How I Invest My Money

There is a temptation to view financial planning as little more than a dressed-up term for investment advice. Having worked in the investment industry for over a decade, it is a view I am tempted to follow. However, financial planning involves a much broader range of financial advice, including guidance on expenses, financial risks, and your final wishes, among other things. Having said that, financial planning also includes investment planning, thus today’s post.

 

How I Invest My Money: The Book

I listen to a lot of podcasts that cover financial matters. One that almost always has something valuable to present is the Rational Reminder podcast presented by two portfolio managers who work out of the Ottawa office of PWL Capital, Cameron Passmore and Benjamin Felix. They recently interviewed Brian Portnoy and Joshua Brown, the editors of a new book, entitled How I Invest My Money.

 

 

A former hedge fund manager, among other careers, Brian Portnoy wrote The Geometry of Wealth, in which he redefined wealth from being rich to what he calls “funded contentment.” Stated otherwise, he has written that, “True wealth is the ability to underwrite a meaningful life.” Currently, he is the founder of Shaping Wealth, “a financial wellness platform that engages with individuals and organizations to make better money decisions.”

 

Joshua Brown, aka “Downtown” Josh Brown, is the co-founder and Chief Executive Officer of Ritholtz Wealth Management and creator of The Reformed Broker blog. He is a Twitter heavyweight, with over 1 million followers and regularly appears on CNBC.

 

These two gentlemen contacted their many friends in the financial world to write about how they invest their own money and collected the results into the book note above. Personally, I am finding it well worth reading. A warning, though. You are not going to find a prescription about how you should invest your own money. Like all people, the contributors have their particular circumstances, which has led many of them to deviate from what one might call an economically rational asset allocation. I found these personal disclosures somewhat freeing. While a rational, efficient, low-cost portfolio makes the most sense, as learning from behavioural finance repeatedly tells us, we are human beings and economic rationality is not always the most important factor in the financial decisions we make.

 

How I Invest My Money

Inspired by the book, the remainder of this post will be a presentation of how I invest my money.

 

Personal Foundations

My parents, born in Canada of Mennonite immigrants from the Soviet Union, were raised to be rather frugal and hardworking, as were many of their generation. I do not remember feeling like we ever lacked for money, but I felt like I carried on with that frugal life to a great degree. One of my odd memories from high school: many of my classmates would (proudly, in my observation) wear their winter jackets with the lift tickets they had bought and used over the weekend (I grew up in BC), indicating that they had gone skiing; that sort of recreation always seemed like an overly expensive proposition to me.

 

Settling on a career after high school graduation was not easy. I began studying computer programming, shifted to marketing, and wound up interested in neither by the time I graduated from that two-year program. Seeking to find a path, I then spent the next two years studying at a small Mennonite college. That led me to a year in Japan working for my church, the place where I met my wife. A couple of years later, we were married and contemplated a career in church-related ministries.

 

Shortly after we were married, a routine physical checkup led to the discovery of a chronic kidney disease and near certain kidney failure a decade or two down the road. Although I was not aware of the term at the time, it was as though my “human capital,” my ability to generate income from employment, had suddenly become significantly reduced.

 

Nevertheless, we kept on our path. Those next several years included times in ministry in Japan combined with advancing my education. Along the way, we had four children.

 

The Investing Story

As we moved on from an initial volunteer role to a position that paid a salary, I became interested in how to invest our savings. That limited human capital kept on niggling at my mind. I could not qualify for private life insurance because of my health, so it became more important to advance our household’s financial capital by other means.

 

Entering the investing world was a gradual process. At first, it was a matter of understanding my defined contribution pension plan. I remember my dad telling me that it was a good plan in that my contributions were matched quite favourably with the contributions from my employer. I barely understood what he meant.

 

While we were paid from Canada, our salary in Japan was adjusted for the cost of living there. Despite Japan having a reputation for being a remarkably high cost of living country, we seemed to be able to save quite a bit of our income. We began to put money into RRSPs for our retirement and an RESP for our children’s education. These were with bank mutual funds; the portfolios were recommended to us by the bank. I have no recollection whatsoever of how they were allocated between equities and fixed income (stocks and bonds). Eventually we moved onto an Investment Advisor at a bank-owned brokerage firm, which opened up some additional investment options.

