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The benefits of compound growth

Just a quick post today  – I saw this infographic over at the LifeTurner website and thought it really illustrates the benefits of saving for retirement as soon as you can.

I didn’t start saving for retirement until I was 24, and even though some might still say that was an early age to start (I had just graduated from college), I remember thinking that I should have started sooner.

At what age did you start saving for retirement?

Save at least 10%

Rebalancing my investment portfolio

Now that I’ve had a few days to go over the recommendations put forth by the financial advisor, I can share with you what he has told me about my investment portfolio. Please read my previous post, “Financial advisors: do you have one?” or my two posts on Moneyville about my experience with my financial advisor: “Why I decided I needed a financial advisor” and “How I heading for Freedom 55.”

First, here’s a background of what I’m invested in:

Holdings in TD Mutual Funds (mostly e-series): CDN Money Market, Canadian Index-e, U.S. Index-e, European Index-e, Japanese Index-e, CDN Bond Index-e, International Index-e, TD Dividend Growth.

  • Asset allocation
    • 91.7% stocks
    • 2.7% bonds
    • 5.6% cash
  • Geographic allocation
    • 51.6% Canada
    • 24% U.S.
    • 24.4% International

I learned that while my geographic allocation is good, my asset allocation is too risky. The financial advisor recommended rebalancing to 70% stocks and 30% bond funds, and advised that my portfolio is over-diversified. For example, the allocations contained in both the European and Japanese index-e funds are contained within the International index-e fund.

He also called me out on investing in the Dividend Growth fund, which is boasting a lame 2.03% MER. :) I always meant to take care of that, but you know. Things happen. That was the original fund I held when I first opened up my mutual funds and hadn’t yet invested in the e-series funds. And as for the CDN Money Market fund, that was a left-over “placeholder” fund for when I was taking out my money for the Home Buyer’s Plan. I meant to re-distribute back into the e-series funds, but had problems because my investor profile wasn’t in sync with what I wanted to invest in. Then I got frustrated, and just left it.

The financial advisor told me that I should simply my portfolio from 8 mutual funds down to just 4, and suggested this allocation:

  • 20% Canadian Index-e
  • 25% U.S. Index-e
  • 25% International Index-e
  • 30% CDN Bond Index-e

Based on my $80,000 projected income this year, I’m saving 13% of my gross annual income into my Retirement Portfolio (which is around $400 bi-weekly broken down into $300 RRSP/$100 TFSA). The financial advisor told me that if I really want to retire by the age of 55, I will probably need to start saving more aggressively. He suggested I might need to go higher than 20% of my gross annual income. I already knew I wasn’t saving enough, but hearing it from somebody else is still a little disheartening. I’m already almost 30 (maybe), and my goal retirement age is only 25 years away.

As soon as I max out my Emergency Fund at $10,000 (I’m at around $7,000 right now), I will funnel that cash ($100 bi-weekly) into my Retirement Portfolio. That will bring me to around 16%, which isn’t ideal, but it’s a good first step. Once I’m there, I’ll figure out my next move.

Financial advisors: do you have one?

Most of you know that I really want to figure out what I should do about my (lack of an) investment strategy. It’s been really bothering me over the last 6 months. In fact, a goal of mine for November was to read 10 articles about investing. Well, I figured I’d be reading about mutual funds, ETFs, stocks, and some sort of basic strategy. But instead, I found myself researching investment advisors.

I personally think an investment advisor is the best way for me to go. I decided to look into a “fee-only” advisor, because I’m confident that – once given a plan – I can execute it myself. And, because I have a small portfolio that doesn’t need constant managing by a professional. Fee-only advisors are expensive though. Through my research, I saw them charge anywhere from $100-500 per session. To get an analysis of your entire financial well-being, as well as a strategy for the future? Even though it might seem expensive, I feel like it’s completely worth it.

Even though, up until recently, I didn’t believe in paying someone for financial advice. I figured I was young enough to do it on my own through trial and error, and besides, I had the basics down. I knew I was invested in the right mutual funds, and I had a basic understanding of what I needed to do. But as I creep closer to 30, I realize that I need a professional to help me. Nobody has ever seen my investments before. I need validation and a plan.

Now this is what I call perfect timing: earlier this month, my editor at the Toronto Star asked if I wanted to be the Moneyville guinea pig and get some complimentary advice from a fee-only financial advisor. I said yes, of course. And I’m excited to share what I’m learning with all of you soon.

Have you ever considered hiring a financial advisor?

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