Barenaked Money: Recent Episodes
WLWP Wealth Planners/iA Private Wealth
The naked truth about all things finance, from a Canadian perspective. This podcast is created and delivered by WLWP Wealth Planners | iA Private Wealth
iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.
Does the industry do a bad job of communicating important things? Colin & Josh have opinions, as they usually do.
Colin & Josh assault one another's deeply held beliefs in this week's episode of Barenaked Money. You might be surprised what is and isn't...true.
If your mortgage is up for renewal, or your variable rate has been more variable than you expected, things might be a little stressful at the moment. (Or you might already be stressing about some renewal date in the future because linear time is a human construct, and so is anxiety...) Check out what Colin and Josh say about the options you may have before you and what they mean long- and short-term.
In this episode, Colin tries to get ChatGPT to admit its true nature, but Josh wants to talk about how companies employ super-smart people to help create products designed to produce optimal outcomes for them but are, unfortunately, mostly not designed to provide the best possible outcome for consumers. Are some of your service providers setting you up for failure? Find out in episode 81 of Barenaked Money.
If you've ever wanted to dive deep into the mind of Colin White, now is your chance! In this week's episode, Josh is confronted with Colin's stream of consciousness. Or perhaps it's a river. A deluge of consciousness. Enjoy!
Josh & Colin talk about the latest market movements, the headlines and the recent rally. Were you feeling optimistic about October, or were you more pessimistic? There was a lot of pessimism baked into the market, as Josh says. Also, there's no better word for "knee-jerky."
In this week's episode, we're sharing the single greatest destroyer of wealth. Care to guess what that is? This is an audio recording of our quarterly client presentation and market update.
This episode is subtitled: "Josh is right, Colin is wrong, for the first time ever." What if every house on your street had a ticker tape running to tell you what it was worth last week, last month, or last year? What if it was as easy to sell a piece of real estate as it is to sell a stock? Join us this week as Josh & Colin discuss why we treat an investment like real estate differently than we do our stock portfolio and whether that difference is merited.
If you've ever wondered what combination of experience, training, aptitude and skills it takes to become a renowned portfolio manager and blueberry farmer, now's your chance. Join Colin & Josh as they pick the brain of one of the best. Geoff MacDonald of Edgepoint Wealth is an award-winning portfolio manager who was recognized by the World Economic Forum as a "Young Global Leader" and named by Barron's as one of the top 50 Portfolio Managers in 2007. Aside from those accolades and the awards he continues to amass, in many ways, he's still just a guy from PEI.
There are few things that Canadians hold in as much esteem as their banking institutions. We Canadians are pretty fortunate to have a banking system that is robust and regulated, but are those handful of publicly traded institutions the best place to invest your hard earned money? What about Real Estate? We're tackling the big questions today on Barenaked Money.
What does a Mutual Fund Portfolio Manager do all day? As it turns out, it's not as much Wolf of Wall Street as you're probably hoping. Still, with the help of guest James Gauthier, Vice President, Investment Products & Platforms at iA Private Wealth, Josh & Colin cover the excitement and the hard work that goes into the job. In a very down-to-earth and realistic way, you'll hear how decisions are made and what they mean.
You're hearing rumblings from all the big news outlets and all the big players in the world of finance. Whether they're whispering like it's a bad word or shouting it like Henny Penny - does the fact it's being discussed endlessly make it a problem for a well-constructed plan? Listen to what Colin & Josh have to say in this week's episode.
A lot of quick hitters in this week's episode. Consider it a medley of flavours from the world of personal finance. How important is it to be able to support a family financially for men vs women? You might be surprised at what the research shows. Are SPACs still a thing? You probably won't be surprised by what the research shows. Has Josh's opinion evolved as it pertains to Elon Musk? No. But maybe. But no.
This week's episode was recorded a few weeks back, but it remains relevant. We're talking about current events and how to view them from a pragmatic standpoint. A key quote this week: "There's a certain amount of uncertainty in life you have to learn to live with. There's no way for us to make this completely comfortable for you."
In this week's episode, we were fortunate to be joined by Carl Richards of The Behaviour Gap. Carl is a renowned author, a Certified Financial Planner™ and creator of the Sketch Guy column, appearing weekly in The New York Times since 2010. Carl has also been featured on Marketplace Money, Oprah.com, and Forbes.com. In addition, Carl has become a frequent keynote speaker at financial planning conferences and visual learning events around the world.
Special guest, Hugh MacPhie, on this philosophy: "So the genesis of magnetism thinking, which is basically the core of everything we do within our firms, we try to link all of our work back to, what does magnetism, and being more magnetic imply, with respect to either strategy work, or branding work, or creating an engaging and high performing culture? And the core question that I found super interesting was, what do people cheer for and why?"
Humans have evolved to look for negative information and project possible outcomes. If we hadn't evolved that way...well, we wouldn't have evolved at all. So how do we overcome our natural instincts? Let Josh & Colin explain.
If you have a good financial plan in place, it's probably built for the long haul. Josh and Colin discuss the current reality of a bear market, rising interest rates, inflation and what it means to our clients in real life.
How often do you think our process has worked out in our favour and how often have we missed the boat? Find out in this week's episode of Barenaked Money when we look back over the past fifty episodes.
In this episode Josh & Colin discuss how, when we recorded this, we weren't officially in a Bear market. However, things have changed. Importantly, the message of the podcast remains salient - no matter what the market condition. So listen in as we discuss whether or not a bear market matters.
We didn't know we'd need a part two on this, but it turns out that buying a house in the current marketplace isn't as straightforward as a one-episode podcast would have you believe.
I'm as surprised as you are but apparently, people are deeply interested in the inner workings of Josh's mind. In this episode, the guys continue to delve into the more technical aspects of their roles, including a discussion on some of the factors that go into portfolio construction and investment decisions.
In this episode we are stepping back from the deeply deeply technical, and getting into something that's meaningful for many families in Canada today. We delving into the current state of the housing market, and what a home purchase may mean for your family given recent changes in the interest rate landscape in Canada.
It's Part 2 of Revenge of the Nerds where our guys delve into the depths of some of the more technical aspects of what we do for our clients. You've been warned.
In this episode, Colin & Josh respond to listener requests to provide some super technical and detailed content. We're not sure who made this request. It could be a test to see if the guys really know their stuff (spoiler: they do), or it could have been Josh sending emails from an anonymous address to manufacture an excuse to talk about some of the things he loves the most.
Continuing from Part 1 last week, we're still talking about intergenerational wealth transfer. And we're thrilled to remind you we're joined again by guest star and long-time friend of WLWP. Brent Vandermeer is a Portfolio Manager at Crosspoint Financial | iA Private Wealth in Ottawa.
This week we welcome a very special guest, and long-time friend of WLWP. Brent Vandermeer is a Portfolio Manager at Crosspoint Financial | iA Private Wealth in Ottawa. Colin & Brent are doing a deep dive into the subject of estate planning. In Part 1, we're talking about intergenerational wealth transfer...we're still going to be talking about it in Part 2, next week. There's a lot to cover!
The conflict in Ukraine. It has captured the hearts and minds of all of us. Unfortunately, on top of the very real humanitarian crisis, there are practical concerns that, in our responsibility to our clients, we have to talk about. Hopefully, this conversation with Colin & Josh will remind you that they've got your best interests in mind, at every step.
You are undoubtedly taking in current events. Inflation, interest rates and Ukraine are probably all on your mind. Along with concerns of a purely human perspective, you may be worried about how this will impact your investments and financial goals.
Although the situation may feel ‘unprecedented’, similar to the initial days of COVID, the market has been through this before.
While it probably seems easy for us to say, “Don’t worry,” we do know it is not always as simple to take that kind of advice on board. If that’s the case, reach out. We welcome your calls and emails and will be grateful for the chance to explain our thoughts and what we do to manage these types of events.
