February 21, 2024 • 29 mins
In this episode, I show you how in just one coaching call with me, I saved Emma over $69,800 in fees, and helped her increase her annual investment income by 112% - all without adding any new money to her portfolio! You'll get to see the before and after transformation that simplified her investing, and lowered her risk.
I also cover the following topics in this episode:
- Our approach to investing
- Introducing Emma
- Emma's previous holdings
- Emma's new investment portfolio
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Episode Transcript
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Speaker 1 (00:00):
In this episode, I'm going to show you how I saved a
client over $69,000 in fees andincreased her investment income
by 112% all without adding anynew money to her portfolio.
Hi, my name is Kamal Sarai andwelcome to the Simply Investing
(00:22):
Dividend Podcast.
In this episode, we're going tocover four topics.
The first topic is our approachto dividend investing.
In the next topic, I'llintroduce to you our client,
emma, and then, in the topicafter that, we are going to look
at Emma's previous holdings andthen, finally, we will look at
(00:45):
her new portfolio and see whatit looks like.
Let's get started with ourtopic number one our approach to
investing.
Now, our approach here atSimply Investing is to teach you
how to invest safely andreliably for the long term,
regardless of what happens inthe stock market.
(01:06):
Now, this approach is going tolower your risk, maximize your
gains, eliminate your fees asmuch as possible and reduce the
amount of time you spend on yourinvestments.
So how do we do that?
We do that by investing inquality dividend stocks when
they are priced low, when theyare undervalued.
(01:29):
So how do you know, when you'relooking at a stock, if it's a
quality stock and how do youknow that it's priced low today.
Well, for that I've createdwhat I call the 12 Rules of
Simply Investing, and we aregoing to use these 12 rules to
help build a brand new portfoliofor Emma.
So let's go through the rulesfirst, and then we'll move on
(01:52):
with the rest of the podcast.
If you're watching this, you cansee it up on the screen.
If you're listening to theaudio version, I'm going to go
through the 12 rules right now.
So this, basically, the 12rules here are your checklist,
and it was the same with Emma.
If a company or a stock failseven one of the 12 rules, you
(02:13):
skip it.
Move on to something else.
Skip the stock, take a look atsomething else.
So a company has to pass all ofthese 12 rules for it to be
even considered for yourportfolio.
So let's take a look at rulenumber one Do you understand how
the company is making money?
If not, skip it, move on tosomething else.
(02:35):
Rule number two 20 years fromnow, will people still need its
product and services?
Rule number three does thecompany have a low cost
competitive advantage?
Rule number four is the companyrecession proof?
And rule number five is itprofitable, which means does it
have a track record ofprofitability, and we always
(02:59):
look back at 20, 25 years ormore.
Rule number six does the companygrow its dividend?
Rule number seven can it affordto pay the dividend?
So for that we look at thepayout ratio.
Rule number eight is the debtless than 70%?
Rule number nine avoid anycompany with a recent dividend
cut.
Rule number 10, does the companybuy back its own shares?
(03:22):
And rule number 11, is thestock priced low?
And there we check for threethings.
We look at the PE ratio.
We want to make sure it's low.
We also compare the currentdividend yield to the company's
20 year average dividend yield.
We want to make sure thecurrent yield is higher than its
average yield.
And the third thing we look foris the PB ratio, the price to
(03:46):
book value.
So if a company meets all threeof those conditions, then it
passes rule number 11, and weknow that the company is priced
low.
It's undervalued, historicallyundervalued.
So that might be a good time toinvest in the company, assuming
it passes all of the otherrules.
And finally, rule number 12,keep your emotions out of
(04:10):
investing.
Okay, so now let's put all thistogether and we're going to
continue on to our second topicin this episode and we're going
to come back to the 12 rules andapply them, but for now, let's
continue with the next topic,introducing Emma.
Now, of course, I've changedher name to maintain her privacy
.
Okay, emma is a client that Ihad a meeting with last year.
(04:35):
We had discussed her currentholdings and looked at what her
new holdings could look like.
At the time she was age 54,married with two kids.
Her total portfolio size andthis is across both accounts,
the 401k and the IRA she had alittle over $572,000 in across
(04:58):
all of the accounts total andthe portfolio included a hundred
and sixteen individual stocksand then a total of six Funds
mutual funds, index funds, etfs.
It was a total of six.
Okay, let's move on to thethird topic.
We're gonna take a look at herprevious holdings, the current
(05:19):
holdings before she had met withme, and we're gonna take a look
at what was in there, how muchincome the portfolio was
generating, what kind of feeswas she paying, and then we're
gonna move on to what her newcurrent portfolio looks like.
So before I begin the nextsection here, I just want to
(05:42):
give you some assumptions thatI've used in Calculating the
fees for the mutual funds, theindex funds and the ETF Right,
because all of those funds havefees and they're known as an M E
R, the management expense ratio.
So up on the screen here youcan see there's an article to
our friends at nerd wallet comm.
(06:03):
It's actually a Mutual fundcalculator, fee calculator.
It's online so you can see thelink up on the screen.
I encourage everyone to trythat online calculator for
yourself.
You can add in your own numbersin there, depending on how much
you have currently invested inMutual funds, index funds and
(06:24):
ETFs.
You can then put in your owntimeline, whether it's five
years, ten, twenty, thirty years.
And Then the average rate ofreturn which I've used in my
calculations is 8.5%, and that'sbased on the fact that the
stock market Over the last 80years has returned on average
(06:46):
annually anywhere between 8 to11 or 11 or 12 percent.
So we're kind of staying on thelow end.
We're gonna put an 8.5 percent.
