Salary Vs. Employee Stock Options

   As you grow in your career, you’ll find an increasing number of opportunities that contain Employee Stock Options (ESO) as part of your compensation package. The question is, are these stock options worth it?

What is an ESO?

   An employee stock option is a financial instrument that specifies certain terms as to when you can buy a company’s shares. Most commonly these ESOs will be offered with a set price, and a vesting period.

   While the price is self-explanatory, the vesting period bears careful consideration.

   A vesting period is a predetermined amount of time that must pass before you can execute, or buy, the shares in the option. These can be slowly released over time (33% per year for 3 years), or your options could vest all at once (100% after 3 years). 

Public Vs. Private Stock Options

   A share is simply an ownership stake in the company. That means both public and privately traded companies can offer stock options, but there are considerable differences that you need to understand.

   As a public company is traded on a financial market, those shares are easily bought and sold. This makes it easy to liquidate your position, or unlock the cash that was held behind those shares.

   Private companies aren’t quite so straightforward. 

   For a private company, where there isn’t an open market for those shares, getting rid of them can be considerably more challenging. To sell, you would need to wait for a liquidating event. This could be in the form of a merger, acquisition, or an IPO, or far more infrequently, if the company allows you to sell to a private offer. The key point here is that your money, tied up in shares of a private corporation, could be very hard if not impossible to recover.

Risk Vs. Reward

   Ultimately whether you should look for ESO or salary in your compensation agreement depends on your risk tolerance. Investing in a single company is risky. Stock Options are therefore a riskier option to taking your compensation through salary.

   While we would all like to think our efforts at work will make the company successful, companies rarely hinge on the efforts of just one person. There are a variety of factors at play, which could impact the future share price. While you could see some incredible returns, those same stock options, assuming you can even sell them, might produce a 0% or even negative returns in these ever-changing market conditions.

   Another element of risk is introduced by the vesting period, as a lot can happen in that time. Maybe you realize your job, or the company, isn’t for you. Or the company decides that you aren’t the right fit, or to move in another direction. Anything unvested at that point in time would be lost to you.

   Finally, any compensation tied up in Stock Options isn’t available to you as cash to spend. While the returns on ESOs can be remarkable, they only benefit you if you don’t need the cash now, and can afford to wait for the vesting period and/or liquidating event.

Are ESOs Right For You?

   Ultimately, only you can answer that question depending on your own financial position, and financial goals.

   When I was offered an ESO a couple years ago, I turned down the opportunity in favor of cash in hand. My financial plan had our first home purchase planned, and the cash was more valuable to me than potential returns at an unknown time in the future. Living happily in that first home now, I can say the decision was the right one. 

   But, times today are different for me. If the same opportunity was presented today, I would gladly take on the risk, with the right company.

   So you see, there is no right or wrong answer. How you decide if an ESO is right for you will depend entirely on your situation, and that answer can change as you continue to grow through life. What is important is that you understand your financial plan, where you are, and where you’re going. As long as you’re comfortable with the risk, an ESO might help speed you along your journey.

When Should You Combine Finances

   For many of us, talking about money is a touchy subject. How much we earn, how much we’ve kept, how money makes us feel. Partly because of our baggage that we associate with money, and partly from social pressures, it can seem quite challenging to bring up the topic. 

   How then, with an already potentially sensitive topic, do you bring up shared finances? At what point, if ever, does it change from mine and yours, to ours?

Marriage and Building a Life

   Contrary to popular belief, the “right” time to join incomes and financial resources isn’t when you get married. That milestone does change a lot of things in your life, but combining financial resources isn’t dependent on crossing that bridge.

   Instead, you should bring up the topic of sharing resources when you start building a life, taking on obligations that require inputs from both parties.

   For myself and my partner, that happened when we purchased our first home together. And further reinforced with the addition of our puppy, Sadie, to the family unit. With those financial obligations, it made sense to start pooling our resources, at least in some capacity, to cover the mortgage and veterinary bills.

   Some other couples will face their own milestones at different times in their lives. Maybe it’s after marriage, but it could quite easily be before any knots are tied. 

   More important than opening a joint bank account though, is having those conversations with your significant other. Understanding your partner's relationship with money is essential to having a healthy, loving relationship. 

Questions To Consider Before You Combine Finances

   Before you look at pooled resources, you should make sure you understand what you’re getting yourself into. This means an open and honest conversation is in order. Here are some questions that you should be able to answer about your partner:

Do they have any outstanding debts? School loans, automotive loans, mortgages, or credit card debt?

What are their spending habits like? How much are they setting aside for the future?

What does retirement look like? Lifestyle? Age? What is their plan to get there?

How much can you spend without asking permission? (This is a key - discretionary spending is essential for the freedom it offers.)

How does money make them feel? What kind of emotional baggage are you loading into your truck?

   There aren’t any wrong answers here. But with conflict over money being a leading cause of marital problems, they are very important questions to ask. The right decisions are only possible when you start from an informed foundation.

   Combining your financial resources isn’t for everyone. But done for the right reasons, it can certainly make your lives easier. As long as you enter into the arrangement with good intentions, and open, honest communication, you’ll be primed for success.

Raise the Stakes

   How long does it take to design and implement a financial plan?

   Recently when posed that question at a virtual conference I was attending, a woman in the crowd volunteered, "6 weeks".

   But that is, quite honestly, bullshit.

   A good financial plan might only take you 4 hours to complete. 4 hours. Not 6 weeks.

   Of course what this lady was implying was that to find those 4 hours, it would take her 6 weeks to complete. It's not a question of how long it takes, but rather how much energy and focus is directed at the problem.

What Are Your Priorities?

   The areas that you choose to focus on will determine the results that you achieve. As Tony Robbins has said throughout his seminars and books; “Where focus goes, energy flows.

   We all work on what is most important to ourselves, and our accomplishments, in that moment.

   If you are struggling to complete a task in a reasonable amount of time, perhaps it’s time to reevaluate your priorities. Often it isn’t a question of “Is this important?”, because we all have many important decisions and plans to juggle. The question needs to become more specific, “What is the most important thing to do today?” 

   If the 6-week plan lady was in a different set of circumstances; creditors calling, repo-men showing up to take her car. In that situation, her response would have been very different. She would be willing to put in the work now, today, to get started down the path to a brighter financial future.

   Changing your perspective, upping the stakes can help you reevaluate what truly is important, and help you start taking steps to be better tomorrow than you are today. And that doesn’t just apply to your financial plans, but to everything. Your health, your relationships, your career. Anything that isn’t where it could be in your idealized future can benefit from this process of prioritization.

Up the Stakes

   If you are still struggling to make the daily disciplines a reality, try bringing the future closer to you. Not walking around the block today isn’t going to kill you tomorrow. But what if it did? That compounded loss of strength will catch up to you eventually. Often we put things off for longer than we should, until it’s too late to change without radical intervention.

   The US Government Accountability Office estimates that close to half of Americans aged 55 and over have no retirement savings. That’s tens of millions of adults who have delayed taking action for too long, leaving themselves vulnerable. But as the old Chinese proverb says, The best time to plant a tree was 20 years ago, the second best time is now.

   What are you going to start doing differently today, to ensure that your future is all you dream of and more?

Who Should You Invest With?

   There is an ever increasing number of firms and institutions that are offering investment platforms. But with so much competition springing up, who should you invest with?

What Are Your Financial Goals?

   The first place to start is to look at your financial goals. What types of investments are you looking to hold? Are you planning to manage all your investments yourself? Or is a financial advisor, or a robo-advisor more your speed?

   What types of assets do you want to be invested in? ETFs? Single stocks? Crypto? Real estate?

   Many of the main brokerages that you’ll find, such as those offered by the big banks, have a select listing of available investments. Often if a newer asset class, such as cryptocurrency, is in your plan then a single brokerage often isn’t enough.

   The other element to consider here is the availability of the types of funds you want. Many of the larger, traditional financial institutions carry an increased product offering that you can’t access anywhere else. This is often the case with mutual fund companies, especially with corporate programs if you are so fortunate. The fund selections that you can make through those programs often aren’t even available to the non-institutional investor.

   Once you narrow down what your ideal investments involve, you will be better able to narrow down the list to those platforms that provide all the benefits you need.

Pay to Play

   Of course, narrowing down the list of who can provide you the services you want to use is only the first step. Each of those platforms carries their own set of fees. And those fees aren’t always balanced among the different investments. For example, many firms have somewhat reasonable commissions on stock trading, but the costs to take on more complex financial instruments like options becomes exponentially more expensive.

   Look at your financial plan, what are the costs to perform your desired style of trading? What do those costs mean to your total returns?

   The other side of costs is the benefits that you receive for those fees. What are you actually receiving in exchange for your hard earned dollars? The internet has brought about some magnificent changes, but an automated chatbot certainly doesn’t inspire confidence, especially when dealing with a problem with your financial accounts. The availability to speak with someone who can actually help resolve your problems isn’t something so easily overlooked.

House of Cards

   Going hand in hand with paying to play is the complexity of your financial system. While it is certainly possible to minimize your fees by having investments at a variety of institutions, that also makes it harder for you to keep on top of your balance sheet. There is some merit to having a central dashboard that you can check periodically to know that you are on track financially. 

   With all the various logins, coupled with multi factor authentication, it can already seem harder to access our own accounts than it would be breaking into Fort Knox. We all have busy lives, which means if we can make just one piece a little bit easier, that is truly valuable.

   Unfortunately, as your financial situation evolves, things will continue to change. A new job might mean a new pension/RRSP provider. Or your evolving relationship might see you looking into different financial instruments (like a mortgage or car loan), or even consolidating accounts with your partner. 

   You won’t ever be able to wrest control over everything from the twists of fate. Start with what you can control, your financial goals and plan, and build the best system that you can with what you have now. And periodically check back in to make sure your system is still right for you as you grow through life.

Harvest Time: The Right Plan

   Over the past several weeks, we’ve been pulling in the harvest from the backyard vegetable garden. To satisfy my curiosity, I often compare with other fellow gardeners, looking to see how my harvest compares to theirs. Through those discussions, I’m able to learn what others have done, and apply some of the ideas that have proven success into my own plans.

   Some of the lessons that I learned, if you choose to borrow them, could see you richly rewarded.

Plant Early

   The first lesson that I learned, which undoubtedly resulted in my harvest being smaller than I would have liked, is to plant early.

   I put off getting the seedlings into the ground for several weeks, never quite finding the time to dig out and build the garden plot. That procrastination cost me valuable time, time that I cannot find more of to let my seeds grow.

   If you want an abundant harvest, get to planting early. The longer you tarry, the smaller your rewards will be. With your investments, much like gardening, requires time to grow. If you hesitate too long, you simply won’t have enough time to let those money trees dig deep roots.

Protect Your Plot

   The next lesson is to protect your plot. 

   Checking out other people’s gardens can be an educational moment, but it certainly won’t help you with your own harvest if the weeds and the critters attack your garden while you’re out comparing with your neighbors. Nay, the time you spent coveting thy neighbors juicy tomatoes and crunchy peppers would be better spent ensuring your own garden is healthy and cared for.

   This certainly impacted my garden this year. I didn’t spend enough time watering and tending to those young plants, and my harvest reflects that.

   Spend the time caring for your garden. The investments you make, ensuring that there are no weeds leeching away precious nutrients will pay you back tenfold. And once you’ve got those weeds cleared, get out of the way. It’s hard for that little plant to grow with you standing over it, blocking the sunlight, watching it 24/7.

   To improve your harvest, make sure your plants can grow. Cut out as much of the bad stuff, like investment management fees, that place a drain on your garden. But once you’ve done all you can, selecting the lowest possible investment fees, then get out of the way. Investments, like gardens, need some time and space to flourish beneath that glorious sun.

