The MapleMoney Show » Money Psychology

How To Manage Your Money With Confidence in the New Year, With Rob Townsend

Presented by Wealthsimple

Welcome to The MapleMoney Show, the podcast that helps Canadians improve their 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.

Whether it’s paying down a credit card, saving for your retirement, or just your next vacation, the financial decisions you need to make can be challenging day in day out. No wonder it can sometimes feel as though you’re losing the game when it comes to managing your money? My guest this week is here to help.

Rob Townsend is the CEO and Portfolio Manager at Camber Co., an independent wealth management firm serving high net worth Canadians. Camber creates financial dashboards so people can visualize complex finances all in one place and be empowered to make smarter financial decisions.

At the outset of our conversation, Rob and I tackle the question of whether it’s better to pay off high-interest debt, like credit cards, before you start to invest. According to Rob, the answer is yes, and if you go by the numbers, it’s pretty cut and dry. Rob points out Warren Buffett has achieved a lifetime annual return of just over 20% on his investments. In other words, with most credit cards charging 20% interest, you would have to keep pace with one of the world’s most successful investors to make any money at all. The odds aren’t great.

Once you’ve paid off your most expensive debt, you can apply the same habits to your investments. But you’ll want to avoid some of the biggest mistakes most investors make, like not being properly diversified. Rob explains that most Canadian investors suffer from home country bias and are overweight in Canada. Because 97% of the market exists outside our borders, investors are not as well diversified as they think they are, and they’re missing out on a lot of growth opportunities.

One of the biggest problems is that investors spend too much time talking about the weather if you ask Rob. If you want to know what he means by that, check out the full episode!

Our sponsor, Wealthsimple, believes that financial independence should be available to anyone. That’s why they have no account minimums, meaning that you can get started investing for as little as one dollar. Don’t delay any longer; invest online by visiting Wealthsimple today.

Episode Summary

  • What your #1 focus should be when getting your finances in order
  • What makes Warren Buffet the world’s most successful investor
  • What are the biggest investment mistakes people make?
  • Investors shouldn’t focus on things they can’t control
  • Why you should hold more investments outside of the Canadian market
  • How you should invest in your TFSA
  • The importance of dealing with professional money managers
Read transcript

Whether it’s paying down a mortgage, credit card debt, or saving for retirement, the financial decisions you need to make, day in day out, can be challenging. No wonder it can sometimes feel as though you’re losing the game when it comes to managing your money. Rob Townsend is the CEO and portfolio manager at Camber, an independent wealth management firm serving high net worth Canadians. Camber creates financial dashboards so people can visualize complex finances all in one place and be empowered to make smarter financial decisions.

Welcome to the Maple Money Show, the podcast that helps Canadians improve their personal finances to create lasting financial freedom. Our sponsor, Wealthsimple, believes that financial independence should be available to anyone. That’s why they have no account minimums, meaning you can get started investing for as little as one dollar. Don’t delay any longer. Invest online by visiting today. Now, let’s chat with Rob…

Tom: Hi, Rob, welcome to the Maple Money Show.

Rob: Thank you for having me, Tom.

Tom: What I wanted to do with you today was just walk through some goals people can set at different stages in their life. It’s the end of the year. People kind of get into this New Year’s resolution thing, which I’m not a huge fan of, but here we are. I do like goals. I just don’t like New Year’s resolutions because of the how definite it is—how it has to be right at the end of the year. Maybe we can go through different stages of life and give people some ideas on what they could be doing (and what they may be doing wrong already) to help them out for the New Year?

Rob: That sounds great.

Tom: If we can just sort of walk through some scenarios… I think one of the first things I see often is when it comes to planning people’s finances it almost seems that in some of the earlier stages, it’s mostly interest rate math. How much are you paying on debt compared to how much can you save? And then later on as it starts to go a little bit more into tax math, how much can you be ahead by using this a RRSP or TFSA? There’s a lot more balancing that way. The very first scenario a lot of people can find themselves in (including me at one point) is when you’ve got some credit card debt. If you’re unsure what you should do, what’s your advice for that? Is paying that off the ultimate or should they get started into investing?