If the average rate of returnis higher, then naturally the
fees that you're paying on thosefunds is obviously going to be
higher as well.
Now, to keep things simple, forthe yearly contributions I've
(07:10):
used zero, which is in fact nottrue because Emma, to this day
continues to invest regularly inher retirement accounts.
So every month she has a setamount of money that she puts
into her retirement accounts.
But to keep things simple forthis episode and for our
calculations, I'm going toassume that as of today, she
(07:33):
doesn't contribute any more toany of the retirement accounts,
so the yearly or monthlycontributions are zero.
So the fees that I'm going toshow you are, in fact, even much
higher because Emma iscontributing to her funds.
So I'm going to show you thefees, but they will be on the
(07:54):
low end.
Okay, so let's get started.
Now that we've put theassumptions up on the screen,
let's move on to the firstaccount, which is Emma's IRA
account.
So remember, she's got twoaccounts there's the IRA account
and then there's the 401k.
Now the IRA account is thebigger one in terms of holdings.
(08:15):
So there's a lot of numbers onthe screen.
I'm not going to cover all ofthe numbers.
There's quite a few.
In fact, there's five slideswhich have a lot of numbers on
them.
Only because it's impossible toput all of the holdings up on
the screen in one shot, youwouldn't be able to read it.
The fonts would be too small.
So just a couple of things tonote here.
(08:36):
At the very top you'll seethere's a couple of funds that
she owns.
There's ETFs, there's an indexfund.
You can see the MER.
The fee is listed in the columnto the right and to the right
of that is how much she wouldpay in fees over the next 20
years if she held on to theseaccounts.
(08:56):
And you'll also notice she alsohas some money in a money
market account.
So that's also in there.
And the rest of the items on thescreen are the 116 stocks that
I talked about.
These are individual stocksthat she had bought over many
years and just kept adding to it.
(09:17):
So let's go on to the next page.
Again, same thing.
It's a list of stocks.
It continues.
If anyone's interested, you canalways pause the video and look
at it in detail, but I'm notgoing to go through them in
detail now, so let's just keepmoving on.
We're on the next page Again,lots of stocks.
What you'll notice here is a lotof them have a annual dividend
(09:39):
income of zero, and that'sbecause those are stocks that
don't pay any dividends.
Okay, so she's not earning anydividend income by holding on to
those companies.
And then, lastly, we'll keepgoing.
I think there's maybe one morepage here.
So again, lots of stocks here.
A lot of them don't paydividends.
On this screen you can see, andI think this is the last page.
(10:03):
So here we are, on the lastpage.
So the total value of all ofthe 116 stocks, plus some of the
funds, plus what's in the moneymarket, all of that is a total
of a little over over $437,000.
Total dividend income.
Annual dividend income,everything in her IRA account,
(10:26):
including the funds and thestocks, is a little over $7,000
a year.
So if we take that, we dividedby the market value, you can see
that her total portfolio yield,the dividend yield, is 1.64%.
So that's not that great.
Let's see if we can do muchbetter than that.
(10:48):
And in terms of the fees,because she did have a couple of
ETFs and index funds in thereover the next 20 years, she's
looking at paying a little over$7,800 in fees.
Okay, let's move on.
Now we're going to look at hersecond account, which is the
401k account, and this accountis a lot simpler.
(11:10):
There's only three holdings, soshe's got three funds in here
you can see.
There's the new horizon fund,there's a fidelity fund and then
there's a Franklin growth fund.
So just three.
You can see the market value.
Combined it's a little over$134,000 dividend income.
Not that great.
It's only about $200 in annualdividend income a year.
(11:32):
So you can see the portfolioyield is extremely low at 0.15%.
And here you can see the feesagain.
If she continues to hold on tothese funds, after 20 years she
will spend over $84,000 in fees.
After 25 years she will havespent over $155,000 in fees.
(11:56):
Now I know I'm going to getcomments on this and I know
those of you watching orlistening.
Of course her investments inthese three funds will grow over
time, over 20 years, over 25years.
Of course they will grow andthe link I gave you before to
Nerd Wallet's calculator willshow you how much it would grow
(12:16):
to.
Our focus here is let's justlaser focus on the fees
themselves, right, because we'regonna compare it to individual
stocks.
So individual stocks will also.
You know dividend stocks willgrow over the next 20 to 25
years, but those individualstocks don't carry an annual fee
.
These funds do carry an annualfee.
(12:38):
So that's why I want to pointout Anywhere from 84,000 to a
hundred fifty five thousanddollars in fees.
In fact, the fees would behigher.
Like I said before, we'reassuming her monthly and yearly
contributions are zero, but shedoes continue continue to
Contribute to her 401k accountas well.
(13:00):
Okay, so the only thing I wantto mention here with the 401k is
, because of her company, she isnot allowed in this plan to
purchase individual stocks.
She can only choose from a listof funds that are offered by
the company, and it's a smalllist of mutual funds, index
(13:20):
funds and ETFs.
So that's going to pose alittle bit of a challenge for us
to try and build a portfoliofor Emma, but we're gonna go
ahead and do it anyway.
So just keep that in mind.
Okay, let's move on.
So now I'm gonna put it alltogether.
We're gonna look at we lookedat the IRA account, we looked at
the 401k account.
(13:41):
Let's put it all togethercombined and See how much is
Emma paying in fees, and so youcan see here We've added up all
of the the funds that she had inthe IRA account.
They're up on the screen.
Then we add up the 401k.
She had three Funds in the inthat in the 401k account, so we
(14:05):
put them up on the screen and soyou can see if she remains
invested in these funds.
