If you put $C ($500,000) into investments that pays r% (2.5%) each period, then after n (30 years) periods the amount of money will be P ($1,048,784). (Example is italicized)
P = C (1 + r/n) nt
P = future value
C = initial deposit
r = interest rate (expressed as a fraction: eg. 0.025)
n = # of times per year interest in compounded
t = number of years invested
Most people are fooled by bigger returns on a mutual fund leaving them exposed to fragility (read all of Nassim Nicholas Taleb’s books esp: Antifragile: Things That Gain from Disorder. Unknown downside (could lose everything) don’t make decision based on the past. Limited upside.
- Minimum $50,000 – maximum 10% Liquid Cash protected by CDIC
- Minimum 5% staggered term-GICs protected by CDIC
- Maximum 20% Stocks and bonds – maximum 3% of this initially invested in any one company. Be prepared to hold on to stocks indefinitely: choose strong brands that will be around in 20 years. You may find you would be better off using CIBC’s premium index fund with a 0.39% MER, however we personally barbelled our investing approach so only 5% is in bonds and 5% is in low cost index funds, 30% insured real estate, and other 60% protected under CDIC.
- Maximum 30% Real estate
- Maximum 35% Scalable assets
How much difference can half a percent in additional MER fees make?
If you are paying half a percent in extra MER fees, this could lead to nearly as much money paid in fees as your total contributions over your working life. $1 million lost in fees over 40 years on a $1 million of contributions. If the fund is giving returns that are less than or only meet the S&P 500, there is no reason to pay the extra fees. If you are doing it right, you will double your money at 2.5% while maximizing your CDIC coverage.
- Get out of your mutual funds
- Maximize your CDIC coverage for everything you can not afford to lose. 5 year GICs under $100K each paying 2.5%.
- Invest in yourself and in YOUR business (unlimited/exponential upside) – stuff that increase your productivity and will help you make 7-figures.
- If you really don’t have anything you can invest in your own business, than a low-cost index fund is still better than a mutual fund.
- Avoid leveraged real estate investments unless you are doing it right: if you can flip it for 50% increase on your purchase price after putting 25-33% down and doubling or tripling your investment in fixing it up. (Buy a distressed property for $500K with $125K down and an open mortgage. Spend $125K fixing the place up and sell for $750K.)