Robo-advisors have been around for a decade and, while its promise to disrupt the traditional financial services model has so far fallen flat, the concept of an automatically rebalanced, low-cost portfolio of index funds is still incredibly sound.
The investing landscape continues to evolve and when Vanguard introduced its suite of asset allocation ETFs in 2018, the robo-advisor model suddenly looked less appealing.
Indeed, for a fee of only 0.24%, DIY investors could build their own globally diversified and automatically rebalancing portfolio with just a single fund.
There was just one problem. For many investors, the idea of opening their own discount brokerage account, transferring existing accounts over to the new platform, and buying their own ETFs (even just one ETF) on a regular basis is quite daunting.
Wealthsimple Trade has elegantly solved that problem with a neat feature to automate contributions AND investment purchases.
If investing has largely been solved with index funds
And investing complexity has largely been solved with asset allocation ETFs
The missing ingredient was how to automate the investment purchase to truly take a hands-off approach with your low cost asset allocation ETF 👇
— Boomer and Echo (@BoomerandEcho) April 16, 2024
Log-in to the Wealthsimple mobile app, tap your profile in the upper right, tap the settings gear in the upper right, and tap “automations”.
Tap “recurring investments”, tap “set up a recurring investment”, enter your chosen asset allocation ETF ticker symbol in the search field, and then tap the appropriate ETF.
Set up a recurring investment pic.twitter.com/5DYRVeq1QG
— Boomer and Echo (@BoomerandEcho) April 16, 2024
Tap “buy”, tap the order type drop down in the upper right (should say “market” or “limit”), and tap “Recurring” at the bottom of the list.
Change “market” order to “recurring” pic.twitter.com/sUqOcVJVI9
— Boomer and Echo (@BoomerandEcho) April 16, 2024
Now set up the amount you want to contribute, your start date, the frequency of contributions, your funding source (i.e. chequing account), and which account type you’re contributing to.
Tap “Review”, and the tap “confirm recurring investment”.
Review your order and hit submit.
You’ve just set up automatic contributions that will automatically purchase shares of your chosen asset allocation ETF on a regular schedule. pic.twitter.com/bTKJ1z9IyV
— Boomer and Echo (@BoomerandEcho) April 16, 2024
This process will even buy fractional shares of your ETF, meaning every single dollar of your contribution will go towards your ETF purchase.
There you have it – you’ve just created your own DIY robo-advisor – a completely hands-off and automated investing experience!
Wealthsimple Trade also has an impressive promotion on right now where you can get a 1% match (no limit) when you deposit or transfer more than $15,000 into your account. The more you fund, the more you earn.
Use my referral code – FWWPDW – and we’ll both get $25 when you open and fund your account.
This Week’s Recap:
When looking at your financial projections over time, your numbers tell a story about what’s possible (or not).
No new posts from me for a few weeks as the kids’ school and activities wind down and we furiously scramble to get our work done before our upcoming trip to Europe.
From the archives: Build if/then statements into your financial plan.
I’ll have our bi-annual net worth update at the end of the month, and then we’re heading to Europe for three weeks so expect posts to be more sporadic.
Weekend Reading:
First up, I was absolutely gutted to find out that one of my favourite financial writers, Jonathan Clements, was diagnosed with cancer and only expects to live another year. Truly heartbreaking. All the best to you and your family, Jonathan.
From the Jonathan’s Humble Dollar blog – should we worry about markets being overvalued?
A professional retirement coach shares the three biggest mistakes that retirees make.
Tennis legend Roger Federer won 80% of his matches, but just 54% of all the points played. This is analogous to investing, where markets go up on slightly more days than they go down. The trick to getting legendary results with your portfolio is to stay invested and contribute regularly.
How do social media comparisons impact regular investors? Paging Roaring Kitty.
Marc at Loonies and Sense shares a really neat way to visualize the global markets.
Here’s Robin Powell on why picking the next Google or Amazon is extremely difficult:
“Why spend effort, time and money looking for needles when you can easily and cheaply buy the haystack?”
