One of the keys to designing a great lifestyle is to align your spending with your values, or to practice conscious spending. But what does that mean, exactly? If you showed me your budget would I be able to tell if you’re a world traveler, a wine connoisseur, a golfer, a philanthropist, an outdoorsman, or a gastronome?

Too often our spending is misaligned because we prioritize the wrong categories. We say we want to travel, but then we buy too much house and finance two vehicles, which eats up all of our disposable income. We say we want more time to spend with family or to pursue leisure activities, and then we buy a house in the suburbs with a dreadful work commute and then refuse to pay for someone to help clean the house or cut the grass.

Related: Is outsourcing the key to happiness?

Everyone has an area that they love to spend money on – or would love to spend money on some day. Personal finance author Ramit Sethi calls these your Money Dials – because you can tune them up or down just like a dial.

Here are the 10 Money Dials that he identified as key areas that most people are excited to spend money on:

1. Convenience
2. Travel
3. Health / fitness
4. Experiences
5. Freedom
6. Relationships
7. Generosity
8. Luxury
9. Social status
10. Self-improvement

The litmus test is this – If you had $25,000 to spend on any of the above categories, the one that comes instinctively to you is likely your number one Money Dial.

My Number One Money Dial

My number one Money Dial is travel. It used to be in the “some day, maybe” category, but a few years ago my wife and I decided that we would spend more intentionally on travel, and that resulted in some epic trips to the west coast, to Maui, to Scotland and Ireland, and to Boston (to name a few). We now have our travel schedule filled up for 2022 with trips to Italy, the U.K., and France throughout the year. We are excited to travel and regularly talk about where we want to go next and what we want to do.

But even though travel is our top Money Dial that doesn’t mean we had cranked it up to a 10 out of 10. I still had a scarcity mindset when it came to our travel. I naively wanted to fund everything on travel points to save on cash. While our trips were enjoyable, we dealt with trade-offs like multi-layover flights and hotel stays on points instead of a spacious Airbnb in our desired neighbourhood.

For our flight to Edinburgh, we flew economy with a long layover in Chicago. Our seats from Chicago to Edinburgh were in the last row of the plane where we slept for about 25 minutes on an eight hour flight. Every time someone went to the bathroom they would grab our seats on the way by and the bathroom light would illuminate the back of the plane.

My mindset was about quantity, not quality. Minor inconveniences like this were fair trade-offs to conserve travel points and cash. After all, more trips is better than fewer trips, right?

Related: Exactly how I redeemed more than 1 million points for travel

That trip taught me a lot. First, we absolutely loved traveling and couldn’t wait to go back overseas. Second, it would be worth it to increase our travel spending and avoid these minor annoyances. I’m talking about direct flights, using points to upgrade to business class, splurging on a spacious and well appointed Airbnb, and spending on experiences in our destinations of choice.

The result: We increased our annual travel budget to $25,000. We got Aeroplan 35K status this year by spending $10k on the American Express Aeroplan Reserve credit card last year. This gives us priority check-in, boarding, and baggage handling – not to mention lounge access. We upgraded to business class for our trips to Europe this year. We booked a beautiful Airbnb right across from the Eiffel Tower. We bought tickets to see Wicked in London – an absolute dream for my wife and oldest daughter.

We’ve cranked up this Money Dial to a 10 out of 10.

My Low Priority Money Dial

Ramit has another saying that you should spend lavishly on things that bring you joy, and cut back mercilessly on things that don’t. For me, that’s spending on vehicles. I could not care any less about the car I drive. It gets me from point A to point B – that’s it. As I’ve transitioned to working from home full-time, we sold our second vehicle because we didn’t drive it for a year, and we drive so infrequently now that our 2013 Hyundai Sante Fe might easily last another 10 years. 

That’s fine by me. There was a period from late 2012 to 2016 where we didn’t contribute to our TFSAs because of that stupid car payment – $832/month. My spending didn’t match my values during that time.

I’d rather take that $10,000 per year and put it into our travel budget, and that’s exactly what we’ve done.

