As many budding financial freedom pursuers like to do, I’m going to start creating a monthly update here on Money Miser to bring you into the world of the Miser household’s journey to financial freedom.
Each month I’ll be going through income, spending and investment returns to highlight where we’ve done well and not so well. As they say, it’s good to learn from your own mistakes, and even better to learn from others.
Before I get into this series though, I think it’s important to bring you up to speed with how we got here, what our goal is and where we currently stand. Unlike many FIRE bloggers, we’re not financially free, not even close to it. We’re on the way but in the grand scheme of things, we’ve only recently started.
So without further ado, let’s start off with a brief history lesson.
A Lackluster Beginning
I’d been dabbling with saving and investing for a few years but, being a relative amateur, I had made many mistakes. Like many fools, I initially approached my bank for my investing advice, and was quickly shoved into a bunch of mutual funds and GIC’s like every other schmuck. I stuck with this crap for a couple of years between 2013 and 2015, messing around with nominal amounts of money, yet panicking and floundering like most newcomers do. In hindsight, this was a great way to begin learning without doing any real damage. I probably started off with just a few thousand dollars invested, yet I hawkishly logged in each day to view my investments, stressing whether or not it had gone up or down $50. I remember the panic I felt on that unforgettable day that I lost $100…how times change.
Since I was a total novice, I didn’t really track my performance so I don’t really have any data or information to give you. Since 2013-2015 was a pretty good period for investing, I’m going to assume the mutual funds did okay and the GIC’s shitty, as you could expect in these low interest times.
Time To Man Up
Bearing in mind that throughout this time Mrs. Miser and I were in a relatively new relationship, and as both of us were finding out feet in our careers, neither of us took investing too seriously. For me it was a growing interest and Mrs. Miser didn’t care for it at all. This began to change gradually as my interest developed more and more, as did our relationship and also our careers. We were now earning enough money to start accumulating a decent chunk of savings, so learning what to do with this was important. This was also around the time I started to learn more about financial freedom, so it all kind of accumulated into a perfect storm. A stable relationship, growing career, increased income and a keen interest in investing and financial freedom. It was time to start taking this seriously.
The Big Change
In mid-2015, shortly before Mrs. Miser and I married, I decided it was time to stop being a casual investor and begin properly investing. I’d read a lot about ETF investing and, combined with my growing confidence in investing in general, I was confident enough to take the reins on my own. I asked Mrs. Miser if she trusted me to handle our investing, and she agreed it was fine. This is when I opened up 4 accounts in Questrade, a TFSA and an RRSP for each of us.
At this time we’d accumulated around $30,000, nothing huge but big enough to make me a tad nervous about throwing it all into ETF’s at once. However, having read about dollar cost averaging and how it usually leads to lower returns, I decided to just go for it. We threw this $30,000 into a diverse ETF portfolio of 60% equity and 40% bonds in May 2015.
A Shaky Start
By the end of 2015 we continued to invest our monthly savings as best we could on relatively low salaries. Our deposits were much lower than nowadays, but at the time I remember thinking we were doing pretty well. The returns on our investments, however, were not good. By September we had lost almost $2,000, which was a lot to us at the time. Funnily enough though, I don’t recall ever being worried. I knew this was a possibility from all my prior learning, and I also knew it would come back. We kept chugging away and it had returned to around break-even by the end of the year. Bullet dodged.
A Roaring 2016
2016 was, I would say, the turning point for me, with financial freedom moving from being just an interest to an outright obsession. This is when things started to get serious in terms of saving and investing. Despite still having relatively low salaries, our deposits began to increase gradually from cost savings. Investments started off very shaky again in 2016 but soon turned and the second half of the year was a firestorm. Our annual returns went from -1.70% by the end of April to +4.90% in October. A pretty big swing, but the best was yet to come.
Stop Being a Little Bitch
Come October I made another decision, to move out of the 60/40 portfolio and into a far more aggressive 90/10. I’d known for some time that being young we shouldn’t be so averse to risk, but I’d been indoctrinated by Garth Turner who recommends 60/40 for everybody. This is foolish advice for somebody like us, young with a long investment time frame. I’d discovered JLCollins blog and in particular his stock series, and he convinced me moving to a riskier portfolio was a better choice (he recommends 100% equity). So, I moved a lot of stuff around and built a new portfolio.
In hindsight, I’d taken an enormous risk. The presidential election was right around the corner and, in my mind, a Trump win would be catastrophic for investments. Why would I do this right before a US election? Anyway, as you all know, Trump won and what is now known as the Trump Bump took effect out of left field. While most people expected stocks to plummet with a Trump win, instead they absolutely soared, and so did the USD with it. Since a lot of our investments were (luckily) unhedged against the USD, the surging USD actually improved our returns even more. By the end of the year the combination of a strong USD and the Trump Bump led to annualized returns of 9.50%!
A Stable 2017 – So Far
I knew I’d gotten lucky with the Trump Bump and the USD, but it continued further in early 2017, and by April we were already up 7% for the year. During this time, Mrs. Miser had lost her job, but she soon found a new one, with a substantial pay rise. We didn’t give in to lifestyle creep too much (increased our vacation budget though) and our deposits were now much larger than they were in 2015, almost 3x larger actually.
By May 2017 I knew the USD was extremely strong against the CAD, and our portfolio was very exposed to a rebounding CAD. We were also a little overexposed to US stocks in general, so I moved a few things around, reduced our exposure to the USD and US equities overall. Since then, I haven’t changed a lot. It was a good thing I did move some money around as the CAD has rebounded strongly over the past few months. While this has still been a bit of an anchor on our returns, it would have been a lot worse had I not adjusted. As of September 2017 our annual returns have been 6.60%, which isn’t too bad at all.
Where We Stand Today
Here is where we currently stand in terms of our investments. The orange line being the amount of money we have deposited and the blue line being the market value of the investments. As you can see, 2015 and early 2016 was basically a write off in terms of returns, but since July 2016 things have started looking up. We actually crossed the $100,000 mark in September 2017, so that’s a pretty nice milestone to start this series on.
Here is a chart showing a few things in 2017. Firstly, the blue bars are the monthly deposits we’ve made to Questrade. The January amount of $2,000 or so was when Mrs. Miser had her old (shit) job. She lost this in February (hence the dip), but found a new, much better job in March. For perspective, our deposits in 2015 were around $1,000 per month, so $3,000 is a big change.
You might be thinking our savings rate is much lower than our goal. As a reminder, our goal moving forward is 55%, which should enable us to retire at 40. This goal is based on the promotion Mrs. Miser received in September and certainly would have been difficult to achieve prior to that. The savings rate shown is a cumulative savings rate, not a standalone rate for each month. For example, in September our savings rate was actually around 65%, but it only brought up the cumulative savings rate slightly due to the prior months weaker rate.
Going forward, our monthly savings goal is $4,300, which we expect to be about a 47% savings rate on average. The plan is to bump this rate significantly with tax returns. This is the first year we’ve really slammed our RRSP (previously used TFSA’s mostly) and I’m expecting a tax return in the region of $6,000 in April next year. Once we take this into account the rate should be dragged up to around 55%. At least, that’s the plan!
Okay, I think that’s enough of an overview of our history and current situation, you should have a pretty good idea where we are and where we came from. Moving forward I’m going to prepare a monthly report covering expenses, income, savings rate and investment returns in more detail.