In 2012, personal finance commenter Preet Banerjee wrote a piece for the Globe & Mail debunking a widely quoted research paper on the value of financial advice.

The study, published by the CIRANO group, reported that “on average, participants retaining the service of a financial advisor for more than 15 years have about 173 percent more financial assets than non-advised respondents…”

Investment industry groups jumped all over this, proclaiming irrefutable scientific evidence that people are better off with a financial advisor.

But that causal link between having an advisor and having more assets is tenuous at best. Financial advisors target those who already have substantial assets and earning power.

Even the president of CIRANO, Professor Claude Montmarquette, who was one of the authors of the study, told Mr. Banerjee:

“We need a better study and a better paper before I would be comfortable with the way they are saying what they are saying.”

Years later, Mr. Banerjee appears to be doing precisely that. He’s gone back to school and is preparing to defend his thesis – a study on the value of financial advice. He’s in the final data collection phase and could use our help to complete a short survey (10-15 minutes). Respondents must be 18+ and reside in Canada.

Please take a moment and complete the survey here.

I applaud what Preet is doing here and look forward to the launch of his new financial advice platform called Money Gaps – a tool for advisors who believe real financial advice is about planning and not products.

Finally, here’s Preet in action on The Agenda with Steve Paikin discussing the reality of retiring on low income:

This Week’s Recap:

Just one post from me this week but it was a popular one that looked at three easy ways to build an investment portfolio on the cheap.

Weekend Reading:

One of the best writers in the business, Millionaire Teacher Andrew Hallam entertainingly explains why a sliding stock market is like a winnable baseball game.

Mr. Hallam then goes on to examine how Bitcoin fell further than the Dotcom crash.

Vanguard added two new asset allocation ETFs including VEQT – an all-equities version that might have me reconsidering my two-ETF solution.

Frugal Trader at Million Dollar Journey looks at how to modify your asset allocation as you age with all-in-one ETFs.

Continuing on the ETF theme, Canadian Couch Potato blogger Dan Bortolotti shares a great resource – a new rebalancing spreadsheet for ETFs.

Another terrific writer, Morgan Housel at Collaborative Fund explains why time horizon works:

“In the short run the market is a voting machine but in the long run it’s a weighing machine.”

Jonathan Chevreau gives three reasons why RRSPs still matter — and one of them you probably didn’t know.

Here’s Nick Magguilli on why even God couldn’t beat dollar cost averaging.

The Star Business Journal shared a piece on preparing your portfolio for a changing climate as risks and opportunities grow.

Michael James explains the right way to think about a CPP or OAS breakeven age. It’s unconventional to consider spending your own assets first while delaying government benefits until age 70, but that approach often gives retiree higher spending rates in retirement while also protecting against longevity risk.

Dan Bortolotti explains why GICs deserve a place in any fixed income portfolio.

The Globe & Mail published eight insights for investors and their financial advisors.

Finally, Rob Carrick says Millennials want help affording houses and proposes a solution for the federal government to consider.

Have a great weekend everyone!

I’m a die-hard football fan but even I’ll admit that it’s getting tougher to follow the game with the same religious fervor that I once had. The NFL is plagued by many issues, including domestic violence, racial division, substance abuse, and player injuries resulting from repeated head trauma (which the league ignored or denied for decades).

I played high school football and suffered two known concussions in my senior year. We had an old school disciplinarian coach who told me to, “tape an Aspirin to my helmet and get back out there.”

I didn’t know anything about brain injuries at age 17. We were taught to lead with the face-mask and strike our opponent with a strong block or tackle. Our helmets (ill fitting at times) were used more like weapons than protective gear. Playing in the trenches would easily result in 50-60 of these violent collisions per game.

All of these issues aside, I still enjoy watching the game – I’ve been a fan since I was seven years old. But I’m almost ashamed to tune in (and not just because I’m a Cleveland Browns fan) knowing that all of these tremendous athletes who put their bodies on the line week after week are nothing but replaceable cogs in a giant machine, over which they have little control.

For a deeper look into the sports industrial complex check out these excellent Freakonomics podcasts on the hidden side of sports. Eye opening, for sure.

