Personal Finance Quotes

Even if you’re sixty years old, your investment duration is about thirty more years. Multiple down years in a row is actually a very normal thing. In the stock market, even ten years is a blip. When viewed through the long-term lens of time, stocks are far less risky than if you judge them through daily, weekly, monthly, annual, or even a single decade’s term. On average, stocks increase in value roughly two out of every three calendar years. That means we have to expect calendar year declines, perhaps even a decade-long decline. But the odds of a decade-long decline drop dramatically when we diversify further and add some bonds. [2022] - Andrew Hallam

When it comes to saving for retirement, savings accounts, money market funds, and CDs are far riskier than a diversified portfolio of stock and bond market index funds. If you’re saving money for a home down payment, for example, one of these accounts will work well. The same applies to emergency money (everyone should keep about six months of living expenses in such accessible cash accounts in case they lose their job). [2022] - Andrew Hallam

There are many financial advisory credentials. The Certified Financial Planner and Chartered Financial Planner designations (both known by the initials CFP) are the most rigorous. Not every CFP will exclusively build portfolios of index funds. In fact, most will sell higher-commission products. But a CFP is at least qualified to practice their craft. Most other three-letter designations at the bottom of an advisor’s business cards are comparatively unimpressive. [2022] - Andrew Hallam

Canadian firms like You &Yours Financial are specialists in Canadian financial planning needs. They offer financial tutoring sessions, helping clients understand how much they’re currently paying in fees, assisting them with a wealth management plan and suitable asset allocation strategies. Plenty of people seeking a DIY approach might balk at paying a one-time fee for such a service. But most people’s financial needs are more comprehensive than they think. In a conversation I had with founder Darryl Brown, he told me, “The pay-for-service element of financial planning is especially popular among higher income earners who seek a big financial picture and don’t want to make mistakes.” [2022] - Andrew Hallam

Anyone who plans to add money to the markets for at least the next five years should prefer falling prices. When people invest consistent sums every month (dollar cost averaging) they can stockpile assets when they’re cheap. Experiencing huge losses early in the investment journey would have looked scary. But it would ultimately have boosted the returns. By adding the same amount of money every month, the consistent monthly purchases would have bought a greater number of stock market units when prices were low and fewer stock market units when prices went up. As a result, you would have paid a lower-than-average price over time. [2022] - Andrew Hallam

Statistically, the best odds of success come from investing as soon as you have the money. Don’t wait for a decline, or for the results of an election, or for a pandemic to end, or for extraterrestrials to leave Moscow after an invasion. [2022] - Andrew Hallam

Retirees should ignore their portfolio’s value and all forecasts. Instead, they should stick to an inflation-adjusted 4 percent withdrawal plan. Even if they retire on the eve of a market crash, their money should still last at least thirty years (especially if they don’t give themselves an inflation-adjusted “raise” during years when stocks decline). [2022] - Andrew Hallam

The original 4% rule (from the 1990s) assumed a 30-year retirement and a balanced portfolio of half stocks and half bonds. The 4% withdrawal rate was based on the portfolio's starting value, and it increased with inflation annually. For example, if you retired with $1 million and inflation was 2% annually, you would be withdrawing $40,000 in year one, $40,800 in year two, $41,616 in year three and so on. Using these assumptions, your chances of ruining out of money before you die were found to be very low. Unfortunately, the expected return on bonds-and probably stocks too-is much lower today than it was when the original research was done. [2021] - Dan Bortolotti

If your employer offers a group savings program, you should probably take full advantage, especially if the employer matches at least part of your contribution. Defined benefit pension plans are rare in the private sector these days, but many companies offer defined contribution plans and group RRSPs. Many workplace plans even offer index funds as options. these are rarely as cheap as ETFs, but if your employer is matching part of your own contributions, it will more than offset any additional fees, and the automatic payroll deductions will enforce those regular savings. [2021] - Dan Bortolotti

If your portfolio is less than six figures, small differences in funds fees matter a lot less than you think. It's better to focus on spending less than you make, saving the difference and investing with low-cost diversified index funds, even if your portfolio is not the absolute cheapest option available. Once you've built significant wealth, you can focus on reducing your investing costs further and then watching your portfolio compound even more. [2021] - Dan Bortolotti

While bonds are clearly less volatile than stocks, they can still lose value during periods of rising interest rates. That's why conservative investors also look to savings accents and GICs for safety. It's true you won't lose your principal with these investments, but even they're not without risk. The silent killers of all investment returns are inflation and taxes, which can reduce the real return on "safe" investments to zero, or even turn them negative. [2021] - Dan Bortolotti

