To be clear, lets start with a basic definition but recognize that these concepts are not easy to pin down.
To me living simply is the idea of having a minimal amount of things, especially things that get in the way of doing/enjoying what really matters. This would definitely include avoiding duplication (such as multiple computers, shoes, whatever) but also paring down those things that we don’t use regularly and even some that we do. To live without some modern amenities in the interest of avoiding the time, cost, and effort in using and maintaining them. It also includes our time, by avoiding activities with little long term value, and maybe even our relationships.
Compare this to simply living which is the idea of enjoying the life your living now, whatever it is. To accept loss or gain of possessions as irrelevant. To live with a focus on priorities. I recognize that simply living may seem to preclude the idea of trying to live simply, but the more I’ve contemplated it, the more I think they actually go hand-in-hand.
Living in a poor part of the Dominican Republic for three months gave me the opportunity to witness both. Although the financial situation forced many of them to live much too simply to be comfortable, it did provide an ample contrast to our North American norm. Then to see these same people, struggling with poverty, have a stronger ability to not get caught up in it, but focus on what they had – good friends, family, community, and free time really challenged me (to be fair I’m sure we saw the rosier side as they put on a good face for visitors but I think the lessons still apply). So I’d like to pass these concepts along to help remind myself, and encourage you of the benefits of both living simply and simply living.
I have come to the conclusion that living simply is absolutely necessary to allow one to get the most out of life. We must get rid of distractions, in many ways. In business we try to focus relentlessly on our priorities and on being effective, but it is so easy in our individual capacity to forget this. We participate in activities without having a reason, buy things without regard for future costs of time and money, keep possessions without considering their maintenance requirements. I wonder how much time many of us could save if we got rid of half our stuff? What about if we dropped half of our planned activities? I challenge you to find one activity you can drop from your schedule, and one area in your house (from a drawer to a room) that you can simplify in the next 24 hours.
Interestingly, my thoughts on living simply have brought me to my second conclusion on experiencing life – we must learn to simply live. By focusing too much on the first (or any other type of life changing activity) we can miss the forest for the trees. Even if the ends is worthy the means is important too. I recognize that this is easy to say, but not always easy to implement. Fortunately, like many other questions in life, sometimes it is the pondering of it that is the most important. To recognize that one wants to start enjoying the things they already do is a big step. The more I have thought about it the more I have found opportunities to enjoy life. To smile at a my kids silly jokes, to enjoy a beam of sunlight peaking through the trees, to relax with good company and let productive time pass. My challenge here is to try recognize three times in one day where you can smile to yourself and say “I’m going to enjoy this moment” when you would normally let it pass unnoticed.
I’m not sure this adequately captures the two concepts but it is a start.]]>
Simply put, if you really wanted to make a change, you would have started by now. The only reason to wait until Jan 1st is because you have doubts, hesitations, or are only doing it because you feel you must. Definitely not because you want to.
And change is hard. Trust me. If you want to make a positive change you must really, really want it. Otherwise old habits will win. I recently decided it was time to loose weight and was able to drop 30 lbs, not due to any resolution, and not on my first try either. I did it because I crossed the line into “Obesity” and finally decided enough is enough. When I wanted it enough the change came soon enough.
So if you really do want to make a change, but don’t yet have that gut wrenching feeling that it must happen, perhaps the question is not what your resolution should be, but what can you do to get motivated?
There are many good tips on how to set goals, including an concise summary from Mike King over at learnthis.ca. Unfortunately, getting motivated is a more personal endeavor, so all I can do is make some vague suggestions:
For example, when I decided it was time to loose weight it was because I crossed the threshold into “obesity” (if you believe in BMI). This was enough for me to finally realize the many health risks I already knew definitely applied to me. Then I talked with my wife, and set a personal goal. I wrote this down and then began tracking my weight and body fat. Finally I broke down my goal into many small changes such as “No eating cheese except on pizza”, “No butter”, “Only meat once per day”, “Desserts/snacks rarely, and then only 1 serving at a time”. By being realistic (such as allowing cheese on pizza – my personal favorite meal) my changes were easier to stick with. There were many failures along the way, but I took each one as an opportunity to refocus.
In the end I realize there is no end. Old habits never really die, and keeping motivated is an ongoing challenge. So figure out what works for you, make a plan, adjust as necessary, and change for the better. But not till your ready.]]>
As I read it I couldn’t help but be reminded of the following simply axiom:
If you give, something could go wrong.
If you don’t give, there will be no chance that something might go right.
Really just a simplification/restatement of the Givers Dilema.
(P.S. Another day I’ll address the misnomer of “Corrupt Countries”)]]>
In the past I used to accept the criticism, perhaps with a half-hearted thank-you, and then try to mine the tidbit of truth from it to help me move forward. Seems logical, and it appeared to work reasonably well.
