Weekend Reading: The Power of Simplicity Edition
‘Our life is frittered away by detail… simplify, simplify.’ – Henry David Thoreau
I’ve fielded all types of questions from clients and readers over the years looking for that one magic hack or some shortcut to building wealth. Usually these half-baked ideas come from a friend, relative, colleague, or an unscrupulous advisor, or a random Reddit thread.
Should I buy a rental property? What about commercial real estate? Airbnb? Private credit?
Should I do the Smith Manoeuvre? Open a margin account? Trade options?
Should I buy a whole life insurance policy? Should I borrow from an existing insurance policy? Have you heard of infinite banking?
Should I invest in tech stocks? Crypto? This triple leveraged ETF? Covered calls?
My advice, in general, is that you need to have the basics looked after first before even considering a riskier or more complex strategy.
That includes having a simple money philosophy to follow:
- Utilize employer matching savings plans (contribute enough to max out the match, but no more).
- Optimize your RRSP (optimizing your RRSP can mean contributing enough to bring your taxable income down to the bottom of your highest marginal tax bracket. Or it can mean not contributing at all if you’re in a lower tax bracket).
- Maximize your TFSA (striving to contribute up to your lifetime limit and, once you’ve caught up, maxing out your annual room each year).
- Prioritize short-term goals (list all of your other goals such as a house down payment, funding a parental leave, a new car, a dream vacation, non-registered investments / early retirement fund, extra mortgage payments, etc. and then acknowledge that you can’t fund them all at once. Prioritize and direct any extra cash flow here).
Inside your RRSP and TFSA, know that investing has largely been solved with low-cost index funds. Buy the entire market for as cheap as possible and move on with your life.
Further to that, investing complexity has been solved with something called an asset allocation ETF (an all-in-one “single-ticket” solution).
These registered accounts are no place to speculate on individual stocks or the thematic fund-of-the-day. If you swing and miss on an investment, you lose that contribution room forever and don’t even get the benefit of claiming a capital loss for your misfortune.
Indeed, you’re going to have a great deal of financial success if you can simply take advantage of your workplace matching plans, optimize RRSP contributions, maximize TFSA contributions, prioritize short-term goals (including your own personal spending and happiness), and invest your retirement savings in low cost index funds.
This other stuff is something I call “what’s next?” money.
You have a preference for real estate and want to buy a second property? That’s what’s next, after the basics are fully funded.
Your advisor is pitching you on an investment loan? That’s what’s next, after the basics are fully funded.
You want to put some money into the latest thematic fad of the day (AI, psychedelics, clean energy, etc.)? That’s what’s next, after the basics are fully funded (and, please, in a non-registered account and not your TFSA).
I am fighting for simplicity in my financial life. I want all of my investment accounts in one brokerage platform. I invest in a single ETF in each of those accounts. I have a plan to pay off my mortgage within 10 years (and before I retire).
I have no interest in buying a rental property (worst nightmare).
I don’t use leverage. If you’re not satisfied with the investment returns from global equities then perhaps you need to increase your savings rate, not use leverage to try and amplify the gains.
Warren Buffett famously quipped
“You really don’t need leverage in this world much. If you’re smart, you’re going to make a lot of money without borrowing.”
It’s true. You can get rich by saving a good amount into your RRSP and TFSA and investing in simple low cost index funds.
Why needlessly complicate your life chasing extra dollars – potentially putting a good financial plan at risk if it doesn’t work out?
As Thoreau said, “simplify, simplify.”
This Week’s Recap:
It has been a while since my last weekend reading update. Since then I’ve published the following stand alone articles:
Your ultimate guide to RRIFs: Strategies, pitfalls, and the secret sauce to retirement income. That one was a big hit.
At the end of the year I updated my net worth and looked ahead to this year’s financial goals.
And I posted my 2024 investment returns along with the returns from Vanguard’s and iShares’ suite of asset allocation ETFs.
Weekend Reading:
A Wealth of Common Sense blogger Ben Carlson shows how good years in the stock market tend to cluster.
Welcome to the roaring 2020s, where every single year has seen a big stock market move (one way or another).
Morningstar shares six retirement financial myths to avoid.
For retirees, why amortization based withdrawal works better than safe withdrawal rates.
Christine Benz shares the best of the Long View 2024 – clips from interviews with financial planners, advisors, and retirement researchers over the past year.
