Reader J is 26 years old, married, has two kids and dreams to be financially secure with a paid-off house and enough investment income to support his lifestyle in 10-15 years. It is an aggressive goal but he is off to a great start and has accumulated a tidy nest egg for someone his age. He has devised a detailed financial plan and wants feedback on his investment strategy. Part 1 is featured today and I’ll run the rest of his plan in the near future.

I’ve known of passive investing with index funds for several years, but I’ve never trusted my own intuition to do it. Even though my gut was telling me my “financial advisor” wasn’t adding value and wasn’t able to time the market, I never spent enough time to really research indexing enough to make my mind agree with my gut. I felt at the time it was better than nothing since I was preoccupied with work and family.

Starting in 2008 I made it my goal to begin to manage my own personal finances. I quickly found out it is actually a very interesting topic and a natural extension to my nature of being a “saver” and a nerd. So I’ve spent much of year reading books and blogs, taking my time to understand and not feel rushed into making any decisions. As Buffet says, it’s better to “move like a sloth”.

I’ve not invested anything extra with my advisor for probably 2 years, so at the beginning of the year one of my major concerns was “time risk” of investing a lump sum of cash. As we see now that risk was very significant, and just by pure dumb luck, I missed a lot of the pain. I feel like there needs to be more information on how to make this transition. I probably would have used dollar cost averaging or value averaging, but now that the market is already so much lower I think the risk is much tolerable and timing won’t make a significant impact on future returns.

Reason for Sharing

What I’d most like back from posting my plan is just feedback of any sort. Let me have it, the plan is personal but put yourself in my shoes and let me know why it doesn’t make sense or that you think it’s a good idea. I wish there was a place to post and compare investment plans and asset allocations, leave comments and track the performance over time.

Investment Goals

Before writing this plan down on paper I was talking about “the 10-year plan” that we would continue saving but also buy a house with a 10-year fixed-rate mortgage that we would aggressively pay down in those 10 years. The goal being we would have the safety and shelter of a paid for house plus by that time our investments and savings would have grown at an assumed 8% real return to provide enough income (assuming a continued 8% return) to “financially retire” with a modest life style living on $40,000 in today’s dollars.
But is that really retiring when most people only assume a 4% real return / withdrawal rate in retirement? Doesn’t that mean in years like we are currently in the retirement would fail and necessitate new income from “having” to work again? Is it possible to retire extremely early if you have to assume this rate of return, or should I be more realistic and say the goal is “early semi-retirement”? It’s a personal question, but I still wonder which is appropriate since I’m so far outside the normal realm of how average people save, invest and plan to retire.

Continued in Part 2…

This article has 47 comments

  1. Canadian Capitalist

    I think it is very important for every investor, whether DIY or working through an advisor, to have a written IPS with an asset allocation strategy. A written IPS will help us with disciplined investing — rebalancing out of equities in bull markets and buying into stocks in severe bear markets such as this one.

    I don’t think a 4% withdrawal rate is sustainable for early retirees. Assuming a traditional 60-40 split between stocks and bonds, an early retiree can perhaps hope to live off the portfolio’s yield in the form of interest and dividends. With 4% income yield from bonds and a 3% dividend yield from stocks, an early retiree can hope to generate a 3% income from her portfolio without dipping into capital for a long time. Fortunately, generating a bit of side income isn’t too difficult and can be used to supplement a portfolio’s returns.

  2. I too think a 4% withdrawal rate isn’t something sustainable for an early investor. Even most senior retirees fail to acknowledge the importance of sustainable income from investments.
    While paying off your house early should be a priority, I think you need to realize that balance is needed. A house will rarely appreciate on a higher level than equity investments and can’t provide you with cashflow like a dividend stock can. Invest in both, but don’t go full out with one plan. Live within your means and start early – that’s where your new friend, compounding interest, really takes hold.

