Friday, 12 December 2014

The Secret to a Successful Financial Plan

Let's revisit the first part of a post a few months ago: 

Fill in the Blank: I Don't Want to Spend Money On...

When you think about all the things you hate paying for, it's easy to fall into the negativity trap. So many of those things seem well out of our control, don't they? Car insurance just isn't one of those things you can up and stop paying for. Neither is that mortgage payment.

So I want to be very clear about why this is a valuable way to spend some of your time, because listen: this isn't an "I'll be happy when..." exercise. Moping through your life telling yourself that all you need is a paid off house, or kids who finally pay their own way, or X number of dollars in your savings account to be happy is a loser's game.

I have learned the secret to a successful financial plan, and it's this: intentional contentment.

First: contentment isn't a passive, let's-fold-our-hands-in-our-laps-and-act-happy-about-everything-that-happens-to-us state of mindlessness. It's an active attitude of "we can do hard things because hard things are worth doing". It's difficult to cultivate and maintain in the face of life's many disappointments, but although it sometimes resembles giving up and submitting to the status quo (from the outside, at least), it's a conscious, mindful decision that most people have to make every single day in the face of (sometimes) incredibly hard realities.

There's an aura of perceived failure around someone who isn't in a position to make any big changes in a life that looks pretty unfulfilling from the outside, isn't there? A lot of the rhetoric around poverty seems inspired by the "you should be doing something to make your life better" success mindset we as a society have idolized for more than a century.

But contentment - as unfashionable as it sounds - is actually the only consistent key to a successful financial plan. Because the truth is, a financial plan isn't really a plan at all, although it shares many of the same characteristics like action items, measurable goals, and policy statements. You and I both know that your formal financial plan could expire the day after you read it if you lose your job or your house burns down or one of your kids gets really sick. This year's savings might fall by the wayside. You might end up further away from your debt-free date than you started.

Contentment is the opposite of fear and greed and restlessness. It's the quality that allows you to look around your life, identify the things you're grateful for, those things from which you can extract the most joy at the least cost (and we're not just talking money), and consciously choose to orient your life around doing or having more of those things. If how you spend your money every day is your most important financial characteristic, shouldn't you be content with it? If you're not content, why not? What can you do to change your circumstances or - if you can't, or if change will be a long time coming - what can you do to change your attitude about your circumstances?

Combing through your expenses and identifying the ones you hate paying for is not the opposite of cultivating contentment. It's the first step in a series of decisions that smart people make. Getting very, very clear about you don't like about your current situation, defining the direction you'd like to travel in to get closer to the things you do like, and then creating systems to help you get there? That's real financial planning. The rest of it is just math and details.

A strong set of contentment muscles are what gives you the energy to be flexible when life happens. Someone practiced in the art of finding happiness and fulfillment wherever she happens to find herself is already mostly prepared to adjust her spending downward in the face of post-retirement market declines, or defer the much-desired house because she's just not earning enough as soon as she thought she would to make it a wise purchase.

Listen, contentment in your direction is what gets you to your goal. A goal is a real, measurable thing: start my own profitable business by the age of 34. Pay off my mortgage by the age of 48. Save enough to live happily off of my investments and only work if I want to by the age of 57. Those are goals. They can move.

A direction, however, is a total orientation of your life towards reaching those goals. It's what you do the day after you read your plan, and the systems you put in place to get and keep you moving towards your goals, whatever those may be: planning meals within a pre-determined weekly food allowance so you can save for a house, for example, or learning how to code in your spare time so you can increase your salary or start a business, or taking public transit so you save your car expenses towards financial independence instead.

The daily practices of a life with direction can either be onerous, and chafe so much that you give up or grumble your way through a miserable life, or you can settle into them with an attitude of contentment and get happy on the way to your goals, not just when you eventually reach them.

Your choice.

Tuesday, 18 November 2014

How (and Why) to Choose Between NestWealth, Wealthsimple, WealthBar, ShareOwner, and Steadyhand

The point of this post: Each online investment management company has a slightly different fee structure and value proposition. Calculating their relative cost for your circumstances will let you compare their relative value depending on the kind of service you want to pay for. (Includes a link to the Canadian Online Investment Advisor Fee Calculator.)

Canadian investors have traditionally had three choices for their savings:
  1. Open up a self-directed brokerage account and invest directly in stocks, bonds, ETFs or mutual funds.
  2. Go to the bank or invite that mutual fund/insurance salesperson you met while you were dropping your kids off at school over to your house, who will sell you mutual or segregated funds that cost in excess of 2% per year and pay her a commission based on the kind of funds they are and how expensive they are for you to own.
  3. Find a fee-only investment manager close enough to you to do business with, provided you have enough money (somewhere in the $500,000 to $1,000,000 range), and feel that paying 1-1.5% annually on that money is worth the management and financial planning advice you'll get.

