# $1m blessing. Now what?



## dumbfoundead6666 (Jun 9, 2016)

Hi all...
I have been lurking these forums for quite some time and now has come the time to make my first post.
I'll try to keep this as short as possible. Some details:

I am 24 years old.
Due to the way the last 5 years of my life have worked out, I have no university/college degree.
I plan to go to university for a STEM degree (science/tech/engineering/math). This will take me roughly 4-5 years to complete. I have already been accepted to a good program and a good Canadian school.
I have recently been blessed with a roughly CAD$1 million windfall.
My income is $0 right now, so my tax bracket is the very lowest.
I have no debts, no obligations, no dependants, no family.
I need roughly $2500/month to run my expenses till I graduate. Additionally I would like to at least be beating inflation. In total: 5% ROI on a million dollars.
Until I complete my degree, 3% per year of INCOME (not CAPITAL GAINS) and a total ROI of 5%+ is all I need.

Now some questions/ideas of mine:

Blue-chip, Canadian, dividend-eligible stocks? I could get 3-4% of income quite easily from this. Any capital gains is just extra.
Is it really advisable to invest in equities at this point? The S&P500 is almost back at all time record highs...
Money managers/financial advisors? Or should I just be investing by myself (eg. Index funds)?
Toronto/GTA real estate? Any money to be made here still? I'm thinking about buying some 1-2 condos with ~50% down, rent them out and hopefully have some left over after paying all condo related expenses to cover my personal expenses.

Please help!
Thank you all,
dumbfoundead6666


[edit1] edited to make some details more clear.


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## 0xCC (Jan 5, 2012)

First off, congratulations on your windfall (and hopefully there weren't any non-monetary losses associated with the windfall).

A couple of questions to get things started here (I have a feeling this could end up being an active thread).

First, you talk about needing $4k/month but then saving $1.7k of that. What is your thinking behind that? You already have the capital, why do you need that extra income just to save again?
Second, do you have an idea of where you might be going to school? Are you thinking of the GTA or somewhere close to the GTA (Kingston, Waterloo, Guelph, Hamilton, St. Catharines etc...)?


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## lonewolf (Jun 12, 2012)

move to country where cheap to live. Invest some in defured gold annuity rest in Manitoba credit online union live of interest & maybe cut into account then live off gold annuity need to be bought in Switzerland.


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## jerryhung (Mar 28, 2011)

follow this RFD thread, $2M 

How would you invest $2 million inheritance? 
http://forums.redflagdeals.com/how-would-you-invest-2-million-inheritance-1994425/


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## tygrus (Mar 13, 2012)

I think you should consult a professional right away or you are going to lose it. Toronto condos...really


IMO, a whack of money at a young age that you didnt earn is a curse, not a blessing. Now you will spend every waking moment watching it. If you meet someone serious you want to start a life with, you will have to squirrel it away into a trust and not tell them about it or agree to give half away and your motivation to achieve in life is diminished. It will probably parallelize you. Try to open a trading account and see if you can stomach buying $1M in equities at once and then the next day you look at it and you are down $50k in a day.


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## onestep (Jun 9, 2016)

lonewolf said:


> move to country where cheap to live. Invest some in defured gold annuity rest in Manitoba credit online union live of interest & maybe cut into account then live off gold annuity need to be bought in Switzerland.




curious, would someone who has moved to another country be able to have an account in a Manitoba credit union?


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## nobleea (Oct 11, 2013)

tygrus said:


> I think you should consult a professional right away or you are going to lose it. Toronto condos...really
> 
> 
> IMO, a whack of money at a young age that you didnt earn is a curse, not a blessing. Now you will spend every waking moment watching it. If you meet someone serious you want to start a life with, you will have to squirrel it away into a trust and not tell them about it or agree to give half away and your motivation to achieve in life is diminished. It will probably parallelize you. Try to open a trading account and see if you can stomach buying $1M in equities at once and then the next day you look at it and you are down $50k in a day.


Unfortunately there is probably a lot of truth in this post. Investing in TO condos would be a disaster. Find a fee-based advisor, follow their recommendation. Don't think about some hot stock tip, don't think about jumping on whatever the bandwagon of the day is (TO real estate, dotcom, tulips, whatever). Getting your required income is not hard at all if you follow an advisor's advice to the letter. You start following trends, tips and your gut, and you are most likely going to lose the vast majority of it. Certainly go to school, assuming you have the grades and desire to complete it. It will be hard to complete, just because you have been out of school for so long. Combine it with the fact that you'd have money in the bank already, it will be hard to find motivation.

Live like a student while you're in school. Don't buy cars, don't buy real estate. who knows where your career will take you once you graduate.


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## dumbfoundead6666 (Jun 9, 2016)

*129*



0xCC said:


> First off, congratulations on your windfall (and hopefully there weren't any non-monetary losses associated with the windfall).
> 
> A couple of questions to get things started here (I have a feeling this could end up being an active thread).
> 
> ...



Save 2% a year to keep up with inflation?

I'd rather not disclose the exact location but it will be a university near GTA (Kingston, Waterloo, Guelph, Hamilton, St. Catharines etc...).


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## dumbfoundead6666 (Jun 9, 2016)

jerryhung said:


> follow this RFD thread, $2M
> 
> How would you invest $2 million inheritance?



thanks, i will look through this.


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## dumbfoundead6666 (Jun 9, 2016)

tygrus said:


> I think you should consult a professional right away or you are going to lose it. Toronto condos...really
> 
> 
> IMO, a whack of money at a young age that you didnt earn is a curse, not a blessing. Now you will spend every waking moment watching it. If you meet someone serious you want to start a life with, you will have to squirrel it away into a trust and not tell them about it or agree to give half away and your motivation to achieve in life is diminished. It will probably parallelize you. Try to open a trading account and see if you can stomach buying $1M in equities at once and then the next day you look at it and you are down $50k in a day.


I know toronto condos are pretty much done, but, are we really looking at a bubble here that will correct in the double digit range (20-30%)? I really don't know... Also the reason I suggested this is because I can get income through the rental income and also get some capital gains by paying down the mortgage. Even if the condo appreciates 0%/year, as long as it doesn't decline much in value, I'm comfortable with that for now.

Yes money at a young age is a curse in a way. You're right about that. I'm very paranoid all of a sudden.

I can stomach losing $50k in a day; I get it, buy and hold, long term. I'm not looking to make any quick gains. I'm just looking to keep up with inflation, make a small income and maybe some capital gains.


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## dumbfoundead6666 (Jun 9, 2016)

nobleea said:


> Unfortunately there is probably a lot of truth in this post. Investing in TO condos would be a disaster. Find a fee-based advisor, follow their recommendation. Don't think about some hot stock tip, don't think about jumping on whatever the bandwagon of the day is (TO real estate, dotcom, tulips, whatever). Getting your required income is not hard at all if you follow an advisor's advice to the letter. You start following trends, tips and your gut, and you are most likely going to lose the vast majority of it. Certainly go to school, assuming you have the grades and desire to complete it. It will be hard to complete, just because you have been out of school for so long. Combine it with the fact that you'd have money in the bank already, it will be hard to find motivation.
> 
> Live like a student while you're in school. Don't buy cars, don't buy real estate. who knows where your career will take you once you graduate.


I think I am going to get flamed in this thread because I mentioned Toronto condos! Haha! Fair enough though, because the thought did cross my mind, albeit briefly.

I am not looking for any great returns, just a measly 5%. I am not going to follow any stock tips, trends, etc. 
I am quite intelligent but I know where my shortcomings lie, and yes, I don't know much about investing at all.
I will 100% get through school, because of this. I am good at STEM related work, not finance/investing. I have already been accepted to a really good program at one of the best schools in Canada for said program.

*A million dollars is a lot of money, but in 2016, in Toronto, it really isn't... Especially considering I have no income right now. I know I am not 'rich' and I am definitely not trying to blow through this money with cars, materialistic crap, etc.*


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## iherald (Apr 18, 2009)

You may want to do a search for the Permanent portfolio on here. You'll get lower returns (slightly) than a couch potato portfolio, but there is limited risk. If I had a million and wanted to use that for school and for my future, that's probably what I'd do.

Last I read, your million could not buy an average detached house in Toronto. If it were me, I'd rent not because I think it's better or worse than owning, but you're young and all your friends will rent and it will give you the opportunity to travel, move to Vancouver if you'd prefer, or Halifax or Tanzania. Your options are open, so I'd try to keep them that way. Good luck with everything I'm sure you'll do great


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## tygrus (Mar 13, 2012)

Knowing what I know in my 40s, If I had a million bucks back in my 20s, I would have invested it for a nice safe return, skipped school and worked some cheese job for the extra spending cash and had a stress free life. STEM was stress to say the least, just the school will push you to the limit.


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## Nerd Investor (Nov 3, 2015)

If it were me, I would probably put about $900K of the million to work buying Canadian dividend paying stocks, and keep $100K in cash. 
Between the cash reserve and dividends (even with the recent run up of the TSX you can still reasonably average at least a 4% yield), you should be able to fund your living expenses without needing to sell any investments. This is assuming your $4K/month is an accurate, all in number. With no other income sources, you should pay virtually no tax on this income. 

Once you graduate and get a full time job, you can scale back the cash reserve section and start diversifying a little more. 

Anyway, that's if it was me. You have to feel comfortable with whatever you choose to do, and you may very well find the right answer is working with an investment adviser.


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## Spudd (Oct 11, 2011)

I would just invest it in a couch potato portfolio, and spend the dividends. 

I also agree with whoever asked why you want to earn 4k/month and then "save" 1.7k of that. Instead of that, you should think of it as you want to spend 2300/mo, and look at what withdrawal rate that would be. Answer: 2.7% - a very safe and achievable withdrawal rate. Your dividends from a couch potato should get you most of the way there, if not all the way. If the dividends aren't quite enough, you can spend down a bit of capital now and then.


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## 0xCC (Jan 5, 2012)

dumbfoundead6666 said:


> Save 2% a year to keep up with inflation?
> 
> I'd rather not disclose the exact location but it will be a university near GTA (Kingston, Waterloo, Guelph, Hamilton, St. Catharines etc...).


What if the income from the portfolio could increase at a rate that at least matches inflation?

I only asked the GTA question to get a better understanding if Toronto condos would really make sense. Others have asked the question more directly.


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## blin10 (Jun 27, 2011)

good problem to have... i'd invest it all and spend dividends but only if you not going to watch your portfolio everyday and can stomach big swings (because you can be down 200g's in two months and gain it back the next )


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## CalgaryPotato (Mar 7, 2015)

$6K is a lot per month in expenses even going to school. That is more then a typical family of 4 spends in after tax money.
No better time to reel in your lifestyle than now when you aren't used to spending extravagantly.

Sounds like your plan is to not work at all during school, will this allow you to finish school faster? Or improve your grades and thus your job marketability? If you can't determine what the benefit is of not working, then you should look for some part time work at least semi related to your field. Then you don't need to worry about meeting a big 5% income goal on your windfall.

Personally I think diversification is important. I'm cringing at the people telling you to put all of your money into a handful of Canadian dividend paying stocks. Is all of this money earmarked for your retirement? If so you are young enough you can weather a big hit, but if not I would want to look at a more balanced portfolio. If you're planning on using a significant portion of it within the next 10 years for a house or for whatever, then it probably shouldn't all be in equities.


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## dumbfoundead6666 (Jun 9, 2016)

iherald said:


> You may want to do a search for the Permanent portfolio on here. You'll get lower returns (slightly) than a couch potato portfolio, but there is limited risk. If I had a million and wanted to use that for school and for my future, that's probably what I'd do.
> 
> Last I read, your million could not buy an average detached house in Toronto. If it were me, I'd rent not because I think it's better or worse than owning, but you're young and all your friends will rent and it will give you the opportunity to travel, move to Vancouver if you'd prefer, or Halifax or Tanzania. Your options are open, so I'd try to keep them that way. Good luck with everything I'm sure you'll do great



Yes, I will be renting for now (at least till I finish school).


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## dumbfoundead6666 (Jun 9, 2016)

tygrus said:


> Knowing what I know in my 40s, If I had a million bucks back in my 20s, I would have invested it for a nice safe return, skipped school and worked some cheese job for the extra spending cash and had a stress free life. STEM was stress to say the least, just the school will push you to the limit.


You are probably right. I have numerous friends who have done STEM degrees and yes, they seem to be very stressed. However, I need to do this to ensure I don't touch my capital and so that I leave behind a sizeable chunk of change for whomever ends up being my next of kin by then! Haha!


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## dumbfoundead6666 (Jun 9, 2016)

Nerd Investor said:


> If it were me, I would probably put about $900K of the million to work buying Canadian dividend paying stocks, and keep $100K in cash.
> Between the cash reserve and dividends (even with the recent run up of the TSX you can still reasonably average at least a 4% yield), you should be able to fund your living expenses without needing to sell any investments. This is assuming your $4K/month is an accurate, all in number. With no other income sources, you should pay virtually no tax on this income.
> 
> Once you graduate and get a full time job, you can scale back the cash reserve section and start diversifying a little more.
> ...



Something like this is actually what I am leaning towards and came on here to validate my judgement or get better ideas.

I will actually be getting a little over a million and so after everything is said and done, I will have roughly a million left to invest.


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## dumbfoundead6666 (Jun 9, 2016)

Spudd said:


> I would just invest it in a couch potato portfolio, and spend the dividends.
> 
> I also agree with whoever asked why you want to earn 4k/month and then "save" 1.7k of that. Instead of that, you should think of it as you want to spend 2300/mo, and look at what withdrawal rate that would be. Answer: 2.7% - a very safe and achievable withdrawal rate. Your dividends from a couch potato should get you most of the way there, if not all the way. If the dividends aren't quite enough, you can spend down a bit of capital now and then.


I do only need roughly $2300-2500 to live off of. I wanted 5% (~$4000/month) to live off of so that I can 'save' 2% to cover inflation, and spend the rest for my expenses till I graduate school.


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## dumbfoundead6666 (Jun 9, 2016)

0xCC said:


> What if the income from the portfolio could increase at a rate that at least matches inflation?
> 
> I only asked the GTA question to get a better understanding if Toronto condos would really make sense. Others have asked the question more directly.



Haha, Yes, I guess condo wouldn't make much sense for me!