    Kudos for having the courage to stand out here with your ideas and ask for feedback 🙂

  3. I think you have the right idea that right now, the systematic risk in equities is low.

    The Canadian retail mutual fund system is very problematic. The good portfolio manager of a balanced fund does add value to your investment through rebalancing, economies of scale in the bond market (less bid spreads), etc. However, the .5% to 1% trailer fees (commission) that the financial adviser (fundsellor) is receiving is very, very difficult to justify.

    By the way, which books have you read? I know this sounds crazy, but I am constant rereading Random Walk down Wall Street, Four Pillars of Investing, and Stocks for the Long Run. I am constantly learning new things and perspectives from the same books.

  4. I like the idea of “sustainable” income. Actually, if you were to invest in all dividend paying stocks in the S&P 500, your yield would be 3.90% right now, versus 2.90% for the whole index. Furthermore, in the US it is easy to find long-term totally insured up to $100K ( 250K is by end of next year) that yield more than 5%.

    But I do agree that a 3% withdrawal based off yield are more sustainable than 4%..

  5. Good post – looking forward to the second part.

    I personally think 4% is enough for an early retiree. Being flexible with your withdrawals is more important than the exact number. If you retire with “just enough to get by” then you are taking a big risk whether you are using 3%,4% or 5% withdrawal rate. Having a buffer, monitoring your situation and willingness to make changes are the key.

    You mention an 8% real return – this is pretty high and I think unrealistic. I use 4% in my planning (7% return minus 3% inflation). The other problem is that a 10 year period is nothing in terms of “the long term” – you could have a very wide range of equity returns in different 10 year periods.

  6. Actually, the studies tend to support a 4% drawdown as being sustainable. To do so you need a good balance of interest, dividends and capital gains. It is important to remember that capital growth is a key component and over time it should not be ignored. (hard to do in todays circumstances but life will return to the mean over time)
    I am currently working (my firm that is) on an IPS model for DIY investors who focus on ETF Index Fund investing. If Reader J is interested let me know and we can set him up with a personailized version in return for his feedback.

  7. One of the major issues I see taht has not been mentionned is insurance needs; income replacement, disability, etc.

    Great to have a IPS and estimate returns and all but what if a major health issue comes up? Poof!!! out the windows the retirement plan…

  8. Good point CAB, too often people forget to factor in disabilities or income loss and the IPS is worthless. A proper financial planner will address these issues in the IPS, a mutual fund salesperson probably won’t.

  9. The 8% real return is pie in the sky unless you are planning for very risky investments. Most planners with any credibility will use a 3% real return when doing financial planning. If an planner uses an 8% real return, check to see what he or she is smoking. Totally unrealistic.

  10. Just to offer up the process as I view it, the financial plan should always come first and is needed to get a determination of the rate of return target that is appropriate. Rate of return is then the link to the asset allocation model that optimizes the risk and return trade-off. Once you have those, then the IPS becomes an implementation , investment guide, and on-going review tool.
    I note in the original note that a detailed plan already exists and as such the insurance and other key planning items should be in order. If a proper plan is not in place, I agree, everything else is guess work.
    I also agree that the 8% real return assumption is unrealistic and the 3-4% real return after fees is do-able but only because of the long investment horizon that is in place.

  11. There have been several studies done on quantify retirement withdrawal rate and safety based on historical market performance. The Trinity Study is the one most often quoted. Several factors need to be considered before deciding on a factor that one can use for planning including: asset mix, payout period and safety margin. The study shows, based on US data from 1926 to 1995 with a 75/25 stock/bond split, with inflation adjustment and a 30 year payout, that there is 98% chance that the money will not be depleted at a 4% withdrawal rate. Additionally, starting with $1 million portfolio, at a constant 4% withdrawal rate, after 30 years there is a 50% chance that the portfolio will actually grow to at least $8 million.

    The Trinity Study, like all models, makes assumptions including that historical performance is a good predictor of future performance and that there is no cost with investing. It is also a US based study and ignores unique issues facing Canadians. That said, I think that the 4% is overly conservative and is a number that has been promoted by the financial industry to make sure that you put as much of your money as possible in their hands. The 2% chance of running out of money in 30 years can easily be managed by adjusting spending habits. For my own planning, I use 5% and feel very comfortable with the associated risk. I rather curb my spending a little, late in life, than die with $8 million in the bank.

