How well did your investments perform in 2019? Investment performance is critical to achieving your retirement goals, yet it’s one of the most misunderstood concepts in personal finance. Why? Because we need to put our performance into proper context. In other words, we need to compare our returns to an appropriate benchmark.

Investment managers are quick to celebrate strong returns during bull markets, and just as quick to come up with excuses for poor returns when markets fall. What’s important, particularly for those investing in stocks or actively managed mutual funds, is how your returns fared against “the market”.

The easiest way to see how well your portfolio performed is ‘benchmark it’ against an appropriate index, such as the TSX or S&P 500, or some combination of stock markets. You can’t actually invest in the index, so you need to compare your portfolio to an index fund.

Blackrock’s iShares has a robust list of index-tracking products and does a great job keeping its performance up-to-date.

Select the fund or funds that best matches your portfolio. For example, if you wanted to compare to the S&P 500 then select the fund XUS, click on the ‘performance’ tab, and find the YTD or calendar year performance (depending on when you do the calculation).

Now let’s say you’re invested in one of Canada’s largest mutual funds – RBC’s Balanced Fund. As of Nov 30, this fund has returned 13.3 percent. An appropriate comparison for this fund would be XBAL – the iShares asset allocation ETF representing the classic 60/40 balanced portfolio.

XBAL returned 15 percent over the same period, meaning the RBC fund has underperformed by 1.7 percent. That shouldn’t come as a surprise – since we know by now that fees are a large driver of future returns. The RBC Balanced Fund comes with a MER of 2.16 percent, while iShares XBAL comes with a MER of just 0.20 percent.

Asset allocation ETFs make it easy for investors to compare their managed investment portfolios and determine whether they’d be better off investing in index ETFs.

So while your stock picks or mutual funds might have returned a healthy 15 percent this year, you might be surprised to learn the Canadian market is up 21.4 percent (FTSE Canadian All Cap Index) and the S&P 500 is up 29 percent. It’s all about context.

Here’s how my own investments performed in 2019 (personal rate of return):

I used to be a stock picker, more specifically Canadian dividend paying stocks. Even though I switched to indexing in 2015 I still like to compare my portfolio against my former strategy. That’s best represented by iShares CDZ – the Canadian Dividend Aristocrats ETF.

Since 2014, CDZ has a compound annual growth rate of 7.04 percent, compared to my portfolio’s compound annual growth rate of 9.29 percent over the same period. To be fair, CDZ will most likely outperform my portfolio this year (it’s up 26.61 percent as of this writing).

Do you compare use benchmarking to compare your investment returns? How did your portfolio perform this year?

This Week’s Recap:

I hope you enjoyed the Christmas break. We’re still in that vortex known as the week between Christmas and New Years – when nobody knows what day it is and nobody cares!

I did manage one post this week – how to make saving a priority.

From the archives: Past performance and your investing returns.

I’m currently reading Superfans by Smart Passive Income blogger Pat Flynn. In the book he suggests coming up with a name for your followers. Which one do you prefer:

• The Financially Ok Boomers
• Echo and the Moneymen
• Echomaniacs

Promo of the Week:

Did you know that 56 percent of Canadian adults don’t have a legal will?

Now you can create a legal online will in 20 minutes for as little as $99 with Willful Wills. Read my full Willful Wills review here.

Weekend Reading:

There’s still time to check out these awesome credit card offers, sign-up bonuses, and deals for December.

Travel expert Barry Choi reviews the best credit cards with travel insurance. One of interest for those over the age of 65 is National Bank’s World Elite MasterCard, which provides 15 days of coverage.

Dale Roberts looks into Canada’s largest mutual fund from RBC and says it’s not so bad.

I love reading personal finance updates and the end of the decade brought us plenty of ‘decade in review’ recaps. Here’s an interesting one from Maria at Handful of Thoughts.

Mark Seed at My Own Advisor updated his 2019 financial goals.

She taught more than 2,000 women how to invest, and always gives beginners the same 5 steps.

