Getting Started

This memo is a guide to building lasting wealth through clarity, discipline, and simplicity.

This memo is written for Canadian investors, but the principles are universal: save consistently, invest simply, stay diversified, control costs, remain tax-aware, and give compounding time to work.

Compounding Simplicity is rooted in one idea: wealth is usually not created by chasing complexity, timing markets, or finding the next great investment. It is created through simple, repeatable actions done consistently over long periods of time.

Save. Invest. Rebalance. Stay disciplined. Avoid major mistakes. Let time do what it does best – compound.

Whether you are starting from zero, building surplus capital, or looking for a reliable strategy you can trust, this memo is designed to give you structure and guardrails. It can help you invest with less stress, avoid the traps that derail many investors, and stay focused when markets, headlines, and life get noisy.

The goal is to give you a practical way to think about investing and long-term wealth creation. You may choose to apply these ideas yourself, or you may decide you would rather have help with the execution, monitoring, rebalancing, tax awareness, and behavioural discipline required to stay on track.

Either way, the philosophy is the same. You need a system simple enough to understand, strong enough to follow, and durable enough to last through real life. This is where the process begins.

Who This Memo Is For

There are many ways to compound wealth.

Some people build wealth through operating businesses, real estate, private investments, concentrated ownership, entrepreneurship, or other forms of capital allocation.

This memo is not suggesting there is only one way to build wealth. It is also not suggesting that every investor should hold only public equities, or that one portfolio fits every stage of life. Many families own businesses, real estate, fixed income, or concentrated positions.

This memo is focused on one important part of the wealth picture: building and maintaining a simple, disciplined, tax-aware public-market portfolio.

It is written for business owners, professionals, and families who want public equity ownership, but do not want investing in public markets to become another full-time job. It is not for people looking for stock tips, market predictions, trading strategies, or the next exciting investment idea.

The principles are simple on purpose. Some people may apply them on their own. Others will not want to manage the implementation, monitoring, rebalancing, tax awareness, and behavioral discipline themselves.

For those people, Compounding Simplicity Investment Partnership is designed to help.

The goal is not to make investing more complicated. The goal is to make a simple philosophy easier to execute, maintain, and follow over time.

Either way, the purpose is the same – to help you build wealth with more clarity, fewer distractions, better decisions, and greater discipline.

The Real Problem

Most people know they should invest, avoid emotional decisions, and think long term.

The real problem is that knowing this is not the same as having a system you can actually follow.

I have seen this many times over the years. Someone has investments, but the strategy is scattered, expensive, overly complicated, or not very tax-aware. Usually, the problem is not effort – it is the absence of a clear process.

It happens because life gets busy. Markets get noisy. Headlines create fear. Good intentions get delayed. And without a clear process, wealth creation becomes reactive instead of intentional.

That is where the damage often happens.

Not in one big mistake, but in a series of small interruptions – chasing what has already gone up, selling when markets fall, creating unnecessary taxable events, or changing strategies every time the world feels uncertain.

Compounding simplicity is a repeatable framework.

Simple enough to understand. Disciplined enough to follow. Durable enough to last.

First, You Need to Save

Before you can invest, you need capital.

Investment strategy matters. Tax efficiency matters. Portfolio construction matters. But none of it begins until money is intentionally
set aside and put to work.

For business owners, professionals, and families, this often means making deliberate decisions with surplus income, bonuses, dividends, or cash that has built up over time.

In our family, we have always used what we call a personal spending plan – not a budget. The distinction matters. A budget can feel restrictive, as if every dollar needs permission. A spending plan starts with the big priorities first: save intentionally, pay taxes, protect the future, and handle the major obligations. Then, with the money that comes home after those priorities are handled, we spend it happily – without second-guessing or constant debate over small decisions.

The structure does the work. It allows us to enjoy life today while still honoring the future. Saving gives you control. It creates options. It gives compounding something to work with.

