Investing

Grown** men don't ask

For investment advice, grown men don’t ask for for help,

at all.

The young*** ones do,

but not the grown ones. 

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BTW, this is my data set only and I’m fully aware this doesn’t necessarily extend to the entire world,

but maybe it does.

Some additional observations:

  • Of the people who inquired about my services and not gone ahead with an engagement or have started an engagement and not completed it, 100% are dudes.

  • With couples, there is often one person who takes a lead role and that breakdown is fairly balanced. Men leading 25% of the time, women leading 25% of the time and in the rest of the engagements, the couple seems to share investing responsibilities, equally.

  • Behavioural Finance biases play a role with everyone but more easily observable in dudes

  • I seldom tune into the type of show where callers ask about stock x and then “hang up and listen to your response”, but in my mind, I think I hear a male voice asking? Which wouldn’t fit with my data set. Then again, surely the show producers are filtering who actually gets on air? Or maybe my cable observation are out of date since I only watch when I’m at my parents house (they’re both, 74).

It still feels like a mismatch. The investing landscape is still dominated by men (grown ones) but men (grown ones) don’t ask for advice?

** grown = Gen-X and the more seasoned

*** young = Gen-Y and the less mature

Scale 2 Infinity

Blame the baby.  

When we realized I would have to get up to snot suck our daughter’s nose in the middle of the night, we were worried she’d take forever to get back to sleep.  Turns out, I’m the one who can’t get back to bed, which means another middle of the night post.

NBA free agency and my undying love for Vernon, BC are a few of the topics rolling around in the last few hours, in addition to the following thoughts:

1. I’m totally over the “Toronto is expensive/unaffordable conversation”. The impatience has been lingering for a while but was prompted over the weekend at a family outing to Ribfest, in Etobicoke, which btw, Billy Bones BBQ had the best ribs, in case you were wondering. While debating the other contenders, Lisa and I ran into some former downtown work colleagues, who now live a five-minute walk from the event location, Centennial Park.  They’re the same vintage as us (“older” millennials) and made the decision to trade away the prospect of seven-figure debt, for longer commute times. They’re happy, they have space for their family, and plenty of park space and recreation in the surrounding area.    

And that’s it.  Nothing fancy.

There are dozens of reasonably priced communities all over the GTA and the country, how did we get to this insane point, where we forgot about them and settled on obsessing over just two?

2. I have quite a few clients who invest with Robo-advisors, which is perhaps a bit confusing since they’re supposed to offer…. “advice”?  It’s not a blanket dig at Robos, but I genuinely think there’s an interesting question, how will fin-tech companies and their scale-to-infinity mentality, integrate non-scaleable services like advice and planning, which all result in negative economies of scale.

3. Yes, you need to consider after-tax returns when making investment decisions, but too many investors and their advisors are doing something which I’ll describe as prioritizing tax-minimization. For example, it’s fairly common to see portfolios with preferred shares (dividend income benefitting from the dividend tax credit) replacing fixed income (interest income taxed at your marginal rate).  These are usually very conservative clients and when I ask why that decision was made, the answer is that they were told preferred shares are “risk-free, like bonds but at a lower tax rate”, which is less than accurate ...

4. Hey, DIY Investors guess what? You’re all really, really scared of Trump!  Biggest piece of advice I can offer is, fairly boring - turn off the news and properly set your asset allocation.  Most portfolios have done well over the last number of years, but everyone seems to be paralyzed by those gains and what to do with their super high equity allocations.

5. Thinking about how curated social media platforms like Instagram have become, got me thinking how we don’t share anything about money either online or IRL. I wrote a post last year covering some of my past investing mis-steps, https://www.youandyoursfinancial.com/insights-and-advice/2018/6/6/stupid-things, but it certainly feels like honest financial conversations need to happen more often.

6. I get asked every now and again what I am personally invested in and unfortunately I have a boring answer.  It’s all cash at the moment, for a number of reasons. The biggest, was to have it available during the startup portion of this business, but as that progressed, my wife and I haven’t sat down to revise it.  So there you have it, at the moment, the person who does Investment Plans, is without and updated one! It’s in the works, but again, this is the baby’s fault.



Where clients are Investing - Toronto edition

Two years into starting my own practice, it still takes me an absurd amount of time to write a well thought out blog post (which is why I rarely) do it, but since I’m supposed to have at least some content on my website, I’m going to try the exact opposite of well thought-out.

How does 3am ramblings sound?

If my wife and I forget to put our sound machine on, 3am is the time we’ll wake up after someone with a tuned exhaust races down our street (unclear why they don’t take Dufferin instead), or more recently, it’s the time our newborn decides to feast, poop, or some loud combination of the two.

