Welcome to The MapleMoney Show, the podcast that helps Canadians improve their personal finances to create lasting financial freedom. I’m your host, Tom Drake, the founder of MapleMoney, where I’ve been writing about all things related to personal finance since 2009.
Do you avoid the stock market because you are afraid of having to track individual companies, and know when to get in and out? My guest this week, Mark Seed, tells us how we can get started with a buy and hold investment strategy that will pay dividend income without having to watch the stock market.
Mark tells us why investing only in the Canadian market is so limiting. In fact, it’s difficult to get true diversification, since the bulk of the Canadian market is concentrated on a few major players in the financial and energy industries.
In order to get more diversification, Mark recommends finding ways to add U.S. equities to your portfolio, an approach he takes with his own investments.
Our conversation is wide ranging, as Mark and I touch on everything from ETFs and robo-advisors to the burgeoning Financial Independence, Retire Early (FIRE) movement. Mark explains why, as a dividend investor, he’s a huge fan of ETFs and robo-advisors.
According to Mark, whole market ETFs are becoming an increasingly attractive option, with built in diversification, automatic rebalancing, and fees that are a fraction of what is charged on a traditional equity mutual fund.
We discuss the intersection of fintech and human oversight as it relates to robo-advisors and the many mobile apps that are making investing more accessible than ever. Never before have there been so many tools available to help people invest.
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- The importance of the ‘pay yourself first’ principle
- The buy and hold investment strategy defined
- The makeup of the Canadian market is very different than the U.S.
- The diversification dilemma of investing only in Canada
- How Canadians can add U.S. equities to their portfolio
- Mark gives his take on the burgeoning FIRE movement
- Why whole market ETFs are an attractive option for passive investors
- The intersection of fintech and human oversight in the investment world
Do you avoid investing in stocks because you don’t want to follow all these companies and know when to get in and out of an investment? Mark Seed, from My Own Advisor is on the show this week to tell us how to get started on a buy and hold investment strategy that will give you dividend income without constantly watching the stock market.
Welcome to The Maple Money Show, the podcast that helps Canadians improve their personal finances to create lasting financial freedom. Make your money work harder with our sponsor, Wealthsimple. Get a bigger refund and pay lower fees with the Wealthsimple RRSP. Contributing to your RRSP is a great way to prepare for your future and get immediate savings off your tax bill. As a Maple Money reader, get $10,000 managed for free when you open a new account or transfer your existing RRSP to Wealthsimple. Don’t forget, the RRSP contribution deadline is March 1, 2019 so head to maplemoney.com/wealthsimple today. Now let’s chat with Mark…
Tom: Hi Mark, welcome to The Maple Money Show.
Mark: Thanks for having me, Tom. I appreciate it.
Tom: We’ve done a couple shows about investing and I know it’s a topic you’re very into as well so I wanted to get your side of it to see how it may be different than other shows we’ve done. Let’s just hop right into it. How did you get started in investing?
Mark: My father was a David Chilton. But even so, he said, “Pay yourself first, Mark.” It’s something I learned early on in my 20s, that you should really try to pay yourself first to it kind of begged the question back then, “What should I pay myself first in?” I was always told to invest in RRSPs because TFSAs weren’t around back then. I’m probably dating myself a little bit but at the end of the day it came down to paying myself first. Try to put in five or 10 percent of your net income if you can into investing. So I did. I put that money into some mutual funds actually; some big-bank mutual funds back in the day. We’re talking 20 years ago. And I just kept doing that. I started off at $25 and did a pre-authorized payment going into a big-bank mutual fund and just kept doing it month after month after month. That was really my foray after reading the Wealthy Barber, David Chilton’s book. That really got me interested in investing. I thought, “Wow, here’s an opportunity to make what David Chilton wrote about, an eight or 10 percent return,” and I started seeing some decent returns. Even with the big-bank mutual funds of the day they seemed to be doing quite well. That was really my foray, Tom, in investing. I kept doing it for awhile until I basically saw a different light which was a better way to invest—and hopefully do it through it lower costs, knowing what’s trading, avoiding penny stocks and many other things I heard in terms of my friends and anything that came to light. So, that’s basically how I got started.
Tom: If you were mostly in mutual funds at the time, do you remember what the fees were like back then?
