Categories
FIRE Investing Retirement

How Much To Diversify?

As per a previous post, I only own 7 investments in my retirement portfolio.

Not exactly diversified, I guess.

I think the general consensus is you should own a broad spectrum of stocks or some kind of market or index fund to really maximize your diversification in the long run.

But, how many stocks do you really need?

HOW MANY STOCKS TO OWN?

I recently read this article that states you should own about 30 stocks to be diversified, but it also suggested that owning 12 to 18 stocks would give you 90% of the benefits of diversification.

For me, 30 stocks is a lot. I would have trouble tracking that many investments and would most likely loose interest. 12 to 18 is more reasonable, and as it turns out, you would still get some decent diversification.

WHY DIVERSIFY?

There are two types of risk – ‘market risk‘ and ‘firm-specific risk‘.

Market risk refers to the general movements or trends of the markets and you can’t do much about it expect be patient.

Firm-specific risk refers to ‘uncertainty of a specific area of the market or even a specific stock.’ – it is the inherent risk in one individual company because of the business it is in.

Diversification can help reduce firm-specific risk – by owning multiple different companies, the hope is that the ‘ups and downs’ of each company will offset each other over the long term.

Diversifying can also make up for a lack of knowledge in any specific business sector. You can buy multiple different sectors and hopefully, losses in one sector will be offset by gains in another.

But, I think if you end up owning more stocks that you need, you may as well just own a mutual fund or ETF, unless you enjoy researching lots of investments.

WHY I AM NOT ‘DIVERSIFIED’

At the age of 40, I made a startling realization – I was far behind in my retirement goals.

Throughout my 20’s I had made some financial mistakes and in my 30’s I took mini-retirements or sabbaticals (I’ll make a future post on this) and found that my retirement portfolio was not what it should be.

I realized that I did not have time on my side. It dawned on me that I would not be able to take advantage of diversification as I would had I been in my 20’s. My time horizon just wasn’t that long.

So, I made a decision to increase my risk profile substantially, and I decided to focus (mostly) on technology. I also own a banking ETF and a utility. That’s it.

Oh, and I also really like dividends.

I think it’s also important to enjoy what you do. I really enjoy reading about technology. I don’t think I could invest in something that did not interest me.

HOW HAVE I DONE?

It’s actually worked out quite well for me.

Sadly, I don’t own AMAZON, but I’ve done well on Applied Materials (AMAT) – it supplies equipment that makes semi-conductors plus it pays a dividend. I really enjoy reading about this company.

While I still cannot retire, it has turned into a decent nest egg.

Managing the portfolio is also not a chore since I have so few stocks and I enjoy researching them.

LACK OF KNOWLEDGE

Warren Buffet said, ‘diversification is protection against ignorance. It makes little sense if you know what you are doing.’

Do I know what I am doing?

At the start of my investing journey, I would say ‘probably not’ but now that I am older and wiser, I think I am better equipped than if I stayed with mutual or index funds.

The best hedge against ignorance is to educate yourself and just take action.

If you’re younger, I would say, just buy index funds … but if you’re older like me, and you’re willing to educate yourself, you may want to take a few extra risks.

As it turns out, you actually don’t need to have a mass of stocks in your portfolio.

Categories
Investing Retirement

Stocks I Own In My Retirement Fund

I’ve been investing on my own for many years now. When I was younger, I bought index funds and simply held those but I realized I was not exactly where I wanted to be so I decided to go self-directed back in 2010.

STOCKS I OWN

I own 7 stocks and here they are:

  1. Apple (APPL) – Technology.
  2. Applied Materials (AMAT) – Supplies equipment for the manufacture of semi-conductors.
  3. Facebook (FB) – Social media.
  4. Fortis (FTS) – Canadian utility.
  5. Microsoft (MSFT) – Technology.
  6. Tesla (TSLA) – Technology /auto.
  7. XFN – Canadian bank exchange-traded fund.

I only own a small number of stocks to keep things simple. I feel that if you own more than 10 or 20 stocks, you may as well just own a mutual fund or exchange-traded fund.

WHAT I LOOK FOR

As you can see, this is usually what I look for in stocks:

  • Dividends
  • Technology
  • Canadian banks

I also buy on dips – if there is a large drop in value due to ‘bad news’ or some other economic event I will buy. I also plan on holding all my purchases for at least 10 years.

DIVERSIFICATION

Is this diversified? Probably not so much for the long term. I’m a late bloomer and I realized about 10 years ago that my retirement goals were behind. I made the decision to take on more ‘risk’ and focus on technology.

PERFORMANCE

It’s done not too badly. I’ve been very lucky and caught a bit of the technology wave. I also managed to buy Applied Materials (AMAT) when it was in the dumps and no one wanted it. I’ve held XFN for a number of years and plan on keeping it as it pays a nice monthly dividend.

Fortis was a bit of a safety purchase and hasn’t done as well as the tech stocks but it has been respectable and pays a decent dividend.

I don’t own much Tesla. I bought a share a while ago because I was curios about it.

RETIREMENT?

Sadly, though, the value of my portfolio is no where near where it needs to be and I cannot retire right now or in the foreseeable future. As I mentioned, I was late to the game and made financial mistakes in my 20’s and 30’s.

That’s it for now! Thank you for reading.

What do you have in your portfolio?

Categories
Career Side Hustles Spending

Side Hustles I’ve Done

I’m more or less an employee now, but in my 30’s, I used to be quite the hustler. I was self employed for a number of years and did anything I could think of to make money. Now, that I am in my early 50’s, I look back at that period with a certain amount of fondness.