It’s about the time I’m unable to fall back asleep and will occasionally think about exciting things like, who has the best takeout sandwich in the Parkdale/Roncy/Brockton/Junction area, and the American love affair with Drake.

The mind also drifts back to the Investment Plans I do for clients, what they’re investing in and the conversations I have with them.  After 2 years, my analyst training has me looking for trends, trying to eliminate outliers and just trying to come up with a picture that is not 100% right, but hopefully, a bit less wrong.

So, what ARE they investing in?  Here are some not well thought-out observations which are probably going to sound like 3am ramblings. They are.

1.) There are still plenty of shitty mutual funds out there.  Shitty shit shit. And It’s the usual suspects overcharging people without them knowing, but at least they’re pretending to actively manage their pot, bravo!  

2.) In a weird twist, one of the alternatives showing up are overpriced portfolios of index funds. I think the sales pitch is “hey, we’re looking out for you, we can save you money on fees by investing in index funds”.  Except that a passive portfolio for almost 0.70% isn’t that great either. I’ve also seen some “independent” advisors tack on a 1% fee on top of that, I guess as comp for their twice per year calls? Their pitch is the same - going from an actively managed fund at 2.4% to  a passively managed portfolio for 1.7% is a win for YOU the consumer. **eye-roll emojii**

3.) I’m not thrilled with Robos.  They fall into the above criticism of index funds, which many times, ends up being an expensive indexed portfolio.  There are excellent Canadian investment managers out there who charge not much more, for true active management. Those are more attractive options, in my opinion, OR if you want to go true passive, Vanguard and Blackrock both offer diversified ETF options and at this rate, those investment products will be free if they keep up their price war.

4.) The Non-bank Discount brokerages got game.  I was wrong in thinking I’d see DIY Investors go to their bank’s own online broker (like TD Waterhouse).  Instead, clients seem to be ditching the bank altogether. Maybe the bank didn’t tell them there was an online broker option?  In the meantime, it’s been over a decade since the E-trade baby told us that investing was simple, not to be outdone by Questrade’s anger-inducing campaign https://www.youtube.com/watch?v=zyFyRQSaSEI&list=PL4E3463842B01E133

5.) Re-focusing a person’s individual investment objectives and really figuring out the goal of their investments gets totally overlooked by the sales machines out there.  A lot of clients in are stressed because they’re comparing their investments to unrealistic expectations or expectations that aren’t relevant TO THEM.

6.) Back to Robos for a second.  They do generate the most inquiries from people.  By they, I mean WealthSimple and that’s not to put down the other Robos out there, but it certainly feels like WealthSimple and the 7 dwarfs in Canada.  Mostly because they throw an insane amount of money on advertising, which btw, is probably the best financial services branding/marketing in the country. That said, you the client, is paying for those slick spots during the Jays game.   

7.) ETF’s scare people.  Partly because we’ve at least heard about mutual funds for forever, whereas ETF’s seem like something new and exotic by comparison.  Yes, many clients feel like ETF’s are exotic. But I think the bigger issue is mental responsibility for one’s own investment performance. No one wants it. Even with the simplicity of all-in-one ETF’s, https://www.youandyoursfinancial.com/insights-and-advice/2018/5/17/etf-autopilot

8.) Since this post is clearly coming across as if I dislike everything, some good news! Financial literacy IS getting better!!!  People are becoming more engaged and asking more questions compared to when I first started. But….financial literacy in Canada, generally, is total shit.

But it’s getting better….

…..in my totally self-selecting client world.

On to some petty things

9.) The retirement I think most people are looking for comes by way of a workplace pension (in addition to CPP) and zero-mortgage combo.  I still see these. They make me happy. I’m worried I’ll see less. I’ve stopped worrying about young people. Many will need to find their own way. At least they have time and technology.

9b.) Just a reminder that CPP will be around. At some point you may have to work longer to get it. You’ll most definitely have to pay more into it. But it will be around.

10.) There’s no need to bash bonds.  Everyone said they rates were headed higher in 2010. And 2011. And 2013. And 2015. And 2018. They serve a purpose and no one can predict the future

11.) My vibe is that Downsizing is a myth.  Getting any significant amount of home equity to fund retirement will mean (for most people) leaving the area they’re in, moving into a place far smaller than their expectations or, hopping on the reverse mortgage train, which is one of my least favourite products, but admittedly, I think will be an incredible source of growth for financial institutions over the next few decades.

12.) Comparing investment options exclusively based on fees is not a productive exercise. I probably should have said this way up top when I started talking about fees.  