Rob: Credit card debt is the place to start. These credit cards have an interest rate around 20 percent or higher. To put that into context, Warren Buffett, one of the best investors of the world, is able to produce returns of 20 percent a year. That’s his track record. In order to get over that hurdle, you would be one of the best investors in the world. This is a huge number, that compounded over time, just gets harder and harder to take care of. So that should definitely be the number one focus, using strategies, scripts and consolidate your debt. Get that down. There are ways to manage it. That should be focus number one.

Tom: I agree with you in that I’m very math focused. But with some people there’s more of a mental side to this. Is there a certain person that maybe should start investing just to develop a bit of a habit? Or should they really just focus on it because I fully agree the math wins out here.

Rob: From a mathematical standpoint, it’s going to be very hard to argue that you’re going to be able to outpace a 20 percent credit card loan. That habit is important but the habit is the same thing—you’re just learning how to save. It’s about creating a savings rate. That savings rate is going to pay down credit card debt. Once that’s done, that behavior can go towards investing.

Tom: That’s a great point. If you’ve got $500 this month available to pay down that credit card, that becomes something else you can do with it in the future. If someone’s to the point where they’re consumer debt free, what’s the next stage for them? Is that when they should start investing or should they look at other things like savings goals and things like that?

Rob: Time in the market is the most valuable ingredient. Painting this story well is the story of Warren Buffett who is the greatest investor of the world. Why has he been so good? Was he just smarter than everybody else? Does he have better access to information than everybody else? Is using better computers than everybody else? Part of that is true. He is a natural and does have a unique gift. But when you really unpack it, he’s not the best investor in the world. If you look simply at track record, Jim Simons from Renaissance Technology has done considerably better. Warren Buffett has a track records around 22 percent. Jim Simons (for 25 years) has done 66 percent. On that metric, Jim Simons is a much better investor. But if you look at the net worth of the two individuals, there’s a massive difference. Warren Buffett is about $85 billion and Jim Simons is around $21 billion. What makes up that difference is the time that Buffett has been able to be in the market, investing and the compounding effect. Warren Buffett took 80 years of compounding interest at this high rate of return. That is what gives this amazing result which is why his net worth north of $85 billion.

Tom: That’s a great point. I’ve said on this podcast, too, that one of my biggest regrets— probably my biggest regret when it comes to my money is not investing sooner. I went through my whole entire 20s not doing much of anything. Just a few work related programs and not really taking advantage of that time. At some point, I will regret even more I’ve lost out on without that extra decade of growth.

Rob: Morgan Housel is a finance writer who just came out with a new book, The Psychology of Money, which is a great read. But in that book he talks about Warren Buffett. If he hadn’t got started investing early and had retired as a normal person at age 60, what would his net worth be? He (Morgan) ran the math and it’s only around $12 million. You never would have heard of him if Buffett would have started investing at 30 and retired at 60. But he started investing at 10 and at 90 he’s still going at it. That is the secret ingredient of success. It’s not these high returns as we can see by the example of Jim Simons having three times greater returns. His result isn’t even close to where Buffett is because Buffett had time. That is really the most important ingredient and the only way to do that is to get started as early as possible.

Tom: Now, the last basic question I want to ask you before we dive even more into investing is. One of the questions I hear a lot is, should you pay down the mortgage or start investing or increase investing? Is that just another math question or is it maybe a bit of just to sort of keep some diversity there?

Rob: Personal finance is personal. The finance side of that equation would say at these interest rates, given what we’ve seen historically for market rate of return, it is mathematically a very strong case that you shouldn’t pay off the mortgage and you should be investing that money because you’re going to have a higher rate of return in the stocks that you buy than the mortgage amount you’re paying. But that might not work for you personally. It may be the right decision to pay that down and forgo some expected return in order to achieve mental clarity or feeling better about your overall situation. And really, money is a means to an end so feeling good about money is a huge part of it. How do you get that? Do you get that by increasing your rate of return? Or do you get that by protecting one of the biggest assets you have in your life? It’s really up to the individual. You and I might be in the exact same position financially but take two different paths when it comes to that decision and that’s okay.

