If there’s anyone who knows how to beat the bank at its own game, it’s 35-year banking industry veteran turned investor advocate Larry Bates. His new book, Beat the Bank: The Canadian Guide to Simply Successful Investing, just hit the shelves and in it he reveals the winning formula to turn the tables on Bay Street and double your investment returns.
How? By learning investment basics, thinking long-term, and minimizing costs.
Larry first came to my attention when he introduced the T-REX Score, a calculator that tells you how much of your investment return you actually get to keep versus what gets lost to fees. It’s a shocking illustration of the damage fees can do to your long-term investment returns. Using his T-REX Score as the catalyst, Larry continued to sound the alarm over high mutual fund fees and conflicted investment advice. I liked him immediately.
I got early access to read Beat the Bank this summer and I was thrilled to provide an endorsement for this simple, practical guide to successful investing:
Beat the Bank: Book Review
Larry’s extensive experience in investment banking, primarily with RBC Capital Markets, gives him keen insight into the Canadian financial system. He says that very few Canadians understand how much they are paying for investment products and services, or how much value they’re getting in return. That lack of knowledge serves Bay Street well and allows banks, brokers, insurers, and financial advisors to collect fat fees from your investments – fees that have barely budged over the years.
Why don’t Canadians take the time to find out what’s going on behind the scenes? Several reasons:
- Unconditional trust in the advisor or institution (Bank loyalty)
- Erroneously assuming there are no fees (“Our financial advisor is such a nice man. Every year he takes us out for a wonderful dinner. I wish we could pay him in some way.”)
- Not knowing the right questions to ask
- Fear of asking a ‘dumb’ question (Information asymmetry)
- Not wanting to seem impolite (We’re Canadian, eh?)
- Mistaken belief that the advisor or institution must act in the customer’s best interest (Instead we have the inferior ‘suitability’ standard)
- Disinterest
- “I just don’t have time”
What this ultimately means is that hard-working Canadians are losing up to half their wealth over time as fees quietly strip away their lifetime investment gains.
The Enlightened Banker
From his ivory tower on Bay Street, shielded from the plight of ordinary investors, Larry got a wake-up call from his sister who was nearing retirement and wondering why her mutual funds had gained so little over the last 20 years. Fees of 2.3 percent over two decades had eaten up 30-40 percent of his sister’s retirement nest egg.
Embarrassed and ashamed of his employer and the investment industry, Larry has become the ‘enlightened banker’ and staunch advocate for Canadian investors.
He wants investors to beat the bank – make Bay Street work for you rather than against you – by taking advantage of one of three methods of Simply Successful Investing:
- Do-it-yourself investing (blue chip stocks and high quality bonds)
- Assemble-it-yourself investing (Index mutual funds and ETFs)
- Robo-investing
Old Bay Street Tricks
One of the tips you’ll read in Beat the Bank is to avoid high-fee balanced mutual funds sold by the big banks – what Larry calls Old Bay Street packaging.
“Be aware of the powerful grip Old Bay Street has on you. Realize that Old Bay Street’s Pitch, Plan, Product, Prize strategy is a sales pitch, not objective advice.”
He also has a list of “No Thanks! Investments You Can Ignore”, including corporate bonds, preferred shares, mortgage investments, gold, and Bitcoin and other cryptocurrencies.
Wealth Builders and Wealth Killers
Larry writes about reducing the impact of ‘wealth killers’, or eliminating them altogether where possible. The number one wealth killer is fees, and you’ll want to identify and reduce them.
The number two wealth killer is tax, and so a savvy investor will need to understand how best to use their RRSP, TFSA, and non-registered accounts, as well as the ins-and-outs of capital gains tax, the dividend tax credit, and how interest is taxed.
Wealth killer number three is inflation. It diminishes your purchasing power over time. That’s why saving is not enough – you must invest your savings to beat inflation and protect your purchasing power.
Combat wealth killers with wealth builders: the amount you save and invest, the length of time your investments have to grow, and the rate of return at which your investments grow.
He ends with 10 rules or commandments to beat the bank and double your investment returns through simply successful investing:
- Learn investment basics
- Understand The Wealth Formula
- Know your T-REX Score
- Recognize how Bay Street operates
- Be a long-term business owner
- Know your risk tolerance
- Make a simple plan
- Invest like clockwork
- Ignore the market
- Enjoy life!
Final thoughts
Beat the Bank is an insightful look into fee machine known as the Canadian investment industry. It offers more than just platitudes against the industry, though, as author Larry Bates provides the playbook for investors to build and grow their wealth at any age and stage of their lives.
Read the book. Then start investing (or investing smarter). Your future self will thank you in retirement.
Time for a Giveaway!
Larry was kind enough to send me an extra copy of Beat the Bank to give away to one lucky Boomer & Echo reader. To enter, just leave a comment below and share your own experience with beating the bank, or when you became an ‘enlightened investor’.
