My wife and I travelled to Boston last week and spent four nights in this amazing and historic city. We had a great time, but it felt strange to travel outside of Canada for the first time in almost two years.
We had a lot of anxiety about the requirements for leaving and entering Canada, but everything was relatively painless. We took a rapid antigen test at Shoppers Drug Mart ($40 each) and had our printed out (negative) results three days prior to departure. We also went online and scheduled a PCR test at a CVS in Boston. These tests must be taken no more than 72 hours prior to your return flight to Canada.
Much has been made of the cost of taking a PCR test in the U.S. but the tests are free at Walgreens and CVS Pharmacy locations if booked online. We just used our hotel’s address when we made the appointment, then took an Uber to the drive-thru location. No questions asked about who we were and where we were from. We got the results back in about 36 hours and then showed the negative result when we checked-in to our flight.
That slight hassle aside, the trip was a blast! We went with another couple, friends of ours from Calgary, and stayed downtown at the Courtyard by Marriott – a perfect location for getting around on foot or by train. TD Garden is also right across the street and we watched the Boston Celtics beat the defending champion Milwaukee Bucks in overtime.
The only downside to the trip was our original reason for going – to watch my beloved Cleveland Browns take on the New England Patriots. Unfortunately my Browns decided not to show up and got thoroughly pummelled 45-7. Not fun!
With the news of Health Canada approving the Pfizer vaccine for 5-11 year-olds we can finally clear one of the last hurdles to carefully resuming our travel plans next year and beyond. Our tentative plan is to visit Maui in February, Italy in April, and the U.K. in July.
Reboot Your Portfolio Giveaway:
Thank you to everyone who left a comment and entered to win a copy of Dan Bortolotti’s new book, Reboot Your Portfolio.
We had more than 100 entries and the lucky winner is Devin, who commented on November 8, 2021 at 6:07 am. Congrats, Devin!
I wish I had more copies to give away because this book is a must-read for every investor who is interested in reducing their fees, diversifying their portfolio, simplifying their investment strategy, and ultimately enjoying a more reliable investment outcome over the long term.
This Week’s Recap:
I made my MoneySense writing debut this month with two articles on ETF investing. The first looks at growth investing, while the second article is about how to use your ‘explore’ investments to tame volatility.
Over on Young & Thrifty I wrote about investing FOMO and how to curb your fear of missing out.
I also explained how to decode your investment fees whether you invest in ‘A’ series mutual funds, use a robo advisor, or select your own ETFs.
Back here on Boomer & Echo I shared how to crush your RRSP contributions next year with one simple trick.
Promo of the Week:
This week’s promo is brought to you by Marriott’s Bonvoy rewards program.
Our flight to Boston left in the early morning from Calgary. We live two hours away in Lethbridge, and so we decided to stay at the Calgary Airport Marriott in-terminal hotel the night before.
We used a free night certificate from our Marriott Bonvoy American Express Card benefits to stay for free and then just rolled out of bed and checked-in to our flight. Easy.
We also booked the Courtyard by Marriott Boston on points we’ve saved up over the past two years. We build up hotel points by using the American Express Cobalt Card and then transferring Membership Rewards to Marriott (5 MR points = 6 Bonvoy points).
Right now you can earn 70,000 Marriott Bonvoy points when you charge $1,500 to your card in the first 3 months. You’ll also get a free night certificate to use in a Category 5 hotel.
Weekend Reading:
Our friends at Credit Card Genius compared 20 rewards programs to determine which Canadian rewards program is worth the most in categories ranging from flights, to hotels, to groceries & gas, and more.
Global’s Erica Alini looks at how the new ‘buy now, pay later’ options affect your brain.
This author was scammed out of $15,000. Why didn’t she spot the red flags?
The Irrelevant Investor Michael Batnick has been playing around in the metaverse and also got scammed out of $5,000 from his digital wallet.
A good article from Michael James on Money on why you should invest how he says and not how he does. Michael is, like I am, a big proponent of low cost passive investing using a simple one ETF solution. But he’s comfortable holding multiple ETFs, including U.S.-listed ETFs held inside his RRSP, and tilting his portfolio to small cap value stocks.