Combining Money Dials

Health and fitness is an area that is important to me and my wife but we don’t spend a lot of money on this category. We converted a spare room in our basement into a gym with a bike, treadmill, free weights, and a bench (equipment paid for long ago). During the pandemic we ditched our pricey gym memberships and now use the Peloton digital app for strength, cycling, yoga, and running programs. The cost is just $17 per month.

But we also love running and competing in races. We typically do these races locally, or in Calgary, but what if we combined our love for running and competing with our love for travel?

This year we’ve entered the Banff Marathon (okay, my wife entered the marathon and I chickened out and opted for the half-marathon). We’re going to stay at the Banff Springs Hotel and we’ve treated ourselves to the VIP race experience that includes access to the VIP lounge before and after the race, plus a post-race massage.

We have always talked about entering a half-marathon (for fun!) in Europe or in the U.K. What a great way to combine our favourite Money Dials.

For others, this could be a wine tour in Italy, or a golf trip to St. Andrews. As Ramit says, your rich life is yours.

Changing The Dials Over Time

We all go through different phases in our lives and so it’s only natural for our money dials to change over time. I’ve never been a fan of paying for convenience. If there was a delivery charge – I’d just go pick up the order. And, why pay someone to clean the house or cut the grass when you could just do it yourself in your spare time.

But, again, the pandemic has shifted our priorities. We don’t mind paying for grocery delivery because we value our free time in the evening and on the weekend. Sure, we could go out during the day, but I figure my time is worth about $250 an hour – why take an hour out of a busy work day to grocery shop when I can order everything online in about 5 minutes and pay between $5 and $10?

We subscribe to a grocery delivery service from Spud.ca that comes every Monday and supplement that with online orders from Save On Foods once a week. Worth every penny.

I mentioned how travel was a “some day, maybe” desire for us years ago. But we were still getting our finances in order back then and our kids were too young to enjoy a big trip. We prioritized filling up our RRSPs and TFSAs in those years. Now that we’re “coasting” with fully maxed out registered accounts (and no car payment), we have the cash flow available to turn up the dial on our travel spending and make the most out of those experiences.

Final Thoughts

Show me your budget and I’ll tell you your priorities. Do they align with your values? With what you absolutely love spending money on? What if you could turn that dial all the way up to a 10 – what would that look like? Tell me in the comments.

One final idea – if you could allow yourself to spend $500 on something extravagant, what would you buy? Maybe that small indulgence can help you think about your own Money Dials and how you want to design your lifestyle to maximize enjoyment.

A good percentage of Canadians would prefer to invest in real estate (either through their primary residence or by purchasing an investment property) instead of investing in the stock market. There’s even a perception that real estate is less risky than stocks. Couple that with massive gains in house prices across the country and it’s no wonder that housing seems like a safer place to park your money.

Real estate is also easier to understand. It’s a tangible asset that you can touch. The financial media reports non-stop about housing. Parents push the narrative that renting is a waste of money and that buying a home is the ticket to adulthood and to building wealth.

Meanwhile, the stock market can seem like a mysterious playground for the wealthy. Whether it’s a fear of losing money or a lack of trust in banks or investment firms, it’s clear that many Canadians would prefer to put their savings into real estate instead of stocks.

There’s a lot of psychology at work here, like FOMO, loss aversion, plus generational narratives about stocks and real estate that frame a story in your mind about which path to take.

Stocks are priced in real-time when markets are open, so it’s easy to see when prices fall. If you don’t pay attention, dedicated financial media will be there to tell you what happened every day and why (hint: they don’t know). It’s not uncommon to see big bold headlines proclaiming the “worst day ever” for stocks.

The same can’t be said of the housing market. You likely have no idea what your house is worth until you put a “For Sale” sign on your lawn. Pricing of comparable houses is kept hush-hush by the real estate industry – although they do release monthly ‘average’ data of housing sales and prices.

Stocks are not necessarily riskier than real-estate, but we need to provide some context to the term risk. If your definition of investing means putting money into meme stocks and dog-themed crypto coins, then yes, stocks are riskier than real estate.

But smart investors build a globally diversified, risk-appropriate portfolio of stocks and bonds. That’s certainly less risky than buying a single home, on a single street, in a single neighborhood, in a single city, in a single country.