 

In 2000, we moved back to Canada permanently, and settled in London, ON, where we live to this day. That year, I had passed the Canadian Securities Course, and was already considering a career in financial services. However, I continued to work for the church until 2005, when I moved from working as a pastor to working as an investment representative at a discount brokerage of one of the big banks. In addition to getting licensed, I learned a lot more about investing in stocks and options.

 

A few years later, about the time of the Great Financial Crisis, I opened a small self-directed mutual funds account and got involved in index investing. This was the beginning of my shift away from my investment advisor. I eventually opened self-directed accounts and transferred all our investment assets away from our investment advisor.

 

I do not begrudge our time with the advisor or the significant fees he charged. He got us started and gave guidance when I did not know enough or feel confident enough to proceed on my own. However, between the ongoing study, my work, and my increasing awareness of the good sense that index investing made, I decided I could manage our investments on my own.

 

By the way, that human capital thing: it turns out social capital is no less important. Two friends volunteered to donate one of their kidneys to me when I finally had to go on dialysis. As neither was a compatible donor, a remarkable exchange program run by Canadian Blood Services allowed me to get a new kidney from another donor while one of those friends donated to someone else.

 

Spreadsheets rule when it comes to managing our investments. I have two RRSPs, a TFSA, a joint margin account, and a defined contribution pension plan from my time in church ministry. These accounts are mostly invested according to passively oriented indexing criteria. That is certainly the case in one of my RRSPs, where I hold one of the relatively recently launched all-in-one asset allocation ETFs, which has a conservative 40/60 equity/fixed income mix. The TFSA targets a 50/50 mix and uses low-cost index mutual funds to achieve that balance.

 

The non-registered joint account does not follow the passive approach precisely, although it is getting there. There was a point in time when I was quite enamoured with dividend investing, so I held utilities, a couple of different bank stocks, and a couple of REIT ETFs. A few weeks after the markets swooned in March of this year, I took advantage of the drop to sell off several of those positions pairing the losers with the gainers to realize almost no capital gain at all. I then reinvested the proceeds in a couple of equity index ETFs. I still hold a few individual stocks, including, notably, the stock I have from my time in the employee stock purchase plan while at the big bank investment firm. I am slowly selling it and the other individual stocks, though, in an effort to avoid triggering any big capital gains taxes.

 

I have been buying GICs to cover off the fixed income portion of the joint account. Slowly, as interest rates have dropped, these GICs have been shifted to one of the “second-tier” online banks that offers higher rates than the major banks. These GICs have been structured in a five-year ladder.

 

One of the RRSPs is held at a boutique mutual fund firm that takes an active management approach. Active here does not meant that their fund managers trade a lot; rather, it means that they make investment decisions that result in portfolios that do not follow an index. Their management expenses are also quite a bit lower than what one typically sees through the bank-owned or other major mutual fund firms. Even though I have been, and still am, quite oriented toward index investing, I decided that if I was going to do any active investing, their philosophy seemed like the right approach to take.

 

The pension plan has been left as is for several years now. One of its distinguishing features is that two of the funds are invested using socially responsible (SR) or Environmental, Social and Governance (ESG) criteria. I debate whether to transfer it into a locked-in account at the brokerage where I invest, but I am reasonably satisfied with the performance. The funds in this account are also actively managed.

 

Overall, I am targeting a 50/50 equity/fixed income mix. As stocks tend to do better over the long term, that means that new money often goes straight into the fixed income side. When the yields are so low, that hardly makes sense, I suppose, but we are reaching a stage where a slower steadier return is more important than allowing for greater volatility in exchange for potentially greater returns.

 

I will confess that I am not entirely satisfied that my investments are not fully indexed. It is partly an issue of a legacy from previous investments that is slowly being unwound. I like simplicity and there is still a lot of complexity. The time will probably come when I will choose to consolidate these investments in one firm.

 

This kind of asset allocation may not be for everyone. In fact, it should not be. Each household should have an investment portfolio that feels like it is made for them and takes their history and specific circumstances into account. The more important thing is that you are satisfied with the overall arrangement of your investments. The motto for my financial planning practice, inspired by Brian Portnoy, by the way, includes these words, which I hope you may find applicable to your life: “At first, financial planning is all about money and numbers. But ultimately, it’s about contentment.”

 

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Disclaimer: This blog post is intended for general information and discussion purposes only. It should not be relied upon for investment, insurance, tax, or legal decisions.