After 20 years she's looking atover $91,000 in fees.
After 25 years, over a hundredand seventy thousand dollars in
fees.
Okay, let's move on.
How much income is Herportfolio generating now?
(14:27):
Remember, we're still lookingat her previous holdings.
So now again, we're gonnacombine the IRA and the 401k
together so we can see here weadd up all of her holdings.
I did not list all hundred andfourteen stocks again on the
screen because it'd be too muchto list, but I've added it all,
added up all of the marketvalues and the dividend income
(14:49):
together.
So total portfolio Market value, not as of this recording, but
as of when we met last year withEmma.
So market value at the time wasfive hundred and seventy two
thousand dollars, a little overfive hundred seventy two
thousand Dividend income, alittle over seven thousand three
(15:10):
hundred dollars in income.
So you can see the portfolioyield is about one point two,
nine percent.
I Think we can do much betterthan that, okay, so now let's
move on.
This is a quick summary of whatI just stated.
So we're gonna move on.
We just combined both of theaccounts, and the other thing I
(15:32):
want to point out here is, ofcourse, the dividend yield is
low.
It's one point.
Two, nine percent.
The fees are quite high,anywhere from ninety one
thousand to hundred seventythousand dollars in fees.
And Also the number of stockholdings.
That is a lot of stock holding.
She owns a hundred and fourteenCompanies Stocks and that is a
(15:53):
lot.
That's too much.
If anybody's interested, go backand watch episode 44, where I
talked about what's wrong withtoo much Diversification,
because she does have a lot ofdiversification in here and it's
too much.
In fact, it's hurting herinvestment portfolio.
(16:15):
So I Encourage you to go backand watch episode 44 if you're
interested in learning about theproblems of having too much
Diversification.
Okay, so what's the solutionthen?
Right, the fees are quite high,the portfolio is
Overdiversified and the yield islow.
(16:35):
So let's take a look at thesolution now, which is our last
topic in this episode.
So what does Emma's newportfolio look like?
So remember, we're gonna followthe 12 rules, we're gonna Apply
the 12 rules, which you, I'vealready done and we're gonna
look for high quality, dividendpaying stocks that are
(16:56):
undervalued at the time lastyear when we met with Emma.
So we're gonna take a look at,of course, the 401k I just
showed you.
This is what she had.
So we're gonna do the 401kfirst and then we'll move on to
the other account.
So in the 401k this is I justshowed you the same slide a
couple of minutes ago she hadtwo, sorry, three funds the new
(17:21):
horizons, the fidelity and theFranklin growth and you can see
the fees Listed up on the screenjust to cross these three funds
.
Now I mentioned before, becauseof the company that where she
works and the company thatmanages 401k, she is not allowed
To buy individual stocks.
So we have to stick with a listof funds that are provided by
(17:45):
the company.
So what we did was to take alook at the funds, make sure she
had sufficient diversification,make sure that we could
maximize on her dividend incomeand make sure that we could
lower the fees, the MER, themanagement expense ratio, and
that's exactly what we did.
So you can see here we stuckwith just three funds.
(18:07):
She didn't need more than that.
Remember, too muchdiversification can be a problem
.
So we kept the Fidelity fund soit's still up on the page.
We added the Vanguard equityincome fund and then the
Fidelity 500 index fund, andwhat we did is we took the same
dollar amount, which was ahundred thirty four thousand
nine hundred dollars divided bythree, invested equally across
(18:30):
the three funds.
You can see the MER is muchlower than what she was paying
before and the dividend incomeIs much higher than what she was
receiving before, and so thefees are still there.
You can see, after 20 yearsshe'll pay over twenty six
thousand dollars in fees.
After 25 years She'll pay overforty nine thousand dollars in
(18:51):
fees.
But now if we compare thedifference, so let's take a look
at Before, which was the old401k Investments, and then we'll
compare it to the new, after wemade those changes.
So you can see that theportfolio yield went up from
0.15% to 1.6%.
(19:13):
That's good.
The annual dividend income wentfrom two hundred and two
dollars annually to over twothousand one hundred and fifty
five dollars.
So that's incredible.
That's an increase of ninehundred and sixty seven percent
in her annual dividend income.
Now remember we didn't add apenny of any new money into this
(19:36):
account.
We just took what was alreadythere and just redistributed
amongst the three funds that wesuggested to her, and you can
see that over 20 years and over25 years she will save over 67%
in fees.
So if we just look at the 25year mark, she went from would
(20:01):
have paid Over a hundred andfifty five thousand dollars in
fees to now paying over fortynine thousand dollars in fees.
So, right there, we've savedher a little over a hundred and
six thousand dollars over thenext 25 years.
So that's pretty good.
Let's move on now to the IRAaccount.
So Just a recap in the IRAaccount she had some money in a
(20:25):
money market fund.
She had a ETF and then twoindex funds and then, of course,
the hundred and fourteen stocks.
So you can see the total amount, you can see the dividend
income.
So we made a couple of changeshere.
So Emma decided, after we talkedabout the simply investing
approach, she had decided tosell her funds in the IRA
(20:48):
account, so the three funds thatwere there, plus the money
market fund as well, and Thenshe decided to sell the 78
stocks in her portfolio thatwere earning no dividends or
very low dividends, so where thedividend yield was one percent
or less.
So all of those got sold off.
She wanted to keep Apple, sothat's fine, the yield is low,
(21:14):
but it's a large company, it's ablue chip company, it's paying
a dividend.
She had bought it many, many,many years ago.
She wanted to hold on to it, sothat was fine.