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## dumbfoundead6666 (Jun 9, 2016)

blin10 said:


> good problem to have... i'd invest it all and spend dividends but only if you not going to watch your portfolio everyday and can stomach big swings (because you can be down 200g's in two months and gain it back the next )


I can stomach big swings and will not be watching my portfolio daily. However, one thing I do question is: Is it really advisable to invest in the markets right now? 
I mean, I know, 'don't try to time the markets'. But doesn't that quote not apply if you are trying to sink $1m into equities? Should you not wait till the next major downturn and then buy in whenever you think it is lowest. And even if you miss the "real" lowest point, it's ok, at least you didn't buy at all time record highs... OR am I just completely wrong about this...?


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## dumbfoundead6666 (Jun 9, 2016)

CalgaryPotato said:


> $6K is a lot per month in expenses even going to school. That is more then a typical family of 4 spends in after tax money.
> No better time to reel in your lifestyle than now when you aren't used to spending extravagantly.
> 
> Sounds like your plan is to not work at all during school, will this allow you to finish school faster? Or improve your grades and thus your job marketability? If you can't determine what the benefit is of not working, then you should look for some part time work at least semi related to your field. Then you don't need to worry about meeting a big 5% income goal on your windfall.
> ...


I don't need $6k/month. Not sure where you read that. I need $4k/month. Roughly 5% on a million.
I currently live a very frugal lifestyle and will continue to do so. 

I am comfortable 'locking' this money away for a good 10 years _at least._ 
I will probably not be able to work part time- my grades will suffer and so will my post-graduation job prospects.

You're right about the diversification. But into what!? :upset: haha!


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## CalgaryPotato (Mar 7, 2015)

dumbfoundead6666 said:


> I do only need roughly $2300-2500 to live off of. I wanted 5% (~$4000/month) to live off of so that I can 'save' 2% to cover inflation, and spend the rest for my expenses till I graduate school.


I don't understand this, so you'll take out $4000 a month from the account, but then put $1500 right back in... why don't you just take out the money you need? How does that cover inflation?


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## dumbfoundead6666 (Jun 9, 2016)

CalgaryPotato said:


> I don't understand this, so you'll take out $4000 a month from the account, but then put $1500 right back in... why don't you just take out the money you need? How does that cover inflation?


Sorry, that is what I mean. I only need to withdraw ~3% on a million, but would like to be making ~5% in total ROI.
I might be using incorrect terminology, which may be adding to the confusion.


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## CalgaryPotato (Mar 7, 2015)

dumbfoundead6666 said:


> I don't need $6k/month. Not sure where you read that. I need $4k/month. Roughly 5% on a million.
> I currently live a very frugal lifestyle and will continue to do so.
> 
> I am comfortable 'locking' this money away for a good 10 years _at least._
> ...


Sorry I don't know where I got $6000 from either, must have seen a different number somewhere and got it mixed up. $2500 is definitely more reasonable.

I have to ask though, since the majority of students go to work and go to school at the same time why you'd be unable to do that, since it doesn't seem like you are doing a shorter program.

I think the one thing you don't want to do, is even though a million dollars sounds like a lot of money, is take your foot off of the gas pedal of life. 

If you really want the money locked up for at least 10 years, then equities can be a big part of it, but whether you go with individual stocks, or ETFs I think you should have some American/International exposure.


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## dumbfoundead6666 (Jun 9, 2016)

CalgaryPotato said:


> Sorry I don't know where I got $6000 from either, must have seen a different number somewhere and got it mixed up. $2500 is definitely more reasonable.
> 
> I have to ask though, since the majority of students go to work and go to school at the same time why you'd be unable to do that, since it doesn't seem like you are doing a shorter program.
> 
> ...



I probably won't be able to work at the same time due to some personal issues that I'd rather not divulge, lest someone recognizes me! haha...
But yes, you are right about the 'never take your foot off the pedal'. I will try my best to earn as much of an income, through a job, as I can manage.


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## nobleea (Oct 11, 2013)

dumbfoundead6666 said:


> I probably won't be able to work at the same time due to some personal issues that I'd rather not divulge, lest someone recognizes me! haha...
> But yes, you are right about the 'never take your foot off the pedal'. I will try my best to earn as much of an income, through a job, as I can manage.


The first two years of engineering degrees in particular are very challenging. It's like a washout program where only 1/3 of people entering the program make it out. So there is some merit to not working at least during the first two years. Combined with someone's who's been out of school 6-7 years and it's a bit of a shocker the first month.


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## Spudd (Oct 11, 2011)

Look at it this way. The rule of thumb is that if you have a balanced portfolio (i.e. couch potato - 25% each of bonds, Canadian equity, US equity, international equity) you should be able to withdraw 4% a year for 30 years and never run out of money. You only need to withdraw 2.7%, so your portfolio should actually be growing even though you are withdrawing. If you withdraw only the dividends, then your capital will still be growing and keeping up with inflation. 

You could also add REIT's (real estate investment trusts) if you want more income. So let's say 10% REIT, 15% bonds, 25% Canadian, US, international equity. 
10% REIT - XRE - yield 5.08%
15% bonds - XBB - yield 2.74%
25% Canadian - XIC - yield 2.86%
50% US & international - XAW - yield 2.22%

Results in a yield of 2.74% which means you could live off the dividends and never touch the capital. Your million bucks would be growing and you would not need to sell any of it, ever, as long as you could live off 2.74%.


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## dumbfoundead6666 (Jun 9, 2016)

Spudd said:


> Look at it this way. The rule of thumb is that if you have a balanced portfolio (i.e. couch potato - 25% each of bonds, Canadian equity, US equity, international equity) you should be able to withdraw 4% a year for 30 years and never run out of money. You only need to withdraw 2.7%, so your portfolio should actually be growing even though you are withdrawing. If you withdraw only the dividends, then your capital will still be growing and keeping up with inflation.
> 
> You could also add REIT's (real estate investment trusts) if you want more income. So let's say 10% REIT, 15% bonds, 25% Canadian, US, international equity.
> 10% REIT - XRE - yield 5.08%
> ...


Something like this sounds pretty good Spudd. Do you recommend I try to do this myself (obviously with much more research and analysis), or get advice from a fee based advisor, or give it to someone to manage (yes, i know, everyone hates this option...)?


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## dumbfoundead6666 (Jun 9, 2016)

nobleea said:


> The first two years of engineering degrees in particular are very challenging. It's like a washout program where only 1/3 of people entering the program make it out. So there is some merit to not working at least during the first two years. Combined with someone's who's been out of school 6-7 years and it's a bit of a shocker the first month.


Yes exactly. I'd rather live a very frugal lifestyle and even eat a little capital than flunk out of school in the first year.


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## tygrus (Mar 13, 2012)

Spudd said:


> Results in a yield of 2.74% which means you could live off the dividends and never touch the capital. Your million bucks would be growing and you would not need to sell any of it, ever, as long as you could live off 2.74%.


Thats less than the rate of inflation. Its a losing proposition. If you cant at least make a 5% return in the market, keep it in your pants.


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## AltaRed (Jun 8, 2009)

tygrus said:


> Thats less than the rate of inflation. Its a losing proposition. If you cant at least make a 5% return in the market, keep it in your pants.


I don't see it that way. The yield is 2.7% in cash income but that does not include capital appreciation....which may be another 2-3+% and that allows the capital to keep pace with inflation. Dividend growth year over year generally tracks capital appreciation over longer periods of time....so that yield will grow as well to offset infkation. Spudd's concept is sound.


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## tygrus (Mar 13, 2012)

AltaRed said:


> I don't see it that way. The yield is 2.7% in cash income but that does not include capital appreciation....which may be another 2-3+% and that allows the capital to keep pace with inflation. Dividend growth year over year generally tracks capital appreciation over longer periods of time....so that yield will grow as well to offset infkation. Spudd's concept is sound.


Capital appreciation is speculation - it cannot be relied on. Only free cashflow dividends count. This strategy is unsound.


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## Karlhungus (Oct 4, 2013)

tygrus said:


> Capital appreciation is speculation - it cannot be relied on. Only free cashflow dividends count. This strategy is unsound.


What?? Capital appreciation is speculation? Predicting future cash flow would be speculation as well then...


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## tygrus (Mar 13, 2012)

Karlhungus said:


> What?? Capital appreciation is speculation? Predicting future cash flow would be speculation as well then...


Surprise, thats right. You have no idea if a stock is going to be higher in a year or 10 or 100. Thats speculation. The dividend is all you can count on and its month to month. You sure as heck dont project that thing out 30 years either because it can change as well. Anybody who owned canadian oil found that out the hard way in the past 2 years.

You guys are a little green about stocks arent you. You think they go up forever and pay dividends forever.


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## redsgomarching (Mar 6, 2016)

First not sure to say congrats or condolences for however you inherited the funds but you have a BIGGGG head start - definitely good that you are thinking about how to use it to your advantage. 

It is hard to advise to go into real estate because with no income you would not qualify for a mortgage unless you have a co signer or willing to buy the property outright - but due to toronto market there goes 50% of your 1mill into a place which you could rent out.

Another option is to use non reg investment account to supply your income. 
Sock away 46.5k right away into a tfsa use this maybe as stand alone where if you want to do your own trades so you can make some money you can do that.

Next - put into non registered account with dividend paying stocks that way you get the dividend tax credit (watch out of usd companies and usd stocks) but this is a tax advantage for you as your income.

at 1 mill invested even at 5% you are looking at 50k income +/- fluctuations in the market price of shares and - taxes. Assume after tax you are taking in around 40k per year. That is 3.3k per month. bear in mind though you would probably have lump sums of tuition payments due so your earnings will fluctuate a little bit. Your rent is going to be your biggest cost. If you can find roommates and rent for 1-1.2k, you have another 1k on food and misc. and another 1k left over then you could essentially have those funds in a HISA for emergency or waiting to rebalance (or to top up your tfsa for the next year  )


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## peterk (May 16, 2010)

As much money as that is, the biggest decisions you have to make in the next couple years is what you want your career to look like, not investing decisions. 1M will afford you a lot of flexibility in both the way you educate yourself, and the way you work. You can get a lot more creative with that safety net, and pursue aggressive and risky ideas and money making options. I am not sure I would recommend a traditional STEM employee career for someone in your fortunate situation, unless you have a burning specific passion to build bridges or work at google or something, but I suppose there are worse things.

I don't think we should be talking about investment "income" at all to be honest. Invest 800-900k in a balanced couch potato portfolio of some kind, and don't meddle with it. Keep 30k in a HISA/chequing, and put the remainder in a 5-year GIC ladder, withdrawing annually/as needed to refresh your chequing account. Maybe it will be all used up in 5 years when you're done your degree and figured your life out a bit better, and hopefully your portfolio grew ~20% in that time. There is no need to complicate things with creating an arbitrary target for "investment income", just keep some cash on hand and spend what you need to.

99% of the battle is already won. You respect the money, have no crazy yearnings for fancy cars, and have set a nice, frugal budget for yourself. This money affords you the ability to shoot for the moon with your career, and pursue a wild passion or big money. In your situation, I could not see myself being happy with a traditional STEM career of working 40 hrs/week in someone else's office, making 75k at age 30, 150k at age 50, and retiring at 55. Go for the gold, save the planet or invent something with your ingenuity, or have a happy, easy, unique career of passion and vim, or work hard and long to build a $100M business! You can do anything at all with the confidence that you have your 1M investment to fall back on if it all turns to ****.

Best of luck and welcome to the forum!


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## FrugalTrader (Oct 13, 2008)

Spudd said:


> Look at it this way. The rule of thumb is that if you have a balanced portfolio (i.e. couch potato - 25% each of bonds, Canadian equity, US equity, international equity) you should be able to withdraw 4% a year for 30 years and never run out of money. You only need to withdraw 2.7%, so your portfolio should actually be growing even though you are withdrawing. If you withdraw only the dividends, then your capital will still be growing and keeping up with inflation.
> 
> You could also add REIT's (real estate investment trusts) if you want more income. So let's say 10% REIT, 15% bonds, 25% Canadian, US, international equity.
> 10% REIT - XRE - yield 5.08%
> ...


I like this idea. Very little work, diversified, and relatively low long term risk. I would add to put as much XBB in your TFSA as possible to help reduce your taxable income.


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## dumbfoundead6666 (Jun 9, 2016)

redsgomarching said:


> First not sure to say congrats or condolences for however you inherited the funds but you have a BIGGGG head start - definitely good that you are thinking about how to use it to your advantage.
> 
> It is hard to advise to go into real estate because with no income you would not qualify for a mortgage unless you have a co signer or willing to buy the property outright - but due to toronto market there goes 50% of your 1mill into a place which you could rent out.
> 
> ...


Yes, I have realized real estate is almost entirely out of the question for me.
I currently and renting and all my expenses + a little extra will run around $3000. I would like to be making a little more than that per month to keep up with inflation.
I have thought about lump sum tuition payments and have covered that with other funds. Tuition is not a factor in this calculation.

Do you suggest I buy individual Canadian dividend stocks or buy a Canadian dividend fund?


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## dumbfoundead6666 (Jun 9, 2016)

peterk said:


> As much money as that is, the biggest decisions you have to make in the next couple years is what you want your career to look like, not investing decisions. 1M will afford you a lot of flexibility in both the way you educate yourself, and the way you work. You can get a lot more creative with that safety net, and pursue aggressive and risky ideas and money making options. I am not sure I would recommend a traditional STEM employee career for someone in your fortunate situation, unless you have a burning specific passion to build bridges or work at google or something, but I suppose there are worse things.
> 
> I don't think we should be talking about investment "income" at all to be honest. Invest 800-900k in a balanced couch potato portfolio of some kind, and don't meddle with it. Keep 30k in a HISA/chequing, and put the remainder in a 5-year GIC ladder, withdrawing annually/as needed to refresh your chequing account. Maybe it will be all used up in 5 years when you're done your degree and figured your life out a bit better, and hopefully your portfolio grew ~20% in that time. There is no need to complicate things with creating an arbitrary target for "investment income", just keep some cash on hand and spend what you need to.
> 
> ...


I do have a passion for a STEM related career and I am entirely in agreement with what you are saying regarding aiming for the moon. I am going to get my degree to acquire knowledge, not just a piece of paper (degree) to get a job. Using that greater knowledge, I hope to be able to start business, innovate/invent, etc. But a degree + maybe working for the first 5 years post-graduation to gain more experience/knowledge is very likely to be in my future. Of course, don't forget, I can also be aiming for moon shot ideas while I am in school with like minded individuals.


