Set SMART Goals in 2018

Last week, as planned, I dutifully dumped $11,000 into our Tax Free Savings Accounts (TFSA). That's $5,500 for my wife and $5,500 in my own account. As usual, the Bill Payment from our chequing account to the Questrade TFSA accounts takes a few days to settle before it becomes available for investing in the TFSAs.

I get a little lazy when it comes to financial stuff and investing when I'm on vacation, but now that we're back it was time to make our actual investment purchases.

In the past, I used our TFSAs as a bit of a play account. My rationale was that transactions are not taxed in a TFSA, so this was the best place to buy and sell individual stocks. It was also a leftover symptom of the days where I always invested in individual stocks and all we had were TFSAs and RRSPs. But I'm making a pledge here today that those days are over.

From this year forward, there will be no more single stock buying and selling or "playing" in our TFSAs or elsewhere. I'm moving to a straightforward bi-weekly peek that investing should be. ETFs only. That's it.

It's not that I lost money playing with individual stocks. In fact, miraculously I somehow pretty much kept pace with a buy-and-hold Canadian Couch Potato strategy over the years. For example, in 2016 a bet on Canadian bank stocks resulted in me earning 18% returns.

Our combined TFSA accounts today are worth around $160,000! I'm not complaining about the results. Instead, it's just a life choice and sustainability choice.

Analyzing Stocks vs Focusing on Strategy

When a person buys individual stocks, they often fool themselves into being a sort of amateur stock analyst. I did this, so I am a fool.

Reading MD&A reports, financial statements, analyzing PE ratios, checking moving averages, following writers on Seeking Alpha. The whole works.

However, if I'm really honest with myself it's not stock analysis which I enjoyed. Instead, I enjoyed being right. Analyzing a stock, making a purchase, and seeing it go up in price. It was a type of self-validation.

This type of self-validation made me emotional about stocks. It wasn't the outward, plainly visible type of emotion where I behaved like a bipolar depressive individual depending on the stock performance that day.

It was more of a deep smugness when things went my way and a form of worry when they did not. This is foolish.

Instead, I'm going to focus intently on strategy. I'm continually working on cleaning up my strategy so that it requires less work and remains within the boundaries of my loss parameters.

I'm not going to become a Couch Potato buy-and-hold investor. Why? Because it doesn't fit my loss parameters. Also, the traditional form doesn't really lend itself well to leverage and careful use of leverage is an important part of my investment strategy. (Something I will share more on in the future).

Setting A SMART Goal for 2018

One thing I've learned in my investment journey is the importance of setting clear goals. I use the SMART principle because it worked for us.

Time Limited

In the past few months I created spreadsheets to track our net worth since marriage. I used it to create the nice graph on the About Daren page.

I was amazed to see the results of SMART goals there. In 2010, we had about $50,000 to our name. It took four years to double that to a little over $100,000. During these four years I hardly did any investing at all and our savings were pumped into our house and our education costs. Meanwhile our investment accounts foundered. We didn't have goals other than to stay out of additional debt and pay our mortgage and car payment.

However, in 2014 we started to get more serious about investing. We started by putting some money into RRSPs and TFSAs. As a result, we doubled our net worth that year.

In 2015, we set the goal of topping up my RRSP and TFSA accounts until they were maxed. It took all year, but we ended up more than $100,000 wealthier that year.

In 2016, our goal was to max my wife's TFSA, keep up with my TFSA and RRSP, sell our house, and start a Cash/Margin account. Again, we saved around $50,000 and ended the year more than $100,000 wealthier and debt free!

In 2017, our goal was to save $60,000 and focus on strategy, including introduction of leverage. We beat our goal by October and ended the year over $200,000 wealthier!

In 2018, our SMART goal is to once again save $60,000. This time I would like to refine our use of leverage and make our investment strategy simpler. That's a little vague, so more Specific and Measureable my goals are to have every stock position leveraged (by no more than 2:1) and to buy or sell a position no more than once every two weeks (not including stop-loss sales). Given that we've dumped $11,000 into the TFSAs so far, we have $49,000 of saving to go and I'm excited to see the progress!

Your Goals for 2018

While I was inspired by others in my journey, I am not endorsing our path for everyone else out there. People have different life circumstances to deal with and I understand my wife and I are fortunate with our dual income, no kids situation.

This year I encourage you to set a SMART financial goal for yourself. Try to max out a TFSA account ($57,500 cumulative limit if you were 18 or older in 2009). If you are paid bi-weekly, it's an ambitious $2,211 per paycheque.

If that's too much, at least put in the increase for 2018 ($5,500). If you are paid bi-weekly like many, it would take $211 per paycheque to hit that goal.

Open up a Questrade TFSA and begin by purchasing an ETF. A simple, broad global stocks fund is a great place to start. Right now XAW.TO is arguably the best choice out there and last year it returned 15.88% after fees and taxes. That handily beat the 1% or less that your big bank TFSA pays you.

Side Note: I've updated the portfolios page and last month's update now that iShares has released their December returns. The Dual Momentum call is still the same as XEF.TO (Developed Countries Stocks) for January.

I've also cancelled my email service to save costs as my 1-year free trial expired. To get hold of me, please leave a comment.

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$1 Million in 5 Years

Blogging is a great way for me to set goals and have motivation to stick to them. Sort of like keeping a journal, but a public one. (Kind of scary sometimes).

