How Do I Shock Canadian Investors

Since publishing my book, Millionaire Teacher, I’ve been bouncing around in front of Canadian, American, Singaporean and Malaysian audiences, expounding on efficient investing strategies that take less than an hour a year to implement—while whipping the majority of investment professionals in the process.

As a desk-jumping teacher who uses the room like a gymnasium, I’m probably not what most people expect.

But it’s not my energy that shocks people.  It’s this:

“Raise your hands,” I ask, “if you had money invested ten years ago, in November 2001?”

Most of the hands go up.

The past ten years have given us one of history’s least profitable investment decades.  Most people (painfully) realize this.  But then I suggest that their investments have gained 47 percent over the last ten years, which would have turned $10,000 into $14,700 (from November 1, 2001 to November 18, 2011).

I pause.

 And I look into their faces.

 Without words, many of them tell me that I’m wrong.  They ask if I’ve been living in an Afghan cave for a decade. 

Don’t I know that the financial crisis scuttled most people’s portfolios—and their money hasn’t fully recovered?

Don’t I know that the Canadian stock market has dropped 11 percent in 2011?

Don’t I know that the International stock markets have dropped 13 percent since January?

Don’t I know that the U.S. stock market has fallen 8 percent (in Canadian dollars) since our last New Year’s Eve party?

I do know it.  But I repeat:

“The average Canadian’s investments made 47 percent over the past decade.”

Then I tell them this:

“If you all went home, dug out your investment statements over the past ten years, then brought them back to me, I could show you (as a group) that your investments have made roughly 47 percent over the past decade…..before fees.  Some of your accounts would have made more than that, and some of your accounts would have made less than that.  But as a group, your investments would have averaged 47 percent.”

The details, however, are in the words I’m choosing.  There’s a distinction between what their investments would have made…and what they actually made, as investors.  Most Canadian financial institutions that manage people’s investments end up robbing them blind.  They charge hidden fees that dwarf the expenses paid by other investors, in other countries.   As a result, most people unknowingly give far too much of their money to the fund companies they deal with.

Want proof?

The Canadian stock market has risen roughly 95 percent over the past decade, including reinvested dividends.  If an investor’s portfolio were split four ways between the Canadian stock market, the U.S. stock market, the international stock market, and the Canadian bond market, they would have turned $10,000 into $14,700: a 47 percent gain between November 2001 and November 2011.

If an investor had their money in the Canadian stock market and the Canadian bond market—without international exposure—they would earned significantly more.

Most of the people I speak to admit that they have made very little (if anything at all) over the past decade of investing.

That’s when I expound on the merits of creating diversified, low cost accounts of index funds.  I show everyone what the stock and bond markets have averaged over the past decade, and I explain why they didn’t earn their share of the cake.

That’s when I offer further reading material.

Currently, there are some great books available.  I’d like to recommend  Dan Bortolotti’s Guide To The Perfect Portfolio, published by MoneySense magazine.

You can buy it in bookstores, drug stores, supermarkets…anywhere they sell books or magazines.  At $9.95, it’s probably the best value of any finance book on the market.

You don’t deserve to be shocked by the financial service industry.





Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School (2nd Ed. Wiley 2017) and The Global Expatriate’s Guide To Investing: From Millionaire Teacher to Millionaire Expat (Wiley 2015). My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I’m happy to comment on your questions. However, please read the Terms of Use, Privacy Policy and the Comments Policy.

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19 Responses

  1. Stacey says:

    I decided to set up my portfolio using the following funds:

    TD Canadian Index – e (TDB900)

    TD US Index – e (TDB902)

    TD International Index – e (TDB911)

    TD Canadian Bond Index – e (TDB909)

    I have half my money for investing in an RRSP, and the other half in a taxable account. Which of the funds should I put in my RRSP and which in the taxable account? Thank you.

    • Well done Stacey! And you asked a great question. Make sure that your bond index is in the RSP. Bond interest is taxed as "income" so its tax rate will be high. Shelter the bond index in the RSP.

      Your Canadian index will likely pay higher dividends than the U.S. or the international index because it has a high financial service and commodity component. So it might be a good idea to put the Canadian index in your RSP as well.

      In your taxable account, your U.S. and International index will be the most tax efficient–so keep those indexes in your taxable account.

      Your question was such a great one Stacey. I'm impressed!

      • Be'en says:

        The returns (dividends and capital gains) from US and International stock, I believe will be treated as "income" by CRS and taxed as such (no tax break). Therefore, shouldn't they be in registered accounts and the Canadian stocks in taxable accounts?

        Thanks.

  2. Melina says:

    Hi Andrew,

    I've been following your blog and just recently finished reading your book. Thanks for making investing for the long run simple and easy to understand.