In this Market Update, we cover a lot of ground, but our advice remains unchanged. Listen for a reminder.
We're taking a walk back in time to cover some of those moments when people were really really sure about something to see how that all played out for them. This time we're talking about Nortel which, as it turns out, is a bit player in Josh's origin story!
It's been a spicy start to 2022. Josh & Colin are going to talk about some current events, what's been happening in the markets, and address some of the headlines that might be keeping you up at night.
We're taking a different look at investing in real estate. Picking up the perfect retirement property in preparation for a retirement date in the future, a cottage for the family to hand out in? This podcast is all about buying a second piece of real estate and looking at the ins and outs as well as the dos and don'ts.
Oh predictions. You know we're a little too pragmatic to whip out the tarot deck and start making sweeping proclamations. However, it might surprise you to know that we're doubling down on what we think are some things that are pretty much guaranteed to come true in 2022. Have a listen and let us know if you agree.
Josh & Colin tackle the big stories of 2021 with their usual full-frontal style. How did the headlines play out, did things meet up to the hype or the hyperbole? Find out in this week's episode of Barenaked Money.
A millionaire shouting into a microphone, a billionaire being interviewed by the Financial Post, or your clever neighbour with the Tesla...be careful where you get your financial advice. Sometimes the hype is just hype; if there's no product being sold, remember...you might be the product!
If we learned anything from Colin and Josh in this episode, it's that Josh really doesn't like high-pressure sales techniques or scholarship trusts! It doesn't have to be terribly complicated, but there are a few different solutions to make sure your kids are able to access the education they need and want when they're ready.
You've seen the infomercials, now we're sharing the reality of Reverse Mortgages. Cutting out the late-night hype, questionable acting, and retired sports stars, Josh & Colin provide clarity on a product some of you might be curious about.
The most common questions we hear about CPP, answered by this week's hosts, Josh & Dylan. "Tell us when you're going to die, and we'll tell you when you
Josh & Colin tackle the weird and wonderful world of Crypto, NFTs and...'sticking it to the man?' in this episode about DeFi. As John Oliver said, “Everything you don’t understand about money combined with everything you don’t understand about computers.”
Ever wondered if that adage about never losing when investing in Real Estate is true? Let Josh & Colin tell you how it really is with a real-life example, Colin recently sold his family home and he's getting super naked about the whole experience while Josh does quick math.
Understand all the ins and outs of mortgages so you can choose wisely when the time comes to buy your first home, a new home, or even a second home.
This week we're sharing our most recent market update which was presented to our clients and their guests earlier this month.
Would predicting the value of Apple shares way back in the day have made a difference? What about being able to accurately foretell various booms and busts over time? Do these things really matter? Find out what Colin & Josh have to say on the subject in this lively and somewhat controversial episode.
Learn how to make day to day financial decisions like the pros. Colin & Josh walk through various daily decisions and break them down into easily understandable components so you're empowered to tell your chatty neighbour why his new Ultimate Chequing Account might end up costing him more money than the old penultimate one.
We were going to deliver Pt. 2 of Financial Literacy, but something came up. Or...something went down. So this week we're talking about the recent market downturn. Historically speaking this is a blip, but we know you might be feeling a way and we're here to help. Let's talk about how meaningful this dip is, in the big picture.
Why a "0 down, 0% interest" car loan might not actually be in your favour, and other financial mysteries solved. Learn how to ask the right questions and make financial decisions like the pros. No clowns were harmed in the making of this podcast.
Eventually, you want to gift the cottage to your kids so they can carry on creating fantastic family memories in a spot you all hold close to your hearts. Easy, right? Maybe. Or you might be kidding yourself. So why not hear what the professionals have to say. In this episode, Josh & Colin are joined by Carol Bezaire, Senior VP Tax & Estate Planning for Mackenzie Investments. This one is likely to strike a chord for many of our listeners.
It's not as cut and dried as you may have thought. There are ways to draw income that are more efficient or advantageous for various reasons. There are also wrong ways to do it. So...get some advice, you can start with this episode of Barenaked Money.
Divorce. No one likes to think they'll end up there. Heck, even the people who do end up there often hope it'll go better than it does. There's a lot to cover, but Josh & Colin touch on the basics in this week's episode. The emotions surrounding the demise of a romantic partnership are tough for everyone involved. However, seeking good & reasonable advice early in the process can ease the burden. If that's what you're looking for, we can help. (Side note: If you're mad and want advice on how to get even, we're not your people.)
Do you think you know under which government the market has performed best? Would you bet that you get how taxation has impacted our economy? First, Colin & Josh dissect the political landscape of the Canadian economy. Then, they spoon out a helping of reality onto some mythical beliefs surrounding policies (and politicians) and break the whole thing down without any hype or hyperbole.
*Not really, that's a joke.
Most Canadians would prefer to talk about a mysterious rash they have, than discuss their finances.
Still, to get the best possible plan and develop the most effective relationship with your financial service providers, you have to learn to be ok talking about money. This special episode is taken from a recent webinar designed to help you feel as comfortable being Barenaked about money as we are.
Got a pension? Thinking of a career change? Then this pod's for you. Josh & Colin explain the ins and outs of commuted value and give some valuable insight on how to make a decision regarding what may be the biggest single financial question you'll ever be faced with.
Today the guys are talking about Defined Benefit Pension Plans. Magical panacea for retirement or not so much? The good news, the bad news, the dreams, and the realities. Everything you ever wanted to understand about your pension plan (but weren't sure who in HR could answer your questions).
If you've always believed those numbers that get thrown out each year, you might want to sit down for a moment. Financial data might not be as valuable or even valid, as you'd expect. Jobs numbers? Household income averages? Listen to what Colin & Josh have to say.
Josh & Colin are joined by Associate Portfolio Managers, Laura and Ainsley to discuss the phenomenon of Greenwashing. What is it, how to spot it, and why it happens.
It's Canada Day so we gave the guys a break, this is a super short special episode covering the Cristiano Ronaldo/Coke incident. Was it a thing or was it a coincidence? Let Colin & Josh tell you all about it.
In this episode, Colin & Josh talk about reopening and what that will mean to the economy, & to businesses and individuals. The guys briefly touch on summer patio season, but otherwise, it's an in-depth discussion of how the reopening of our nation in a (kind of) post-pandemic world will impact all of us. Plus, could the pandemic be your opportunity to take a life-mulligan?
In this episode, we are joined by Mary Helen Morra, VP, Advisor & Client Experience at iA Private Wealth. Along with Josh & Colin, the conversation is a lively discussion of whether or not there is any real merit to the idea of "Financial Planning for Women" as somehow different from Financial Planning as a whole. The answer is both no...and yes.
An audio version of our recent Ethically Focused Investing Webinar. It took us a while to come to the table with a solution for our clients seeking investment options that also met some of their closely held values about the environment, social responsibility, and other issues we face today. That's because most of the options didn't do what they said they did or didn't function well as an investment option.
Josh and Colin tackle some headlines of the day and give you their thoughts on whether each is grounded in reality, sensationalized, or completely off the mark. Some tips on watching the news with a critical eye.
Colin and Josh engage in an entertaining walk through some of history's famous bubbles, beginning in the 1600s. It's a bubbalicious discussion of how to identify them, and whether or not you should bother.
BARENAKED MONEY PODCAST: EPISODE 8
Inflation's Impact, Supply Chain Disruptions, Toilet Paper
Speaker 1:
You're about to get lucky with the Barenaked Money podcast. The show that gives you the naked truth about personal finance with your hosts, Josh Sheluk and Colin White, portfolio managers with WLWP Wealth Planners, iA Private Wealth.
Colin White:
So Josh, bunch of talk about inflation. Good thing, bad thing, necessary things, scary thing, apocalyptic thing. There's lots of different versions of this out there. Why don't you lead us through a little bit of an exploration of the potential impact of inflation from an investment perspective?