Mark: Yeah, they were hovering around 2 percent or 2.1, something like that. Those were some big-bank mutual funds, basically equity mutual funds which were probably cloning an index of sorts back then. I was in some science and tech funds and some bond funds. At one point I think I had eight or nine things. When the financial crisis came I really started asking myself some serious questions like, “I’m in my early 30s now so what am I paying these fees for? What performance am I getting for these funds?” I even had someone to help me out with the funds that I picked. Someone to rely on to give me advice. So I started getting into this mode of asking all these questions and I had a lot more questions than I did answers. I started thinking there’s got to be some better ways to get a handle on my personal finance and investing than just throwing my money into some black box fund I really don’t understand.
Tom: Yeah, your story sounds a lot like mine. I also started in mutual funds. Most people probably do. They go to their bank for a credit card or whatever too but I’m similar to where before I even knew what indexing really was, I knew I needed to be diversified. I believed I needed this mutual fund and that mutual fund. I needed a variety. But, in the end that could have been done in a few ETFs. Or even my first epiphany which was to go to the TDE series. It’s basically a mutual fund but an index fund. Just the idea of lowering those fees. You started a lot sooner than I did though. I was late to invest. I would much rather start early and have those fees than not start at all. It’s still a decent way to get started, I guess. But not so much nowadays. I believe you’re mostly into buy and hold, is that correct?
Mark: Yeah, that’s pretty much my philosophy in terms of whether it be the ETFs I own now or even some of the US and Canadian stocks I own. I basically bought and held many of those companies for many years now.
Tom: Okay, can you explain for the listeners what buy and hold is? I don’t know if we’ve ever fully covered it on the show yet.
Mark: It largely a core strategy where you do some modest research depending on the company you’re looking for. Let’s take a Canadian bank as an example. Let’s use TD as an example. As a stock investor you may want to do some research on the stock to see how well it’s performed in the past. Past performance is never indicative of the future results but that’s the only benchmark you have sometimes. For that kind of company I’d watch the growth and what it’s paid in dividends and how long it’s been paying dividends. Has it increased its dividends? If it hasn’t increased its dividends and it hasn’t had a great growth potential year after year and you see it’s not really earning more money… I’m just using this as an example. There are many hundreds of thousands of other companies to take. The concept of buy and hold is really, after doing some modest research, that’s the company you buy and try to hold through thick and thin. So, if the market goes down, whether TDs stock in this example goes down by 10 or 15 percent, you don’t sell it. You actually hold it. In some cases you actually buy more because it’s kind of like groceries at a supermarket. As groceries go down in price, you probably want to buy them. You don’t want to buy apples when they’re at half price. You want to buy apples and get a dozen or so at a really good cost. The same philosophy can go for stock investing. You buy that company, hold that company then when you can you actually buy more over time. You don’t really try to sell because there’s the reason you bought the company in the first place, that’s the long-term potential. You can take a similar philosophy with ETFs like you just learned through the TDE funds. But it’s obviously a lot easier to buy and hold a TDE fund because you’re much more diversified right out of the gate. Buy and hold typically relates to stock investing but it doesn’t mean that makes the tried and truth path.
Tom: I consider myself buy and hold with ETFs but part of it’s because I just don’t want to be bothered and constantly watch different companies or markets. Even in the case of ETFs I’m trying to decide if I need to get out. It’s easier to, I find, to rebalance just by buying the under-performing. Like you said, if something’s kind of down right now, it’s basically on sale. I like the analogy before that if you liked the stock at $50 you should like it even more at $40 assuming nothing has changed with the company. It just happens to be kind of an ebb and flow so why not get more of that and lower the overall price?
Mark: Exactly. Again, for some of the fans of your show may be familiar with adjusted crawl space or those types of things but to your point, if you’re a fan of the stock, if the unit goes down to 40 or 45 there’s no reason that the fundamental to that company are still the same, why not buy more at that time? All things being equal, stock prices tend to go up on average about 6, 7, and 8 percent over the long-term. So the collection of those stocks will grow 7 or 8 percent over time. Will a TDE stock grow at 7 or 8 percent? It may or may not. But as an individual stock buy and holder, you’re obviously hoping for that return if not more whether it’s through capital gains, price appreciation or through the dividends as well.