    My husband and I want to take all of our money out from mutual funds and invest them into low-cost index funds – probably with TD bank or Questrade…but we are not too sure yet. I still feel a little uneasy making this jump, even though everything makes sense to me.

    We just had a bad investing experience, investing 30% of our portfolio with a financial planner who promised us great returns….

    Anyway, I was hoping you can help.

    Currently we have 2 RRSP accounts, 1 TFSA and are will be opening a RESP soon as well. (baby boy coming in 2 weeks!)

    We are thinking of putting money in every month but are also open to doing a rebalance once or twice a year. We want to be able to compound our money but not too sure if putting money at the end of the year is the same as putting money in every month.

    Our total investments are less than 100K and we have an apartment that has a 270K mortgage left on it.

    My question would be:

    1) I have about 70% of the investment money in my RRSP account because I am taxed as in a lower tax bracket than my husband. Since the amounts are so drastically different, would it be smart for us to maintain the same asset allocation in each account?

    RRSP:

    40 – CDN Bonds

    30 – CDN index funds

    30 – USA index funds & International funds

    I'm thinking our RESP would be

    20 – Bonds

    50 – CDN index funds

    30 – USA index funds

    2) If we have about 60K to invest, should we keep putting money in every month or rebalance once a year?

    3) Should we go with Questrade/ETF's instead of the TD e-series funds to maximize our returns? (Oh by the way, wondering why you haven't blogged about Questrade?)

    4) Should we pay down our mortgage first instead of investing?

    Would love to hear what you think!

    • Hi Melina,

      Hi Melina,

      I think your asset allocations suggested above for your RSP and RESP are great! And more importantly (before I forget) congratulations on soon becoming a mom!

      This will likely surprise you, and you may not agree with me but….

      If I were you, I would hammer down the mortgage instead of investing. Many people would disagree, with interest rates so low. But with mortgage interest rates as low as they are, you can hammer down on the principle owed far faster than you could if rates were high.

      Most people just get used to the idea of having a mortgage (almost) forever. But seeing your net worth increase with every extra payment would feel amazing.

      Yeah, I'm a wimp, but that's what I would do. The stock market is never guaranteed, but the return from paying down your mortgage is. If you are paying 3.5% interest, then paying it down will be like making a 5% guaranteed pre-tax return. And with rates so low, you could really hammer that mortgage down before rates rise. They won't stay this low forever.

      When I had a mortgage, I didn't invest. Yeah…I'm old fashioned. But it works!

      • Hey Melina (and thanks again Be'en)

        I wasn't thinking of the lower tax break given to Canadian dividends. Canadian dividends are more gently taxed than U.S. and other international dividends. But the bonds would certainly be better served in your RSP.

  3. Melina says:

    Hi Andrew,

    Although it may sound old-fashion – paying down our mortgage but it does make sense! You're legit Andrew. 🙂

    We had a house in East side Vancouver and my husband paid the mortgage down aggressively. So when we sold the home, we were able to pay off all our debts, go off on a 1 year sabbatical and have some savings to play around with. We reaped the benefit of paying down our mortgage – even though it was a sacrifice initially to see all our hard-earned money go into a house! 🙂

    But now that we are a young family, we want to re-evaluate our strategy and make sure we have a financial plan based on smart, investing principles and not on speculative, emotions hoping that if we time the market, we can increase our savings faster! (Been there, done that!)

    Anyway, thanks for your advice.

    In regards to our current RRSPs + TFSAs + RESP with the bank, do you think we should take it out then and put it in a low-cost index fund with perhaps TD then?

    Hey, heard you were in Canada! If you are around in Nanaimo, my husband and I would love to take you out for a meal!

    Thanks for your help and let me know if I can do anything for ya!

    Cheers!

    • Hey Melina!

      I drove through Nanaimo on Saturday night. I was coming back from the Comox Valley where I had a book launch at the Laughing Oyster bookstore. They sold about 100 copies in a matter of hours–it was such a thrill! I won't be going back up there, but thanks for the dinner invite. I would have enjoyed taking you up on that.

      As for the money that you have, yeah, your odds of success will be so much higher if you transfer them to a discount brokerage, and buy ETFs, or switch them over to TD and buy their e-Series funds.

      And thanks again, for the kind words about my book. I'm really glad you enjoyed it. If you have a couple of minutes, and you're able to post a review on Amazon, I would love that. Here's the link: http://bit.ly/mtreviews

      Thanks again Melina!

      Andrew

  4. Vik says:

    Andrew,

    Read your book and have decided to "re-arrange" my portfolio of 401K, IRAs and Mutual Funds.

    Question for you, do you do fee base consultation to review portfolio and made recommendations.

