Thanks to years of frugal living and disciplined investing, speaker and author Andrew Hallam is now helping you find your Balance.
Years ago, while working as a schoolteacher, Andrew published Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School, a guide to achieving financial independence. It remains (in our opinion), one of the best personal finance books published and a must-read for any Canadian investor.
You can check out that book and My Own Advisor’s interviews with Andrew at the end of this post.
Now, as someone who has found financial independence and then some, Andrew Hallam wants you to find your Balance including how to invest and spend your money to deliver a blend of happiness, health, and wealth.
Check out our Q&A with Andrew below, and our book giveaway as well.
Find your Balance with Andrew Hallam
Here at Cashflows & Portfolios, with one co-founder (Joe) semi-retired in his 40s already and the other guy (Mark) striving to get there in a few years, we often think about life satisfaction ourselves – given we’ve been working towards our own form of balance for years.
We recognize the huge role that balance provides for our relationships, our time, and our money. We’ve always believed the best things in life are usually not things.
In a previous interview with Andrew, on My Own Advisor, we’ll also link to below, Andrew shared what inspired him for the new book and how things have changed for him over the last few years.
For this site, with a more tactful approach to sharing investing knowledge from beginning to end and everything in between, we thought it would be good to ask Andrew his thoughts on asset decumulation, how he invests, if the 60/40 portfolio is as “dead’ as some experts proclaim and more to help you invest better now and for any retirement drawdown plan.
Andrew, welcome to our site and thanks for this!
A pleasure, Mark and Joe!
Andrew, so much has been written about asset accumulation and investing in low-cost products to help fund any sort of retirement. What’s your take on the asset decumulation puzzle? Do you think more should be covered in this area to help investors understand their options?
Mark and Joe, as I was washing my mud-soaked bicycle (in the dark) outside our condo in Victoria, B.C. in 2020, I struck up a conversation with a woman who had a place on the ground floor. She asked what I did for a living, and then basically posed the same question you did. She was an early retiree, and she was having a heck of a time figuring out how much she should sell from her portfolio each year and what she should sell. For several minutes, I was metaphorically speaking Swahili and she was listening in German. That’s my way of saying I was completely out of touch with what she needed.
I basically said, “Look at your portfolio value. Sell 4 percent of that portfolio this year, while maintaining your target asset allocation. Then next year, no matter how the portfolio fluctuates, give yourself a raise by withdrawing an amount that would cover inflation for that year. If you want to be more conservative, don’t give yourself an inflation-adjusted raise during years that the markets drop. This should allow your portfolio to last at least 30 years.”
For me (the metaphorical German speaker) this would be simplest for anyone with an all-in-one portfolio ETF because they would only need to sell one product. For someone with a handful of ETFs, it would be a bit tougher because they would need to sell in proportions that would allow them to maintain their goal allocation. For example, they should be trying to maintain the same percentage of Canadian stocks, US stocks, international stocks and bonds.
However, my neighbour had a hodge-podge of individual stocks, mutual funds and some ETFs. That’s the reality for most DIY investors, and it makes the decision of what they should sell far more difficult. Add that complexity to the question of RRSPS, TFSAs and taxable accounts, and yeah, there’s a huge market for help and education here.
Great stuff, Andrew. Can you share with our readers how you’ve constructed your portfolio to date?
If I rubbed a lamp and a genie came out saying, “I’m going to take you back to when you began investing, in 1989. But I am going to change the future. What would you buy?” Knowing the genie would change the future would destroy my hopes of loading up on Microsoft, Fastenal and Apple stock. So, I would bribe that genie with a bottle of whiskey (genie’s love whiskey) to make sure I could buy an all-in-one portfolio ETF. They didn’t exist in 1989, but with magical help, they would.
Because I began investing long before all-in-one portfolio ETFs were launched, I have a Canadian stock index, a US stock index, a developed international stock index, an emerging market index, a broad Canadian bond market index and a short-term Canadian bond market index. Don’t ask me the names and ticker symbols because I’m too lazy to look them up!
What low-cost funds do you own and why?
Oh man, you asked me!
When I first started investing, I always knew my stock and ETF ticker symbols. I looked at the portfolio values and knew how they were “performing.” I’ve had the same portfolio for years, and would have to either log in to my account or look up the symbols so I could tell you. And no, I’m not making this up. I don’t earn monthly income (my personal revenue stream is sporadic) so I don’t log in to my portfolio very often. In fact, I try to log in at least once every second month or so, just to make sure I remember the account passwords. And sometimes, when I log in, I look at the account’s value, but most of the time, I don’t care and don’t bother looking. I actually recommend that most people do the same.
