Programming, Investing and FI

Experiment – Let’s test some portfolios!

Building portfolios is something I am really experiencing recently. To help me, and I invite you to follow along, I’ve started a free account on Investopedia stock trading simulator platform. By doing so, you can create a game with a set amount of fake money to experience investing before doing it with your hard earned money.

This post might help people who want to become financially independent or simply want to invest but are not sure where to start. I will proceed by creating a series of sample portfolios and explaining my personal choice of asset for each of them. They will have their separate post to simplify the reading but this one will be the index. Feel free to comment or suggest things that I could change, I am open to new ideas as well as knowledge sharing!

The Setup

Your Goal

The first step is to set your goal for every portfolio you want to build. Also take into consideration if it’s a tax free or a tax differed account because it might impact your investment choices. In all cases, fixing your goal is more important and will be done even before starting to show some pie charts! This is how I am going to proceed for every sample I will create.

Stock Broker

For real stock trading like ETFs, you need a stock broker like RBC Direct Investing, Desjardins Disnat, ScotiaBank iTrade or any other broker. The online brokers are better in my opinion because they tend to cost less and they let you do whatever you want without influencing your choice. Still, that leaves you on your own, be sure to do some research.

Simulator

If you don’t feel comfortable at the moment, you can still open a “fake” broker account. Sometimes even your bank’s broker offers this service. Or you can rely on Investopedia as I do! Create an account, login, and you are ready to go!

You can create a new game with your own parameters and buy stocks for 100 000$ (or whatever the amount you choose). This amount will vary depending on the portfolio I will build, I want to set realistic goals and keep it simple at the same time.

Investopedia Game

Quick Guide on How to Trade Shares

Here is how to trade shares and how I do to calculate the number of shares I need. As I say, most of the systems, being real or fake, work sort of the same way.

Let’s say I have a 30 000$ portfolio and I want to accomplish the CalmSeas portfolio with it. The proportions are:

  • 25% in VAB
  • 25% in VBU
  • 20% in VCN
  • 30% in XAW

I simply calculate VAB by doing 30 000 x 0.25 = 7500. This gives me 25% of 30 000$ which is 7500$. I then need to buy 7500$ of VAB shares to meet with the portfolio proportion. Then I will be repeating the same steps for every other part and that’s it!

Here is a quick look at the target final amounts. I strongly suggest that you create a pie chart in an Excel spreadsheet to keep track of 1. your goal, 2. the target portfolio, 3. the current portfolio to the rebalancing date.

  • 25% in VAB – 7500$
  • 25% in VBU – 7500$
  • 20% in VCN – 6000$
  • 30% in XAW – 9000$

VAB Shares Trade

In the preceding screen, I buy 290 shares of VAB at 25.83$ each and I set a limit to make sure it doesn’t go up to high. In fact, there is a delay between the time the order is filled by you and the time that it’s processed as stock prices can go up or down during that time. The limit prevents these fluctuations from affecting your total amount. Remember that you don’t need to be dead on for the totals. For example, if I trade for 7480$ or 7520$ it doesn’t really matter, as long as you roughly follow the percentages you should be fine. Also, you cannot trade half shares with ETFs like you can with mutual funds and don’t forget about the trading fees. In our case I’ve set them to 9.99$ per trade.

After you’ve clicked on preview order, you will be sent to a screen similar to the one below (but with VAB trading and not VCN).

Trade Confirmation

Review your order and if everything is right, then place it. It should take a few minutes to get processed if the stocks are available at the price you asked and that’s it!

Let’s experiment!

The Strategy

I intent to create one game per portfolio and then buy everything I need in a “one strike” fashion. Every 6 months, I will do a come back on how the portfolios have performed and every year I will rebalance as best as I can with the dividends. I suggest that with real portfolios, you rebalance with your inflow of cash instead of selling securities unless you cannot put enough money to be able to rebalance.

I will try to create different types of portfolios for different profiles and you can modify them for your needs. Before we begin, I just want to reiterate that even if I’ve been doing this for a while now, I am by no means an expert, I simply follow logic, rely on my past experience and read the fact sheets to better fit the portfolio with its goal. You can do just that as well!

Finally, since I want to follow a passive investing strategy, I will use ETFs with a buy and hold method and take management fees into account. This method has proven positive results over the long term and that’s exactly why I am using it.

You Should Read A Bit More

If you would like to read a bit more before diving in, I recommend Vanguard’s guide to investing. That document will give you a basic understanding on the principles I will use during this experiment as well as some basic investing knowledge.

Portfolio Creation

Names will be assigned to each portfolio to simplify the references and quickly give you an idea of how aggressive it might be. Starting by the most conservative going to the most aggressive. Below are the links to the created and maintained portfolios at the moment, one blog post per portfolio to shorten the size of the analysis to a few pages only. Portfolios might change slightly over time and will be updated here if they do.

Portfolio: Calm Seas

Link to portfolio definition.

Calm Seas Portfolio

Portfolio: Perfect Balance

Link to portfolio definition.

Perfect Balance Portfolio

Portfolio: Easy, Lazy

Link to portfolio definition.

Easy Lazy Portfolio

Portfolio: Mine

Coming soon

Mine Portfolio

Fact: this one is actually my TFSA portfolio.

Portfolio: All Out!

Coming soon

AllOut Portfolio

Portfolio: Complexify, Diversify

Coming soon

Complexify, Diversify Portfolio

Warning: remember that, in the real world, you should always keep an emergency fund in case you need money quickly. It is suggested to keep from 3 to 6 months depending on your situation. Also, make sure you do a good analysis of your needs before investing (goals), that might change how much risk you’re going to take.
These portfolios are sample that you can modify to your needs and do not guarantee returns or that you will not lose money. Invest wisely.

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