Tom: I hear a lot of these stories where people are looking backwards saying, “Oh, the market dropped. I would have been better paying off my mortgage and now investing” but that’s not something you can prepare for. If we’re talking about planning for goals, there is expected return. It’s not these anecdotal stories about paying off a mortgage instead of investing.

Rob: Yes, it is very easy once the results have come to light, to make those decisions. But the past is the past and we can only deal with future returns. And future returns are expected returns. They’re not realized returns.

Tom: Just to go on a little bit of a tangent, one of the things I keep looking back at is Bitcoin. I’ve said all along, it’s not a real investment. It feels more like gambling. Do I wish I had bought it years ago when I first heard about it? Sure. But that’s looking back at it. All along it was it was in the hundreds of dollars when I first heard about it in a computer shop. Some guy was building a whole Bitcoin mining thing which I still don’t understand. But the idea that you could have bought it back then and it would be worth so much now, great. But it never seemed like a sound investment despite the results.

Rob: Exactly right. It just always looks easy when you look in the rearview mirror.

Tom: You can say the same about a lottery number. You just have to pick those exact numbers and it’s easy once you already know them but it’s already kind of come and gone. I know you’ve seen just looking at client data and summarizing it up so I wanted to go through some of the investing mistakes you’ve seen (in general terms,) that people might be able to learn from and maybe improve on what they’re doing.

Rob: Well, I really like this concept of setting the right goals for the New Year. The modern apothecary, soap brand, ESOP, has a company policy that says their staff is not supposed to talk to clients about the weather. With customers coming in to their stores, weather it is not to be discussed. If I could have one goal for myself for 2021 it would be to not talk about the weather. And when I’m talking about the weather, I mean talking about “investing weather” which is talking about what’s going to happen with Bitcoin or China’s GDP next quarter. Or should I buy Amazon here or does it look overvalued? What’s going to happen in the political landscape that could change the market? Is Trump going to give up office? Is he going to stay in? Is there going to be a crash? All of that is talking about the weather. And 99 percent of this industry and the media talks about the weather—things that are totally out of people’s control. And it leaves no time or space for the things that are actually in our control. And when it comes to personal finance, what we need to do is focus on those areas we can affect change on. And that’s really what we try and do at my firm. We see clients every day. We need a lot of different individuals and families going through this process and we really observe a lot of common mistakes that we try and help people fix. So I think it’d be great to go through some of these common ones that are applicable to people at all different levels of net worth.

Tom: That sounds great. Since you have the list, if you can just kind of go through one at a time and let’s see what you found.

Rob: Yeah, absolutely. The big one we see all the time is lack of diversification. I’m talking lack of diversification globally, by industry, and by individual companies. Canada makes up three percent of the global markets. So should you have 90 percent of your money in Canada? Probably not. You are way overweighting what the market is suggesting you should have in your portfolio. It doesn’t mean you should only have three percent Canada. Again, that has to be a personal decision. There is this thing called “home bias” that we observe in all countries. Australia makes up three percent of the markets as well and most Australians have 80 percent of their money in Australia. But we should taper that down and understand its context in that it only makes up three percent. So watch how it be weighted. That should be thought about.

Tom: I just want to add that the three percent was enlightening to me when I first heard it. Going back two years, I didn’t realize it was three percent but always wondered why A couch potato portfolio here in Canada would be one quarter or one third Canadian equities. But why does someone investing in the States not need one third Canadian equities? I knew something was wrong there but I didn’t realize it was as bad as three percent. I realized the other Canadian issue is the number of industries we really even have available if you’re buying an ETF or something. But this home bias is a funny thing. One country is told to invest with this mix of ETFs and another country is told something different. Really, it doesn’t make much sense if you’re trying to be as diversified as possible.