The contest will be open until 5:00 p.m. EST on Friday September 14. I’ll announce the winner in the next edition of Weekend Reading. Good luck!
I picked up three pints of ice cream from Save On Foods today, not because I’m a glutton but because they were on sale and I plan on eating one of them after I run 12 miles tomorrow (okay, so I AM a glutton. What of it?). At the check-out I noticed the items rang in at $7.99 instead of the sale price of $5.99. When I mentioned this to the cashier she said something about it being tied to redeeming points – which didn’t make a whole lot of sense.
I paid for my items and went back for a closer look. Sure enough, the sale price was clearly marked with no strings attached. I snapped a photo and headed to customer service to investigate. The customer service associate looked at the receipt, scanned the items, and without hesitation told me that under the Scanning Code of Practice I’d get one of these items for free, and the second for the correct sale price. She missed that I had three identical items, not two, and offered me a full refund for the third item.
I’ve heard of the Scanning Code of Practice, or what’s technically called the Scanner Price Accuracy Voluntary Code, but never had any personal experience with it as a shopper. Here’s the ‘item free scanner policy’, according to the Retail Council of Canada:
Retailers will implement an Item Free Scanner Policy as follows:
1.1 On a claim being presented by the customer, where the scanned price of a product at checkout is higher than the price displayed in the store or than advertised by the store, the lower price will be honoured; and
(a) if the correct price of the product is $10 or less, the retailer will give the product to the customer free of charge; or
(b) if the correct price of the product is higher than $10, the retailer will give the customer a discount of $10 off the correct price.
I was impressed with how well the employee at Save On Foods handled the complaint. Given her efficiency I’m sure this is a somewhat regular occurrence. In any case, I got my ice cream for $5.99 instead of $23.97 thanks to the Scanning Code of Practice and an honest retailer owning and fixing their mistake.
Have you ever had to use the Scanning Code of Practice to get a free item or $10 off the product? Did you have to point out the policy, or did the cashier apply it voluntarily? Let me know in the comments.
This Week’s Recap:
Just one post this week with 3 tips to maximize your credit card rewards for travel. We’re saving some serious money on our trip to Europe thanks to travel rewards.
Thanks to those of you who sent in a request to have your own financial facelift. I hope to get to all of those and launch a more relatable series than the ones found in the Globe and Mail here in the near future.
Finally, on a personal note, many thanks to Washington Capitals forward Brett Connolly and the Prince George Cougars for hosting a Stanley Cup event and donating the proceeds to the Brock Hirsche Pronghorn Hockey Award at the University of Lethbridge. Brett played junior hockey with Brock in Prince George and wanted to pay tribute to his former teammate who lost his courageous battle with cancer this spring.
I had the privilege of working with Brock to establish this scholarship before his passing. He would be proud and humbled to know that more than 250 donors have now raised more than $100,000 in support of his memorial scholarship.
Promo of the Week:
I mentioned a few weeks ago that Wealthsimple was launching its own stock trading platform with zero fees. You can sign up to be on the Wealthsimple Trade wait list here and be one of the first to test out this new stock-trading service. Note that at launch it will only support cash (non-registered) accounts, but the company says it hopes to add RRSP and TFSA accounts in the future.
The Canadian Financial Summit is just around the corner (Sept 12-15) so if you haven’t signed up for your free ticket to watch sessions from the likes of me, Rob Carrick, Preet Banerjee, Ellen Roseman, and more, you still have a few days to do so before the price goes up to $87 for an All Access Pass.
Weekend Reading:
I really enjoyed (and can relate to) this short piece by Michael Batnick about what it means to be a financial expert:
“I’m pretty sure that all of my conversations with people outside of finance has ended with the other person wondering if I even know anything at all about investing.”
Downtown Josh Brown says you’re wasting your time arguing with the Unreachables.
Michael James tries to understand why people might purposely avoid the stock market, “not because they don’t believe in their long-term growth prospects, but because they understand their own limitations in figuring out how to get decent investment advice.”
Here are three ways to cut your investment fees courtesy of my pal Dale at Cut the Crap Investing.
Real estate is a better investment than stocks because my parents paid $65,000 for their bungalow and just sold it for $600,000. Why do we accept stories over statistics?
Here’s how investing in real estate can easily go sideways.
This piece on the cost of private school didn’t generate much sympathy from internet readers.
Robin Powell interviews Larry Bates, former senior banker turned investor advocate who just came out with a new book called, Beat the Bank. Look for my review on that one soon!
It’s been 10 years since Nobel prize winning economist Richard Thaler wrote the groundbreaking book, Nudge. Here’s how the nudge theory has shaped public policy since then.
Here’s Morgan Housel on why a lot of good ideas aren’t taken seriously, or take far longer to be taken seriously than you can imagine.