Happy Harvest

   Harvest time. The final lesson. Take your harvest without complaint.

   This is perhaps the most important lesson. While starting your garden early, and tending to it all summer are essential, when it’s time to pull the produce off the vine there’s naught else you can do to change the outcome. 

   The old adage says it all; you reap what you sow.

   If you didn’t plant early enough. If you didn’t pull the weeds, water the soil, protect your harvest from all that would do it wrong (I’m looking at you, squirrels). If you could have done something differently, but you didn’t, then blame won’t help you now. 

   What-if’s and If-only’s sure don’t fill up the dinner plate.

   Take what you can, from all that you made for yourself. And take it, if not with a smile, then at least without a frown. These are the fruits of your labour after all.

   Fortunately, with gardening, you can always learn from your mistakes, and do something different next year. Financially, you won’t have that second chance luxury. That’s why it’s even more important to learn from those who travelled the roads before you - what strategies work, and what doesn’t. 

   Apply those lessons to your own journey, so that when it does come time for you to bring in your harvest, you’ll be walking in fields of plenty.

EGS: Up In Smoke

   How do you know which ETF to buy?

   With so many options out there, many people are centering their investment decisions on their own core values. This can be seen with the rapidly increasing popularity of ESG funds. 

What is an ESG Fund?

   ESG stands for Environmental, Social, and Governance, which roughly means that the companies selected to be held in the ETF abide by certain constraints. This could be minimal environmental emissions, or good labour relations. Simply put, these funds put your money where your heart is - protecting this world and all that's good in it.

   With climate change concerns, a slew of labour disputes, or corporate scandals rocking the foundations of capitalism, it's no wonder that ESG funds have surged in popularity in recent years.

   But all that glitters isn't gold. Or green in this case.

Europe, The Leading Edge

   With trillions of dollars invested through these funds, it's no wonder that companies are marketing about their green initiatives, their social justice programs, and their strict governance protocols. Unfortunately, as we can see in Europe, many of those marketing efforts are more about blowing smoke than actually following through on those lofty promises.

   After growing by more than 2 trillion dollars from 2016 to 2018, European ESG funds fell under some scrutiny. The subsequent restrictions looked at the 2015 Paris Climate Accords for guidance. What does constitute "green", or environmentally friendly activities. Following the tightening of the ESG definition, money invested in Europe's ESG funds shrunk to 2016 levels, a decline of over 2 trillion dollars.

   Meanwhile, in markets without such strict definitions, the amount of funds in marketed ESG funds skyrocketed, jumping by more than 5 trillion dollars from 2018 to 2020 in the US.

   While that doesn't mean that ESG funds are bad, it does seem to indicate that ESG is now more of a marketing ploy than a real business decision. If, or rather, when regulators do crack down on skirting on the edge of ESG regulations, we should expect that many funds will lose that ESG badge.

Blowing Smoke

   How do you know if your favorite company is actually a bad guy?

   That is exactly what European regulators hoped to uncover, and now the SEC has its eyes set on the US markets. What they are trying to prevent is a practice called “greenwashing”. 

   Greenwashing is where a company, through its marketing and PR efforts, deliberately mislead the public about the environmental impact of their business activities. While the examples are widespread, such as downplaying the waste caused by clothing production, the reasons are clear. There is really no way of protecting the public, by law, from the buzz words used by marketers.

   Words like “sustainable”, or “green”, have no legal definition.

   If you truly are trying to invest in an ESG company, you’ll need to research that company’s environmental activities, and uncover if there are actual results behind the PR claims. This of course is exponentially harder when looking at an ETF that invests in dozens of companies at once.

   Environmental, social, and corporate governance concerns will continue to shape how businesses operate. This bodes well for investing in companies whose practices you resonate and agree with. As the ESG movement continues to pick up steam, expect some of the posers to be caught and kicked out of this exclusive club.

What is a Dividend?

   When you buy a company's shares, what are you investing in?

   When you invest, you are becoming part owner of that company. Which means you’re buying the rights to their current assets, and the revenues they generate in the future. The earnings that the company will make in the future has a value, which is what drives the share price.

   But the reason for you to invest isn’t so that your company makes money. It’s so that you make money.

   There are two ways that can happen, share price appreciation (growth), and dividends.

What is a Dividend?

   A dividend conveniently derives its name from the mathematical equation, a number divided by another number. In this case, the numbers are the total amount of a company's income to be shared with the owners.

   As a shareholder, you are entitled to the declared amount for each share you own. The company then pays you, the owner, that amount of money on a set date.

Why are Dividends important?

   As an investor, you want to grow your investments. Dividends is one way that can happen, as a company pays out some of its growth to you. Some companies pay out dividends so reliably, that people build their investment portfolios around them. Those companies, like Coca-Cola, have been paying a regular dividend each quarter for many many years, which can provide some comfort to investors. Those investors actually plan for that dividend to be paid as part of their financial plan.

DRIP, drip, drip

   Building dividends into your financial plan will eventually lead you to talk of DRIP strategies. DRIP, or Dividend Reinvestment Plans, take the dividends that would have been paid out, and purchase more shares with those earnings. In this way, your investment can keep growing as you buy more and more shares with the earnings that you make. This is especially important for a few reasons.

   Firstly, DRIP plans can avoid the additional transaction costs of purchasing more shares. Most consumer trading platforms charge a fee per transaction as trading commission. When using DRIP, those investments are made by the managing company, and not you. That means you can avoid those trading commissions, and keep more of your money working for you.

   The second benefit is equally as important as cutting the fees. This is time in the market. DRIP plans take your “cash” earned from the dividends, and invest it immediately back into that stock. While the convenience shouldn’t be overlooked, the biggest benefit is that you don’t need to think about the investment. Taking the choice out of the equation helps you reinvest those monies faster, which cuts the incalculable cost of inaction..


   Unfortunately, some DRIP plans are administered by third parties that have terrible fee structures. Coca-Cola is one such company. The administrators of that plan charge fees for each reinvestment, often in excess of what a private investor could achieve with their own trading platform. In those instances, it would be more advantageous to take the cash when the dividend it paid, and immediately reinvest back into those stocks. While more labor intensive, this DIY approach can cut down on the total fees paid. 

   The DIY plan also doesn’t carry the second benefit. You need to make that conscious choice to reinvest, which opens you up to all sorts of biases. 

   If a DIY DRIP plan is your investment strategy, you need to set clear operating principles of when to use those proceeds to buy additional shares. It’s far too easy to succumb to the mentality that “the price will be lower tomorrow”. Those market timing games are addictive, and almost never pay out in your favor.

   Dividends can provide an exciting and different investment strategy. Whether you’re a DIYer or sign up for a commercial DRIP plan, dividends provide an excellent avenue to grow your investments, or simply provide cash flow for you to enjoy.


Important Reminder:

Dividends are a privilege, not a right. A company can decide to stop paying dividends at any time. If you’re looking into a DRIP investment strategy, you should be focusing on companies with a long (10+ years) history of paying dividends. Those companies are less likely to cancel their dividends, due to shareholder (owner) expectations.

How Do You Use Your Resources?

   Are you putting your money to work for you? How do those choices impact the rest of your life? And what about the other resources that you have?

   These questions are important to answer to achieve the best results in your life. Too often we start with the first question without thinking about our own unique life situations. To help you align your actions with your life goals, you should be thinking about your future first.

   Looking at asset allocation and financial products too early in this process can lead you terribly astray. So before you open up your investing app and start scrolling through stock tickers, pull up a seat and a piece of paper. It’s time to turn on the most powerful computer you own.

Find Your Goal Posts

   Before you can lay any plans, financial or otherwise, you need to set your goal posts. These goal posts will help you dial in your aim on what is truly important to you, and provide a measurable indicator of how you’re doing. 

   What are your goals? Travel the world? A cottage on the lake? A new electric vehicle? Early retirement?

   These are your goals. Jot them down. Set those goal posts.

   Once you think you’ve got your sights set, think about why those goal posts are there. Is this something you truly want? Too often we find ourselves playing the most unrewarding game of following the follower. When we play that game, the goals that find their way to the top of our lists aren’t really our goals at all. Instead, they are the goals of our family, our friends, our children. Society's “goals”, not yours.

   Be honest with yourself here. Are those goal posts really yours?

Measure Your Progress

   Once you know what your goals are, you need to analytically scrutinize what is actually required to reach them. How much does your dream life actually cost?

   Have you ever guessed how many jellybeans are in a jar? Or how many ping pong balls fit inside an empty 747? Humans are usually pretty poor at estimating how much is required when the amounts get large. Without using some tools of analysis, we usually guess at numbers that are either way too high, or way too low. That’s why we’ve looked at different tools like the 4% Rule, to help narrow down the answer to the question, how much do your goals cost?

   Using tools like the 4% Rule will help you understand how far away those goal posts really are. Irrespective of whether those posts are 100 steps away or 100,000, knowing the distance will let you know how far you’ve come and how far is left to go.

Allocating Your Assets

   Once you’ve examined your life, and where you are heading, you need to look at how to get there. To do that, we examine how you assign your assets.

   Traditionally, people assume that asset allocation boils down to how much you put in different investment categories. Real Estate, Fixed Income, Stocks, Crypto, Foreign Currency, etc. Those financial products are important, but often leave off Human Capital. Your skills, your time, your energy. 

   How you invest your resources, particularly time and energy, has a huge impact on your financial future. Investing more in your skills and well-being will increase your value as an economic contributor. As you become better at your job, you increase your ability to earn.

   After you’ve invested in yourself, you need to look at how to put your money to work. While low cost ETF’s serve as the backbone for financial advice that I deliver, that isn’t the only lever you have to play with. Some people need to be changing how much is invested in each area.

   For example, picture Fred as having a stable job as a teacher. His earnings are relatively flat year over year, and he has a high level of job security. Depending on Fred‘s goals, he might want to look to be more heavily invested in stocks (low cost ETF), willing to take on the additional investment risk given his relatively low-risk career.

   Suzie on the flip side, is a commission-only sales rep. With variable income, she might want to look into higher weightings in fixed income investments, to help smooth her earnings out throughout the slower periods.

   How you allocate your resources is incredibly important. But it’s also a very personal decision, heavily influenced in where you are, and where you’re going. 

   What are your goal posts? Are you moving in the right direction? Does how you invest your time, energy, and money all align with the direction you chose? Invest wisely, and there’s no limit to how great your life can be.

What Happens If My ETF Closes?

   Do you own ETFs?

   It’s no secret to any of my readers that I am a strong advocate of ETFs. I would argue that an ETF has a place in everyone’s investments, based on the benefits that it provides. But, with many more index funds than stocks, it is inevitable that some of those funds will fail. What happens to you if that happens?

Index funds can close?

   Yes. Index funds can close, and in fact do close down far more frequently than you’d imagine.

   While there are many reasons that an ETF might be shut down, it usually boils down to profitability. 

   A quick recap of ETFs: an ETF is simply a group of investments placed into a basket and sold together as a package. The administration is done by the fund provider, for a fee which is built into the returns that you’ll see.

   If an ETF (or mutual fund) can’t operate profitably, the fund is shut down. What that means, is if the administration costs to monitor and trade in the selected basket becomes too costly, and the demand isn’t there to pay for those higher costs through management fees, the fund is shut down. 

Example: An Oil-Centric ETF

   To illustrate, picture an ETF that tracks the major oil companies. Owning that ETF gives you an exposure to all the oil and gas companies, without being too heavily leveraged in one specific company. In this way, when another oil disaster like the BP oil spill harms the stock price of one company, you aren’t as dramatically affected compared to someone who invested the same amount in BP shares directly.