Millionnaire Teacher Andrew Hallam compares value and growth stocks in a piece called, Why your fast & furious stocks might be putting you at risk:

“Too many investors, unfortunately, chase past performance. In many cases, they’re breaking sound investment rules to stockpile money in America’s fastest growing stocks. But when their racetrack turns to ice or those tires decide to burst, these are the drivers who will pay the highest price.”

And here’s PWL Capital’s Ben Felix with another Common Sense Investing video, this one looking at investing with leverage:

The Globe and Mail’s Tim Cestnick explains how to get the most out of 2019’s tax changes.

Michael James on Money reviews a book by former U.S. Secretary of the Treasury, Timothy F. Geithner called Stress Test.

Dumbwealth, a recent new find, published some incredible tales of the working poor in Canada.

According to the Wall Street Journal, some dealerships are dressing up borrowers’ car-loan applications with fake, inflated incomes (might need a subscription to read, but try incognito mode).

Also in the WSJ, why concert tickets are so expensive – with average ticket prices increasing 55 percent in the past decade (subscription).

Finally, why nearly all accused money launderers in Canada get their charges dropped. 

Have a great weekend, everyone!

Do you want to save more money next year? Most people do. But how do you save more when there’s nothing left over at the end of the month? Try turning the problem on its head. Instead of trying to save what you don’t spend, treat saving like an expense you can’t avoid. That means prioritizing your savings goals ahead of time.

How to Make Saving a Priority

What are your financial goals for next year? Mine are to max out my RRSP contribution room, continue to max out my kids’ RESP account, and to contribute $1,000 per month to my TFSA.

Start by defining your goals. Then, build them into your spending plan for the year. What’s that? You don’t have a spending plan? Download this free budgeting spreadsheet and use the ‘yearly forecast’ tab to assign a job for every dollar you earn next year.

Input your savings goals first, followed by your fixed expenses such as your mortgage, property taxes, and insurance. Then fill in the rest of the spreadsheet by estimating what you’ll spend on variable items such as groceries, gas, travel, and entertainment.

What’s next?

Pay Yourself First

Made famous in The Wealthy Barber by author David Chilton, the phrase ‘pay yourself first’ is now considered to be the golden rule of personal finance. What makes this concept so powerful? It comes down to psychology. 

Parkinson’s Law states that “work expands so as to fill the time available for its completion”. Applied to your bank account, one might generalize, “the demand upon a resource tends to expand to match the supply of the resource”.

In other words, if you don’t make saving a priority at the start of the month there’s a good chance you’ll have nothing left over at the end of the month. You pay everyone else first and neglect your future self.

By paying yourself first, you’re forced to live on the remaining balance in your bank account. Parkinson’s Law still applies: The demand upon your bank account tends to match the supply of money in your bank account.

No problem. You’ve already met your savings goals. Spend away.

Make it Automatic

You’ve already made the decision to save money by paying yourself first. Now you need a system to prevent that strategy from being sabotaged – by you. How? Automation.

Set up an automatic withdrawal from your bank to contribute to each of your financial goals. Even better, match the automatic withdrawal with your pay day to ensure the money is out of your account before you even notice it’s gone.

For me, that means automatic withdrawals of $300 to my RRSP, $1,000 to my TFSA, and $416.66 to my kids’ RESP account. All whisked away before I have a chance to change my mind and spend it.

Enroll in your employer-sponsored savings plan. When I worked at the University, a whopping 13.8 percent of my gross pay went into a pension plan. Granted, this was not optional, but it forced me to live on less than 90 percent of my gross salary while taking care of a good chunk of my retirement savings.

Automatically enrolling workers into their employer-sponsored savings plans is considered to be one of the greatest accomplishments in the ‘Nudge’ area of behavioural finance.

Treat Saving Like a Bill Payment

Your bank knows this. So does the government. They don’t rely on your good faith to pay your mortgage or taxes on time every month. No, your bank takes its money right out of your account like clockwork. Taxes are withheld from each paycheque without fail. 

You can make saving a priority by treating your savings goals like the bank treats your mortgage payment, or like the government treats payroll tax collection. 