As for Super Bowl LIII, I’ll be watching and cheering for the upstart Los Angelas Rams to knock-off the mighty New England Patriots. While I enjoy my guilty pleasure tomorrow, come Monday I’ll be happy and thankful to take my kids to their ballet and piano lessons.

This Week’s Recap:

Earlier this week I looked at how well robo-advisors are positioned to help investors during a market downturn.

Later I looked at Canadians’ RRSP contribution and withdrawal habits and noted some good and not so good behaviour.

Weekend Reading:

Investigative journalist Sam Cooper has done a tremendous job digging into the money laundering scandal at B.C. casinos. Here’s the latest on how nearly $2 billion flowed through high roller accounts.

Parts of Canada’s data history have gone missing. Others are hidden from public view by layers of bureaucracy. A look at what went wrong at Statscan.

Here’s Of Dollars and Data blogger Nick Maggiulli on the power of heuristics and reducing complexity:

If you are trying to improve your business, what one big thing distinguishes your great clients from your bad clients?

If you are trying to get healthier, what one big thing separates good health from ill health?

If you are trying to be a better parent, what one big thing differentiates an amazing childhood from a subpar one?

Grab a second cup of coffee and read this epic Morgan Housel post on the origins of greed and fear. Seriously, go read it now.

While you’ve got that second cup of Joe, watch Ben Felix explain clearly how an RRSP works:

One policy I think the federal liberals got wrong was to reverse the previous conservative government’s decision to raise the retirement age to 67. It goes against global trends and economic reality. Here’s why that’s a growing problem.

Living off dividends, investing for income, not deferring pensions. These are just a few of the common investing mistakes made by retirees.

Jason Heath explains how early RRSP withdrawals can help some retirees comes out ahead.

Here’s six insights into retirement savings for those in their 30s and 40s.

Alexandra Macqueen explains why the 17% drop-out rule is key to your CPP entitlement:

“Because your CPP retirement benefit is based on your pensionable earnings from the age of 18 to when you take your CPP pension—called your “contributory period” in CPP lingo—dropping out these no- and low-income months can increase your monthly CPP retirement benefit, as the average income on which your retirement benefit is then based goes up.”

Million Dollar Journey blogger Frugal Trader pits iShares versus Vanguard in the battle of the all-in-one ETFs.

My Own Advisor blogger Mark Seed interviews Cut The Crap Investing blogger Dale Roberts about smarter saving and investing.

Dr. Networth describes his journey into passive real estate investing.

Ben Carlson explains what he means by being “selectively cheap.” I agree 100 percent with Ben’s view on saving and spending money.

The buttons on our eight-year-old microwave have slowly stopped working over the years. I think we’re down to using the “2” and “Clear/Stop”. Why can’t appliances work forever, like they used to?

Finally, a great piece by licensed insolvency trustee Scott Terrio on why Canada’s credit score obsession is leading people to make bad financial decisions.

Have a great weekend, everyone!

It’s perhaps the greatest tax-planning tool available to Canadians, yet RRSPs still remains a mystery to some and are underutilized by many.

BMO’s 9th annual RRSP study digs into the data to examine Canadians’ RRSP contribution habits and highlight key trends.

Average amount held in RRSP

The study found that the average amount held in RRSP plans was $101,155 in 2018. This amount is up from $83,635 in 2016, which is great news given the market volatility we faced in late 2018 that has continued into this new year.

These amounts were broken down by generation, led of course by the Boomers who held an average of $178,664 in their RRSPs. Gen Xers held an average of $98,072 in their retirement accounts, while Millennials held an average of $28,821 in their RRSPs. (Interestingly, Millennials saw the largest percentage increase with 87 percent since 2016).

As a money blogger and financial voyeur I always like these surveys to compare where I’m at versus the average Canadian. I was born in 1979 – too old to be considered a Millennial but too young for Gen X (I think we’re called Xennials).

Looking at the survey data I’m happy to see my retirement savings as ‘above average’.

In 2017 I had an RRSP balance of $162,201 and had maxed out all of my unused contribution room. Last year I put in another $3,600 (maxing out my available room for the year) but markets were down and I ended the year with a balance of $162,939 – barely moving the needle forward.