   But, times change, and so do consumer preferences. Investors could start leaving the oil and gas investments in favour of greener pastures. Literally. As investors become more environmentally conscious, the demand for our hypothetical Oil-Centric ETF could diminish. In that case, while oil and gas still exist, fewer and fewer dollars are invested in our ETF. As those investors withdraw their investments, the administration costs don’t change. 

   People are still needed to track the index, and manipulate holdings whether there are 10 investors or 10,000. Those costs when borne by the 10,000 might be manageable. But the management fees derived from just 10 investors won’t be sufficient to make money on the operation of the ETF. In this case, the ETF would simply be terminated.

What If You Still Have Money In The ETF?

   What if in the above example you were one of the 10 investors who still owned the ETF when the managing company decided to shut it down?

   Closing down an ETF is not like a stock going bankrupt. The ETF is just a collection of investments. While the fund might no longer be traded, the underlying investments still have value. As a result, when the ETF declares that it will be shut down, you won’t lose all of your invested monies.

Shutting Down an ETF

   Given the huge number of ETFs available at any given time, closing down and starting a new ETF happens extremely frequently. Perhaps by necessity, or simply just through practice, the process is relatively simple.

   A few weeks before the ETF has it’s “stop date”, an announcement is made to all current ETF owners, outlining the intention to close the ETF down. This notice period provides ample time to sell your stake, if desired. But, the notice period is long enough that you don’t need to panic sell. While there might be some price adjustment, it shouldn’t be major. Remember, that the ETF derives its value exclusively from the underlying shares. While the ETF might be disappearing, those shares are still being actively traded.

   If you haven’t sold by the stop date, the ETF begins liquidating it’s holdings in the underlying stocks. At that point in time, you won’t be able to buy or sell anymore. After the ETF holdings are liquidated, your proceeds will be funded back to your investment account.

   Ultimately, your monies are returned to you for you to continue investing in those greener pastures.

Some Closing Remarks

   While closing down an ETF sounds extremely simple (it really is simple), there are still a few things to note. If you do elect to hold until the stop date, the managing company may charge a “dissolution” fee when they return your investment dollars to you. Also, since selling the whole ETF position is more complex than your normal trading, those funds might be tied up for 6-10 business days. The temporary loss of access to those funds is an important factor to consider when deciding whether to sell or not.

   One final element of note is that the underlying assets of that ETF are actively traded stocks. This plays several roles when evaluating the decision of if/when to sell. If the ETF is trading lower than the market value of the underlying shares, it might be wiser to hold until the fund is dissolved. But, those underlying shares are actively traded. Any gains and/or losses that the fund incurs during the wrap up proceedings are yours to keep, no matter which way the scorecard shows.

ETFs Still Have a Place

   If after reading this you’re suddenly having doubts about ETFs altogether, let me allay your fears. The types of funds I typically recommend, such as the S&P 500 index funds (SPY, VOO, etc.) are all extremely popular. They aren’t going anywhere. If you invest in a reputable broker's (Vanguard, Fidelity, BlackRock, etc.) main market funds, you won’t ever have to deal with the closing of an ETF.

   As you begin to get more niche with your investing preferences, you might start to encounter such scenarios. Being vegan might be an acceptable dietary choice, but when it comes to investing, a healthy dose of everything won’t lead you astray.

What are Index Funds

   Index funds and mutual funds have surged in popularity over the past decade, and for good reason. These types of investments can provide many benefits for investors. 

   One of the most important benefits, and the reason why I recommend these types of funds, is their simplicity. Simple to use, and simple to understand.

   Of course, when it comes to personal finance, the entire finance industry is built on taking something simple, and twisting it into something impossible to understand.

   The same treatment has been performed on our beloved ETF’s and mutual funds, all wrapped up beneath the mathematical concept of indexing.

What is an Index?

   In its simplest form, an index is a way to measure something.

   It’s actually a concept we’re all very familiar with.

   The average test score from your class in a certain subject is an index. The win % of your favorite team is an index. The gas mileage (mpg) on your car is an index.

   You are measuring something, taking a list of data, and using a mathematical formula to draw inferences from that data. How well you performed compared to class average, for example. But, you could look at a different index, and come up with a different result. How you compared to the class median, for example. Comparing your scores to the mean versus the median, may give you a very different outcome.

   And that’s just cutting the surface of indexes. A different index could look at test scores by birth month, weighting heavier those born in the summer months, and lighter those born in the spring.

   This of course, is just scratching the surface, because we’re still only looking at our class test scores. The machinations of finance can take those scores and chart them against neighboring schools, states and even nations.

Indexes in Finance

   As a way to measure something, that definition is incredibly vague. That leads to all sorts of different numbers, able to be used in different ways. 

   Take the S&P 500 for example. This index of 500 of the largest publicly traded companies looks at an average based on market capitalization. It’s actually fairly logical, that a company like Apple or Amazon, with enormous market capitalization (Share Price times Shares Outstanding) should be more heavily reflected than a much smaller company like Molson Coors.

   Compare this to another well known index, the Dow Jones Industrial Average (DJIA). DJIA is indexed based on a modified market price weighting. This places the weighting based on share price, and not on market capitalization as we saw with the S&P 500. 

   For example, picture Company A with a market cap of $100,000, made up of 10 shares worth $10,000 each. Compare that to Company B with a market cap of $1,000,000, or 10 times the size. But Company B has a share price of $5,000, and 200 shares outstanding. Using a price weighted index would more heavily weight the much smaller Company A, based solely on its exclusive and very expensive share price.

An Index for Everyone

   The increasing popularity of index funds for retail investors has led to an equal surge in institutions creating these funds. Just like a walk down the cereal aisle, you’ll find a fund for anything. 

   Regular flavors aren’t enough? Try frosted flakes. Or fruity puffs. Or chocolate crunch. Or anything in between.

   There are index funds for the environmentalists. For manufacturing, farming, heck, even vegan ETFs can be bought. Whatever flavour you’re looking for, you’ll be sure to find it. And if not? Someone will make it for you, for a price.

   With under 4,000 publicly traded companies in the US (3,671 in 2020), there are almost 8,000 mutual funds that package and split those stocks in every imaginable combination. 

   If that sounds like a lot of funds, you’re right! Now imagine the cost of maintaining so many complex, confusing indexes (groupings of stocks). The added complexity is staggering, and the costs are ultimately borne by you, the buyer. 

Which one(s) to Buy?

   I cannot tell you which fund will outperform the market this year. Nobody knows that. And anyone who claims they do, is trying to pull a fast one on you. But, there are a few criteria that you should follow when buying your investments.

Know the assets - if you can’t tell what the calculation is, and understand what you’re holding, you probably shouldn’t be investing in that fund. As with most things, investing is simple. It’s not easy, but it’s simple. 

Ignore past performance - this might sound counter-intuitive, afterall, you want to back the winning horse. But there’s a very good reason every marketing pamphlet carries the same disclaimer, “Past performance doesn’t guarantee future results.” That line is completely true. What was best last year isn’t guaranteed to be best again.

Control your costs - if you take only one thing away, it’s this: minimize your expense ratio. Expense ratio refers to the costs charged to create and maintain the fund. The more complex the fund (or the greedier the fund manager), the higher the expenses. Those expenses mean you not only need to pick a winner, you need to beat the average by whatever rates they charge. Consistently picking the fastest horse is almost impossible. Picking the horse, who then starts half lap behind the competition is insanity. Don’t stack the deck against yourself.

   Index funds, when done right, can pave the path to financial freedom for you. But there will always be those trying to take advantage of such opportunities. 

   If you want to find investing success, stay vigilant. Don’t put your money into something you don’t understand. And avoid handicapping yourself as much as possible. Investing doesn’t need to be complicated. Buy into a cheap fund, with good total market coverage, that you understand. And keep buying, month after month, no matter what the price is doing. Do this, and one day you’ll wake up rich.

Frames of Reference

   Have you ever seen a herd of gazelle running? (Thanks BBC's Blue Planet)

   All it takes is one gazelle to start galloping, and the rest immediately join in. This of course helps keep the gazelle safe. If one sees a lion waiting to pounce, not every gazelle needs to see the lion, they simply trust that there is danger, and that running is the safest course of action.

   Humans aren’t a whole lot different. 

   Our expectations about life are often framed by those surrounding us. The cars that our friends drive, the houses they live in, the lifestyle they lead.

   Sure, we all know that we shouldn’t compare our lot to the neighbours. But we’re only human, and we do compare.

   As we see repeatedly the types of life and lifestyle that others showcase, we quite naturally start to think of those lifestyle attributes more positively. A new car, a bigger house, a faster boat, shinier phone. These types of desires are so prevalent that we even have term coined for it, Keeping up with the Joneses.

   With the ever expanding reach of social media though, our neighbours aren’t just the house across the street. People are inundating themselves with the highlights of everyone, from Hollywood elite to instagram influencers to that gal from highschool. With those expanding social influences, people are more and more trying to live outside their means, all for the almighty ‘gram.

   This lifestyle inflation has disastrous consequences, as Canadians and Americans are borrowing more now than ever before. The average Canadian now has over $20,000 in debt excluding their mortgage.

Expanding Your Frames of Reference

   Alright, borrowing excessively is bad. Especially when it puts a strain on your financial system. But what can you do about it?

   Going cold turkey on social media is pretty unlikely. And since we’re already on the IG, it’s always a good social talking point to check out Hollywood’s who’s who.

   But rather than focusing only on the highlight reels of the rich and famous, maybe it’s time to expand your frame of reference. With billions of people living in impoverished nations, perhaps it's time for a heavy dose of reality. 

   Millions of people don’t have access to reliable electricity, are you sure you need an even bigger TV on the wall? Millions more still don’t have access to clean drinking water. Is it really an inconvenience that your fridge only makes wedge shaped ice?

   Before making that next impulse purchase to show off in your own 3-second highlight reel, take a moment to consider what you have in your very rich life. A little gratitude goes a long way. That genuine appreciation might not be captured in 140 characters or less, but it will certainly make you a whole lot richer.

Love or Hate? Dollar Cost Averaging

Expecting your year end bonus soon? Do you invest it all at once? Or try to capture the benefits of dollar cost averaging?

What is Dollar Cost Averaging?

Dollar cost averaging (DCA) refers to buying a piece of the investment consistently, over time. In this way, the same investment dollars, say $100 / month, will buy you the investment at the average price of that investment. When the price is higher, your $100 doesn’t buy as much, whereas when the price is lower, your $100 buys more. This averages the cost of ownership out, and mitigates the chances of you buying at the market peak.

This sounds good in theory, and I must admit, I am a big advocate of this idea. 


If you buy into the idea that dollar cost averaging works, then you will consistently buy into the market without worrying about what the price is at that current moment. That’s because, in the long run, you’ll average your cost of ownership out.


I recommend automating your investments, so that on a preset schedule, those investments are purchased into your portfolio. This automation removes your emotions from the equation, and eliminates the gambling aspect of investing where you try to time the market. You no longer need to concern yourself with whether tomorrow's prices will be higher or lower than today's.


If this philosophy works so well, why then would I argue against Dollar Cost Averaging when you come into a large windfall, like a bonus, commission cheque, or inheritance?

“Stonks always go up.” - /r/WSB Reddit User

A phrase coined by the popular investing subreddit sums up precisely why Dollar Cost Averaging doesn’t work in the long run. Stocks always go up.


This of course is not true in the short term. But the objective of long-term investing isn’t to gamble on the short term outcomes, but to make a sure bet on the progressive growth of companies over the long term. 