Josh Sheluk:
Right. We're going to cover a lot today. Inflation from an investment perspective is going to be one of them but you're going to make sure that we don't forget what this actually means in practical terms for people as well. So I will kick it off on the investment side of things. And I'm just going to start with something that a lot of people have been talking about for the better part of the last 10 years now, really, since we went through the big recession that we had in 2009. And that's that the government is printing money, this whole idea of printing money, I used air quotes there for our listeners, and what that means because people are thinking, "Okay, if you're printing money, that's necessarily going to lead to inflation." There's a direct line between the two of them. And so I guess I'll just start by debunking this little bit.
Josh Sheluk:
The idea of printing money is basically, as we know the government, the central bank, they have control over how much money, how much physical paper money or money in the bank for example, is in circulation to some extent. And so this idea is that if they're putting more money in circulation, that's going to devalue the currency hence leading to inflation. And there's some real economic theory behind that. The value of our Canadian dollar, for example, is just a supply and demand thing. So if you increase the supply of the Canadian dollar, economic theory posits that should decrease the value of this and then hence everything costs more money to buy. But what we've seen over the last 10 years is this massive printing money, again, quote unquote "printing money" thing that has not led to really much inflation at all over the last 10 years.
Josh Sheluk:
And so what really happened was central banks put this printed money into the banks. The actual retail banks and commercial banks like you and I would go to to take our money out, whether that's TD, RBC or another one. But the banks didn't actually lend out a whole lot of this money. And we can debate all day about what the reasons for not letting this money work, but I think it was a combination of people, one not wanting to borrow the money, to spend on things and banks, knowing that at some point they're probably going to have to give this money back to the central bank so they don't want to lend it up. So the fact that this money was printed, it doesn't really mean that there's going to be inflation unless you see this money actually get into circulation.
Colin White:
And when you say the circulation Josh, that comes down to something that again has started to geek out, the velocity of money. If you give somebody a bunch of money and they just put it in the bank and leave it there, that's not going to drive up the demand for pretty much anything. So not only is money have to get air quote, print it, it's actually got to get used for something and that's not a straight line, at all.
Josh Sheluk:
Yeah. There's a million things that really go into inflation. And I'm probably exaggerating when I say a million, but not by much. So this idea that government prints money, we get inflation, uh-oh, that's a bad thing, that's way too simplistic. And there's so many different relationships that are out there that you need to consider before we can draw that direct line. So we talked a lot about theory and that's kind of boring for a lot of people but there are some things, some other factors that have, I guess, a more tangible link to inflation. And one of the things that you wanted to make sure that I brought up was wages and how wages to people and employment, I guess more broadly speaking, actually flow into inflation. So let's just take it at its most simple level.
Josh Sheluk:
More people employed that means more people have more money to spend. They go out and buy more things, higher demand for things should lead to inflation, all else equal. So there is a direct link between number of people employed and the thought that at some point with a higher number of people employed, lower unemployment rate, there should be more inflation. And part of that is a wage's discussion as well. So as more people are employed, it should get harder for businesses to find qualified workers, which means they need to pay those qualified workers more to attract them. So for example, if you're working at local McDonald's and Wendy's down the street says, "I really need somebody to flip burgers here. I'm going to offer an extra five bucks per hour for anybody that comes and works for me from McDonald's." Well, that person that's getting five bucks more an hour, they're going to have more money to spend on things. And again, higher demand for goods, generally speaking should lead to inflation.
Colin White:
Yeah. And I saw something you watch, when unemployment rates are really low, labor participation is really high, but then the little bit of spill over that can happen is all of a sudden there's such a shortage of labor here. All of a sudden, you see things begun to be outsourced. And that's where you start to see call centers showing up in different parts of the world or Canadian tax returns being done in different parts of the world. Companies, when it gets to a certain point, it gets too hard to find labor in one location, all of a sudden there's a financial incentive for them to do. So again, if that labor is a little bit cheaper than that can be slightly deflationary, right?
Colin White:
So again, to Josh's earlier point, this does get really nuanced really quickly. But labor it's just something that's a little bit closer to people to understand that again, if somebody down the street offered you an extra 10 bucks an hour to do the same job because they were really, really, really in a tough spot, that's inflation and that's how it feels, that's how it looks and that's how it can move.
Josh Sheluk:
Yeah. And you mentioned deflation, so that's sort of the opposite, right? Inflation, average prices in the economy or countrywide going up, deflation opposite, then happen average prices going down. And it's unusual to see sort of persistent deflations were right across the board but there definitely have been some aspects of that over, let's just look at the last 10 years. And one of the reasons that you mentioned that has directly tied into deflation is globalization. And there's been an uptick in globalization for several decades now. And again, you mentioned it, if you can get cheap labor elsewhere outside of the country, then that's going to have somewhat of a deflationary pressure on the economy. The other thing that I've been reading a lot about recently is that there's been a real sort of cap or restriction on labor units over the last several decades.
Josh Sheluk:
And that also has led to a little bit more power for businesses, a little bit less power for employees and putting sort of a ceiling on how much wages can rise over that period of time. So there's a lot, a lot of different things to look at and weed through when we talk about some of the reasons or things that we're missing when it comes to inflation. But I guess generally speaking, what we want to think about when we think about inflation is again, it's just an intersection of supply and demand sort of economy-wide. So anything out there that's going to lead to higher demand for things like, for example, people going back to work and getting paid more, that's going to put some inflationary pressure on the economy.
Josh Sheluk:
On the other side of that spectrum, last year, COVID great example, people out of work, people can't buy anything. So you have less demand, that's going to lead to deflationary pressure and we actually saw that spill through to some of the numbers last year when it comes to inflation. And then you can look at supply side of the equation as well. So what we've seen again with COVID is there's been some supply chain disruptions. So you've seen less supply of things like, hey, toilet paper. I don't know if there's actually a supply chain disruption, you aware? But people thought through us.
Josh Sheluk:
So maybe this is more of a demand thing than a supply thing, but let's say the supply chain was disrupted for toilet paper. Oh boy. All of a sudden the cost of toilet paper is going up. And then, similarly you flood the market with something on the supply side or all of these goods come to the market, whatever it is. And then all of a sudden people are like, "Well, I'm not going to pay that much for good X because there's so much of it out there. I can walk down the street and find it thrown away on the corner." So these are sort of the broad strokes of inflation when we think about this topic.
Colin White:
Well Josh, okay, so let's take that and turn it into what does that mean for an investment portfolio? Because again, I don't think that we've got a firm opinion one way or the other, it is a potential of what we're dealing with right now. It's not a for sure thing but we could be looking at inflation. So let's explore for a second for everybody what it means to an investment portfolio.
Josh Sheluk:
Yeah, sure. So it means a lot. It means a lot. And depending on what you're investing in, it could mean different things. Which means this is going to be a difficult conversation to have in a very succinct way. But let me break it down in sort of three broad asset classes for you. And the first is bonds. It has a pretty direct link with bonds in your portfolio. So a bond, again, just for our listeners to recap, bond is basically you're lending money to somebody, they're going to give you interest payments over a set period of time at the end of that bond with the end of 10 years or 15 years, whatever. That bond comes due, they're going to pay you back your principal.
Josh Sheluk:
So let me say that, okay, Colin, you're going to lend me a hundred bucks over the next 10 years, I'm going to pay you 10 bucks a year until at the end of that 10 years, I'm going to pay you back your hundred bucks. Well, if inflation is going up, you're going to be pretty pissed off because that 10 bucks or that a hundred bucks that you're getting one, two, three years or 10 years down the road, it's going to be worth a hell of a lot less then than it is today. On the flip side, me as a borrower, I'm going to be thrilled if inflation goes up, because that means that in future dollars, the real tangible cost to me is going to be a lot less than it is today. So if you're a borrower, "Hey, bring on inflation." That's awesome for you. If you're a lender or a bond holder, inflation, not so good. So it depends what side of the spectrum you're on there.