Understand Compounding

To build wealth, you first need to understand the power of compounding – a force that quietly multiplies your efforts over time.

Compounding happens when your investments generate returns, and those returns begin generating returns of their own. This “interest on interest” effect can feel slow at first, but over long periods of time, it can become incredibly powerful.

Picture dropping a stone into a still pond. The ripples widen, layer by layer, reaching far beyond the initial splash. That is compounding: small actions today expanding into meaningful results tomorrow.

Compounding rewards patience, discipline, and restraint. It does not require constant activity. In fact, one of the biggest mistakes investors make is interrupting the process unnecessarily – by trying to time the market, chasing trends, sitting in cash too long, or reacting emotionally when markets fall.

Today’s investments are tomorrow’s freedom. Today’s learning is tomorrow’s wisdom.

The goal is to save consistently, let your money work, and aim for a repeatable return. That raises an important question: what is a good return?

Understanding Investment Returns

Compounding is powerful, but the rate of return still matters.

A small difference in annual return can create a large difference over long periods of time. For example, investing $10,000 per year for 40 years at 6% grows to approximately $1.5 million. At 9%, it grows to approximately $3.4 million. At 20%, the type of long-term return associated with Warren Buffett, it would grow to approximately $73.5 million.

Of course, we would all like to emulate Warren Buffett and compound capital at 20% for decades. That kind of return creates extraordinary wealth. But most of us are playing a different game.

Buffett has spent his life studying businesses, allocating capital, controlling his emotions, and thinking independently. Business owners are building businesses. Professionals are building careers. Families are managing real life. Most people care about investing, but they are not spending every day reading annual reports, studying markets, and making capital allocation decisions.

Even professional investors struggle to outperform broad market indexes over long periods of time. The SPIVA research from S&P Dow Jones Indices has measured actively managed funds against their index benchmarks around the world for more than 20 years. The lesson is consistent: longterm outperformance is difficult, even for professionals. That does not mean no one can outperform. It simply reminds us that beating the market consistently is a much harder game than it appears.¹

In my experience reviewing hundreds of portfolios over more than two decades, many professionally managed portfolios end up looking similar: balanced, diversified, often heavily tilted toward Canada, and frequently producing lower long-term returns than broad equity markets. That does not make them wrong. But it does raise an important question: is the investor receiving enough value after fees, taxes, behavior, and complexity?

For most people, the goal should not be to beat the market every year. The goal should be to capture a reasonable share of long-term market returns while avoiding the major mistakes that interrupt compounding. This is where simplicity matters.

A low-cost, diversified investment approach gives you the chance to participate in long-term market growth without relying on predictions, stock picking, or perfect timing. It may not feel exciting, but exciting is not the goal. The goal is to build a system that can be followed for decades.

Historical Market Returns

Before building an investment strategy, it helps to understand what broad markets have delivered over long periods of time. No one knows what future returns will be. Markets do not move in straight lines, and past performance does not guarantee future results. But history gives us useful context.

Over long periods, broad equity markets have rewarded patient investors who stayed invested through recessions, inflation, interest rate changes, political uncertainty, bear markets, and periods of fear.

One useful way to measure this is the compound annual growth rate, or CAGR.

CAGR simply means the average annual rate of return an investment would have earned if its growth had been smoothed out evenly over the full period.

Actual returns never arrive in a straight line. Some years are excellent. Some years are painful. Some years do very little. But a positive long-term CAGR, rooted in historical results, shows how broad ownership of productive businesses has rewarded disciplined investors over long periods of time.

What was the long-term annual compounding rate for various markets?

As of December 31, 2025:

US – S&P 500 Index: approximately 10.02% per year² over the last 100 years
World – MSCI World Index: approximately 9.07% per year³ since inception in 1987
Canadian – S&P/TSX Index: approximately 8.35% per year⁴ since inception in 1979

These numbers are not predictions. They are historical reference points. The lesson is not that markets move smoothly. They do not. The lesson is that, over long periods of time, broad ownership of productive businesses has historically created meaningful wealth for disciplined investors.