I prefer a simpler approach to investing.
In an excerpt from his new book, Reboot Your Portfolio, Dan Bortolotti explains why the best investing move is usually…not to do anything.
Millionaire Teacher Andrew Hallam shares why these Millennial investors want stocks to crash.
Preet Banerjee does a terrific job explaining how it’s possible to offer commission-free stock trading and why it’s bad for investors:
Since Andrew Hallam began investing, every week of every year a famous economist, a famous hedge fund manager or an esteemed journalist from a respected financial publication has headlined, “Stocks are heading for a crash.”
Why tactical asset allocation (switching between different asset classes in response to changing economic conditions) fails to keep up with static index investing.
My Own Advisor Mark Seed explains how to invest for retirement when time is no longer your friend.
Gen Y Money shares the uncomfortable truth about the FIRE movement.
Finally, the CPP earnings cap is increasing at the fastest rate in 30 years. Here’s why that’s happening and what it means.
Have a great weekend, everyone!
Reboot Your Portfolio: 9 Steps to Successful Investing with ETFs is a new book written by Canadian Couch Potato blogger and PWL Capital portfolio manager Dan Bortolotti.
Simply put, this book is the definitive guide to building an index investing portfolio today, brought to you by the author who is synonymous with this low cost, passive investing approach.
If you’re new to index investing, Reboot Your Portfolio takes you through everything you need to know from the research on active versus passive investing, the difference between ‘average’ returns and ‘market’ returns, how to pick an appropriate asset mix, which investments to avoid, how to avoid analysis paralysis, and how to select the right ETFs to meet your goals.
You’ll also learn about more tactical strategies, like how to choose the right discount broker (or robo advisor), how to transfer your existing accounts, tricks of the trade on how to place an order, use DRIPs, when it makes sense to use US-listed ETFs, and whether to adopt a ‘smart-beta’ approach to your indexing strategy.
One of the challenges of writing specifically about how to invest in ETFs is naming the specific funds to use to build the portfolio. New products are constantly coming to market (or closing shop), costs change, and so a newly published guide can quickly become stale.
Dan deftly avoids talking about specific ETFs throughout the book by emphasizing process over products. In fact, selecting your ETFs doesn’t even come up until step 5, after setting your financial goals, identifying your savings rate, finding the right asset mix between stocks and bonds, and determining an appropriate geographical representation for your portfolio.
I like this approach because there’s so much more to investing than saving 0.04% MER by picking this fund over that one. The book offers a complete roadmap to becoming a successful index investor with ETFs.
Yes, product selection is important and Dan explains how to pick the right ETF(s), but the principles of keeping costs low, diversifying broadly, staying within your risk tolerance, and tuning out the noise is ultimately what matters more.
Dan started blogging around the same time I did (2010) and his writing was a huge influence on my own investing journey. I was a stock picker for many years, if you recall, focusing on Canadian dividend payers. Dan’s excellent writing, not just around the merits of index investing but also on busting dividend myths, helped me eventually switch to an indexing strategy and I haven’t looked back.
I think I would have switched sooner if the ETF product landscape was as evolved as it is today. Dan’s Couch Potato model portfolios often contained 7-10 individual ETFs, which I thought (and still think) was far too complicated for a supposedly lazy portfolio.
Today, index investors can build a low cost, globally diversified, and risk appropriate portfolio with just a single ETF.
Related: Exactly How I Invest My Own Money
The book isn’t just for index investing newbies. There’s something for everyone. I love the analogies Dan uses throughout the book and I’ll share some of my favourite ones that I plan on incorporating into my conversations with clients.
On risk tolerance:
You may have been asked to consider scenarios such as: “If your fund dropped in value by 10% in one year, would you sell, buy more, or do nothing?”
Dan says such hypothetical scenarios can only tell you so much. “It’s like being asked, how long could you keep your arm in a bucket of ice water before the pain caused you to remove it?” Could you really make a useful estimate?