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## dumbfoundead6666 (Jun 9, 2016)

I posted the following questions in a new thread but in case nobody sees it:

1) In terms of how finance works in Canada, what is a 'financial advisor' vs a 'financial planner'? Are they the same?
2) Should I learn to invest myself using a discount broker and index funds or should I just get a financial advisor/planner or services like 'Wealth Management Services' for high net worth individuals offered by the big banks?
3) A lot of people mention getting a 'fee based financial advisor'. What exactly would this person do for me? Create an investment strategy with the proper asset allocation and everything else? And after that will I go buy the stocks/funds/bonds by myself using a discount brokerage?


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## james4beach (Nov 15, 2012)

dumbfoundead6666 said:


> Hi all...


By the way, I have a masters in engineering and have managed my personal portfolio since age 18. By age 22, I was managing over 100K which was a combination of my own savings plus some inheritance.

There's an interesting phenomenon at work in this thread. People will be much braver and more ambitious when it comes to advice about other peoples money. In other words, some of the things you are hearing are not things people would or could do with their own money.

That's important to realize because the advice is good and everything, but theory is very different from practice. One aspect of this in practice is that if you put too much of this money in the stock market, you will find that the volatility will be nuts... and at some point you're going to pull the money out once you're down 30% (300K) and looking at the prospect of losing hundreds of thousands more.

Personally I think one of the best things you could do is find a way to "lock the money away" (say 75% of it) for a looong time. And I really mean lock it away, because as someone else here said, having it lingering around will *drive you nuts*.

Locking it away is a bit difficult to implement, but one way is to write a contract to yourself... which I have done in the past... with a pledge or firm instruction to not touch it until X happens. From yourself to yourself. It may sound silly but it can help keep your paws off it.

And another vital part of locking it away that may be less obvious, is that *you need high safety and relatively little volatility because that's going to help make sure you don't touch it.*

With those in mind, and considering that you're going to have it in a taxable account because you can't possibly tax shelter that much money, I endorse the following idea:

Decide how much of this you want to lock away out of sight. 600K, or maybe 800K? Decide, write up a contract to yourself, etc.

Then I suggest putting it into a relatively conservative mix of investments. Perhaps something like 30% of it into a standard index fund (like XIC, or TD e-series Canadian Index) and the bulk of it, say 70% or more, into fixed income ETFs. For you I'd suggest *ZDB and XSH*. The first is a standard bond index which has low coupon bonds which makes it very tax efficient. The second is a short term bond fund that has low volatility and reasonable returns.

What this will achieve is giving you quite LOW volatility, and low losses, which means it will help you keep your pledge to yourself to not touch that money. With low volatility and reasonable performance you can (and should) just forget about it.


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## Pkount (Apr 16, 2016)

This is a very interesting thread, with a lot of interesting advice...
This young man seems to have all his life priorities in line...although I will agree with the post regarding how difficult it is to commit to school 100% after being away from it. Had a couple friends with shortened hockey careers do it. One did awesome receiving his degree and doing great...the other treated it like another party, pissed away the opportunity and the money.
Personally and IMO, I would give strong consideration to both Spudd, and james4beach's advice (or a combo of).
Best of luck to you.


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## gardner (Feb 13, 2014)

james4beach said:


> and XSH


Is XSH tax-efficient? This CouchPotato article says otherwise:

http://canadiancouchpotato.com/2015/03/03/which-bond-etf-is-most-tax-efficient/

I do recommend OP read up on about bonds and taxes before hinging 70% of is income on this. Bond funds are great if you can shelter in TFSA, RRSP, RDSP, RESP, but can be really awful if you have to pay the taxes.


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## tygrus (Mar 13, 2012)

I suggest another route. I offer you would be crazy to put that lump in the markets even in all those safe ETFs everyone is suggesting. They still trade on the market. See what has happened to supposedly `safe`preferreds over the past 4 yrs. 

I suggest you take $50k out for your education. I suggest you take another $300k and buy a place to live, like a 1 br condo or something but not something in a whack market like downtown TO. I suggest you take another $500k and just put it to GIC ladder. Its the same yield as most of those bond ETF suggestions people were throwing out. I dont get excited about 2.74% yeild. That should be enough to keep the lights on and and your belly full. Then take the remaining and go after some real yield and risk - you can find REITs and a couple ETFs and individual stocks throwing off 7%. 

This will give you a debt free education and your first residence plus about $2000k a month tax free an you have the majority of your money in hard assets. 

Later on, you if you decide to get a home in 10yrs or something, you can use the condo for collateral and rental income.


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## Eclectic12 (Oct 20, 2010)

tygrus said:


> ... I suggest you take $50k out for your education.


Is $50K enough for a STEM degree over four or five years? 




tygrus said:


> ... Then take the remaining and go after some real yield and risk - you can find REITs and a couple ETFs and individual stocks throwing off 7%.


The GIC ladder sounds reasonable but how is the OP to know which stocks throwing off 7% are going to cut their dividends and possibly drop 20 to 30%?
Don't get me wrong ... I like individual stocks but deciding by what it pays versus knowing the company/business has not ended well for those I know who have tried it.

It also seems odd that dividends are deemed safe while capital appreciation is risky ... I have seen both tank. Never mind investors buy/sell at wrong times when they are not familiar with what they are doing.


Cheers


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## dumbfoundead6666 (Jun 9, 2016)

james4beach said:


> There's an interesting phenomenon at work in this thread. People will be much braver and more ambitious when it comes to advice about other peoples money. In other words, some of the things you are hearing are not things people would or could do with their own money.


Very true.



james4beach said:


> Then I suggest putting it into a relatively conservative mix of investments. Perhaps something like 30% of it into a standard index fund (like XIC, or TD e-series Canadian Index) and the bulk of it, say 70% or more, into fixed income ETFs. For you I'd suggest *ZDB and XSH*. The first is a standard bond index which has low coupon bonds which makes it very tax efficient. The second is a short term bond fund that has low volatility and reasonable returns.
> 
> What this will achieve is giving you quite LOW volatility, and low losses, which means it will help you keep your pledge to yourself to not touch that money. With low volatility and reasonable performance you can (and should) just forget about it.


Are the TD e-series funds safe?


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## dumbfoundead6666 (Jun 9, 2016)

Pkount said:


> This young man seems to have all his life priorities in line...although I will agree with the post regarding how difficult it is to commit to school 100% after being away from it. Had a couple friends with shortened hockey careers do it. One did awesome receiving his degree and doing great...the other treated it like another party, pissed away the opportunity and the money.


I am forced by my own ego and pride to finally go get a degree. I have had many misfortunes to deal with in the past decade and missed schooling.


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## dumbfoundead6666 (Jun 9, 2016)

tygrus said:


> I suggest another route. *I offer you would be crazy to put that lump in the markets even in all those safe ETFs everyone is suggesting. They still trade on the market. See what has happened to supposedly `safe`preferreds over the past 4 yrs. *
> 
> I suggest you take $50k out for your education. I suggest you take another $300k and buy a place to live, like a 1 br condo or something but not something in a whack market like downtown TO. I suggest you take another $500k and just put it to *GIC ladder*. Its the same yield as most of those bond ETF suggestions people were throwing out. I dont get excited about 2.74% yeild. That should be enough to keep the lights on and and your belly full. Then take the remaining and go after some real yield and risk - you can find REITs and a couple ETFs and individual stocks throwing off 7%.
> 
> ...


You have given me much food for thought.
Thank you.


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## dumbfoundead6666 (Jun 9, 2016)

Eclectic12 said:


> Is $50K enough for a STEM degree over four or five years?
> 
> The GIC ladder sounds reasonable but how is the OP to know which stocks throwing off 7% are going to cut their dividends and possibly drop 20 to 30%?
> Don't get me wrong ... I like individual stocks but deciding by what it pays versus knowing the company/business has not ended well for those I know who have tried it.
> ...


My schooling will cost a little over $50k in tuition.

You are right. I highly doubt I will be investing in individual stocks. Mainly ETFs.

Dividends can plummet, yes, but from what I understand (not much), often times companies will continue to pay out similar dividends even in down periods, just to maintain the stock price.
...OR am I just full of it here... haha!


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## Spudd (Oct 11, 2011)

Dividends on an individual stock can plummet, for example, recently the oil prices dropped a lot (from like $100 to $30, I didn't look it up but that's around the ballpark). When that happened, the price of the oil stocks went down a lot (A LOT). Also, many of them cut their dividends because their profits had dropped so much, that they couldn't afford to keep paying the higher dividends. 

So yes, there is risk on buying dividend stocks. On the other hand, sometimes stocks go down for no good reason. As an example, in 2008 there was a big crash and the whole market went down. Many companies were not actually affected seriously by the recession and the events taking place, but their stock prices were punished just because everyone was afraid of stocks and was selling. Such companies would not cut their dividends. Another example of companies that won't usually cut their dividends is ones that have been paying dividends for a long time without a cut. If they cut, it would damage their reputation so they will often try very hard to keep paying. 

The advantage of buying an index fund is that while you will own some oil stocks in there, you'll also own some banks, some manufacturing companies, some tech companies, some telecoms, etc. An index basically lets you own all the stocks in the market. If some sector (e.g. oil) goes down a lot, you will feel some pain, for sure, but not as much as if you had 10% of your portfolio in an individual oil stock. That is why index funds are generally thought of as safer than individual stocks. 

You do need to be prepared that stock prices can and will go up and down. In 2008 you probably would have lost 30% of the value of a balanced portfolio, more if you had invested only in stocks. In general though, the trend is always upwards. Over a 30-year period it's always been up. So you need to not panic when it drops, keep collecting your dividends, and don't look at your balances too often.


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## james4beach (Nov 15, 2012)

dumbfoundead6666 said:


> Are the TD e-series funds safe?


It depends on what you mean by safe. The e-series Canadian index is a stock index fund. It more or less does exactly what the TSX index (stock market) does. It has the volatility of the stock market and that's why I suggest limiting how much you expose to it.

The idea is that you really should have _some_ stock market exposure (and I'm suggesting about 30% of whatever chunk you choose to set aside for investment). There are many vehicles for a Canadian stock index fund. The E-series, XIC, XIU, ZCN are all about equivalent except the fees are lowest with XIC and so it's probably the best way. Safety wise, I'd consider them all to be the same risk.

GICs as others have mentioned are also a great idea and I strongly endorse them too. If you follow my guideline for example of 30% stocks 70% fixed income, the GICs would be part of the fixed income portion.


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## Eclectic12 (Oct 20, 2010)

dumbfoundead6666 said:


> My schooling will cost a little over $50k in tuition.


That's good news.



dumbfoundead6666 said:


> ... Dividends can plummet, yes, but from what I understand (not much), often times companies will continue to pay out similar dividends even in down periods, just to maintain the stock price.


Let's see ... one company's dividend history recently is $0.07 to $0.04 to $0.02 then to $0.01 while another went from $0.10 to $0.00 for about five months then back to the original amount. Another company switched from cash dividends to stock dividends but did maintain the amount.

Another went from $0.29 to $0.18 to $0.04 for it's recent history.

For several of these examples, the drop is substantial.


Keeping to pay dividends needs either the situation being relatively short term or an underlying business that supports it.


Cheers


*PS*

Nortel paid dividends then suspended them for common shares ... later followed by suspending the preferred share dividends.


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## Just a Guy (Mar 27, 2012)

One thing I learned very early in life was that $1,000,000 is not a lot of money...and that was back a few years when it was worth a lot more than it is now.

You're very young to have to manage this amount of money with no experience. Personally, I'd start off slow. Dump it all into something safe and conservative until you're done school. You don't need the distractions of being a landlord, or trying to follow and learn the stock market. You also have to see if you're disciplined enough not to want to tap into it whenever things get a little tight...a bad habit which will quickly eat it away.

Take out enough to pay for your school and live the way you need to. I'd suggest you also keep a job as well and work, at least part time, through school so you don't get used to your "safety net". Again, if you don't, it will quickly get eaten away.

Once you're done school, you need to focus on getting employment. You mentioned starting a company. Again, you need to do this without tapping into your "safety net". If the business can't survive without your money, it probably won't survive once you run out of it. Bank loans are part of running a business, if the banks won't lend you money, there may be a good reason you should heed. 

Once your life is stable, you can then take a portion of your savings and see if you are ready to be an investor. This means discovering what your investment personality is. You can't be a day trader if you've got the buy and hold personality. You need to figure out if you're interested in business, stock, or real estate...or maybe some combination of them. Your small steps to investing should show you the way...but it'll take time, energy, and a whole new self-taught education. 

To me, one of my best policies is, invested money is spent money. Once I have invested in something I don't touch that money. This kind of discipline has allowed me to not only earn money, but also keep it. You need to teach yourself to do the same or you'll probably find it not there a lot faster than you ever imagined possible.

Extension

I wrote this before reading the whole thread, so I realize much of what I posted you've already considered. One thing you've not thought about is the taxes you'll need to pay on your income. If you pull the money out right away to live off of, it'll be taxed at the highest marginal rate.

You may want to look at maxing out a tfsa, rrsp, etc. And also keeping what you'll need out of the investments. If you leave money in investments, it grows tax free until you sell a stock.


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## Eclectic12 (Oct 20, 2010)

^^^

+1 for a lot ... though in the extension about "taxed at the highest marginal tax rate" and "grows tax free until you sell a stock" depend on a lot of variables.

First question is whether the windfall is after-tax or is taxable. I'm guessing it is after-tax but the OP can confirm.


Once some investments are made in a taxable account (the investment itself won't matter), two versions of taxes could come into play. 

Taxes for what cash is paid, which could be from a range of income types (ex. interest, eligible dividends, income). These will have to be paid each year as one files one's tax return. For ETFs, there could also be capital gains tax despite no cash being paid.


Taxes may also come into play for certain types of investments such as stocks, ETFs, MFs and REITs. This is capital gains tax when the investment is sold. If part of the cash paid is return of capital (Roc), the RoC paid will reduce one's cost. Most of the time this will defer the capital gains tax to when the investment is sold.


The high tax rate will apply to interest payments but will be much less for eligible dividends. ETFs generally have a mix of income where without looking at what the past history is, one won't know what the likely mix of tax one will be paying.


Either way ... unless the full income being paid is 100% interest, which is taxed the same as employment income - going beyond interest type investments is likely to reduce the taxes one would have paid.


This is another aspect to learn about because it is doubtful one can put the full amount into combination a TFSA (Canadian tax free) or an RRSP (tax deferred).


Cheers


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## james4beach (Nov 15, 2012)

As you are considering "yield" pretty heavily in your goals, don't forget about XSH -- one of the iShares short-term bond ETFs. At 3.1% it has a higher income payout than even the broad bond indices, yet these are short term bonds and therefore quite safe. This is part of their "core" portfolio of funds, meaning they are low-fee and designed to be portfolio staples.