Run Your Own Numbers

You can test your own assumptions using a simple future value or compound interest calculator.

Try changing the starting amount, annual savings, rate of return, and time period. Small changes can create very different outcomes over 20, 30, or 40 years.

The purpose is not to create a perfect forecast. The purpose is to see what becomes possible when saving, time, discipline, and compounding start working together.

The most important question is not whether the numbers look exciting on paper. It is whether the approach fits your philosophy, your temperament, and your goals.

Could you stay with a simple plan long enough to give compounding the chance to change your future?

A free calculator is available here.

What I Have Seen in Real Portfolios

Once you start running the numbers, an important question follows:

How do real investment portfolios actually perform?

As an accountant, I have had the privilege of seeing investment results across many families, businesses, and institutions over a long period of time. We are not the people selecting the investments. We are the people seeing the results: tax slips, investment income, capital gains, fees, corporate cash, personal tax returns, and the broader family wealth picture.

That gives us a different vantage point. We can see whether wealth is actually compounding in a meaningful way.

After decades of paying close attention to investment results, I have noticed a few patterns. Many portfolios, across different institutions, end up looking remarkably similar. They may be presented differently, but they often converge around the same general structure: more fixed income than expected during the accumulation phase, a strong bias toward Canadian holdings, and a long list of investments that can start to look like a more expensive version of simply owning the index.

It is important to say this clearly: this is not a criticism of advisors or advice. It is simply an observation from years of seeing real portfolios, real returns, and real family outcomes. There are excellent investment advisors who provide great value. My experience has also shown me that advice is most valuable when it is clear, measurable, tax-aware, and simple enough for the client to understand and follow. That belief has become one of the standards behind Compounding Simplicity Investment Partnership.

Investing is difficult. Some people do not want to manage their own money. People have different risk tolerances, income needs, tax situations, time horizons, family circumstances, and comfort levels. Fees matter. Fixed income changes expected returns. A balanced portfolio should not always be expected to match an all-equity index.

All of that is true.

But even after giving full credit to good advice, the pattern has been hard to ignore.

That experience has made me more interested in simplicity, not less.

It also reinforces the central message of this memo:

The goal is not to make investing more complicated. The goal is to build a clear process that can be understood, followed, measured, and maintained over time. Your investment results are your livelihood. They deserve attention.

That is why the next section matters. Before we talk about the sample portfolio, we need to talk about the philosophy behind it.

The Philosophy Before the Portfolio

Our philosophy is a good investment strategy should be simple enough to understand, diversified enough to endure, low-cost enough to keep, and disciplined enough to follow. That means avoiding unnecessary complexity, reducing emotional decision-making, limiting unnecessary tax drag, and creating a process that can be repeated over many years.

The portfolio described next is our way to express this philosophy. It is not meant to be exciting. It is meant to be durable.

Exchange-Traded Fund Strategy

A simple ETF strategy can provide broad market investment with very little complexity.

Instead of trying to pick individual stocks, forecast the economy, or identify the next winning sector, an ETF strategy allows you to own large parts of the market at a very low cost. With a few carefully selected funds, you can build ownership in public companies in the United States, Canada, international developed markets, and fixed income.

This approach fits the Compounding Simplicity philosophy because it is diversified, low maintenance, tax-aware, and easy to understand.

It also helps reduce the temptation to constantly do something. There are no hot tips to chase, no complicated products to explain, and no need to rebuild the portfolio every time the headlines change.

The benefit is clarity. You can understand what you own, why you own it, and how each part of the portfolio supports the long-term plan. The goal is not to own the most complicated portfolio. The goal is to own a simple, durable portfolio that gives compounding a chance to work.

Portfolio Construction

Years ago, I asked a wealth advisor whether he could manage an entire portfolio using only a small number of broad-market ETFs. His answer stuck with me. He said he could technically do it, but that it would not look complicated enough.