We’ve seen the truth in this statement time and time again. At the time of writing in February 2021, the NYSE and Nasdaq are sitting at all time highs. Not even 12 months after the coronavirus plunge on March 23rd, 2020. Those highs seen today are far above the 2008 highs just before the market-altering financial crisis and subsequent stock market crash.

Is today the day before the next crash?

Depending on which television station or professional economist you tune into, you’ll hear all sorts of claims. Tomorrow could be the end of the world, or it could be the day that financial markets soar ever higher. The truth is, nobody knows. Anyone who says they do know is simply making a prediction, a guess no different than who will win the next sporting event or reality tv show. The bolder the prediction? The higher the TV ratings. Those so-called experts are just clamoring for attention over all the other noise in our lives.


Listening to any of these programs is sure to play on your emotions. What if they know something I don’t? They are the experts afterall. Am I being played for a sucker? Why does the other expert say something different? Who is right? Can I still win this game?


The cost of these emotions is all too often inaction.


That is why, when you come into a large extra payment, it’s best to jump in with both feet. You can’t predict the future in the short term any better than these television “experts”. And you know, in the long run, stocks always go up.


Let’s look at this in a real example. Assume in 2008 you came into $10,000 to invest. Also assume you’re the unluckiest person around with investing. In 2008, the S&P 500 hit it’s high for the year in August, hovering around $ 1,300. The following 6 months saw a progressive decline all the way to $676 in March 2009. 


If you had invested all $ 10,000 in the markets in during the August 2008 highs, and left those investments alone throughout the following market meltdown and subsequent revival, today you would have tripled your investment, owning $ 30,267.92 (calculated at market close, Feb 12th, 2021). That’s a 300% return in 12 years! Not too shabby for the unluckiest investor alive.


To make that grow even further, you could have averaged down through dollar cost averaging throughout the following 6+ months of market decline and market recovery. Turning that 300% ROI into something even higher.


If on the other hand you had tried to time the market, when would you have invested those dollars? March 9th, 2009? Unlikely. That’s the absolute bottom, and investors had just had their confidence shaken. 40% losses in 6 months, a staggering number. What about the end of April 2009? Well by that time the market had already recovered 29.13%. Waiting any longer than that and your returns were even less.


You see, there’s no better time to invest for the long term than today. We don’t know what tomorrow will bring, and barring a world-ending event, it’s quite possible that today’s prices are the lowest we’ll ever see again.


Stonks always go up.

The Market Vs Stocks

One caveat is that we are looking at the market performance. Taking a gamble on any one company is exactly that, a gamble. The market, on the other hand, is a collection of all companies. Sure, some companies fail. But those companies that fail are replaced by other companies. Some do exceptionally well. Some don’t. 


The fact is, the best players in this game are constantly changing. 


General Motors dominated the market for years, before needing a government bail out. Meanwhile Tesla came in out of nowhere and captured large swaths of the market.


But one thing is for sure. This game will always be played.

When you come into extra money, make the guaranteed bet, that the market will continue to increase in value. With this knowledge, you will be sure to buy at today’s prices. 3 to 5 years from now, you’ll only wish you could get those investments at the prices you did just a few short years ago.


If those same investments ever do go on sale in the future, load up on some more. This will average down your cost of ownership, and make your returns just that much higher.

The GameStop (GME) Game

   What in the world is going on with GameStop (GME) stock prices this week? Meteoric stock price appreciation, amidst a brewing war between retail investors and billion dollar hedge funds.

   This situation has the potential to change Wall Street permanently. But that begs the question, what exactly is going on?

Investing, The Traditional Approach

   One primary way that we reach financial freedom is through investing. Putting your money to work, so that you don’t have to.

   To do this, you find someone who needs your money, loan it to them, and they pay you back over time. This could be buying real estate you plan to rent out, where someone needs your money to own the property, and they pay you for that privilege through rent. Alternatively, you could find a company, give them your money in return for an ownership stake, and you are entitled to a piece of the profits of that company. That is, in its simplest form, what investing in the stock market is.

   Over time, people have found more creative ways to make money though. Some people decide to take a different approach. Instead of investing in future profits from a company, they decide that a company is less profitable than other people think. These people sell the current interest in that company, with the plans to buy back those shares when the company under-performs.

Short Selling, The Long and Short of It

   Making a bet against a company is more like gambling than investing. But, it can be very lucrative, if your bet pays off. 

   Short selling is essentially making this bet, except with other peoples’ money. Instead of owning what they sell, they borrow the shares from someone who does own them, and sells those shares to the open market. The promise here is to buy back the shares that were sold, and return them to the original lender.

Introducing GameStop (GME) To The Game

   One such occurrence happened recently with GameStop. A large institutional investor, Melvin Capital, made an aggressively large bet against a company called GameStop (ticker code GME). They did this by short selling, or selling shares of GME that they didn’t own, with the promise to buy those shares back at a later date.

   Getting word of such a large bet against GameStop, some regular folks (retail investors) decided they’d take up Melvin Capital in the wager. Traditional investing logic was thrown out the window, as retail investors looked at the game from an economic standpoint. No longer was purchasing GME stock about price-earnings ratios. The value of the company's shares has become completely disconnected from its earnings multiple.

   Knowing that Melvin Capital needs to buy those shares back, because those shares that Melvin Capital originally sold were borrowed, retail investors correctly understood that the game was now about Supply and Demand. It doesn’t matter how well GameStop does (or doesn’t) do. There is a guaranteed demand, so the only thing left to do was to constrain the supply. With limited supply, and high demand, the sellers pushed the price equilibrium (in this case the share price) much higher.

   Changing the rules of investing, particularly on this GME stock, led to a rapid appreciation in share price. Meaning that while Melvin Capital sold shares at prices in the low teens, they now had to buy those same shares back at prices in the hundreds. Essentially, Melvin Capital stood to lose billions.

Changing The Rules of The Game

   With billions of dollars at stake, some people will do just about anything to not lose. Those people are willing to lie, cheat, and steal.

   And that’s exactly what they did.

   By Wednesday, January 27th, 2021, this GME situation was out of hand. The share price was rising exponentially, and millions were getting involved. Robinhood, a trading app, was the most downloaded app in the app store, as both news and social media stirred up a feeding frenzy. A whale (Melvin Capital) was dying, and everyone wanted their pound of flesh.

   Shortly after market open on Thursday, January 28th, 2021, there was a violent change to the game. The institutional investors flexed their muscles, and many brokerages including Robinhood and Interactive Brokers, placed buying restrictions on retail investors. These actions prevented normal people like you and I from participating in the investment markets. 

   That single act, of greed and desperation, threatens to disrupt the entire financial system as we know it.

What’s Next?

   You may be wondering, “I don’t own GME, so why would this be important to me?”

   By assaulting the retails investors ability to openly and fairly trade in specific investments, both moral and legal codes were violated. The class action lawsuits already opened against such trading platforms, coupled with SEC investigations, and the millions of eyeballs trained on this developing situation could certainly impact how brokers and institutional funds operate.

   For anyone who has investments, whether it is just your retirement accounts, or you actively trade, legal changes in the securities industry look to be just on the horizon. Being aware, and staying in the know, will help you set yourself up for success as the world continues to change and evolve.

How to Reduce Your Taxes

   You want to pay less taxes.

   While taxes might be your contribution towards the society you live in, everyone wants to pay less than they do. Fortunately, there are some excellent ways that you can legally reduce the amount of taxes that you owe.

Save for Retirement

   Whatever your country's retirement savings plans are called; RRSP (Canada), 401K (USA & Japan), Superannuation (Australia), etc. There are some serious tax breaks for contributing to your retirement.

   For Canadians, contributing to your RRSP accounts grants you a tax credit, effectively lowering your taxable income for the year. While your income is lower for tax purposes, you also have the advantage of increased investments to your name. The growth on those investments is only taxed when you withdraw the money, usually on retirement which could be many years from now. This tax-deferral is beneficial to you now, and can be important for tax planning later in life.

   The reason that saving for retirement comes with tax advantages stems from the purpose of taxes: to pay for the society that you benefit from. 

   As you increase your own financial resources, especially in funds such as the RRSP or 401K, you are reducing your reliance on government systems designed to protect you when you retire. A lower reliance on those systems means you bring about a lower societal burden, and your share of contributions can be decreased.

Claim Business Expenses

   If you are making money on a side hustle, you may be able to claim some tax credits based on your expenses. 

   While your side-gig means you earn more, and therefore pay more taxes thanks to the marginal tax rate system, there are some benefits for deducting expenses that you incur. These could include expensing part of your home if you are dedicating a certain area to these side-gig activities. 

   For example, someone making money on the side selling hand-sewn clothes and other products. They would be able to expense materials and sewing equipment, the sewing room in your home, and other costs incurred from those business activities. It’s very important if considering these types of deductions that you’ve kept the receipts and proof of expenses.

Deduct Capital Losses

   Maybe you’re more the investor type, and you make additional money in the investment markets. As with all forms of investing, there is always risk, and sometimes you end up losing some money. Those losses are also eligible to reduce your taxes.

   For the more sophisticated investors, this type of deduction is an important consideration. Sometimes it’s better to incur a loss on one investment, and use that to offset a gain somewhere else. This type of tax planning is best performed by experienced investors, or under the guidance of a certified tax or financial planner.

Claim Education Expenses

   Another way that we grow our incomes is by growing ourselves. While the tax code is behind the times in terms of what qualifies, if you are receiving education from an accredited institution your tuition costs might qualify for tax credits.

   Mostly these accredited institutions are universities and colleges delivering professional, post secondary education.

   If you are continuing your training and development by taking courses at this level, those tuition costs should be considered when preparing your taxes. 

Deduct Charitable Contributions

   One final way to reduce your taxes is to contribute to a charitable organization. If taxes are your contribution to society as a whole, charities give you the freedom to put your dollars to work on a cause that is important to you. 

   Those charitable contributions that you make help society improve, and better take care of various people and/or ideas. That has a tangible, meaningful value, and you are rewarded with tax credits for doing so.

   For example, if you contribute to the Heart and Stroke Foundation, you are promoting research and development into cardiovascular issues and remedies. The more discoveries that the foundation makes, the healthier the population can become. As people become healthier, there is less drain on the healthcare system due to cardiovascular ailments, and society as a whole experiences a lower financial burden.

   In that way, your donations not only help a cause that you believe in, but also benefits society through their advances.

   If you want to pay less taxes, look for ways to improve both yourself and the society you live in. Whether it’s a stronger financial foundation, or adding value through business and education, your growth journey benefits more than just you. And to reward you for your efforts, there are numerous tax advantages that you can reap along the road. The only question left is; how do you plan to grow?

Tax Refunds: The Biggest Loser

   Every year, friends and family members compare the amount of money they get back from the government when filing their taxes. 

   While it’s treated as a badge of honour to get the biggest refund check, this screams about a fundamental misunderstanding of how taxes work.

   Why do you not want the biggest refund check?

   To answer that question, we need to look at what taxes are, and how they work.

What Are Taxes?

   A quick google search will turn up the following definition:

A compulsory contribution to state revenue, levied by the government on workers' income and business profits, or added to the cost of some goods, services, and transactions.

   Or more simply put, money that you pay to the government for the privilege to benefit from society.

   Most people fail to consider the second element when they discuss taxes. They get too hung up on the what aspect, or paying the government, and fail to consider the why element.

Why are Taxes Important? 

   Many of the experiences we have in our everyday lives are taken for granted. The roads that you drive on, the parks that you walk through. Schooling, healthcare, and much much more. All of these elements are paid for by the taxes that a government collects.

   If you enjoy the benefits of such services, it is your civic duty to pay for those through taxes. 