However I caution the original poster from chasing after yield. You can quickly get into dangerous territory by choosing your investments to maximize yield/dividends. Look at CPD/preferred shares for instance. Everyone piled into this thing to boost the dividend yield of their portfolios. The five year annualized return is -1.84% and even the 10 year annualized return of the preferred index is 0.76% --- that's worse than cash, worse than a plain old savings account.

Stick to the basics to get the *best total return*. Generating cash is not too complicated. On top of the dividends and interest coming from standard stock and bond ETFs, a GIC ladder means that every year you have a GIC maturing. As it matures you can extract as much cash as you want.

For example I think the following is very doable and low risk/low volatility.
300K XIC
300K XSH or other bond fund (I suggest ZDB -- see article)
400K in 5 year GIC ladder (5 x 80K), easy to do at discount brokerage

During the year, XIC pays out 2.9% = 8.7K and XSH pays out 3.1% = 9.3K. That's $18,000 of income so far, paid automatically.

Every year, one of those GICs matures, making over 80K cash available. How much income do you need? Want another $20,000 ? Take it from your GIC ladder.

Over time, this will draw money out of the GIC allocation ... which I think is also the right idea. That GIC ladder is almost like a "cash" balance. Your stock capital will be preserved, and grow and the GIC (think of it like cash) balance will decline.

Tax handling of GICs is also very easy. You just get a T5 slip with interest income, which is easy to report.


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## dumbfoundead6666 (Jun 9, 2016)

Spudd said:


> Dividends on an individual stock can plummet, for example, recently the oil prices dropped a lot (from like $100 to $30, I didn't look it up but that's around the ballpark). When that happened, the price of the oil stocks went down a lot (A LOT). Also, many of them cut their dividends because their profits had dropped so much, that they couldn't afford to keep paying the higher dividends.
> 
> So yes, there is risk on buying dividend stocks. On the other hand, sometimes stocks go down for no good reason. As an example, in 2008 there was a big crash and the whole market went down. Many companies were not actually affected seriously by the recession and the events taking place, but their stock prices were punished just because everyone was afraid of stocks and was selling. Such companies would not cut their dividends. Another example of companies that won't usually cut their dividends is ones that have been paying dividends for a long time without a cut. If they cut, it would damage their reputation so they will often try very hard to keep paying.
> 
> ...


I know everyone says to not try time the market but do you think it's honestly a smart idea to invest in the markets right now? We're at near record highs... A correction seems to be imminent?


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## dumbfoundead6666 (Jun 9, 2016)

james4beach said:


> It depends on what you mean by safe. The e-series Canadian index is a stock index fund. It more or less does exactly what the TSX index (stock market) does. It has the volatility of the stock market and that's why I suggest limiting how much you expose to it.
> 
> The idea is that you really should have _some_ stock market exposure (and I'm suggesting about 30% of whatever chunk you choose to set aside for investment). There are many vehicles for a Canadian stock index fund. The E-series, XIC, XIU, ZCN are all about equivalent except the fees are lowest with XIC and so it's probably the best way. Safety wise, I'd consider them all to be the same risk.
> 
> GICs as others have mentioned are also a great idea and I strongly endorse them too. If you follow my guideline for example of 30% stocks 70% fixed income, the GICs would be part of the fixed income portion.


What do you mean by 30% stocks, 70% fixed income? What is fixed income? Like fixed income funds of stocks that pay dividends?


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## dumbfoundead6666 (Jun 9, 2016)

Just a Guy said:


> One thing I learned very early in life was that $1,000,000 is not a lot of money....


Very true.


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## GreatLaker (Mar 23, 2014)

dumbfoundead6666 said:


> What do you mean by 30% stocks, 70% fixed income? What is fixed income? Like fixed income funds of stocks that pay dividends?


http://www.finiki.org/wiki/Asset_class
http://www.finiki.org/wiki/Fixed_income

Dividend stocks are not fixed income. Some people use them as a substitute for fixed income to increase yield, but they are also riskier, because the company has no obligation to continue paying dividends, whereas with true fixed income like bonds or GICs the issuer has an obligation to pay interest.


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## coptzr (Jan 18, 2013)

dumbfoundead6666 said:


> I know everyone says to not try time the market but do you think it's honestly a smart idea to invest in the markets right now? We're at near record highs... A correction seems to be imminent?


You are grouping the entire invest or market into something that will drop and you will then enter. Keep waiting with a bag full of cash and you will lose from the start. If you want to wait for a correction, at least throw it in high interest savings, short term GIC, etc... Yes, there are some which have gone sky high, but there are many others which continue on the long term goal and steady path.


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## hboy43 (May 10, 2009)

The single most important thing in investing is to understand the workings of your brain. Just a Guy had alluded to this. So all the advice upstream is good as long as your brain is similar to the advisor's.

You would think that the goal for everyone in investing would be to over the long term generate as much wealth as possible at low risk. You would be wrong in thinking this. The actual primary goal for I'd say 90% of people is to never see a year when they have lost money. This is a reflection of the feel a loss more than a gain feature of most brains. This is why there is a strong investing bias towards real estate in the general population vs stocks. Your house does not have a minute by minute bid/ask so that in a year you are down 20% this fact is hidden from you, and you remain happy and content. Likewise stocks are panic inducing and a 50% drop is seen as disaster instead of opportunity.

I have no advice as to how to discover the true nature of your brain wiring. I have invested a very long time the way I do, but it had only become clear to me in the last 5 years or so the nature of my brain and how it leads me to invest in the manner I invest. It is also clear that I cannot advise others in general how to invest because in all probability we don't have the same brain type - what is perfectly clear and rational to me makes absolutely no sense to most others. One guy around here is also trained as an engineer like I am, but invests in a polar opposite manner. I used to spend a bit of time to try to bring him around to my way of thinking, but I now realise it is an impossible task.

Good luck with it.

I did engineering starting at age 25. I eased into it slowly starting part time while keeping my other foot in my job. At Christmas, i decided to go full time, and caught up by doing a few courses the following summer. You might consider doing the physics course or maybe calculus and an elective this summer to get things started.

Hboy43


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## My Own Advisor (Sep 24, 2012)

Congrats on the windfall.

First up, finish your degree regardless. An education is an excellent investment in you.

Second, $1M invested wisely should yield ~$40,000 per year in year 1, and more in year 2, more in year 3, etc. over time. That means "cash for life"; _at least $3k/month and _rising over time, for as long as you live without touching the capital. (Of course you will eventually touch the capital in your senior years, if not sooner.)

With no other income, this income is virtually tax-free. I'm not talking about the TFSA.

How you do you do this? You invest in dividend paying stocks or ETFs to take advantage of the dividend tax credit in a taxable account.

Third, stay out of debt. Servicing debt is bad long term.

Fourth, I would not buy a condo or house anywhere. Rent for a few years and get that massive windfall, getting that capital working for you first. You have lots of time to own a home.

Good luck with your decisions, not easy ones, but a great position to be in at such a young age.


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## dumbfoundead6666 (Jun 9, 2016)

hboy43 said:


> The single most important thing in investing is to understand the workings of your brain. Just a Guy had alluded to this. So all the advice upstream is good as long as your brain is similar to the advisor's.
> 
> You would think that the goal for everyone in investing would be to over the long term generate as much wealth as possible at low risk. You would be wrong in thinking this. The actual primary goal for I'd say 90% of people is to never see a year when they have lost money. This is a reflection of the feel a loss more than a gain feature of most brains. This is why there is a strong investing bias towards real estate in the general population vs stocks. Your house does not have a minute by minute bid/ask so that in a year you are down 20% this fact is hidden from you, and you remain happy and content. Likewise stocks are panic inducing and a 50% drop is seen as disaster instead of opportunity.
> 
> ...


Well said. I entirely agree that psychology is a HUGE determinant of success in trading stocks.

I am not entirely risk averse and am not entirely that afraid of losing lots of money within a year. I am, however, afraid of a scenario where a company just goes entirely bankrupt, and I sat there with the idea of "buy/hold" and expected things to turn around in the near future. Well I guess an index fund could help mitigate losses from such a scenario, right?


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## AltaRed (Jun 8, 2009)

Index funds mitigate risk due to diversification of holdings. Just like the TSX300 or the TSX60 or the S&P500, or....., index funds/ETFs based these broad indices are 'set and forget' for one's lifetime.


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## houska (Feb 6, 2010)

DFD6^4 - congrats on keeping your head screwed on straight about this. You're gonna be fine as long as you take it slow.

You've got a lot of good advice on passive investment portfolios, not putting too many eggs in one basket, avoiding those condos, etc.

I'll just pick on one bit. You talk about "I need $x of income and a bit of capital gains" and talk about investments that "generate income". It feels like you view those things are very separate things. But in reality, you're going to have an investment portfolio whose value oscillates over time, and that you withdraw a contribution to your personal expenses from, and you won't care(except see note below) whether the positive additions to the portfolio's value come from capital gains or dividends or investment income. Based on what you invest in (say some stocks, ETFs, ditto mutual funds and bond ladders, though I doubt you'll use those) you'll get various dividends/distributions back into your investment account. You'll periodically withdraw as cash what you need, and reinvest the rest. If you don't get enough in distributions and/or you need an unexpectedly large amount, you'll sell a few shares of this and that. I know you don't want to "touch your capital", which is a good philosophy *over the long term on average* but it can be quite OK to touch it occasionally, if your cash needs are chunky (as they will be as a student) as long as you make it up before or after.

You are also young and quite resilient financially, so you care less about short term volatility. All of this means you shouldn't lock yourself into investments that focus too much on generating "steady income", and be more willing to invest in whatever fits your overall risk appetite, whether you make your money with income, dividends, or capital gains.

The one footnote (mentioned above) to this is that while you have no other sources of personal income, due to a quirk of tax law, money your portfolio makes you that is classified as dividends (from Canadian corporations) up to about $30k or so per year (if no other income) will be tax free to you (look up dividend gross up and dividend tax credit). So it may make sense to skew your portfolio towards dividend generation as opposed to investment income or capital gains for that reason.

Final suggestion: since you're investing very much for the long term (you have 60+ years expected life expectancy ahead of you, possibly more, and you want to leave something for your eventual heirs you said), it's worth it for you to read up on this and learn properly with as much dedication (though it will need less time!...) as studying for your future degree. A lot of what you'll read is focused on people in their 40-60s preparing for their retirement, whose investment horizon may be less than 1/2 yours. So be sure to complement that part of your reading with some different voices on financial planning taking a longer-term perspective. Off the top of my head, I recommend: "Deep Risk" by William Bernstein, and "Are you a stock or bond?" by Moshe Milevsky, both of which should be available in libraries and short synopses can be found online.


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## dumbfoundead6666 (Jun 9, 2016)

My Own Advisor said:


> Congrats on the windfall.
> First up, finish your degree regardless. An education is an excellent investment in you.


No doubt. I see it as investing in a business (myself).




My Own Advisor said:


> With no other income, this income is virtually tax-free. I'm not talking about the TFSA.
> 
> How you do you do this? You invest in dividend paying stocks or ETFs to take advantage of the dividend tax credit in a taxable account.


You mean the dividends from any ETFs I buy are tax eligible, correct? 
What about dividends from index funds?


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## dumbfoundead6666 (Jun 9, 2016)

GreatLaker said:


> http://www.finiki.org/wiki/Asset_class
> http://www.finiki.org/wiki/Fixed_income
> 
> Dividend stocks are not fixed income. Some people use them as a substitute for fixed income to increase yield, but they are also riskier, because the company has no obligation to continue paying dividends, whereas with true fixed income like bonds or GICs the issuer has an obligation to pay interest.


Thank you for those links!


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## dumbfoundead6666 (Jun 9, 2016)

houska said:


> Final suggestion: since you're investing very much for the long term (you have 60+ years expected life expectancy ahead of you, possibly more, and you want to leave something for your eventual heirs you said), it's worth it for you to read up on this and learn properly with as much dedication (though it will need less time!...) as studying for your future degree. A lot of what you'll read is focused on people in their 40-60s preparing for their retirement, whose investment horizon may be less than 1/2 yours. So be sure to complement that part of your reading with some different voices on financial planning taking a longer-term perspective. Off the top of my head, I recommend: "Deep Risk" by William Bernstein, and "Are you a stock or bond?" by Moshe Milevsky, both of which should be available in libraries and short synopses can be found online.


Do you think it'd be worth it for me to pursue a degree in the finance field? Or do you think it's manageable to do both a STEM degree and manage most, if not all, of this money by myself using some buy/hold, set it and forget it, couch potato style of investing?


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## Eclectic12 (Oct 20, 2010)

dumbfoundead6666 said:


> I know everyone says to not try time the market but do you think it's honestly a smart idea to invest in the markets right now?
> 
> We're at near record highs... A correction seems to be imminent?



Trouble is ... you won't know when the drop will happen until after-the fact. Many have waited for a drop that matches they definition so long that they have lost on on significant earnings.

For example, some in early 2009 were convinced that 30 - 40% drop was just the start then didn't buy as the market rose. Others sold everything as they felt all dividends would be cut then delayed re-entering the market. 


If you concerned, then as you learn - buy in over time, keep some cash to buy bargains and put a higher percentage into things the are guaranteed (ex. GICs).




dumbfoundead6666 said:


> What do you mean by 30% stocks, 70% fixed income? What is fixed income? Like fixed income funds of stocks that pay dividends?


No because whether it is one stock or a basket, the stock price will fluctuate. Fixed income is aimed at almost no change in the underlying $$$ and the payments are typically guaranteed. Something like a stock that pays dividends can have wide swings in the share price and there is no guarantee. The company can decide to reduce or eliminate the dividends if the business has changed. 

As an example, because of the market's expectations that low oil was going to affect some of the REITs that have a lot of office space in Calgary - the share price dropped dramatically. The distributions paid stayed the same for something like eight months where when they were finally cut by over 30% - the unit price went up as the market thought this was a long overdue good move.

The idea for fixed income is that one is not putting the $$ at risk so it tends to be GICs, Savings Bonds, Treasury Bills etc. It also means that where part of the investments may go up and down a fair bit, the fixed income part stays pretty much the same.
http://www.rbcds.com/understanding-fixed-income-securities.html 

Cheers


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## houska (Feb 6, 2010)

dumbfoundead6666 said:


> Do you think it'd be worth it for me to pursue a degree in the finance field? Or do you think it's manageable to do both a STEM degree and manage most, if not all, of this money by myself using some buy/hold, set it and forget it, couch potato style of investing?