So, out of a hundred andfourteen stocks, she kept 36 of
them, and so you can see those36.
The value was a little over twohundred forty five thousand
dollars, earning annualdividends of $6656.
(21:38):
So that remained unchanged.
She wanted to keep those 36stocks, so we left them where
they were now.
Having sold the 78 stocks andhaving sold the money market
fund and the other three funds,she was now left with a hundred
ninety one thousand nine hundredtwenty eight dollars to invest.
(21:59):
So what we did then was to gothrough the twelve rules of
simply investing Look forquality stocks, dividend paying
stocks that were priced low Lastyear when we had that meeting.
So what we did is we took thatmoney and divided it Equally
(22:20):
amongst the ten companies thatyou see up on the screen right
now.
So you can see that the totalmarket value is approximately
the same.
It's about a hundred ninety onethousand nine hundred dollars.
However, her annual dividendincome is now over six thousand
eight hundred dollars.
Now she still has the dividendincome from the 36 stocks that
(22:42):
she kept, but this is anadditional income over and above
what she would still bereceiving.
So here, with just these tencompanies, you can see that our
portfolio yield is over 3.5percent, so way better than what
she was getting before.
(23:02):
Now this list is not a buy list,because not.
These companies may not beundervalued when you watch this
video.
They may not even be qualitycompanies.
When you watch this video, theywere quality companies and
undervalued at that time.
Now I know some of you may lookat that list of 10 stocks and
say, well, it's not diversified,she's missing Stocks in other
(23:25):
industries and other sectors.
Well, what happened is Lastyear, when we put the portfolio
together, there were no goodquality companies that were
undervalued in those specificsectors and industries.
So we only have the ability tochoose from those sectors that
(23:46):
happen to be undervalued orthose stocks that have been
undervalued and Are qualitystocks at that time.
So what would happen is, as Emmaover the years has more money
to invest or has additionaldividend income to reinvest,
then at the time she would lookat okay, let's apply the 12
rules, what is undervalued today, what is a quality stock today,
(24:09):
and then pick and choose fromindustries and sectors that she
might be missing.
And that's how we Diversify ourportfolio as dividend investors
, how we diversify our portfolioover time.
It's very difficult to have awell diversified portfolio on
day one, so it takes time, butyou're going to build Over time,
(24:34):
you're going to have adiversified portfolio, okay.
So let's put all of thistogether here.
So I'm going to look at justthe IRA account and then we'll
combine both of them.
But let's one last slide hereon the IRA account.
So before, with 114 stocks, emmawas making $6,900 in dividend
(24:54):
income.
Now, with just the 36 stocksyou wanted to keep plus the 10,
so 46 stocks, so way less stocks.
Look at her dividend income.
It's gone up by over 95 percentin one year.
And again, we didn't add anynew money to the account, we
just took what was there andDistributed and reinvested that
(25:17):
money a lot better.
So her annual dividend incometoday, instead of being 6,900,
is now Annually is going to beover $13,400.
So that is a huge difference.
We've almost doubled her annualdividend income.
Okay, so now we're going to putall of the both accounts
together.
(25:37):
We've got the IRA account,we've got the 401k account and
let's take a look at thedifference so you can see all
the numbers on the screen.
So I'm not going to repeat themagain.
So you can see before she wasmaking roughly over 7,300
dividend income.
Now she's going to make over15,600 in dividend income.
(25:58):
That is an increase of 112percent.
So that is incredible, andremember we didn't add any more
money to the account, any newmoney, and we've more than
doubled her dividend incomeacross both accounts.
And, in terms of fees, she isnow going to save over 73
percent in fees over 20 years,which amounts to a little over
(26:22):
69,800 that she will save.
So in summary, of course, as Ijust mentioned in the previous
slide, over her lifetime she'sgoing to save over $69,000 in
fees.
We've increased her portfolioincome by 112 percent.
We've minimized the problemsover diversification.
(26:43):
So we went from 114 stocks tojust 46 stocks total, and now
Emma will continue to invest inIn quality companies that follow
the 12 rules of simplyinvesting.
So remember our approach, like Isaid in the beginning, was to
invest safely and reliably forthe long term, regardless of
(27:06):
what happens in the stock market.
So how do we do that?
We invest in quality, dividendpaying stocks when they are
priced low, and how do we knowwhen they're priced low and how
do we know when their qualitystocks.
We follow the 12 rules ofsimply investing, so you can see
the rules up on the screen.
I'm not going to cover themagain because we already talked
about them at the beginning ofthis episode.
(27:27):
So, if anybody's interested, wehave an online simply investing
course that covers all of thesein detail.
The course is Broken up into 10different modules.
There are video modules.
The first module, one, coversthe investing basics.
Module two covers the 12 rulesof simply investing.
Module three Applies shows youhow to apply the 12 rules using
(27:50):
real-life examples.
Module four we show you how touse a simply investing platform.
Module five show you how toplace your first stock order.
Module six, building andtracking your portfolio.
Module seven went to sell,which is just as important as to
know when to buy.
Module eight how to reduce yourfees and risk, especially when
(28:11):
it comes to mutual funds, indexfunds and ETFs.
Module nine, covering youraction plan.
And module ten, answering yourmost frequently asked questions.
So if you're also interested inthe platform as well, the
platform is an online webapplication that applies these
(28:32):
rules to over 6,000 companies inthe US and in Canada every
single day, so you can tellimmediately which companies to
consider and which ones to avoid, and so that makes it a lot
easier To invest.
If you're interested in thecourse or the platform, you may
want to write down this couponcode save 10 SAV e 1 0.
(28:56):
Save 10 is going to save you10% off of the course or the
platform.