What I have begun to learn lately is that there is an even better way. You see, I’ve always believed that there is a grain of truth to such feedback but now I see that the truth is rarely present in the persons initial comments. So attempting to extract anything from this brief conversation is next to useless and suggestions that come from this process are more likely to be internally generated than to actually arise from the other person. Therefore any action coming out of it, although it may be positive, will not usually address the real concern.
Now you have to give the critic some slack. Most people delivering feedback are (a) upset and (b) uncomfortable delivering it. Providing useful feedback is not something that seems to be taught in school. The question is, what can we do to help them get their point across?
I now try to do four things. First, I ask some gentle probing questions. Second, I think it over. Third, I go back to the person and ask if I really understand the problem. Finally, I make some change to show I really value their feedback.
After the person has let me have it, I politely ask some simple follow up questions. Some generic examples would be:
The idea is to try to get to the heart of the problem. Does the person not like your manners? Was this just final straw in a series of complaints they haven’t told you before? Has there been a misunderstanding? I never defend myself at this point as I am only trying to really understand the persons complaint.
Then I wait; typically a day or two while I mull it over. If the initial conversation was reasonably successful there should now be something for me to chew on. I’m still not trying to look for solutions or justifications, but just to understand the problem.
Once I feel I have boiled the problem down to its core I go back to the person and ask them. I would say something like:
“I’ve been thinking about what you said the other day. What I think your saying is _____ . Does that sound right?”
If I’ve got it right I am now in a place to make some really positive change. The great thing is, by this point I have usually already begun to win a supporter. First of all, accepting their feedback and doing some initial questioning demonstrates I am serious about understanding the issue. Then, when I go back to them, they are typically surprised. This is when they realize that I take their feedback extremely seriously and really want to use it for the better. Almost always, this conversation is much more relaxed and more insightful.
The final step is to consider the meat of the feedback and to make some change that reflects the criticism. If you accept my initial premise that there is always some grain of truth, then you should be able to find something to improve. In many cases the communication up to this point may have resolved the issue, but it is still wise to do something to further clarify the issue.
What I’ve found is that most people are impressed with the respectful response, and the consideration given. I also think they unconsciously feel better because I have helped them understand what is really bothering them. These three things will often work together to move the critic toward being a supporter.
I’d like to finish with one example from my work with my Church board. One Sunday, just prior to my playing in the Sunday band, I ran into a person I’d known for some time. I could see they were uncomfortable with the small talk and quickly made the following comment.
I’ll just say this now. What you sent out as minutes from the last board meeting was useless. It looked to me like an agenda. If that’s what your going to send out you might as well not send out anything.
You can see right away the timing was terrible; I played awful that Sunday as I struggled to get the thoughts out of my head. The feedback was very pointed, critical, and lacked any actionable detail. Fortunately, I had been mulling over the ideas in the post recently and just barely had the wearwithall to bite my tongue and ask a few simple questions:
I missed it at first, but as I began to think it over the next day, I realized we had recently made a change to the meetings and were now including a consent agenda item as the first piece of business. For those not familiar with board work, or Roberts Rules of Order, this is simply a list of recent report and actions that the board is accepting without any discussion. They are typically just routine business items. As I thought about it I began to realize what was probably happening. First this person saw the word “agenda” in the minutes. Then they saw a list of reports that had no discussion noted in the minutes. Their conclusion: The board was hiding the details of the discussion!
Once I realized this I gave the person a quick phone call and told them I had been thinking over their feedback. They immediately began to soften. I asked if it related to the first item and sure enough it did. It didn’t take long to be able to confirm that this was actually the source of the problem. A simple misunderstanding about what was taking place at the board meetings. Once I described the consent agenda, and explained that we use it to give us more time to tackle the more important issues they really began to come around. Finally I ended by committing to describing this process in the next board minutes so others would understand as well. This final commitment on my part was just the icing on the cake to demonstrate that I took the feedback seriously and wanted to ensure the issue was properly dealt with.
So what started out as someone believing I was leading a group of people to hide information from the members turned out to be a simple misunderstanding, but gave me a great opportunity to demonstrate our true concern and commitment to consider all members feedback. That is, one critic was converted to a supporter. At least for now…
I am now beginning to look forward to criticism no matter how poorly delivered. These ideas have demonstrated to me that any feedback is an enormous opportunity for improvement and relationship building that should never be wasted.]]>
Before I answer the question, lets compare the two and make sure we’re talking about the same thing.
Mutual funds are the traditional choice that most people would be familiar with. In general they are easier to purchase as pretty much any investment account will allow it. In some cases you are restricted to funds from certain banks or companies which often excludes any worthwhile mutual funds.