That comment taught me something important. Sometimes complexity is not added because it improves the outcome. Sometimes it is added because it makes the advice look more sophisticated. There are no extra points awarded for complexity. A portfolio should not be judged by how impressive it looks on paper. It should be judged by whether it can be understood, followed, maintained, and allowed to compound over time.

True wisdom lies in distilling complexity into clarity – removing what is unnecessary while preserving what truly matters.

The sample portfolio outlined below honors that idea. It is the example of how the Compounding Simplicity philosophy is implemented: simple, diversified, low-cost, tax-aware, and designed to quietly accumulate, rebalance, and pursue broad-market returns over long periods of time.

The basic mix is:

Fixed Income
This portion helps provide balance, liquidity, and some protection when equity markets are volatile.

Equities
The long-term growth engine. This portion provides ownership to broad public markets across the United States, Canada, and international developed markets.

The equity portion is divided across three broad areas:

VFV – Vanguard S&P 500 Index ETF
This is the U.S. growth engine. It provides ownership to many of the world’s largest and most dominant companies. Its low cost, broad diversification, and low turnover make it a strong longterm compounding vehicle, especially when held with patience.

VCN – Vanguard FTSE Canada All Cap Index ETF
This is the Canadian home base. It provides broad ownership to the Canadian market, including banks, pipelines, railroads, telecom, energy, and other established businesses. It also gives the portfolio Canadian-dollar exposure and dividend income, which can be valuable in taxable accounts.

VIU – Vanguard FTSE Developed All Cap ex North America Index ETF
This provides global diversification beyond North America, including investment in Europe, Japan, and other developed markets. It helps reduce dependence on Canada and the United States alone, while adding foreign currency exposure and broader global balance.

How to Execute the Plan

A simple strategy only works if it can be executed consistently.

The target allocation is:

Fixed Income – 10%
Provides stability, liquidity, and ballast when equity markets are volatile. For investors still in the accumulation phase, one common mistake is becoming too conservative too early. For investors past the accumulation phase, the fixed income allocation can be increased by reducing the equity allocation.⁵

Equities – 90%
VFV – Vanguard S&P 500 Index ETF: 45.0%
VCN – Vanguard FTSE Canada All Cap Index ETF: 22.5%
VIU – Vanguard FTSE Developed All Cap ex North America Index ETF: 22.5%

On the first day of January and July, or on any six-month schedule that works, review the portfolio and rebalance it back to the target allocation.

This is not a portfolio to micromanage. No stock picking. No market timing. No reacting to every headline. The process is simple: build the plan, automate what you can, rebalance twice a year, and let compounding do its work.

For more technical information on the portfolio, refer to Appendix 1 – Cost & Distribution Profile.

Rebalancing

Given the many behavioral mistakes humans make, we must systemize and automate our decisions to minimize bias. With a simple, balanced portfolio – 90% equities via ETFs and 10% fixed income – we need a clear, repeatable mechanism for rebalancing. Rebalancing means adjusting your investments back to your target mix when allocations drift due to market movement.

There are countless ways to rebalance (weekly, monthly, annually), but in the spirit of simplicity, I recommend rebalancing twice a year. Lock these dates into your calendar.

The rules are simple:
(Based on a fixed income target of 10%)

• If fixed income reaches 5% of the total portfolio, trim your holdings and rebalance.
• If fixed income reaches 15%, buy more of the three ETFs you own.

The power of asset allocation lies not in constant adjustments, but in the discipline it demands. When allocations drift, you’re forced to notice. The structure itself calls you back to balance. You don’t need complexity – you need consistency.

Now here’s the north star: Rebalancing twice a year forces you to do what every investor knows they should do but rarely does – sell high and buy low. It’s beautifully simple. When others are driven by emotion, this mechanism keeps you grounded. It removes decision fatigue, quiets market noise, and makes discipline automatic.

