Disclaimer: I am not a financial advisor. None of this is financial advice. I encourage you to do your own research.

On the flight back to Toronto I started reading Millionaire Teacher by Andrew Hallam. I liked how he was a fellow Canadian who became a millionaire by age 40 on a teacher’s salary through extreme frugal living and consistent investing. He did crazy things like turning the heat off in the dead of winter, running 20 km to work and eating fresh clams that he caught in a nearby river. I was intrigued.

Hallam explained that the stock market is a bunch of publicly traded companies that issue shares for people like you and me to buy (Hallam, 2017). When we buy even one share, we technically own a part of that company (Hallam, 2017). That company, take Amazon for example, uses the money from our investment to make its business more efficient (Hallam, 2017). For example, Amazon might build a bigger warehouse so it can ship even more products to its consumers, which will likely lead to higher profits. The company can then choose to invest those profits back into the business or return the profits to shareholders as a dividend (Hallam, 2017). Profits, or ‘earnings’, are what typically guide the underlying share price of a company, although, as Hallam reminds us, there can be times when the stock price strays and shoots up or drops dramatically (Hallam, 2017). While it can be difficult to pick individual winning stocks, Hallam suggests that if we invest in the whole stock market through a low-cost index fund, we can likely expect our investment to rise overtime with the overall stock market (Hallam, 2017).

But what exactly was an index fund, I wondered, as the airplane engines rumbled. Outside the window grey clouds puffed by as we flew through the darkening sky.

As I kept reading Millionaire Teacher, I learned that an index fund tracks a stock market index, which usually includes hundreds, sometimes thousands of companies (Hallam, 2017). For example, the S&P 500 is a stock market index comprised of the top 500 US companies. An S&P 500 index fund tracks the S&P 500, so if the S&P 500’s total returns are, say, 10% this year, the fund will give investors an identical return, minus any small Management Expense Ratios – also known as MERs (Hallam, 2017). MERs are the cost to manage and run the fund, and they are usually low for index funds because index funds are passively rebalanced by an algorithm instead of a human. Actively managed mutual funds on the other hand – like the expensive 2.5 percent MER bond fund I was currently invested in – are managed by humans, so they need to charge higher fees to pay that human’s salary (Hallam, 2017).

I opened my packet of salted airline almonds. I thought about what I was learning about the wealth-building power of the stock market, how consumer demand can generate profits, how those profits can make companies more efficient, and how high earnings can push stock prices even higher. It seemed like index funds allowed investors to take part in stock market returns for a low cost. It was clear that I needed to switch from my expensive, poor performing bond funds and start investing in low-cost index funds that tracked the stock market. But what index fund should I choose? There were so many different ones!

As I chewed my almonds, I remembered how the Canadian Couch Potato recommended that I build a globally diversified portfolio of low-cost index funds that equally tracked the stock market indexes of Canada, the US, and International markets. One fund, called the Vanguard All-Equity ETF Portfolio (VEQT) would allow me to invest in all three markets equally for the low, low MER of 0.24 percent.

I thought back to VEQT’s webpage that Victor and I had looked at earlier. We had noticed that 30 percent of VEQT tracked the Canada stock market index, 45 percent tracked the US Total Stock Market index, and 25 percent tracked international stock market indexes from Europe to Asia to emerging markets. I recognized many of these companies and industries, from Canadian banks, oil and gas to US companies like Microsoft, Starbucks and McDonalds to global companies like Nestle and HSBC. These companies would likely continue serving consumers, investing in their businesses and making profits for years to come. Higher profits would mean higher share prices and maybe even dividend payments.

I finished the last of my almonds and began flipping through my stack of investment books. Pages of charts showed the stock market continually reaching new heights over the last 100 years. I wondered, if I invest in VEQT now, will my portfolio rise year after year with higher share prices and regular, juicy dividend payments?

It seemed almost too easy.