1. With your windfall, and your responsible attitude to life, you can and should pursue a degree in whatever you are excited about doing for the next 10-20 years. Your financial cushion should help you go for your professional dreams, not stream you into a degree and career choice.

2. In addition, if you are keen to pursue a STEM degree, you definitely have the skills to teach yourself to manage the money in a set-it, forget-about-it (except annually think about your evolving needs, set up to get cash when you need it, and rebalance it) way. I am a fan of passive couch potato investing; others are fans of more actively managed dividend portfolios. I would just urge you to read and learn, not to suddenly start actively trading like crazy, but to understand your money, be an informed consumer who does not spend more on investment fees/expenses than needed and does not fall prey to bursts of emotion -- and to make your investment style reflect the much longer time horizon than is typical for people who start thinking about managing portfolio.

3. In addition, one of the nice things the portfolio will provide is not just a bit of a boost to your spending budget, but the opportunity to have a cushion or even some capital to take on career risks after your degree. You will be much more able to take on entrepreneurial opportunities, to wait for the right job to come along, to laterally shift away from a dead-end job than many of your peers. That to me is a key benefit of being reasonably well-off early, even if not yet 100% financially independent (I did STEM careers, then pivoted to a career in the business world, and was able to quit my job in my mid 40s due to luck and good financial management. I'm not sitting on my butt doing nothing, but financial stability provided the oppty to be able to say, "time to move on" while my peers are on a treadmill to continue). 

BTW, where I said "STEM degree = ability to self-manage money". That's not some sort of hierarchy of degrees which would mean you're smarter or more competent. But if you're inclined the STEM direction, clearly you're not afraid of moderate amounts of math, which makes the financial math self-management route easier (a bit of side reading is enough, you don't need a degree in finance to do it!). However, another part of self-managing money is mental discipline - to not overspend, to not emotionally sell in a panic just after markets move downwards, etc. So ask yourself, how is your self-control? as well.


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## Just a Guy (Mar 27, 2012)

One of the things you'll soon realize, there's a big difference between the theoretical (education) and the practical (implementation). 

Many financially educated people are not good at actually making money. Just like there are few business majors who actually start or run companies. 

If making money was as easy as getting a degree, there certainly wouldn't be the number of people out there worried about paying for retirement. 

I probably know more about the banking and lending industry than most bank employees, but then it's in my best interest to learn how to manage the system as opposed to being a cog in it. 

I also know more about business, having run companies, than a 4 year business major who's only studied how things are supposed to work (in a perfect world none the less). 

University is a wonderful place, and the knowledge is useful, but the real world plays by its own rules.

Learning to manage money doesn't require any degree, you have to learn what your investment personality is and what interests you. After that, the rest is fairly easy.


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## CalgaryPotato (Mar 7, 2015)

I don't see why it would be unmanageable to buy and hold invest while working in a non finance field. I'd imagine day trading would be out of the question, but that doesn't seem to be your goal.

I have a dumb question, what exactly is a STEM degree? I try Googling it and it says it's a degree in some sort of science, technology or engineering, that sounds very vague. I'm hoping you have it narrowed down more then that?


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## Eclectic12 (Oct 20, 2010)

Post #1 has ...


> STEM degree (science/tech/engineering/math)


It is not an acronym I am used to.


Cheers


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## CalgaryPotato (Mar 7, 2015)

Well I've heard of the term to describe it in the macro sense. But to me that is a very broad range to be at for someone considering going back to school. 

As someone in the computer science field my job has very little overlap with an engineers job, and very little overlap with a scientists job. The programs are totally different right from the first semester of university.


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## dumbfoundead6666 (Jun 9, 2016)

Eclectic12 said:


> Trouble is ... you won't know when the drop will happen until after-the fact. Many have waited for a drop that matches they definition so long that they have lost on on significant earnings.
> 
> For example, some in early 2009 were convinced that 30 - 40% drop was just the start then didn't buy as the market rose. Others sold everything as they felt all dividends would be cut then delayed re-entering the market.
> 
> ...


You're right. I will probably take roughly 1-2 years to slowly invest it all in mainly ETFs, maybe some gold stock (or physical gold?), and some bonds?

And got it (about fixed income), thanks. Do bonds and bond ETFs count as fixed income? High investment grade bonds.


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## dumbfoundead6666 (Jun 9, 2016)

houska said:


> 1. With your windfall, and your responsible attitude to life, you can and should pursue a degree in whatever you are excited about doing for the next 10-20 years. Your financial cushion should help you go for your professional dreams, not stream you into a degree and career choice.
> 
> 2. In addition, if you are keen to pursue a STEM degree, you definitely have the skills to teach yourself to manage the money in a set-it, forget-about-it (except annually think about your evolving needs, set up to get cash when you need it, and rebalance it) way. I am a fan of passive couch potato investing; others are fans of more actively managed dividend portfolios. I would just urge you to read and learn, not to suddenly start actively trading like crazy, but to understand your money, be an informed consumer who does not spend more on investment fees/expenses than needed and does not fall prey to bursts of emotion -- and to make your investment style reflect the much longer time horizon than is typical for people who start thinking about managing portfolio.
> 
> ...


1. You're right but I still sometimes doubt myself. I sometimes think I should do a finance degree so I understand EVERYTHING about whats happening with my money and can keep an eye on it 24/7--- but I also see why that itself is the problem; it wont be a set/forget it approach, and I'll be that guy watching MSNBC and fretting over every little news piece that causes a dip in the markets...

2. Yes, I have set aside at least 2months of doing nothing but learning about all of this. Then another month or so of looking into financial advisors/fee based planners/etc, hearing their thoughts and ideas and then finally starting to invest by myself.

3. Exactly. With a STEM career, I have the opportunity to focus on innovating/inventing something that could net me much more money than a fiancee degree/job probably could.

Yes, I am quite good at math but am unsure about how my investor mentality will be. I think I won't fret over 30-40% losses in a year, or at least I like to think so... Things could get real, real fast when money's on the table...


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## dumbfoundead6666 (Jun 9, 2016)

Just a Guy said:


> One of the things you'll soon realize, there's a big difference between the theoretical (education) and the practical (implementation).
> 
> Many financially educated people are not good at actually making money. Just like there are few business majors who actually start or run companies.
> 
> ...


You are entirely correct. University is like a sandbox in which we can experiment with ideas from the safety provided within it. The real world is, well, real...


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## dumbfoundead6666 (Jun 9, 2016)

CalgaryPotato said:


> I don't see why it would be unmanageable to buy and hold invest while working in a non finance field. I'd imagine day trading would be out of the question, but that doesn't seem to be your goal.


day trading is definitely not my goal.


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## dumbfoundead6666 (Jun 9, 2016)

CalgaryPotato said:


> Well I've heard of the term to describe it in the macro sense. But to me that is a very broad range to be at for someone considering going back to school.
> 
> As someone in the computer science field my job has very little overlap with an engineers job, and very little overlap with a scientists job. The programs are totally different right from the first semester of university.


STEM degrees are just all the science/tech/engineering/math degrees.
And yes, I have already been accepted to a good program at a good Canadian school for a STEM program. I am just saying 'STEM' to keep thins as vague as possible, lest I be recognized


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## dumbfoundead6666 (Jun 9, 2016)

What does everyone think of buying physical gold and storing it in lock boxes? Like say... $100k worth, out of a $1mm portfolio.


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## hboy43 (May 10, 2009)

dumbfoundead6666 said:


> What does everyone think of buying physical gold and storing it in lock boxes? Like say... $100k worth, out of a $1mm portfolio.


Depending on who you ask, it is either brilliant, or the dumbest thing going.


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## LBCfan (Jan 13, 2011)

dumbfoundead6666 said:


> STEM degrees are just all the science/tech/engineering/math degrees.
> And yes, I have already been accepted to a good program at a good Canadian school for a STEM program. I am just saying 'STEM' to keep thins as vague as possible, lest I be recognized


Some STEM degrees will help you get a financially rewarding job, some won't.

Pick a field you want to enter (even non-stem, law is an example). Can you think of the personal satisfaction in spending 40 years in a job you hate (but pays well)? 

First thing: you have to like the field. Second thing: more money is better. Third thing: even a job you like with good pay can be toxic with the wrong employer.


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## coptzr (Jan 18, 2013)

dumbfoundead6666 said:


> What does everyone think of buying physical gold and storing it in lock boxes? Like say... $100k worth, out of a $1mm portfolio.


Problem is making a plan on what to do with it in the future. Secondly, the whole precious metals thing is based on a pretty scary looking chart and new materials are being developed everyday. I like the thought of owning them, but more out of interest. I would prefer a variety of types and have some fun to watch what the future brings to each. Having a giant pile of gold hidden forever thinking when the world ends, everyone will want it is crazy internet chatter.


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## coptzr (Jan 18, 2013)

dumbfoundead6666 said:


> 3. Exactly. With a STEM career, I have the opportunity to focus on innovating/inventing something that could net me much more money than a fiancee degree/job probably could.
> 
> Yes, I am quite good at math but am unsure about how my investor mentality will be. I think I won't fret over 30-40% losses in a year, or at least I like to think so... Things could get real, real fast when money's on the table...


Keep on the path you set. If you want to try something, go to the local casino and throw down $1k. See if you hesitate to pull it out of your pocket, do you begin thinking about splitting it up over many options, do you sit back and see what happens or think about doing it again or bailing, taking your loss. In finance you need to set it practically in stone where you can cut a loss, how long you want to ride an increase, and commit to long term waves of up/down.
If you have interest in STEM, my feeling is you are more of a it works or it doesn't mentality. If it doesn't work, that how can you fix it and make it better. Innovation and interest in modern developments can help you understand trends and world issues.


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## james4beach (Nov 15, 2012)

dumbfoundead6666 said:


> What does everyone think of buying physical gold and storing it in lock boxes? Like say... $100k worth, out of a $1mm portfolio.


It's not a crazy idea. 10% gold exposure is in the right ballpark.

Gold is another asset class (in addition to stocks & bonds), and many of us have some amount of gold exposure. Personally my exposure is 6%, but that's a mix of physical gold and some shares in CEF.A - which is a passive fund that holds physical gold & silver. 100K of physical gold seems like a lot of metal to me, that's over 4 pounds worth I think.

Storing some physical is a good idea though. It's just that there are some practical issues that are important and you should learn before going into it. For example, you need reputable bars from the London good delivery list. You also probably want small enough units (like 5 oz or 10 oz bars) partly for transportation safety and partly for liquidity. The dealer is also important. Buying from a large Canadian bank is probably a good idea, since they likely have high quality bars in good shape.

So I wouldn't rush into getting too much physical until you become familiar with the mechanics. This is not as easy as buying a stock index ETF. You might want to go a route like a smaller amount (some reasonable physical weight... maybe a few 5 and 10 oz bars) combined with units of one of these things.

A few of us around here, including myself, hold CEF.A. I also think MNT is a good option.

But 10% exposure? Yes definitely. I think one of the best portfolio constructions out there is the permanent portfolio, which is equal weights of: cash, stocks, bonds, gold
http://canadianmoneyforum.com/showthread.php/86673-Permanent-portfolio-and-asset-allocation


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## james4beach (Nov 15, 2012)

And let me add that portfolio I pitched to you earlier, which was equal weights XIC/ZDB/GICs, was along the idea of the permanent portfolio ... except with a GIC ladder serving the role as "cash" (since GICs constantly mature), and I omitted gold


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## donzo (Aug 18, 2015)

dumbfoundead6666 said:


> STEM degrees are just all the science/tech/engineering/math degrees.
> And yes, I have already been accepted to a good program at a good Canadian school for a STEM program. I am just saying 'STEM' to keep thins as vague as possible, lest I be recognized


Here is a bit of advice (worth what you paid for it) that I give to anyone I know who is going into Engineering. And it makes double sense for you given your economic situation. But you can file this under the "life advice" rather than "financial advice" category:

"Plan on an extra year."

Not sure about your particular program, but engineering programs tend to pack on the courses - in my school we were doing 20% more than general science, and they were HARD courses. I struggled. It was not fun. I did not learn well because I was overloaded. In my 3rd year I changed programs (still in engineering, but a different specialization) - this resulted in me needing to take an extra year to make up for the mandatory courses with all their pre-requisites. And that meant I could take 1 course less per semester. Wow... what a change! Suddenly I could keep up, started enjoying school more, and more importantly, actually LEARNED better because I had the time to study properly and the mind-set to be more engaged in what I was doing.

So - yeah - just some advice from an old fart. I ended up doing grad studies afterwards which really set me up to do more interesting work when I graduated, and there is no way I would have had either the marks or the knowledge to do that if I hadn't reduced my course load.


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## dumbfoundead6666 (Jun 9, 2016)

hboy43 said:


> Depending on who you ask, it is either brilliant, or the dumbest thing going.





coptzr said:


> Problem is making a plan on what to do with it in the future. Secondly, the whole precious metals thing is based on a pretty scary looking chart and new materials are being developed everyday. I like the thought of owning them, but more out of interest. I would prefer a variety of types and have some fun to watch what the future brings to each. Having a giant pile of gold hidden forever thinking when the world ends, everyone will want it is crazy internet chatter.





james4beach said:


> It's not a crazy idea. 10% gold exposure is in the right ballpark.
> 
> Gold is another asset class (in addition to stocks & bonds), and many of us have some amount of gold exposure. Personally my exposure is 6%, but that's a mix of physical gold and some shares in CEF.A - which is a passive fund that holds physical gold & silver. 100K of physical gold seems like a lot of metal to me, that's over 4 pounds worth I think.
> 
> ...



Haha! I guess it really depends on who I ask whether gold is a good investment or not!

Well, I think I'd prefer to own some gold securities and not have to deal with physical gold for now...


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## dumbfoundead6666 (Jun 9, 2016)

donzo said:


> Here is a bit of advice (worth what you paid for it) that I give to anyone I know who is going into Engineering. And it makes double sense for you given your economic situation. But you can file this under the "life advice" rather than "financial advice" category:
> 
> "Plan on an extra year."
> 
> ...


You're right. I was just thinking about this today. I will probably take less courses so that I have some time to focus on my own portfolio as well; I'd rather get the degree done a little late than risk losing money from uneducated investment decisions.