Automation equals forced savings. 

That’s why Canadian home owners rarely default on their mortgage. They’ll do anything to stay in their homes, from cutting expenses to the bone, getting a second job, or even dipping into their credit cards (bad idea!) while the bank continues to collect its mortgage payment.

By treating your savings goals like a fixed expense, you’ll force yourself (and your spending) to adapt and live on less. This applies to everyone, from young savers to retirees.

Give Yourself a Raise

You’ve decided to save more money, and made saving a priority by paying yourself first and making automatic contributions to your savings. You’re treating saving like a bill payment or fixed expense so you never miss a contribution. Everything is automated and running like clockwork. What’s next?

Give yourself a raise.

Behavioural economists Shlomo Benartzi and Richard Thaler expanded their research on automatic enrollment in retirement savings plans with a program called Save More Tomorrow. This program is all about gradually increasing your savings rate over time.

Remember when you started saving 10 percent of your net income? Maybe that was $500 per month (meaning your take-home pay was $60,000). Now your net salary has increased to $70,000, but because your automatic savings contributions were fixed at $500 per month, you’re now only saving 8.5 percent of your net income.

Increase your savings rate regularly, either alongside increases in income or just gradually as you get into a better financial position. It’s a relatively painless way to make a big impact on your savings over the long term:

“One of the most powerful factors in growing your investment account value is how much you contribute into your investment portfolio over time. By setting a minimum annual increase, you can take baby steps into growing your contribution rate over time without really feeling it.” – Preet Banerjee

Need More Motivation? Take on a Challenge

We all suffer from financial inertia from time-to-time. If you need a little extra motivation to save, try taking on a challenge. There’s the no-spend challenge, where you commit to only spending money on essentials for a period of time, and then banking the difference.

I like the 52-week money saving challenge. The concept is simple: Save an extra $1 in week one, $2 in week two, $3 in week three, and so on until you’ve saved nearly $1,400 by the end of the year. For a variation, try it in reverse so you’re saving $52 in week one and work backwards from there.

I don’t carry a lot of cash with me anymore, but I always save my change in a jar and use it for the kids’ allowance and tooth fairy money. One way technology has improved this version of saving is through a ’round-up’ feature. The idea is to automatically round-up each purchase to the nearest dollar and put the excess into your savings account.

Of course, there’s always a swear jar.

Final Thoughts

You likely have a lot of competing financial priorities and so savings often gets pushed to the back burner. I get it.

But you must save. You must get into the habit of saving. To do that, you need to make saving a priority by treating it like a fixed expense and making it automatic. Aim for 10 percent of your take-home pay, but if that’s not feasible aim for something – even 1 percent – to start building the habit.

In Michael Michalowicz’s Profit First, he gives business owners this lesson:

“Every time you get a deposit from sales, take a predetermined percentage of that money as profit. Of course there are a few more steps than just that. But even with the simple first step, of taking your profit first, you will become permanently profitable.”

If this simple, yet powerful concept can work for entrepreneurs, it’ll work for everyday people, too. Make saving a priority and always pay yourself first.

I don’t write much about the business of blogging but I’m constantly amazed by the growing community of readers who stop by here for their weekly dose of personal finance info. It has been a record year for viewership here on Boomer & Echo with an incredible 2 million + pageviews so far in 2019. 

As the year winds down I wanted to say thank you to everyone who takes the time to stop by here regularly to read, comment on, and share my blog posts. I’m so fortunate to get to do this full-time now and your support means a lot to me.

Like most established blogs, the majority of traffic comes from Google – people searching for specific topics or answers to their unique questions. They stumble upon a blog post that I wrote and hopefully like it enough to stick around and subscribe to receive new posts by email. 

That’s the next highest traffic source – those of you who get my new posts by email and click through to read.

Social media is a big driver of traffic and many of you visit from Twitter or Facebook where we have 10,000+ followers. We also get a lot of traffic from the news aggregator Flipboard.

One of the biggest supporters of the blog over the years has been The Globe and Mail’s Rob Carrick. He’ll often share our posts in his weekly newsletter – Carrick on Money. 