Most investors lose returns over the years because they let emotion guide their actions. This process saves you from that fate. The brilliance isn’t in optimization – it’s in consistency. This approach is your edge. Don’t overlook it because it’s simple. It’s powerful because it’s simple.

The Behavior Gap

The far greater concern with this ETF strategy is not owning the index and approximating its return; it is avoiding behavioral mistakes
along the way.

To earn returns that closely follow the market over a long period of time, you have to stay invested for that long period of time. That sounds simple, but it is not easy. Investors get tempted to chase what has recently gone up, sit in cash waiting for the perfect moment, buy near the top, sell during market declines, or change strategies every time the world feels uncertain.

Each decision may feel reasonable in the moment.

But over time, these interruptions can quietly damage compounding.

This is the behavior gap. It is the difference between the return an investment provides and the return an investor actually earns. The market may offer one result, but behavior, timing, taxes, fees, cash drag, and emotional decisions can create a very different outcome.

This gap is one of the main reasons some investors choose to work with an investment partner like Compounding Simplicity. The value is not in making investing more complicated. The value is in having a clear process, disciplined structure, and ongoing guidance to help keep the portfolio aligned, reduce avoidable mistakes, and protect compounding from unnecessary interruption.

In a world of unknowns and the unknowable, we need a plan we can actually follow. The goal is not to remove uncertainty. The goal is to reduce unforced errors. The advantages of indexing have been proven academically.

Indexing advantages include:

• Lower tax drag (between 1-3% annually on your returns)⁶⁷
• Owning all the winners the market provides
• Better long-term performance (90% of active managers can not beat the index)
• Simplicity – all things being equal, simple beats complexity
• Fewer opportunities for bad behavior and unforced errors

The Behavior Gap Explained

In a 20-year time period, the average investor underperforms almost all investment classes. The real threat to long-term investing is often not the market. It is behavior.

Behavioral Traps to Avoid

A simple investment strategy can still fail if behavior gets in the way. Most mistakes do not happen because investors lack intelligence. They happen because markets create emotion, and emotion creates action at the wrong time. See Appendix 2 – The Cost of the Behavior Gap.

Common traps include:

• FOMO (Fear of Missing Out): Chasing hot stocks, trends, or “can’t miss” opportunities often leads to buying high, selling low, and letting emotion drive the decision.
• Timing the market: Trying to buy low and sell high sounds simple, but it is nearly impossible to do consistently.
• Following the crowd: Herding behavior can pull investors into decisions that feel safe in the moment but are not aligned with their long-term plan.
• Overconfidence: Believing you can outsmart the market often leads to overtrading, unnecessary complexity, and avoidable risk.
• Loss aversion: The pain of losing money can cause panic-selling during downturns, interrupting compounding at exactly the wrong time.
• Emotional trading: Fear and greed are powerful forces. Left unchecked, they often turn temporary market volatility into permanent investment mistakes.
• Trusting forecasts: Gurus, talking heads, and market predictions often fail. The future is unknown, and anyone claiming certainty is usually selling something.
• Chasing excitement: What sounds impressive in a brochure, website, or conversation is not always what builds wealth. Boring, steady portfolios often survive long enough to compound.
• Forgetting the plan: Markets will surge and sell off. Headlines will change. A written plan helps you stay disciplined when emotions are high.
• Mental accounting: Treating money differently because of its label – bonus money, inheritance money, house money, business cash, or “just dividends” – can lead to inconsistent decisions. A good plan treats every dollar as part of one total wealth picture.
• Ignoring taxes: Focusing only on investment returns can hide what really matters – what actually compounds after tax.⁸

We are human. And I am not writing this from a place of perfection. I am writing it from experience. I have made versions of many of these mistakes myself. I have chased ideas that sounded better than they were. I have felt the pull to act when doing nothing was probably the better decision.