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## dumbfoundead6666 (Jun 9, 2016)

james4beach said:


> And let me add that portfolio I pitched to you earlier, which was equal weights XIC/ZDB/GICs, was along the idea of the permanent portfolio ... except with a GIC ladder serving the role as "cash" (since GICs constantly mature), and I omitted gold


I saw a post by you on another thread saying that you use IB? 
I'm thinking of investing in a couch potato style portfolio and rebalancing only once a year or so. Do you think IB would be a good brokerage for a trader like myself?


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## james4beach (Nov 15, 2012)

I'm not a fan of gold securities. Those stocks have done horribly. For example, XGD's 10 year non-annualized total return is -29% (which is really horrible) yet a pure gold bullion fund -- say IGT or MNT -- has returned +110% in that period. That shows how pitiful the gold stocks have been. Ten years is a pretty good stretch for comparison.

In the last 10 years by the way, gold bullion (at +110% in Canadian dollars) has doubled the total performance of XIC (at +57%)

Gold is an asset class, but gold mining stocks are not. If you're sticking to the theory of portfolio diversification, the correct choice is some exposure to gold bullion, which means: physical gold, or maybe MNT or IGT



dumbfoundead6666 said:


> I saw a post by you on another thread saying that you use IB?
> I'm thinking of investing in a couch potato style portfolio and rebalancing only once a year or so. Do you think IB would be a good brokerage for a trader like myself?


For infrequent trades, I don't think IB is a good choice. You will pay 10 USD every month whether you have any activity or not. And I think Canadian market data will cost $9/month. So just as it sits there doing nothing you will pay something like $260 a year in fees to IB.

Personally I'd recommend one of the discount brokerages at the big banks instead. Yes you will pay a higher fee per trade, $10, but you get market data for free and there's no minimum monthly fee. So if you make 4 trades a year to rebalance, that's only $40 in total fees for the year versus over $200 in fees with IB


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## lonewolf (Jun 12, 2012)

silver junk coins would add to gold holdings. Gold & silver the currency that has been around the longest. There have been a lot of currencies that have & gone the Canadian dollar is not going to be used forever it could easily die during our life time now you have nothing if no gold or silver. Would also consider storing in a few countries.


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## gardner (Feb 13, 2014)

dumbfoundead6666 said:


> Well, I think I'd prefer to own some gold securities and not have to deal with physical gold for now...


In your position I would rank currency/market diversification ahead of any precious metals gambling. The couch potato strategy would have some portion of your wealth tied to $US and other currencies and I think realistically this is the type of diversification you would need.

If you are not a gold-bug already, I do not recommend you join their ranks. Mostly the arguments for gold are hypothetical post-zombie-apocalypse scenarios that would be better served by "investing" in AK-47s. You can never generate an income from gold and if you need an income, you should keep your precious metals holdings to a small hedge. I have a few bux in CEF.A and that's enough for me. Since I have held PMs, it has basically tanked.


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## lonewolf (Jun 12, 2012)

Hold the major currency of each continent little gold, silver a little bit coin


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## tojo (Apr 20, 2009)

dumbfoundead6666 said:


> I saw a post by you on another thread saying that you use IB?
> I'm thinking of investing in a couch potato style portfolio and rebalancing only once a year or so. Do you think IB would be a good brokerage for a trader like myself?


I'm sure by now you've realized just how fortunate you are. You've received an extraordinary gift. For the most savvy, high income investor, 1 million dollars in investable assets takes years and most will never achieve it. You have skipped that hurdle entirely and can set up an investment compounding machine that will make you a multi-multi millionaire by the time you decide to retire (for what's likely a very early retirement). I'm assuming you have a > 20 year time horizon. I would caution you not to be too cautious with your approach, otherwise you risk not achieving your financial objectives. With a good asset mix with an appropriate amount of equities, you will find the second million will come very fast. Once compounding takes over, you will be astounded with the kind of wealth you will achieve.


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## Eclectic12 (Oct 20, 2010)

^^^^

One risk is being too conservative while the opposite is taking on too much risk so that one loses substantial cash while learning.

As long as it's not twenty+ years of learning ... the speed of getting to the $1M gives far more leeway with little impact, IMO. 

(Or to put it another way, what's taking one year to get the basics of investing learned as well as one's investing personality when one that much ahead, in the grand scheme of things?)


Cheers


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## tojo (Apr 20, 2009)

Eclectic12 said:


> ^^^^
> 
> One risk is being too conservative while the opposite is taking on too much risk so that one loses substantial cash while learning.
> 
> ...


Absolutely no intent to put a timeframe on the learning aspect of this...take as much time as necessary and decide on what is comfortable given the objectives. Only commenting on the fact that $1M is achieved and if set up properly, the money will go to work and provide incredible returns.


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## james4beach (Nov 15, 2012)

I still think a significant danger here is losing some of the money due to the learning curve. It would be extremely rare to go from being completely unfamiliar with any of this, right into a perfect couch potato. I think it normally takes people many years to go through that education process.

It's also very difficult to implement the couch potato portfolio because people want to trade. It's exciting. Just leaving a bunch of ETFs in an account feels extremely boring. It will take a while for the OP to adjust to this mentality.

Even though I'm extremely conservative, when I first got my hands on some money I made some typical mistakes. Bought a few crappy stocks, over-traded, bought some options. Wasted a horrendous amount in fees, saw my crappy stocks plummet, and options expire worthless. I lost about 5% of my capital in this "education" process.

It might be a sensible thing for the OP to immediately take 500K - 800K and lock it away in some CDIC-insured 5 year GICs. The logic behind this is that we're just delaying access to the money, while he gains experience. If there turn out to be some horrible growing pains or big mistakes made during that education process, this will save the day. Locking it away will also free him somewhat from going nuts about what to do with the money.

If you disagree with the GIC idea, then a variant would be: lock away a good chunk of this money in TD Monthly Income, and forget about it for a while.

*I don't think opportunity cost is the biggest concern here.*

Others here may be too embarrassed to admit the mistakes they made in their early days. I'll be very open with it: I kept trading in and out of ETFs because I thought I could time the market and profit (obviously, just a waste). I bought BBD.B and BLD, which were both my first stocks and my biggest losses. Some people around here love picking stocks... well if I had bought & held my first stocks, I would have been destroyed -- they never recovered. I also kept buying call options on various things, and nearly all expired worthless. This is how I lost many thousands of dollars.

I've heard very similar stories from others, which makes me think this is a natural process whenever someone enters the investing world. Discount brokerages can be quite dangerous because you really can buy anything. And there's a _lot_ of really crappy stocks out there. Whenever I talk to a novice, I strongly discourage them from ANY kind of individual stock investments.


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## tojo (Apr 20, 2009)

I agree that the OP is challenged in that the first million was made without any experience in the market. If that's the case, then go to a fee-based advisor and set up a portfolio appropriate to one's goals, objectives, and realistic future returns. Unfortunately, even with the best advisor, one will experience episodes of large paper losses - it is part of the investment process. The benefit of experience is not so much what to put your money into, but how you deal with the emotional aspect of such losses and continue with your plan and not to be detered to stay the course.


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## dumbfoundead6666 (Jun 9, 2016)

lonewolf said:


> Hold the major currency of each continent little gold, silver a little bit coin


bitcoin you say... Hmmmmmmm.
I'm not familiar enough with bitcoin. What does everyone else think? Does anyone else on this thread hold any?


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## dumbfoundead6666 (Jun 9, 2016)

tojo said:


> I'm sure by now you've realized just how fortunate you are. You've received an extraordinary gift. For the most savvy, high income investor, 1 million dollars in investable assets takes years and most will never achieve it. You have skipped that hurdle entirely and can set up an investment compounding machine that will make you a multi-multi millionaire by the time you decide to retire (for what's likely a very early retirement). I'm assuming you have a > 20 year time horizon. I would caution you not to be too cautious with your approach, otherwise you risk not achieving your financial objectives. With a good asset mix with an appropriate amount of equities, you will find the second million will come very fast. Once compounding takes over, you will be astounded with the kind of wealth you will achieve.





Eclectic12 said:


> ^^^^
> 
> One risk is being too conservative while the opposite is taking on too much risk so that one loses substantial cash while learning.
> 
> ...



Yes, I need to find the right balance. I do still need to learn a LOT about investing but I am willing to let these funds sit in a HISA, and take a small hit from inflation, while I figure everything out. After reading all the great advice on this forum, I am really against going with a financial advisor but am still not entirely comfortable investing by myself. I will start with some small purchases soon and spread out my investing over the next couple years (as recommended by some of you).

I am also seriously considering going to a fee based financial planner before any of this.


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## dumbfoundead6666 (Jun 9, 2016)

james4beach said:


> I still think a significant danger here is losing some of the money due to the learning curve. It would be extremely rare to go from being completely unfamiliar with any of this, right into a perfect couch potato. I think it normally takes people many years to go through that education process.
> 
> It's also very difficult to implement the couch potato portfolio because people want to trade. It's exciting. Just leaving a bunch of ETFs in an account feels extremely boring. It will take a while for the OP to adjust to this mentality.


I don't think this will be much of a problem for me because 1) I truly am a couch potato- like literally. I'm too lazy to invest in individual equities! haha, 2) I will be very busy with other aspects of my life (mainly, going to school for a STEM degree). This is essentially why I want as much of a 'hands off' portfolio as possible. Buy some ETFs, some fixed income securities, rebalance portfolio once a year, that's it!



james4beach said:


> Even though I'm extremely conservative, when I first got my hands on some money I made some typical mistakes. Bought a few crappy stocks, over-traded, bought some options. Wasted a horrendous amount in fees, saw my crappy stocks plummet, and options expire worthless. I lost about 5% of my capital in this "education" process.


Again, I don't plan on investing in any individual equities... Save for maybe some blue chip canadian/american stocks.



james4beach said:


> It might be a sensible thing for the OP to immediately take 500K - 800K and lock it away in some CDIC-insured 5 year GICs. The logic behind this is that we're just delaying access to the money, while he gains experience. If there turn out to be some horrible growing pains or big mistakes made during that education process, this will save the day. Locking it away will also free him somewhat from going nuts about what to do with the money.
> 
> If you disagree with the GIC idea, then a variant would be: lock away a good chunk of this money in TD Monthly Income, and forget about it for a while.


I do disagree with GICs. I don't think it would take that long for me to get a grasp on things and hone my investor personality. 
The TD Monthly Income does sound good however. How much does this pay out/month?



james4beach said:


> Others here may be too embarrassed to admit the mistakes they made in their early days. I'll be very open with it: I kept trading in and out of ETFs because I thought I could time the market and profit (obviously, just a waste).


Well thank you for shedding light on your mistakes. It definitely helps me learn what to avoid. I won't be trading in and out of ETFs, trying to time the market, but I am thinking of timing the next recession before I invest too much of my assets.



james4beach said:


> I've heard very similar stories from others, which makes me think this is a natural process whenever someone enters the investing world. Discount brokerages can be quite dangerous *because you really can buy anything*. And there's a _lot_ of really crappy stocks out there. Whenever I talk to a novice, I strongly discourage them from ANY kind of individual stock investments.


Thank you, again. I will avoid individual stock investments and thanks to your advice and others on this forum, I am considering going with one of the big five, not a discount brokerage.


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## dumbfoundead6666 (Jun 9, 2016)

tojo said:


> I agree that the OP is challenged in that the first million was made without any experience in the market. If that's the case, then go to a fee-based advisor and set up a portfolio appropriate to one's goals, objectives, and realistic future returns. Unfortunately, even with the best advisor, one will experience episodes of large paper losses - it is part of the investment process. The benefit of experience is not so much what to put your money into, but how you deal with the emotional aspect of such losses and continue with your plan and not to be detered to stay the course.


Here's the deal: I'm pretty sure I will be comfortable if I saw my portfolio shed 30% in a year. However, I question, is it *almost* always advisable to stick with your plan and not make any changes? Like suppose I had some very liquid, diversified, index tracking ETFs in portfolio during the 2008-09 recession. I'm guessing it would have made sense to hold my positions and not panic... So am I to understand that it is almost never a good idea to change course when you are holding very diversified ETFs and have a few decades long time horizon?


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## OnlyMyOpinion (Sep 1, 2013)

dumbfoundead6666 said:


> ...The TD Monthly Income does sound good however. How much does this pay out/month?...


In January a holding of TDB622 with a market value of $350k paid $561/mo. If proceeds go into a DRIP, the monthly payout increases about $1/mo. So by May the payout was $565/mo, and MV had increased to $375k (but remember this will fluctuate +/- daily). Also, the MER is 1.47% or $429/mo on $350k (that is 'gone' and you don't see).


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## GreatLaker (Mar 23, 2014)

dumbfoundead6666 said:


> However, I question, is it *almost* always advisable to stick with your plan and not make any changes? Like suppose I had some very liquid, diversified, index tracking ETFs in portfolio during the 2008-09 recession. I'm guessing it would have made sense to hold my positions and not panic... So am I to understand that it is almost never a good idea to change course when you are holding very diversified ETFs and have a few decades long time horizon?


Pick an asset allocation based on your investing timeline and risk tolerance, and stick to it. It is OK to change your asset allocation because of changes to your investing timeline, age, risk tolerance etc. Some people gradually increase their fixed income allocation as they age, to lessen portfolio volatility in retirement. Avoid changing asset allocation because of changes in the market.

So in your example, in a market crash like 08/09 you would actually sell bonds to buy equities to maintain your target asset allocation. That takes guts, so a lot of people don't do it.

http://www.finiki.org/wiki/Rebalancing
http://www.finiki.org/wiki/Risk_and_return


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## tojo (Apr 20, 2009)

GreatLaker said:


> Pick an asset allocation based on your investing timeline and risk tolerance, and stick to it. It is OK to change your asset allocation because of changes to your investing timeline, age, risk tolerance etc. Some people gradually increase their fixed income allocation as they age, to lessen portfolio volatility in retirement. Avoid changing asset allocation because of changes in the market.
> 
> So in your example, in a market crash like 08/09 you would actually sell bonds to buy equities to maintain your target asset allocation. That takes guts, so a lot of people don't do it.
> 
> ...


Exactly. 

It does take a lot of guts to buy when the market is down. I don't mean down like the last few days but gut-wrenching market drops like 2009. That said, 2009 was an opportunity of a lifetime. I picked up so many cheap stocks at valuations that I will never see again. Similarly, rebalancing to maintain asset allocation when times are bad allows the investor to pick up equities when they are cheap.