Rob: You’re exactly right. We just don’t know what future returns are going to be. If you look at the 22 developed markets in 2002, the worst performing markets were Sweden and Germany. In 2003, the very next year, what were the best performing markets, Sweden and Germany. Things can change quite quickly so you shouldn’t put too much emphasis on things you observe in small sample sizes. In 2003 the worst performing market was Finland. So you might think you should overweight to Finland because you saw what happened to Sweden and Germany. But, in 2004, guess what? Finland was the worst performing market again. So you tried to observe a pattern and got burnt. From 2002 to 2007, the US market really was at the bottom of the developed markets. Over that six year period you can see it consistently not doing too well. And Canada outperformed it in each of those six years. You should say, “Six years is a long period of time. I clearly don’t need US exposure. I should just all be in Canada.” Well, what have you seen in 2007 to 2020? You’ve seen this massive outperformance by the US market. So now everyone just wants to be in the US market. Again, I’m sure we’ll see dispersions in that relative return of each market. And because the future is uncertain, we need to diversify and not try and pick the best solution or the optimal solution because it’s impossible to do, and instead diversify, which is just not making any obvious stupid decisions instead of trying to make really smart ones.

Tom: What’s next?

Rob: The next one is high cost investment vehicles. We see this over and over again. You have to pay something to get exposure to the market. You can buy individual stocks. You can buy ETFs. You can use a robo adviser. You can use an advisory firm. No matter what you do, you can’t buy the stock market for free. There are big differences in the cost that you gain. Canada has some of the highest mutual fund costs in all of the world and that impacts return performance. You don’t get net performance. You get performance after fees. So the higher the fees, the worse your performance is going to be. You can get quite cheap access to the market now so that should be used unless you have a really good reason for why you’re paying extra to get exposure to the market.

Tom: Yeah, it’s easier than ever to get these cheap opportunities. If I can make an excuse for why I wasn’t investing in my 20s, it seemed a bigger barrier to entry in the late 90s. I had no idea how to buy a stock. There weren’t any robo advisors and ETFs with no fees. I know there’s some fees baked in there for sure. Like you said, there’s always a cost. But there was a lack of information about when I was should have been starting—and a lack of technology. But nowadays, there’s no reason someone would pay these two percent fees on a mutual fund.

Rob: Yet 80 percent of Canadians (at the banks) are paying north of two percent in advisory fees. I mean, there’s just no way to get ahead when you’re paying those kind of poisonous rates. The next one is, active investment strategies. You just have to realize that when you concentrate, instead of owning the market broadly, that is a low probability approach. It cannot be proved otherwise. The reason for that is that markets are a collection of all these individuals pricing and asset prices. When you bet against that, you’re going against the collective wisdom and that just doesn’t work very well. I always talk about the show, Who Wants to Be a Millionaire. It’s an old show but if you got in trouble on that show, you could ask the audience or you could phone a friend. And the friend was usually kind of an expert in the area. When you look at the overall accuracy of “ask a friend” versus “ask the audience” the audience kills the individual. And that’s because that’s that market collective that you’re trying to bet against when you pick individual stocks or when an asset manager—a mutual fund manager tries to charge you a higher fee in order to only pick the good stocks. There is just no evidence that works so Canadians would be better off if they took the high probability approach, which is a passive approach to markets instead of an active approach.

Tom: Yeah, for sure. I’ve preached a few times about passive because, especially with fees, you’re not going to beat the market. On the whole, you take the fees off and go with the majority, we’re actually going to lose under the market. So it’s just good to kind of go with the crowd.

Rob: Exactly. The next one is portfolio turnover rate which is a bit more technical but it’s how what percentage of the portfolio is changing each year. When a portfolio is turning over in an up year, for example, you’re triggering tax. So the higher the portfolio turnover, the higher the realized tax that you’re paying in that strategy. And so what you want to do is have a low turnover because you’re paying less costs, because there’s transactional costs whenever you buy or sell. And there are is also a tax consequence. So you really want to look at portfolio turnover as something you want to keep low within your portfolio.