How Canada’s broken account transfer system led Wealthsimple to automatically reimburse transfer fees.
Morningstar’s Christine Benz took a six-week break from work and came back with some insights on retirement and life.
Many Canadians underspend in retirement for no good reason. Here’s what they can do (subscribers):
“They found retirees consistently spend approximately 75 per cent of what they could afford to based on available assets, with underspending increasing as retirees get older. Yet, they also found that after controlling for different levels of wealth, retirees with a larger proportion of guaranteed income spent more each year than retirees with a larger proportion of investments.”
Baby Boomers face a retirement like no generation before them, and rather than being the ‘beginning of the end,’ it’s the beginning of a new life phase.
A Wealth of Common Sense blogger Ben Carlson shares why his savings rate hit an all-time high in 2021, and why he feels that was more of a mistake than an accomplishment. I’ve had a similar experience.
Borrowers leaving money on the table by not negotiating their mortgage renewal rates.
Finally, is flying in Canada getting more expensive? It certainly seems that way.
Have a great weekend, everyone!
When I first create a financial plan for a client I tell them that this is my initial interpretation of their current situation and future goals mapped out over time. It’s a projection or road map based on their current trajectory.
I’m looking for clues, patterns, red flags, and opportunities. The numbers are telling a story about what’s possible.
Here’s what I mean.
A typical net worth projection during your working years goes up and to the right. That makes sense, as you earn income, contribute to your savings, get a rate of return on your investments, and pay down debt.
But working families also have competing financial priorities. Income interruption from parental leave, child care, vehicle payments, home renovations, even upsizing a home are all real possibilities that young families are dealing with.
Your house is your largest asset and you’re deep in mortgage debt. You have little in the way of savings and feel like you’re not making any progress while you’re dealing with one-time, temporary costs. But zooming out you can see a light at the end of the tunnel.
Child care costs subside, income increases, and mortgage payments no longer feel like they’re taking up all of your disposable income. You start making some meaningful progress on your retirement savings goals and your net worth heads up and to the right.
Once the mortgage is paid off, you have options to ramp up savings and even ponder early retirement.
At this point I’m looking for clues as to whether you’re on the right track to retire early, or if you’d need to downsize your home to ensure you can maintain your lifestyle throughout retirement, or if you can afford to delay taking CPP and OAS to secure more lifetime income.
I recently wrote about a concept called your home equity release strategy and it’s becoming more and more important to think about, especially in high cost of living areas where retirees may be sitting on untapped home equity of $1M to $2M (or more).
In the above example, the retired couple downsize their home at or shortly after retirement to eliminate their mortgage, add precious home equity back into their savings, and ensure they can maintain their lifestyle throughout retirement.
There is still a slight danger of running out of money in their old age, but they do have the paid off home equity in their downsized home to fall back on, just in case.
Another option is to sell the family home and rent throughout retirement. This has the added benefit of being able to maximize retirement spending, but with the trade-off of not having a fall back option to sell the home in case of unplanned spending shocks or poor market returns. A prudent spending plan is paramount in this case.
What about singles? In my experience, singles can have a difficult time in two phases of life.
One, buying a house as a single in a high cost of living area may be incredibly challenging.
Two, without the benefit of a partner with whom to split income in retirement, singles face higher tax rates and are more likely to incur Old Age Security clawbacks.
In the above scenario, this single individual was fortunate to receive a small inheritance in her late-40s to finally be able to afford a condo in her desired location and price range.
If she keeps her spending consistent with the lifestyle she enjoyed in her final working years then it’s possible that she won’t have to sell that condo to fund her long-term retirement spending. But, in many cases, singles who buy a home are more likely to have to downsize or sell their home to maintain their lifestyle.
Finally, several of my clients are interested in the “die with zero” approach to retirement planning. I don’t love it, because spending every dollar and having your last cheque bounce leaves no margin of safety for unplanned spending shocks.
So, for homeowners looking to maximize spending, I prefer to show them a “die with zero, but stay in your house” scenario. This way, you have a fall back option to sell your home and move into a retirement facility if necessary as you run out of money.