MY SIDE-HUSTLES

Here area few of the side-hustles I used to do (and maybe you could too) with a brief description of my experience with each:

  1. Selling stuff on eBay – I used to search around and look for cool small items or collectables. I couldn’t find enough things and I got tired of the time it took to process orders (tracking bids, postage, etc)
  2. Bartender – The hours were long and the tips weren’t much. To be honest, I’m an introvert, and this probably wasn’t the best choice for me
  3. Security – At special events and bars. Again, the hours were long and the money wasn’t great.
  4. Multi-Level Marketing – I sold vitamins. Ultimately, I didn’t like the recruiting aspect and the expectation to consume so many of the products.
  5. Accountant – This was my main gig – I was self-employed for 5 years. I realized that, after a while, I did not like doing taxes and bookkeeping – most small-business owners are so dis-organized and I found it challenging to charge decent rates for any length of time.
  6. Talent contests – I did a few singing contests! Ok – this was mostly for fun! I did make some money, but not a long-term plan and very competitive.
  7. Film/TV Extra – this was more recent. I had fun and learned a ton about the film-making process, but the hours were long and the pay low.

WHY I DIDN’T LIKE CERTAIN HUSTLES

There was a common theme in many of these hustles – they were location-dependent and took too much of my time, while not paying me enough in return.

I am also very independent and don’t like to be told what to do. In some of the jobs above, I was at the mercy of some unreasonable bosses which took the fun out of the work. I was so busy back then and the last thing I wanted was some fool making my life hell.

Some hustles just weren’t the best use of my time.

I LOST MY HUSTLE

As I mentioned, I am now mostly an employee … something happened to me in my 40’s.

I bought another condo. Real Estate is one of the best long-term investments you can make, but it comes with short-term costs. In my case, I kind of lost my hustle. Because, I had a mortgage, I became more risk-averse, and stayed in a high-paying job probably longer than I should have.

I still hung out with some of the wrong people. I look back and think I still partied a bit too much and went out for drinks at the pub more than I should have. I should have been hanging with other like-minded folks.

GOING FORWARD

Nowadays, I really try to spend as much time as I can around entrepreneurial/hustler types. I am in the best shape of my life and no longer hang out in the bars (and shop) like I used to.

I feel I am slowly getting my ‘hustle’ back. Here are my current side-hustles:

  1. YouTube – a small channel doing covers of various songs.
  2. This blog – just started it about a month ago.
  3. Acting – I’ve been auditioning occasionally for TV. Yes, I’m an introvert, but I’ve decided to push myself.

1 and 2 are location-independent but 3 is not. That’s ok – regardless of what happens, I am picking up new skills that I never would have learned by doing one ‘day job’

I think I’d eventually like to be a Digital Nomad and travel the world!

Categories
Retirement Spending

The F.I.R.E. Movement

I’ve been reading about the FIRE movement for years – FIRE meaning ‘Financially Independent, Retire Early’ So what exactly is it? Let me start by saying, I am NOT young and certainly not ready to retire but many devotees of this movement have managed to ditch their jobs, retire young and now travel the world or do whatever hell they want.

HOW DID THEY DO IT?

From some of the stories I’ve read, these FIRE followers lived below their means, sometimes saving as much as 50% of their income (or even more) and then invested any surplus in the stock market or real estate. The stock market has been on a huge bull run the past ten years, bloating many stock portfolios and allowing some of these young savers to even retire in their 30’s! I’m an older guy and I have to tell you, I do not have the money to retire, and it is impressive to hear how they have done it.

I think the run up in values of the stock and real estate markets has surely been a help. Tech stocks have gone up by at least a factor of ten or twenty – it doesn’t take much to retire if you invested wisely have have the benefit of this. I also noticed many of the FIRE disciples had high-paying tech or professional jobs. I wonder if it would be as easy to retire early if you didn’t have the benefit of an excellent education which many of these jobs require. Does it look like much fun living far below your means as many of these early-retirees did? I guess it depends on what kind of person who are and what you can tolerate – short term sacrifice for long term gain!

IF YOU’RE OLDER AND NOT YET RETIRED?

Well, I do feel a certain amount of envy …lol … but here are a few lessons that I will take away from the FIRE movement:

  1. Discipline – it’s still not too late to keep track of your finances and keep your expenses low – it’s never too late to live below your means and not ‘keep up with the Joneses’
  2. Retirement – I’ve learned that I will always have to be doing ‘something’. I will never fully retire because I would get bored … but, it is nice to have the bank account to have the freedom to tell people to get lost.
  3. Multiple streams – the stock market took a hit early in the pandemic. I think if someone was living off one source of income, it could be a cause for concern. Multiple streams are the way to go and anyone can start at any age.
  4. Real Estate – it’s never too late to buy a rental property (cash-flow positive) or do some kind of ‘house hacking’ or renting out a part of your home if you can.
  5. Comparison – it’s not always good to compare yourselves to others. Everyone’s journey is different and maybe don’t worry so much.

I have to admit, I was a late-bloomer with regards to my personal finances. When I was younger, no one really talked about money as much as they do today. I got my first internet connection in 1996 and at the time, personal finance blogs were not as prevalent as they are today. One of the first books on personal finance I read was “Rich Dad, Poor Dad” back in 1997 and that opened my eyes to the world of how money really works. Today, there are literally thousands of blogs and pieces of information on any topic you want. I think culturally, money is talked more openly now.

Anyways, onward I will continue … I think I will modify the term F.I.R.E. for myself – ‘Financially Independent, Retire Eventually.’