Tom: This is something I haven’t really looked at. Let’s say with an ETF. Is this a thing or is this more on a on a mutual fund side? I get the concern about portfolio turnover but I’ve never really looked into the numbers for this.

Rob: An ETF is a good example. So look at the S&P 500, which is an index of 500 stocks in the US. Those stocks don’t stay the same. They change. Tesla was recently added to the S&P 500. But that doesn’t make it the S&P 501. Something had to be kicked out. And when that got kicked out, was that position (from the time you owned the S&P 500 index) up or down? If it were up, that would be triggering capital gains tax. The indexer doesn’t pay that on your behalf. You have to realize that cost and that is spit out through capital gains distribution. So indexes typically have low turnover. You don’t hear about the S&P 500 changing their mix all the time. They want to set-it-and-forget-it but it does have to still change. With the average Canadian mutual fund, those active strategies are buying and selling all the time. So we see turnover rates in the 50 to 80 percent range. That means half the portfolio at a 50 percent turnover is changing within 12 months. And if those positions are up, again, you’re triggering tax.

Tom: That’s another good vote for passive because all this activity is obviously hurting and not helping.

Rob: Exactly. And also, those transaction costs are passed on to you as the unitholder. They don’t pay those for you. The next one here is “the folly of market timing.” This is probably what we deal with the most. People don’t want to invest today because of all-time highs. In March people didn’t want to invest because Covid was going to ruin the world, we were all going to die and the world was going to end. You never get away from this no matter what’s going on in the stock market. People always want a reason to be out of the market. And what I think is so interesting is, go back to that example of Jim Simons versus Warren Buffett. Jim Simons has a return that is three times better than Warren Buffett but Warren Buffet’s net worth is over three times more than Jim Simons. And the difference there is the amount of time that has been invested. So time is clearly the secret ingredient to investing. But no ingredient is more often left out of the recipe than the time. People want to interrupt compounding, unnecessarily. So don’t try and time the market. This isn’t going to be the only time you buy. Put it in, close your eyes. Sometimes you’re going to feel like a genius after a year and sometimes it’s going to hurt. But just keep going consistently and you’ll have a much better result.

Tom: This is one of the few times I felt like I won by procrastinating. I don’t follow some of the latest events and different companies results or the country’s economy or anything like that. When the money goes in, I just leave it there. There’s been a couple cases with individual stocks (when I was buying individual stocks) where some of those companies have really dove down to almost nothing. But I didn’t have a lot of money in them and I just didn’t follow. Overall, this has helped me in that I kept the money in. But there are some cases where some companies have just become next to nothing and I’m still holding onto them at almost no value despite those few losses. I fully agree. If you’re going to make an investment in something, move on. Like you said before, all the more reason not to be buying individual stocks, necessarily. There might be broader ways to do this.

Rob: Absolutely. Another one we see all the time is large cash position. Cash builds up. And again, that’s kind of a form of market timing so it ties into the last point. But on a one year basis, the markets go up 60 percent of the time. So why are you sitting on the sidelines? Get it working for you. Get it compounding. Let that take effect. Another one we like to try and implement for people is automation. People know they should be saving, investing and filling up their registered accounts but knowing something and doing something or two totally different things. By automating, you just totally change the behavior. There is a study of donor cards (done in Scandinavia) that looked at whether they give their organs if they’re in a fatal accident. There were two totally different percentages of whether they give or they don’t. And what was the difference? One of the cards had an “opt in” box and the other one had an “opt out.” So whatever the default option was, 99 percent of people do. Don’t leave it to chance. Automate it and get those best behaviors working automatically because though know you should do them and think you’re going to do them, most people won’t. So just automate it.

Tom: Was there another?