As a financial planner and occasional personal finance blogger, it's really very tempting to look at each of these companies and declare a winner based on cost alone, or the combination (or lack) of services I value most, or what I think the average investor should want from portfolio construction. But the reality is that each of us falls somewhere along parallel spectrums: an ability spectrum, that moves from "comfortable with DIY" to "needs full-service advice", and an asset spectrum that starts at "small nest egg" and runs all the way to "significantly large pile of money." In short, you and I and the neighbour across the road might all need more or less help with more or less money, and while one provider might be a perfect fit for me, another might be just the ticket for you.

I unequivocally believe that - provided you have the relatively small amount of time necessary to set it up and maintain it and the relatively large amount of intestinal fortitude to stick with your plan no matter what the markets are doing - a self-directed, simple Couch Potato portfolio of low-cost, index ETFs is the best investment strategy for most Canadians. 

A reasonably intelligent person should be able to follow an able guide like John Robertson's soon-to-be-released The Value of Simple and do just fine, sometimes in combination with the service of an advice-only planner like me or most of the people on this list from MoneySense Magazine, or possibly by paying for the DIY Investor Service offered by PWL Capital to get set up.

But there are valid reasons to want someone else to manage your investments on an ongoing basis for you. Sound asset allocation, rebalancing across multiple accounts, and tax-efficiency can be worth paying for if you're not going to be up to bothering with it yourself, and the value you get from having a calm sounding board when markets (or market noise) get crazy might actually be priceless, if - like almost all of us - you're tempted to get out of the market when you shouldn't and question your plan just when you should be sticking to it dispassionately.


I want to be really, really clear about costs here: the lower you can get your annual investing costs, the better off you'll be. This can't be overstated. Seemingly small amounts add up over a lifetime of investing to very large amounts of your savings (see this post from Michael James on Money for a good set of charts). However, the question shouldn't be "what's the lowest cost?", it should be "what's the lowest cost that I will stick with?"

I also want to be clear that "investment management" and "financial planning" are not the same thing: financial planning is the context, the "what do I want my money to do for me", and investment management is the tool, the "and this is how my money is going to do it" - one of many tools, and (often) not the most important one.


If you're seriously looking at what the online advisors are offering (and you should be), I'd invite you to use the Canadian Online Investment Option Calculator** as a starting point to calculate the relative cost of each service. With that information, you can compare the different services based on where you fall on the "how much money do you have?" spectrum. That's the objective part of the choice.

The subjective part of the choice (although each provider would probably argue that it's not subjective at all) is all the rest of the information that you should spend some time gathering, preferably by calling each provider available in your province or territory, telling them where you fall on the "needs little advice" to "needs lots of advice" spectrum, and simply asking:
  • how the portfolios are constructed
  • how often they're rebalanced
  • what institution is the custodian for your money
  • whether financial planning is included in the fee, if it's purely investment management, or if all you're paying for is access to the model portfolio with no other advice
  • whether your money is managed across accounts as a single portfolio or whether each account is managed separately
  • how simple it is to give them your money and get on with your life, and how simple and jargon-free the statements, online dashboard, and any ongoing communications are
  • how often you're able to talk to someone if you need to get persuaded off the ledge while the markets go crazy
  • how well-developed their retirement income and decumulation strategies are
Again, the answers to these questions and the results of the calculator should function as a guide to your decision. The decision itself is yours, and might be based on characteristics that I haven't even mentioned. 

If you're investing at the bank or with a salesperson that comes to your door, and have decided against investing on your own, write this down on a piece of paper right now:

"I will give myself until (date - no more than a month from now) to investigate the different online invesment options, and then I will decide on one and start the transfer process"

If you're investing with an asset manager who's charging you a percent of your total assets to manage them, and have decided against investing on your own, write this down on a piece of paper right now:

"I will give myself until (date - no more than a month from now) to investigate the different online investment options, compare the service they offer to the service I'm actually getting from my asset manager, and then I will decide whether to continue with my asset manager, negotiate a lower fee, or start the transfer process"

Or you can make a decision by virtue of not taking any action at all, and continue to pay for an Advisor Six-Pack, pay a high price for services you're not actually receiving, and be more susceptible to fear, error, bias, and fund-of-the-month-itis.


*Not to be confused with their build your own portfolio service, which - for the purposes of this comparison - isn't a contender.