Tom: Obviously, a big benefit of buy and hold, especially with individual stocks are those dividends. Do you mostly invest for dividends? Especially, say in Canadian stocks?
Mark: Yeah, that’s definitely my buy on some. When I looked at the Canadian market many years ago when I was coming out of that financial crisis, I kind of looked at what companies tended to be at the top of all the broad market mutual funds. Mutual funds or low-cost ETFs you know of from the Vanguards’ out there, iShares… BMO has a nice theatre of funds as well for low-cost ETFs. There are a lot of companies that are offering some great products now. What I noticed back then is a lot of these same stocks kept appearing in the same big fund. So you’d have Canadian banks and you had utilities and Canadian pipeline companies and railroads so it was like a mini-monopoly, right? You’ve got banks, utilities and railroads. I thought maybe I should just hold those companies directly because all these funds we kind of the same. So that’s really what I did for the Canadian market. I find for the US market it’s a totally different story because our Canadian market is predominantly 40 percent financial, 20 percent energy and throw in a few materials and Telco stocks and you have 70 percent of our economy in those massive mega companies we’ve all come to know in Canada. In the US it’s much more diversified. You’ve got 10 or 15 percent in health care. You’ve got consumer discretionary stocks like the Coca-Cola’s and the Pepsi’s… the list goes on. So it’s much harder, I think, to stock select and get similar market-like returns in the US than you can in Canada. So my bias is to really buy and hold a lot of the Canadian stocks for dividends and growth. But really, I get more return for my nest egg. Hopefully, I’m getting more return. I really gravitating to more low-cost US ETFs to really ride the US market return. That seems to be a hybrid approach. I call myself a hybrid investor so that’s my hybrid investing approach that I’ve kind of gravitated to in recent years.
Tom: One thing you mentioned was the idea of buying certain things, especially Canadian stocks because you can pretty much make up the whole ETF. I think I might have mentioned on the show—and I hate to be redundant but one thing I’ve done is with the REIT ETF. I think I own something like four different REITs and basically that is more than the majority of the entire ETF which is kind of a high fee ETF. It’s not that high. It’s maybe over half a percent. But it was just easier to buy a few of these individual REITs and make up the whole market. I never really thought about doing that with the Canadian’s. I have a lot of Canadian dividend stocks. I sold them and got into ETFs. But I never really thought about the obvious fact that if you own five banks and five energy companies you’ve kind of come a long way already to having what is Canada.
Mark: Yeah, it is. I’ve done the same too with my REITs. I don’t remember all the tickers but you’ve got a ZRE from BMO. And they’ve got an XRE from Ishares, a VRE from Vanguard. Those are the sweets of the REIT ETFs we talked about. And you’re right; they hold very similar companies but maybe in different weights and caps. But you’ve got Realcan in there—the box store ownership. You’ve got H&R REIT which I think is in your hometown in Calgary. They own a lot of office buildings so you’ve got the office buildings. You’ve got the Canadian Apartment REIT as well which, again, owns apartment buildings for residential REITs. So you own a few of those REITs. They’ve recently started to unbundle it, the REIT ETF and I’ve kind of taken a very similar approach with Canadian stocks. But it took a lot of time. It’s been a 10 year journey to build the portfolio so this isn’t an overnight success story but it’s what we’ll get wealthy eventually from.
Tom: Exactly. In no way am I saying that the ETF isn’t worthwhile. If it’s half a percent that’s not that bad. In the world of ETFs that’s kind of the high one. I can avoid that. And it was such a small group. Literally, I think I owned four different ones and that is more than the majority of the ETF so it seemed like an easy choice.
Mark: Everyone has their own different approach but I think owning a REIT ETF and owning a Vanguard or Ishares or BMO product or a TDE for your Canadian content and then looking at a couple more ETFs—like you do, Tom, for your US and international diversification. Within a handful of products you’ve got the world covered and what better way to invest than to do that?
Tom: So all this talk about buying and holding and collecting the dividends it starts to sound a lot like the FIRE movement which has a lot of great principles like don’t spend a lot, stay on the frugality side and then invest that money and live off that. What are your thoughts on that?