Josh Sheluk:
Now, the other thing, well, we can look at the stock market. And again, as stocks tend to be a little bit more complicated when it comes to the different interaction of these variables. So inflation, generally speaking can be thought of as a positive thing for stocks, as long as it doesn't get too high, right? And there's a lot of data going back a hundred years or so, that kind of bears this out. Because most businesses they can pass on some of these cost increases to their customers.
Josh Sheluk:
So if you see an inflation going up, you go to the grocery store, the grocery store saying, "Well, inflation is going up, I'm going to jack up the price of the loaf of bread." You're going to be willing to pay it because you know inflation is going up. "You know what? My loaf of bread costs an extra 10 cents today than it did a week ago and no big deal." So that grocery is going to be making a higher revenue and potentially a higher profit as well. So to the extent that that company can pass on price increases to its customers, "Hey, that's good for my bottom line. That's good for my profits."
Josh Sheluk:
Now you could have a business for example, that they have higher input costs or higher cost of their goods. And they're not really able to pass on a lot of the cost increases to their customer. And in that case, your top line, your sales stay roughly the same, but your costs go up, well that's putting pressure on your margins and actually decreasing your profit margin. So that could be a negative.
Josh Sheluk:
So I guess it depends on the type of business that you're in, but generally speaking, market-wide, a little bit of inflation is good for stocks. Too much inflation becomes a bad thing because then it just becomes really tough to control your input costs. It's tough to pass on all of these price increases to your customers. And then you can have a bit of a spiral where things get a little bit messy.
Colin White:
Well, I think the other point to make here is that there are examples like real world, real time examples that have unfolded over the last number of years. And again, based on talking with people, because I always like to understand the business models of different things. The restaurant industry is a great example. I mean the cost of a meal at a restaurant hasn't really changed a lot over the last number of years, what somebody's willing to pay for a hamburger. But the input costs have gone up hugely. That's one of the reasons you're seeing a proliferation of the major chains, like the Boston Pizza's of the world, because they've turned the food into a bit of a formulaic thing because they've been under such, there's such unwillingness of the population to spend a lot more eating out.
Colin White:
So, they've had to get a lot more efficient with the types of food that they serve and how they serve it in order to drive the cost to a point where they can stay in business. So those industries, and different industries have had different experiences, where they do have the ability to charge more for their product or they don't. And so these kind of little nuance pressures have played out over the last every period of time. So, this is a little bit more of a macro-economic thing, because again, this is going to be seen to be a wider based thing, which is kind of why it's become a bit more topical right now, but it's not new. There's lots of companies who've dealt with this exact conversation continuously. It's not a new conversation. It's something that's already baked into a lot of business models.
Josh Sheluk:
Yeah. We can look at dozens of these different examples and another good one that kind of gives you a real life and very, I think, close to home example, so to speak of how this can affect businesses is with home builders. So home builders, I think it's pretty well-documented now that over the last 12 months, lumber prices have approximately tripled. So if you're a home builder and you agreed to sell somebody a house for 500,000 bucks last year, and today, when you're actually building that house, your prices of lumber three times higher than they were last year. Well, you're saying, "Oh, no, my profit margins are shrinking a little bit here." So that could be something where it takes a little bit more time to play out in terms of the inflation numbers and for that business to be able to pass through some of the cost increases. But that's a real example that people can see a sort of on a day-to-day basis and we've talked about real estate a lot.
Colin White:
So Josh, what does all this mean for hard assets?
Josh Sheluk:
Well, hard assets. So what do you mean by hard assets Colin? Well, I'll explain to our audience, our listeners what do you actually mean. So hard assets is something like commodity-based or something physical and tangible that you can touch. So could be gold, could be a barrel of oil, it could be that lumber thing that I was just talking about or something a little bit more usable, like real estate, for example. That's sort of a good catchall for all those things. So inflation, generally speaking, is as a positive for these types of things. Gold, for example, has a pretty direct line with inflation and when you get sort of that inflationary spiral that we have seen at sometimes, several decades ago, gold tends to do very, very well. And most commodities that are out there because there's more physical good, you do see inflation numbers sort of hit the prices of those commodities. So there's that.
Josh Sheluk:
And then on the real estate side, you usually, going back again, long periods of time, see real estate, appreciate it, approximately the pace of inflation. But this is one that I'm going to kind of throw a wrench in, because we've seen inflation be pretty low for the last couple of decades yet real estate has gone up a lot. Especially in Canada, we did a full podcast on this. So the fact that we may have some inflation in the future, is that good for real estate? Well I'm going to stop people right there. We've already seen a huge increase. And there's a lot of other factors that will influence it like, "Hey, this thing called interest rates." Interest rates go up, real estate might go down.
Josh Sheluk:
So that's what it means for your investment portfolio, but that doesn't necessarily relate to what it means for you, what it means for me, what it means for our clients. So we hear this thing called CPI, talked about all the time in the news and the media and people say, or the media says, "Well, CPI is up, that's bad for you. CPI is down, that's good for you." That's a little bit simplistic, I think, Colin. What does all this mean for the actual individual? What does it mean for our audience?
Colin White:
As important as inflation is to understand global macroeconomic theory and investment theory, it is equally unimportant to the individual for the following reasons. CPI for beginners, which is the consumer price index, which is a Canadian index of a basket of goods, specifically excludes energy and food, because they're seen as too volatile to be measured. Now that doesn't make them any less relevant because you're going to need food. But when it comes to the, the, the towers where they do all the math, if they need something, that's more model able [inaudible 00:18:08], but it something that that they can base pension calculations on. They need something that is reliable. So it's kind of a very abstract number for abstract reasons. Now where it hits you, the individual is, "Hey, my pension or my other benefit is tied to that number. Therefore that will affect my income." But there's a huge disconnect as to what that means to your expenses.
Colin White:
So there's all kinds of examples here. So it really depends on what your basket is. Whenever we measure inflation, it's always based on a basket of goods and how that basket of goods has changed in price over time. To the extent that your basket is different than that basket, it becomes more and more, less relevant. Less and less relevant, I guess, would be a better way to say that. So if you're putting your kids through school, tuition in Canada is something that has seen double digit inflation, for extended periods of time recently. And some of that is born over the fact that the model has changed, not as much easier to get a scholarship. When I was at school, if you didn't have an average over 90, you weren't getting a sniff, here you walk in with an 80 average, they pass you a check.
Colin White:
So the universities have kind of played a little bit of a game and more so in the U.S. and Canada, but they played a little bit of a game where tuition has gone up quite substantially. However, very few people are paying that price. So one of two things. Number one, how big of an expense is tuition to you? That's relevant. And number two, how smart your kid? That's awful relevant as well. So it becomes very particular to your situation and how smart your kid is as to how much that affected you. The other thing is they talk about food. They take this basket of goods, maybe you're lactose intolerant so dairy doesn't matter to you. Well, maybe the basket of goods is 15% dairy. Therefore it's that much less relevant to you. You walk in to buy steak, oh, that's awful expensive today. "Hey, look, the pork's on sale. I'll buy it." It's called substitution. You can substitute things there and keep your food costs in line, to a point or maybe you can't.
Colin White:
So when it comes to you making a decision about your finances, that's very personal. And so you should be aware, things are getting more expensive and you need to watch for that. You need to expect that it's going to happen. But to rely on any of the abstract conversations about general inflation rates may have nothing to do with your world. And as you pointed out Josh, real estate is kind of that thing. Everybody's saying, "Oh, inflation is almost non-existent," unless you're trying to buy a house. Inflation's a good word to describe it. So again, I think that's the best example of the disconnect between what the academics are talking about in theory and what people are experiencing in reality.
