Welcome to another edition of Weekend Reading. I continue to get dozens of emails from readers every week and I’m pleased to share some of those questions and answers with the broader community so we can all learn from each other.
Today, we’ll look at investing FOMO and regret, where to park your cash savings, and whether to buy or rent in Vancouver (or any expensive market). Let’s open up the money bag and take a look:
I regret being too conservative with my investments
From Donna:
Hi Robb,
I have two portfolios with Questwealth, one is TFSA worth $77,000 in a growth portfolio, and the other is an RRSP worth $275,000 in a balanced portfolio.
I changed the RRSPs to balanced but I regret that now when I see the growth of 12% in my TFSA and only growth of 6% in my balanced portfolio. Would it be too much of a knee-jerk reaction to change my RRSP back to a growth portfolio or should I just leave it? I retire in three years and will start using some of that money soon after.
Hi Donna, thanks for your email. What you’re describing is quite common in investing. We look back in hindsight and wish we would have done something different with our portfolio. But the stock market could have easily lost money in 2021, in which case you would have been happier with your RRSP balanced portfolio and regretted having the growth portfolio in your TFSA.
Classic “performance chasing” is when investors look at what performed well in the past year and change their portfolio to “chase” that performance. But we know that past performance is no guarantee of future performance. In fact, in many cases that hot stock or ETF that did well last year will perform poorly the next year.
To give you some perspective, a balanced portfolio of 60% stocks and 40% bonds would have an expected annual rate of return of about 4.6%, while a growth portfolio of 80% stocks and 20% bonds would have an expected rate of return of about 5.3%.
In both cases your portfolio outperformed expectations. You should be thrilled with that result – your investments did what they were supposed to do, and more!
Finally, I presume the reason your RRSP is in a more conservative (balanced) portfolio compared to your TFSA is because you expect to start withdrawing money from it soon after you’ve retired. It should be in a less aggressive portfolio because you have a shorter time frame.
Meanwhile, perhaps your TFSA won’t be touched for another 10 years or more and so it may have a longer runway to grow and compound. In this case, it’s reasonable to hold a more aggressive portfolio due to the longer time horizon.
Bottom line: Your investments surpassed expectations in 2021 and you should continue to stay the course rather than chase higher returns.
Where to park cash savings?
From Randy:
I’m aiming to keep 6-12 months worth of expenses in cash. Where should it be placed? Bank rates are abysmal, but I want to have quick access in case of an emergency. Any suggestions?
Hi Randy, you’re right that you need to look outside the big banks to find higher interest rates on your savings deposits.
The best place I’ve found is EQ Bank’s Savings Plus Account. It’s an online bank, but it has some chequing account functionality, meaning you can pay bills and send e-Transfers – all for free. Just link it with your main bank account and you’re good to go.
EQ Bank currently pays 1.25% interest, which is pretty close to the top of the market. Best of all, no promotional periods or teaser rates or anything. Just a (relatively) high everyday rate you can count on. Your deposits are also CDIC insured for up to $100k per account.
Buying or renting in Vancouver?
From Sean:
Hey Robb, I hope you are well!
I received an interesting question the other day and would be curious about your thoughts. The question was whether to buy or rent in the current Vancouver market. My response stemmed from your article about renting vs buying from last year. As I thought more about it, I wasn’t as sure if renting was the best. The other variable in the question was the renting now option with a possibility of buying at a future date (one to two years later) when income increased. Hopefully, there was some price compression (although I see this as speculative).
I recognize the strength in the Vancouver (and Toronto) market, and the other variables such as desirability play a role. Curious to know if you have any additional thoughts.
Hi Sean, thanks for your email. It’s tough to say what would be the better choice. A lot of housing bears have been proven wrong over the last 10-12 years in Canada (more specifically in Toronto and Vancouver).
If you’re looking for price predictions you’ve come to the wrong place. I have no idea where housing prices are headed. All I know is if you plan on living in Vancouver long term, and you can afford to buy a home and carry the mortgage costs (while still being able to live, and save for the future), then buying can be a sensible option.
I recently reviewed an excellent new book called The Rule of 30. It says you should aim to save 30% of your gross income, minus mortgage/rent payments, minus extraordinary short-term expenses like daycare. This lets young parents off the hook a bit when it comes to saving for retirement while they battle high mortgage costs and childcare.
I’d also recommend testing out this rent-buy calculator developed by long-time blogger John Robertson.
I’d value renting for lower costs but also flexibility if you think you might leave the city for a job opportunity (for example). Ultimately buying a house should be a lifestyle decision and not necessarily a financial decision.
This Week’s Recap:
I updated and re-posted this guide on TFSA contribution limits with the new annual limit for 2022.