Rob: You want some kind of tax loss harvesting overlay in the portfolio so that you are less taxable. That’s what the robo advisors provide as an overlay on top of just a simple ETF portfolio. And that really does add value to your strategy over time. So if you’re going to do it yourself, that’s fine. But with passive, you can shift around what you own in order to minimize that taxable event each year as you rebalance.

Tom: Can you explain what tax loss harvesting is? I’ve seen it offered but it’s not something I’ve looked into too much. It’s kind of the same thing I look at confusingly when people want to sell to lose money just because of some tax benefit. I don’t understand the math benefit of this.

Rob: It’s best achieved at the portfolio level. It’s pretty hard to do at an individual level if you are trying to hold a certain portfolio with a mix of assets. Say you’ve got Canadian markets, US markets and emerging markets. That’s good at the start of the year. But what happens is, markets start to move. So over the year, your portfolio is no longer in line with what the original intent of the portfolio was. It has to be brought back in line. Individual positions have grown and shrunk so they have to be brought back in line. Rebalancing triggers activity in the portfolio. And when you trigger activity in the portfolio, you’re triggering tax because if those positions are up or down, there’s a tax consequence to that. It’s just about trying to be smart about that, to match things up so that you’re paying the least amount of tax possible, which keeps more money in the portfolio compounding for a longer period of time.

Tom: How does this happen? Does someone look at the tax consequences of fully rebalancing and decide that maybe they don’t want to fully rebalance back to the original number?

Rob: With a portfolio you can sub things in because you’re not worried about owning Coke and Pepsi because you don’t really feel like there’s a difference in those two. If you need to keep exposure to the soda trade, you could sell your Coke and keep your Pepsi and still keep decent exposure to that trade and manage it from a tax point of view.

Tom: Okay.


Rob: Another thing is just to simplify your reporting. We look at so many people’s investment accounts and there may be 15 line items and pages of activity every quarter. We’re total finance nerds at Camber and we can’t understand how to judge where you at, relative. There are a lot of solutions that just make it easier, like these bigger online solution ETFs, all-in-one portfolios in order to have reduced line items and reduced activities. Then you can actually see if you’re up or down. How am I doing? How much am I paying in fees? Just having transparency is good for everyone’s financial health.

Tom: Yeah, it keeps it nice and simple. Another thing I wanted to go through with you is I know with your firm you deal with higher net worth. Planning starts to become more and more of a thing. We’re beyond the point where it’s, “Do I invest in this or that?” What’s next? You mentioned tax loss harvesting. Does it become more about tax planning and how this is passed on to generations, whether you’re giving this money to charities? How does all this planning come together?

Rob: That’s a good question. I think that’s the area where financial professionals (like myself) should be spending the most time instead of trying to this predicting the future—which stocks are going to be better and which economy should you be investing in? None of that is proven to have any kind of merit. Those strategies can’t be backed up by academic evidence in any studies that are significant. Where they should be concentrating their time is helping that individual. Helping that individual understand the question that you were asking earlier, “Should I pay off my mortgage?” They should show you the math and also explore the emotional and psychological side of money. How does this make you feel? What are you worried about? What do you want to protect? What are you giving up by not doing that? What’s the option value of doing it versus not doing it? What are the consequences? That is where an advisor really can add value to an individual. We love Wealthsimple. We’re big fans of the company and what they’re doing on the robo side. What we say to clients is, “What happens when your wealth isn’t simple?” That’s where it might make sense to have a financial adviser. We see a lot of the same mistakes that we can talk about here if you would like, that are very applicable on the planning side that may be of benefit to the audience.

Tom: Yeah, let’s go through that. Because the things you’re seeing in aggregate will certainly apply to most people listening.

