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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.

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10 Comments

  1. Keith C. Cowan on July 17, 2019 at 11:44 am

    Had you known about the $88 charge, would you have used the lounge anyway?

    • Robb Engen on July 17, 2019 at 12:51 pm

      Hi Keith, had I known I would have just stayed in terminal 1 and paid to access the United lounge. Or, had I known in advance, I would have had my wife set-up and activate her Priority Pass and then we could have each taken one guest.

      At the end of the day it wasn’t a big deal. I learned something and we killed some time during a long layover.

  2. ANAND on July 17, 2019 at 12:23 pm

    Hi
    On the issue of 2% going to a mutual fund manager, Is it correct to infer that this 2% is compounded. I did the math on a spreadsheet & saw they earned almost the same as the investor after 25 years

    • Robb Engen on July 17, 2019 at 12:53 pm

      Hi ANAND, yes the fees compound in much the same way as your returns compound. It’s what the late Jack Bogle referred to as the tyranny of fees. Over a lifetime of investing that could add up to as much as 50% of your portfolio. Crazy!

      • Matthew on July 17, 2019 at 9:54 pm

        Robb, Bogle’s argument was disingenuous at best because it takes into account that one does not see any returns on their invested funds. I wish people would stop trotting out that argument.

        Also, would you have gone with the direct flight or Aeroplan-AC flight if you were single or travelling as a couple? These things have to be considered as well.

        • Dale Roberts on July 18, 2019 at 4:00 am

          Hi Mathew you can check out the effect on Larry Bates site with his T-Rex score. There is a negative compounding and it is a wealth destroyer over time.

          Not hard to lose 30, 40, 50% over time.

          I had the actual math send to me, and I’ll post that on one of my fee articles.

          • Matthew on July 18, 2019 at 9:24 am

            Sorry, it really is nonsensical and pure marketing that is used to manipulate those who don’t want to spend the time to figure it out on their own. A simple spreadsheet indicates that it is not a wealth destroyer but I. Fact helps create wealth. Sorry, but you have to pay to play and advice isn’t free.



  3. Kathryn on July 17, 2019 at 3:38 pm

    My daughter is flying to Dublin to attend a friend’s wedding. From Vancouver she has stops in Calgary and Halifax on the way there, and Halifax and Toronto on the way back. I’m assuming she chose to save money and spend time : )

  4. Dale Roberts on July 18, 2019 at 4:03 am

    Great post Robb. You’ve certainly researched all of the ways to squeeze the most out of your cards.

    We’ve stayed away from an use of points for travel. I was always afraid of all of the restrictions and terms and conditions. We use basic Air Miles and simple take the cash here and there.

    We all use the Tangerine Cash Back Card and earn about 50-60$ a month in cash.

    No terms and conditions on the cash, ha.

  5. Big Cajun Man (Alan W.) on July 18, 2019 at 4:23 pm

    It is quite a damn’ing statement when you say “…Investing in mutual funds is not nearly as transparent…”, as trying to get a cheap airfare? Holy cats! The Canadian airlines are much like the Canadian telecomm world, they know they have you and they know you can do little to escape them.

    In Ottawa, you can get a really cheap flight to Orlando, but you must drive (about 50 minutes) to Ogdensburg and fly out of an “Airport” that is quite tiny, but it is still MUCH cheaper than flying Ottawa-Toronto-Orlando!

    Mutual Funds are a Murky Swamp, that the Airlines and Telecomm companies view with envy. Be wary!

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