If you enjoyed today's episode,be sure to hit the subscribe
button.
We have a new episode out everyweek.
Hit the like button as well,and for more information, take a
look at our website.
Simply investing calm.
Thanks for watching you.
In this episode, I'm going to show you how I saved a
client over $69,000 in fees andincreased her investment income
by 112% all without adding anynew money to her portfolio.
Hi, my name is Kamal Sarai andwelcome to the Simply Investing
(00:22):
Dividend Podcast.
In this episode, we're going tocover four topics.
The first topic is our approachto dividend investing.
In the next topic, I'llintroduce to you our client,
emma, and then, in the topicafter that, we are going to look
at Emma's previous holdings andthen, finally, we will look at
(00:45):
her new portfolio and see whatit looks like.
Let's get started with ourtopic number one our approach to
investing.
Now, our approach here atSimply Investing is to teach you
how to invest safely andreliably for the long term,
regardless of what happens inthe stock market.
(01:06):
Now, this approach is going tolower your risk, maximize your
gains, eliminate your fees asmuch as possible and reduce the
amount of time you spend on yourinvestments.
So how do we do that?
We do that by investing inquality dividend stocks when
they are priced low, when theyare undervalued.
(01:29):
So how do you know, when you'relooking at a stock, if it's a
quality stock and how do youknow that it's priced low today.
Well, for that I've createdwhat I call the 12 Rules of
Simply Investing, and we aregoing to use these 12 rules to
help build a brand new portfoliofor Emma.
So let's go through the rulesfirst, and then we'll move on
(01:52):
with the rest of the podcast.
If you're watching this, you cansee it up on the screen.
If you're listening to theaudio version, I'm going to go
through the 12 rules right now.
So this, basically, the 12rules here are your checklist,
and it was the same with Emma.
If a company or a stock failseven one of the 12 rules, you
(02:13):
skip it.
Move on to something else.
Skip the stock, take a look atsomething else.
So a company has to pass all ofthese 12 rules for it to be
even considered for yourportfolio.
So let's take a look at rulenumber one Do you understand how
the company is making money?
If not, skip it, move on tosomething else.
(02:35):
Rule number two 20 years fromnow, will people still need its
product and services?
Rule number three does thecompany have a low cost
competitive advantage?
Rule number four is the companyrecession proof?
And rule number five is itprofitable, which means does it
have a track record ofprofitability, and we always
(02:59):
look back at 20, 25 years ormore.
Rule number six does the companygrow its dividend?
Rule number seven can it affordto pay the dividend?
So for that we look at thepayout ratio.
Rule number eight is the debtless than 70%?
Rule number nine avoid anycompany with a recent dividend
cut.
Rule number 10, does the companybuy back its own shares?
(03:22):
And rule number 11, is thestock priced low?
And there we check for threethings.
We look at the PE ratio.
We want to make sure it's low.
We also compare the currentdividend yield to the company's
20 year average dividend yield.
We want to make sure thecurrent yield is higher than its
average yield.
And the third thing we look foris the PB ratio, the price to
(03:46):
book value.
So if a company meets all threeof those conditions, then it
passes rule number 11, and weknow that the company is priced
low.
It's undervalued, historicallyundervalued.
So that might be a good time toinvest in the company, assuming
it passes all of the otherrules.
And finally, rule number 12,keep your emotions out of
(04:10):
investing.
Okay, so now let's put all thistogether and we're going to
continue on to our second topicin this episode and we're going
to come back to the 12 rules andapply them, but for now, let's
continue with the next topic,introducing Emma.
Now, of course, I've changedher name to maintain her privacy
.
Okay, emma is a client that Ihad a meeting with last year.
(04:35):
We had discussed her currentholdings and looked at what her
new holdings could look like.
At the time she was age 54,married with two kids.
Her total portfolio size andthis is across both accounts,
the 401k and the IRA she had alittle over $572,000 in across
(04:58):
all of the accounts total andthe portfolio included a hundred
and sixteen individual stocksand then a total of six Funds
mutual funds, index funds, etfs.
It was a total of six.
Okay, let's move on to thethird topic.
We're gonna take a look at herprevious holdings, the current
(05:19):
holdings before she had met withme, and we're gonna take a look
at what was in there, how muchincome the portfolio was
generating, what kind of feeswas she paying, and then we're
gonna move on to what her newcurrent portfolio looks like.
So before I begin the nextsection here, I just want to
(05:42):
give you some assumptions thatI've used in Calculating the
fees for the mutual funds, theindex funds and the ETF Right,
because all of those funds havefees and they're known as an M E
R, the management expense ratio.
So up on the screen here youcan see there's an article to
our friends at nerd wallet comm.
(06:03):
It's actually a Mutual fundcalculator, fee calculator.
It's online so you can see thelink up on the screen.
I encourage everyone to trythat online calculator for
yourself.
You can add in your own numbersin there, depending on how much
you have currently invested inMutual funds, index funds and
(06:24):
ETFs.
You can then put in your owntimeline, whether it's five
years, ten, twenty, thirty years.
And Then the average rate ofreturn which I've used in my
calculations is 8.5%, and that'sbased on the fact that the
stock market Over the last 80years has returned on average
(06:46):
annually anywhere between 8 to11 or 11 or 12 percent.
So we're kind of staying on thelow end.
We're gonna put an 8.5 percent.
If the average rate of returnis higher, then naturally the
fees that you're paying on thosefunds is obviously going to be
higher as well.
Now, to keep things simple, forthe yearly contributions I've
(07:10):
used zero, which is in fact nottrue because Emma, to this day
continues to invest regularly inher retirement accounts.