My wife and I have two accounts. She’s American, and everything is invested in a Vanguard Target Retirement fund. It’s like an all-in-one ETF that includes a US stock index, an international stock index, a US bond index and a small allocation to an international bond market index.
My portfolio is similarly allocated, but because I’m not American, I can’t own the same product. The only allocation difference is that I have a Canadian stock component and a Canadian bond component.
We’re allocated roughly 60 percent stocks and 40 percent bonds.
Can you also share if you might change those funds as you continue to work on your own terms? Why or why not?
I believe (and there’s decent evidence to support this) that the less you tinker with your portfolio, the better you will perform over a lifetime. Some people might tinker and “come out ahead” over a brief period. I call 1 year, 5 years and ten-year periods brief….because they are. Your investment duration is your lifetime. I understand why some people might choose to alter their portfolio allocations as they age, to include more bonds, which would increase their portfolio’s stability. For the past 12 years, my portfolio has been allocated roughly 60% stocks and 40% bonds. And when I’m 98 years old, that allocation will remain the same…and I hope to go waterskiing on my 99th birthday.
We (Joe and I) happen to believe that inflation may be a real issue to combat in the coming years. What are you doing to combat inflation in your portfolio?
If you have built a diversified portfolio of stocks and you own a broad (or even better) short-term bond index, you won’t have to do anything to combat inflation. Over time, you will beat inflation. The less you tinker with your portfolio to adjust for inflation projections, political situations, market valuations, corporate earnings projections, Justin Bieber’s latest haircut, new nose hairs, etc., the further you will eventually fall behind someone as dull and boring as me.
Back to your portfolio Andrew, some experts have claimed any sort of 60/40 portfolio is essentially dead*. It doesn’t work for investors anymore. *Reference:
That’s short-term thinking. Such articles and sound bites attract plenty of attention, but acting on short-term thinking is hazardous to your wealth.
For example, in 1973, plenty of financial experts were calling for the death of equities because the markets hadn’t earned money for several years. That was short-term thinking. The Dow was at the same level in 1965 that it was in 1982. The S&P 500, including reinvested dividends, didn’t beat inflation for 17 years (1965-1982). That’s why experts said, “Stocks don’t make money. You probably shouldn’t own stocks.”
But what’s happening “now” whenever that “now” happens to be, is always a poor forecast for the future. That’s why I don’t agree with the death of the 60/40 allocation.
Consider bonds. Yields are low. As such, it’s easy to call for “the death of bonds” much as it was easy to call for the death of equities in 1973. But does anyone know what newly issued bonds will yield in 2026, 2032, and 2043?
Anyone who says they know is either mentally deluded or they have superpowers. If they have superpowers, they should stop wasting their time reading this and go out and save someone’s life.
I don’t recommend individual bonds because they can be eaten by inflation. But most of my bond money is in a short-term bond market ETF. When a bond within that index matures, the provider replaces that bond with a newly issued bond of the same maturity length. For example, a maturing one-year bond would be replaced by a new 1-year bond. A maturing 3-year bond would be replaced by a newly issued 3-year bond. As bond prices drop, I get a better deal. And as inflation rises, newly issued bonds (not old ones, only newly issued bonds) will reflect that with an increased interest rate.
More importantly, when stocks crash 40% or more, anyone with a short-term or broad bond index can rebalance their portfolio…essentially being greedy when others are fearful. And stocks will crash hard. When? Nobody knows. It could be this week or a decade from now. But it will happen. That might sound like a prediction. But it’s as predictive as saying, “Sometime next winter, it will snow in Quebec.”
Finally, we’ve written a few articles suggesting the RRSP should be exhausted before tapping any TFSA assets – meaning, it might be best to leave all TFSA investments until old age for the tax-free portfolio efficiency this account provides and transferring any estate benefits.
Finally, do you have a recommended portfolio drawdown order? If so, what is that?
I don’t have a recommended draw-down order, and to be honest, as a non-resident Canadian, I haven’t looked into this, so I recommend your readers look carefully and consider the articles you have written in the past.
Love it – thanks, Andrew!
Find your Balance with Andrew Hallam summary and giveaway
Readers, as you can appreciate, we are big fans of Andrew’s work, journey and messages.
