to answer the questions many of us are likely thinking but don’t want to admit.  If we don’t know the answer we’ll look it up and get back to you. (Kind of like calling in the experts on Pawn Stars – for those of you who’s TV is also stuck on the History Channel.)  As a bonus, I’m hoping others might chime in on with a little help in the comments section.

How Much Capital Is Safe To Start Investing WithGoing forward we’d like to encourage people to buy in to this idea and let us know if you have questions around a certain article we’ve written or something you’ve read in the newspaper.  If a part of our free ebook just doesn’t make sense to you or you just have something that is bothering you about a personal finance situation, let us know and we’ll get back to you.  Obviously we’ll always ask if it is ok with you if we answer the question publically and will never reveal anything about your identity or email unless you want us to.  Thanks in advance for taking the time to interact with us and let us know that someone actually is reading the stuff we put out there!  It’s what keeps us going when we’re not sure about things anymore.

To kick off this new segment we bring you a letter from “Rachel”.  Questions are all from actual readers and have only been altered slightly to protect identities and/or for brevity’s sake.Continue Reading