Meanwhile, a globally diversified portfolio could hold upwards of 12,000 or more stocks, so you’re not relying on any one particular stock, sector, or geographic region to perform well for your money to grow.

When it comes to returns there are data on housing as an investment as far back as 1870 and surprisingly global housing has produced the best long-term returns of any asset class, including stocks. Housing beat inflation by 7.05% compared to 6.89% for equities.

But the catch is, those housing returns include both capital appreciation and rental income. When you look at the capital appreciation alone (which is the case for most people who own a primary residence), housing only beat inflation by a modest 1.72% (versus stocks beating inflation by 6.89%).

When you factor in the previous point that real estate investors aren’t diversifying globally, they’re usually concentrated in a single property in a single city, it’s sensible to assume that investing in stocks will lead to better long-term outcomes on a risk-adjusted basis.

Investing in Canadian real estate, particularly in Toronto and Vancouver, has clearly been a wise decision over the past 10-12 years. If we had a time machine and could go back to 2010, we would be foolish not to buy a home in one of those Canadian cities.

But investors must make decisions today with future expected returns in mind, and those are unknowable in advance. What we do know is that Canadian real estate is expensive by historical measures. The same could be said for stocks, particularly in the United States.

My feeling is that investors need to lower their return expectations for both asset classes. Stocks and housing can’t continue soaring forever without some reversion to the mean.

That said, a stock investor can easily diversify globally with a single all-in-one ETF and that type of diversification can offer better long-term returns than a concentrated portfolio (like a single property). If Canadian real estate crashes, corrects, or flattens over the next decade then you’d be glad to hold a globally diversified basket of stocks.

So, does this mean young Canadians should give up their home ownership dreams? And, what do they say to their parents who won’t stop telling them that buying a house is the best investment you can make?

To answer the first question, you shouldn’t buy a home as an investment. You should buy a home when you’re financially ready. When you’ve put down roots and can reasonably stay in that home for at least 10 years. Make sure you have enough room in your budget to save and invest for retirement.

To answer the second question, you can say that the 2020s are a lot different than the 1980s. Millennials came out of post-secondary with crushing student loan debt, entered a labour force reeling from the Great Financial Crisis, and then watched assets like real estate soar to record highs. Meanwhile wages haven’t kept pace with inflation and interest rates on savings accounts have plummeted to around 1%. Try saving fast enough to keep pace with double-digit increases in home prices. It’s a frustrating environment.

We can’t go back in time and replicate the strong returns of the past few decades. In fact, with housing prices so high today in certain markets it’s very likely we’ll see much lower returns in the future.

You can also tell your parents a stark reality, even for their situation: you can’t eat your house. Many Boomers are retiring with valuable, paid-off homes but very little other savings. Unlocking that equity could be a challenge, especially if they want to remain in their home throughout retirement.

I get the desire to own a home. I own one myself. But your home is not an investment. Believe me. Homeowners have unrecoverable costs like property taxes and house insurance, not to mention an ever increasing maintenance bill.

When you factor everything in, there’s no way that real estate is a better investment than stocks.

This Week’s Recap:

Last Monday I published a massive evidence-based investing guide.

I followed that up with a back-to-basics post about why you should invest in the first place.

Last Saturday I looked at when early retirees should take CPP.

And, this past Monday, I introduced the new Evermore Retirement ETFs – Canada’s first target-date ETF solution.

Promo of the Week:

I’ve gotten out of my reading funk and finished a few books already this year.

• Balance: How to Invest and Spend for Happiness, Health, and Wealth by Andrew Hallam. Andrew just might be the most interesting man in the world. More than just personal finance and investing, this book is about striking the right mix between your financial health, physical health, relationships, and sense of purpose. Andrew shares stories from his own life and the people he’s met along the way to inspire you to create your own unique and rich life.
• The Revolution That Wasn’t: GameStop, Reddit, and the Fleecing of Small Investors by Spencer Jakab. Just a wild look at the meme stock craze of early 2021 and the cast of characters involved from r/wallstreetbets and Wall Street hedge fund managers. A highly entertaining read where you’ll find out why Wall Street always wins.
• Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever by Robin Wigglesworth. I’ll admit that index funds aren’t the most exciting investment, but Wigglesworth really brings this story to life with an intriguing cast of characters spanning 50 years. An educational and entertaining read.