And Housel again explaining why most of us have a bad sense of what emotions look like when it comes to investing:
“The picture of the emotional investor you may have in your head is the poor sap literally crying over losses. Or the maniac taking out a second mortgage to bet on a penny stock. As long as you can say, “That’s not me,” you can tell yourself you’re an unemotional investor.
And you’re probably wrong.”
Do you really need an RRSP to retire? Jason Heath explains how Canadian retirees are propped up by CPP and OAS.
The sunk cost fallacy – throwing away good money after bad – happens all around us in business and investing. Why is it so difficult to avoid? Because it’s hard to quit once you’ve invested time, money, and/or effort.
Finally, my friend Barry Choi makes his Globe and Mail debut as a travel writer. Itching to get away? Here’s 10 fall deals you’ll want to book now.
Have a great weekend, everyone!
Years ago when I first began collecting credit card rewards, cash back was king. I liked getting back something tangible to help subsidize our budget. Plus, I didn’t even want to think about getting on an airplane with a baby or a couple of toddlers. Travel rewards could wait.
But now that our kids are getting older, and we’re travelling more often as a family, I’ve shifted my credit card rewards preferences from cash back and free groceries to air travel and free hotel rooms.
We used Aeroplan miles to book our flights to Victoria earlier this summer, to book an anniversary getaway to Vancouver in the fall, and to get our family across the pond to Scotland next June. While in Scotland, we’re staying five nights free at the Sheraton Grand Hotel & Spa Edinburgh courtesy of Marriott Rewards (formerly Starwood SPG points).
Maximize Credit Card Rewards For Travel
I want to get the most out of my credit card rewards and so I use these three tricks to help maximize earning potential on my cards and increase the chances of successfully redeeming points for travel.
1.) Funnel spending
For a while I had one credit card that I used for groceries and gas, one card that I used for dining and entertainment, one card that I used for travel, and you get the idea.
Dividing up my purchases between multiple rewards cards worked great for redeeming cash back in smaller increments but I wasn’t able to build up a large bank of points that would be useful for booking a flight or hotel stay.
Now I funnel most of my spending onto one travel rewards credit card and use the points to pay for our summer vacation. The only time I waver is when I’ve signed up for a new credit card and need to meet a minimum spending threshold. Speaking of which…
2.) Watch for promotional offers
The rewards card landscape changes every year and with new competition comes some incredible welcome bonuses and promotional offers. When American Express relaunched its Starwood Preferred Guest Credit Card it came with a generous 50,000 point welcome bonus and an annual free night award, plus other perks like automatic Silver Elite status.
What I look for in a new credit card offer is one that comes with a generous sign-up bonus ($250 or more worth of travel rewards), or an easily attainable early spend bonus (say, spend $500 in the first month and get 25,000 points).
I try to time my application to coincide with a large upcoming expenditure, such as my $1,500 house insurance bill that was due this month.
Now most of the top travel rewards cards come with an annual fee between $99 and $150. So I also look for a card offer that will waive the annual fee in the first year. That way if I don’t like the card, or I don’t think it will replace my main credit card, I can cancel it before the annual fee comes due.
Some premium cards, like the American Express Platinum Card, come with a hefty fee ($699) but the first year perks might be worthwhile if you have a big trip planned that year. You need to evaluate what’s best for your situation.
Watching for the right promotional offers throughout the year can easily add a few hundred dollars to your travel rewards earnings, not to mention other perks like free airport lounge passes, or cheap companion flights.
3.) Find a more flexible program
Earning all the points in the world won’t matter if you can’t redeem them how and when you want. Rigid and inflexible travel rewards programs often mean having to deal with confusing flight charts, blackout dates and seat restrictions, not to mention having to book your travel through one particular airline, hotel, or booking company.
A better way is to have the flexibility to book your travel anyway you want; whether it’s a room through Airbnb or VRBO, a flight from a discount airline, or a direct long-haul flight at a time that’s convenient.
Some of the best travel rewards programs let you book and pay for your travel on your own with your credit card and then allow you to pay off those charges online with your points. No phone calls, no hassles, just pure flexibility that gives you the opportunity to squeeze every bit of value from your credit card travel rewards.
Membership Rewards from American Express is known throughout the travel rewards community as being one of the most flexible “currencies” around. That’s because of the ability to use Amex’s Fixed Points Travel to book flights, or transfer points to Aeroplan or British Airways Avios at a 1:1 ratio, or transfer 1:1.2 to the Marriott Rewards program for hotel rewards.
Final thoughts
While I enjoyed the simplicity of cash back credit card rewards programs over the years, I’ve found that travel rewards can be much more lucrative if you know how to maximize your earnings and keep your redemption options as flexible as possible.
Perks like free companion flights, free airport lounge passes, free hotel rooms or upgrades, and more can all be within reach when using the right credit card rewards program for travel.
What’s your favourite program?