Mutual funds come with a variety of loads (front-end, back-end, no load, etc) that may impact your trading cost. In the environment today, I don’t consider anything but no-load funds for which there will be no transaction costs! With the large array of mutual funds available today I can’t see any reasons to use a loaded fund.
On important thing to note about mutual funds is their internal expenses, indicated as MER, are usually higher. Typically they are in the 1.5-2.5% range, although there are some index funds as low as 0.3% with some restrictions. The MER will come straight off the gross return the fund is able to generate, reducing the return available to the investor.
There are generally two types of mutual funds: active and passively managed. Actively managed mutual funds, which I wouldn’t use, pay a manager to pick stocks to try and outperform the market (but usually don’t) and are typically are on the high end of the spectrum. Passively managed, or index mutual funds simply track some index, pretty much guaranteeing the investor the same return as the index less the small MER and some tracking error. Because there is no manager to pay their MER’s are near the low end.
Mutual fund prices are not traded on exchanges like stocks, their prices is typically only updated at the end of the day, and there are no advanced transaction types (like short selling, or stop losses) available.
Finally, because mutual funds are not traded on traditional exchanges, you will most likely only be able to purchase mutual funds from companies in the same country as you. If your like me and don’t live in the US, then most of the available mutual funds are not available to you.
ETF’s are traded on stock exchanges as you would a normal stock. For this reason they can only be purchased in investment accounts that allow stock purchases. As such you will pay a transaction commission whenever you buy and sell these, just as if you bought or sold a stock.
ETF’s also have internal expenses, which is also reported as MER, but these are typically lower. An ETF can be as low as 0.1% although typically they are in the 0.2 to 0.5% range. You do need to watch out for higher MERs, especially for ETF’s not on US exchanges, as some ETF’s have MER’s as high or higher than mutual funds.
Because ETF’s are traded on stock exchanges it is easy for non-US investors to purchase US ETF’s, as long as their investment account allows purchasing of stocks on US exchanges. This opens up a huge array of additional options for the investor.
Some active investors, of which I am not, like ETF’s because you can carry out other transaction types like short selling, purchasing options, or using stop-losses.
Back to the question of which to use. Because Mutual funds have low to zero transaction costs they are typically used with smaller investment portfolios. But because ETF’s have lower MER’s most investors want to switch to them as their portfolio grows. The transition point is when the transaction costs of the ETF’s roughly equal the additional expense of the mutual funds. Of course this is an inexact science since it depends on your investment horizon. See this post over on Milliion Dollar Journey for a partial answer.
While most advice hinges on the size of the portfolio, I’d like to suggest that almost all investors should be using both Mutual funds and ETFs. Instead of evaluating your portfolio as a whole, I look at individual transactions. For a transaction of any size with a longer time horizon an ETF probably makes more sense. On the other hand, for smaller investments including monthly contributions a Mutual fund makes more sense since their is no transaction costs.
The following graph summarizes the average annual expense ratio (after internal MER, and estimated transaction costs). I use it as follows. First I pick out an ETF and Mutual fund for which to compare. For me these are almost always two passively managed indexed based funds. I then look at the solid red trace that corresponds to the amount of money I have available and follow it down to the number of years I expect to hold the fund. The blue dotted lines indicate the maximum MER for which the Mutual fund makes better sense.
For example, say I have $200 to invest and I’m looking at the Barclays iShares Canadian Composite Index ETF (XIC). It has an MER of exactly 0.25%. Lets say its for my retirement funds with at least a 15 year time horizon. I quickly scan down the solid red trace with triangle markers to the 15 year line and see that a No Load Mutual fund would have to have an MER of less than 2.25%. This is easily possible, and demonstrates that for smaller regular contributions the Mutual fund will almost always win.
But what if I had $2000 dollars available from a tax refund or other lump sum payment? In this case the mutual fund would have to have an MER below 0.3% which would not be possible. The TD e-series funds (such as the TD Canadian Index) are close if your a DIY investor, but most other Canadian mutual funds are much higher.
The above graph was generated assuming an ETF MER of 0.25%, and a No Load mutual fund, but you can download my Mutual Fund vs ETF Comparison Spreadsheet if you’d like to compare other scenarios. In addition, the analysis does not consider the timing of payments, or any tax consequences. Although actively managed mutual funds typically have higher turnover, and index mutual fund turnover should be similar to an ETF version.
The method that I’ve come to use is make regular monthly payments into a Mutual fund and then when the fund has accumulated a significant value I may convert it to an ETF (as long as this doesn’t trigger significant capital gains). Any non-periodic payments such as a tax refund, bonus, or lump sum contribution I consult the above graph to decide between the mutual fund or ETF.
I hope this helps.]]>
Now there have been some setbacks. I still rely on the trusty alarm clock 30-40% of the time so I cannot claim I am alarm free anymore. Hopefully this will come with time. Another problems is on days when I’ve stayed up late the night before I am, understandably, tired the next day since I won’t let myself sleep in.