  12. Wow this feedback is great, it’s already surprised my expectations, thank you!

    Regarding the withdrawal rate why does the rate of withdrawal in retirement have to be so much less than the rate of growth during the accumulation period? As I questioned myself, maybe the safety I seek isn’t full extreme early retirement but just the possibility of it, mixed with the possibility of continuing to make at least a part time income depending on the market return. I’ve been basing my 8% real rate of return on the 80 year back tested historical performance of the IFA portfolio 70 (80% stocks/20% bonds), which I am attempting to replicate. Based on all this feedback I’m going to have to review this idea myself in more depth, thank you.


    I haven’t owned property yet, but I get a pretty strong feeling of safety inside my gut when I think of the not having any housing payment (besides property tax). You are correct that paying off your house doesn’t provide as good of a return. When I have run mortgage payoff calculators comparing a normal 25 year amortization vs. paying off the mortgage aggressively in 10 years you come out $38,000 behind. That assumed a static 8% investment return, 4% house appreciation and a 5.15% mortgage rate.


    I agree that after fees mutual fund managers can’t add value, my plan is to keep costs low, invest in the indexes and rebalance on my own.
    I also am a big fan of The Four Pillars of Investing & The Intelligent Asset Allocator, and I also liked Common Sense on Mutual Funds, IFA’s Index Funds 12 Step Program and The New Buffettology. I was originally inspired by The 10 Biggest Mistakes Investment Mistakes Canadian Make and The Millionaire Next Door. I was recently shocked by the predictions of Crash Proof on the US economy. A Random Walk down Wall Street & Stocks for the Long Run are on my Christmas wish list!


    I totally agree that if you are flexible on matching your lifestyle to the investment returns you will actually make you investments go a lot further. But why do you assume a 7% nominal return? Isn’t the 80 year nominal rate of return nearly 10%? Are you predicting this for the coming 10-20 years or is this your forever prediction? I recall reading Buffet predicted that future returns for probably a decade could be lower than the past, but that his and all predictions are pretty worthless.

    @ 2op mike

    I’d be very interested in having a DIY IPS, I think this would be a very valuable service to offer some value-add fee only services for DIY investors who need a little bit of advisor help for planning purposes but still want to manage investments themselves and not pay an annual fee or trailer commission. In the future posts you will see the type of allocation I’ve come up with. It would be great to get some feedback and compare with yours. I got a lot out of reading a sample IPS that was previously on Preet’s website. I guess for myself my little manifesto is sort of a starting place to plan investment goals, the allocation and the implementation all in one.

    @CAB / Finance Matters

    Does insurance go into an IPS? I should put it in my manifesto because I actually have some strong feelings on the need for no insurance in our situation. You are totally correct that if I were to die or become disabled for a significant period of time the plan would likely go *poof* and my family would have to live the typical work-until-you’re-65 life. But I completely accept that minor risk because my family is already safer than the average family, our net worth would sustain us for about 11 years without any income or investment return. Plenty of time for a life style course correction.

  13. Read both Intelligent Investor-Benjamin Graham, and all Warren Buffett’s letter to shareholders half a dozen times, aim for the 15% return on equities. Value Investing all the way. 🙂

  14. Jordon, I’m basing the 7% nominal return more or less on Bernstein’s work where he assumes that returns will be less than in the past.

    It’s just a guess really – I don’t want to be too conservative (or I’ll never retire) but I think 10% is on the upper end of probable over the longer term.

  15. @ Matt

    Buffet’s letters and advise is pretty good, and remember he suggests the average investor should index. I accept I’m not Buffet, I will never be nearly as good at his job, it’s his passion. In fact I don’t want a new part time job of picking and tracking stocks.

    I tried to get through the Intelligent Investor on several occasions both in print and as an audiobook. I know everyone loves it, but that thing is brutally dry. Plus the fact that Graham was later quoted saying: “I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities” … “I doubt whether such extensive efforts will generate sufficiently superior selections to justify their costs” … “I’m on the side of the efficient market school of thought”

  16. @ Mike

    It’s hard to argue with Bernstein, I find his advise very practical. I just want to explore which risks apply for high net worth / low expense early retirement.