So every month she has a setamount of money that she puts
into her retirement accounts.
But to keep things simple forthis episode and for our
calculations, I'm going toassume that as of today, she
(07:33):
doesn't contribute any more toany of the retirement accounts,
so the yearly or monthlycontributions are zero.
So the fees that I'm going toshow you are, in fact, even much
higher because Emma iscontributing to her funds.
So I'm going to show you thefees, but they will be on the
(07:54):
low end.
Okay, so let's get started.
Now that we've put theassumptions up on the screen,
let's move on to the firstaccount, which is Emma's IRA
account.
So remember, she's got twoaccounts there's the IRA account
and then there's the 401k.
Now the IRA account is thebigger one in terms of holdings.
(08:15):
So there's a lot of numbers onthe screen.
I'm not going to cover all ofthe numbers.
There's quite a few.
In fact, there's five slideswhich have a lot of numbers on
them.
Only because it's impossible toput all of the holdings up on
the screen in one shot, youwouldn't be able to read it.
The fonts would be too small.
So just a couple of things tonote here.
(08:36):
At the very top you'll seethere's a couple of funds that
she owns.
There's ETFs, there's an indexfund.
You can see the MER.
The fee is listed in the columnto the right and to the right
of that is how much she wouldpay in fees over the next 20
years if she held on to theseaccounts.
(08:56):
And you'll also notice she alsohas some money in a money
market account.
So that's also in there.
And the rest of the items on thescreen are the 116 stocks that
I talked about.
These are individual stocksthat she had bought over many
years and just kept adding to it.
(09:17):
So let's go on to the next page.
Again, same thing.
It's a list of stocks.
It continues.
If anyone's interested, you canalways pause the video and look
at it in detail, but I'm notgoing to go through them in
detail now, so let's just keepmoving on.
We're on the next page Again,lots of stocks.
What you'll notice here is a lotof them have a annual dividend
(09:39):
income of zero, and that'sbecause those are stocks that
don't pay any dividends.
Okay, so she's not earning anydividend income by holding on to
those companies.
And then, lastly, we'll keepgoing.
I think there's maybe one morepage here.
So again, lots of stocks here.
A lot of them don't paydividends.
On this screen you can see, andI think this is the last page.
(10:03):
So here we are, on the lastpage.
So the total value of all ofthe 116 stocks, plus some of the
funds, plus what's in the moneymarket, all of that is a total
of a little over over $437,000.
Total dividend income.
Annual dividend income,everything in her IRA account,
(10:26):
including the funds and thestocks, is a little over $7,000
a year.
So if we take that, we dividedby the market value, you can see
that her total portfolio yield,the dividend yield, is 1.64%.
So that's not that great.
Let's see if we can do muchbetter than that.
(10:48):
And in terms of the fees,because she did have a couple of
ETFs and index funds in thereover the next 20 years, she's
looking at paying a little over$7,800 in fees.
Okay, let's move on.
Now we're going to look at hersecond account, which is the
401k account, and this accountis a lot simpler.
(11:10):
There's only three holdings, soshe's got three funds in here
you can see.
There's the new horizon fund,there's a fidelity fund and then
there's a Franklin growth fund.
So just three.
You can see the market value.
Combined it's a little over$134,000 dividend income.
Not that great.
It's only about $200 in annualdividend income a year.
(11:32):
So you can see the portfolioyield is extremely low at 0.15%.
And here you can see the feesagain.
If she continues to hold on tothese funds, after 20 years she
will spend over $84,000 in fees.
After 25 years she will havespent over $155,000 in fees.
(11:56):
Now I know I'm going to getcomments on this and I know
those of you watching orlistening.
Of course her investments inthese three funds will grow over
time, over 20 years, over 25years.
Of course they will grow andthe link I gave you before to
Nerd Wallet's calculator willshow you how much it would grow
(12:16):
to.
Our focus here is let's justlaser focus on the fees
themselves, right, because we'regonna compare it to individual
stocks.
So individual stocks will also.
You know dividend stocks willgrow over the next 20 to 25
years, but those individualstocks don't carry an annual fee
.
These funds do carry an annualfee.
(12:38):
So that's why I want to pointout Anywhere from 84,000 to a
hundred fifty five thousanddollars in fees.
In fact, the fees would behigher.
Like I said before, we'reassuming her monthly and yearly
contributions are zero, but shedoes continue continue to
Contribute to her 401k accountas well.
(13:00):
Okay, so the only thing I wantto mention here with the 401k is
, because of her company, she isnot allowed in this plan to
purchase individual stocks.
She can only choose from a listof funds that are offered by
the company, and it's a smalllist of mutual funds, index
(13:20):
funds and ETFs.
So that's going to pose alittle bit of a challenge for us
to try and build a portfoliofor Emma, but we're gonna go
ahead and do it anyway.
So just keep that in mind.
Okay, let's move on.
So now I'm gonna put it alltogether.
We're gonna look at we lookedat the IRA account, we looked at
the 401k account.
(13:41):
Let's put it all togethercombined and See how much is
Emma paying in fees, and so youcan see here We've added up all
of the the funds that she had inthe IRA account.
They're up on the screen.
Then we add up the 401k.
She had three Funds in the inthat in the 401k account, so we
(14:05):
put them up on the screen and soyou can see if she remains
invested in these funds.
After 20 years she's looking atover $91,000 in fees.
After 25 years, over a hundredand seventy thousand dollars in
fees.
Okay, let's move on.
How much income is Herportfolio generating now?
(14:27):
Remember, we're still lookingat her previous holdings.