Just as I started reading Hallam’s chapter on fear and greed, the plane hit a pocket of unexpected turbulence. I clutched the seat with one hand and kept reading. Hallam explained that the market is unpredictable (Hallam, 2017). There have been some major stock market drops like after 9/11, during the start of the Iraq war in 2002-03 and during the Great Financial Crisis of 2008-09 (Hallam, 2017). But those drops ended up being golden buying opportunities for Hallam, because he was able to buy more stocks on sale.

“Scraping together every penny I could,” Hallam says he threw money into the stock market “like a crazed shopper at a going out of business sale.” (Hallam, 2017). Being greedy when others were fearful, to quote Warren Buffet, was what allowed Hallam to become a millionaire by age 40 on a teacher’s salary.

Just then the plane shook from left to right. My stomach dropped. The woman next to me cried out in terror.

“Is this normal?” I asked the flight attendant. My heart was now beating rapidly. My breath quickened. 

“Yup,” she said, placing both hands against opposite overhead compartments for balance.  

The plane dropped suddenly and the woman next to me grabbed my arm. We both shrieked. I kept reading as we bounced along.

“A plunging stock market is a special treat for a wage earner…younger people who will be adding to their portfolios for at least five years or more need to celebrate when markets fall” (Hallam, 2017). The book flew out of my hand and onto the floor.

I closed my eyes and tried to breathe slowly. I tried to focus on what I had just read and not the out-of-control aircraft bounding through the sky. I was a young person who would be adding to my portfolio for at least five years. Would I have the courage to keep investing through the next stock market crash? I was barely making it through this turbulent plane ride.

After a few terrifying minutes the turbulence passed. The woman next to me loosened her grip. I felt a surge of adrenaline knowing that I had survived another flight. Was this what investing was like? A thrilling concoction of fear followed by a dopamine rush and the urge to do it all again? If so, sign me up!

By the time we sailed over the twinkling Toronto lights and landed safely at Pearson Airport, I had a new favourite book that would change the course of my life. I decided I wanted to become a millionaire, just like Andrew Hallam. I also had a clear investment strategy:

  • Set up a brokerage account through my bank
  • Based on my investing risk assessment and using the Canadian Couch Potato model portfolio as a guide, invest my current nest egg in a Vanguard Index Fund that tracked Canada, US and International indexes, like VEQT, VGRO or VBAL
  • Continue to invest in a low cost globally diversified portfolio with every paycheque – especially through the sudden and unpredictable drops.
  • Disclaimer: Vanguard’s all-in-one funds like VEQT, VGRO and VBAL were not available in 2015 when I started investing. I wish they had been because you only have to buy one fund to be globally diversified and Vanguard rebalances for you. Instead I reviewed the fund prospectus for VCN and VXC which tracked the same Canada, US and International indexes as VEQT does today. When I began investing, I added in VAB for my bond component. Vanguard has since launched VGRO which equally tracks the Canada, US, International and bond indexes, the same indexes that the Canadian Couch Potato Model Portfolios have always recommended.

Repeatable steps I took that you can too!

  • Once you’ve taken the Vanguard investor quiz and selected your model portfolio from the Canadian Couch Potato website, have a closer look at the recommended fund (i.e., VEQT, VGRO or VBAL). You’ll likely find several companies you recognize. The fund’s webpage should also list the 12-month yield, which is how much you would have received in dividends if you were invested in the fund over the past year. It’s usually around 1 to 2 percent annually. I like Vanguard because it was the first company to provide low-cost index funds but there are many other financial companies nowadays that offer low-cost broad-based index funds.
  • Have a look at the fund’s Management Expense Ratio (MER). It should be less than 0.30%. If it’s more than that, keep lookin’!
  • Before you hit “buy”, remember that the stock market can be volatile, and big one-day drops can come out of nowhere. Make sure you are comfortable sticking to your investment strategy through the sudden and unpredictable drops. We’ll get into buying our first index fund in the following chapters.  
  • Remember that when stocks are down, it also means they are on sale.

Works Cited

  1. Hallam, A. (2017). Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School (1st ed., pp. 153, 261-268, 338-45). John Wiley & Sons, Inc., Hoboken, New Jersey.
  2. Bortolotti, D. (n.d.). Model Portfolios. Canadian Couch Potato. https://canadiancouchpotato.com