I’m also grateful for the long-time support from fellow bloggers such as Million Dollar Journey, My Own Advisor, Gen Y Money, and Michael James on Money. I don’t get around the blogosphere to comment as much as I used to but know that your links, shares, and comments are always noticed and appreciated.

A special thanks and shout-out to PWL Capital’s Ben Felix and Cameron Passmore, whose incredible support of my fee-only financial planning practice has led to unprecedented growth in the number of new inquiries and clients in the past few months. Their weekly Rational Reminder podcast is hands-down the best investing podcast out there for Canadians.

I plan to be much more active here in the new year – aiming for three posts per week – with a goal of reaching 3 million page views in 2020. As always, thanks for your continued support. Sharing is caring, so please tell your friends and family to subscribe 🙂

This Week’s Recap:

I wrote a comprehensive guide to TFSAs – including how to open one, what to invest inside it, how to use it in retirement, and of course the TFSA contribution limit.

In my Smart Money column at the Toronto Star I wrote about why you should save for a house down payment inside your TFSA and not your RRSP.

From the archives: How a ‘first 60-days’ assessment saves us taxes year round.

I’ll have a few more posts to share before the new year, most notably my year-end net worth update and a look at how my investments have performed.

What I’m Listening To, Reading, and Watching:

My wife and I get a rare date-night (thanks to my in-laws) and are going to see the new Star Wars: The Rise of Skywalker. We also can’t get enough baby Yoda from the Mandalorian on Disney+.

I started reading Loonshots this summer but put it down to focus on other projects. I picked it back up a few weeks ago and I’m nearly finished. I highly recommend it for anyone who manages a team or wants to know how individuals, organizations, and countries can nurture the crazy ideas that transform the world.

Phil Knight’s Shoe Dog (Nike) and Robert Iger’s The Ride of a Lifetime (Disney) come highly recommended to me and are next up on my reading list.

Finally, in addition to my usual podcast line-up I’ve started listening to Cautionary Tales from economist Tim Harford. True stories about mistakes and what we should learn from them. Tim’s a great storyteller.

Weekend Reading:

Cineplex Cinemas just sold to British-owned Cineworld. So, are your SCENE points still safe?

Alex Bryan from Morningstar takes a closer look at the merits of common arguments against index investing.

A Kiplinger author shares the nine types of people you’ll meet in retirement:

The Reluctant Spender: Although retirement is often portrayed as the time to live life to the fullest, the attitude of many retirees is quite different. After saving all their lives, they are reluctant to spend money, even on their retirement goals.

Great news for investors in every province except for Ontario. Regulators agreed to ban deferred sales charge (DSC) funds from being sold.

A Wealth of Common Sense blogger Ben Carlson has a new goal in life – to avoid a mid-life crisis.

Here are some good tax reminders for the end of 2019.

An interesting idea from Matthew Ardrey: Why investors should pay for all investment fees out of non-registered accounts.

Preet Banerjee says if you want to save a bunch of money on your discretionary food spending then delete the food-delivery apps from your phone:

Financial advisor Darryl Brown gives some excellent advice to a reader who has been accumulating cash and waiting for the market to crash.

Rob Carrick shares the top 10 hard money truths for teens and young adults:

“We need to raise our game in teaching teenagers about money and, no, that does not mean finding new ways to explain the wonders of compound interest.”

Here’s how much Canadians are going in to debt just to pay for a car and how much you should realistically be spending.

In part three of his tax-loss selling series, PWL Capital’s Justin Bender shares and compares the approaches used by robo-advisor Justwealth and PWL.

Of Dollars and Data blogger Nick Magguilli explains why affluence increases in steps.

3 key things ultimately contribute to our true financial success: reasonable expectations, a close eye on fees, and great financial coaching.

My Own Advisor blogger Mark Seed shares his financial decade in review. Well done, Mark!

Finally, Netflix latest filing reveals previously unknown details around its Canadian revenue and subscriber count.

Have a great weekend, everyone!