Josh Sheluk:
It's a great point because you may have a different basket of goods than this CPI measure, right? And actually I would, I'll change that a little bit. You will have a different basket of goods than the CPI measure. So the CPI measure may not directly reflect your costs as an individual. If you're looking for a house while it's probably, CPI is going to really sort of undershoot where you're seeing CPI or where you're seeing inflation in the cost of housing today. But if you're on the other hand looking for a new TV, well, all we've done is seen the cost of a flat screen, high-def TV come down exponentially over the last five, 10 years. So, Hey, you're going to get that TV for really, really cheap.
Josh Sheluk:
And this is another thing that I guess doesn't really get captured in the CPI numbers is changes in quality or changes in safety. For example, you bought a TV 50 years ago. Well, it might've been kind of expensive at the time, but it was also black and white and 13 inches and 45 pounds. I can buy a 10 pound TV today that's paper thin, gives me better definition than real life somehow, is 3D and curved. And hey, the whole thing costs 500 bucks. So it's not too bad, it's kind of a drop in the bucket.
Colin White:
And to bring this full circle and all that we've talked about here today. [Inaudible 00:22:30], the one thing to take away from this and congratulations to those who've made it to this point, here it is, here's your payoff. Being efficient with your capital matters. If you've got a hundred grand sitting in the bank account at 0% interest, there's an opportunity cost there. We can't tell you exactly how inflation is going to erode your personal purchasing power, but it is. Things are getting more expensive, not less. So if you are not efficient with your capital, meaning you don't deploy it in a way to try to maintain its purchasing power, you are falling behind. Now, it is insidious because it's not visible.
Colin White:
You don't get a report every year to say here's how the performance of your assets are. These would be your purchasing power to your basket of stocks. It's not visible, but it is certain. Over time, the purchasing power of your money matters. So the cost of not allocating your capital in some kind of a fashion with the goal to protect your purchasing power is extremely important and valuable. So all of the abstraction aside, keep an eye on that, keep enough money in the bank to sleep on, to make sure you're comfortable and all the rest of it. But that dollar, that extra dollar that you don't need to use in the next few years, do something with it that is going to quit it in a position to still buy you as much milk or buy as much gas or buy you as much heat for your home 10 years from now as it does today. That matters.
Josh Sheluk:
Yeah, this is really changed, I think over the last let's call it two, three decades for us as portfolio managers in terms of how we have to manage portfolios for people. Because, so you mentioned one thing, you can't leave your money in a bank account and it's not going to grow as much in inflation. Well, you can't find anything that's really safe or guaranteed that's going to grow as much as inflation today. I can buy you really solid GIC that's not going to go down at all in value for 1%, but if inflation is 2%, you're getting poor every year. And so that's just not going to work. Similarly with bonds, right? I can buy a safe government bond, 10 year at one and a half percent today. Still not cutting it. So you need to be able to look at your overall allocation from a portfolio perspective and make sure that you're allocating, that we're allocating for our clients in a way that is going to help grow their wealth over time and not make them poor.
Josh Sheluk:
And we have a lot of people that come in today, they say, "Oh, I'm 65. I'm ready to retire. I want to get way more conservative with my portfolio." Well, hold on. How long do you have to go? Right? Are you going to die in five years? No, I don't think so. At least not statistically. You're probably going to be having to plan here for 20, 25 years of continued life and third, even a 2% inflation rate over 20, 25 years. That's going to really add up. So you need to grow your portfolio over this time. And that's why when people are coming through the door today, maybe in their later working years or early retirement years, and they say, "Well, I just want to be safe." Maybe not going to work, right?
Colin White:
Well, yeah, the challenge is that when you turn 65, it's not like you're going to spend all of the money that week. Just because you turn 65, that doesn't mean all of a sudden you're entirely short term. Yeah. You got to meet your short term obligations, for sure. But you're still, if the statisticians are right, going to need money 20 years from now. That money shouldn't be sitting in a bank account, because again, it's going to lose... Actually I've read the first person to live to 150 years of age has already been born. So look around the room. Maybe you're in the presence of that person. Now, again, medical science is a wonderful thing, but I think the trends are to live longer, not shorter. And yes, many people live for today. Spend my money, don't want to leave any money behind. But you don't want the music and then you still 20 years left to sit there and wait for the end. Like that's not fun either.
Josh Sheluk:
Yeah. Another thing that's increasing a lot in terms of inflation is healthcare, right? So you may want to have just a little bit of a safety net there for your final years, because if healthcare and long-term care or these types of expenses are coming your way, then you're probably going to need something for that.
Colin White:
Well, yeah. You start to get down the road about the fiscal situation of the governments and what kind of position they're going to be in to meet the obligations we think that they're going to be able to meet at this point. It doesn't have to be an unreasonable person who concludes, "You know what? I'm less confident the government is going to keep doing what they're doing right now, so maybe I need to be in a position to look after myself a little bit more." That's not an unreasonable conclusion to reach and that's not a apocalyptic tomorrow where we're Mad Max and dazzling across deserts, wearing funny masks and stuff. It's not to that level, but it's something it could have in the back of your mind and give it a little bit of weight when you're making your decisions.
Josh Sheluk:
Yeah. I'm glad you brought it kind of full circle back to what the government's doing. Because again, we're not prognosticators, we're not telling you that inflation is going up or inflation is going down or inflation is going to average 5% for the next 10 years. None of that. But I think... I still hear people come through the door and say, "Well, what about inflation?" It's going to be five, 10%, back in the 80s it was X percent. Just to give people a little bit of a history lesson. I'm not really a big history buff, except when it comes to financial history, which I really enjoy. Up until the late 80s, early 90s, central banks around the world did not have a mandate to control inflation. But at that point, so let's call it 1990, they started saying after runaway inflation in the 70s and 80s, "Hey, we need to pay attention to this inflation thing. And we needed to start to control it."
Josh Sheluk:
And ever since then, one it's been their mandate, sort of their sole mandate if you look at the bank of Canada, to control inflation, right? To keep it at a reasonable level. And the Bank of Canada has set that range between one and 3% per year. And two, they've done a very, very good job at hitting that mark on a consistent basis. Not every year, not perfectly, not been able to project it with perfect certainty, but they've done a really good job of staying within that band. So we would be confident to say that inflation will probably stay fairly well controlled, but they made some changes. Central banks made some changes last year when COVID started, that may lead to a little bit more inflation going forward than there has been over the last 10 or 20 years.
Josh Sheluk:
And it was nuanced. It was subtle, but instead of targeting 2% inflation, they said, "Well, we're now going to say we want 2% on average, over sort of extended periods of time." So if inflation runs a little bit cold for a while, under that 2% mark, then they may let it run a little bit hot for a while above that 2% mark on more of a sustainable basis. So we don't think that there's going to be hyperinflation or anything like that, that you should bury your gold in your backyard, but you may want to pay attention to this over the next little while.
Colin White:
So to summarize, this artificially construed number of inflation that they've kind of made up, they want to keep it within some imaginary goalposts for an extended period of time going forward. Did I get it all?
Josh Sheluk:
Yeah, but you should still have a real plan. That's the one plan that should be real about this.
Colin White:
All right, so the grand conclusion here is inflation's a thing. Stuff's going to get more expensive. You should make sure your money tries to keep up. Is that pretty much it?
Josh Sheluk:
You got it. [crosstalk 00:30:33].
Speaker 1:
This information has been prepared by White LeBlanc Wealth Planners, who is a portfolio manager for iA Private wealth. Opinions expressed in this podcast are those of the portfolio manager only and do not necessarily reflect those of iA Private Wealthy Inc. iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.
BARENAKED MONEY PODCAST: EPISODE 7
You Could Win, Either Way
Speaker 1:
You're about to get lucky with the Bare Naked Money Podcast. The show that gives you the naked truth about personal finance with your hosts, Josh Sheluk and Colin White, portfolio managers with WLWP Wealth Planners, iA Private Wealth.