I have learned, sometimes the hard way, that investing is not only about intelligence. It is about behavior, patience, humility, and having a process strong enough to protect you from yourself.

Wealth is often built by knowing what to ignore, what to avoid, and what to leave alone.

What Success Looks Like

This is the short version of the memo. Success is not about prediction, complexity, or constant activity. It is about following a simple process for a long period of time. Save consistently. Invest simply. Stay diversified. Remain tax-aware. Rebalance when needed. Avoid major mistakes.

The To-Do List (Your Playbook for Success):

• Have a financial plan
• Save and invest often
• Make near-market returns
• Be tax-aware
• Rebalance
• Avoid major mistakes
• Compound for a long time

No extra points are awarded in investing for the degree of difficulty. So many people talk about finding the next big investment idea, trying to find an innovative investment strategy, jumping on the next bubble, and trading excessively. These strategies are hard, with a high degree of failure.

The Not-To-Do List (Avoid These Traps):

• Don’t try to time the market
• Don’t follow the herd in individual stocks
• Don’t ignore the impact of fees on your returns
• Avoid making decisions based on emotions
• Don’t neglect to set investment goals
• Avoid speculation based on media hype
• Avoid making rash decisions during market volatility
• Avoid being swayed by fear of missing out (FOMO)
• Don’t disregard global investment opportunities
• Don’t use leverage or margin trading
• Avoid excessive trading to minimize tax consequences
• Don’t invest based on a tip you heard from your neighbor
• Avoid letting short-term market movements dictate strategy
• Avoid thinking short-term with long-term investments

Success Rate

Final Thoughts

: How Compounding Simplicity Can Help
The ideas in this memo are simple on purpose.

For some people, this framework will be enough. It can help them save consistently, invest with more confidence, avoid major mistakes, and stay focused on long-term compounding.

For others, the challenge is not understanding the ideas. The challenge is doing them consistently.

That is where Compounding Simplicity can help.

We are not here to make investing more complicated. We are here to help make the simple things happen consistently: build the plan, implement it, monitor it, rebalance when needed, remain tax-aware, control costs, and stay disciplined when markets become uncomfortable.

The greatest investment advantage most people have is not superior insight, perfect timing, or market prediction.

It is discipline.

Compounding works best when uninterrupted. The goal is to protect it, not outperform it.

That is how people can achieve extraordinary outcomes – not by chasing complexity, but by repeating the right actions for long enough.

Simplicity is not a compromise. It is a strategy – a way to build wealth with less stress, fewer mistakes, and more freedom.

That is the purpose of Compounding Simplicity.

Appendix 1: Portfolio Construction, Cost and Distribution Profile

Appendix 2: Front-End Performance & the Behavior Gap

Appendix 3: Back End Performance & Tax Drag

Appendix 4: Total Wealth Performance

Appendix 5: Vanguard Factsheet (VFV, VCN, VIU)

Disclaimer

This memo is provided for educational and informational purposes only. It is intended to explain the investment philosophy behind Compounding Simplicity and to help readers think more clearly about saving, investing, taxes, behavior, rebalancing, and long-term compounding.

Nothing in this memo should be interpreted as personalized investment, tax, legal, accounting, or financial planning advice. The examples, portfolios, asset allocations, returns, tax estimates, and illustrations included are general in nature and may not be appropriate for every investor.

Investment decisions should be made only after considering an individual’s full circumstances, including risk tolerance, time horizon, income needs, tax situation, corporate structure, liquidity needs, family goals, and overall financial plan. Past performance does not guarantee future results. Market returns will vary, and investments may rise or fall in value.

Any reference to specific investments, funds, indexes, or asset classes is for illustrative purposes only and should not be considered a recommendation to buy, sell, or hold any security.

Readers should consult qualified professional advisors before making investment, tax, legal, or financial decisions. Compounding Simplicity Investment Partnership may provide services only where appropriate and in accordance with applicable laws, regulations, and client suitability requirements.