For those looking for last minute stocking stuffers of the personal finance variety then look no further than these excellent books:
On the fiction side I really enjoyed reading Andy Weir’s Project Hail Mary.
Promo of the Week:
Do it yourself index investors have a new (and free) resource to help them answer burning questions like how much to save, how much they can safely spend in retirement, and how well their portfolio will hold up using a range of historical outcomes.
The project was created by engineer and DIY couch potato investor Kurt Friesen. Check out Index Goose to simulate your retirement portfolio with index ETFs.
I’ve ran several simulations myself and like the ability to customize your scenario based on how long you want the portfolio to last, a worst-case ending balance, annual increases to contributions or withdrawals, expected rates of return, and more.
This new tool even got a nice recommendation and mention from Canadian Couch Potato blogger and PWL Capital portfolio manager Dan Bortolotti:
Thanks for the mention, Dan!
Dan Bortolotti of the Canadian Couch Potato blog, and Portfolio Manager at PWL Capital, mentions Index Goose in PWL e-Newsletter: pic.twitter.com/XyxA1693BE
— Index Goose (@IndexGoose) December 18, 2021
Weekend Reading:
Our friends at Credit Card Genius explain the ins and outs of the Cineplex SCENE and Scotia Rewards merger, plus (of course) how to maximize the Scene+ program.
I was a guest on the latest Globe & Mail Stress Test podcast talking about investing trends as we head into 2022.
I was also invited to be a guest on the Financial Planning for Canadian Business Owners podcast with Jason Pereira where we discussed situations when DIY investors might seek the help of a fee-only or full-service advisor.
Of Dollars and Data blogger Nick Maggiulli shares his favourite investment writing from 2021. Some gems in there for sure.
Somewhat related to my answer about investing regret, Millionaire Teacher Andrew Hallam explains why the best funds of 2020 are sinking ships today.
Michael James on Money shares his thinking on what to do about crazy stock valuations from the perspective of a DIY investing retiree.
I enjoyed these musings from investment advisor Markus Muhs on financial advice for those aged 70 and beyond.
Finally, in an excerpt from her excellent book, Money Like You Mean It, Erica Alini explains how to ask for what you want when negotiating a new salary.
Have a great weekend, everyone!
Erica Alini quickly became one of my favourite personal finance writers when she joined Global News as a national money and consumer reporter. Her columns and Money123 newsletter tackle a breadth of financial topics and are must-reads each week.
That’s why I was excited when I heard that Erica planned to write a book. I was even more excited when Erica reached out to me to help contribute to chapters on earning more income and on retirement planning.
The end result is a personal finance book designed to help young Canadians navigate their way through an ever-changing world. Money Like You Mean It: Personal Finance Tactics for the Real World is not your parents’ personal finance book.
It tackles money management and the new ways we can get into debt, not just from excessive borrowing but through behavioural traps like Buy Now, Pay Later and insidious monthly subscriptions.
Erica discusses Canada’s sky-high housing prices and offers readers a framework to help people decide whether to rent or buy. She writes about the stigma of receiving help from the bank of mom and dad, but also how these monetary supports can perpetuate wealth inequality.
The topic of earning income often gets ignored in personal finance books. This is a mistake, and in Money Like You Mean It Erica looks at the issues of working in the gig economy, whether side-hustles are worth the effort, how to negotiate a raise, and why job hopping might lead to better pay raises.
On retirement, Erica says it’s time to let go of the old-fashioned concept of retirement. Instead, she says, “retirement is becoming less and less of a black-and-white pivot from work to non-work.
Increasingly, retirement is more of a slow and gradual downshifting from working all the time to working less. Perhaps that means trading the office for some freelance consulting, giving you longer vacations and more time to smell the roses while still earning an income.
Erica also looks at what she calls nest-egg inequality for women and people of colour – a topic that does not get enough attention in personal finance.
I enjoyed the investing chapter as it aligns with my views on keeping your portfolio simple with low cost index funds or ETFs.
Young parents will get a lot out of the chapters on how to manage finances as a couple, as well as saving for a baby.
The best part of the book is how Erica took a journalistic approach to writing it. The book is incredibly well researched, and I don’t recall ever reading a personal finance book with so many expert quotes on such a wide range of topics.
Money Like You Mean It is a fantastic read. I think Erica did a tremendous job putting together a comprehensive and entertaining guide to managing your finances. It will make a great stocking stuffer for the young adults in your life.
Pre-order a copy today. The book will be officially released on December 9th.
This Week’s Recap:
I’ve updated some of my most widely read articles on CPP to keep the numbers fresh and up-to-date:
- Why You Shouldn’t Take CPP at Age 65
- CPP Payments: How Much Will You Receive From Canada Pension Plan?