    Regards,

    Vik

  5. Sara says:

    Hello – I was just reading a few old posts of yours and am not really clear on RRSP info. I have a significant amount in RRSP’s and TFSA – CAN I move these into Index Funds without penalty? Can you just move them over into a RRSP Index Fund – is there such a thing? I currently have money with Raymond James in RRSP as well as HSBC RRSP’s – Would it be a good move to take all the monies RRSP as well as other and move to Index Funds etc. (bonds?)

    I am currently on my own and have to make all my own money decisions – I am mid fifties and wish to make the best decisions and reduce my stress level. I am divorced and have a settlement (no current job as was self-employed) – not a bad one but not enough to live on forever . I also have a mortgage and inquired re: taking RRSP money out to pay off but penalty was rather significant.

    I am hoping you might have some suggestions as money management in the past was mostly done by spouse and now feeling a little overwhelmed. Appreciate your time – thanks S

    • Hi Sara,

      Yes, building a diversified portfolio of index funds with your current RRSP money would give you better odds of future success. You could easily make the switch without a tax penalty from the government, because you would switch the money from one RRSP account to another. That said, Raymond James might charge you for exiting funds early. If they bought you back end loaded mutual funds, that would be the case. It might be a pain to pay that extra fee, but the low costs of the index fund account will likely eventually make up the ground. That said, you likely don’t own back end loaded mutual funds. But I just want you to be aware of them, if this is the case.

      Cheers,
      Andrew

  6. corey says:

    Hi Andrew, After reading your first two books I was ready to open up an account with Saxo based in HK, however, Jason Heath (you referenced him in your book) put me on to Questrade inc. I’ve gone through the process of opening up an account with them, but I’m getting cold feet because their customer service is just short of awful. I’m wondering if I’m making the right decision. What are your thoughts on Questrade for an expat living in China trying to set up a DIY couch potato portfolio ? Thanks

    • Hi Corey,

      Questrade is cheap. But for taxable purposes, it might be more efficient to use one of the offshore brokerages that I mentioned in my book. Don’t, however, expect great service. That’s not what they do. They simply allow you to initiate trades. It can sometimes be a pain to set up the account. But once you have done so, you will be glad you did.

      Cheers,
      Andrew

  7. corey says:

    HI Andrew,
    Thanks for the prompt response, though I am feeling quite conflicted. I spent considerable amount of time/money hashing out my financial objectives with Jason Heath advice-only Certified Financial Planner and income tax professional. He feels confident that my status as a non-resident does not put me at risk with Canadian investments through Questrade Inc as long as I buy on TXS. Perhaps, this could change if I ever plan to repatriate to Canada. But, I suppose at that point I could move to an offshore brokerage account.

    Regardless of the location of my brokerage account I’m wanting to build a couch portfolio with 3 ETFs. Even though at age 40, I feel I need to be somewhat aggressive with my plan, since I’m way behind a plausible retirement age of 65

    20 % VCN – Vanguard FTSE Canada All Cap Index ETF (MER.05)
    30% VAB – Vanguard Canadian Aggregate Bond (MER.10)
    50% XAW – iShares Core MSCI All Country World ex Canada Index ETF (MER .21)

    I feel that I should commit a large percentage to an international ETF since my financial situation will influence the location of my retirement. Therefore, XAW is appealing since the portfolio is composed of 50% of US equity and it also includes 10% emerging markets. Any thoughts or suggestions on the above ETFs.

    Many thanks

    A fan

    PS. I’m working of getting you to come to our school for a workshop. My school is still bringing in financial advisors with their high cost pension funds. I’m trying to encourage others to read your books.

    • Corey,

      This portfolio looks great.
      What school are you at? When you say, “high cost pension funds” are we talking about the really nasty ones? If that’s the case, my goodness, you need to help everyone there, beginning with the administration. Please get back to me.

      Cheers,
      Andrew

      • corey says:

        HI Andrew,

        Funny you say that! I started typing a memo to admin, but I felt it wasn’t my place to meddle in school business. That said, I’ve had numerous conversations about the topic with colleagues. Lets just say that I was surprised about most responses. The only people that want to hear more about it, are the people that know the least. Those already playing the stock market feel they got a good handle on their investments:)

        Anyways, I work at an amazing school in China, but this is something they can definitely improve on. We might share a common friend from your SAS days who is now our finance guy and he is switched on. I get the sense that Russell will make it happen.

        I really appreciate you taking the time to reply to my previous post.

        Cheers

        Corey

        • Corey,

          Russell has reached out to me about the possibility of speaking there. Could you please confirm which types of pensions are being sold there.

          Cheers,
          Andrew

          • corey says:

            HI Andrew,

            It’s Renaissance Workplace Benefits ( Formerly SCI group) But, I’m not exactly sure what they offer since I never scheduled a meeting with them. But pension fund was used frequently in the brochure. Sounds ugly!!

            Well! Hopefully Russell can make it happen.

            Cheers

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