There are super-simple ways to supercharge your savings for retirement without giving up too much in fees.  Online Discount Brokerages, combined with ETF’s and properly balanced All Weather Portfolios are just a few clicks away.  Once setup, you low cost investment strategy will pay for you in the long run, bringing you to retirement richer and/or earlier.

We all give so much of our life force to earn and save money.  It is exhausting.  So exhausting that when it comes time to invest, many of us do not put in the same amount of effort that it took to earn it.  The excuses are many.   “I don’t have time”.  “I don’t understand”.  “I’ll do it later”.  “The market is about to crash”.  “I don’t want to lose money”.  Blah Blah Blah.

The end result is that we make a choice that does not work in our favour.  We do nothing.  We take the money and go on vacation.  We walk into our bank and pay a professional 1% to 3% management fee, and they buy Mutual funds that also have 1% to 3% management fee.  We know that our returns compound dramatically to grow our money.  What not many people tell us is that fees compound negatively as well.  Bring inflation into the equation an a sub-par return, and our returns can be dismal.  Over 30 years, a huge percentage of your gains can disappear by a combination of high fees and sub-par performance.

This is not to rail against professional financial planners and money managers.  They have a very useful place in our society and can help plan your future very effectively.  Some of my best friends are money managers.  It is no secret that I have a problem with their compensation method.  I do not think that they should be taking a percentage/commission of my investment amount whether my investments go up or down.  It is in fact possible to find “fee-based advisors” who will work with you to plan you financial future, estate planning, and all other decisions.  I like to pay them by the hour.  Simple.  

This post is for people who want to invest their savings simply and cost effectively.  I meet millennials that know they should be doing things with their personal finances, but do not know what.  I meet people in their 30’s and 40’s that know they should be saving better, but do not know how.  I see older people with blind faith in the big banks who have been paying huge fees without knowing it for years for sub-market returns.  It breaks my heart.

The Premise

When I am dealing with investing, I have a few rules that I live by.  My beliefs have been debated and re-written and published and argued.  I am comfortable with these beliefs.

1. I cannot beat the stock market consistently.
2. I cannot find someone that can beat the stock market consistently.
3. Massive Gains come from the effect of compounding too profits.
4. Massive Losses come from the effect of compounding of high fees.
5. The stock market will grow over the long term.
6. When some parts of the stock market go up, other parts go down.

ETF’s, All Weather Portfolios, and Portfolio Rebalancing

My beliefs have brought me to believe in Exchange Traded Funds (ETFs), All Weather Portfolios (AWPs), and Portfolio Balancing.  Once you understand these concepts, you can find an online solution that will allow you to setup your very own AWP in a few minutes. 

ETFs are a basket of investments, including Stocks, Bonds, Commodities.  They trade like a stock, and the price fluctuates all day long.  For example, with an ETF, you can basically “own” the 500 best stocks in a certain market.  The best part about ETF’s is they come with a low management fee (much lower than Mutual Funds), and with a Discount Brokerage, and you can buy them yourself!

The All Weather Portfolio (AWP) is a cross-asset basket of investments that should perform reasonably well, regardless of the economy.  The opposite of a AWP would be a single investment; for example, if you invested only in gold; your returns over time would vary wildly with the cost of gold over the long run.  The concept of an AWP is that when one part of your portfolio drops, another part climbs.

Portfolio Rebalancing is the concept of keeping your AWP in the proper proportions.  For example, let’s say you have settled on an AWP that has 25% of ETF’s A, B, C, D.  The market changes and now you have A = 35%, B = 20%, C = 35%, D = 10%.  At this point, the portfolio needs to be rebalanced.

3 Steps to Taking Action

Step 1: Decide on your Balanced Portfolio of ETF’s

1. Simple: Invest on Autopilot. They will choose your ETF’s.  (I use WealthSimple.  If you want others, Here is a great Article on Canadian Robo Advisors.).
2. Advanced: Pick your own set of ETFs.  I have also worked with Ray Dalio’s All Weather Portfolio.  Google it.  Lots of love for it and some hate.

Skillstacking Deep Dive: If you want to geek out and backtest different portfolios, check out PortfolioVisualizer.com.  I just love it.  I even have backtested 3 different scenarios starting back in 2007; notice how Canadian All Weather Portfolio is nowhere near as good as US All Weather Portfolio, and how a simple 60/40 split of stocks versus bonds wins after 2008, but the drop is just huge during 2008.  To me, this demonstrates that an All Weather Portfolio was less volatile back in 2008.

Step 2: Decide on a Discount Broker

A Discount Broker is an institution that allows you to buy/sell positions in the market at a low price.

1. Simple: Invest on Autopilot. (I use WealthSimple Trade for my own mix of ETF’s.  If you want others, Here is a great Article on Canadian Robo Advisors.).
2. Advanced: Identify the Best Discount Broker if you want your own All Weather Portfolio.  Here is a list of Discount Brokers in Canada.  and a List of Discount Brokers in USA.  (I love “I Will Teach You to Be Rich” Book.  Recommended Reading!)

Step 3: Find a Strategy to Rebalance

The whole concept of an “All Weather Portfolio” means that your when your portfolio comes out of balance, it needs to be rebalanced by adjusting the positions of each item.  Here are the different ways, from easiest to hardest:

1. Simple: Invest on Autopilot.  (I use WealthSimple.  Here is a great Article on Canadian Robo Advisors.).
2. Advanced: Do it Yourself with Online Brokerage.  (I use Scotia Itrade for my accounts that WealthSimple cannot handle.)
3. Simple, costly:  Use your Financial Advisor/Broker.  Of course this is possible, but isn’t the 1% Commission the very thing we are trying to avoid?  At least you avoid the Mutual Fund Fees.

Lazy?  1 Step to Taking Action. (3 Steps is too much.)

Easy Step: Open an Account at WealthSimple (or pick one here),  transfer your high cost accounts there, and setup automatic deposits (15% of income).  Wait 30 years and enjoy.

Epilogue

1. Have more than $150,000? NestWealth charges a fixed amount regardless of total portfolio value.  (I will research more).
2. Young and Thrifty.  Great site for Canadians to really geek out.
3. Portfolio Visuallizer can help you back test your current investments versus an All Weather Portfolio.
4. I’ve loved Ramhit’s teachings.  Don’t be fooled by the cheesy title I Will Teach You to Be Rich.  Recommended Book.