Most of my work as a financial planner boils down to helping clients use their resources to achieve their financial goals over time. But where do those goals come from? How do we know they’re the “right” goals? 

The team at PWL Capital dug into the research around goal setting and found that, “people are empirically deficient at identifying what their objectives are,” and that, “participants consistently omit nearly half of the objectives that they later identify as personally relevant.”

Basically, we don’t think broadly enough about how many goals we’d like to achieve, and we don’t think deep enough to articulate which goals are the most meaningful to us and if any of those goals contradict other goals.

One example is a prospective client whose main objectives were to reduce his tax burden and to avoid OAS clawbacks. Yet he also enjoyed his work and planned to continue earning significant income well into his 70s.

Another prospective client wanted to “die with zero”, but also wanted to build a portfolio of income properties.

To help increase the probability of generating a more relevant list, research from Bond, Carlson, and Keeney suggest the following exercise:

1. Independently generate a list of objectives without outside help.
2. Approximately double the number of objectives that were initially generated.
3. Consult categories that objectives for the decision may fall into.
4. If it exists, consult a “master list” of objectives for the decision; this should only be done after completing the first three steps.

Master List of Financial Goals

PWL conducted a survey, collecting responses from their Rational Reminder podcast listeners, with the objective of creating a master list of financial goals. Ben Felix, the head of research at PWL, recently posted a summary of their findings.

The number one goal, by far, was to become financial independent – where work is optional. Anecdotally, that’s the most common goal I hear from my clients as well.

Here are the top 10 goals from the master list:

1. Being financially independent – work is optional
2. Feeling financially secure
3. Affording travel / leisure time / experiences with family
4. Maintaining physical health through sleep, diet, and exercise
5. Financially supporting my community or causes that are important to me
6. Finding and affording engaging hobbies
7. Assisting children with education costs / early adulthood setup
8. Owning a home and affording its operating costs
9. Having the ability to be generous with loved ones
10. Avoiding the hedonic treadmill, but not over-saving (“enough”)

Other goals that I found interesting (but that appeared lower in the master list) included:

• Finding engaging work and being in a financial position to pursue it
• Outsourcing unpleasant tasks
• Raising financially literate and responsible children

As a planner, I’m happy to see this research and plan to use it to help my clients think about their own financial goals. It’s true that we don’t think broadly enough about all of the goals we want to achieve – too often we focus on the one or two burning questions occupying our minds at the time.

We tend to just arbitrarily want “more” without stepping back to think about how we’ll use our financial resources to fund a good life. 

My takeaway is that it’s hard to come up with a list of financial goals on the spot, but by thinking more broadly about what we want out of life, writing down those objectives (then trying to double the number of objectives), and then consulting a master list of financial goals, we can better articulate our own goals and how to use our financial resources to support that vision.

I also find it helpful to come up with a list of anti-goals – what you don’t want your life to look like now and into the future.

Readers, anything to add to the master list of financial goals?

This Week’s Recap:

I managed to write one post last week when I looked back at the last 11 years of home ownership and wondered if my house was a lousy investment.

Many thanks to Rob Carrick at the Globe and Mail for featuring that article in his latest Carrick on Money newsletter. Always appreciated! I also appreciate how kind you are in the comments section compared to G&M readers – so thanks for that! 

Promo of the Week:

It’s that time of year when we tend to do more online shopping than usual. Before I buy anything online I always try to remember to visit a cash back website like Rakuten.ca to earn cash back on my order. 

Inflation is still running higher than usual, so it’s more important than ever to find ways to squeeze more savings out of your purchases. Rakuten has access to more than 750 stores, including The Bay, Sport Chek, Canadian Tire, Old Navy, and Sephora.

Plus, get a $40 Cash Bonus when you join today!

It’s not just shopping – Rakuten also has cash back on credit card sign-ups as well. I have my eye on a new Scotiabank offer where you’ll get $150 cash back when you sign up for either the Scotia Momentum Visa Infinite, the Scotia Passport Visa Infinite, or the Scotiabank Gold American Express card.

