investment planning

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.

Screen Shot 2019-03-19 at 8.39.23 AM.png

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