There’s a lot of shelf space on the internet and a place for active management, robos and passive. Part of the fun with this job is figuring out which of those options provides the most value to an individual or family.

And having the flexibility to say so.

Good morning.


Money IN

Planning your income as you approach retirement is quickly becoming one of the most important and overlooked aspect of financial advice.

The entire financial system is setup for clients to make contributions to their investments (which in turn generate commissions for financial institutions) and there really isn’t a huge incentive for them to sit down with you and develop a playbook for how you might eventually start to draw down on those assets.

So let’s do that.

For most people approaching retirement, they’ve become used to relatively steady and predictable employment income for years. I’ll just say from the get-go, transitioning away from that income stream to one that relies on a mix of investment income and government benefits is a huge challenge and again, something that is often overlooked.

For most people, their income after retirement will include at least a few of the following:

  • Canada Pension Plan (CPP) withdrawals

  • Old Age Security (OAS) payments

  • RRSP/RRIF withdrawals

  • Tax-Free Savings Account (TFSA) withdrawals

  • Company sponsored retirement plans (DC plan)

  • Life Income Fund (LIF)

  • Defined benefit pensions plans

Figuring out how much to draw and from which accounts and in which order and how that changes over time, is specific to every household but as an example, lets look at an example with a two income household with partners currently 61 years of age.  Both partners plan to retire at age 65 and have the following investments:

RRSP: $696,000

TFSA: $65,000

LIF: $95,000

Collectively, their expenses are $65,000 per year and they have a $50,000 mortgage they expect to pay down before entering retirement.

Here’s a visualization of how and when they might receive income now, through retirement and assuming they live to age 95.

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Ages 61-64: The orange bars represent their employment income, which is the sole source of income for the household as they approach retirement

Age 65-69: CPP (light blue) and OAS (black) kick in, along with withdrawals from their LIF.

Age 69: RRSP withdrawals begin

Age 71+: TFSA withdrawals stop and RRIF withdrawals become mandatory

It’s worth pointing out that even small changes to your account balances, household spending, or even life expectancy can have big changes on determining the optimal solution for your retirement income needs.  

Additionally, government benefits from the Guaranteed Income Supplement (GIS), Federal GST/HST credit, or Registered Disability Savings Plan (RDSP) may be applicable to your situation and also included in your income mix

Having this income available to you as you approach retirement needs to be part of the service your financial advisors provides.  If it isn’t, or your unsure about your financial situation, speaking with an advice-only financial planner that provides this level of detail can save you thousands of dollars and confusion when it comes time to juggle your various retirement income sources.

https://www.youandyoursfinancial.com/services


GIC and Chill

2019 is the year you fall in love with GIC’s.

Maybe that’s a throwback feeling, but for most people, considering GIC’s as a legit investment option is a first.

So, where did they even go?  

They’ve been around.

But beginning in the early-90’s and despite two market corrections which wiped out a lot of retirement savings, GIC’s have been been shunned from portfolios.  Equity markets are all you hear about in the media and the prevailing message from the investment world is you’re throwing away money by investing in GIC’s.

“I bought a 5-year GIC and slept well” ~ said no one in the last 25 years.

A historical look at GIC rates (courtesy of ratehub.ca) helps frame some of the context around what happened to the perception around GIC’s.

In the decades leading up to the early 90’s, both equity market returns and interest rates (upon which GIC rates are based) were solidly positive and into the double-digits.  The path for someone saving for retirement usually had them save and invest ‘till they turned 55 (retirement age once upon a time) and then buy an annuity or GIC to fund 10-15 years of retirement expenses.

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By the early-90’s, interest rates accelerated their long downward trek, which wasn’t a terrible problem if you already owned government or corporate bonds and benefitted from the subsequent price appreciation (interest rates and bond prices move in opposite directions), but the incessant decline in rates to nothingburger levels has resulted in problems for those now nearing retirement.

Firstly, the amount of income you can drive from the fixed income side of your portfolio has collapsed. (In 1990, as a retiree, you could lend $100,000 to the Government of Canada and they’d pay you almost $11,000 per year.  Today, that same investment gets you a whopping $1,750 per year)

Secondly, bond prices would come under pressure IF interest rates rise. The resulting loss in value would offset whatever stable interest income you’re actually generating for yourself.

Here’s the iShares 1-5 laddered corporate bond ETF as an example, where the modest 2% cash yield it generates each year has been almost fully offset by the decline in value of the bonds held in the ETF.

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GIC’s are a bit different from bonds.

