‘Our life is frittered away by detail… simplify, simplify.’ – Henry David Thoreau

I’ve fielded all types of questions from clients and readers over the years looking for that one magic hack or some shortcut to building wealth. Usually these half-baked ideas come from a friend, relative, colleague, or an unscrupulous advisor, or a random Reddit thread.

Should I buy a rental property? What about commercial real estate? Airbnb? Private credit? 

Should I do the Smith Manoeuvre? Open a margin account? Trade options? 

Should I buy a whole life insurance policy? Should I borrow from an existing insurance policy? Have you heard of infinite banking?

Should I invest in tech stocks? Crypto? This triple leveraged ETF? Covered calls?

My advice, in general, is that you need to have the basics looked after first before even considering a riskier or more complex strategy. 

That includes having a simple money philosophy to follow:

• Utilize employer matching savings plans (contribute enough to max out the match, but no more).
• Optimize your RRSP (optimizing your RRSP can mean contributing enough to bring your taxable income down to the bottom of your highest marginal tax bracket. Or it can mean not contributing at all if you’re in a lower tax bracket).
• Maximize your TFSA (striving to contribute up to your lifetime limit and, once you’ve caught up, maxing out your annual room each year).
• Prioritize short-term goals (list all of your other goals such as a house down payment, funding a parental leave, a new car, a dream vacation, non-registered investments / early retirement fund, extra mortgage payments, etc. and then acknowledge that you can’t fund them all at once. Prioritize and direct any extra cash flow here).

Inside your RRSP and TFSA, know that investing has largely been solved with low-cost index funds. Buy the entire market for as cheap as possible and move on with your life.

Further to that, investing complexity has been solved with something called an asset allocation ETF (an all-in-one “single-ticket” solution).

These registered accounts are no place to speculate on individual stocks or the thematic fund-of-the-day. If you swing and miss on an investment, you lose that contribution room forever and don’t even get the benefit of claiming a capital loss for your misfortune.

Indeed, you’re going to have a great deal of financial success if you can simply take advantage of your workplace matching plans, optimize RRSP contributions, maximize TFSA contributions, prioritize short-term goals (including your own personal spending and happiness), and invest your retirement savings in low cost index funds.

This other stuff is something I call “what’s next?” money. 

You have a preference for real estate and want to buy a second property? That’s what’s next, after the basics are fully funded.

Your advisor is pitching you on an investment loan? That’s what’s next, after the basics are fully funded.

You want to put some money into the latest thematic fad of the day (AI, psychedelics, clean energy, etc.)? That’s what’s next, after the basics are fully funded (and, please, in a non-registered account and not your TFSA).

I am fighting for simplicity in my financial life. I want all of my investment accounts in one brokerage platform. I invest in a single ETF in each of those accounts. I have a plan to pay off my mortgage within 10 years (and before I retire).

I have no interest in buying a rental property (worst nightmare).

I don’t use leverage. If you’re not satisfied with the investment returns from global equities then perhaps you need to increase your savings rate, not use leverage to try and amplify the gains.

Warren Buffett famously quipped 

“You really don’t need leverage in this world much. If you’re smart, you’re going to make a lot of money without borrowing.”

It’s true. You can get rich by saving a good amount into your RRSP and TFSA and investing in simple low cost index funds. 

Why needlessly complicate your life chasing extra dollars – potentially putting a good financial plan at risk if it doesn’t work out?

As Thoreau said, “simplify, simplify.”

This Week’s Recap:

It has been a while since my last weekend reading update. Since then I’ve published the following stand alone articles:

Your ultimate guide to RRIFs: Strategies, pitfalls, and the secret sauce to retirement income. That one was a big hit.

At the end of the year I updated my net worth and looked ahead to this year’s financial goals.

And I posted my 2024 investment returns along with the returns from Vanguard’s and iShares’ suite of asset allocation ETFs.

Weekend Reading:

A Wealth of Common Sense blogger Ben Carlson shows how good years in the stock market tend to cluster.

Welcome to the roaring 2020s, where every single year has seen a big stock market move (one way or another).

Morningstar shares six retirement financial myths to avoid.

For retirees, why amortization based withdrawal works better than safe withdrawal rates.