He says unless you have experience submerging your limbs into freezing liquids, you can only guess. In the same way, no investor truly knows his pain threshold until he’s watched his portfolio get ravaged.
On home country bias:
Some investors argue that Canada’s market is too small to justify an equal share alongside the US and overseas markets. But Dan says there are good arguments for over-weighting Canadian equities that have nothing to do with patriotism.
A 2014 Vanguard paper found that the least volatile equity portfolios (for Canadian investors) contained between 20% and 40% Canadian stocks.
Ironically, this Vanguard report was actually designed to encourage investors to hold a smaller share of Canadian equities, not a larger one. Their data suggested the average Canadian investor held about 60% of their equities in domestic stocks.
On investing a lump sum:
Investors may feel paralyzed by the thought of investing a large lump sum: “What if I invest it all today and the market drops 5% next week? I’m going to feel like an idiot.”
Dan says this decision might be easier if you reframe it. Imagine you received a $200,000 cash inheritance and you’re nervous about investing it because you feel stocks are overvalued and bonds will suffer if interest rates rise. Should you hold onto the cash until it feels right to invest?
“Now flip the question around and imagine you instead inherited a $200,000 portfolio of stocks and bonds. Would you immediately sell everything and sit on the cash? This is exactly the same decision presented in two different ways, yet most people would likely answer yes to the first and no to the second. If you wouldn’t be willing to sell your inherited stocks and bonds, then you shouldn’t be reluctant to invest your cash.”
In Reboot Your Portfolio Dan shows exactly why he’s an award winning journalist and has a cult-like following online. This book is a must read if you’re curious about index investing, looking to take the plunge into ETFs, or even if you’re already a dedicated indexer.
Dan was generous enough to offer Boomer & Echo readers a chance to win a free copy of Reboot Your Portfolio. Just leave a comment below and let me know what type of investor you are (bank managed mutual funds, robo advisor, individual stocks, ETFs, or some hybrid approach).
I’ll leave the contest open until Friday November 12th at 5 p.m. EST and then announce the winner in the next edition of Weekend Reading.
More from Dan Bortolotti:
Dan returns to MoneySense to share how overcome investing FOMO.
Preet Banerjee interviews Dan (the godfather of index investing in Canada) on the Mostly Money podcast.
Promo of the Week:
My friend and travel expert Barry Choi has released a beginner’s guide to travel hacking for lazy people.
Barry’s tips have directly improved my own travel hacking techniques and allowed me to save thousands of dollars on flights and hotels, not to mention levelling up my game to be able to book business class tickets and other luxury perks.
This 10-part guide (or full e-book) teaches you everything you need to do to maximize your credit card rewards (earning) and maximizing the redemption of these rewards (burning).
Weekend Reading:
Speaking of travel hacking, here’s a free tip from our partners at Credit Card Genius – the best bonus value EVER from RBC Avion Visa Infinite card.
Earlier this week I offered a sensible RRSP versus TFSA comparison.
On Young & Thrifty I shared the smart and lazy millennial’s approach to investing using all-in-one ETFs.
Robin Wigglesworth says it’s time to relearn lessons about the power of passive investing.
Rob Carrick shares six things a brutally honest banker would tell you about mortgages, HELOCs, and market-linked GICs:
“The problem with Financial Literacy Month is that it allows the conversation about smart money habits to be co-opted by the very companies that effectively force us to raise our financial literacy game. Mostly, the big banks.”
Global’s Erica Alini interviews Ben Felix and Bridget Casey about how to protect your savings from inflation.
Millionaire Teacher Andrew Hallam calls crypto investing the world’s largest behavioural experiment.
Of Dollars and Data blogger Nick Maggiulli discusses the fear and loathing in cryptoland.
Here’s Ben Felix explaining how to decide between renting and buying a home:
Fee-only planner Jason Heath walks through how to draw money out of your corporation in retirement.
Finally, here’s Rick Steves on the return of travel and why it matters.