The good part? Getting up is getting easier by the day, I have more energy in general throughout the day, I feel tired when I should go to bed, and the tired I feel (as I originally noted) is less in my head and more in my body. Even though I haven’t set about to reduce my sleep length (yet), I am sleeping less just because I still don’t go to bed as early as I probably should.
My wife continues to enjoy the sleeping in on weekends, but now I can’t help but wonder whether the variable sleep pattern actually helps her or just makes her feel more tired throughout the day. All I know is that getting up at a regular time has made a world of difference for me.
Either way, I’m not going back. Its 5:30am for me from now on.]]>
For now I would like to present my target asset allocation. Some of this is based of the model portfolios of IFA.
Because I am not in the US, by geographic allocation differs a little from many of the recommendations. I roughly used the guide at the Efficient Markets Canada website to determine market capitalizations and came up with the following target.
|Emerging Markets||5 %|
This is pretty heavily weighted in Canada (relative to our 3 % of world market capitalization), but since that is my home country it reduces some of the currency risk. Unfortunately it also reduces the benefits of diversification since my welfare is already tied pretty closely to other events in Canada. As more currency hedged funds come on to the market I may consider weighting this lower.
For this I primarily based my asset allocation on the research by Kenneth French and Eugene Fama which seems to indicate that, with little exception, in the long run value stocks and small cap stocks outperform the market as a whole. For this reason, and since I have a good 30 years investment horizon, I choose to overweight in value stocks:
and in small and micro cap stocks:
Its not easy to come up with a portfolio that meets all three allocations at once, so I’ll share the tool I used for this in a future blog post as well as my actual portfolio and its performance.]]>
The Givers Dilema (PPT)
The Givers Dilema (PDF)
We buy unsliced bread. And I can’t believe how many years we would go to the freezer, un-thaw the loaf in the microwave, slice off a couple pieces, and then put the rest back in the freezer for next time. In retrospect, I must have been insane! Why didn’t I just cut the whole loaf? By taking a few extra seconds to cut the entire loaf the first time saves us from unthawing the loaf, getting out a cutting board and knife, making a mess on the counter, and wasting time and energy with the microwave on every subsequent use. The small additional time is more than compensated for the next time we want a slice of bread. Is eating so urgent that the important task of managing our time wisely should be delayed?
Seems obvious, but how often do we make similar, if not more damaging, mistakes in other areas? We switch tasks at the drop of a hat. When we return we must get physically setup (desk, papers arranged) and/or electronically setup (software started, files opened) as well as mentally adjusted (recalling where we were, purpose, next steps). For example, do you stop what your doing whenever your phone rings? How about when a new email comes in? Here’s some that I’ve noticed lately:
The last point is a perfect example of the decision process that one needs to go through when dealing with task switching. We need to weigh the cost of queuing the next task against the cost of switching tasks (twice), including the cost of making the mental switch. The mental switch is perhaps the hardest to quantify but the most recent advice seems to imply it is much bigger then one would guess.
Unfortunately, in many cases, we don’t even think about this. We simply switch tasks, slowly letting the urgent eliminate the important and taking longer to get the simplest tasks complete, like getting a slice of bread.]]>
|Give Money||Don’t Give|
|Real Desire||Food, Shelter, Clothing||Great choice.
You may have saved a life.
You have condemned someone to another night of suffering, or worse
|Alcohol, Drugs, or Tobacco||Oops. You may have supported someones bad habit. They’re no better or worse than before||Another good choice, or is it? You haven’t supported their bad habit, but you haven’t helped them either|
So, what will it be? Assume that they don’t really need the money, don’t give, and then take a chance that they could go another night without a meal? Or, take the chance and give them the money, realizing that it may support a bad habit, but won’t make their life worse?
The thing is, the whole question (and excuse) is mute when you realize that money isn’t the only thing you can give! Why not just offer to buy the person a meal? Come on, does it really take that long at a fast food joint? I’ve tried this a number of times and 2 out of 3 people have gratefully accepted. If time is really a problem then buy a few food coupons the next time your at the grocery store, or extra transit passes, or clothing gift certificates, or pay phone cards, or even an extra pair of socks. These can’t be used for drugs, alcohol, or tobacco so you can know that they person who takes them, needs them (yes they could potentially sell them, but your really stretching now).
I would really encourage you to offer to take the person out for a meal. Be safe about it, and stay in public places with others around, but don’t just assume the worst. Take the opportunity to talk to the person, ask them a few questions and answer some of theirs. You might find they aren’t that much different than you after all! In the event that the person swears at you and walks off (it happens), just try again. You just might get the chance to save someones life.]]>