    So in your coin toss game of life, if you start getting a higher then expected return for a few years will you readjust your plan as you go to accept your extra gain and use a higher rate of return or will you hold tight to 7% and expect that future returns will return to mean?

    Also why assume a long term inflation rate of 3% if the BOC target is 1-3%?

  17. Jordan, if you go to the website you can find my contact details and send me an email. I will get you a copy of the IPS.
    On the question of rates of return, I have a forecast of 10% nominal return on an all equity portfolio going out 10 years from current levels. The thing is, I would rarely suggest a 100% equity portfolio because few people actually need to take that risk ,so the impact of diversification and fees will lower that return. To those that believe 100% equities are the way to go I suggest you consider what level of risk you need to take versus choose to take. A lot of folks are finding out it makes a big difference when the storms hit.

  18. @ 2op mike

    Thanks very much for the offer, I’ll hit you up on that. I am very risk tolerant, the proof is I’ve lost lots of money with my 2 previous financial advisors and it never bother me emotionally or gave me sleepless nights. But as I understand risk a bit better now I think a 80% stock / 20% bond mix is more appropriate, hopefully CC will post my allocation % details soon.

  19. Jordan, my plan is to pick a return and stick with it. Until you get close to retirement, the estimates don’t mean a whole lot anyway.

  20. Jordan, if you have a high risk tolerance you should look at a core and explore strategy. Put a portion such as half your money to work in a sound low cost and lower risk strategy that reflects your “needed return rate” and use the rest to chase your alpha. The low risk half helps keep the marriage on track when your money hits a down market…. especially when the amount grows and losses are 6 digits. Risk tolerance can change as the consequences change.

  21. Canadian Capitalist

    I second (more like third or fourth) the opinion that real returns in the mid-single digits are more likely than not. I have Intelligent Investor, Stocks for the Long Run, Random Walk down Wall Street, Four Pillars in my bookshelf and refer to them constantly. I disagree that Intelligent Investor is dry. The edition with footnotes and commentary by Jason Zweig is excellent and I highly recommend Chapter 8, even for us indexers with the majority of the portfolio in equities. Graham has plenty of advice for what he calls “the defensive investor”. Part 2 and Part 3 have been scheduled for posting over the next few days.

  22. @ CC

    I will give Intelligent Investor another shot, and based on all this feedback I will definitely be re-reviewing my goals and expectations on my real return.

    What are you using for your predicted nominal rate of return for stocks/bonds and the rate of inflation? (I searched your archive but didn’t get a hit)

  23. Just curious, what sort of difference in portfolio size would you need if you did have a withdrawl rate of 4% vs. 0% to obtain your 40k PV annual amount?

    I guess I’m more conservative than others, since I’ve always planned to just build the next egg large enough so that I would have to make no withdrawls. Perhaps I could be retiring much much earlier?

  24. Sampson – any money coming out of a portfolio is a “withdrawal” – stock sales, interest/dividends earned are all included.

  25. Sampson, you are basically asking the difference in portfolio size between a strategy of “maintain capital and generate income” versus a strategy of “generate income from capital, interest and dividends”. The second one is much like creating your own “annuity” except you maintain the control over the assets and you hold the risk of longevity (outliving your money). The portfolio for depletion will vary based upon upon how long you live in retirement.
    For many folks investing a portion of your wealth in an annuity is a good strategy on retirement so you can ensure basic living expenses are covered regardless of how long you live. For a lucky few, defined benefit pensions fill the role.

  26. Hello guys

    I am new to this whole investing field and am learning new things every day thanks to you.
    There is something though that I can’t understand. Say you are close to retirement and you would like to get some money from the dividends (yields) some of your stocks are paying.
    This is what I was reading but I don’t quite get it:

    This truly terrible market for stocks is a glorious, once-in-a-decade opportunity to lock in a 10% cash flow for retirement. If you lock up cash flow like this, it will reduce your need to sell stocks and bonds in retirement.