So now again, we're gonnacombine the IRA and the 401k
together so we can see here weadd up all of her holdings.
I did not list all hundred andfourteen stocks again on the
screen because it'd be too muchto list, but I've added it all,
added up all of the marketvalues and the dividend income
(14:49):
together.
So total portfolio Market value, not as of this recording, but
as of when we met last year withEmma.
So market value at the time wasfive hundred and seventy two
thousand dollars, a little overfive hundred seventy two
thousand Dividend income, alittle over seven thousand three
(15:10):
hundred dollars in income.
So you can see the portfolioyield is about one point two,
nine percent.
I Think we can do much betterthan that, okay, so now let's
move on.
This is a quick summary of whatI just stated.
So we're gonna move on.
We just combined both of theaccounts, and the other thing I
(15:32):
want to point out here is, ofcourse, the dividend yield is
low.
It's one point.
Two, nine percent.
The fees are quite high,anywhere from ninety one
thousand to hundred seventythousand dollars in fees.
And Also the number of stockholdings.
That is a lot of stock holding.
She owns a hundred and fourteenCompanies Stocks and that is a
(15:53):
lot.
That's too much.
If anybody's interested, go backand watch episode 44, where I
talked about what's wrong withtoo much Diversification,
because she does have a lot ofdiversification in here and it's
too much.
In fact, it's hurting herinvestment portfolio.
(16:15):
So I Encourage you to go backand watch episode 44 if you're
interested in learning about theproblems of having too much
Diversification.
Okay, so what's the solutionthen?
Right, the fees are quite high,the portfolio is
Overdiversified and the yield islow.
(16:35):
So let's take a look at thesolution now, which is our last
topic in this episode.
So what does Emma's newportfolio look like?
So remember, we're gonna followthe 12 rules, we're gonna Apply
the 12 rules, which you, I'vealready done and we're gonna
look for high quality, dividendpaying stocks that are
(16:56):
undervalued at the time lastyear when we met with Emma.
So we're gonna take a look at,of course, the 401k I just
showed you.
This is what she had.
So we're gonna do the 401kfirst and then we'll move on to
the other account.
So in the 401k this is I justshowed you the same slide a
couple of minutes ago she hadtwo, sorry, three funds the new
(17:21):
horizons, the fidelity and theFranklin growth and you can see
the fees Listed up on the screenjust to cross these three funds
.
Now I mentioned before, becauseof the company that where she
works and the company thatmanages 401k, she is not allowed
To buy individual stocks.
So we have to stick with a listof funds that are provided by
(17:45):
the company.
So what we did was to take alook at the funds, make sure she
had sufficient diversification,make sure that we could
maximize on her dividend incomeand make sure that we could
lower the fees, the MER, themanagement expense ratio, and
that's exactly what we did.
So you can see here we stuckwith just three funds.
(18:07):
She didn't need more than that.
Remember, too muchdiversification can be a problem
.
So we kept the Fidelity fund soit's still up on the page.
We added the Vanguard equityincome fund and then the
Fidelity 500 index fund, andwhat we did is we took the same
dollar amount, which was ahundred thirty four thousand
nine hundred dollars divided bythree, invested equally across
(18:30):
the three funds.
You can see the MER is muchlower than what she was paying
before and the dividend incomeIs much higher than what she was
receiving before, and so thefees are still there.
You can see, after 20 yearsshe'll pay over twenty six
thousand dollars in fees.
After 25 years She'll pay overforty nine thousand dollars in
(18:51):
fees.
But now if we compare thedifference, so let's take a look
at Before, which was the old401k Investments, and then we'll
compare it to the new, after wemade those changes.
So you can see that theportfolio yield went up from
0.15% to 1.6%.
(19:13):
That's good.
The annual dividend income wentfrom two hundred and two
dollars annually to over twothousand one hundred and fifty
five dollars.
So that's incredible.
That's an increase of ninehundred and sixty seven percent
in her annual dividend income.
Now remember we didn't add apenny of any new money into this
(19:36):
account.
We just took what was alreadythere and just redistributed
amongst the three funds that wesuggested to her, and you can
see that over 20 years and over25 years she will save over 67%
in fees.
So if we just look at the 25year mark, she went from would
(20:01):
have paid Over a hundred andfifty five thousand dollars in
fees to now paying over fortynine thousand dollars in fees.
So, right there, we've savedher a little over a hundred and
six thousand dollars over thenext 25 years.
So that's pretty good.
Let's move on now to the IRAaccount.
So Just a recap in the IRAaccount she had some money in a
(20:25):
money market fund.
She had a ETF and then twoindex funds and then, of course,
the hundred and fourteen stocks.
So you can see the total amount, you can see the dividend
income.
So we made a couple of changeshere.
So Emma decided, after we talkedabout the simply investing
approach, she had decided tosell her funds in the IRA
(20:48):
account, so the three funds thatwere there, plus the money
market fund as well, and Thenshe decided to sell the 78
stocks in her portfolio thatwere earning no dividends or
very low dividends, so where thedividend yield was one percent
or less.
So all of those got sold off.
She wanted to keep Apple, sothat's fine, the yield is low,
(21:14):
but it's a large company, it's ablue chip company, it's paying
a dividend.
She had bought it many, many,many years ago.
She wanted to hold on to it, sothat was fine.
So, out of a hundred andfourteen stocks, she kept 36 of
them, and so you can see those36.
The value was a little over twohundred forty five thousand
dollars, earning annualdividends of $6656.
(21:38):
So that remained unchanged.
She wanted to keep those 36stocks, so we left them where
they were now.