It was the Rational Reminder’s 22 in ’22 reading challenge that got me back into reading this year. It’s not too late to join, so sign-up, join the challenge, input any books you’ve already read this year, and draw some inspiration from what others in the community have read so far this year.

Weekend Reading:

Our friends at Credit Card Genius share 17 credit cards with extra cash back.

The lies we tell ourselves about house prices (subs):

“Unfortunately, there is no such thing as a no-lose investment. The housing market is like any other: stocks, gold, oil. What goes up will some day come down. Toronto real estate took a plunge at the end of the 1980s and didn’t recover for years. Just because it hasn’t happened in a long time doesn’t mean it can’t happen again.

The prices some buyers are paying for mediocre houses are plain crazy. Young couples are taking on crushing debt to get their foothold in the market. Others have given up even hoping to buy a home of their own.”

Andrew Hallam wonders if Warren Buffett’s view on bonds is making you think twice.

Here’s why you should be like Ulysses and stay invested during turbulent times.

Wealthsimple made a risky investing choice that might pay off due to the Ukraine crisis.

Preet Banerjee explains why you should not buy term life insurance online unless you understand the difference between renewable and non-renewable policies:

Jamie Golombek explains the four criteria that need to be satisfied for a property to qualify as your principal residence. The CRA is cracking down on perceived abuse of this exemption.

My Own Advisor Mark Seed outlines his retirement withdrawal strategy, including how and when he’ll withdraw from his RRSP and TFSA.

Michael James on Money asks how does a retiree answer the question, “What is your income?”

Morgan Housel explains why having low expectations is the key to happiness:

“Then any little improvements that happen to come along feel incredible. You appreciate them more. Low expectations don’t make you depressed – they do the opposite, making little gains feel amazing while bad news feels normal.”

Have a great weekend, everyone!

Investing has often been an expensive and/or complicated endeavour for Canadians. The vast majority of investors put their money into mutual funds sold by their bank or investment firm – funds which typically charge 2% or more in fees and leave Canadians with less money for retirement. Then along came exchange-traded funds (ETFs), then robo-advisors, and then single-ticket asset allocation ETFs to help transform the investment landscape and drive down costs for the average investor.

What’s been missing is an elegant way for do-it-yourself investors to adjust their risk tolerance over time. It’s easy enough to say that you’ll go from the all-equity VEQT, to the 80/20 VGRO, and then to the 60/40 VBAL as you head into retirement. But when exactly do you pull the trigger and make the switch? Five years before retirement might be too soon. The year before retirement might be too late. Murphy’s Law says you’ll probably get the timing wrong, no matter what you decide. Not to mention the complexities of having a taxable account and triggering capital gains on your entire non-registered portfolio when you make the switch.

I’ve struggled with this type of market timing myself with my kids’ RESP account. I started investing in TD e-Series funds with the 1/3 in each of the Canadian, U.S., and International equity funds. My kids will turn 13 and 10 this year so it’s no longer appropriate to be in an all-equity portfolio. But that means I need to make active decisions on the timing and the allocation towards bonds or cash or GICs. As a passive investor it’s not something I’m comfortable with. I can only imagine how retirees feel as they near their retirement date.

Meanwhile, mutual funds have had the answer to this question for decades with something called a target date fund. Immensely popular in U.S., target date funds are typically only available inside workplace savings programs like a Group RRSP or defined contribution pension plan.

Here you’ll find low cost target date options like BlackRock’s excellent LifePath funds. Pick your retirement date, like the BlackRock LifePath Index 2040 Fund, contribute regular amounts off your paycheque throughout your career, and the target date fund will slowly and automatically adjust the equity allocation in your portfolio as you get closer to retirement. No tinkering required.

So what’s a regular investor to do if he or she doesn’t have access to a workplace savings program? Enter the Evermore Retirement ETFs.