If it’s possible to beat the market, as Warren Buffett has for longer than I’ve been alive, why would anyone settle for boring market returns with index funds?
What a massive cash windfall could mean for your retirement plans.
The Walmart effect: New research suggests that the company makes the communities it operates in poorer – even taking into account its famous low prices.
Finally, one of the top minds in financial planning Aaron Hector shares how he’s providing financial literacy for his kids.
Have a great weekend, everyone!
I am taking advantage of my employer matched RSP program, and maxing that out at the 5% matching, my emergency fund has approx. 3 mths worth of expenses saved in it ( I’m using an EQ bank high interest TFSA for my savings account). I’m debt free other than my mortgage and an interst free government loan to replace my windows. Should I, at this point, open a second TFSA and divert the additional 5% I’m currently investing in VEQT through a Wealthsipmle RSP to a TFSA? My employment income is around $75,000 gross. Or should I continue putting that other 5% into the RSP to reduce my taxable income?
Hi Lisa, thanks for this. It’s tough to give specific advice without knowing more information about your goals.
In general, you’d want to look at your marginal tax rate and where your taxable income falls AFTER your current RRSP contributions. That’s what I mean by “optimizing” the RRSP and it might make sense to contribute a bit more to your RRSP if it results in good tax savings.
Otherwise, it’s perfectly sensible to do what you suggested and contribute to a TFSA for long term investment growth.
Whether it makes sense to hold your emergency fund inside a second TFSA is worth another conversation.
Really big fan of your simplicity model, Robb.
One glance at TikTok these days and it’s:
“Invest in Crypto with Trump!”
“Dividends are back!”
“Invest in private credit!”
The employee match, RRSP, TFSA and for those of us who are still saving for a home FHSA plus even the RESP – there’s a lot of avenues to invest smartly before heading into non-registered territory.
Thanks Ravi!
There are so many shiny distractions out there, when all it takes for the most part is a good savings rate and to take advantage of the tax sheltered accounts made available to all of us.
Heck, I’d start exploring working less and/or spending more before venturing into taxable investments, or any exotic scheme.
Your comment about being able to get rich by investing in an RRSP and TFSA is so true. I’m a single earner family and we have achieved this via RRSPs and TFSAs. My salary was also modest. It wasn’t always easy, but now that I’m ready to retire, it sure was worth it.
Hi Ted, thanks for sharing.
I mean if you think about it a max RRSP contribution is 18% of income and then another $7k to the TFSA might mean you’re saving 20-25%.
I’m not suggesting you were saving that much in an RRSP, but it’s easy to see how simply using those accounts would be enough for most people.
I find your comment – and linked article – about investing in real estate very negative. I’m not sure if you’ve actually invested in real estate yourself (I’m not including your principal residence here) but your comments suggest a very narrow perspective based on (I’m guessing) anecdotal conversations with highly-leveraged buyers of Toronto condos who bought high? That’s certainly what it sounds like at least… Your article – and your unsubstantiated opinion that real estate is a bad idea – isn’t terribly informative as it lacks any reference to objective data. I’m a huge fan of low-cost, simple asset allocation ETFs. But real estate, done with some basic commonsense, can also be very lucrative. Many, many thousands of property owners are proof of this. That you have no interest in it yourself is one thing but to dismiss it so quickly and subjectively really doesn’t do it any justice.
Hi Innes, thanks for your comment. No doubt many Canadian real estate investors have made money over the past decades due to a soaring housing market.
But folks today can’t go back in time and purchase their properties. They need to make decisions based on today’s prices, with today’s interest rates, and today’s more tenant-friendly laws.
You are speculating that I don’t care for real estate as an investment and have nothing but cherry-picked anecdotes to back that up. That’s simply not true.
If you want objective data then start here: https://www.theglobeandmail.com/investing/personal-finance/household-finances/article-renting-is-often-a-better-deal-than-buying-thats-because-of-how/
‘Simple’ is so underrated, and it’s my word for 2025
I enjoy your posts and find they are focused and to the point. I also gained new insights in the links provided, The topics were relevant and it’s refreshing to hear alternate views from experts in their field.
In keeping with a focus on ‘Simplicity, I’m reducing the number of blogs I read in 2025, only allowing time for ones that add value. It seems that some bloggers repeat the same information as their counterparts, or add links as a page fillers, distracting from the main topic and adding ‘noise’
However, I appreciate your blog more with each post, there’s always good takeaways or food for thought, presented in a concise manner. I enjoy your writing style and look forward to more of your posts in this New Year.