   And everyone benefits. For everything that’s occurred in your life, you need to give credit to the country that you are living in. Your country has provided the means to which you have accumulated all you have, in both possessions and experiences.

   This is an important distinction that is often missed. The more you have, the more you owe to the country that provided such opportunities. This is why it is often with misguided anguish that people rebel against the idea of the rich paying more taxes. The wealthier someone is, the more they have benefited from society, and thus the more they owe to that same society.

   I did not always live with such philosophies. Long before my journey with Business Minded started, I used to rage and rail at paying my taxes. Paying for roads I don’t drive? Healthcare I don’t use? Education that left me with only more questions? 

   In my self-absorbed way, I had forgotten about the friends and loved ones who also benefited from those same services. I had taken for granted the people whose lives had been saved by that healthcare system. I’d taken for granted the options at the supermarket, brought about by the infrastructure paid and paved by taxes. 

   And in my shortsightedness, I had overlooked the benefits that others enjoy. I had taken for granted the safety net held beneath me should I fall. I hadn’t considered what life would be like without those loved ones living healthy lives. Even if I wasn’t sick at that very moment, I owe it to my loved ones and to my future self to pay for the services that every day improve my life, and one day could even save my life.

How Do Taxes Work?

   Canada, US, UK, Australia, and many other developed nations use a marginal tax rate system. Essentially this means, the more you earn, the higher percentage in taxes you pay on every additional dollar earned. 

   If you earn $100,000 annually, you will pay the same amount in tax on the first $50,000 as someone who only makes $50,000 annually. For every dollar over $50,000, you will pay slightly more in taxes on those additional earnings.

   At no point does earning more money become a bad thing though. If you enter a new tax bracket on that last dollar earned, you only pay additional taxes on that dollar.

Why You Don’t Want a Big Refund Check

   If taxes are your contribution to society, and you only pay taxes on the dollars you actually earn, why don’t you want a big refund check? A big refund check at tax time means that you have paid more than you should have throughout the year. That isn’t a bonus to you, rather it means you gave away too much throughout the year.

   If you walk into a corner store to buy a candy bar that costs $2. The candy bar doesn’t change in value depending on how you pay. If you pay with a crisp $20 bill, your change will be $18. The change in this example is effectively your big tax refund. 

   Alternatively, you could have just paid with a toonie ($2), and not received any change. In either case, the candy bar is still the same, and still costs $2.

   The difference in this example is how much you paid in the first place. But unlike buying a candy bar, your tax refund takes a year to be returned to you. Instead, you would have paid the store owner $20 for a $2 candy bar, and come back a year later to receive your same $18 in change. You had, essentially, given the store owner an interest free loan for an entire year.

   Irrespective of how you pay, the benefit to you is the same. Whether you’re paying $20 for a $2 benefit, or $2 for a $2 benefit, at the end of the day what you’re left with doesn’t change.

   Getting a bigger refund is not the ideal situation. Next time someone brags that they have the biggest tax refund, that simply means they were the biggest loser during the year. They lost out on having that money for an entire year, and any associated freedoms and gains that money could have earned.

   This year, think not about how much you can get back, but rather think about how much you actually pay in taxes. There are a myriad of ways through which to reduce your tax liability in a beneficial way to you. Paying too much up front and asking for change back is not one of those ways!

Home Office Allowance for COVID

   2020 was an eventful year. Now that it’s over, and the dust is settling over a massively disrupted workforce, it’s time to look to the future.

   And part of that future in the very near term means filing our personal income taxes.

   When COVID kicked off, many people had questions over what this new “work from home” scenario meant for them. The method for claiming home office expenses was to have your employer fill out a T2200 form, which you could then use to claim tax deductions.

   But therein lies a very big issue. 

   Many employers simply refused to fill out these forms, effectively stranding their entire workforce with potentially eligible tax deductions that they weren’t able to claim.

   Fortunately, late 2020 the CRA recognized the enormous burden of filing out T2200 forms for an entire workforce, and has since offered a simplified approach - one that makes your life easier come tax-time.

Do You Qualify?

   The CRA has loosened the restrictions surrounding who qualifies for the home office deductions. Now, the bar to qualify simply states:

You worked from home more than 50% of the time for at least 4 consecutive weeks (one month).

What Can You Claim?

   In the simplified approach, the CRA has created 2 new forms, a simplified T2200, which goes under T2200s (form located here). This simplified form must still be completed by the employer, although the complexity of the form is greatly reduced.

   The T2200s form indicates whether you, as the employee, were required to work from home for part of your working year.  Filing a T2200, or T2200s, is required if you are planning on expensing specific items, such as office supplies or utilities. These specific expenses must be identifiable with receipts, and are claimed using option 2 of the new T777s form (located here).

   The other option for claiming the a tax deduction also avoids the use of the T2200s form, and doesn’t require input from your employer. Still using form T777s, you can elect option 1, whereby you are able to claim a flat rate of $2 / day, for every day worked from home during 2020. The maximum claim under this calculation is $400, or 200 working days.

   Note: this is still subject to qualifying for the deduction, meaning you worked from home for more than 50% of the time for 4 consecutive weeks.


   For illustrative purposes, assume the following is accurate: I worked from home on the kitchen counter for the entire month of May 2020 (4 weeks).

   The kitchen where I worked accounts for 100 sq ft of the 700 sq ft apartment. My share of the rent was $1,000 for the month, and internet was another $100/month. And, I worked 40 hours a week, out of a total of 168 hours (7 days * 24 hours each day).

   For the month of May, I would be eligible to claim:

(100 sq ft / 700 sq ft)*(40 hours / 168 hours) * $1,100 = $37.41 total deductions

   This manner of calculating involves some measurements of the space, as well as some reasonable assumptions. Living in a one bedroom apartment, the kitchen takes up over 50% of the total unit size. But, it’s not a reasonable assumption to include that entire area for my “home office” space.

   But that’s not the end of this story. 

   Upon asking, my employer refused to complete a T2200 form for me. As such, I instead must use the simplified method on T777s. This calculation allows me $2 / day, for every day in the same period. Those same 4 weeks have 20 working days. 

   Under the simplified method, my eligible tax deduction would be 20 days * $2 = $40 total deductions. Not only that, but I also don’t need to save receipts and employer signed forms to support a claim this way.

Additional Resources

   Not sure which type of forms to use? The CRA has a handy calculator here that will help you make that determination.

   Be sure to check out the forms and calculator early. If you need to have T2200 or T2200s forms completed by your employer, allowing yourself and your employer extra time to process is beneficial.

   Just to prove there’s a silver-lining in every challenge, the CRA has made it easier to qualify and claim tax credits for the 2020 calendar year. The right information, and some early planning might leave you just a little bit better off come tax time.

How to Combine Finances With Your Partner

   Who picks up the dinner check in your relationship?

   There are many different considerations when bringing each others’ finances into the relationship.

Step One: Know Thyself

   Who makes more income? Are the income streams steady? What are your spending habits? What are theirs?

   All these questions should be answered before you start merging accounts together. Your relationship with money will have a huge impact on the success of combining your finances. Understanding how you operate with money will help you avoid some of the more common relationship landmines that explode some couples’ futures. 

   And that’s no understatement. David Ramsey’s team turned up in studies that money issues are the second leading cause for divorce, only just barely beat out by infidelity.

   Assuming you’ve got a solid grasp on your own psychology of money, you can move to step 2.

Step Two: Communicate, And Trust

   After you know yourself; how you feel about money, how you envision this major step playing out, now it’s time to speak to your partner.

   The first of many such conversations.

   The key to most things in a successful relationship is communication. Finances are no different, and are perhaps even more important. Especially with the emotions often tied to the almighty dollar.

   Have regular, honest and open talks about money. How much do each of you have saved? What are your financial goals? What are your life goals, and how does money impact them?

   Getting on the same page will help you work through any difficult times that come up.

Step Three: Pick a Playbook

   Now that you’re on the same page, you need to decide together how the next chapters are going to play out. And to do that, we fall back to how we started.

Who picks up the dinner check?

   As there is no “one-size-fits-all” in relationships, there are a few commonly utilized “playbooks” for how couples approach this topic. 


   One approach takes the view that both parties are equal. A joint account is established that each person contributes the same amount into. Any shared expenses are paid from by this account, meaning each person is contributing the same financial resources to the relationship.

Why does this Work? For couples who earn the same amount of money, this approach avoids any disputes about who is picking up the dinner check. Or the cable subscription. Or any one of the numerous other expenses incurred. Each person is paying 50/50 for their usage.

When might this fail: The flip-side, if couples aren’t on equal income levels. This approach can lead to one person contributing far more, as a percentage of their earnings, to the shared expenses. Ultimately, this means the lower income earner has less money for themselves, and resentment can start to form at lavish spending from their partner.

Equal Slices

   Similar to the “Half-the-Pie” approach, the equal slices approach involves setting up a joint account. But instead of each contributing the same dollar amount, each partner contributes the same percentage of their income.

Why does this Work? Especially useful when there is an income difference, this approach has each person contribute based on their earned income level. This is especially helpful in relationships where one person’s income is variable, either from work fluctuations, or as they start a new business/career. By splitting costs by the percentage, rather than raw dollars, one person isn’t unduly penalized for those income fluctuations.

When might this fail: While each partner is contributing the same percentage of earnings, that doesn’t always equal the same number of dollars. Any spending from the lower-earner can cause the high-income partner to question those expenses. The concern here is that someone is “free-loading”, again causing resentment.


   Often seen when a couple first starts dating, this approach alternates picking up the tab for things. Your partner pays one dinner bill, you pick up the next one. 

Why does this Work? Best used at the early-relationship phases, this approach doesn’t place too much weight on any one transaction.

When might this fail: This unstructured approach works well in the dating stage, but starts to fall apart when you start to intertwine your lives more completely. Some bills, like hydro, internet, rent, etc. aren’t well suited to a tit-for-tat style of treatment. On top of that, sometimes the bills aren’t seen as equivalent. A quick pizza order might not be seen as the same as that nice steakhouse meal last time. 

What’s Yours is Mine, Baby

   This approach joins everything. All accounts, all debts, everything.

Why does this Work? This approach takes the individual out of the equation. Everything becomes about the couple, and all incomes and expenses are shared.

When might this fail: The loss of some financial autonomy can be difficult. In this playbook everything is shared, meaning hobbies and individual purchases are made from a joint account. Her love for baking might not be on the same scale as his love for motorcycles. And no amount of brownies can bridge the gap between a bag of flour and 800 pounds of chrome and gasoline.


   This approach sets a scenario to live out before it becomes a reality. The most commonly seen scenario comes with the decision to raise children. Many times, this is a long-term reduction, and sometimes elimination of income from one partner. Learning to live on one income is a large adjustment for some people.

   Your scenario is yours to imagine, as you test out your ability to do it. Maybe it’s starting a business. Raising children. Retiring at 30. Or taking a year to travel the world. Testing your scenario first gives the confidence to pursue your dreams.

Why does this Work? Whatever your reasons, whether it’s parenthood, starting a business, or just the financial freedom, this exercise can show some incredible benefits. Living on one income, for example, can help jump start your financial foundations with extra investments and the development of a solid emergency fund.

When might this fail: This might fail if your lifestyle doesn’t adjust to allow for your scenario. Often we allow our lives to scale as our income grows, and living out any hypothetical scenario usually involves an income reduction, temporary or permanent. If your scenario is ambitious, it might take a few tries to get this right.

Step Four: Establish the Ground-Rules

   Once you’ve selected your playbook for combining your finances, it’s time to lay down some ground-rules. Here are a few important ones:

Maximum Dollar Spend / Personal Discretionary Funds

   No matter how you decide to combine and split your finances, each of you will inevitably want to make a purchase the other might not appreciate the same way. Having the autonomy to make those purchases without fear of judgement is important. For those purchases, you need an “allowance” over which you have free reign. 