Evermore Retirement ETFs: Canada’s First Target Date ETF

A new solution has been built for Canadian investors called Evermore Retirement ETFs. They’re Canada’s first target date ETF. Investors can choose from eight different retirement paths, starting with the Evermore Retirement 2025 ETF for investors on the cusp of retirement, and moving all the way out to the Evermore Retirement 2060 ETF for young investors with ~40 years of accumulation in front of them.

What got me excited about this suite of products is not just the target date solution, which is much needed in the Canadian landscape, but also that Evermore Retirement ETFs are built with best-in-class, low-cost ETFs from Vanguard, iShares, and BMO. Here’s what’s under the hood of Evermore’s Retirement 2035 ETF:

These Evermore products launched in February, so they’re brand new to Canadian investors and have only gathered a few million in assets to date. But the building blocks that make up their Retirement ETFs have a proven track record as excellent low cost, passive market tracking products. 

They come with a management fee of 0.35%, and after accounting for fund expenses Evermore believes the total MER will be around 0.45%.

This product fills a much needed gap in the market by offering a target date solution for do it yourself investors. I see them fitting in-between a robo advisor and an asset allocation ETF.

1. Evermore is cheaper than a robo advisor and uses products that more traditionally align with the efficient frontier of modern portfolio theory (as opposed to adding gold or low volatility like Wealthsimple does, or taking an active approach like Questwealth does).
2. Evermore solves the one pain point that asset allocation ETFs fail to address – an appropriate glide path that makes your portfolio less risky as you approach retirement.

The Retirement Glide Path

Evermore’s Retirement ETFs start as with as much as 95% in equities for investors who are 30-40 years away from retirement. The equity component starts decreasing between 30 and 20 years away from retirement until it gets to 80% equities. There’s a steeper decline in equities from 20 to 10 years away from retirement. The 2035 Retirement ETF allocates 64% to equities, while the 2030 Retirement ETF allocates 53.7% to equities. The 2025 Retirement ETF still has 50% in equities.

The glide path continues until you’re five years into retirement when it reaches its minimum of 45% allocated to equities. Note this is considerably higher than many similar target date mutual fund glide paths, which often end up with just 30% of the portfolio in global stocks.

Another interesting change that Evermore makes to their Retirement Income ETFs when the investor is into their retirement years is that it pays out monthly distributions rather than quarterly distributions.

How do you get income from a target date fund? By taking a total return approach, you would spend from the monthly distributions and then sell the number of units needed to meet your income needs. Your portfolio will remain exactly balanced to your time horizon.

When it comes to geographic location, Evermore allocates 30% of its equities to Canadian stocks, 45% to U.S. stocks, 15% to International stocks, and 5% to emerging markets. This is a similar mix to Vanguard’s asset allocation ETFs.

For fixed income, Evermore allocates 60% to Canadian bonds, 30% to U.S. bonds, and 10% to international bonds.

Final Thoughts

Evermore has brought the sophistication of target date investing to everyday Canadian investors with their suite of Evermore Retirement ETFs. Now investors can build a low cost, globally diversified portfolio of ETFs with just a single product and not worry about the right time to rebalance or adjust their asset mix as they get closer to retirement (or in retirement).

Readers, you know I’m a big fan of the saying that investing has been solved with low cost index funds and ETFs. But there are still several ways to build that type of portfolio. Which one is right for you?

Optimizers will want to construct their own portfolio of individual ETFs, paying the lowest cost in exchange for the most effort. Simplifiers will gravitate towards one-ticket solutions like an asset allocation ETF that automatically rebalances.

Hands-off investors may choose to open a robo-advisor account and let the digital advisor manage their portfolio. And, those wary of leaving the big bank environment may opt for the bank’s portfolio of index funds – paying the highest cost for peace of mind and security.

Evermore’s Retirement ETFs add another excellent choice to the mix for investors who want a low cost, single-ticket solution that automatically adjusts the asset mix using a declining equity glide path over time.

They’ll give robo advisors a run for their money in terms of cost and portfolio construction. They also solve a key problem for investors who use asset allocation ETFs (like me!): When and how do I decrease my equity exposure as I get closer to retirement? At some point you need to decide (and time the market) to sell, say, VEQT and move to VGRO, and then sell VGRO and move to VBAL. These Evermore Retirement ETFs take that decision away from investors, which is a good thing in my opinion.