Best of all, those three cards are all “First Year Free” with this promotion and have generous and easy to attain welcome bonuses on top of the $150 cash back from Rakuten.

Weekend Reading:

It has been a rough year for the classic 60/40 portfolio. Nick Maggiulli explains how it makes a comeback.

Why a highly diversified portfolio, even one that is down right now, is like having ground beneath your feet while less diversified investors are skating on thin ice.

Getting a head start on tax loss selling? Jamie Golembek says to beware of the superficial loss rule, currency implications, and more.

The most important decisions in your life may be whether to marry, who to marry, and whether to have kids. But none of those topics are taught in school. Morgan Housel’s latest looks at things that are very important but hard to teach.

Here’s the messy true story of the last time we beat inflation.

Rob McLister says mortgage shoppers are snapping up short-term fixed rates right now, and says, “that is exactly how yours truly would play it – assuming I were getting a mortgage today.”

Canada’s oligopoly of the skies is at it again, as Air Canada and WestJet launch a lawsuit to overturn orders to compensate passengers for cancelled flights. Good grief.

Gen Y Money travel hacked her way to the Maldives. It’s on my bucket list.

Finally, author Mike Drak says financial planning needs to be broadened to include longevity planning—how people can live their best life for as long as they can. 

Mike also wrote a piece in MoneySense about what a retirement plan looks like today:

“Your first life was a quest for success and money; your second life is a quest for meaning and significance. If you approach it right, you can recreate the excitement and possibility you felt back in your twenties when you first started out. Remember how that felt?”

The above article was excerpted from Longevity Lifestyle by Design (September 2022). The PDF version of the book is available to download for free, or you can order the paperback version on Amazon.

Mike says if you are willing to buy a copy for $12.99 on Amazon and post a comment below, “I will send a free printed copy to the person of their choosing.” Thanks, Mike!

Have a great weekend, everyone!

As we get closer to moving into our new home (and selling our existing one) I decided to look back on the financial return of our home purchase. I wish I hadn’t. On first glance, I think my house was a lousy investment.

We haven’t put our house on the market yet, but we will soon and I expect it to sell for somewhere between $500,000 and $549,000 (the range of outcomes has widened, especially to the downside, as the housing market slows down).

If it sells for $524,000, we’ll make $100,000 over the $424,000 that we initially paid for the house back in 2011. That sounds okay, but it represents just a 1.94% compound annual growth rate. Oof.

But it gets even worse from there.

Phantom Costs of Home Ownership

The year after we bought our home we spent $7,500 on landscaping the front and back yard, and putting up a fence. The following year, we spent $32,500 to renovate the unfinished basement.

That already puts us at $464,000 and I haven’t included phantom (unrecoverable) costs such as property taxes, insurance, and maintenance.

Thankfully, the brand new house didn’t cost much in terms of ongoing maintenance over the last 11 years. I’m going to be generously low and put this at $1,000 per year for a total of $11,000.

We paid an average of $4,000 per year in property taxes ($44,000 total), and an average of $1,600 per year for insurance ($17,600). That’s another $61,600 in total unrecoverable costs that we paid as homeowners. 

We made mortgage payments, on average, of $1,600 per month. Over 11 years that adds up to roughly $211,200. I’d estimate $50,000 of that went to interest costs and $161,200 towards the principal.

Finally, there’s also the opportunity cost of capital – the $88,000 down payment we put towards the house purchase back in 2011.

What If We Rented and Invested the Difference?

If we had invested that amount in a globally diversified portfolio of stocks and earned 8% per year (not unrealistic, considering the S&P 500 gained 14.4% from 2011 to 2021) that $88,000 would turn into roughly $190,000. Call it a $100,000 opportunity cost.

Let’s say we rented a house for the last 11 years, paying the equivalent of our total mortgage payment each month in rent. We invested our initial $88,000 lump sum, plus another $550 per month that we saved from not having to pay property taxes, insurance, and maintenance. We’d end up with about $295,000 by the end of 2021. 