Your numbers tell a story about what’s possible. Projected over time, we can start to see patterns, red flags, and opportunities in your financial plan. We’re looking for clues to see if you’re on the right track or need to change course.
I’ll be honest, more often than not these net worth projections show that my clients can spend more than what their current budget suggests.
But, often we do see red flags that suggest clients will need to make difficult choices about working longer, downsizing or selling the home, or reducing spending to ensure they won’t run out of money.
Want to know what kind of story your numbers tell? Reach out to me and we’ll come up with a financial plan.
This Week’s Recap:
Have you considered your home equity release strategy?
How much do you plan to spend in retirement?
Here’s how I plan to catch-up on my TFSA room.
Promo of the Week:
We activated player two for our rewards cards strategy, meaning earlier this year I signed up for the American Express Business Gold card, hit the minimum spend target to reach the welcome bonus, and then referred my wife (player two) to get the same card in her name.
The result is 15,000 additional Membership Rewards points for me for the referral, and now my wife has a chance to earn 75,000 Membership Rewards points after spending $5,000 in the first three months.
We activated player two for our rewards cards strategy, meaning earlier this year I signed up for the American Express Business Gold card, hit the minimum spend target to reach the welcome bonus, and then referred my wife (player two) to get the same card in her name.
The result is 15,000 additional Membership Rewards points for me for the referral, and now my wife has a chance to earn 75,000 Membership Rewards points after spending $5,000 in the first three months.
Weekend Reading:
Should I pay myself dividends from my company to avoid CPP premiums?
Many Canadians own foreign property. Whether its stocks, ETFs, bonds, real estate, or even crypto, you may have some tax obligations to consider.
Private credit funds are pitched as safe and stable, but investors aren’t getting anything special for the high risk and fees.
Is $1 million in savings enough to retire on if we withdraw 4% per year?
A fantastic conversation with the Canadian Couch Potato Dan Bortolotti on the Rational Reminder podcast last week:
A Wealth of Common Sense blogger Ben Carlson asks how would you invest $14 million?
RRSP to RRIF, and LIRA to LIF: Here’s how it all gets done.
How Wealthsimple is trying to beat the big banks at their own mortgage game:
“I’ve seen mortgage cashback gimmicks in the past, but this one is more interesting. Unlike other lenders’ rebate offers, Wealthsimple’s calculator makes it easy to estimate the savings — and they have compelling savings options.”
Here’s why variable rate mortgages are the best bet to save you money after Bank of Canada cut.
Dr. Preet Banerjee explains why AI outperforms humans in financial analysis, but its true value lies in improving investor behaviour.
Andrew Hallam shares the surprising truth: children likely increase your wealth.
Anita Bruinsma explains why divorcing parents are facing tough choices amid sky-high real estate prices.
The one place in airports people actually want to be: Inside the competition to lure affluent travelers with luxurious lounges.
Finally, Nick Maggiulli looks at when maximizing credit card rewards is worth it and when it is not.
Have a great weekend, everyone!
The majority of retirees want to remain in their homes and age in place as long as possible. Indeed, most of the financial plans for my retired clients project them to stay in their home, or a home of equivalent value, for their entire lives.
That makes perfect sense if you plan on leaving your paid-off home to your beneficiaries upon your death.
But, for many retirees, a fully paid-off home represents untapped equity that will lead to underspending throughout retirement, or at least a serious reduction in standard of living as they age.
The solution is to consider a home equity release strategy – a term I first heard last month when Dr. Preet Banerjee wrote about biases around house rich, cash poor homeowners.
Below are the seven different home equity release schemes that were listed:
- Reverse mortgages
- Home Equity Lines of Credit (HELOCs)
- Second mortgages
- Refinancing
- Selling to downsize into a smaller owned home
- Selling to move into a rental home
- Selling to lease-back the same home
Unlocking all or a portion of your home equity can significantly improve your retirement outcome, and yet many retirees are not even considering their own home equity release strategy as part of their retirement plan.