Saving and Investing

Back to the BMO study, which found that 62 percent of Canadians have, or plan to, contribute to their 2018 RRSP, and those who have already contributed put in an average of $5,247.

More Canadians were putting money regularly into savings (60 percent), than into investments (36 percent). Is this a Canadian thing? Why are some of us content to hold cash in our retirement accounts rather than investing smartly into a globally diversified portfolio of ETFs?

Perhaps it’s due to the stock market correction we saw in the last quarter of 2018. The survey was conducted between November 30th and December 5th; smack dab in the middle of the mini market meltdown.

I’ve been there. I made a last minute RRSP contribution in February 2009 – you know, the bottom of the financial crisis – and thought the safest place for it was locked-in to a 5-year GIC. If I only knew then what I know now . . .

One other theory on saving versus investing in an RRSP is that some of us focus on making an RRSP contribution but then fail to invest that contribution to try and maximize long-term returns.
RRSP withdrawals before age 71

Another takeaway from the BMO RRSP study was that 34 percent had withdrawn funds from their RRSP account before age 71. While that number decreased 6 percent from last year, the amount withdrawn increased from $20,952 in 2017 to $25,779 in 2018.

The top reasons for RRSP withdrawals:

• Buy a home (28 percent)
• Pay for living expenses (24 percent)
• Pay off debts (20 percent)
• Early retirement (18 percent) <— Yassss!!
• Emergencies (15 percent)

The Home Buyers’ Plan is a legitimate program that allows you to withdraw up to $25,000 from your RRSP to buy or build a home for yourself.

You have to repay the funds starting in the second year after you withdraw them. If you don’t make the annual repayment then you must include that amount as RRSP income on your tax return.

Sadly, many Canadians who’ve participated in the Home Buyers’ Plan do not make the annual repayments to their RRSP.

That aligns with the survey data which showed that only 18 percent of those who’ve withdrawn from their RRSP have paid it back (a six percent decrease from 2017), while 15 percent believe they will pay back their RRSP within five years, and 59 percent don’t know when they will pay back their RRSP or don’t expect to pay it back at all.

It pains me to say this but I’ve withdrawn from my RRSP to pay off debt. This was back before the TFSA existed. I was making RRSP contributions at age 19 and 20, even though my annual earnings were well under $25,000.

I got into credit card debt and decided to withdraw from my RRSP to pay it off. That might have been the right decision at the time, but I’ll never get back that RRSP contribution room, plus I had to pay tax on the withdrawals (they’re treated as income).

Final thoughts and my RRSP takeaways

I know we’re in the middle of RRSP season where many Canadians will look to make a large lump sum contribution before the March 1st deadline. But I think a better savings strategy is to make smaller monthly contributions throughout the year. You’ll likely get to the same amount without having to scramble to come up with a large sum all at once.

In the RRSP study BMO linked to a savings calculator to help investors set a goal and then plan the regular contribution amounts, payment period, and frequency that will work best for the investor’s financial goals and aversion to risk. The key is making it automatic – set up a pre-authorized withdrawal to come out of your chequing account and go into your savings or investing account on the day you get paid.

Other thoughts:

• Make sure to invest your tax refund to supercharge your RRSP savings.
• Invest your RRSP contribution in a GIC, mutual fund, or ETF – don’t just leave it in cash.
• Resist the urge to raid your RRSP to pay for living expenses. Your future self will thank you.
• Online investing is another way to invest in an RRSP –whether on your own with BMO InvestorLine Self-Directed, with advice from BMO adviceDirect or the robo advisor route with BMO SmartFolio. There’s also the option of getting help from an investment professional at a BMO branch.

Finally, determine whether the RRSP or TFSA is a better fit for your retirement savings. Most of us can’t afford to max out both, so we need to pick the most optimal savings vehicle for our own situation.

The rule of thumb is if you expect to make less in retirement than you do today, go with the RRSP. If you expect to make more in retirement than you do today (i.e. entry level salary) then go with the TFSA.

Take advantage of these special offers until March 1, 2019!