Also, don’t forget the extra $40,000 we spent on renovations and landscaping. Let’s say we just kept that in cash under our mattress. We’d have $335,000 in savings and investments today had we rented and invested / saved the difference.

Instead, we put that $88,000 towards a house. We put an additional $40,000 into the house to finish the basement and landscape the yards. And, we paid another $72,600 in phantom or unrecoverable costs over the past 11 years, plus another $50,000 in interest costs.

Not So Fast

To counter that, the majority of our mortgage payments went towards paying down the loan principal and so we have that $161,200, plus our initial downpayment of $88,000, built up in home equity. We can’t forget about that so-called forced savings.

Finally, we should include another expense – $20,000 in realtor fees after the sale of our house.

By my count, if we sell the house for $524,000, pay the realtor fees of $20,000, and pay off the remaining mortgage of $170,000, we’ll end up with about $334,000.

In the rent-and-invest-the-difference scenario, we’d end up with about $335,000.

Related: Is Renting Throwing Money Away?

In other words, in both the buying and renting scenarios our starting position was $88,000 in 2011, plus another $40,000 of capital invested between 2012 and 2013. Our ending position in 2022 will be around $335,000 either way. 

I’d say it’s pretty clear the difference is negligible between the two outcomes, and most likely leans towards buying for some of the intangible benefits of home ownership.

Final Thoughts

Home ownership has been a clear winner for many Canadians over the past decade or longer, particularly for those living in BC and Ontario. For some, it has been like winning the real estate lottery.

But for homeowners living in Alberta, Saskatchewan, or in Atlantic Canada, the math isn’t always as favourable. Home prices can stagnate for many years, and phantom costs eat into your returns over time.

Was my house a lousy investment? After a closer look at the numbers it hasn’t been that bad.

More importantly, I don’t actually consider my primary residence to be an investment. It’s a lifestyle decision, more than anything.

We didn’t win the real estate lottery, but we spent 11 years living in a house we loved and we’re leaving it richer in both wealth and memories. That’s good enough for me.

I’ve never heard so much interest in GICs before this year, but with stock and bond markets down and interest rates up it’s no surprise that investors are looking for a safe and profitable place to park their savings.

Just two years ago, a five-year GIC was paying a paltry 1.5% interest, while a two-year GIC was paying just 1.05%. Fast forward to today and you can find a five-year GIC paying 5.2% interest and a two-year GIC paying as high as 4.88% interest (source: https://www.highinterestsavings.ca/gic-rates/).

Meanwhile, investors are reeling as stocks and bonds have suffered significant losses this year. A balanced 60/40 portfolio is down around 15% so far this year and an all-equity portfolio is down nearly 17%.

Investors want to stop the bleeding in their portfolio and are considering short-term GICs as a temporary solution. Those with new money to contribute don’t want to throw good money after bad, so they’re looking to GICs as a source of decent returns today.

GICs are a perfectly sensible investment for someone with a short-to-medium time horizon who is looking to maximize their return without taking on any risk (besides the risk of tying up your money for 1-5 years).

But the trouble with GICs as a market timing investment strategy is their lack of liquidity. We don’t know when stock and bond markets will turn around, but we know throughout history that returns after a bear market have typically been strong. If your capital is tied up in a GIC, even for a year, and markets start to rise quickly, you miss that opportunity to recover your losses and/or participate in those gains.

Consider my own experience with GICs.

Back in early 2009 I received a $7,500 bonus from work and decided to put that amount into my RRSP before the March 1st deadline. I was naive about investing, but knew enough that the mutual funds in my group RRSP were down substantially. With the RRSP deadline looming, and knowing that I had to put the money into *something*, I chose a 5-year GIC at TD Bank that paid 5.5% interest.

I still kick myself for this decision, because the Great Financial Crisis bottomed on March 9th, 2009 – shortly after I purchased that GIC. 

The result? The five-year GIC turned my $7,500 into about $9,800.

Had I invested the $7,500 into a Canadian equity fund (let’s use iShares’ XIC as the proxy), I could have turned that $7,500 into nearly $16,000 thanks to the roughly 16% annual compound growth rate in Canadian stocks from March 2009 to March 2014.