Christine Benz shares the best of the Long View 2024 – clips from interviews with financial planners, advisors, and retirement researchers over the past year.

If it’s possible to beat the market, as Warren Buffett has for longer than I’ve been alive, why would anyone settle for boring market returns with index funds?

What a massive cash windfall could mean for your retirement plans.

The Walmart effect: New research suggests that the company makes the communities it operates in poorer – even taking into account its famous low prices.

Finally, one of the top minds in financial planning Aaron Hector shares how he’s providing financial literacy for his kids.

Have a great weekend, everyone!

Global stocks continued the positive momentum from a strong performance in 2023 to deliver another banner year for investment returns in 2024.

The gap between the NASDAQ and the rest of the market shrank, but technology stocks once again led the charge, with the tech-heavy NASDAQ gaining 24.10% (XQQ). That mark was nearly equalled by the S&P 500 posting a 23.40% (XSP) gain of its own in 2024.

Not to be outdone, Canadian stocks rallied and delivered a 21.53% return (XIC), while emerging market stocks awoke from their slumber and returned an impressive 19.20% (VEE) in 2024.

International stocks were the laggard last year, posting a “measly” return of 12.58% (XEF).

On the fixed income side, Canadian aggregate bonds (VAB) were up a modest 4.00%, with most of that gain coming from higher bond yields. Short-term bonds (VSB) had a more impressive 5.50% return in 2024, from a more balanced mix of price growth and interest.

You know that I’m a big fan of asset allocation ETFs as a sensible way for many Canadians to invest. For around 20 basis points (0.20%) in fees, you get a globally diversified and automatically rebalancing portfolio that you can set and forget.

Indeed, if investing has largely been solved with low-cost index funds, then investing complexity has been solved with these asset allocation funds. They’re a true one-stop shop for your investing needs.

Investing passively through index funds allows investors to capture the aforementioned returns, minus a very small fee. That’s a surefire way to beat 90% of investors who invest more actively, incur higher fees and are prone to behavioural issues like performance chasing.

With that in mind, here are the 2024 investment returns for various asset allocation ETFs offered by Vanguard and iShares:

Vanguard Asset Allocation ETFs

Vanguard offers a suite of asset allocation ETFs ranging from 100% global equities (VEQT) to 20% equities and 80% bonds (VCIP).

I’m including the calendar year returns of VEQT, VGRO, VBAL, and VCNS to show the results from their most popular asset allocation ETFs:

Interestingly, each step up the risk ladder earned you an extra return of about 4.5% last year, and about 2% in 2023. Even the traditionally conservative 40/60 portfolio posted double-digit gains again thanks to strong stock AND bond performances in 2023 and 2024.

iShares Asset Allocation ETFs

iShares offers a similar suite of asset allocation ETFs with ticker symbols of XEQT, XGRO, XBAL, and XCNS.

The differences between iShares and Vanguard are slight – iShares’ ETFs cost just 0.20% MER compared to Vanguard’s 0.24% MER, and iShares’ asset allocation ETFs come with a bit more US and International equity, while Vanguard’s asset allocation ETFs have more Canadian and emerging market representation.

Here are the five-year returns for iShares’ asset allocation ETFs:

You can see the returns are nearly identical. XEQT enjoyed a slight performance advantage in 2023 due to its tilt towards the higher performing US and international markets, but VEQT had the edge in 2024 thanks to strong returns from Canadian and emerging market stocks.

Vanguard vs. iShares 3-5 Year Averages

Now that these asset allocation ETFs have been around for at least five years we can start to look at their three-and-five-year average returns for a better cumulative comparison.

After two years of stellar returns, we may have forgotten exactly how bad returns were in 2022, especially for more conservative portfolios. That’s why looking at average annual returns over multiple years can give us a more realistic look at a typical investor’s experience (ideally we have data from 10+ years but here we are).

Vanguard asset allocation ETF 3-and-5-year averages:

These five-year average annual returns are still well above the return assumptions I use in my financial planning assumptions for clients (6.10% for global equities, after fees).

You could say that we’ve pulled forward a few years worth of expected returns. That means we should probably lower our expectations for future returns so that the 10-year average will look more like the 6.10% assumption.

iShares’ asset allocation ETF 3-and-5-year averages:

*Note that XGRO and XBAL were different ETFs with different mandates prior to 2019 and so the “since inception” returns are not a true representation of the new asset allocation mix. 