I already share our monthly Investment Assets which document the growth (or decline) of our investments from month to month. In the coming months, I will be sharing a lot more about my personal investment strategy as well.

I live by goal setting and this blog is all about achieving those goals and making better financial decisions.

Our big goals:  Achieve a net worth of $1 million in less than 5 years and a $2 million net worth before I turn 40.

The First $1 Million

A million bucks is a nice round number and a major indicator of net worth progress. Don't get me wrong, it's definitely not enough to retire on at a young age. But I believe it is an important net worth goal for us because it's a psychological hurdle and halfway to our target net worth limit.

If we let our investments grow untouched, we should be able to double our portfolio with no new contributions in approximately 12 years. That's assuming a 6% compounded annual return.

As a psychological safety net, I believe we could cut our expenses to the bone and live off the proceeds from a $1 million portfolio for a few years without hurting our long-term financial picture.

By the rules of Moose Math, $1 million will generate a reliable annual income of $35,000 to $40,000 for life. This includes adjustments for cost of living increases all with a probability of success that is greater than 90%.

The $2 Million Limit

My wife and I are determined to give more to this world than what we take from it. As I get older and more mature in my thinking, I increasingly want to move towards a life where we give back by focusing on volunteering, work with people who are less fortunate than us, and try to make a real difference in the lives of others. I think personal satisfaction does not come from selfishness, but from sharing. This is inline with our personal and religious views.

We believe it is important not to accumulate wealth endlessly beyond our reasonable needs. Even with a moderate uptick in lifestyle, I can't see us spending more than $80,000 a year ever. Moose Math says a $2 million portfolio will reliably generate $70,000 to $80,000 a year for life—that's enough for us. We'll have plenty of personal freedom and a great lifestyle!

There's really no reason, aside from selfishness or hoarding, to pursue a personal net worth greater than a few million dollars (adjusted for inflation). Once we hit $2,000,000, excess income can be used to benefit others who matter to us.

We have no desire to get filthy rich. If we continue to both work full-time while maintaining current spending and savings rates, by the time we reach age 65 our net worth would easily be $20 million. We can't think of a responsible way to spend $750,000 per year on ourselves.

How We Are Going to Do It

Achieving a net worth of $1 million within 5 years won't be easy. But it's also not impossible. Here are the steps we will need to take to get there:

  1. Stay out of debt. This is the most important factor. Debt payments can easily suck up hundreds, if not thousands of dollars each month. By not having any consumer debt we can instead direct money to investing without impacting our lifestyle. With interest costs certain to go up in the future, this is more important than ever.
  2. Continue working good jobs. Both of our current jobs pay reasonably well, just putting us in the top third of household income in our province. Two full-time incomes naturally helps. Income is important, although it gets less important as our net worth grows and return on investment has a bigger impact on our net worth than new contributions.
  3. Continue renting. We made a fantastic move last year to sell our over-sized house (for basically no profit after costs) and begin renting. This was a tough decision as we were both raised in families who firmly believe in home ownership. However, after running the numbers we believe the odds are well in our favour: renting will make us better off financially than owning. So far, the investment return on our former home equity is enough to pay for years of rent!
  4. Optimize our housing. Renting gives us great flexibility to move at low cost. Sometime later this year we are going to downsize again. Our goal is to live in approximately 1000 sq.ft. of space with 2 bedrooms. While still larger than our personal needs, it allows some space for guests. Our all-in housing costs are currently around $1,900 a month. Hopefully we can get that down to around $1,600 - $1,700.
  5. Cut vehicle expenses. Aside from housing, vehicles are the next largest expense. Fortunately we don't have payments on our vehicles, but we do own two vehicles including a gas-guzzling truck (leftover from my construction days). We would like to get down to one fuel efficient vehicle. Hopefully we can find a place to live that will allow me to bike to work.
  6. Optimize for taxes. Taxes are real expenses that limit saving ability. We keep our income taxes low by using RRSPs, pensions, and finding other deductions wherever possible. We reduce sales tax expenses by purchasing used items we need from Craigslist and Kijiji wherever possible. We buy staple groceries, don't smoke, rarely buy liquor, and try to minimize driving as much as practical. If the circumstances are right, we may consider an investment loan to further reduce tax expenses.
  7. Move to minimalism. The older we get, the more we are realizing the value of streamlining our lives. This means having less stuff. The main focus of minimalist living is ensuring everything you have serves a genuine valuable purpose. So far we've done a great job of shrinking our closets, selling/giving away some furniture, simplifying our investments, and tossing/giving away knick-knacks and similar crap. I think we can still do better, shrink down our lives, and reduce our footprint even more. This saves us money, reduces stress, and reduces our impact on the environment.
  8. Reduce portfolio drawdowns. It's reasonable to believe we will see a major stock market correction sometime in the next few years. I use a trend investment strategy with stop orders to limit exposure to market crashes. While this can cost me in whipsaw trades and reduced return in up markets, it should protect our portfolio from big drawdowns.

By following this guideline, we should be able to bump up our savings rate without a negative impact on our lifestyle.

I believe in the importance of balance in decision making; we are not going to eat dried ramen and hot dogs to get rich, but we're also not going to regularly buy $10 drinks at a bar when a $2 drink at home or a friend's place is just as satisfying.

Are you setting goals for your finances? What are you doing to get there?

Comments & Questions

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Comments containing links or "trolling" will not be posted. Comments with profane language or those which reveal personal information will be edited by moderator.