Below I’m going to share an example of a recent retired couple, Joe and Linda Davola, who live in Ontario and retired at the end of last year at ages 63 and 60, respectively.
They have combined assets of $1.4M saved across their RRSPs, TFSAs, non-registered savings, and Joe’s LIRA. They also have a paid-off home worth $1.1M for a total net worth of $2.5M.
Joe and Linda would like to spend $100,000 per year after-taxes throughout retirement. They work with an advice-only financial planner to see what’s possible.
The planner runs a projection that shows after-tax spending of $100,000 per year, rising with inflation at 2.1% annually until Joe’s age 75 year, and then increasing by just 1.1% annually until Joe’s age 95 year.
In this scenario, Joe and Linda remain in their paid-off home and don’t touch the equity. Unfortunately, they run out of money in Joe’s age 91 year.
In addition to this less than ideal outcome, the planner also points out that life doesn’t always move in a straight line. In fact, they will most certainly incur one-time costs such as home renovations, vehicle replacement, bucket list travel, or financial gifts to their children or grandchildren throughout retirement.
The planner meets with Joe and Linda and together they come up with a list of these one-time expenses that will or may occur over the next 5-10 years.
- Bucket list trip to New Zealand in 2025 – $20,000
- Kitchen renovation in 2026 – $40,000
- Finance a new vehicle from 2027 to 2030 – $12,000 per year
- Upgrade HVAC in 2031 and 2032 – $7,500 per year
When we add the one-time expenses into the plan, and keep spending constant at $100,000 per year, the outcome gets significantly worse. Now the Davolas run out of money at ages 83 and 80, respectively. That’s eight years earlier than expected.
At this point it becomes crystal clear that in order to maintain their desired standard of living the Davolas will need a home equity release strategy.
They debate selling the house and renting, but Linda likes the peace of mind that comes with home ownership and worries about rising rental costs and the threat of having to move again.
Home Equity Release Strategy
The Davolas decide the best course of action would be to downsize to a condo in 12 years (Joe’s age 75 year). They’d sell their home for $1.4M and buy a condo for $900,000* – unlocking half a million dollars in home equity that can be used to maintain their standard of living.
*That $900,000 condo purchased in 12 years is the equivalent of purchasing a $700,000 condo today.
Their planner runs the numbers and suggests that not only can they continue spending $100,000 until age 95, but they can also give an early inheritance of $50,000 each to their two children from the proceeds of their house sale.
Here’s what it looks like:
By “releasing” $500,000 of untapped home equity, the Davolas can fill up their TFSAs and give an early inheritance gift to their children.
They can maintain their desired lifestyle until age 95, and still leave an estate to their two children worth $1.73M. That’s in future dollars, mind you, so it would be like leaving an estate worth $835,000 today – or the condo plus $135,000 in savings.
Final thoughts
The desire to remain in your home as long as humanly possible and avoid long-term care makes perfect sense. But life doesn’t always turn out as planned, and it’s wise to avoid making decisions when our options and mental capacity may be limited.
That’s why it’s smart to consider your home equity release strategy upfront at the beginning of retirement.
Can you honestly see yourself remaining in your family home into your 80s and 90s?
We also tend to drastically overestimate our ability to endure significant spending cuts. I hear all the time from retirees who think they’ll just cut $20,000 per year or more from their spending at 75 or 80.
In reality, the decline in spending from the “go-go” years to “slow-go” years to “no-go” years is much more subtle. Like, instead of spending continuing to rise with inflation it rises by inflation minus 1% in your slow-go years, and then simply remains flat in your no-go years.
So, instead of relying on a drastic reduction in lifestyle spending (poor future you!), consider how using all or a portion of your home equity can fit into your retirement plan and allow you to maintain the standard of living that you’d like to enjoy.
And, for my lifelong renters, it’s true that you won’t have the margin of safety and options that home owners have in retirement, but I’d also argue that if you’ve prudently saved and invested the (often significant) difference between renting and home ownership, you’re already on track to maximize your spending throughout retirement without leaving any untapped home equity on the table.