There is no price risk with them.  Meaning, if you buy a GIC for a $1000, the amount the GIC is worth is not impacted if interest rates rise. You’ll get $1000 plus your interest payments back, guaranteed. Most (not all) GIC’s have the additional benefit of being insured through the Canadian Deposit Insurance Corporation (CDIC) up to $100,000 per account.

With non-redeemable GIC’s available for in the mid 3% range, I’d happily take those returns and chill as opposed to worrying about price, duration and credit risk with bond holdings.





Stupid Things

I started my investing career in 2006, when things were different.  Amazon still sold books and most people were limited to only a handful of songs on their mp3 players and 1st generation Ipods.

Two years later when the financial crisis hit, I thought I was firmly in control of managing my own investments but had no plan, no financial objectives to guide my buy-sell decisions and as a result was overseeing a portfolio, full of stupid things.  Since the financial twitterverse seems to only convey filtered stories and experiences, here’s an unfiltered view of what my personal portfolio included at certain points:

  • Two investments based entirely on a hot tip

  • A single company which made up 25% of my portfolio

  • An investment in a Chinese medical stock that I knew nothing about but was told by someone it would soon be bought out at a premium (it was quickly bought at a significant discount to where I bought it)

  • Options positions which could move 20-30% in a single day

  • Four Companies that were bouncing off their 52-week lows (because obviously what goes down must come back up? Or reversion to the mean, who knows)

  • A double leveraged inverse natural gas ETF

Oh, and I did all of the above on margin (meaning I borrowed money) because that’s what a 25 year-old studying for level 2 of the CFA exam would do.

To be clear, not all of the above investments were bad bets, some actually made money. But not having a plan in place was totally stupid and made the experience a fantastic exercise in what not to do if managing your own money.

Years later, the experience has made me a significantly better investor and still makes for valuable insights to share with friends, family and eventually clients who asked, “what do I do, (or not do) with my money”.

A small allocation (like, 1%!) of your portfolio, specifically for experimenting and yes, doing stupid things is actually an experience I highly recommend, so long as there are some learnings to extract and you're not just doing it in lieu of a trip to the Casino.  A few penny stocks, or companies that might be around the corner from where you live, or investing in a stock that owns something you can pass by like a Real Estate Investment Trust (REIT) are all good options and a unique DIY investor ed exercise that just about anyone can enjoy, not just investing nerds.

No time? Not interested?  Not disciplined enough? For the management fees some (definitely not all) Mutual funds or Robo-advisors charge to take care of your investments, it makes plenty of sense to leave the investment decisions to someone else to get your money working for you.   All are fine options and all will steer you clear from having to decipher the head-spinning financial advice on google or twitter.

Added bonus? Avoiding all the stupid things.

ETF Autopilot

Earlier this year, Vanguard, the second largest Exchange Traded Fund (ETF) manager in the world, dropped three new products which are legit game changers for investors who would love to ditch their high-fee mutual funds and find a lower cost alternative.

Three new asset-allocation ETF’s were added to Vanguard's already impressive product lineup and provide investors with a simple all-in-one solution for their desired risk profile along with global diversification and importantly, low fees.  

How Vanguard has done this is sounds a little confusing, but basically, they’ve created a single ETF, which in turn owns other Vanguard ETF's.

A Do-it-yourself (DIY) investor otherwise trying to create a diversified portfolio would have to go through the task of properly identifying which ETFs to purchase, what dollar amounts of each to buy, purchase the 6-8 ETF's it generally takes to create a diversified portfolio and then periodically figure out how to rebalance their investments, all of which feels pretty overwhelming (it is) and probably not where your time is best spent.

Vanguard has taken all the hassle out by wrapping together each of those individual ETFs you would need to build your portfolio into a single product which automatically rebalances itself.  

All you need to do is pick one of the three asset allocations:

vanguard asset allocation etf

Conservative ETF Portfolio (VCNS): Provides a combination of income and moderate capital growth by investing in securities with a strategic asset allocation of 40% equity, 60% fixed income.

Balanced ETF Portfolio (VBAL): Provides long-term capital growth by investing in securities with an asset allocation of 60% equity, 40% fixed income

And finally, the Growth ETF Portfolio (VGRO): which pushes for more aggressive long-term growth by investing in 80% equity, 20% fixed income

That’s it.  

Vanguard has given investors an automatic transmission for those who aren’t game for the stick shifting that comes along with DIY investing.

For younger investors who constantly hear about ETFs but are nervous about buying them and managing their holdings, the VGRO ETF certainly would provide them with an appropriate investment portfolio, for those who are a bit older or perhaps a bit more cautious, VBAL replicates the 60/40 asset-allocation of your average balanced mutual fund out there and for those nearing retirement, VCNS raises the fixed income component to 60% in order to soften out exposure to the stock market. 