In general, any money you need in less than 5 years shouldn't be in stocks. Even balanced portfolios of 50% stocks and 50% bonds have lost money over that length of time. If you're saving for a down payment or another major purchase in the near term, your top priority has to be protecting your principal. Keep this money in a high-interest savings account or GICs. [2021] - Dan Bortolotti

GICs don't lose value when interest rates rise, neither do they get a boost when yields fall. This means that during a bear market for stocks-which often leads to falling interest rates-your GICs won't deliver the offsetting benefit you should expect from bonds. Since bonds and GICs each have pros and cons, you might consider a balanced approach and use both in your portfolio. For example, you could use GICs for about half of your fixed-income allocation and use a bond DTF for the other half. [2021] - Dan Bortolotti

Stuff you don't need in your portfolio: REITs, preferred shares, real-return bonds, high-yield bonds, gold, smart beta ETFs, and currency-hedged ETFs. [2021] - Dan Bortolotti

Probably the best-known robo-advisor in Canada is Wealthsimple, which was one of the first on the scene in 2014. But there are many others, including Nest Wealth, Justwealth and CI Direct Investing. Moreover, a number of banks and brokerages have their own branded robo-advisor services. The Bank of Montreal has BMO SmartFolio, Royal Bank has RBC InvestEase, and Questrade has Questwealth Portfolios. There's a lot of information online to help you compare various robo-advisors, including annual comparisons in the Globe and Mail and on MoneySense.ca. [2021] - Dan Bortolotti

Perhaps the greatest benefit of robo-advisors is that they automate almost everything. You can set up a regular monthly contribution and your cash is immediately invested, typically with no trading commissions. When the ETFs pay dividends, these are reinvested automatically as well. And if your portfolio drifts away from its target, the portfolio is automatically rebalanced. The cost of using a robo-advisor obviously varies among firms, but it's typically about 0.50%, and you can qualify for lower fees if your portfolio is large. That cost doesn't include the management fees on the ETFs themselves. One of the best features of robo-advisors is their extremely low minimums: you can often invest with as little as $1,000. [2021] - Dan Bortolotti

All of the banks have a brokerage arm-RBC Direct Investing, Scotia iTRADE, BMO InvestorLine and so on. There are a number of non-bank-owned firms with good offerings as well: Questrade, Qtrade and Virtual Brokers, to name a few. The Globe and Mail does a comprehensive review of all the major online brokerage every year, and this is worth searching for online. Most online brokerages waive administrative fees if your account balance (or the sum of all your accounts) is higher than a certain amount (e.g. $25,000). Commission-free trading is an excellent feature. Questrade has long offered free purchases of all ETFs, though you still pay their standard commission when you sell. Qtrade and Scotia iTRADE have a limited menu of ETFs that trade commission-free. National Bank Direct offers commission-free trades on ETFs as long as you purchase at least 100 shares at a time. [2021] - Dan Bortolotti

If you were in the same tax bracket for your whole life, the TFSA and RRSP would be essentially the same. Generally, use a TFSA if you're in a low tax bracket now but expect to earn more in the future. On the other hand, if you're a high-income earner, you'll get a significant benefit from the RRSP's tax deduction. Money withdrawn from TFSAs can be re-contributed the following calendar year with no penalty, whereas money withdrawn from an RRSP is not only taxable, the contribution room is lost forever. This means TFSAs are a great option if you're a young person saving for a medium-term goal, like a down payment on a home, while RRSPs should be earmarked for long-term retirement savings only. [2021] - Dan Bortolotti

There are three general strategies for rebalancing: 1) By the calendar - e.g. once a year; 2) By thresholds - rebalance only when an asset class is off by an absolute 5% or a relative 2.5% (for asset classes with smaller targets like 10% allocation to emerging markets); 3) With cash flow - whenever you add new money or make withdrawals. If you're in the drawdown stage and no longer adding money to the portfolio, you can also rebalance with cash outflows. For example, if you're taking income from a RRIF in retirement, you'll be required to make prescribed withdrawals from the account each year. You can use this opportunity to rebalance the portfolio at the same time. [2021] - Dan Bortolotti

Assets in a TFSA grow tax-free indefinitely, and no tax is payable when you eventually make withdrawals. It makes good sense to keep assets with the highest growth potential in a TFSA to take full advantage of this tax shelter: in other words, fill up your TFSA with stocks and keep low-growth assets, such as bonds and GICs, in other account types. [2021] - Dan Bortolotti