**I have to thank John Robertson, blogger behind and author of The Value of Simple for his invaluable assistance with the vagaries of conditional formatting and =if formulas, as well as Randy Cass of NestWealth, Tea Nicola of WealthBar, Michael Katchen of Wealthsimple, Bruce Seago of ShareOwner, and David Toyne of Steadyhand for their remarkably candid responses to my very wordy emails and many, many questions. Any errors in either the calculator or the information are purely mine.

Friday, 24 October 2014

Boomer and Echo | Budgets, Cash Flow Plans, and Spending. Yawn.

I know, I know. Budgets just sound like Remedial Personal Finance, don’t they? Everyone knows you’re supposed to budget, so what’s the point of another 800 words or so on the topic, right?

There’s even a vague feeling that once you reach a certain point - either of knowledge, or income, or net worth - budgeting is kind of beneath you. It’s so remedial that the cool kids don’t do it, and I’m here to look over my librarian glasses and tell you that the cool kids are wrong.

But first, in true librarian fashion, let’s define the terms. When I talk about budgeting, or planned spending, or cash flow, I’m really talking about three separate but related things: tracking your transactions, clarifying your limits, and projecting your trends. Not to get too timey-wimey on you, but that’s the past, the present, and the future, all rolled up in one neat little concept. Nice.

Read the rest at Boomer and Echo

Thursday, 25 September 2014

Because Money Episode 22 | Ellen Roseman

We had the privilege of hosting Ellen Roseman on Because Money this month, and spent a great half-hour talking about how how consumers can protect themselves and fight back when they've been wronged, as well as her involvement with FAIR Canada as an advocate for better investor protection.

The full transcript can be found here.

Thursday, 11 September 2014

Fill in the Blank (Part One): I Don't Want to Spend Money On...

At first glance, it sounds like an incredibly stupid exercise, I grant you.

Um, I don't want to spend money on insurance, on my mortgage payment, on those never-ending, teeny-tiny little school activity requests that dribble home every other day, on fixing my car (again), on buying new shoes for kids whose feet won't.stop.growing, or on the property tax shortfall notice I got last week. And that's just for starters.

Realistically, at least for most of us - a lot of the things we don't want to spend money on won't go away just because we decide we don't want to pay for them anymore. Ten months out of the year, my kids need shoes, and - last time I checked, anyway - two-, four-, and six-year olds aren't allowed to get jobs.

The point of digging down into the things you want to say "no" (or even "hell, no") to - like loan payments or groceries that you waste or tv you don't watch - isn't so you can dwell on how much you hate paying for those things. That's just the beginning.

Getting really, really clear about the things you actively dislike or don't care enough to bother spending money on is only the first step. The next step is heady, fulfilling stuff: getting really, really clear on those things you truly DO want to spend money on.

Start working on that list of things you don't want to spend money on. Next post will be all about the YES.

I've had a chance to do some work with Heather Thorkelson lately. She's a small business strategist (among so many other things) working with entrepreneurs to align their work with their dream of work, whatever (or wherever) that might be. I admire her an awful lot, and she wrote something a few weeks ago about this very topic of saying no so we can say yes that she said I could share with you:


Beyond the “find my passion” stage: how to find direction in an unconventional market

I’m going to be straight up with you – I think everyone’s gotten a little carried away with this whole “find my passion” business. First off, it’s a bloody tall order that leaves most chasing their tails, reading every self-help “find yourself” book out there for years and still not coming to a conclusion.

I’ve got a better idea. Ideas to be exact. It’s an approach that worked for me, and many of my clients. Heck I even heard Oprah talking about Step One the other day so I must be on to something!

Step One: Get really clear on what you DON’T want to do.

You’d be surprised at how powerful of an exercise this is. My answers when I asked myself this back in 2010 included things like;

1) I don’t want to fill out useless spreadsheets for other people to prove that I was ‘working’ but that no one would ever actually read. (Hi, can I please have those three hours of my life back?)

2) I don’t ever want to work with people I don’t like.

3) I don’t want to ever have to ask for permission for my measly three weeks off a year where I can go and really LIVE.

4) I don’t want to do work that has no meaning for me personally. And if it does lose it’s meaning, I want the built-in flexibility to shift gears and move toward greater service and fulfillment.

Savvy? Pause here and go answer that question yourself.

Step Two: Figure out what makes you happy.

For real. Not the fleeting stuff like shoe shopping.

What gives you a profound sense of happiness and brings you right into the NOW every time you experience it? Helping people? Being in your ‘zone of genius’? Public speaking?

Also ask yourself what kind of humans light you up? (HINT: You should be working with them!)