This is a huge win for the DIY investing crowd as well.  While purchasing individual ETF’s to build out your portfolio is a super interesting and rewarding experience, selecting from the thousands of ETFs already in existence and the new ones that get marketed on a daily basis is head-spinning.  Then trying to figure out when and how to rebalance is another headache to deal with.  Instead, Vanguard's ETFs continuously assesses the portfolio’s asset-allocation and over time, rebalances it back to its intended risk level. (So yes, someone IS watching your money)

Vanguard does all that for a fee of 0.22% which is 90% cheaper than most mutual funds sold in Canada and likely a lot more diversified than them as well.  

While going the ETF route won't be a great fit for everyone, the new products from Vanguard certainly change the game.  These are the Autopilot of the ETF world and provide a far more user-friendly, low-fee experience for investing and growing your money

Never been better

You’re looking for financial advice.  There’s something about your money that you’re not quite sure about and figure it’s probably time to speak to a human about it.  Whether you get a recommendation from a family member or friend, the experience continues to be pretty consistent. The advisor will sit you down,  talk personal finances, possibly offer you a new line of credit or travel rewards card and before you know it, the glossy pamphlets are on the loose with a clear pitch; invest with us, your money will only go up in value, you’ll be on the path to riches, sign here.

It all sounds like it makes sense, but in reality it's a lot of information and understanding what your money is invested in is difficult.  Most people have no idea how to assess their investment performance, both return and risk, or how much you’re paying every year in fees or commissions.  But that travel rewards card means you get access to the swanky lounge, so that’s a thing, right?

We put way too much trust in financial institutions and it’s perfectly clear, why.  They went all in on calling their mutual fund sales pitch, “advice” and not providing much, if any, actual advice or planning.

Even with the proliferation of Robo-advisors, exchange traded funds (ETF’s) and low-cost (D-series) mutual funds, the majority of the financial world seems stuck in 1994, pushing nothing other than high-priced mutual funds when so many alternatives are available. It sorta feels like, if HMV still existed today and was trying to convince you that buying a $16 CD was the only way to listen to music.

But it’s 2018 and it’s never been better for regular people to invest their savings into a globally diversified portfolio at a significantly lower cost than high-priced mutual funds (these are usually the A series funds that have an embedded fee over 2.5%, which, yes, is a lot!).

For starters, there are D-series mutual funds, which are identical to their higher priced A-series siblings.  The D-series are half the cost to own (1.25% compared to 2.5% on average for the A-series varieties) and only available through your bank’s online brokerage.  Because you can only invest in D-series funds online, you lose access to the financial advisor, which, may not be a bad thing since you’re tired of sales pitches, right?  Hiring an independent financial planner who will really walk you through your budget and how to reach your financial goals is an effective combination that I highly recommend.

Then, there’s the new kid on the block, Robo-advisors, which in many ways are similar to a mutual fund in that, both monitor and rebalance a portfolio of investments for you and charge a fee for doing so, usually, less than 0.75%.  While some Robo-advisors offer basic financial planning, it’s far more accurate to think of Robo-advisors, as Robo-Investment Managers. They’ll manage your investments, but are generally a bit light on providing detailed financial advice. That’s probably ok if you’re single, in your 20’s and only have you to worry about but in more complex situations like family planning, caring for a parent or considering a career switch, you may be looking for more detail and dialogue about what to do. Again, hiring a fee-based financial planner who will walk you through your budget and how to reach your financial goals is an effective solution that has become increasingly popular as the number of independent financial planners increases.

Finally, while not for everyone, managing your own portfolio of low-fee ETF’s is an option.  Yes, there’s an ETF for just about everything these days from marijuana to electric vehicles, which can lead people to feel like choosing the right combination of ETF’s is an impossible task. Fortunately, Vanguard has simplified that task by creating three new, asset-allocation ETF’s which do the work for you and are based on your risk level:

  • Growth (80% equities)

  • Balanced (60% equities)

  • Conservative (40% equities)

(In case you’re wondering, I’m not affiliated with Vanguard in any way.  Their new ETFs are the only all-in-one ETF solution, which, in my opinion is one of the best financial products to come out in years along with Robo-Advisors)

Access to cheaper investment products is only half of the ongoing disruption in the financial services industry, the other half is the growing army of independent financial planners and money coaches who don’t sell products and provide truly unbiased financial advice.  Most people go to an advisor because they’re feeling unsure about their finances and are just trying to feel better about their money. With investment fees on the decline and access to people who you can have real money talks with, its never been better to find a financial solution that works for you.