    For example, let’s say you need a $50,000 annual income in retirement, and you anticipate the market will be only mediocre, with just a 6% return during the years of your retirement. If you have a $300,000 retirement portfolio appreciating at 6% a year, you’ll have $318,000 after one year — minus the $50,000 you need to live on. That’s actually a balance of $268,000 after one year. At that rate, you will deplete your savings at the end of Year 8.
    But let’s say that you manage to put $100,000 of that portfolio into stocks or bonds that are now yielding 10%. That gives you a steady cash flow of $10,000 a year every year in retirement, before you sell anything. In that scenario you don’t run through your retirement savings after eight years but after 10 years instead. You don’t have to show up on your kid’s doorstep with your belongings in a cardboard box until Year 11. That’s two more years of financial independence from harvesting the lemons produced by this market.

    This scenario will be especially attractive to investors who are pessimistic about future market returns. If you think we’re in a long-term, secular bear market, with likely returns well below my 6% example, this strategy is for you. If you think we’re going to bounce back from this bear and move directly into another decade-long bull market, you won’t want to pursue this strategy. (It’s a good insurance policy in case you’re optimism is misplaced, however.)

    What do you want to buy with this strategy? Stocks with current yields at 10% or higher where the dividend payout is sustainable at current levels for a decade or more. If the stock market recovers, of course, the dividend yield will drop, but you don’t care. All you want to know is that if you buy $10,000 in annual cash flow now, you’ll get at least $10,000 of annual cash flow in retirement.

    So he is saying here that if in the future the dividend yield is dropping you are locked in at the current rate. This I don’t get. How it can be? I thought the company decides their yields every year no?
    Is it possible to buy now stocks with a locked-in dividend yield?? So you get them with 10% yield in in 5 years if the same company is paying yields of say 5% you would still get your 10% no matter what? What type of shares are those?


  27. Why not just shoot for ‘semi-retirement’
    Since you’ll probably have enough money, you won’t be forced to work at a job you don’t love – like the rest of us!
    Instead of withdrawing the full amount of your retirement fund, you could work a few days a week at something you are truly passionate about.
    Who knows … it could lead to something unexpected like a new business or a ‘surprise’ stream of income.

  28. Any downsides to building an entire portfolio with the aim of creating this “annuity”. That’s what I’ve been planning all along, I was just getting confused by some of the opinions that a 4% withdrawl rate is not sustainable.

    Isn’t a portfolio of dividend ‘achievers/aristocrats’ that where the yield is equal or > 4% sustainable? You have the annual yield and hopefully have selected companies that grow dividends so hopefully will get an 5%-15% raise every year also (which should outpace inflation).

    If you aren’t depleting by selling the actual holdings isn’t this a safe bet? I guess there are many ways to come to the magic number, but I’ve been using $1-1.5 million mark in dividend stocks as the my magic number.

    Is this simply an unrealistic number or goal? I’ve always assumed others and most prominant bloggers were trying to do the same? Any comments or criticisms?

  29. I always worry about the eggs in one basket approach. A couple of things worth remembering: 1- dividends are not guaranteed and not guaranteed to go up at any annual rate, let alone the 5-15% suggested.
    2- Getting $10,000.00 in dividends in todays dolloars won’t keep the wolf from the door 20 years from now.

    Your strategy, on its own, understates the risk of dividend default or suspension, tax changes that could impact dividend distributions, market crashes that result in dividend cancellations.
    High yeilds on dividends or bonds generally reflect higher risk profiles. If the stocks do not bounce up in price, the stronger companies may drop the dividend to reflect more normal yeilds.

  30. Hi Mike,

    I’ve certainly made calculations accounting for 3.5% inflation, but my bet has always been that my holdings would increase dividends to at least keep pace with this amount. I think that this particular market highlights that it is a possibility since many companies have not only maintained their dividends, but many have continued to increase them.