If you can’t decide between the two, hedge your bets by putting a Vanguard asset allocation ETF in one account type, and an iShares asset allocation ETF in another (or have one spouse pick Vanguard and one spouse pick iShares for a little friendly competition).

Whatever you do, don’t drive yourself crazy switching back and forth between the two chasing past performance.

My Investment Returns for 2024

I’ve been investing in Vanguard’s all-equity ETF (VEQT) since March 2019. It’s a perfect solution for someone like me who wants to buy the entire market for as cheap as possible and move on with my life.

I hold VEQT inside my RRSP, LIRA, TFSA, and corporate investing account. I did not make a contribution to my RRSP (or LIRA, of course) in 2024, but I did actively contribute to my TFSA and our corporate investing account.

As you know, the timing (and amount) of your own contributions will affect your own personal rate of return. So, while I expect my RRSP and LIRA to have a nearly identical return to VEQT’s 2024 calendar year return of 24.87%, the returns on the corporate account and TFSA may be different due to the timing of contributions. Let’s check it out:

• Corporate = 27.05%
• RRSP = 24.80%
• LIRA = 24.80%
• TFSA = 10.86%

Indeed, the corporate account benefited from significant contributions early in the year, while I didn’t start contributing to my TFSA until May.

I switched up the kids’ RESP account at the beginning of 2024 to be more conservative as they enter their age 15 and 12 years. I added short-term bonds and changed the overall mix to about 35% equities and 65% bonds.

We contributed $7,500 to the account in January to catch-up on one year of missing grants for our oldest child.

• RESP = 11.38%

Not bad for going conservative with this portfolio in 2024.

Final Thoughts on 2024 Investment Returns

Most Canadians still invest in actively managed mutual funds through their bank or another investment firm. These funds have a huge hurdle to overcome – their high fees – to match (let alone beat) a passively managed portfolio of index funds.

Your job this month is to pull up your investment statement and look at last year’s returns, along with the returns over the past five years, and see if your portfolio is keeping pace with the returns of an asset allocation ETF.

Make sure you’re comparing apples-to-apples, that is you’re matching up your portfolio’s asset allocation with the returns from a similar asset allocation ETF (i.e. 60/40 to 60/40) to get the full story. No sense comparing your 60/40 portfolio to the NASDAQ 100. It likely wouldn’t be appropriate to invest in 100% tech stocks.

If you’ve reviewed your investment statement and find your returns aren’t measuring up, it might be worth switching to a self-directed investing platform and buying a risk appropriate asset allocation ETF.

I truly believe that pairing low-cost index investing with on-demand financial planning advice at key life stages can lead to successful outcomes for many Canadians. Put that on your New Year’s resolution list for 2025.

Welcome to the end of the year and another net worth update. 2024 has been a banner year for both professional and financial growth.

On the business side, we saw revenues increase by an incredible 35%. More and more of you reach out for unbiased financial advice each year, and my wife and I absolutely love our little work-from-home practice.

Financially, the stock market was on fire again and our global stock portfolio will finish up somewhere in the neighbourhood of 25% this year.

One of my pet peeves is reading net worth or dividend income reports with no mention of how much money was contributed. It’s an important part of the equation.

So, in the name of full transparency, our increased business revenue allowed us to pay ourselves more to help meet our personal spending and savings goals, and still shovel a bunch of money into our corporate investments. 

Also, when the capital gains inclusion rate changed for corporations, we triggered a capital gain of $68,000 inside our corporation (selling all of our VEQT shares and then immediately buying them back – and before you ask, there is no superficial gain rule so this is perfectly fine in CRAs eyes).

This created a $34,000 tax-free surplus inside of our Capital Dividend Account – which allowed us to personally withdraw a “capital dividend” of $17,000 each, tax-free.

I recognize that might sound like complete gibberish to many of you, but basically the extra $34,000 helped us contribute the following to our accounts this year:

• TFSAs – $48,000 ($24k each as part of our TFSA snowball strategy)
• RESP – $7,500 (including an extra $2,500 catch-up contribution to fully max out a year of missing CESG for our oldest daughter)
• Corporate – $55,000 in new contributions

When the market is up 25% and you make new contributions of $110,500 across various accounts, well that’s a pretty good recipe for net worth growth.