Rob: Definitely. The biggest one we try and help people with is understanding their savings rate. I think a lot of people think that once you make a lot of money, the savings rate doesn’t matter. Well, if you have a savings rate of zero percent, you can never retire because you’re spending everything you make and you’re not putting anything away. The savings rate is the most important number in personal finance. And it’s one that very few people have kind of drilled into. What is their savings rate and what should it be? The simple way we like to explain it is, if you’re starting at zero, different savings rates can tell you how long you have to work until you can live off those retirement savings. At zero percent savings rate, you can never retire. At 10 percent savings rate—which means saving 10 percent of your take home pay, it’s 51 years. At 15 percent savings rate, it’s 43 years. Now, that’s pretty amazing. If you can just change your savings rate from 10 percent to 15 percent by getting a little bit leaner on your budget or finding some wins here and there, that’s eight years of retirement you can get to, faster, which is pretty incredible. At 50 percent savings rate, you can retire in 17 years starting today. And at 100 percent savings rate, you can retire right now.

Tom: It’s interesting how numbers can be very motivating. You often hear the common advice to save 10 percent. And what 51 years is what I think you said it was?

Rob: Yes, 51 years.

Tom: Okay, that’s not a great goal unless you’re doing that right at the beginning of your career when you’re young. It might still work out. But in general, though, it’s really not great advice to save just 10 percent and feel like you’re doing well.

Rob: Exactly. And really, the key is to understand that saving is so much more important than increasing your income. It’s like a lever that affects more change. When you increase your savings rate, you’re decreasing the amount that you need to spend permanently for the rest of your life, which is so powerful when you get into these retirement planning calculations.

Tom: What’s next?

Rob: Asset matching. You want to understand when is the call on that capital? People say, “What should your asset allocation be?” It really should depend, really, per account. If run into people that have bonds in their RRSP but they’re not going to use that account for 40 years, there is no historical period of time where the equity premium hasn’t shown up over 40 years so why would you have fixed income in your RRSP? It just doesn’t make sense. Now, the RESP is different. Maybe you have a child that’s 18 and going to college. That should be a totally different asset allocation because the timeline for that money is different. I mentioned earlier, over a one year period, you’ve got a 60 percent chance of being positive in the equity markets. You’ve got a 40 percent chance of being negative. And that negative can be big. In 2008 that negative was attached to 30 plus percent. Had you invested your $100,000 for a down payment, you’ve all of a sudden just took $30,000 off that number. Ouch. That hurts. Over five years, you’ve got about an 80 percent of being positive and over 10 years you get into the high 80s, low 90s. It’s really about understanding, “Okay, this bucket of money, when am I going to start drawing a significant portion of it?” That should drive what the asset allocation should be. And these accounts that benefit from tax protection like a RESP or TFSA, they don’t have an immediate call and really should be looked at to have a higher allocation to equities or stocks (in our opinion).

Tom: Yeah, that makes sense. That’s a question I see often too. Do you put it in RESP? Do you go non-registered accounts? There’s all these options and it seems to come down to more of the timing. A look at it on the way out. I’m finding the TFSA being a better option now that there’s a little bit more room to invest in there. You just have a bit more control of when that comes out and the lack of tax and all that.

Rob: Yeah, absolutely. It’s a very powerful instrument. I think a lot of times, at least early on, it was discounted because it started off just as $5,000. People thought it wasn’t very significant. Well, $5,000 along with adding in all these contributions that you get to make every year, compounded tax-free for the rest of your life, is a huge advantage. The TFSA should really be taken seriously. I could encourage people, it’s not the place where you should be taking on risk. People think because it’s tax-free, they’ll put all their risky stock picks in there. Well, no, that’s the one account you don’t really want to screw up. If you just get the market rate of return, a six percent return, an eight percent return over long periods of time (and make your contributions) you will be astonished how big that account will be. And it’s there as your emergency fund, or if something happens to you, if health care costs get more expensive, inheritance—all of these things. It’s a very powerful tool. Don’t use it as a place to put your quirky stock trades. Do that in a taxable account. That way, if you lose (which you probably will) statistically, you can use that loss going forward. And if you have to pay the tax, great. But you’ve made a bunch of money so you’ve got to pay your fair share. The other one here is to harmonize the advice of all professionals. Finance is a big term. You’ve got your accountant, your lawyer, and maybe an insurance person. You may have an adviser or two—financial advisers. Everybody needs to be working on that same goal. We create very robust personal finance dashboards for clients. We’re trying to encourage them to use those with their other professionals or allow us to show that dashboard to the other professionals so that everybody’s working on the same goal. Because a lot of times you can get the siloed advice. And financial advice just doesn’t work like that. All of your silos in your financial life are connected levers. So, if you pull on the tax lever, it can effect change in other areas. So you really need everybody working on the same goal.