    I appreciate the input 🙂 and fortunately this is not the entire story. I’ve got 5-10% fixed income now, and this will certainly boost to 20-40% when shifting to retirement. Also, have rental income, and will almost certainly be debt free by then.

  31. The assumed 8% real return is just too high, especially when the inflation wave hit us all (governments and central banks are printing money like there’s no tomorrow).

  32. @Peter

    I know right now inflation is really high, but for a long term prediction doesn’t the BoC’s inflation rate target of 1-3% mean a 2% inflation rate is a suitable estimate?

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  34. I believe that historical (superior) rates of return on equities will be hard to achieve after the majority of boomers have retired and are sellers of equities to a less populous and less wealthy segment of society. I am skeptical that Asian investors will fulfill the lack of demand as some authors have theorized. Is anyone aware of literature on this point apart from Jerry Siegel, Harry Dent and David Foot?

  35. Canadian Capitalist

    Jordan: Inflation estimates are not very meaningful — it is a crapshoot. Fortunately, unlike real-return estimates, future inflation estimates aren’t all that relevant to long-term investors.

    Remus: Companies have a target payout ratio — the percentage of earnings they plan to distribute to shareholders. Companies try to maintain the dollar amount of the dividends and even try to rise it. That’s all they care about. The yield will fluctuate based on the market price of stock — management has little control over it. So, when prices are lower, dividend yields are higher and vice-versa. So, yes, if you buy today you are “locking in” today’s high yields.

    Sampson: Like 2op mike mentions, I don’t think 5% to 15% real dividend growth is sustainable. If you’ve made a 3.5% inflation assumption, that suggests real dividend growth of 1.5% to 11.5%. The lower end is possible, the middle to upper ranges are definitely not. It is simple logic. Dividends are paid out of earnings. Earnings growth (real) has a remarkable consistency — 4% to 5%. That’s the upper limit of dividend growth. Otherwise, eventually dividends would be greater than earnings — an impossibility.

  36. CC you are “locking in” for how long? This is what I do not understand…
    If today the yield is 10% say and the share’s price is X.
    What happens in 5 years say… the share is 2X and then the yield is 5%.
    I mean a company reduces their yield % over time?

    Because if they don’t then yes this might be a good deal. You buy a stock today with X yielding 5% and later in 10 years or whatever say the price is 2X but the yield is still 5% (so in real dollars you make double in dividends) and all this because once a company gives away dividends at 5% it looks bad to reduce them to 2%? Is that the reason?

  37. Remus: As CC mentioned, the company doesn’t do anything to the yield, the market sets the current yield because the market sets the stock price. All the company does is set the dollar amount off the dividend. The market can anticipate a dividend cut (as is happening for a lot energy companies right now) and drive the price of the stock down (and the yield up) until the company actually announces a dividend cut.

    As for the lock-in question, as long as the company doesn’t change the dividend and as long as you don’t sell or buy any stock the yield you get on the cash you used to buy the stock is locked in forever (again provided the company doesn’t change their dividend). So that is the yield on your original investment. The yield on the market value of your investment will change as the stock price goes up and down. So if you are making retirement/financial independence decisions based on the market value of your investment you need to look at the current yield of your portfolio. If you are making independence decisions based on the income generated by your portfolio then the current yield (and even market value) of your portfolio becomes less important.

    I may do a post on my blog soon about this. It can be a little bit confusing because there are two different ways to look at the retirement income puzzle. Both ways probably end up with roughly the same conclusions but they get to those conclusions in very different ways.

  38. In response to you need for no insurance, doing a really quick calculation, not nowing exactly your annual income. I came out with around 500K needed to provide income for your familly for about 10 years assuming a real return of 4% (so after factoring inflation of 3%) would yield 20K a year.

    So do you have this nest egg already set up?

  39. @CAB

    With lower income tax, and no savings our current living expenses would only be around $35,000/year, not to mention with one of us dead we could probably buy a little less milk & bread 😉

    We don’t have as much as you calculated, but to answer your question yeah we have enough net worth now that we could put everything into real return bonds at 2% and go for at least a decade before it was completely depleted.