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## tojo (Apr 20, 2009)

Here is a good read explaining the power of rebalancing and having a long time horizon: http://awealthofcommonsense.com/2015/04/a-historical-look-at-a-5050-portfolio/


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## Just a Guy (Mar 27, 2012)

I think you're already starting to over analyze your situation. You say you want to be a couch potato, but then look at ways of "tweaking" that based on other people's advice. Youre wondering about when to change strategies, about different options such as gold.

You're already being tempted by the flashing lights and excitement and you haven't even invested a dime.

What happened to I want to focus on my education...it's now I also want to learn about investing...

This casino called investing is very tempting and has many ways to slowly suck you in...it seems harmless at first, just a little tweak...but soon it'll suck you in, probably leaving you worse off before you know it.

Such is the temptation I warned you about earlier.

If you like the couch potato, and it appeals to you, then pick the couch potato and ignore it for 365 days as you're suppose to. Quit trying to second guess it or play around with different options. Focus on your education like you're supposed to.

There will be plenty of time to learn investing later when it's not a distraction, and it will become a distraction (it already has, you just haven't admitted it yet). 

As for a fee only advisor, be careful, they all have their biases. You don't need one to tell you to use the couch potato, it's all spelled out already on how to do it, plus most won't recommend it anyways as it's not exciting, nor does it usually post results high enough to keep a fee based advisor in business. They'll try to recommend something that will have greater returns, and probably higher risks...and have all sorts of charts of backward looking information to prove their worth. All these people have their areas of "expertise", which may or may not actually work.

The couch potato has a long history, it's been pretty well documented to work fairly well...if you like it, then follow it, but you have to also remember the part about ignore it for 365 days...most people can't do that part, and so far your looking like one of those right now.

Time to show you can be a real investor by actually not being an investor for the next few years until you've got your degree.

Btw, I don't mean to imply that any of the portfolios outlined wouldn't be better...that's not the point. You need to discover your investing personality, which you say you already know...from the sounds of it, you don't really know it because you're being tempted away from it. Not knowing your personality can be very costly.


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## james4beach (Nov 15, 2012)

dumbfoundead6666 said:


> The TD Monthly Income does sound good however. How much does this pay out/month?


Not a very high pay out. I think it's paying out a little more than 2% in a year, which is 2%/12 per month. Investments these days really don't pay out too much; that's just a consequence of low interest rates.

Going for higher yields is fraught with danger because "yield chasing" is how you end up in bad investments, where your judgement was clouded by high pay-outs. One thing you should never do is go after investments purely because they have high yields. And yet I'm about to try doing that for you...

Some investments have higher than average yields but are still quite safe. Choosing these is an art. In my opinion the following can be categorized as standard/safe investments that also have above average yields.

ZCN - TSX Composite Index ETF, yields 3.2%
ZDB - BMO's tax efficient bond ETF, yields 1.9%
XSH - a short term bond fund, yields 3.1%
CDZ - good quality Canadian stocks, yields 4.0%

That would probably be a pretty good portfolio overall. There are bond ETFs that have higher yields than ZDB, but I'm including this one because ZDB's after tax returns are clearly the best as described in this article.

Taxes will be a tricky factor to consider in all of this. The average yield of the above portfolio is around 3%. On a 1M portfolio, that's still only 30K a year (pre-tax) of distributions, so you can see how distributions alone can't be the answer.

If you have a GIC component, then you can also draw cash out of the GIC allocation. The real answer, however, is to simply sell off shares in your holdings over time, to generate whatever level of income you want. It's a bit of work, and there's record-keeping hassle, but it's the right way to accomplish your goal.


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## dumbfoundead6666 (Jun 9, 2016)

GreatLaker said:


> So in your example, in a market crash like 08/09 you would actually sell bonds to buy equities to maintain your target asset allocation. That takes guts, so a lot of people don't do it.


Why not? Wouldn't equities be selling at a bargain at that time, making them a no-brainer buy? Or is it that people will be so panicky and worried about whether or not those equities will ever rise again?
As did tojo:



tojo said:


> Exactly.
> 
> It does take a lot of guts to buy when the market is down. I don't mean down like the last few days but gut-wrenching market drops like 2009. That said, 2009 was an opportunity of a lifetime. I picked up so many cheap stocks at valuations that I will never see again. Similarly, rebalancing to maintain asset allocation when times are bad allows the investor to pick up equities when they are cheap.


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## dumbfoundead6666 (Jun 9, 2016)

Just a Guy said:


> I think you're already starting to over analyze your situation. You say you want to be a couch potato, but then look at ways of "tweaking" that based on other people's advice. Youre wondering about when to change strategies, about different options such as gold.
> 
> You're already being tempted by the flashing lights and excitement and you haven't even invested a dime.
> 
> What happened to I want to focus on my education...it's now I also want to learn about investing...


I am not "tweaking" my strategy because I don't have a concrete, set in stone, strategy made yet! I am inquiring about all the different possibilities, opportunities, styles of investing, etc. I am still at the initial stage where I am trying to soak up as much information as possible before I choose 'my plan'- my investment strategy.



Just a Guy said:


> This casino called investing is very tempting and has many ways to slowly suck you in...it seems harmless at first, just a little tweak...but soon it'll suck you in, probably leaving you worse off before you know it.
> 
> Such is the temptation I warned you about earlier.
> 
> ...


I appreciate your concern and honestly thank you. I am a novice at this and absolutely appreciate your advice. However, you are misunderstanding me. Investing is not and has not become a distraction for me. Investing is my only priority right now. I will not be starting school till 2017 May or 2017 September. Till then, this is my daily grind. You are absolutely correct about choosing plan, sticking with it, and forgetting about it. However, you are misunderstanding me, in that, I have not chosen a plan yet. I am _leaning_ towards a couch potato style portfolio, and even then, I am not yet sure of exactly what ETFs to invest in.



Just a Guy said:


> As for a fee only advisor, be careful, they all have their biases. You don't need one to tell you to use the couch potato, it's all spelled out already on how to do it, plus most won't recommend it anyways as it's not exciting, nor does it usually post results high enough to keep a fee based advisor in business. They'll try to recommend something that will have greater returns, and probably higher risks...and have all sorts of charts of backward looking information to prove their worth. All these people have their areas of "expertise", which may or may not actually work.


Well said. Do fee based planners generally just recommend funds sold by their own company (I'm assuming most of these planners work for the big 5)?



Just a Guy said:


> The couch potato has a long history, it's been pretty well documented to work fairly well...if you like it, then follow it, but you have to also remember the part about ignore it for 365 days...most people can't do that part, and so far your looking like one of those right now.
> Time to show you can be a real investor by actually not being an investor for the next few years until you've got your degree.


Understood. Once I finally invest my funds and create my portfolio, I will switch gears and mainly focus on acquiring my degree. At that point I will be comfortable forgetting about my portfolio.


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## dumbfoundead6666 (Jun 9, 2016)

james4beach said:


> Not a very high pay out. I think it's paying out a little more than 2% in a year, which is 2%/12 per month. Investments these days really don't pay out too much; that's just a consequence of low interest rates.
> 
> Going for higher yields is fraught with danger because "yield chasing" is how you end up in bad investments, where your judgement was clouded by high pay-outs. One thing you should never do is go after investments purely because they have high yields. And yet I'm about to try doing that for you...
> 
> ...


hmmmmmmm I hate to admit it but you're right, I am yield chasing. I should really tone down my expectations. I was hoping for 4% income from a $1mm portfolio. Now days I'm starting to think this might be too high of an expectation to walk in with...




james4beach said:


> Taxes will be a tricky factor to consider in all of this. The average yield of the above portfolio is around 3%. On a 1M portfolio, that's still only 30K a year (pre-tax) of distributions, so you can see how distributions alone can't be the answer.


Well I am currently in the lowest tax bracket ($0/year income haha) and if a good portion of my income comes from eligible dividends, then I should be ok even after taxes.



james4beach said:


> If you have a GIC component, then you can also draw cash out of the GIC allocation.


Why is everyone here so pro-GIC? <2% rates + locking it for several years does not sound like such a great idea to me...



james4beach said:


> The real answer, however, is to simply sell off shares in your holdings over time, to generate whatever level of income you want. It's a bit of work, and there's record-keeping hassle, but it's the right way to accomplish your goal.


Yes, you are probably right about this... I will probably need to sell a few shares every year to try maintain a $35-40k/year income... I'm comfortable with doing this, as long as my original capital is being preserved and I am selling shares that appreciated enough o offset my expenses.


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## james4beach (Nov 15, 2012)

The problem is that those market crashes will shake out some investments that are intrinsically flawed.

Not all investments are created the same. Some have systematic problems that don't become apparent until "the tide goes out" as Buffett likes to say. One example are certain high yield fixed income ETFs which crashed in 2008... *and never recovered*. Another example are a variety of ETFs called ETNs. Lehman Brothers had some ETNs that crashed and never recovered -- *they died.*

Therefore during a serious market crash, one finds oneself asking a legitimate question -- hey am I about to lose everything? Should I get out now? Things don't always recover. The stock index does, yes, but

(1) individual stocks don't always recover
(2) vehicles with internal problems don't always recover

So buying more bravely doesn't always make sense, nor is it always the right thing to do. If you are absolutely confident in your investment vehicles... which is why I strongly endorse tried & true things like XIU and XIC ... then absolutely, buy more.

Always buy the highest quality assets. Certain things will never go to zero: a pure stock index fund (like XIU and SPY) and physical gold for example. Other things are less certain, and the more exotic you get, the less certain you can be it is guaranteed to recover.

Which is why I always say, stick to the basics and the "plan vanilla" ETFs


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## TomB19 (Sep 24, 2015)

dumbfoundead6666 said:


> Why is everyone here so pro-GIC? <2% rates + locking it for several years does not sound like such a great idea to me...


I don't know about everyone but, in my case, it is because it seems likely that you will be relieved of significant quantities of your new found wealth. Locking your money into a GIC for a while seems like a pretty good idea, as it would for anyone in your situation.


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## My Own Advisor (Sep 24, 2012)

"So buying more bravely doesn't always make sense, nor is it always the right thing to do. If you are absolutely confident in your investment vehicles... which is why I strongly endorse tried & true things like XIU and XIC ... then absolutely, buy more."

I would agree that XIU, VCN, XIC, are some great Canadian plain-vanilla ETFs to own.

You are welcome to dabble elsewhere but buyer beware.


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## dumbfoundead6666 (Jun 9, 2016)

james4beach said:


> The problem is that those market crashes will shake out some investments that are intrinsically flawed.
> 
> Not all investments are created the same. Some have systematic problems that don't become apparent until "the tide goes out" as Buffett likes to say. One example are certain high yield fixed income ETFs which crashed in 2008... *and never recovered*. Another example are a variety of ETFs called ETNs. Lehman Brothers had some ETNs that crashed and never recovered -- *they died.*
> 
> ...





My Own Advisor said:


> "So buying more bravely doesn't always make sense, nor is it always the right thing to do. If you are absolutely confident in your investment vehicles... which is why I strongly endorse tried & true things like XIU and XIC ... then absolutely, buy more."
> 
> I would agree that XIU, VCN, XIC, are some great Canadian plain-vanilla ETFs to own.
> 
> You are welcome to dabble elsewhere but buyer beware.



You guys are right. I will invest in plain vanilla ETFs and lower my distribution expectations. Does this sound realistic: 2-3% distributions + 3-4% capital gains?


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## Spudd (Oct 11, 2011)

dumbfoundead6666 said:


> You guys are right. I will invest in plain vanilla ETFs and lower my distribution expectations. Does this sound realistic: 2-3% distributions + 3-4% capital gains?


Yes, that sounds realistic. Choose a portfolio from the Canadian Couch Potato website or else the one I suggested earlier in the thread.


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## james4beach (Nov 15, 2012)

dumbfoundead6666 said:


> I will invest in plain vanilla ETFs and lower my distribution expectations. Does this sound realistic: 2-3% distributions + 3-4% capital gains?


That sounds realistic to me. You're catching on to all of this awfully fast... awesome!


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## dumbfoundead6666 (Jun 9, 2016)

Spudd said:


> Yes, that sounds realistic. Choose a portfolio from the Canadian Couch Potato website or else the one I suggested earlier in the thread.





james4beach said:


> That sounds realistic to me. You're catching on to all of this awfully fast... awesome!



Great!  

Thank you all so much!

Now I will take some time to carefully research some ETFs (and maybe some mutual funds such as the TD Monthly Income fund) in-depth and build a portfolio. I will basically just copy a Canadian Couch Potato portfolio and maybe make some changes/additions.
Then I shall post up my investment plan, in this forum, in a new thread, for peer review; a crowd-sourced, million dollar portfolio, if you will!


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## dumbfoundead6666 (Jun 9, 2016)

Spudd said:


> Yes, that sounds realistic. Choose a portfolio from the Canadian Couch Potato website or else the one I suggested earlier in the thread.





james4beach said:


> That sounds realistic to me. You're catching on to all of this awfully fast... awesome!




Wait one second....

You guys are scaring me.. This seems too easy to be true... I just pick some safe, vanilla ETFs, similar to or exactly the same as the Canadian Couch Potato portfolios?
And my money will grow at ~6% year? And I will have major down swings during recession times but the will recover as long as I have a long time horizon? And over the course of 20-30 years, I will probably post an average of 6%/year? 

So why do so many people screw this up?
Is it due to greed, as in chasing high yields or investing in moonshot individual stocks?
Is it due to weak psychology, as in panicking and selling when a recession hits?
Is it due to ego/cockiness, as in selling ETFs when they're up and buying into high risk individual stocks?

Basically, if I understand all of this correctly, Investing properly with the right asset allocations is easy, it's just staying course and sticking with the plan that people fail with?
Basically meaning, a commission charging advisor is practically an overpaid babysitter who will watch over my money and try counsel me when I am panicking during recessionary periods?


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## mrPPincer (Nov 21, 2011)

> an overpaid babysitter who will watch over my money and try counsel me when I am panicking during recessionary periods?


I wouldn't go that far, anybody in Canada can put out a shingle and call themselves an advisor.

eg. back when I was still naive enough to be chasing mutual fund superstars with my investment dollars, (not a long time period thankfully) I got a phone call from one of these so-called advisors who actually suggested that it was ok to go overweight in a favorite stock such as Nortel.

This was at a point when nortel already was a ridiculously large portion of the TSX, one third of the total capitalization if you can believe it.



> At its height, Nortel accounted for more than a third of the total valuation of all the companies listed on the Toronto Stock Exchange (TSX), employing 94,500 worldwide, with 25,900 in Canada alone.


https://en.wikipedia.org/wiki/Nortel#Optical_boom_and_the_Right_Angle_Turn

We all know how that turned out.