We want to thank Andrew for his time and offering a copy of Balance to give away below. If you have questions for Andrew, please drop those in the comments section. Andrew will do his best to reply to all questions on the site!
If you haven’t already checked out Andrew’s previous work, see below:
Learn more from Millionaire Teacher and the 9 rules of wealth that should be taught in school.
It’s always fun to catch up with a successful digital nomad.
Enter below to win a chance to win a copy of Balance for one lucky reader!
Ideally, but not realistically, you never sell anything because your dividends cover your withdrawals. Would be kind of hard to cover those 20% mandatory withdrawals in your 90’s (unless that genie really liked your brand of whiskey)
Otherwise, when it becomes necessary, I would consider cashing in the equity paying the lowest dividend. That would, I believe, draw out the RIF/LIF to their maximum.
RICARDO
That’s a fair plan for many Ricardo, slowly drawdown assets given dividends over your withdrawal needs certainly early in retirement to avoid any negative sequence of returns risks.
I think Andrew’s book definitely sounds like it’s worth a read. Although I already have a firm investment philosophy in place, I often nudge it a bit by reading what authors in the field of investing have to say and implementing complementary strategies that make sense to me.
Great stuff and good luck Jo! Andrew is more conservative than most with his 60/40 portfolio but I think he also have enough assets to help him sleep at night as well! Even if you don’t win a copy from our giveaway, we hope to get a copy of the book. Very worthwhile as a set of reminders for any path ahead.
CAP
I’m hoping to retire in 7 years and learning all I can.
Great stuff Mike and we hope you keep reading here too!
CAP
Real interesting take on this. As a former teacher I assume that Andrew has a good defined benefit pension. With this, CPP and OAS you have one great big bond proportion for a portfolio. This is the situation my wife and I are in, and as such am hugely weighted toward Canadian stocks. With this said I am always looking to learn from other’s perspective and tweak a bit as I go along.
Thanks for another great article.
You got it Rod. We feel anyone with a DB pension (a “big bond” per se), and CPP and OAS coming online, you can likely take on ample equity risks (including dividend paying stocks in Canada for tax-efficient dividends) for even more juicy income in retirement.
We appreciate the kind words about our site.
CAP
Hi Rod,
It sounds like you have strong multi-revenue sources for your future!
I only worked for six years in the public system, so I won’t receive much of a pension.
But it sounds like you are going to kick butt. Nice work!
Yesterday I watched a video of someone proclaiming the death of bonds. This article reassured me that I should not liquidate my bond ETFs. I do have a 70% weighting in equities and was pondering whether to increase that share. Having read the interview with Andrew, I think I will stay the course. Thank you for broaching this topic of decumulation.
We’ll let Andrew weigh-in on his specific thinking but we believe whatever risk tolerance plan you have, is a good one to keep since that can help you stay invested not if, but when, things get choppy.
Let us know if you have some other decumulation questions Brian, happy to help tackle via some articles and/or case studies.
CAP
This was a great interview, thanks guys! Quick question: I recently watched Ed Rempel video on the risk of bonds to one’s retirement https://www.youtube.com/watch?v=q_ZVWRbF0dA. Ed firmly recommends to not own any bonds in the investment portfolio for a long time investor. As much as I understand Andrew’s explanation of the 60/40 portfolio and Ed’s take on owning a 100% equity, it seems contradictory and confusing. Andrew, I am curious to know why you chose the 60/40 over a 100% equity portfolio, as it seems that equities have performed better than bonds over many years in the past. Thanks!
Great question Sam.
We’ll let Andrew reply but we know many advisors who recommend an equity glide path as you enter and sustain retirement. Have a search on that and I’m sure we’ll write about that topic ourselves over time. The reality is, we believe there is no perfect portfolio asset mix but rather only one you can stick with over time that 1. meets your investing objectives and that 2. meets your income needs.
I suspect Andrew will reply something to the effect that investors need or should only take on more risk to meet their investing objectives and income needs, and nothing more. He’s in that place now for sure!
What mix is good for you? Thoughts? How do you know?
CAP
Sam – I watched the same Rempel video and came to the conclusion that his approach would make sense to me if I were in my thirties. However, I turned 70 this year and am thinking I need to be a bit more conservative. Both my wife and I had defined contribution plans the only guaranteed pension income we have is CPP and OAS – full benefits for both of us. Presently I am 70/30 equities to fixed and plan to hold that course for a few more years as my wife is six years younger. I can see Rempel’s argument working for someone in their 30s. At this point, I am blessed to have sufficient assets to the point where some would say I have won the game and why take excessive risk now.