Enjoy the rest of your weekend, everyone! Don’t forget to leave a comment for a chance to win a copy of Reboot Your Portfolio.
Should you contribute to your RRSP or your TFSA? It’s one of the most frequently asked questions here and on other financial forums, yet the answers couldn’t be more divided. Furthermore, there is a growing sentiment among Canadians that somehow RRSPs are a government scam because you’ll be forced to pay tax on any withdrawals in retirement. That leads many to (sometimes) incorrectly declare that a TFSA is the better savings vehicle for retirement due to the tax-free treatment of withdrawals.
Let’s start by clearing up one important fact in the RRSP vs TFSA debate: The accounts are mirror images of each other. When you put money in an RRSP and invest the tax refund, you’re using pre-tax dollars. The money grows inside a tax sheltered account and then you pay taxes on your withdrawals years later in retirement.
The opposite is true of a TFSA – you contribute with after-tax dollars but won’t have to pay taxes when you take money out. If you’re in the same tax bracket when you withdraw from your RRSP as you were when you made the contributions, the RRSP and TFSA work out to be exactly the same.
RRSP vs TFSA Comparison
Here’s a simple chart that David Chilton used in The Wealthy Barber Returns to help drive this point home:
| TFSA | RRSP | |
| Pre-tax income | $1,000 | $1,000 |
| Tax | $400 | n/a |
| Net contribution | $600 | $1,000 |
| Value in 20 years @ 6% growth | $1,924 | $3,207 |
| Tax upon withdrawal (40%) | n/a | $1,283 |
| Net withdrawal | $1,924 | $1,924 |
Two important caveats to keep in mind:
- You need to invest the tax refund in order for RRSPs to work out as designed. Unfortunately, most Canadians spend their refund and so they don’t end up with as much money in their retirement account.
- A TFSA is flexible in that you can take out money at any time without penalty. For Canadians who use a TFSA as their primary retirement savings vehicle that means resisting the temptation to raid the account whenever “something” comes up. You should also replace the ‘S’ in TFSA with an ‘I’ and make sure to invest that money for the long-term.
Obviously, for high income earners who expect to retire in a lower tax bracket, it makes more sense to contribute to an RRSP. For low income earners, or for young people with higher income potential later on in their careers, TFSA contributions make better sense now.
Related: How much of your income should you save?
Another advantage in favour of RRSPs is its higher annual contribution limits – 18% of your income up to a maximum of $27,830 in 2021 – compared the TFSA contribution limit of just $6,000.
One potential downside is that withdrawals from a large RRSP portfolio could trigger higher clawbacks from means-tested government benefits such as Old Age Security and the Guaranteed Income Supplement. TFSA withdrawals in retirement, on the other hand, don’t count as earned income and won’t affect your eligibility for OAS and GIS.
Fans of the Tax Free Savings Account trumpet the “tax-free” withdrawal stage while conveniently ignoring that contributions were made with after-tax dollars. And anti-RRSP zealots look to the big tax liability in retirement while ignoring all the deductions and years of tax-sheltered growth.
Final Thoughts
So who wins the great RRSP vs. TFSA comparison? It’s easy to say that you should max out both accounts every year, but realistically, unless you are blessed with a six-figure (plus) income, most of us will have to choose.
As Chilton concluded, it depends:
- If you go the RRSP route, don’t spend your refund.
- If you go the TFSA route, don’t spend your TFSA.
- Whatever route you go, save more!
Personally, I prioritized maxing out my RRSP contribution room when my income was in the $75,000 – $95,000 range. I maxed out my TFSA for the first three years (2009-2011) before draining the account to top-up our house downpayment in 2012. Then we bought a car and paid that off over four years – so I did not contribute to my TFSA from 2012-2016. I spent the next several years catching up on my unused TFSA contribution room, but by then I had already caught up on my unused RRSP room, so I was able to shift those extra contributions to my TFSA and fill it up faster.
Related: So you’ve made an RRSP contribution. Now what?
Now I’m onto the next debate – once you’ve maxed out both your RRSP and TFSA, what’s next?