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How this former Nortel employee invested his way to a comfortable retirement at age 49

David Ha’s retirement is funded by selling portions of his long-term holdings. As for running out of money, he’s not too worried: His assets exceed $1-million and his wife has stable employment with a good pension plan.

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David Ha

Occupation

Retired engineer

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The portfolio

A conservative tilt with a focus on balanced funds, notably Mawer Balanced Fund; also has shares in solid companies such as Royal Bank of Canada and Ciena Corp.

The investor

David Ha achieved his goal of early retirement at the age of 49. But it was a roller-coaster ride getting there.

He worked at Nortel Networks Corp. for many years, accumulating shares in the company through the employee stock purchasing plan. At the height of the dot-com bubble in 2000, he had become quite wealthy. But his holdings came crashing down during the ensuing bust.

"I didn't sell at the time because I didn't want to pay the huge capital gains tax and I was planning to use the investment for retirement purposes," Mr. Ha recounts. "I have since learned that we should invest based on investment analysis, not anything else like taxation, emotions and so on."

After Nortel went bankrupt in 2003, his division was acquired by Ciena Corp. He participated in their stock purchasing plan and held onto his shares while most of his colleagues from Nortel sold quickly to lock in the small profit from buying at the company discount.

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They were in the grips of what some financial advisers call "recency bias," meaning they were letting their experience with Nortel's shares shape their subsequent investing decisions instead of following a rational approach. As Mr. Ha told his colleagues, "working in the company gives us better clarity on how well the company is doing," and since Ciena was doing well, there was no reason to sell right away.

As his capital gains became significant, he sold off portions of his holdings. "I have recovered much more than my Nortel investment loss," he says.

Now in his mid-fifties and with the children beginning careers of their own, he and his wife have time to enjoy a more relaxing lifestyle. A favourite pastime is travelling to destinations around the world.

How he invests

What also helped was Mr. Ha's decision early in his career to quickly pay down mortgages. The one on their starter house had an interest rate of 11 per cent and took 13 years to pay off. The mortgage on their second and current house took just five years to eliminate. "Imagine the interest we saved," Mr. Ha says.

With no mortgage payments to make and a commitment to living below his means, savings were then funnelled into the stock market. At first, he was an aggressive, short-term investor. Then he "gained more investment knowledge from books and online forums."

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A main holding now is the Mawer Balanced Fund. As the name suggests, it follows an approach that smooths fluctuations in value and produces steady returns.

The shine has gone off mutual funds in recent years as awareness spreads of their high annual management expense ratios (MERs). The Mawer Balanced Fund is an exception to the rule.

Purchased directly from Mawer, the fund has the annual MER of 0.97 per cent, which is way below the average. Furthermore, Mawer Balanced is one of the few funds with a consistently superior track record: Over the past 15 years, it has surpassed its benchmark by 2.5 percentage points a year, on average.

Mr. Ha especially likes the convenience and low maintenance. The fund's units provide a complete portfolio solution that can be put away and "forgotten in an RRSP account."

Funding his retirement

Mr. Ha does not have a pension. Retirement is funded by selling portions of his long-term holdings. As for running out of money, he's not too worried: His assets exceed $1-million and his wife has stable employment with a good pension plan.

Best move

"Buying and selling Ciena stock."

Worst move

Many years ago, when visions of "making a million dollars in 10 years" danced before his eyes, he invested in hedge funds with great returns in previous years. "But as they say, past performance does not guarantee future results," Mr. Ha notes.

He found that his hedge funds were lucky to have invested in a sector that was hot for a time. Or they took aggressive risks that paid handsomely until the odds caught up with them and a meltdown occurred.

Advice

"I have learned to only invest in funds that show exactly what they invest in, so that I can understand how the past results were achieved," Mr. Ha says. Also, he prefers "to invest in conservative funds, which are not as exciting but have more consistent returns."

More importantly, "keep learning about all aspects of investing through past experience, books, online forums and other sources."

Want to be in Me and My Money? Contact Larry MacDonald at mccolumn@yahoo.com.

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