Wow, Michael – thanks for the kind words and feedback. It means a lot.
Grateful to still be in your reading queue in this era of podcasts and TikToks.
Could you explain further what you mean by “bring your taxable income down to the bottom of your highest marginal tax bracket”, with regards to optimizing your RRSP? Really enjoy reading your regular blog posts! Thanks!
Hi Caitlin, for sure! And thanks for the kind words.
In British Columbia, for example, there are about 15 different tax brackets:
https://www.ey.com/content/dam/ey-unified-site/ey-com/en-ca/services/tax/tax-calculators/2024/ey-tax-rates-british-columbia-2024-06-01-v1.pdf
Let’s say you live in BC and earn $120,000.
Income between $111,734 and $133,664 is all taxed at 38.29%.
So when I say “optimize” your RRSP you would contribute $8,266 to your RRSP to reduce your taxable income from $120,000 down to $111,734 and ensure that every dollar contributed got you 38.29 cents back in tax savings.
Contribute any more to your RRSP and those additional dollars will only get between 31 cents and 32.79 cents back in tax savings (as your income moves into lower and lower tax brackets).
This strategy becomes really powerful the higher up the income ladder you climb.
For instance, if you received a significant bonus or incurred a large capital gain that placed your income at $300,000 in a given year, it’s important to know that income above $252,753 is taxed at a whopping 53.50%.
In this case, you would want to make sure you can at least contribute $47,247 to your RRSP so that every dollar gets 53.5 cents back in tax savings.
Conversely, many middle income earners will see their taxable income fall in between $55,868 and $95,875 where they’ll pay a tax rate of 28.20% on the income in that bracket.
It *might* not make as much sense to contribute to an RRSP in this case – I might prioritize the TFSA. That’s because it’s likely you’ll stay in this wide tax bracket during your working years AND into retirement.
If you contribute to your RRSP to save 28.20% in tax during your working years, and then withdraw from your RRSP and pay 28.20% in tax on the withdrawals in retirement – well, that’s not as good of a deal as the previous examples.
In fact, an RRSP contribution in this example would have the identical outcome as a TFSA contribution where you contribute with after-tax dollars and then withdraw tax-free. Same thing.
That was a great post Robb. I am fully on board with the concept of simplicity. One of the reasons I stopped participating in some of the forums I used to follow was that the complexity and nitpicking involved in everyone else’s financial plans/theories etc really stressed me out! :-). I pretty much stick to this blog, The Million Dollar Journey blog and the Rational Reminder. I learn so much from all of you.
I also liked the articles you linked and, of course, Ben Felix, always makes a good point in his CSI videos. Aaron Hector’s article made me realize I need to up my game in passing on financial ‘wisdom’ to my kids. That was a really interesting exercise he did with the twins.
Thanks for taking the time to do your coherent, informative and helpful posts. I don’t comment too much but usually read them right away when they hit my inbox.
Hi Laura, thanks so much for taking the time to comment and to give such kind feedback. I really appreciate it!
Such great advice. It can be a tough sale sometimes. I know people who just can’t handle the idea of having one ETF in one account. Even if they are into low cost investing, they still want a potpourri of cheap asset allocation etfs for ‘diversification’. But whatever – if someone is saving and keeping investment costs low, then they are winning – even if their execution isn’t perfect.
Thanks Mike! As I’ve said before, asset allocation ETFs aren’t Pokémon – you don’t need to catch ‘em all!
Hi Rob I find your information on B and E very informative on many fronts and wish to thank you for providing much valuable insight into personal investing/finances.
I have been retired for a year now (I’m 66) and have undertaken to follow much of your advice to make my investments more simplistic. I have maxed out my TFSA with a Questwealth balanced portfolio, a few other ETFs (XEQT, XAW and XGRO) and I have a balanced growth mutual fund outside of my Questrade account which has value equal to my TFSA. I have been drawing my CPP since age 60 and started collecting my OAS at 65 and my relatively small DBP plan. My wife is 61 and will continue to work until she is 65 as her income provides us with money to offset our living expenses. Our mortgage is paid off. My question is this: I have been collecting all of my pension money tax free and then re-investing most of it into RRSP in order to offset my income tax payable. Should I continue to do this until I have reached 71 and must convert my RRSP to a RRIF?