    I guess that’s not very common for most people, but what do you think of that, is that a justifiable reason not to have any life insurance?

  40. Not to crma insurance down your throat but I would look at getting a 10 year term for X amount once a good analysis has been done. At you age very cheap ex: with Empire life 250K goes for 18.23/month…

    I would also look more closely into disability and critical illness if some of it is not covered by your group plan.

  41. I like to discuss it 🙂

    Have you taken a look at the mortality tables? The reason it’s cheap for our age is the chances are about 1 in 10,000.

    I still don’t see the need, if we die we haven’t lost anything financially that can’t be repaired in time. The only thing that I see the insurance protects is early financial retirement, not a huge loss.

    Even $250k seems like a lot of extra coverage, maybe I’d buy $50k worth just as a cushion if they’d sell it at the same rate of $3.60/month.

    I generally like to keep fixed costs low, it helps us easily live within our means. That’s why we don’t have a second car, caller id, voice mail, cable tv, magazine or newspaper subscriptions, or gym memberships.

    Plus even though I’d meet all of the physical health qualifications for insurance my mom and grandma had “women” cancer, which would disqualify me from the preferred rate. Even though I obviously can’t get their cancer they’d bill me as if I was a smoker or had a heart condition.

    So for me it would probably be about $25/month, so say $43/month for both. That works out to $7355 in premiums over 10 years. That’s enough for a year of my kid’s future tuition.

    I wonder how much does the average family spend on all the various forms of personal insurance?

  42. Also when I considering my own personal mortality rate take into account that I minimize all of the most common deaths for my age range.

    I don’t have a dangerous job, I work at my desk. I’m rarely in our car because we don’t commute to work. I’m right in the middle of the healthy body mass index. I don’t drink or smoke, I have normal blood pressure. We live in a building with concrete building with fire sprinklers.

    Unfortunately if I recall correctly I think the highest cause of death left for my age bracket is murder by a relative… well I think I’m a nice guy too 🙂

  43. Reader J,

    So far, you seem to have a good start to a sound plan. Listen to the advice given by others here, as it is good.

    The idea of paying off your mortgage within 10 years is great. This will give you tens of thousands (ore even more than a hundred thousand) of additional dollars to invest that would have normally gone to interest payments. So, this will make a substantial difference upon retirement.

    I also like that fact that you took matters into your own hands and have done research. You are your best financial adviser and with your own research and smarts you can devise the strategy that best suits you.

    An indexing approach to investing is the wisest choice for you given your family situation and the current opportunities which lie in the market – opportunities that have not been seen in over 50 years! Index-funds in the form of ETFs provide the best investment vehicle for you at this stage of your life. Only some of them pay dividends. But the focus with them will be on the accumulated capital gains you can make from them. And they are extremely safe as opposed to buying individual stocks. Just make sure that you diversify in the kind of ETFs you buy; you should buy ones that focus on different industries/sectors (e.g.: Financials, Oil, Real-Estate) and also by region (e.g.: China, Brazil, etc.) to get good diversification. Furthermore, a good way to benefit from index investing is to not be afraid to take some profits – especially when the market has been up for 2-3 years (bull market). This will you will lock-in and cash-out on some profits before market can start to tumble again. Use the proceeds of your sale to buy safer investments during bear markets.

    Later on, when you are five years or so from retirement you will need to reposition some of your assets into stocks or ETFs that render higher paying dividends so that you can get a high amount of dividend-income. By then, you should have accummulated enough capital to purchase sound, blue-chip companies that pay high, consistent, dividends. Also try to buy foreign Blue-Chip stocks (European, Asian) that pay dividends (you can sometimes buy these on U.S. exchanges either as ADRs or regular stock). This will keep you even more safe from possible declines in the U.S. dollar.

    As for bonds, I would advise against them when you are younger like now. Only when you get 5-10 years near your retirement should you buy them for extra security in your portfolio.

    I hope this helps. And continued success with your investments.

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  46. I recently came across your blog and have been reading along. I thought I would leave my first comment. I don’t know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.


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