I know this is a lot harder than it sounds. My clients often struggle with this, but it’s some of the most important self-awareness work you’ll ever do. So sit down with a pen and paper, activate the brain cells, and get scribbling, love. If you’re really having trouble, think about what you’d want people to say about you at a speech in your honour ten years from now.

Step Three: Time is your most valuable asset. How do you want to spend it?

This may seem too pie-in-the-sky for many of you, but honestly, when I started building my workday around how I truly wanted to spend my time, my happiness increased ten-fold.

Be honest here. How do you like to spend your time? In nature? On a surfboard? Snuggling with your dog? Making out with your lover? Traveling on trains? You need to build your livelihood in a way that accommodates for that. It may not be entirely possible in the beginning, but when you know how you want to spend your time you have something tangible to work towards.

Forget that new-agey “passion” hoo-ha. The reality is you probably have many. And therefore many viable options. Figure out how you want to live and the options will become clearer.

Yours truly,
The pharmaceutical rep who became a life coach who then became a web designer who then because a business strategist/polar expedition guide in the process of figuring out a formula that would work for me.

(PS: Every step was awesome, every step brought me income, and every step helped me figure out what I truly wanted in this stage of my life. The road may not be straight, but it promises to be interesting.)


You can find Heather at her website Republic of Freedom, on Twitter, or on Google+. She's currently working on The Leap Guide: Everything you need to know about building the livelihood of your dreams through freelancing.

Tuesday, 26 August 2014

Because Money Episode 21 | The Rise Of The (Not) Robo-Advisors

This month, we were delighted to welcome Michael Katchen of WealthSimple to the show to talk about what's wrong with the asset management industry, how he and others like him plan to break it, and why regular Canadians who, for whatever reason, shouldn't or can't DIY their portfolios should be very, very excited.

Full transcript can be found here.

Show references:

Tuesday, 5 August 2014

I For One Welcome Our Robot Overlords: The New World of Investment Advice and Asset Management

 Before I let you read the rest of this post, I want us to agree on a set of facts:

1. It is extremely rare (but not impossible) for any one investor, investment professional, or investment management company to consistently and reliably outperform the market for any appreciable length of time.

2. The only way to profit from this legendary investor’s tactical brilliance is to begin investing with him or her very early on in his or her career, which necessitates identifying him or her before said brilliant career actually takes off in any appreciable way.

3. If 1, then 2 is unlikely at best.

4. If (almost) every investor, investment professional, or investment manager can only - at best - be expected to deliver long-term returns at about the same rate as the market in general, and only by sheerest luck (in most cases) will he or she happen to turn out to be of the rare breed mentioned in 1, then the only meaningful differentiation between everyone else is the amount of money it costs to invest with them.

4.a) The difference in cost to invest between any two investment professionals, since it must not have anything to do with investing acumen, must be explained by the amount of “other stuff” that professional does: (real) tax planning, (real) financial planning, (real) estate get the picture.

If we can’t agree on these basic points, then you should probably just find something better to do, because you’ll likely get outraged and/or defensive about what I’m going to say next:

Why on earth are Canadians still paying 2% for “investment management” when there is no (real) “other stuff” offered?


(But first, a word on the proper place that investments should hold in the grand scheme of things:

Your investment portfolio, however large or small, is a tool that exists to help you accomplish your goals whether you hope to buy a house, save for retirement, pay for some of your kids’ education, or move to a farm and grow your own food.

The investment decisions you make will have less impact on your ability to achieve those goals than the amount you discipline yourself to save, the speed with which you pay off debt, and the conscious, everyday choices you make in your spending. In fact, how you spend your money month-in and month-out is the single most important financial characteristic. By comparison, investing is a small piece of your life, yet it gets a disproportionate amount of attention from financial professionals, more than efficient dept repayment, more than goal planning, and far, far more than cash flow and budgeting.)

So why is “investment advice” the first (and sometimes only) thing most of us think about when we think about financial planning?


The reason that such a little thing gets such big attention is because there’s money in it. Lots of money. “Wealth Management” is what pays the bills for banks, you know. That, and it’s a lot sexier to talk about than cutting back on your grocery bill or starting to save regularly for your next property tax installment.

Not a single word eof what you just read is news to you. If you’ve spent any time online, or read any of the good Canadian personal finance books out there, you know that what you’re supposed to do is open up one of the online brokerage accounts, buy the ETFs in the Global Couch Potato portfolio, set a reminder to rebalance once a year, and get on with your life.

