This is Part 2 of a 3-Part series in how I started investing. If you’re new here, please take a moment to read Part 1: The Beginning!
In this blog post, I’m going to talk about how I got started managing my own portfolio, as well as the mistakes (and small wins) I made along the way in creating my own DIY investing strategy. :)
So in Part 1, I left off by talking about how I had just learned about Management Expense Ratios (MER) and the existance of the TD e-series Funds from a blog. As soon as I felt like TD Canada Trust was taking more money away from me than necessary with the high MER on the Balanced Growth Fund they had gotten me to invest in, I made it my mission to try and keep as much of my own money as possible.
After doing a bit of research, I decided that the TD e-series Funds were the right product for me to invest in. The funds seemed straight forward enough, and I was excited to get started! However, because the TD e-series Funds aren’t really managed by TD, it was a huge headache figuring out how to switch my account over (especially because there was very little information on the internet about e-series funds at the time). I’ve talked about my issues with TD a lot on this blog, but finally figured it out.
Related: How to set up a TD e-series account
To be honest, when I finally got my account set up and was able to buy e-series funds, I didn’t really know what I was doing. I just started reading about each fund, and randomly purchased ones that sounded interesting. At one point, I had 9 funds in my account: 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, TD Balanced Growth.
You’ll notice that I ended up buying another TD fund with a high MER – Dividend Growth. Why did I do that? I have no idea. So you can start to see that even though I was mostly investing in low-fee mutual funds, I was still pretty lost at this point.
I continued contributing to these funds over the next couple of years, building my portfolio up to the point where I had almost $40,000 in 2011. It felt great to see my money grow, but at the same time I was questioning whether or not I was on the right path for my goal of early retirement and financial independence. I didn’t have a strategy, and it really started to bother me.
So I made it my goal to start reading articles about investing. I wanted to read all that I could about mutual funds, ETFs, stocks, and some sort of basic investment strategy for someone in my position. But instead, I found myself researching investment advisors instead. Up until that point, I didn’t believe in paying for someone for financial advice. I figured I was young enough to do my own thing through trial and error. And besides, I had the basics down. I knew I was invested in the right mutual funds, and I had the basic understanding of what I needed to do. But nobody had ever seen my investments before, and I began to crave direction and validation.
After looking into investment advisors for a few weeks, I decided that I wanted a “fee-only” advisor, because I was confident that – once given a plan – I could execute it myself. Luckily, through my previous gig with the Toronto Star, my editor asked if I wanted to be a guinea pig and get complimentary advice from a fee-only financial advisor. Of course I said yes immediately. It was perfect timing.
A Rebalancing Act
Above, I mentioned I was invested in 9 different funds at the time:
- Asset allocation
- 91.7% stocks
- 2.7% bonds
- 5.6% cash
- Geographic allocation
- 51.6% Canada
- 24% U.S.
- 24.4% International
In speaking with the financial advisor, I learned that while my geographic allocation was good, my asset allocation was too risky. He recommended rebalancing to 70% stock, and 30% bond funds. He also advised that my portfolio was over-diversified. By a lot. For example, the allocations contained in both the European and Japanese Index-e funds were also contained within the International Index-e fund. He also called me out on investing in that Dividend Growth fund, which boasted a lame 2.03% MER. Whoops.
The financial advisor told me that I should simply my portfolio from 9 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
It all made sense to me, so I took his advice (to this day, I’m still invested in those 4 mutual funds with that exact percentage allocation). I continued to invest in my TD indexed mutual funds for the next two years, and it wasn’t until 2013 that I took the next step in my DIY investing strategy and branched out.
Part 3 coming soon…