I have a question for Andrew:
How much of a dip would your portfolio have to suffer before you drew on your cash reserves/cash wedge instead of selling?
Thanks
Great question. I hope for Andrew to chime and I will flip him this question to reply to!
Cheers Bob,
CAP
Hi Sam,
Excellent question. I have never had the nerve for 100% equities. Most people don’t…but they think they do. For example, US stocks didn’t beat inflation from 1965-1982. But rebalancing with a bond index each year would have allowed investors to beat inflation, and the portfolio wouldn’t have fallen as hard during the market collapse of 1973-1974. US stocks didn’t beat inflation from 2000-2012 either, but a balanced portfolio would have. So…while stocks win, long term, here’s the important part to remember: it’s not how an allocation performs that counts. It’s how the investor will perform with that allocation.
Cheers,
Andrew
Hi Bob,
Are you referring to selling during retirement? I don’t have a cash reserve or a cash wedge.
Cheers,
Andrew
Hi Bob,
Are you referring to selling during retirement? I don’t have a cash reserve or a cash wedge.
Cheers,
Andrew
…unless a cash reserve or cash wedge is an emergency fund. I have one of those, with constantly fluctuating amounts…because I add to it, and take away from it. Life.
Hi Andrew,
Yes, I’m referring to when in retirement, and yes, an emergency fund could also be known as a cash wedge.
I suspect that many people will need to sell a portion of their portfolio annually to cover their living expenses, and I also suspect that these same people will have some cash in the bank for emergencies. My question is about trying to understand at what point in a market downturn, e.g. -15%, should they consider using the cash they already have to cover their expenses, and defer the sale of the equities until the markets recover.
Thankse
Hi Bob,
My philosophy is to use the 4% rule as a guide (and not a hard and fast rule) regardless of how far the markets have fallen.
I explain my views here:
https://assetbuilder.com/knowledge-center/articles/retirements-4-rule-should-be-a-guide-not-a-rule
Same with us Bob and Andrew – the 4% rule is a decent guideline and starting point but hardly one that should be followed. Especially true for FIRE folks 🙂 age 55 or younger.
https://www.cashflowsandportfolios.com/why-the-4-rule-doesnt-work-for-early-retirement-fire/
Thoughts?
CAP
Thanks Andrew, your feedback is much appreciated.
Andrew’s comment above “it’s not how an allocation performs that counts. It’s how the investor will perform with that allocation” was an absolute mic-drop moment for me!
I’ve come to understand how investing is more about psychology and personal values than anything else. The best investment strategy is the one you can stick to in moments of crisis.
Andrew’s messages from his book Balance about true wealth coming from health, relationships and life experiences really resonate with me very much as someone in his 50s. It’s become one of my favourite books, along with his others.
BartBandy, you just made my day. Thank you!
Thanks for your reply, it means a lot to me! You’ve been a tremendous source of inspiration for me through your writings and insights – first about investing and recently about what it means to live a purposeful life. I’ve shared your books with family and numerous work colleagues – all who are very appreciative of them. I don’t know what is next for you, but I sure look forward to it!
BartBandy,
I’m so glad you like that book. Thanks for sharing it!
With my head bowed low and hat in hand, I was wondering if you might do me the honour of a short Goodreviews review of Balance. Even just a single-lined review would be amazing. I want to really respect your time. If you can help, here’s the link to the book on Goodreads. Thanks so much!
https://www.goodreads.com/en/book/show/59986564
Hi Andrew,
With pleasure – I just posted a review on Goodreads. I hope it helps to encourage others to read it. Thanks very much for stopping by and commenting on Mark’s site!
Great stuff Bart and thanks for your nice comment/contribution. 🙂
CAP
Thanks so much, Bart. I love it!!
Hi! So, excellent info as always! I have a question about the 4% rule. Bob asked above how much of a dip in the market would you then dip into your emergency fund/cash wedge. Would it be 4% dip in the market as that is the magic number of draw down on the portfolio, so-to-speak?
Nice to hear from you Rhonda!
I believe for Andrew (he should be able to reply), I believe his plan is to systematically sell of assets of 60/40 allocation over time to fund his retirement.