   Want those new shoes? That’s what your allowance is there for. 

Guilt-free spending.

   Whatever the dollar value, each person needs to have a spend limit where they are authorized to buy without consulting the other. Over a certain dollar value though, either you need to save your allowance, or you need to consult your partner. The limits are yours to set.

Retirement Savings

   Saving for the future is important. There are tax advantages of having each partner possess a healthy retirement savings account, despite lifetime income limits.

   Setting these expectations in the ground-rules is important. How much risk to take in the investments? How much should be funded every year/month?

   Adequate preparation in this area will put you well ahead on the road of life. Have your partner keep you accountable.

Accepting Debt

   The final ground-rule to lay before combining finances with your partner is when and how to accept debt. Whether it’s a new credit card, or even student loans, these decisions have major implications on your financial health. 

   These decisions are too important to not be talked about.

   Combining finances with your partner is a big commitment, but one that affects all of us as we invite others into our life's journey. Knowing who you are is an essential first step, checking the ship for seaworthiness before inviting someone else aboard. 

   Communication and trust cannot be overstated, as any playbook falls apart without those two elements. 

   Combining finances with your partner doesn’t need to be complicated. The right ground-rules to keep you out of trouble, and you and your partner will be in a better place. 

   Stay together. Stay happy, stay healthy, stay wealthy.

Share the Load: 5 Risks of Co-Signing Loans

   Do you own your own home? Do you want to? Did you buy it with your partner?

   For the past few decades, the appreciation of real estate in several high-demand markets has significantly outpaced income growth in the same locations.

   If you want to live in Sydney, London, New York, Toronto, Vancouver, or Los Angeles, the prices of real estate have skyrocketed. As personal incomes fall further and further behind, the financial ability of tens of millions of millennials and Gen Y-er’s falls short of the bar. 

   If you want to “get into the market”, you might be forced to consider other alternatives. For the extremely fortunate, there are family members able to provide financial assistance to get over that down-payment hurdle. But the vast majority of people simply don’t have that luxury. 

   Another alternative that is more frequently coming up is having someone co-sign the loan.

   But co-signing a loan comes with its own risks, more heavily weighing on the co-signer.

Borrowing Against Your Future Options

   Debt is a financial tool, one that comes with its own rules. While any tool can be used to your advantage, you need to understand the rules before you play the game. The important element for a co-signer to understand is that the debt is effectively considered theirs. 

   If you co-sign a loan for someone else, that debt goes on your credit report. This extra use of credit could be a benefit, by diversifying your lists of financial instruments. But, that additional debt also increases your debt utilization. 

   Having too much debt can create difficulties in obtaining more. And when you’re a co-signer and not receiving a direct reward, losing those debt options can put you in a bad spot financially.

High Risk, Low Reward

   When you co-sign a loan, you are taking legal and financial responsibility for those debts. While it might feel good to help a family member or friend out, those financial obligations don’t provide a return outside of that good-will feeling.

   While generosity might be a key to finding lasting happiness, taking on too much risk for a low reward doesn’t balance the equation.

   Keep in mind, that you are needed to co-sign a loan because the other party isn’t financially established enough on their own. While that may be of no fault of their own, that doesn’t change the implications. The primary borrower is too risky to loan to without collateral. And you are becoming that collateral.

Additional Work for You

   Similar to the low-reward, co-signing a loan takes on an additional administrative burden. 

    While you might not ever need to pay any of the installments, you certainly need to know when and how much is being paid. Understanding the terms and obligations of the loan is essential, since the loan is effectively yours. 

   There is also the on-going burden of checking in, making sure those payments are being made on time, every time. This type of routine cadence puts an extra check-in in your calendar. Not to mention, you’ll need to become very comfortable talking about financial topics with the primary borrower.

The Downside of Your Legal and Financial Responsibility

   If all the rest sounds like work to you, you’re right. Co-signing isn’t a simple “good deed”. You are financially responsible.

   Ultimately that means if the debt isn’t being paid, you are on the hook. You could get sued over the loan, and you would have to pay the entire balance. 

   Often that legal measure falls on your lap as the co-signer first. The lender is looking at how best to recover their loan, and as we already mentioned, you as a co-signer are likely in the stronger financial position. For a lender, that simply means you are more likely to pay-up than the primary borrower who is defaulting.

The Hidden Cost of Settling

   Of course, not all co-signed loan cases end up being paid out in full. If it comes to that, often the lender will be willing to take a settlement. Those settlements could result in you paying only a fraction of what was originally borrowed.

   But a settlement isn’t as good news as it might sound at first.

   Under both US and Canadian tax laws, any amount less than the original principal that is settled on must be considered as income. Let’s say you owe $ 500,000 on a co-signed loan where the primary borrower has defaulted. The mortgage company might accept payment of $ 400,000 to discharge the loan. 

   That settlement results in a $ 500,000 (principal) less $ 400,000 (settlement), or $ 100,000 gain to income for the co-signer. This perceived gain (income) increases the income taxes that must be paid.

Important Note: If you are in this situation, go straight to a licensed tax accountant. The additional complexities require professional guidance to have the best tax results.

   Co-signing a loan, for whatever purpose, carries significant financial considerations. Whether you’re helping a family member break into the real-estate market. Or you’re simply consolidating financial resources with your significant other, knowing the implications of co-signing a loan is important.

   Debt is an important tool in your financial toolbox. Understanding how to use it, especially with and for others, can open doors that might otherwise be shut. But, don’t open those doors without knowing first what you’re letting loose.

How Does Insurance Work?

   Insurance offers you the ability to protect against the downside risk of many things in life (even death itself). But, is insurance really worth it?

   Of course, the answer is, as always: it depends.

   But before we can understand when insurance is a good idea, and when it’s best to say no, we need to look at what insurance is.

What is Insurance? And how does it work?

   Insurance is a promise to pay you if a certain event takes place. 

   The event in many insurance policies is the replacement of a product in case it breaks (device insurance). But it could be covering damages caused, for instance, by a driving incident (car insurance). Or even paying your estate funds in the event of your death (life insurance).

   Selling these “guarantees” is a business. A very lucrative business.

   And the skyrocketing corporate profits means one thing: you, the consumer, loses out far more often than you win.

   Most of the time that’s a good thing. It’s far better to pay for life insurance and not die. Or car insurance and not crash. But, with insurance offered on a wide range of products that we use in our daily life, buying too much insurance can be a poor financial decision. Spending money on things you don’t need is a poor purchase, no matter how you look at it.

When Should You Buy Insurance?

   Insurance is often made more complicated than it needs to be. Deciding when to buy, and when to pass on insurance, needs to follow a simple formula.

“What you are insuring needs to be of sufficient value to put you in a bad financial position without the insurance.”

   What this means is, if what you are insuring would be difficult to replace with your current financial resources, the insurance is probably a good idea. Or put even more simply:

Emergency fund < Value of Item = Buy Insurance

   If your emergency fund is sufficient to cover the loss, you shouldn’t buy the insurance. Instead, keep increasing your emergency fund as well as your other investments.

   If on the other hand the value of what you are buying is more than your emergency fund, then insurance is a good idea.

   Insurance is often offered on a variety of purchases. I’ve had offers for insurance from anything as small as a video game, to cell phones, all the way up to my automobile and home.

   Most recently, when shopping for new appliances, I faced the sales pressure from the appliance salesperson. I was being regaled with tales of broken appliances that weren’t covered by warranty, and frightened by the estimated cost of repair visits. But quickly looking at the numbers, I could tell I wasn’t going to come out a winner. Insurance on the kitchen appliances was coming out to more than 10% of the total cost of all the appliances. Do I buy? Do I pick and choose? If so, which appliance is most likely to break?

   Ultimately, I fell back on the formula: my emergency fund could cover the replacement cost of any single appliance. And the likelihood of all appliances breaking at the same time must be extremely rare. Rather than buy the insurance, I’ll be better off passing on the insurance, and setting a little extra away into my emergency fund.

Further Use of the Insurance Formula

   Of course, sometimes insurance is more than a simple yes/no question. In the case of home and auto insurance especially, there are different policies. One of the key factors in determining the cost of the policy is the deductible, or the amount you need to pay first before insurance pays out. As you can imagine, the higher the deductible (the more you need to pay first), the lower the insurance rates.

   The formula we looked at above can be modified slightly. 

Emergency fund > Difference in Deductible = Buy High Deductible Insurance

   In this case, if you can cover the difference in deductible without jeopardizing your financial position, you should buy the higher deductible insurance. This will mean you pay more in the event of a claim, but if you don’t need to make a claim, your insurance rates are lower.

   Common auto insurance deductibles are $0, $500, and $1,000. If you can cover the $1,000 deductible, the difference in insurance rates from a $0-deductible insurance policy could be thousands of dollars over the course of your life.

   Never fall prey to sleazy sales tactics again, you have the numbers to support you in making the right choices. That simple formula telling you what you can afford in an emergency, and what you should seek external protection on, will help cut a lot of confusion out of the insurance question.

   Making sure you are adequately covered is a function of what financial risk you can comfortably absorb personally. When you can look out for your own financial interests, you need to rely less on insurance to cover the difference. And spending less on unnecessary insurance helps you get even further ahead. 

   The freedom to pick and choose what is right for you without worrying about repercussions is liberating. That is one piece of financial freedom.

What is the best Life Insurance?

what is the best life insurance

   Is your family protected in the event of a tragedy?

   While nobody can truly be ready for disaster to strike, there are some things that you can do to ensure your family is looked after in the event of a tragic death. Life insurance is one area where you can take steps to protect yourself and your loved ones.

   But with so many insurance types and policy options, which one is right for you?

What is Life Insurance?

   Life Insurance, simply put, is an arrangement with a company that, in the event of your death, your family will be paid out a specified sum of money.

   In general, those policies are broken down into two distinct classifications; Whole Life Insurance (WLI) and Term Life Insurance (TLI).

Why Would You Use Life Insurance?

   Generally, people use life insurance to ease the financial burden of their passing. Looking out for their loved ones from beyond the grave, so to speak. 

   But, while there are some excellent reasons to buy life insurance, those reasons change throughout your journey through life.

   For example, a fresh University graduate with little to no responsibility might not even need a policy. There are no dependents who rely on the new-grad. 

   Fast forward a few years, and that new-grad is ready to start a family. Again, with two incomes, a rented apartment, and no kids, insurance might not be necessary. But as life progresses, the new couple buys their first home. Suddenly, an expensive mortgage might be a very good reason to look into life insurance.

   Over the years, kids come, and continue to grow. Insurance helps give the family peace of mind. But as the years tick on by as they are wont to do, the house gets paid off, and the kids move out and start lives of their own. Retirement savings are churning out their own returns, enough to live on comfortably for the rest of your days. Is insurance still necessary? The financial risks of an early death have all but passed.

   Throughout this fictitious life journey, there have been several points where insurance is a good idea: new home, new family, etc. But as the family life changes, so do the needs for insurance.

   And those evolving needs bring the focus back to Whole Life Insurance (WLI) and Term Life Insurance (TLI).

What is the Difference Between WLI and TLI?

   Whole Life Insurance is a guarantee to pay a specified sum of money on your death. These policies last with you your entire life, which is why they are specified as “Whole Life” policies. Simply put, you pay into a fund, and when you die, your family is paid out a predetermined amount of money.

   Term Life Insurance on the other hand, is insurance for a specified term. Usually in 5 year increments, up to 30 years (policies differ greatly, check out each policy thoroughly before purchasing. These policies cover you in the event of your death during the term. At the end of the term, the policy expires, and you are no-longer covered unless you buy a new plan.