Mark: I find the FIRE movement interesting because, getting back to David Chilton, I think if he was a millennial this is something he may write about; financial independence so you can retire early, paying yourself first, spending less than you make and living below your means. These are real principles that were around long before The Wealthy Barber even came about or he began to popularize it. I’m not against the FIRE movement. I think the whole concept and the focus around certain goals related to having enough income to cover your expenses is good. What I struggle with a little bit are a couple things. One is that I don’t think financial independence is something you should be running from. Again, maybe a lot of people are running from a job they don’t like or maybe some people are busy just dragging it out for a few years, live really frugally alone in order to travel the world or do other things. And while it’s not really wasted time, I think where I struggle with it a little bit is, if you’re not happy, make a change sooner than later. Don’t try to gut something out for 10 or 15 years and be miserable only to come out the other side saying, “Guess what? I’m retired now and I can do whatever I want.” So I struggle with that a little bit. The other thing I struggle with is for folks that say they’re retired but their pension money, they have royalties or rental income and other things, and I think folks need to just be a little bit more transparent about what they mean by retirement or financial independence. If you’re still working for a living but working on your own terms, I think that’s great. But I wouldn’t necessarily call yourself retired if you’re still working, per sae. That doesn’t really jive with the definition. For me, I think financial independence is working on my own terms. It’s not so much financial independence than just retiring and not doing anything. So, that’s my take on it, really.
Tom: In general I wonder if the definition of retirement is changing a little anyways. Let alone FIRE and what you’re saying about working in retirement, that’s becoming more of a trend even if you’re 80. You retire then you go work the door at Wal-Mart or you go to Home Depot because you like working with tools and wood and stuff.
Mark: I don’t think there’s anything wrong with that. If people want to retire or semi-retire, the concept of victory lap and doing things on your own terms is awesome. It keeps you young at heart, socially engaged and maybe more financially secure. Those are all great things but I think just trying to be financially independent and run away from something—I don’t know. I just don’t get the concept. I’d rather work toward something, I guess. Maybe that’s just me providing the context of what it means to me. I have nothing against the principles but I wouldn’t want to spend 15 years trying to run away from something. I just don’t know if it makes sense.
Tom: I know there are different kinds of people within the FIRE movement. But yeah, if you’re the kind of person (like you said) giving up a decade to benefit afterward… There have been a few people that question what happens if the market goes down? It could pop a few FIRE bubbles where people think they’ve got enough money. Again, it’s no different than regular retirement at 60 or 65 where you think you have a certain amount of investments that will get you so far but if the value of those drop or anything then it could be a real test.
Mark: Another thing too is the biggest wildcard for any retiree, your health. None of us really know how long we’re going to live. Retirement planning would be really easy if we knew the ending. That would be very morbid but also very easy for financial planners, right? But I think at the end of the day you can retire early. There’s nothing wrong with that. My wife and I want to have some sort of semi-retirement in our early 50s or sometime. It’s something we aspire to. But we won’t necessarily stop working. We’ll take different jobs or keep our same jobs and maybe do them a little bit differently. With all that said, I think the biggest wildcard for any retiree retiring in their 40s or 50s is the health care risk. Hopefully nobody will get sick long-term. Maybe your parents need extra care and you want to take care of your family or your parents. There are all these factors that play into a long life cycle (if you will) with them having a particular fixed income. It’s something I think people should think about. And to your point about the market dropping, who knows if and when it will happen but we know, by in large, there’s always both cycles.
Tom: We mentioned FIRE as a trend and we’ve mentioned ETFs. One thing I wanted to get your thoughts on were some of the new things. We’ve got robo-advisors and all-in-one ETFs. To me, both seem like an even easier way—granted, there’s always higher fees that come with that but they’re still pretty good compared to mutual funds. What are your thoughts on either of these; robo-advisors or the all-in-one ETFs?