- 3 Reasons to Take CPP at Age 70
- 3 Reasons to Take CPP at Age 60
Last week I also shared my 2022 financial goals.
Promo of the Week:
I moved my RRSP and TFSA from TD Direct Investing to Wealthsimple Trade in 2019 to take advantage of their commission-free trading platform. Unlike the meme stock investors that have flocked to the app during the pandemic, I use WS Trade to simply buy more units of Vanguard’s VEQT and hold for the long-term.
Related: Exactly How I Invest My Money
Their latest promotion will give you two free stocks to trade when you sign up and join Wealthsimple.
It sounds like a stock trading gimmick, but in reality you’ll get the cash equivalent of two random stocks (ex. I got Clover Health, Capstone Mining, and Blackberry – but really just got $43.65 deposited into my account). Do with it what you will.
The stocks, and therefore the cash equivalent, will have a value between $5 and $4,500, with an average of $15. Around 95% of people will receive less than $50 based on the stock value at the time of selection.
Again, use this referral link, open and fund a new Wealthsimple Trade account, and your cash bonus will be applied within 24 hours:
Weekend Reading:
Our friends at Credit Card Genius share the best credit card offers, sign-up bonuses, and deals for December 2021.
My Own Advisor Mark Seed shares his financial independence update.
Michael James on Money shares a conversation about wealth inequality.
An interesting debate on whether it’s smarter to buy a vacation home or stick to short-term rentals.
Millionaire Teacher Andrew Hallam explains why you may be happier buying less stuff:
“If you’re tempted to buy something unnecessary, ask yourself if you would still buy it if nobody else could see it. If the answer is yes, go ahead and buy it. But be ruthless with this assessment. Most people buy things, in part, to be seen having them. And the truth is, nobody will love you any more or any less based on the stuff you own.”
Here’s a great podcast interview with author Ramit Sethi on how couples can make peace over money.
Of Dollars and Data blogger Nick Maggiulli explains how difficult it can be to have a truly objective point of view if you never escape your own bubble.
Something I’m getting asked about more and more lately by parents of young teens. Jason Heath explains how to invest as a teenager in Canada.
Active fund managers have a long history of underperforming their benchmarks, but in a pack of laggards Canada’s active managers have been the worst.
Finally, we know that managing longevity risk can be a challenge in retirement but these new products aim to close the retirement income gap.
Have a great weekend, everyone!
Yes, I know it’s not even December yet but I’m going “that guy” – the first to share his 2022 financial goals. First, a quick trip down memory lane.
I’ll never forget attending a ceremony to be recognized for 10 years of service at the University along with dozens of other employees receiving awards for 5 to 50(!) years of service. As I sat there I remember thinking, if I’m still here in five years to receive my 15-year recognition then something has gone horribly wrong in my life plan.
Two months later we embarked on our epic 32-day trip to Scotland and Ireland. After this life changing trip I decided to put in my notice for the end of the year and pursue my entrepreneurial dreams.
It has been two years since I quit my job as a post-secondary fundraiser and turned my long-time online side hustle into a full-time business. Aside from *waves hands at everything* the transition has gone even better than I imagined.
I work side-by-side with my wife, who handles all of the new client communication, scheduling, invoicing, and so much more so I can focus on what I do best – writing, planning, and working one-on-one with our existing clients. It’s a dream come true. Best of all, we’re there for our kids when they leave for and come home from school.
The result is a wildly successful business that does not compromise a healthy work-life balance. We’ll put that to the test next year (fingers crossed) when we can hopefully resume travelling. I may or may not have shed a tear when our youngest daughter got her first dose of vaccine yesterday.
2021 Recap:
We had five financial goals or money moves to make this year. The first was to catch up on unused contribution room in my wife’s TFSA. Our goal was to contribute $50,000 but we’ll end up short of that by about $6,000. Life is about trade-offs and we opted to spend that $6,000 on some backyard landscaping instead.
I’m current with my TFSA contributions and so we were easily able to take care of our second goal of maxing out my annual TFSA limit of $6,000.
Our third goal was to continue investing aggressively inside our corporate investing account. We already have a healthy cash float for our business, and our expenses are quite low after we pay ourselves, so we’re able to invest excess profits inside the corporation. Our goal was to invest $48,000 in 2021, but business revenue was better than anticipated and we were able to invest $70,000.
Our fourth goal was to max out our kids’ RESP contributions ($5,000) and we have done that again this year. A related goal was to rebalance this account, which is 100% invested in equities, by adding bonds. I have not done this yet. That may have been wise in hindsight but the fact is we need to dial down the risk in this account as my kids are now one year closer to needing the money for post-secondary.