Colin White:
Welcome to Bare Naked Money, the Next Edition. Today, we're going to get into something that's pretty topical. Something that as a part of a regular conversation we have with our clients and something that's also very topical in the media right now. Well, who am I kidding? This is always topical. Real estate. There's so many different ways to look at it. Trends are so important and it seems to be super red hot right now. So let's get into it and see if we can help you understand things a little bit better. So Josh, why don't I throw it to you and you can make maybe a few observations that are pretty high level with regards to some of the data that we're seeing.
Josh Sheluk:
Thanks Colin. So thanks for the intro there. As I think everybody right across Canada knows right now, and actually in a lot of parts of the world, real estate is just booming. And I think this is the first time anyway, for me in the last several years where I can really look right across the country to every one of our clients, everybody that lives in Canada and say, "What's going on in your market?" And everybody's like, "Well, real estate is way up. Real estate boom. Real estate' crazy. Either I can't find a place to buy. I'm looking desperately. I can't find one to buy at a reasonable price," or, "Oh, I'm looking to sell my place and I'm breaking the bank," because it's looking great for some of the sellers that are out there. And this is kind of continuing a trend that we've been seeing over the last couple of decades, where Canada as a whole, when you look at the average is just booming from a real estate perspective.
Josh Sheluk:
And I saw some charts recently that compared it to other countries, other major industrialized countries and Canada is far and above a lot of those other countries, whether it's UK, US, other countries in Europe, et cetera, et cetera. So we've seen this trend. We've seen this trend for awhile, but now it seems to be coming to a head and going faster than it's ever been in terms of some of those rapid price rises. And I think the first time since COVID, what we were seeing for the first time is that some of these non-urban areas, known as the sprawl is sort of leading the charge, whether it's just outside of these urban areas or more rural areas. So spilling from the suburbs to the rural area. So I think there's a lot of reasons for this and we can dive into some of these, but why don't you take us through a few of your observations for what you're seeing out there in terms of what's actually driving this trend?
Colin White:
Well, as a member of this team who doesn't live in Toronto, I can attest that areas outside of Toronto we're seeing the same thing. Nova Scotia is just off the charts. Halifax proper is ridiculous to getting 9, 10, 12, 15 competing offers on one property. It's selling 50% over market in some cases. It's a little scary, coming from the Maritimes to see that kind of thing happen because it is really unprecedented in my lifetime that we've had that kind of interest from literally all over the world. People trying to get to Nova Scotia. And we've got clients who had plans about maybe liquidating property at a certain time or buying properties at a certain time and this is the kind of event that pushes plans.
Colin White:
Now, we've got some people, myself included is considering selling a property in the not too distant future going, "Oh, should I hurry my plans? Does that make any sense right now?" And that's a legit question. We've also got people who were expecting to be buying properties right now and they're now going, "Should I wait because things are awful." I'm going to be making some pretty big compromises potentially here on the value that I'm going to get on picking up the property.
Colin White:
So, again, this is one of those events that can push your planning around a little bit and rightfully so. This is not something to be ignored. This is of a magnitude that matters. If you're going to have to pay 20, 30% more for a property right now, that changes your thinking. That changes your timeline. Now, if you're going to own it for 20 or 30 years, maybe it doesn't matter as much. But if you think it's going to be something you want to liquidate in the next few years, maybe you got to think a little bit harder. Maybe those three, five-year time horizons are a little scarier than they once were. So yeah, there's a lot of angst out there now, but I tell you, it's getting overridden by just pure mania in many respects. So yeah. So I think this is a truly across Canada problem, no matter what side of the desk you're sitting on. So why don't we get into some of the reasons behind it, Josh?
Josh Sheluk:
Yeah, yeah, sure. So, well, elephant in the room, right? I think everybody knows one of the main reasons is COVID things going on. We have a global pandemic and what we saw early on was the market froze because people didn't know what the hell to do [inaudible 00:05:08] and people couldn't go see places. So, there was an immediate kind of, "Okay, let's pause for a sec. Let's see what's going on here." But you've seen things spill over now and they're going great guns. So with COVID I think one of the trends that I was talking about is really been driven by COVID and that's, COVID is pushing people out of the urban areas. So you're seeing this spillover, this sprawl from core cities, maybe condo living to some of the more suburban, house, low rise stuff, or some of these more rural areas as well, because what we've seen over the last year, a lot of our jobs can be done remotely.
Josh Sheluk:
You and I are not in the same place right now doing this podcast. So we've all discovered, I think, that we're a little bit more able to work outside of our office. And a lot of businesses have decided that, "Hey, my staff can work pretty effectively from home. Maybe I don't want to, or need to pay $50 a square foot for an office building in downtown Toronto." So that is part of it for sure.
Colin White:
Yeah. And the other thing is, is that if there's more than one member of the family has got to work from home, your home is not as big as you thought it was. And maybe you're not as close to your family as you thought you were, so you put two or three members of a family working from home, that house can get a lot smaller than it used to be, in a hurry. So there's a lot of pressure on, "Hey, we need more space." And I think you went through a little bit of that, Josh.
Josh Sheluk:
Oh yeah. I'm sitting here in a two bedroom condo and we converted our second bedroom to an office. Would have been pretty hard to convert our first bedroom to an office too. So fortunately I've been able to go to the office most days, but I think your point is valid that people are rethinking what they need from a place. I was just looking at an Instagram post the other day and talking about how people more at the top top level of the income spectrum are looking for something where they have more leisure space or leisure activities that are doable from their home, their property as it's outside of the realm of what most of the people listening to this podcast are looking for, but full size tennis courts, for example, pools.
Josh Sheluk:
Pools is maybe something that's a little bit more relatable to people because I know the pool guys are busy as they've ever been putting in pools. You've seen the rental, the rental thing as well. People putting in back decks or renovating this or that, or the other thing. So all of these things are coming into this real push for real estate and helping to drive up the demand, which in turn drives up prices.
Colin White:
And when people start looking around and they go, "Well, what would it take for me to go to a bigger place?" If I wanted to take on a bigger mortgage, what kind of house could I get? The other part of that equation, Josh is interest rates.
Josh Sheluk:
Yeah. And that's a huge part of the equation and maybe the most important or primary part of the equation and primary reason we've seen real estate go up the way that it has. Interest rates with the whole COVID situation have gone down. And that's pretty normal when you see a recession or some type of dip in markets, in the economy and interest rates go down, but they already went down from such a low level and went to sort of a rock bottom level that, that has made housing in some ways more affordable because if you're borrowing a large chunk of the purchase price, if interest rates go down... And I've seen interest rates or heard about interest rates as low as one and a half percent for a five-year fixed rate mortgage. So that is really going to make things a lot more affordable for people and low interest rates means you can take on a larger mortgage and larger mortgage, more purchasing power. That means, hey, you can either bid up that property that you really want, or maybe look to another property, a step higher. So that's a huge part of it.
Colin White:
Yeah. And it's happening at a time when the boomers maybe that were considering going into more of a concentrated living setting, whether that was assisted living or give up the big house to go to an apartment to reduce the obligations of maintaining a property. Those people are putting off the decision, again, for the reasons we talked about earlier that the COVID's the thing. So I don't want to necessarily be getting on an elevator. I got this big property. I'll hang onto it for a little while longer until this thing settles down. So, those people maybe have slowed down a little bit and other people are looking to get into those properties. So it's really created a confluence of events. That's what's put an immense amount of pressure on real estate in the short-term.
Josh Sheluk:
Yeah. You bring up [inaudible 00:09:55] I brought up interest rates and it's interesting how these two things kind of relate to each other as well, because we have seen interest rates go down for the better part of 4 years now. And I don't think that can be ignored when we talk about and think about some of the experiences that people have had with real estate over that period of time. And the boomers are... my parents, for example, they have experience with the interest rates in the eighties where people talk about double digit mortgage rates. And now today talking about, like I said, potentially under 2%. Well, that's going to make a huge difference in affordability of a property. And that's part of the reason why we've seen sort of an uninterrupted increase in prices over that period of time. I think that has to factor into what we're looking at here.