What are the Benefits and Drawbacks of Whole Life Insurance?

   Whole Life Insurance is designed as a fund you contribute towards over a set period of time, ranging from 5 to more than 20 years. You pay into this fund on a regular basis, and they guarantee a certain dollar amount to be paid out on your death.

   The main benefit of this style of policy is that you have a guaranteed amount coming to your family and loved ones when you die. 

   Also, since this is an investment fund where you are allocating some money, you might even be able to take some of your contributed dollars out as a loan.

   But, all that glitters isn’t gold.

   Whole Life Insurance policies are expensive. I mean seriously expensive. 

   WLI policies will cost you thousands of dollars a year while you are funding the account. And, these are investment accounts. As we’ve looked at for our other investment accounts, the companies running them charge exorbitant fees. Furthermore, you cannot get out. There is no money-back option - once you’ve bought, you’re locked in for life.

What are the Benefits and Drawbacks of Term Life Insurance?

   Term Life Insurance is also exactly what the name implies. Insurance for a specified term. 

   Since there is no guaranteed payout, in fact you should hope your family never collects on those policies (to collect means you die), the insurance premiums are reduced. While WLI may cost thousands a year, TLI is only hundreds (if that). The payouts offered are usually much higher as well. 

   Another benefit is that TLI policies are simple to understand. You pay $X a month/year, for Y years, and if you die before Y years is up, your beneficiaries get $Z.

   Again, this type of policy has its own drawbacks too. As TLI policies expire at the end of the term, if you still decide that insurance is right for your family situation, your premiums will likely be higher when you sign for a new policy. The higher premiums are a result of your increased age when buying the policy, as in general, the cost of a TLI insurance policy increases as you age.

Which Life Insurance Policy is Best?

   While there can certainly be a case made for different policies, for the vast majority of people Term Life Insurance (TLI) is best. To understand the reasoning, we need to revisit why you would want life insurance in the first place.

   People get life insurance to protect their families from the unexpected, especially when the financial burdens of the family would be hard to handle as just one person. But as you age, your financial needs change. The payout of a Whole Life Insurance policy likely isn’t sufficient to help your spouse keep the house and raise the kids when you’re just starting out. In that case, the higher payouts from TLI are more valuable. 

   And as you advance in your life and financial journey, the payout from WLI shouldn’t be the “make or break” point in your financial position. Death is a fairly permanent next step, so to need to take that step to unlock additional monies is an extreme measure.

   Term Life Insurance, with its lower premiums and higher payouts is optimal for almost everyone. And the savings (the difference between a WLI policy and a TLI policy) should be put into an investment portfolio. This invested money will grow over time, and you won’t need to die to access the additional funds. 

   If you select a balanced, low cost fund, you’ll avoid those high fees and might even come out ahead! Insured when you need it, with a financial safety net built to catch your family if they ever need it.

   Life Insurance provides financial peace of mind, knowing that your family will be cared for in the event of your untimely death. Term Life Insurance is the cheaper option, and in the vast majority of cases will be the better option. With the cost differences invested in your own investment accounts, the additional investments and growth will bring you out ahead of a comparable WLI policy.

   Financial freedom includes peace of mind. Life insurance can deliver just that, for a nominal cost, at just the right time.

   To end this article in the most relevant salutation, I shall borrow the immortal words of Spoc: 

“Live long, and prosper.”

What is a Spousal RRSP?

   Are you and your partner taking advantage of the right tax breaks?

   One powerful investing option available to couples is the Spousal RRSP. 

What is a Spousal RRSP?

   A spousal RRSP is an investment account that you can open and fund on behalf of your partner. The money that you invest for your partner becomes a tax credit for you, helping you reduce taxes in the current tax year. 

   The reason to take advantage of the Spousal RRSP program is to even out your retirement assets between the two accounts. This is especially prevalent when one partner earns significantly more than the other.

   To see this in action, consider the following couple, Jane and John. Jane made $120,000 last year, while her partner John is a stay at home father. John’s income from his part time work was only $40,000.

   The RRSP contribution limits are calculated as a percentage of your earnings, up to a yearly maximum. For the current year, Jane’s RRSP contribution limit would be $ 120,000 * 18% = $21,600.

   John on the other hand has an annual RRSP contribution limit of $ 40,000 * 18% = $7,200.

   If they were to both max-out their RRSP contributions, Jane would have a significantly larger nest egg come retirement time. John and Jane would need to withdraw that money during retirement, and Jane would end up paying a much higher tax rate.

Retirement Tax Time

   In the above example so far, Jane would have a much larger retirement account balance for retirement. This means that she would be withdrawing more from her accounts than John.

   Let’s say they needed $100,000 each year for their retirement lifestyle. Jane, with the larger account, would withdraw $80,000, while John would withdraw $20,000. That means Jane pays income tax on that $ 80,000, which John pays income tax on the $20,000.

The Spousal RRSP Option

   Alternatively, Jane and John could take advantage of the Spousal RRSP. Jane’s limit would still be $ 21,600 for tax deduction purposes, but Jane could invest some of that money into a Spousal RRSP for John. 

   To ensure that both Jane and John had similar investment accounts, Jane could contribute $ 14,400 to her own RRSP, and the remaining $7,200 to John’s RRSP through the Spousal RRSP program. John could contribute his own $7,200 for the year as well. At the end of the year, both Jane and John will have $14,400 in their RRSP’s. 

   Jane will have realized $ 14,400 in tax savings from her own RRSP, plus another $ 7,200 from her Spousal RRSP contributions, for a total of $ 21,600. John will have realized his full $ 7,200 in tax savings for the year as well.

   This would give them comparable sized retirement accounts, and allow them to each withdraw a lower amount annually in retirement. 

   Instead of Jane withdrawing $ 80,000 and John withdrawing $ 20,000, they both could withdraw $ 50,000 to reach the same combined annual income in retirement. The difference here is that Jane pays a lower marginal tax rate, ultimately saving money on taxes. And less taxes paid as a couple means more of their hard earned dollars can be spent on the retirement lifestyle they want!

How Do I Open a Spousal RRSP?

   Anywhere that you can open an RRSP, you will also be able to open a Spousal RRSP. This allows you to contribute some of your RRSP allowable contributions to your spouse / partner, giving you the tax deduction and your partner the tax-deferred investment growth.

What About the Fine Print?

   As with all investment accounts, there are terms and conditions applied. For a Spousal RRSP that means a restriction upon when the Spouse can withdraw the money. Funds must sit in the investment account for at least 3 years before withdrawals are made. Making a withdrawal sooner triggers a tax liability, where tax must be paid on the contributions.

   The other caveat is this: that money is your partners. While you can contribute any amount you want, within your personal RRSP contribution limits, you cannot access or change the investments.

Is a Spouse RRSP right for you?

   If there is a large income discrepancy, caused by a stay-at-home parent, or even just different professions, the answer is most likely yes. 

   Splitting your retirement savings between both members will help balance the withdrawals. This will reduce the marginal tax rate paid on those retirement funds withdrawn.

   Spousal RRSP’s are a powerful financial tool available to couples, helping balance out retirement savings to reduce taxes in retirement. If you think this tool is right for you, perhaps it is time for an open and honest talk about the families finances. You’re in this journey together. Not all trials will be simple, so you might as well take the easy road when it’s available!

How To Start Investing (Canadian Edition)

   Are you ready to start investing? 

   The simple fact is this: you need to invest if you want to achieve financial freedom. The number of people who have made, and kept, their wealth without investing rounds down to 0%. And for the vast majority of us, we will never have the type of paychecks that could deliver financial freedom without investments.

   Like it or not, you need to invest. Your future depends on it.

   One of the primary ways for an individual to invest is to enter the world of financial instruments, in particular stocks.

Why the Stock Market?

   The stock market is simply a collection of companies. They sell ownership “shares”, that entitle the shareholder to a piece of the profits. That piece of profits, now and into the future, has a value. The market price of that value is the share price.

   It is important to look at the basics when starting to invest. Wall Street has a bad rap, much of it earned by a few bad apples that spoil the basket. But, irrespective of the story you spout about Wall Street, investing is a necessity for your financial future. And investing in stocks is one of the easiest ways to begin investing.

How to Access the Stock Market?

   Before you can invest, you need to know how to get access to those marketplaces.

   Traditionally, this was done by your financial advisor. An individual, sometimes representing your best interests, would help you place your hard earned cash into a series of investments. 

   Today, access to financial markets has never been easier. There are online brokerages, robo-advisors, and financial advisors. Each avenue offers their own advantages and disadvantages.

Online Investment Brokerages

   Investing online is an easy way for any DIY-er to get started. These online platforms and apps allow you to buy and sell financial instruments - often for a fee.

   The real advantage to these platforms is the ability to invest in whatever you want.

   Looking to buy and sell individual stocks? Can’t get enough of the weekly highs and crashes of Tesla? Maybe an online investment brokerage is for you. 

   Online brokerages allow you to choose your own investing style, and you have complete control over your successes and failures.

   The disadvantage is exactly that freedom. Your failures are yours to own. 


   Robo-advisors also were born from the internet. The ease of accessing investment markets for anyone with an internet connection helped fuel the need for a simple, effective way of investing.

   The main benefit of robo-advisors is the low cost access. These providers give you a few choices that suit your risk profile, and increasingly, your social conscience. These choices are designed to hit a specific goal, and really provide an excellent way to get into investing.

   The trade-off of course is the loss of options. In a robo-advisors guided portfolio, you can’t pick and choose what stocks you invest in. 

Financial Advisors

   Finally, financial advisors are still around. And still valuable, for the right people. 

   A financial advisor will help you navigate some of the intricacies of investing, including multiple asset classes. The benefits of advice from a good financial advisor, with a fiduciary responsibility, cannot be understated. 

   But, that advice comes with a price. Financial Advisors are comparatively expensive to the other options.

   Of course, with more options to choose from, how do you know you’re making the right choice?

How Should You Start Investing?

   Stocks are an easy way to get started with investing. But which route is right for you?

   To help you make that decision, ask yourself a few questions:

Have you invested before?

   If no, skip right over an online brokerage. Get your feet wet with an advisor, either robo or in-person. Investing isn’t a game of chance. Learn to walk before you try to run. 

   If you have experience investing, this is an option you might consider.

How much time do you have to devote to investing?

   Self-managed investing at an online brokerage requires a lot of financial research to see the best results. And that research takes time. Lots of time. If you like reading earnings reports and company profiles, self-managed investing might be for you. You should also be re-balancing your portfolio at least once a year, and likely once a quarter. 

   Finding yourself with less time on your hands? Other options might suit you better.

Do you have a complex financial situation?

   The more complex your financial situation, the more likely you would benefit from a financial advisor reviewing your accounts. While robo-advisors are often quite good at the majority of financial situations, sometimes you just can’t beat the comfort of a human touch.

Are you just starting out?

   Financial Advisors can offer tremendous advice. But, if you’re just starting out (and reading “How to start investing” articles), you probably aren’t in a position to benefit from that advice. 

   Online Brokerages on the other hand are relatively cheap and easy to access, but provide enough options to easily make mistakes and lose your shirt.

   Robo-advisors hit that sweet spot in the middle. Enough choice to make you feel like you are controlling your financial destiny, but enough financial theory to help avoid some easy-to-make mistakes.

   The best part is, this is your financial journey. You are in control, and can pick and choose as is right for you. Personally, I enjoy a mix of robo-advisors, with some self-managed investing at an online brokerage for some additional customization. 

   Keep in mind, your future depends on you taking action. Whichever route you decide, whether it’s an Online Brokerage, a Robo-Advisor, or a Financial Advisor, regularly investing money is essential.

