As you’ve probably already read, 80% of mutual funds under perform the market.  Why would I ever pay up to 2.5% in management fees to under perform anything?  You can really see that they don’t have our best interests in mind.  When the market was correcting huge in 2008 and 2009 did any of the managers go to cash?  Any strategic moves? No way.  The reason for this is that if the market had swung upwards at any point during the correction and they had not participated in it, they would have been fired.  So over the cliff we all went.  As long as the managers stay close to the index, -30 may that be, the safer their jobs were.  

That doesn’t sit well with my love of money, and that is why I manage my own money.  I know at this point you feel queasy at the thought of going through company annual reports, balance sheets, and listening to conference calls, right?  Well it is so much easier than that.  What I do is find a mutual fund or index fund that I believe in and then I copy it and save the management fee.  I, for example, love dividend yield.  I’ll search for the best dividend funds or index funds and then rip off their top holdings for $5 a trade at my discount brokerage.  That way I’m in control of what I do with my dividends.  

There are many options when I’m in control of the dividends.  I could save the dividends up and buy another high yielding stock when I have enough funds to do so.  Which adds diversification to my portfolio for free.  I could also set the dividends up on a drip (dividend reinvestment plan) program.  My dividends would then buy me more stocks every quarter as they got paid out.  This way you naturally buy stocks higher and lower as the market changes over time. The indie term for this is dollar cost averaging. Quarterly I would receive more stocks that the following quarter would buy me even more stocks — and all for free.  This is a great way to accelerate growth over the long run. If I’m having a good month I might even pay myself my very own management fee and have an amazing dinner out with friends or family.  

If you share my love of dividends, look up the top holdings of XDV, the iShares dividend index. This ETF mirrors the 30 top stocks in the Dow Jones Canada Select Dividend Index.  You can grab the list of stocks right off their web site, plus their weightings.  To keep down my trading costs I buy just the top 15 stocks–making up 63% of the index. If you own them you’ll be participating when the index rises–in the last year it went up roughly 36%. You are given each stock’s weighting in the index which I could match, but with such small percentage differences between the top 15 I just buy them in equal weightings. If you did purchase the later you would have a 4.8% yield and some of Canada’s top dividend yielding companies.  When the dividend index is going up I know that I’m participating in the growth, and I have to keep checking back once a quarter or so to see if any of  my 15 have fallen off the list. I then simply make the appropriate trade to match the new top 15.  This is all on top of those sweet sweet dividends that are paying me quarterly.  

Make your own Mutual Funds and pay yourself instead of the managers.  You’ll love your money so much more.  
Dave

When people think of wealth they often think of having millions of dollars in the bank.  However, when people who don’t have money receive millions of dollars through the lottery or inheritance they seem to quickly burn through it.  Lotteries would be better if they paid the winner a huge salary for life instead of one lump sum!  Then the winners could only spend what they get each month. 

True wealth is not just having loads of assets but having the income streams that can come from assets.  That is why my philosophy of money and wealth is making sure that every asset I have pays me the highest level of income it can. 

The common line from financial gurus is that if you invest your money in an RRSP and that money is invested in the market, overtime it will go up and you’ll have a solid asset to retire on. We’ve all heard the line that if we invest $800 a month for 30 years at 8% growth we’ll have $1.2 million bucks and be wealthy! 

Well, what if I can’t get that 8% growth?  The last 8 years of growth were based on really cheap borrowed money and if that party is over how can I expect the market to keep growing at an average 8%?  I can’t. But what I can count on is an investment strategy that pays me streams of income.  That way I can at least count on the extra income if the market doesn’t keep going up. Extra streams of income will also improve your lifestyle now, so you don’t need to wait 30 years.

There are many investment strategies that can be based on streams of income.  One of them is buying monthly income or dividend funds or exchange traded funds (ETFs) in your portfolio.  Make sure that they are set up to buy more units whenever they get paid out. 

Building your own income-based portfolio is a great way to diversify.  After a quarter when your high dividend yielding stocks pay into your account you simply use that money to buy more shares that are also high yielding and high quality.  That way you are getting the market to pay for the porfolio additions.  Once you’ve owned them for a quarter they’ll start paying you so you can buy even more stocks.  In the long run this will really accelerate your growth instead of simply hoping that the market will do it for you.   

Investment properties are another smart stream of income that can pay your mortgage and free up cashflow.  By converting your underutilized basement into a rental apartment you can get your renter to help pay your mortgage.  To really help free up some cashflow look to buy a tri-plex. Rent two of the apartments out and live in the third one.  Work the numbers to see if you can live for free while building equity by paying down the mortgage. 

If you have a cottage, rent it out for one of the three months in the summer to pay for the property taxes, repairs, or the purchase of a new deck.  If you have an extra garage or parking space you’ll be amazed how much extra cash you can get by renting them out. 

Little jobs on the side really help out too.  I’m an extra on TV shows when I have free time. A day sitting backstage drinking coffee pays for my cell phone bill. Or a night of martinis!

I’m sure there are lots of ways that you can increase your income other than just the traditional pay cheque.  Something you do in your spare time can become a business, like for example developing websites, walking dogs, styling clothes or hair, etc., consulting, writing creative copy–make money from your passions!

Continuously bring in new streams of income and see what kind of true wealth it brings you.  Rental properties, high yielding portfolios outside your RRSP, and side businesses can give you the lifestyle now that you hope to have in 30 years.  Wealth really comes from multiple streams of income.