Josh Sheluk:
And when we're looking at our experience with real estate, has to give some context to what we're thinking about. And so this is one thing that I don't know if this is a misconception and misconception's the right word, but you will definitely have some sort of longer-term experience with owning a place and being in the real estate market. I hear my parents, my grandparents say, "Well, real estate always goes up over time." And I look at this and being a data person, I think, "Well, maybe there's a bit of a misconception there. So what's your experience [inaudible 00:11:16]?
Colin White:
Well, my experience is terrible because again, I was alive during that same time current as your parents, and we should stop making reference to that. But we are looking at a period of time when real estate' done very well. And so two things come into play. Number one, legitimately it has. Number two, people will only share their highlight reel. So when people are telling a real estate story, they're always the biggest real estate stories. So you got something that's generally true and it's augmented by the fact that people are sharing these anecdotal stories, which are even betterer. So now you've got basically a true concept that's getting blown a little bit out of proportion and people are shutting down the analytical part of their brain a little bit saying real estate, good real estate, good real estate, good... and they run into the market.
Colin White:
Now, again, if you're going to live in a place for 20 or 30 years, maybe it doesn't matter a hill of beans. Maybe a little, just even itself out and all will be fine because again, you're not looking at liquidating it in the foreseeable future. It turns out that you did make the right decision. This is the place you're going to raise a family. And again, if that's how it plays out, maybe this doesn't matter a hill of beans. But it's perhaps more risky now than has been certainly in my lifetime because the smallest change in interest rates or any kind of personal interruption... again, there's two levels here. There's the macro level where interest rates may change. That's a macro thing. And if that happens, yeah, your mortgage payment could go up and the value of your property could go down and you can end up with a mortgage that's bigger than the value of your property. That can happen and that's kind of out of your hands.
Colin White:
The other side of it is your personal circumstances can change. So you invest in real estate, which is not the most liquid investment in the world at all times. Right now, it tremendously is, but it's difficult, can be difficult to get out of. It's costly to get out of. And it's not always convenient to make a change in real estate. So I think the risk profile for somebody who's trying to get into a home right now is a little bit... Sorry, I can't say a little bit traumatically. It's a lot traumatically different than what it turned out to have been 20 or 30 years ago. Now, if you go back 20 years ago, there was risks at that time as well and they had to be, again, the decision making of that would have been different, but it's turned out really, really well.
Colin White:
To look today and say that in today's market with all of this froth that there's not going to be any kind of short-term peril here, I think is overly optimistic. And I think it's something that people really have to filter that information from your well-intentioned father, who loves you more than all outdoors and would never steer you wrong, who's telling you, "You absolutely have to have a house or you're worthless." "Dad, thanks for all the encouragement and everything, but maybe I'm not going to go your way this time." And that's okay.
Josh Sheluk:
Yeah. Yeah. So what I'm referring to is sort of the misconceptions. I don't want to call the [inaudible 00:14:10] because like you said, there's a lot of screws to real estate value, appreciating value over time, but have you read Irrational Exuberance by Robert Shiller.
Colin White:
A long time ago, but yes.
Josh Sheluk:
Yeah. So, that book's been out there for a while now, but he has maybe one of the best real estate databases, longterm real estate, like we're talking hundreds of years of any data set that I've seen. And there are a number of periods of time, decades long where real estate in major cities, even across North America has gone down for decades at a time. So to say that real estate always goes up. Yeah. I mean over very long periods of time. Maybe over a hundred years, real estate will go up. But the point that you obviously often make is that most people's timeframe isn't a hundred years long. So you can't necessarily rely on that. Right?
Colin White:
Yeah. In the longterm, we're all dead, and I've had situations in my career where people have been trapped in real estate, either by owing more than it was worth or being just completely having no buyer for it. And we don't really have enough time to thoroughly go through it. But this is where we can probably introduce the idea of investing in real estate because there's many people who have their own property and are looking at investing in a property because they think that's the way to build wealth. And it has been. It has been a way to build wealth in the past. A couple of cautions to everything we said earlier still holds. If you've got a really long time horizon, that changes the risk profile. [inaudible 00:15:40] in the short term, there are a lot of risks because when you get into the rental market, you're not concerned about rental rates.
Colin White:
Is there going to be a lot of rental vacancies? Is there going to be a building boom that kicks in after this that creates so much supply that in three or four years from now, all of a sudden we have an oversupply and there's pressure on rents or there's vacancies. There's all kinds of things like that to factor in. But what I advise people who are considering investing in real estate on a couple of things. Number one, make sure it's a reasonable percentage of your net worth. You don't want to wake up one day and have 90% of your investible assets tied up in real estate. I can't defend that. I can't suggest that. I don't think it's a good idea.
Colin White:
Number two, evaluate it as an investment. So if I'm going to bring an investment to a client and say, "Here, this is a good idea. It does really, really well". Long-terms get no short-term liquidity and it's got some significant risks where it can go negative for extended periods of time. I'm going to expect that with normal assumptions that pays me really well. I want to see a really nice return up. I want to be compensated for the lack of liquidity because in the investment world, if you give up liquidity, you gain something. Don't get involved in real estate in ways that the terms work out, but you're only seeing a nominal rate of return. Like if you're only going to see a 6 or 7% rate of return on something that has a risk profile, that doesn't match up, keep looking. There should be a reasonable trade off between risk and return. And you need to look at your real estate investing that way. Again, your dad's whole intention, he does love you, but he may not have the macro economic sense necessary to adequately advise you in this regard.
Josh Sheluk:
Yeah. There's so many things that go into trying to be an owner of real estate and a rector of real estate. Right. And it's more than just, what is my mortgage? What is my rent every month? And does that give me a positive rate of return or not? Because you got to factor in things like maintenance on that property, repairs, a vacancy. I think is a big one that people don't factor in, right? It may be at times easy to rent out a place, but I can speak from just the Toronto condo perspective, from what I heard, anecdotally, it's a lot more difficult to rent on a Toronto condo 12 months ago than it had been in the past. And that's because people didn't want to be here. They didn't need to be here. If I can't walk the five minutes to work because my office building is shut down, what's the point of living in downtown Toronto for whatever it is per square foot in terms of rent?
Josh Sheluk:
So there's a lot of that that you have to factor in and I think another thing that people often forget when they're doing this calculation is the amount of time that you're actually going to commit to that building. So that property, right. You're going to need to either hire somebody to do a lot of work on sort of the management of that property, the marketing and that, or you're going to have to spend your own time on it. So there's a value for your own time. You got to factor that in somehow. Not easy to do though.
Colin White:
Well, no. And that goes right back to again, we're kind of crossing the streams here. We're going back to the individual decision about, do I rent or do I buy? You buy a house, you're building equity in something like your father or your mother will tell you, right? But when you buy a home, well there's property tax and that money just goes out the window. You don't have anything to show for that. There's normally an increase in utility costs over renting or owning a smaller properties. So that's got to be factored in. The maintenance of the property has got to be factored in. There can be interest costs, some mortgages. If you add up all of the money that you throw into the wind for owning a property and take a look at that number, in most cases, you're not too far off of what it would cost to rent a property that you would be happy living in.
Colin White:
So for those who posit the idea that only stupid people rent, that's not true. In fact, I can categorically tell you right now, some of the people I consider the smartest around me and including me, I consider me smart, are saying maybe now's the time to rent for a little bit and let all this foolishness slow down. Now it's not a slam dunk. It's not a for sure thing, but it's certainly not a stupid thing. So if anybody in your life is telling you you're stupid for doing either thing here, ignore them because they don't understand it. You could win either way here, but that's important. You could win either way here. Don't think there's only one way to do this.