Now that’s an example using a relatively small sum of money. But I’ve had conversations with investors who want to put several hundred thousand dollars of their portfolio into GICs.

Some of these investors think we’re headed for many years of poor returns, so let’s assume they invest $200,000 in a five-year GIC paying 5.2% interest. After five years they’ll have about $257,700.

Maybe investment returns over the next five years won’t be as strong as they were from 2009 to 2014. But let’s make a not so unreasonable assumption that stocks return 10% annually between November 2022 to November 2027. That would turn your $200,000 into about $322,100.

I don’t have a crystal ball to see how this will all play out, but I do know that every bear market ends and that stocks and bonds will eventually reach new highs. It’s just a matter of when.

This Week’s Recap:

We had a wonderful time in Paris earlier this month. I’ve always heard mixed reviews about Paris – the negatives being that it was dirty and full of rude people. I didn’t find that at all. The city was clean and the people were lovely, despite my poor attempts at speaking French. 

Our apartment overlooked the Eiffel Tower, which made for great views but the neighbourhood was a bit too touristy for us. We wandered over to the 2nd arrondissement where we found some amazing vegan bakeries and restaurants. We’d definitely stay in that area next time.

I know I revealed in my anti-goals post that I did not want to ever go to Disney, but with eight days in Paris we decided to take a short train to spend a day at Disneyland Paris (for the kids!). It was fine. Lots of waiting in line, lots of overpriced souvenirs, but the kids had a blast in the Marvel and Star Wars areas (ok, Dad had fun there too).

We saw the Louvre, spent a fabulous day in Versailles, and even took the kids to a Michelin star restaurant for dinner. Out of all of our travels this year, Paris is definitely at or near the top of the list.

I managed to update and repost a reminder to fill out a T1213 form so you can crush your RRSP contributions next year.

And, the Canadian Financial Summit took place last week and I hope you got a chance to catch my session on retirement readiness planning.

Weekend Reading:

The biggest financial news story from this past week was the CBC Marketplace expose on real estate agents facilitating mortgage fraud for a fee. This practice of falsifying income through fake employment records, bank statements, and T4s helped unqualified would-be homebuyers get into the housing market.

Another big story is the fall out from a class action lawsuit against Visa and MasterCard, the result of which means businesses in Canada can add a surcharge to customers who choose to pay with a credit card.

This opinion piece on the credit card surcharge topic sums up a lot of my thoughts as well:

“The Canadian government needs to step in and cap interchange fees. With the cost of living already so high, it’s unreasonable to add an extra one to three per cent to our bills. This lack of consumer protection is massive negligence on the part of the Canadian government.”

Erica Alini writes, as interest rate hikes continue is it time to lock-in your variable rate mortgage? (subs)

PWL Capital’s Ben Felix says that investing in your own financial literacy might be one of the best investments that you can make:

Michael James on Money looks at instances of the inevitable masquerading as the unexpected.

Jason Heath addresses something I wrote about in the intro of this post – is now the time for long-term investors to abandon stocks – with a similar response.

Want to retire earlier and stay healthy? Andrew Hallam shares an investing strategy to do just that (tl;dr it’s VBAL, XBAL, or ZBAL).

I love these first-person retirement stories in the Globe and Mail. Here’s one who’s struggling with the new-found freedom that retirement brings:

“But who was I these days? No longer a professional and yet not ready to embrace the “retiree” label, either: I don’t golf. I don’t yearn to travel. I don’t have grandchildren. Maybe the classic retirement profile of family and leisure activities doesn’t fit everyone, but it sure didn’t fit me.”

Retirement can mean a loss of identity — how to bring happiness to your next act.

Most rich-looking people are just folks with high salaries who spend a lot. Discover how the fake rich and your work colleagues could be hurting your wealth.

Travel expert Barry Choi reports that Aeroplan is now freezing accounts due to travel hacking.

Finally, a great episode of the Freakonomics podcast on whether personal finance gurus are giving bad financial advice. Some economists apparently think so. 

Have a great weekend, everyone!