   Anyone can achieve financial freedom. You just need the right investments to help you along your journey.

Financial Freedom: A Diet That Works

What's in your financial diet? Do you have too much unhealthy misinformation on your plate?

   How many different diets can you name? 

   Keto, vegetarian, pescatarian, Atkins, vegan, DASH, Weight Watchers… and that’s just scratching the surface of a nearly endless list.

   Hundreds of options, but for one goal: healthy living. 

   How can countless options exist, many in direct conflict with other diets, all promoting the same goal?

   Anyone who desired to live a healthy lifestyle will get lost, bogged down in the mountains of “facts” and counter-facts that each diet proclaims. And at the end of it all? They’d be even more lost than when they started their journey.

   That very same story plays out across our lives, and no more so than in the quest for financial freedom.

   I write often about the strategies for financial freedom, and each holds its own merits, depending on where you are in your journey. But for those of you just starting out, you don’t need strategies on top of plans. You need the first step. 

   The rest of the staircase will come. But only one step at a time.

Financial Dieting: The First Step

   Go on a diet. A financial diet. Cut out almost all financial information out of your life. How is APPL trading today? Who cares. What about TSLA? Irrelevant.

   There are countless broadcasters and bloggers who pander to the masses with a new story about what to buy or sell today. These “gurus” are in the entertainment business. 

   And your financial freedom? It’s not a laughing matter.

   It’s time to go cold-turkey on those entertainers. 

Low-Cost Index Funds / ETFs: The Next Step

   Once you have cut out the distractions, find a low cost index fund provider. Personally, I like WealthSimple, but there are many to choose from. Questtrade has a low cost platform, and some major banks offer low cost Index funds too.

   The key here is simple: keep management fees low. Under 1% is a requirement, and the lower they are, the better off you’ll be. 

   Index funds and Index ETF’s track the performance of a wide range of stocks, like the S&P500 or the TSX composite. Essentially, you are buying a small piece of everything. As those companies grow, so does your wealth.

Automate: The Most Important Step

   Finally, the next step that you can take is to automate. Setup your account to automatically fund every week/month, and let it take care of itself.

   And that’s it. No more stock reports. No more sensationalist stock-market entertainment shows. Just sit back, relax, and let your money grow. 

   Check back on your accounts every once in a while - I certainly check on my investments once a month. But the daily swings that are so widely covered in the media? I don’t suffer the same ups and downs. My emotions aren’t toyed with on a daily basis, and that is liberating. Just one step closer to freedom.

   Financial freedom is about more than having the money to do what you please. It’s about being free from the emotions tied to money. And in three simple steps, you can take a little piece of that freedom now.

  1. Go on a financial information diet.
  2. Find a low-cost index fund / index ETF.
  3. Invest, automatically.

   You’re on the road to financial freedom - breathe easy.

How valuable is your degree?

college degree

It’s a question asked by every person seeking higher education. Is my degree worth it?

It’s a very serious question. The financial implications alone could change your entire life’s trajectory, for the better, or for the worse.

Doors could open to immense riches. Or, you could end up drowning in student debt, qualified for little more than to pour coffee at Starbucks.

At the root of the question lies a startling and frightening truth. For the vast majority of us, our education is worthless.

The knowledge we learn, if we retain any of it at all, is available for free and accessible within the top 10 google search results.

Of course, there are some professions that require formal education. I certainly wouldn’t want just anyone patching me up on the operating table. Or setting financial policies for the entire nation.

But for most of us, what we learn in school isn’t about the knowledge we walk away with. That knowledge is free.

So why is schooling so important in today’s society?

To answer that, we need to go back in time a few decades. Back to a time when there existed a knowledge gap.

The Knowledge Gap

It used to be up until fairly recently, that schooling was the way to improve your family's economic future. Knowledge was a commodity, and having gathered that knowledge through some form of higher education was a valuable asset to have.

The more you knew, the more value you could bring, and the more you were worth to an organization. More schooling was directly correlated to increased earning potential.

But recently, that “knowledge” imparted by the great educational institutions has become so commonplace that it’s considered a prerequisite to even get a seat at the table. Everyone has the “knowledge” associated with a bachelor’s diploma or degree, so there is no longer that gap to fill. No gap, means no economic advantage for acquiring the knowledge.

While one may argue that getting a degree is necessary to even be considered for a seat at the table, the value of that degree has diminished greatly.

The Information Era

Compounding the issue is the availability of answers to just about any question or problem that you face. For the cost of a reliable internet connection, all the worlds’ knowledge is available 3 clicks away.

In the information era, specialized knowledge is available for such a cheap fee, that there is virtually no economic value to acquiring it.

But don’t despair yet. While the knowledge you might seek has little economic value, there are still some merits to growth and development.

The Skills Gap

For centuries, the gap was knowledge. The information age has eliminated that gap, and levelled the playing field. Never before has the opportunity for success been granted to so many people.

Today, anyone, from any background, has the opportunity to succeed.

You just need to recognize that in the changing world landscape, the gap has changed. This means that you need to look at something other than information to increase your economic value.

And that new gap is the skills gap.

Knowledge is no longer the solution, but the ability to apply that knowledge. The skills to take the information, and make something valuable out of it.

What are the most valuable skills?

While there are many areas that you can focus on developing to increase your economic value, there are a few common areas that are virtually guaranteed to improve your results.

Setting and achieving Goals is one of the best skills that you can master. The ability to determine what is an important direction, and then setting up the systems and routines to get you there will serve you no matter your vocation. Building upon that skill set are the skills of prioritization. Understanding where to focus in today’s world of constant distraction will further compound your ability to deliver valuable results.

The next universal skill set that is sure to deliver economic value, is the ability to communicate clearly. Communication is one of the most highly rewarded skills. That skill goes beyond language, and spills into crafting your message, compiling compelling stories, and creating real change.

Where can you go to improve your skill sets?

If skills are becoming more valuable than knowledge, knowing where to go to develop those skills is essential. Luckily, higher education institutions are on that list.

Colleges and Universities are a great place to stimulate the development of skills. From setting goals, to prioritizing under a dynamic workload, schooling institutions help develop the skills that add value in today’s market.

But there are other options too. Online learning platforms have seen massive jumps in both quality and popularity. The focused learning curriculum of these courses allow you to tailor your growth specific to your journey.

The important note here is this: it matters far less what knowledge you are learning, and far more what skills you are acquiring.

Understanding the different styles of Picasso and Van Gogh has limited value, but having the skills to clearly communicate the benefits of a new strategy or product will greatly increase your value to the marketplace.

When advertising your resume or academic background, be sure to highlight the skills you have developed. Those skills are the answer to what will bring you fame and fortune.

To answer the question; how valuable is your degree? Ask yourself not about what information you now possess, but instead what skills you have and can use to increase your value.

Target Date Funds – Set it and forget it?

Chances are, if you have looked into retirement savings at all, you’ve seen Target Date Funds (TDF) advertised. But what are these funds? And, more importantly, will they actually help you retire on time?

What is a Target Date Fund (TDF)?

Simply put, a target date fund is an actively managed mutual fund. The funds are managed in a way to re-balance, and ultimately move into more conservative investments as the target date gets closer.

The premise is to handle the asset allocation for you, so that you don’t have to worry about complicated investment decisions. You simply pick the year you want to retire, typically in 5 year increments, and the fund handles the rest.

Marketing efforts by major investment industry players, especially over the past 15 years have really paid off. These funds are so popular, that employer sponsored RRSP’s and retirement accounts are almost entirely comprised of these types of funds.

Does the Target Date Fund live up to the hype?


And no.

There are several pro’s and con’s to Target Date Funds. Let’s look at each, starting with the criticisms.

What are the issues with Target Date Funds?

While each investment broker will offer a different sales pitch, the criticisms can be broadly broken into three categories.

A One-Size-Fits-All Approach

When you’re simply estimating the date you want to retire, the fund doesn’t take into consideration any of the other factors of your financial health. The most important on this one is your risk profile. While a longer time horizon means you should be prepared to take on additional risk at the onset to reap the return of compounded growth. However, if you are planning to use those funds for another, shorter-term option, like home-buying or education, all of a sudden your risk profile dramatically changes.

Your financial future is as unique as you are. And a target date fund simply doesn’t have the customization to accurately capture your unique needs and desires.

It’s a Competitive Game

Another criticism is that Target Date Funds are not all the same. Even if you picked the same time horizon, let’s say TDF 2035 (15 years from now). Different funds, run by different managers, will carry a slightly different selection of investments inside. This difference in investment options, and the varying mix of debt to equity investments means that each fund performs differently.

In the competitive market of mutual funds, this can lead to poor decisions, and poor returns. This is witnessed as the number of investors who can consistently beat the general market on a somewhat reliable basis is numbered to only a handful of investing professionals. While we’d all like to think the mutual fund manager is Warren Buffet or Ray Dalio, that just isn’t the case.

TDFs: Pay-to-Play

Another criticism of target date funds is that they are a pay-to-play game. Essentially, the offerings you receive are only a small subsection of the entire market. For example, your bank will only offer you fund options that are managed by a related institution.

Many years ago, before I became immersed in the world of personal development, I held a fund with my bank. Looking deeper into the details behind my target date fund, I was not at all surprised to find that the investments held in the TDF were all smaller subsections of other funds sold by my bank. That meant my RBC fund had varying percentages in RBC Emerging Markets, RBC Utilities Funds, RBC US Funds, etc.

What that really means, is that the funds that you see are often covering the ever compounding fees from other mutual funds. And as we’ve previously discovered, even a small change in fees can have a dramatic effect on your total lifetime returns.

On top of that, the selection of funds will be further reduced by the institution that you are working with. This is why many employer sponsored plans aren’t the same across different companies. The offerings aren’t selected for what is best for you, the individual, but based on the rates and admin charges that the company pays to participate.

Knowing this, the question still remains, “It can’t be all bad news, what is the up side?”

The Key Benefit of Target Date Funds

Investing can be complicated.

Actual returns are impossible to predict. And the choices! There are more options in front of you than if you walked down the cereal aisle at the grocery store.

With all those options, in the face of uncertain results, target date funds had the perfect marketing advantage: they were simple to understand.

Someone, presumably an investment professional, will automatically re-balance and reinvest your portfolio with the goal of reaching a retirement date with an appropriate investment mix.

What consumers were really hearing was: Invest here, and you can retire on 20XX date.

The allure of that simplicity, and some misconceptions surrounding how excellent TDF’s are, has helped these style of funds explode into the investing scene in the past decade. Odds are, that if you have investments through an employer sponsored retirement plan, or even if your individual plan was advised by your banker, that you hold a TDF. With the majority of people invested in these style of funds, what do you need to know?

Key Take-Aways: Target Date Funds

TDF’s are convenient, and easy to understand. Investing in them could be exposing you to crippling investment fees. But, the only thing more costly than those crippling fees? Not playing the game in the first place.

Knowing that, it is more important to pick a fund based on the level of fees than the “predicted returns”. Vanguard typically has low-fee options that would serve your needs well.

Target Date Funds are one of the easiest ways to dip your toes into the realm of investing for your retirement. By lowering that initial hurdle, TDFs make it easy to get started on your journey to financial independence. But, because they are a one-size-fits-all approach to investing, you should also supplement your TDF investments with your own investments. This will allow you to play with the lever of asset allocation, and your risk profile, based on the goals that you have. Those individual investments are the bells and whistles on your new car. Same base, but you can customize it to fit your lifestyle.

A low fee TDF, paired with some independent investments, put you squarely in the driver’s seat. It’s your road to financial independence, so the driver’s seat is exactly where you need to be.