Tom: I like that. If everybody’s looking at the dashboard, they can they get that same picture instead of just worrying about one little thing like what kind of life insurance you should have. Or the person who does your taxes can show you how to save on next year’s taxes.

Rob: Yeah, especially accountants. We work very closely with our clients’ accountants because accounts are really focused on either last year or this coming year or maybe the year after. But they’re not seeing that powerful compounding effect. And they’re not always privy to all the other things that are going on in someone’s financial life. With that information they can serve you way better so we think it’s an important tool and something people should really focus trying to make happen—to make sure their advisors speak to each other instead of trying to silo them off or make them even compete against each other. That’s just crazy.

Tom: And do you have any more?

Rob: Maximizing your company stock compensation plan. Again, it’s kind of simple stuff, but there’s free money being left on the table all the time. Mot filling up RSPs and TFSAs, not getting the grant in our RESPs. We see that time and again. It’s just simple financial organization. And the last one is when you do go to retire—creating that cash flow strategy. That’s really where you can either hurt or help yourself from a tax point of view. And again, you need everything kind of working in harmony from your OAS to your CPP to your RIF. They’ve all got to be working properly in order to minimize the tax burden you’re paying in retirement, allowing more money to stay in your accounts, and continuing to compound to pay for your life down the road.

Tom: I was looking on your site and one of the things you provide clients is an investment policy statement. Could you just explain what that is?

Rob: That really just gives the parameters of what we can do on their behalf as their discretionary portfolio manager. And investment policy statement is the rules. It is saying, “This account is designed for higher returns and it doesn’t have a timeline or call on that capital for years and years so this is how it’s going to be managed. And these are the boundaries within we will operate on your behalf…” As a discretionary portfolio manager, we don’t have to call clients every time we’re making a move. Those things happen at a portfolio level within the company. But this sets out the guidelines of what is allowed and what isn’t allowed.

Tom: This has been great. I hope people are inspired to start some goals if they’re looking at their finances. It’s been an interesting year. Everybody’s looking forward to a better new year. Despite my hate for the term “New Year’s Resolutions” it is still a good time to set some goals and change what they’re doing with their finances. Can you let people know where they can find you online and tell them about your service?

Rob: You bet. The best place to find us at We build financial dashboards which really shine a light on the areas where we can impact change for clients and where clients can impact change for themselves. We’re trying to modernize what is traditionally called “financial planning” and bringing it up to standards and giving it the respect, time, attention and modernization we think it requires. That’s our mission at Camber. All of our contact details are there. My email is [email protected]. I’d love to chat with any of your audience who’s interested in investing or talking about some of these common mistakes that we’ve observed as well as expanding on any of that if it’s helpful. Please reach out.

Tom: Great. Thanks for being on the show.

Rob: Thanks, Tom.

Thank you, Rob, for showing us which investment mistakes to avoid in the new year and helping us manage our money more confidently. You can find the show notes for this episode at Do you know that you can watch videos from past episodes on our YouTube channel? If you’re interested, you can check them out at Make sure to hit the subscribe button while you’re there. I’m looking forward to having you back here next week when Rob Carrick is on the show to look back at 2020 and share his predictions for the New Year. Happy New Year. See you next week.

Credit cards have an interest rate around 20% or higher. To put that into context, Warren Buffett, one of the best investors in the world, he’s able to produce returns of 20% per year; that’s his track order to get over that (credit card) hurdle, you’d be one of the best investors in the world. Click to Tweet