“If You Can” by William Bernstein

William Bernstein is a well know personal finance writer who tries his best to convince people to save for retirement using low cost broadly diversified index funds.  He has written a few books on the topic but recently released a short e-book for young people who need help investing.   You could read this book and learn quite a bit on how to DIY.

The book’s advice in incredibly easy to follow and it works.  Here is really all you need to know.

The book is written for an American audience so I’ve changed it to meet a Canadian’s needs.

1. Save 15% of your pretax income, each and every year from your first year of working until retirement.  So if your yearly salary is $60,000, save $9000 per year.

Remember our Canadian experts Fred Vettese and Malcolm Hamilton think 15% is too much to save.  It means you will have more money to spend in retirement than when you were busy working and raising a family.  But, the decision is yours.

2. Invest this money in 3 things equally:
1/3 in a low cost Canadian etf like Vanguard Canada’s VCN.
1/3 in a low cost international etf like Vanguard Canada’s VUN
1/3 in a low cost Canadian bond fund like Vanguard Canada’s VAB

3. Once a year, re-balance your 3 etfs so that they each stay at 1/3 of your total portfolio. For example, if bonds do well one year, you may sell some VAB and buy some VCN and/or VUN.  Or else, don’t buy any VAB next year but instead purchase only VCN and/or VUN.  Just keep the 3 etfs at equal value.

That’s all folks.

Now that Vanguard has introduced their all in one product, you don’t even have to worry about buying 3 etfs and rebalancing each year.  Vanguard does it all for you.  The job is even easier now.  Your job is to set up a self directed trading account with any of the big banks and save.  Once a year, buy some VGRO or VBAL or VCNS and forget about it .

Do this every year for 40 years, and you should have a superb retirement.

If your company offers you a pension plan and together you contribute at least 15% of your pay to it,  you don’t have to save anything more for retirement.  Just make sure you are out of debt before you retire.

 

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