The problem is this: Do-it-yourself asset management sounds intimidating, can be time-consuming, and tempts people who shouldn’t tinker to tinker. It isn’t for everyone, and for those who want to ask a question now and then, who want some hand-holding when it comes time to set up and start trading across TFSA, RRSP, and/or non registered accounts, or who just want someone else to do it, please, and let me get on with the things I do best...well...

You can go to a bank or a mutual fund company:


The first place most of us turn to when we start thinking about investing is the army of bank/insurance/mutual fund company advisors who - in the face of all the evidence - still believe that paying 2.3% in fees for their company’s mutual funds is somehow a more effective long-term investing strategy than 0.30% for index funds or passively managed ETFs. These advisors believe that the extra money tacked on to the investment management fees in the form of up-front and trailing commissions pays them to give you advice, and will fight you tooth and nail if you even mention indexing.

Their advice - however well-meaning - depends on the amount of training they’ve received from the institution that’s paying them to sell you their own line of products, by the amount of time they are required to spend chasing new clients and new money, and by the likelihood that they’ll stay in their job any reasonable length of time. Generally, if you want to rebalance your investments annually, you’ll need to call, set an appointment, dictate exactly what you want, and re-hash all the same arguments over index funds you had the first time.

The upside, of course, is that you don’t have to do it yourself, and every town has at least a few people willing to sit across the desk (or kitchen table) from you and take your money.

Okay, not the bank. How about a real asset manager:


For a real asset manager, one who doesn’t have regional sales targets to meet, who can craft and monitor a portfolio of securities not limited by a single institution, who know the specific goals, constraints, and strategies that you’re facing with said portfolio, and who will talk you down during times of market turmoil and rein you in when everyone else is losing their minds with greed, you generally need to have already saved between $250,000 and $500,000, and be willing to pay around 1% in annual fees, which should go down the more wealth there is to manage.

It’s a real to him who has, much will be given kind of scene.

These folks are harder to find, and not all of them are created equal. Some of them are in the game for the money, and some are in it for reasonable compensation. Believe me, there’s a difference, and there are many more of the former than the latter.

Oh. I don’t have that kind of money yet, and 1% still sounds kind of high.

Right between expensive non-advice and expensive real-but-hard-to-find advice is the implementation gap. Canadians who know something’s not right with the advice they’re getting at the bank, don’t have $500,000 accumulated, and know they’re not interested or disciplined enough to build and rebalance their own investment accounts are out of luck if they want a low-cost, passively managed, common-sense portfolio that they can throw money at and get on with their lives.

Enter the robo-advisor, or - more properly - the “advisor who doesn’t pretend to deliver on most of the 'other stuff' outside of their area of expertise - investments - and has much lower overhead than your traditional advisor and can therefore offer their services at a reasonable cost”. These are companies like WealthSimple, WealthBar, and Nest Wealth, who are (or are in the process of getting) licensed and regulated the same way that the banks and asset managers are, but who have slipped the bonds of brick and mortar and can set up and rebalance your portfolio of index ETFs for under 1% from the comfort of your own laptop. That’s a better deal than the rich folks are getting.

Some financial media types and many protectionist old-school investment managers invoke the spectre of “why would you let a computer program manage your money for you” whenever the topic comes up, which is probably why they’re hit with the robo-advisor label in the first place. None of the companies I mentioned above fit the fear-mongering description given in this article (as an exemplar of many similar articles, albeit American). Rather, these are investment management companies with real-life people ready to talk you through your asset-allocation, risk tolerance, tax-optimizing, and rebalancing decisions.

For most of us regular Canadians, the best thing we can do with our investments is set an asset allocation target that fits with our true ability to handle risk and our tax situation, get the fees as low as possible - which usually means index investing - and then close our eyes and throw money at them. Ideally we shouldn’t even have to rebalance at all, because every time we have the opportunity to benefit from rebalancing (selling a recent winner to buy a recent loser on the cheap) we also have the opportunity to Not Rebalance. Heck, I talk, write, and read about investing every day (see above), and I still had a hard time pushing the button to sell equities and buy fixed income this past spring.

If you let these not-robo-advisors do their job, your job would get very, very simple: make money and save some of it. No more trying to outwit the market because “interest rates are going to go up and I don’t want to be in bonds”...sometime in the past five and next five years. No more looking at how your equity mutual funds grew over 2013 and assuming that it was because of the amazing skill of the mutual fund salesperson you met with in 2012.

Invest like this, and your portfolio goes back to being a tool to help you accomplish the life you want, and shrinks in importance back to its proper place in the grand scheme of life, the universe, and everything.
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Sandi Martin is a fee only financial planner who specializes in business and personal budgeting, investment advice, and debt management strategies.
Telephone, internet, evening, and weekend appointments are available to clients across Canada.