(I was already at that point moving towards index funds & I did recognize the pitch for what it was btw).

So no, long story short, imho, that is not the job of commission-based 'advisors', their job is to make money, whether you do or not.

If you are lucky enough to find a good one that's maybe a different story, but I suspect there's few of them out there.


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## james4beach (Nov 15, 2012)

dumbfoundead6666 said:


> You guys are scaring me.. This seems too easy to be true... I just pick some safe, vanilla ETFs, similar to or exactly the same as the Canadian Couch Potato portfolios?
> And my money will grow at ~6% year? And I will have major down swings during recession times but the will recover as long as I have a long time horizon? And over the course of 20-30 years, I will probably post an average of 6%/year?


I doubt that 6% will be the average going forward. Others will disagree with me, but in a balanced portfolio I think you can expect more like 4%-5% annualized growth over a stretch of say 30 years.

And that's never a guarantee. You might first hit a 10 year period where it's -2% annualized for example (nobody knows, but that's the danger). That period would be upsetting. You'd say to yourself, man I wish I held that money in cash instead.


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## james4beach (Nov 15, 2012)

But yes hold the plain old indices for 30 years, and you will _very likely_ get good returns. In particular with the global couch potato style, where you don't concentrate exposure to any one country. The 30 year returns will likely be very, very good. Historically they have been.

Good question though. WHY don't people actually achieve this?

1) usually by the time they figure out the couch potato/index investing, they're already age 50-60, and don't have a long enough time horizon left until retirement

2) it's hard for people to just sit and watch a passive portfolio. People want to do more, they want to trade stocks like they see on TV and in pop culture. People also over-estimate their investment skills, like stock picking skills, and everyone thinks they will figure out something that others haven't

3) *many people can't leave the money alone despite their best intentions*. This is a big one, and you're in danger of this too. "Things" in life happen, that suddenly require that you draw money out of investments. Examples would be education, buying a home, serious illness, family emergency/illness, prolonged unemployment (could result from economy or health problems), legal problems such as a divorce and crazy ex wife, legal problems resulting from business operations, other calamities

In my view, (3) is the biggest danger. These index ETF investments only work if you can leave them alone for a very long time.

This is the big reason that I am always pounding the table on keeping a large cash/GIC/bond exposure. Yes, true, it will drag down your returns. But look on the flip side; it gives you liquidity when, eventually, you have surprise expenses. Which means you can leave your stock investments alone and achieve the best returns.

A heavy bond & GIC exposure is what allows you to have a passive index ETF portfolio that you can leave alone for 30 years.


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## Just a Guy (Mar 27, 2012)

Why don't people do this?

First off, most don't start with one million dollars. It takes a long time at 6% and monthly contributions to make one million dollars. 

Next, when you actually get into investing, you realize that single digit returns aren't going to cut it, especially when taxes and inflation (the real inflation, not the posted one) is going to eat up single digit returns pretty quick. You need bigger returns. To get these however, isn't easy and isn't consistent for most people. This is where you become a real investor,mad opposed to getting your 4-6%. Not knocking people who do this, but as you've seen its not really that hard. 

When you've got more time, you can do more complex things like I do in real estate, where I buy properties for less than I mortgage them for plus get a monthly rent. Basically infinite return on investment as I put in zero dollars of my own. 

Other scenarios are buying during a crisis, where a stock is temporarily beat up (like 2007) but quickly recover...but a) it's not easy to do since there is panic in the market and b) it doesn't happen every year. 

I know very successful day traders, option traders, or any other investment strategy that is out there. 

There are also invesments in a business, running your own company, which can make very nice returns...

Of course, none of these are conservative investments, nor are they fit for everyone as it won't fit with their personality. Of course, to people who do this stuff on a daily basis, it also probably looks fairly simple and they wonder why others don't do it.


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## dumbfoundead6666 (Jun 9, 2016)

mrPPincer said:


> So no, long story short, imho, that is not the job of commission-based 'advisors', *their job is to make money, whether you do or not.*
> 
> If you are lucky enough to find a good one that's maybe a different story, but I suspect there's few of them out there.


hmmmmmmm. Well said.


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## dumbfoundead6666 (Jun 9, 2016)

james4beach said:


> I doubt that 6% will be the average going forward. Others will disagree with me, but in a balanced portfolio I think you can expect more like 4%-5% annualized growth over a stretch of say 30 years.
> 
> And that's never a guarantee. You might first hit a 10 year period where it's -2% annualized for example (nobody knows, but that's the danger). That period would be upsetting. You'd say to yourself, man I wish I held that money in cash instead.


Why do you say that? Is it because we are at practically 0% interest rates across the entire world and, after the past few decades of massive bull runs, we are due for some very slow growth?


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## dumbfoundead6666 (Jun 9, 2016)

james4beach said:


> But yes hold the plain old indices for 30 years, and you will _very likely_ get good returns. In particular with the global couch potato style, where you don't concentrate exposure to any one country. The 30 year returns will likely be very, very good. Historically they have been.
> 
> Good question though. WHY don't people actually achieve this?
> 
> ...


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## james4beach (Nov 15, 2012)

dumbfoundead6666 said:


> Why do you say that? Is it because we are at practically 0% interest rates across the entire world and, after the past few decades of massive bull runs, we are due for some very slow growth?


Many experts including Buffett think there are lower returns ahead. It has to do with structural changes to western economies, the fact we're no longer going through a boom period (like the US during its major economic expansion), and yes these persistent zero interest rates. And higher debt levels everywhere.

However, a global couch potato strategy, held for 30 years, is still probably the best investment you can make


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## dumbfoundead6666 (Jun 9, 2016)

Just a Guy said:


> Why don't people do this?
> 
> First off, most don't start with one million dollars. It takes a long time at 6% and monthly contributions to make one million dollars.


Fair enough. I don't mean to come off as arrogant (in case I did).



Just a Guy said:


> Next, when you actually get into investing, you realize that single digit returns aren't going to cut it, especially when taxes and inflation (the real inflation, not the posted one) is going to eat up single digit returns pretty quick. You need bigger returns. To get these however, isn't easy and isn't consistent for most people. This is where you become a real investor,mad opposed to getting your 4-6%. Not knocking people who do this, but as you've seen its not really that hard. ç
> hmmmm. Taxes aren't that great of a concern for me as I am in the lowest bracket. What do you mean by 'real' inflation?
> 
> 
> ...


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## dumbfoundead6666 (Jun 9, 2016)

james4beach said:


> Many experts including Buffett think there are lower returns ahead. It has to do with structural changes to western economies, the fact we're no longer going through a boom period (like the US during its major economic expansion), and yes these persistent zero interest rates. And higher debt levels everywhere.
> 
> However, a global couch potato strategy, held for 30 years, is still probably the best investment you can make


In that case, I'm guessing there's still much to be made in developing markets?


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## Just a Guy (Mar 27, 2012)

*Flatiron was really 2%/year*

Real inflation is the actual costs to you the consumer. The government has its way of doing the calculation, but they "tweak" it every once in a while. They say this is to keep it up to date (for example there were no personal computers in the 60's and they are prevalent today), but there is some, like me, who notice that they tend to drop certain items which seem to have increased a lot.

Since I do a lot of shopping, I notice that my food bill has gone up a lot more than 2%/year. My property taxes have increased more than 2%/year, heck most of my expenses have increased more than 2%/year...of course, some of this has the exchange rate affecting it, but I find my expenses have increased more than 2%/year that the government claims is all that is happening. If inflation was really 2%/year then if my spending habits didn't change, my costs should only go up by that amount...they haven't. 

As for advanced techniques, stay away from them for now, don't get distracted. There are very few people who do what I do, even those experienced in real estate. It takes a lot of work and knowledge. Then you have to be able to deal with the issues of being a landlord, which also isn't an easy job. If you really want to see what I do in real estate, go back over some of my old postings...I think the last time I wrote up the technique, I've done it more than once, was in the is there a housing bubble thread to of page 4. 

As many have pointed out, you are actually cursed by starting off with such a nest egg. You can afford to jump into things you aren't qualified to do. This will probably wind up costing you your nest egg.

People like me built up our holdings from scratch. Making mistakes along the way, inspired by the fact that we couldn't afford to lose very often. That kind of motivation is a good driving force that you'll lack.

People who buy a franchise, never having owned one, or worked in one, usually don't do well. I've got a buddy who's big into franchises...his specialty is actually getting control of failing ones (owned by inexperienced owners, since the franchise will sell to anyone with the money and take it away when it fails) and then turning them around and reselling them to new owners...it's almost all he does now, has a whole team he just moves in and out of places. If they fail again after he leaves, he just repeats it...

Sorry to say, you'll need to earn your stripes most likely. If you try for the short cuts, you'll make mistakes. And people like me (I buy a lot of rentals from other failed "investors"), or my buddy in franchises will profit from you. We can't even really teach you how to do what we do, because many little things are automatic, like breathing, and we don't even think about them anymore but they are things which really make the difference in being successful or not.


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## dumbfoundead6666 (Jun 9, 2016)

Just a Guy said:


> Sorry to say, you'll need to earn your stripes most likely. If you try for the short cuts, you'll make mistakes. And people like me (I buy a lot of rentals from other failed "investors"), or my buddy in franchises. *We can't even really teach you how to do what we do, because many little things are automatic*, like breathing, and we don't even think about them anymore but they are things which really make the difference in being successful or not.


Well said. I entirely agree with everything you have said here. You are right that there are MANY things you could never teach me/there are many things that I could never learn from merely reading a book. A lot of it comes from first-hand experience, which i obviously don't have.

I've actually had my fair share of failed ventures from which I've almost entirely learnt the lesson you are preaching. I guess I am just having some wishful thinking by believing that starting a business, at this point in my life, is a good and profitable idea.

In all seriousness, I think investing in well diversified ETFs is probably my best bet. At the same time, I will go to school and get my degree and during my entire time in school, I will be looking for business ideas that I can work on/start, without using my own money.

Thank you for reminding me/giving me a good reality check.


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## GreatLaker (Mar 23, 2014)

dumbfoundead6666 said:


> In that case, I'm guessing there's still much to be made in developing markets?


With all you have learned here is "guessing" a good way to choose your investments?

Look at this table and you will see that in the last 11 years, emerging markets have given the best return of all asset classes 5 times, the worst performance 2 times and in the bottom half 4 times. Can you take that level of volatility in your portfolio, even a small %?
http://www.ndir.com/cgi-bin/PeriodicTableofAnnualReturns.cgi

Some investors say that emerging markets have higher risk and volatility, so should have higher long-term return. Others say that risk has already been priced into the segment, so it should not outperform. 

This page has a lot of information that will leave you overwhelmed and confused:
https://blog.wealthfront.com/emerging-markets/

A true couch potato would hold a market-cap weighted allocation to emerging markets, as long as it stayed within their risk tolerance.



james4beach said:


> ... a global couch potato strategy, held for 30 years, is still probably the best investment you can make


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## james4beach (Nov 15, 2012)

I like what Just A Guy wrote... stick to the simple techniques for now. The only tough part might be deciding your asset allocations (% exposure to stocks, bonds, GICs, gold, etc). Those are big decisions to make. That's a personal thing, depending on your plans for the money and your risk tolerance.

Myself, in my early years of investing, I was not comfortable seeing big volatility in my accounts. It was just too painful to see all those hard earned dollars disappear, so I decided to have a high fixed income allocation. Into my 30s now, I'm more comfortable with volatility and so my allocation to stocks has been creeping upward. These are personal comfort things. My advice, don't jump into more risk than you're comfortable with, just because the professionals advise a certain % stock exposure.

The stock indices could easily fall 50% -- it's already happened twice in 16 years. Whatever your allocation, be prepared for that possibility. If you take on full stock exposure, be prepared for the possibility your 1000K may become 500K. If you're at half stock exposure (balanced fund), 1000K may become 750K. And it could take years to cover.

It's one thing to look at that as a hypothetical, and it's a very different thing to experience it in reality. So, think about how much stock exposure you're really comfortable with.


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## james4beach (Nov 15, 2012)

dumbfoundead6666 said:


> *You guys are scaring me.. This seems too easy to be true*... I just pick some safe, vanilla ETFs, similar to or exactly the same as the Canadian Couch Potato portfolios?
> And my money will grow at ~6% year? And I will have major down swings during recession times but the will recover as long as I have a long time horizon? And over the course of 20-30 years, I will probably post an average of 6%/year?


It's fun to look back at some of these old discussions. This was from June 2016. The suggestion was to use a standard Couch Potato portfolio. That might be a 60/40 allocation like 15% XIC, 45% XAW, 40% XBB

Thought I'd check up on this. Result: performance was 7.5% annualized over the 4.5 years!! Obviously not a very long time, but a very impressive performance. "This seems too easy to be true"

7.5% CAGR! Can you believe that? The $1,000,000 blessing would have gained roughly $370,000



dumbfoundead6666 said:


> So why do so many people screw this up?
> . . .
> Is it due to weak psychology, as in panicking and selling when a recession hits?


Yes. The panic, fear, and doubt. It's actually very hard to stay committed to a portfolio over the long term.

I remember very clearly when Trump was elected in 2016, people were certain markets were going to fall. Several friends of mine sold their stocks in anticipation. Well, the market soared over the following years. It kept going higher and higher. _Most of my coworkers_ stubbornly avoided stocks, trying to "time the market" and certain that stocks would do badly.

Then when COVID-19 first hit, markets fell extremely sharply... a true market crash. You only get one of these wild rides every decade or so, but ooh boy, when it happens it sure is memorable.

There were single days where the stock index fell 11%. That's an eleven percent drop in ONE day! Total, absolute panic. At least two close friends of mine sold off all their stocks in the early stages of the COVID crash, certain the markets were going to fall much, much more.

So yeah ... holding a passive ETF portfolio seems easy, but it's not.


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## james4beach (Nov 15, 2012)

dumbfoundead6666 said:


> *You guys are scaring me.. This seems too easy to be true*... I just pick some safe, vanilla ETFs, similar to or exactly the same as the Canadian Couch Potato portfolios?
> And my money will grow at ~6% year?


I feel like we should revisit this thread every year or two 

Since 2016, the performance of a basic couch-potato 60/40 vanilla ETF combination was 8.2% annualized, as shown on this Portfolio Visualizer page.

At this point, this trailing performance is looking much higher than expected, so it will probably come down at some point.


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