The fifth goal was more of a change in philosophy. Before the pandemic I thought it would make sense to start paying down the mortgage more aggressively by 2021, but when the interest rate on our variable mortgage fell to 1.45% I decided to forego any extra mortgage contributions and focus on the other four priorities above.
2022 Financial Goals:
If you’ve been following my journey you know that we reached our $1M net worth milestone last year and now aim to reach Coast FIRE status.
What this means to me is having the flexibility to work and earn less without feeling the pressure of maintaining a high savings rate. The truth is our rich life includes more travel and active leisure, and less time spent in front of a computer working on a spreadsheet or on Zoom calls.
We don’t know yet what 2022 will bring in terms of the ability to safely travel outside of Canada as a fully vaccinated family. I am forever an optimist and have tentatively booked trips to Maui, Italy, and the U.K. (all refundable).
Financially, our 2022 goals will look a lot like this year’s goals.
- Finish catching up on my wife’s unused TFSA room ($37,500)
- Max out my annual TFSA room ($6,000)
- Invest excess profits in the corporate investing account (~$48,000)
- Max out RESP contributions ($5,000) and rebalance for real this time
- Roll the extra $6,500 ($44,000 to TFSA in 2021 – $37,500 to TFSA in 2022) into our travel budget
We can achieve this by continuing to pay ourselves at our regular rate, while intentionally earning less business revenue (taking on fewer clients and fewer writing assignments). Since it can be hard to say no to new business, we’ve already blocked out our calendar for most of April and most of July (when we presume to be travelling).
You can see where this is going. If we’re successful next year then 2023 will shape up to be our first Coast FIRE year where we are only contributing $6,000 each to our TFSAs, plus $5,000 to the kids’ RESP.
I’ve done the math to know that we can just let the rest of our investments ride without ever adding to them again. We’d have the option to spend that extra $31,500, or reduce the amount we pay ourselves, or some combination of the two.
More likely, our business will still continue to do well and so we can keep adding excess profits to our corporate investing account.
That’s the plan, anyway.
This Week’s Recap:
I recapped our trip to Boston in the last edition of Weekend Reading.
Is free trading really free? I explore the issue of trading fees in my latest MoneySense column.
On Young & Thrifty I look at whether stocks are more risky than real estate.
Promo of the Week:
If you’re a business owner then you need to take advantage of the American Express Business Platinum Card and all of the perks that come with it.
New cardmembers can earn 80,000 Membership Rewards points when they spend $6,000 in the first three months. If you keep the card past the 14 month mark and make one purchase then you’ll earn an additional 25,000 Membership Rewards points.
I transfer Membership Rewards 1 to 1 to Aeroplan where I value Aeroplan miles at 2 cents per mile*. That means your initial 80,000 welcome bonus points can be worth up to $1,600.
*Note that I recently redeemed Aeroplan miles for four business class tickets from Calgary to Rome. The tickets would have cost a whopping $33,000 in cash, which means I got an incredible 10.5 cents per mile value out of those Aeroplan miles.
You’ll also get hotel perks and airport lounge access.
The $499 annual fee may be tax deductible as a business expense.
Weekend Reading:
Costco ended its credit card relationship with Capital One and is forging ahead with CIBC. Our friends at Credit Card Genius breakdown the new details on what the CIBC Costco MasterCard is going to offer.
Another plug for Dan Bortolotti’s excellent new book – Andrew Hallam shares how to reboot your portfolio with Canada’s ETF guru. Read my review of Reboot Your Portfolio here.
Has the pandemic ended the dream of retiring abroad? Jon Chevreau says it can still be done.
The odds of you picking a single stock and it becoming one of the big winners of the future are not in your favour. Read why this is the stock picker’s bear market.
Investing is easy just buy shares in companies you know and use every day. pic.twitter.com/vbJalyws0S
— Boomer and Echo (@BoomerandEcho) November 24, 2021
With assets everywhere seemingly overvalued Nick Maggiulli (Of Dollars and Data) shares why this will not last.
PWL Capital’s Justin Bender explains the key concepts of asset location:
My own view is that most DIY investors should ignore asset location and intentionally hold the same asset mix across all accounts for simplicity.
Millionaire Teacher Andrew Hallam tells investors: Don’t worry, be happy.
“Take comfort knowing this: most wealthy retirees didn’t earn their fortune with a single home run. Sure, stories of fast fortunes grab our attention. But they aren’t the norm. Instead, most people grow wealthy because they spend far less than they earn, they invest responsibly…and they’re patient.”
An enjoyable read from Wealthsimple Magazine on the five simple rules to be the absolute worst stock picker.
Steadyhand’s Tom Bradley says investors should be wary of the next big thing in ETFs.
Finally, why millions of Canadians are planning to choose self-employment, and how to make that transition.
Have a great weekend, everyone!