When it comes to the 4% rule, the challenge is sticking to that “rule” is it becomes very rigid. We believe (at CAP) that just like saving and spending is dynamic in your asset accumulation years, the same applies in your asset decumulation years. That means in a “bad year” you might consider spending 3.5% of your portfolio and in a great market year of 10%+ returns or more, you might consider a 4.5% withdrawal rate. We (CAP) believe having some guardrails to work with is ideal – and of course re-planning but always getting some new projections to see if you’re spending too fast or not enough.
Thoughts?
Andrew?
CAP
Hi Rhonda and CAP,
I don’t have a cash wedge, and I don’t think you need it (unless you’re talking about an emergency fund for unexpected house repairs etc). With respect to withdrawal rates, I don’t think so much about selling off 3.5% in a “bad year”or 4.5% in a good year because I believe the percentage calculation should only be done once: as a base amount during the first year of retirement. After that, I don’t think we should think in terms of percentages. I’ll explain what I prefer, while providing full disclosure that I’m a fallible human being who loves to keep things simple.
For example, if we have a million dollars, we could begin by withdrawing 4% in year one of retirement. That sum would be $40,000. If the following year represents a “down year” of any magnitude we could (if we’re being conservative) decide not to give ourselves an inflation adjusted increase that year (to increase safety), therefore withdrawing $40,000 again, or slightly reduce the amount we sell in that second year. That reduction might involve withdrawing $38,000 instead of $40,000. I agree with CAP, that we should be flexible with the 4% “rule.” I wrote about that in more detail here: https://assetbuilder.com/knowledge-center/articles/retirements-4-rule-should-be-a-guide-not-a-rule
The more amusing part to this (in my warped opinion) is that the vast majority of the time, people could withdraw an inflation-adjusted 4% per year (no matter what the market does) and die with more money than they started their retirement with. People are often so afraid of worst-case scenarios that they base much of their strategy on them. That’s not a bad thing. But, it’s also likely to leave a lot of money on the table for a lot of people. I wrote about that here: https://assetbuilder.com/knowledge-center/articles/the-biggest-risks-of-the-4-percent-retirement-rule
Great stuff Andrew.
We (CAP = Mark and Joe) see a cash wedge as a large emergency fund both to access if/when you need it AND to ride out stock market volatility.
https://www.myownadvisor.ca/the-cash-wedge-managing-market-volatility/
You actually don’t have to sell any assets if you don’t want to 🙂
We agree, selling off a base amount during the first year of retirement but also every year in retirement. A variable withdrawal strategy is actually much better than any 4% rule.
https://www.kitces.com/blog/the-ratcheting-safe-withdrawal-rate-a-more-dominant-version-of-the-4-rule/
This way, as Kitces puts it:
“Notably, while this simple ratcheting 4% rule dominates the outcomes of the “traditional” safe withdrawal rates approach, there is clearly still room for further research about other/”better” ways to apply ratchet thresholds, as well as the magnitude of the ratcheted spending increases. For instance, given that some scenarios have truly extraordinary excess wealth – e.g., those who retire on the eve of a significant bull market – it may be feasible to apply a second threshold, perhaps more than 200% of initial wealth, where even greater spending increases can be applied.”
You may not need to ratchet down, but you can of course 🙂
As such, we (CAP) believe you should be VERY flexible with any 4% “rule” because the rule is really just a starting point and life, like spending needs, is never a straightline.
I would be shocked, although Andrew can confirm, if his spending has been constant for 20 years let alone the last handful 🙂
CAP
You are right. As someone who doesn’t live in a single place, my annual spending is far, far more erratic than most people’s would be. My view on retirement is also different to most. I simply don’t think most people should fully retire at all. 🙂 Research suggests it’s better for most people’s health to keep working, at least, part-time. That also puts a different spin on those looking for concrete financial solutions to sustainable withdrawal rates. The essence of life is its unpredictability. And that’s all part of the fun.
We agree Andrew – re: semi-retirement is the way to go. That’s Joe for the last 1-2 years! 🙂
My plan (Mark) is also semi-retire and always has been for the reasons of having a purpose, a reason to contribute to society, make a bit of money to help with any spending (or fight inflation) and many other reasons. I don’t get 100% retirement actually or at least jumping to that right away but I’m also in my 40s and I see a world of opportunity ahead (like Joe).
Mark/CAP/Joe
This is all great info!! Thank you, CAP and Andrew for these very insightful answers!