Mark: I’m a huge fan of them. I’m actually starting to give them some thought on it because I’m a passionate investor and I have the US ETFs like I mentioned. I’m giving some thought into putting some of our financial assets into these all-in-one equity funds like Vanguard has. Other companies will probably follow suit too. I just think it’s great because this is an all-in-one fund that a young investor—or someone halfway through their career (like myself) or someone in early retirement. Maybe they’ve got a pension or other things and here’s a product—and it doesn’t have to be all equity that offers built-in diversification. All the balancing is being done for you and for a slightly modest fee. Maybe 30 basis points or something like that which is well below your REIT ETF and way below my two percent I was investing in mutual funds. Here’s a product that basically does it all for you and you don’t have to worry about putting in necessarily to your RRSPs and TFSAs. Basically, find a home for it, invest it. Draw some units as you need to and let the thing grow. I think these are awesome products for millennial just starting to learning to invest. On the robo front, I think it’s great. You’ve got the fin-tech, the financial technology helping people with the whole investing algorithm, right? So, if you need a fund from US or a fund from international or some Canadian funds, they’ve got that algorithm of the software doing the work and you’ve still got a warm body behind this that you can also call and interact with and actually have a real conversation with. I do like the robo blend to for people that want that personal touch at a lower cost compared to certain products you and I grew up with, I think it’s a great solution. Then you’ve got all these apps like Milo, Spendee or Mint that are at the touch of your fingertips on your phone where you can see what you’re spending, why you’re spending it there. You can track some of your budgeting. So, for people who hate budgeting or don’t like Excel spreadsheets or whatever there are apps that can do all the heavy lifting for you. I am a huge fan of fin-tech. It can only get better. This is a great age for Millennials or anyone else wanting to really get a handle on their personal finances. There’s never been a blend or a bevy of tools available to help people.
Tom: I’ve been considering going to a robo-advisor or at least trying it out because I think it’s great for anyone just getting started. In my case though, I used to find rebalancing fun and exciting but it’s less exciting now. I’m thinking this is one thing I can take off my plate—or the all-in-one ETFs. Just the idea of one less thing to do sounds good to me.
Mark: Absolutely. It’s all about your own behavior, right? You’re a busy guy, I’m a busy guy. Everyone out there is busy so how many hours in a day do you want to spend doing some of that stuff? If you’re really passionate about it, that’s great. But a lot of people don’t have the time even if they’re passionate about it because they’ve got family obligations, work or business to attend to, and personal time they want to take care of. Look at these solutions as an opportunity for you to offload some of the things you know you need to do but where you can have it done for you at a very marginal incremental cost. Again, compared to the products of the 2.5 percent per fund days, there are some great alternatives there. Whether it’s robo-advisors or Wealthsimple, those are just a few of the alternatives but they’re all out there and they’re all ready to help people at a much lower cost compared to before.
Tom: It’s similar how you mentioned Milo before as well; the idea that you can put little bits of money aside without having to do it yourself. It’s all automation now. Whether it’s Milo or something like Wealthsimple. It’s an app. It’s automated. It’s low fees. There are fees, yes. It’s not the absolute cheapest option but it’s so low that it’s not a huge issue.
Mark: Exactly. And ultimately, the fees you pay are a factor but I think people need to think about it like the treadmill that sits in the basement collecting dust. You have to think about the behavior. As long as you’re down using the treadmill you’re going to get value from it. So, as long as you’re using the app, robo-advisor and paying yourself first, it’s the behavioral change that’s going to pay way more literally in dividends or anything else than that small incremental fee you’re paying at the time. That’s just my thesis on it all.
Tom: Sounds good. Thanks for being on the show. Can you tell everyone where they can find you?
Mark: For sure, Tom. For those who haven’t seen the site or subscribed yet, please check it out. It’s called, myownadvisor.ca. I’ve actually been running the blog for almost 10 years. It’s hard to believe how fast time goes. But I still enjoy it. It’s a great passion and hobby of mine. I put out a few articles every month for sure. I try to put out at least one quality (if not two) articles every week. You can read about my dividend investing strategy, low-cost ETFs, robo-advisors, how to make small behavioral changes to save a little bit more money and keep more money in your pocket. I definitely talk about insurance tips and how to avoid pricey products on that front. Definitely check out myownadvisor.ca.
Tom: Thanks for being on the show.
Mark: Thanks a lot, Tom.
Thanks to Mark for sharing his buy and hold strategy. You can find show notes for this episode at maplemoney.com/markseed. There are only a few days left to enter The Maple Money 10th Anniversary Giveaway. If you haven’t entered yet, you have until March 2 to get a shot at one of 10 Amazon.ca gift cards worth $100 each. You can enter at maplemoney.com/giveaway. If you’ve already entered you still have time to get additional entries by using your special link to refer others. Thanks for listening and I’ll see you next week.