Having sold the 78 stocks andhaving sold the money market
fund and the other three funds,she was now left with a hundred
ninety one thousand nine hundredtwenty eight dollars to invest.
(21:59):
So what we did then was to gothrough the twelve rules of
simply investing Look forquality stocks, dividend paying
stocks that were priced low Lastyear when we had that meeting.
So what we did is we took thatmoney and divided it Equally
(22:20):
amongst the ten companies thatyou see up on the screen right
now.
So you can see that the totalmarket value is approximately
the same.
It's about a hundred ninety onethousand nine hundred dollars.
However, her annual dividendincome is now over six thousand
eight hundred dollars.
Now she still has the dividendincome from the 36 stocks that
(22:42):
she kept, but this is anadditional income over and above
what she would still bereceiving.
So here, with just these tencompanies, you can see that our
portfolio yield is over 3.5percent, so way better than what
she was getting before.
(23:02):
Now this list is not a buy list,because not.
These companies may not beundervalued when you watch this
video.
They may not even be qualitycompanies.
When you watch this video, theywere quality companies and
undervalued at that time.
Now I know some of you may lookat that list of 10 stocks and
say, well, it's not diversified,she's missing Stocks in other
(23:25):
industries and other sectors.
Well, what happened is Lastyear, when we put the portfolio
together, there were no goodquality companies that were
undervalued in those specificsectors and industries.
So we only have the ability tochoose from those sectors that
(23:46):
happen to be undervalued orthose stocks that have been
undervalued and Are qualitystocks at that time.
So what would happen is, as Emmaover the years has more money
to invest or has additionaldividend income to reinvest,
then at the time she would lookat okay, let's apply the 12
rules, what is undervalued today, what is a quality stock today,
(24:09):
and then pick and choose fromindustries and sectors that she
might be missing.
And that's how we Diversify ourportfolio as dividend investors
, how we diversify our portfolioover time.
It's very difficult to have awell diversified portfolio on
day one, so it takes time, butyou're going to build Over time,
(24:34):
you're going to have adiversified portfolio, okay.
So let's put all of thistogether here.
So I'm going to look at justthe IRA account and then we'll
combine both of them.
But let's one last slide hereon the IRA account.
So before, with 114 stocks, emmawas making $6,900 in dividend
(24:54):
income.
Now, with just the 36 stocksyou wanted to keep plus the 10,
so 46 stocks, so way less stocks.
Look at her dividend income.
It's gone up by over 95 percentin one year.
And again, we didn't add anynew money to the account, we
just took what was there andDistributed and reinvested that
(25:17):
money a lot better.
So her annual dividend incometoday, instead of being 6,900,
is now Annually is going to beover $13,400.
So that is a huge difference.
We've almost doubled her annualdividend income.
Okay, so now we're going to putall of the both accounts
together.
(25:37):
We've got the IRA account,we've got the 401k account and
let's take a look at thedifference so you can see all
the numbers on the screen.
So I'm not going to repeat themagain.
So you can see before she wasmaking roughly over 7,300
dividend income.
Now she's going to make over15,600 in dividend income.
(25:58):
That is an increase of 112percent.
So that is incredible, andremember we didn't add any more
money to the account, any newmoney, and we've more than
doubled her dividend incomeacross both accounts.
And, in terms of fees, she isnow going to save over 73
percent in fees over 20 years,which amounts to a little over
(26:22):
69,800 that she will save.
So in summary, of course, as Ijust mentioned in the previous
slide, over her lifetime she'sgoing to save over $69,000 in
fees.
We've increased her portfolioincome by 112 percent.
We've minimized the problemsover diversification.
(26:43):
So we went from 114 stocks tojust 46 stocks total, and now
Emma will continue to invest inIn quality companies that follow
the 12 rules of simplyinvesting.
So remember our approach, like Isaid in the beginning, was to
invest safely and reliably forthe long term, regardless of
(27:06):
what happens in the stock market.
So how do we do that?
We invest in quality, dividendpaying stocks when they are
priced low, and how do we knowwhen they're priced low and how
do we know when their qualitystocks.
We follow the 12 rules ofsimply investing, so you can see
the rules up on the screen.
I'm not going to cover themagain because we already talked
about them at the beginning ofthis episode.
(27:27):
So, if anybody's interested, wehave an online simply investing
course that covers all of thesein detail.
The course is Broken up into 10different modules.
There are video modules.
The first module, one, coversthe investing basics.
Module two covers the 12 rulesof simply investing.
Module three Applies shows youhow to apply the 12 rules using
(27:50):
real-life examples.
Module four we show you how touse a simply investing platform.
Module five show you how toplace your first stock order.
Module six, building andtracking your portfolio.
Module seven went to sell,which is just as important as to
know when to buy.
Module eight how to reduce yourfees and risk, especially when
(28:11):
it comes to mutual funds, indexfunds and ETFs.
Module nine, covering youraction plan.
And module ten, answering yourmost frequently asked questions.
So if you're also interested inthe platform as well, the
platform is an online webapplication that applies these
(28:32):
rules to over 6,000 companies inthe US and in Canada every
single day, so you can tellimmediately which companies to
consider and which ones to avoid, and so that makes it a lot
easier To invest.
If you're interested in thecourse or the platform, you may
want to write down this couponcode save 10 SAV e 1 0.
(28:56):
Save 10 is going to save you10% off of the course or the
platform.
If you enjoyed today's episode,be sure to hit the subscribe
button.
We have a new episode out everyweek.
Hit the like button as well,and for more information, take a
look at our website.
Simply investing calm.
Thanks for watching you.
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