The Easy Way Or The Hard Way

It’s hard to find a direct flight from Calgary to Dublin. WestJet offers one that leaves Calgary at 8pm and arrives in Dublin the next morning at 11am – a total flight time of eight hours. The problem was cost. A round-trip flight for our family of four was nearly $5,000.

I decided to try the Aeroplan route, knowing I had saved more than 200,000 miles for such an occasion. Surely I could do better than $5,000. The best Aeroplan option was an Air Canada flight from Calgary to Dublin with a short stop in Toronto. Total travel time of 11 hours and 30 minutes. The price tag was 240,000 Aeroplan miles, plus an additional $2,500 in taxes and fees. Better, but not good enough.

Next I researched how to get the most out of your Aeroplan miles, and specifically how to avoid fuel surcharges, which airlines like Air Canada impose on flight reward tickets. What I learned was that Aeroplan members can book with any of the 28 airlines in the Star Alliance, some of which do not charge fuel surcharges.

But how to avoid Air Canada, which Aeroplan naturally steers you towards, and which charges hefty fuel surcharges on its flight redemptions? The answer is to first fly to another airline’s hub. Say, for example, United Airlines, which has hubs in Chicago and Newark. A quick search of flights from Calgary to Chicago, and then from Chicago to Edinburgh showed availability on United Airlines with an Aeroplan flight redemption. Jackpot!

The total cost was 240,000 Aeroplan miles, plus $589 in taxes and fees. The trade-off was a multi-stop trip there and back with a total travel time of 16 hours each way. I traded time and convenience to save more than $4,000 in out of pocket flight costs.

How do you invest?

We make these trade-offs all the time. When it comes to investing, it’s fair to say that Canadian mutual funds are the equivalent to paying the full retail cost of a direct flight. It’s easy to get started. Just meet with a bank representative, fill out a questionnaire, and set-up a monthly pre-authorized savings plan with as little as $25. Voila, you’re on the road to financial independence.

Where this comparison falls short is that you see the full cost of the direct flight right upfront – and it’s extremely painful to pay $5,000 for those plane tickets. You may do it once for a dream vacation but if you plan on travelling more often you’re almost compelled to find a cheaper alternative.

Investing in mutual funds is not nearly as transparent. In fact, you might not think you’re paying anything at all for that portfolio of mutual funds. Even 2 percent sounds like nothing when you’re first starting out.

Then you realize it’s 2 percent of your assets each and every year, whether your portfolio is up or down. You might also realize that 2 percent of a portfolio that earns 6 percent is equal to one-third of your returns going to your advisor and fund manager rather than staying in your retirement account.

The Aeroplan via Air Canada route could be compared to using a robo-advisor. First off, you slash your total costs in half. And while you have to do some work to open an account, fund the account, and navigate the platform, for the most part your portfolio is managed for you.

For many people this is a terrific alternative to the expensive bank option, but for some there’s a nagging feeling that they’re still leaving money on the table. These are the do-it-yourselfers. The ones who will go above and beyond with their research and use low cost, globally diversified ETFs to meet their investing goals.

You’ll find me in this group – with my all-in-one portfolio of VEQT that costs a fraction of what a robo-advisor charges to manage a portfolio. The trade-off is that I do the buying and selling. No big deal with one fund to manage and nothing to rebalance.

Going the extra mile

Finally, there’s a select few who take investing one-step further; to find not only the cheapest discount brokerage with which to open an account, but also find the cheapest and best investment options to meet their goals.

These investors might use U.S.-listed ETFs to save on MER and foreign withholding taxes. They also might perform a strategy known as Norbert’s Gambit to convert their USD to CAD and save on foreign currency conversion fees. It can save a ton of money to be sure, especially for those with large six-and-seven figure portfolios.

I’m not in this camp yet and I’ll tell you why.

For this comparison I’ll share a quick story about our trip to Edinburgh. We had a long layover in Chicago and I wanted to take advantage of my Priority Pass membership to get access to an airport lounge. The trouble is we flew into terminal 1, and the lounges I had access to were in terminal 5. No matter, I thought. We have lots of time to shuttle over, enjoy the lounge, and get back for our next flight.

Well, we had to clear security again to get into terminal 5 – a stressful ordeal with children and when you are in an unfamiliar place. When we got to the lounge they wouldn’t accept my American Express Platinum Card to gain entry – I needed the actual Priority Pass card, which was tied to a different credit card that had recently expired.

We finally got into the lounge, after a call with American Express. We stayed for about 90 minutes and then got nervous about clearing security again so we made our way back. Several days later I check my American Express card statement and was shocked to find a charge for $88 CAD ($64 USD) for our visit! Apparently either the terms and conditions changed or this particular lounge only allowed one guest.

It was a kick to the gut considering we could have paid something similar to visit the United Airlines lounge right there in terminal 1.

The point is, you can save a lot of money by doing things the hard way. But be careful! Make sure that what you’re saving in money you’re not paying for with time. And watch out for pitfalls, such as foreign currency conversion or a mis-step on your tax return, that can derail the whole endeavour.