What’s in store for 2025? As I’ve written previously, we have six financial goals for the new year:

1. Contribute $28,000 each to our TFSAs
2. Contribute $5,000 to our kids’ RESP in January and rebalance the portfolio for their age 16 and 13 years.
3. Take three trips (Cancun in February, Italy in April, and England/Scotland/possibly Finland in the summer).
4. Earn enough business revenue to meet our personal income needs (same as 2024) and contribute $80,000 to our corporate investments.
5. Pay for bi-weekly cleaning, summer lawn care, and winter snow removal to allow more time for work, leisure, and family.
6. Reach the $2M net worth milestone (a stretch goal that is only possible with another strong year of market returns).

With that out of the way, here’s how our net worth looks at the end of 2024:

I’ve had a big hairy audacious goal of reaching the $2M net worth mark by the end of 2025. After a stellar 2024, that milestone is now within striking distance if markets perform reasonably well next year. 

Indeed, we only need a net worth increase of 10.5% to reach a net worth of $2M. Savings contributions and regular mortgage payments will do most of the heavy lifting, but we’ll need a bit of stock market growth to put us over the top. Fingers crossed!

Now let’s answer a few questions about the way I calculate our net worth:

Credit Cards, Banking, and Investments

We funnel all of our purchases onto a few different rewards credit cards to earn points on our everyday spending.

Our go-to card is the American Express Cobalt Card, which we use for groceries, dining, and gas. We also look for the best credit card sign-up bonuses and time our large annual spending (trip bookings, car and house insurance premiums, etc.) around these offers.

One I’m using currently is the American Express Aeroplan Reserve Card.

Our joint chequing account and the kids’ RESPs are held at TD. My wife has her own chequing and savings accounts at Tangerine for guilt-free spending money.

Our RRSPs, TFSAs, and my LIRA are held at the zero-commission trading platform Wealthsimple Trade. Our corporate investment account is held (for now) at Questrade. I plan on moving this to Wealthsimple in the new year.

You know all of this from my post about how I invest my own money.

RRSP / LIRA / RESP

The right way to calculate net worth is to use the same formula consistently over time to help track and achieve your financial goals.

My preferred method is to list the current value of my RRSP, LIRA, and RESP plans rather than discounting their future value to account for taxes and distributions.

I consider a net worth statement to be a snapshot of your current financial picture, so when it comes time to draw from my RRSP/LIRA and distribute the RESP to my kids, my net worth will decrease accordingly.

Principal Residence

We bought our home last year for $976,000, so that’s the price I’m using for our net worth calculation. I typically adjust the purchase price by inflation each year but I’ll likely keep listing it at the purchase price for a few years.

Astute readers will notice that the price of our previous home went from $459,000 to $555,000 from 2021 to 2022. That ended up being the sale price, so you can see that I was pretty conservative with the house value over the years.

Final Thoughts

I think it’s important to acknowledge our tremendous privilege. We work from home – a dream house we had built last year – in a profitable and thriving business that we love. I get a great deal of satisfaction from the work I do with my clients.

We have the money, health, and flexibility to travel several times a year to visit our favourite places (and discover new ones).

I really do believe we’ve cracked the code to living the good life, and I don’t take that for granted for one second.

I also want readers to understand why our net worth has increased so quickly. It’s not just from strong market returns (although that has certainly helped) but the growth is also driven by substantial savings contributions.

Those contributions would not be possible if our income hadn’t increased significantly over the past few years since quitting my day job and working on our business full-time.

We’re not saving 50% of our income and living the Mustachian life either. Our savings rate is more like 15-20%. Indeed, we’re trying to strike the appropriate balance between enjoying life now and saving for the future.

I say all of this to acknowledge that the secret sauce to our net worth growth is simply this: we’re making a lot more money, we continue to save a reasonable percentage of that income, and we invest aggressively in global equities that have grown by about 77% over the last five years.

In closing, 2024 was a great year and we’re hoping for more of the same in 2025.

How did your year shape up? Let me know in the comments below.