Josh Sheluk:
Yeah. That's funny you mentioned that because I floated the idea of potentially selling our place and renting a place to [Heather 00:20:20]. And I got I think laughed out of the room on that one. Personal preference factors into this too, I guess is the point. What I was looking at and the reason I floated this idea is the disparity between purchasing a place... It's the cost of purchasing a place and the cost to rent a place today is pretty large from what I've been seeing out there in the data. And that's one way where you can evaluate what's the market like today is you compare sort of a ratio of the purchase price to the rental price. And every neighborhood is going to be a little bit different and every neighborhood is going to have its own history. So it's not like we can sit here and give you what the right ratio is.
Josh Sheluk:
There's so many factors that are involved, but you can sort of take a step back and look at a place and say, "Well, okay, what would it cost me to get in there if I were to own it versus rent and what are some of the other great things that I could do with my money if I had a lower cost to rent than I did at all?" And there are plenty of other good investment opportunities out there that may hit the mark for you and make you better off over the longterm. But just to counteract my own point, I had one colleague going back seven or eight years ago now. He was positive that the market was overvalued. And so him and his family were renting a place in Toronto. And as far as I know, I haven't seen him in a year or two, but he's still renting a place in Toronto.
Josh Sheluk:
So it's really tough to time this type of thing. I don't think you or I are making the argument today that real estate has to go down over the next year or two. That's not it at all. We're just not so sure that we'd be pounding the table to say, "It's going to go up from here."
Colin White:
Well, that's just it, I mean the best answers are often nuanced answers and that's why we're at here. But we've also become very bare naked in this moment because neither one of us is able to convince our spouse or significant other to take advantage of something that we as professionals see in the market. So to all of us out there who are counting us as really smart and influential, if you could call our wives and let them know how smart we are, that'd be great. It would help us both out when we go home at the end of the day and talk to our own families about our own personal finance.
Josh Sheluk:
I'm glad we have the moral support of each other, at least calling to help us through these dark times.
Colin White:
You complete me, Josh.
Josh Sheluk:
Sure. So, you touched on a little bit of this before calling it, but really the whole purpose of this podcast and the whole reason we have these conversations is because people are asking us what they should do in their situation. And like I said, you hit a couple of those key points at a high level. So maybe I'll just throw them to you one by one. If you were already thinking of selling today or a year ago or whenever it was, what would you do today? Does this give you a kick in the pants and say you should be going down this path? Or what do you think?
Colin White:
Well, I think for sure I'd view it as an opportunity. Again, I would not hold out thinking that this is going to continue to get better, but this is an opportunity. But it does put a little pressure on the other half of that equation if I can extrapolate a little bit, because you all got to live somewhere. So I actually have a couple of friends who've sold their property and they're so excited. Then they went to look for a place to live. Now they're less excited. So, make sure you have the whole equation. Just because you rush one side, you have to rush both sides and make sure that your eventualities are all accounted for. But yeah, even if you were thinking maybe the summer is the time to do it or fall's the time to do it this is worthwhile in my opinion, to move up [inaudible 00:24:00].
Colin White:
Now, if you're sitting in a beautiful property on a lake and saying, "I want one last summer to enjoy this," absolutely stop listening to us. I don't know why you're looking for the math. Math don't matter. That's an emotional attachment. Don't interrupt your enjoyment of life to maximize your real estate transaction. That's not anything I would put on the table for anybody. But I would suggest that now's not a bad time. You're thinking pf pulling the trigger. Maybe pull it a little quicker.
Josh Sheluk:
Yeah. So, just flipping that equation to the other side of the call and same person or a different individual looking to buy a place. What are you recommending today?
Colin White:
Well, again, it depends on your expectations. Again, I can use my own personal experience and the experience of clients. Typically you go through stages. Now, if you've got a young family and you're looking to move into a house for them to go to school, which is what we did. When my son was about to start school, I said, "Let's find a house that we can stay in while the kids are in school." So you're making a 15 to 20 year commitment, right. Somewhere in that range. So if you're making that kind of commitment, be a little bit wary about the finances and things may get a little bit wonky financially. So don't overstretch yourself. But if you can find something that fits, that you're going to plan to hold on to for 20 years, the market being high right now probably won't matter a hill of beans, but you need to make sure that you're not stretching yourself financially at this moment.
Colin White:
Because again, this is a bad time to stretch yourself financially. An interest rate bump of 1% can make a huge difference in your monthly mortgage payment. And if you go to renew and the house isn't worth as much, it doesn't appraise as high as what you paid for it, you could get in a squeeze. So, with the caveat to be careful to live within your means, buying a property now that you're going to hold for an extended period of time, again, I don't think is poison and the whole nesting thing. And people want to raise their kids and have a nest and matrimonial relations are important. All those kinds of things factor into it.
Josh Sheluk:
Yeah. Important. I think we want to definitely make sure that people are not overextending themselves because we've seen that story play out. And when you're borrowing to put money somewhere and you're overextending yourself, we don't have to look too far back into history, a little bit south of the border to see how that can end very, very poorly for people. So you have to be careful. Like you said, a 1% increase in interest rates can make a big difference. We've seen that. We've seen that almost. We've seen that because earlier this year I was hearing a 1.5% rate for a five-year fixed mortgage. Today I'm hearing 2%. Now, all this is second hand. I can't tell you for sure. But we have seen a pretty aggressive increase in interest rates so far, and if that trend continues, could we be in a jam?
Colin White:
Yeah. And the second piece of that, Josh is something you shared with me earlier this year where the appraised value of the property matters. So people had bought condos in Toronto during the condo boom, and then the values weren't quite as high when they came to close. So the institutions were appraising them lower than what they actually owed on them. And people were unable to get any financing to complete the deal. So interest rates are one thing that may change your monthly payment. You could get into a pickle if all of a sudden your property appraises at less than what you owe on it. And then all of a sudden you've got to come up with a big down payment or have some unsecured lending. Again, there's a couple of ways in the short term that this could get a lot tighter. So maybe we're not hitting this with enough emphasis, but there's a big point to be made here. Do not stretch yourself financially to get into a home right now. That is all kinds of crazy dangerous.
Josh Sheluk:
Yeah. Well, just to hit the point home a little bit harder on what you're talking about, appraisals. If you pay $500,000 for a place and the bank appraises it at 400,000, they're not going to give you a $450,000 mortgage. That's a way for them to lose money. So they're going to be very, very cautious. Lenders you've seen a number of the CEOs from the banks come out and say that they're a little bit cautious. They're worried that the market's overheating a little bit when it comes to real estate. So you can bet your ass that they're going to be careful when they're lending you money. And if you can't get the mortgage for the price that you paid, you're going to be in a jam.
Colin White:
Or you're going to be digging up those crates of money you stashed in the backyard, depending on where you live and when your [inaudible 00:28:28].
Josh Sheluk:
It's gold. [inaudible 00:28:29] It's gold.
Colin White:
Right. I keep confusing that. That's not my group on a run with them.
Josh Sheluk:
Yeah.
Colin White:
So Josh, maybe we should have a chat because there's talk, there's concern of changes coming down the pipe. And frankly, a lot of what I've seen is trying to scare people into action, which unfortunately is very effective. If you want someone to act, you just scare them. About the potential change in taxation on personal residences, because again, personal residences right now are tax free, which makes them taste even better. But there's concern over changes. What's say you to the current advantage and perhaps the potential for changes?
Josh Sheluk:
So let me just set the stage a little bit because I think we've been hearing the same things out there and I'm sure a lot of our audience has been hearing the same things as well. So couple potential changes when it comes to tax that will potentially affect your real estate. So first one that we've been hearing is well, they're going to tax your principal residence. Right now, your principal residence, when you sell it, any capital gains that you have are exempt from tax. So that's a huge advantage for the majority of Canadians that own their property. And just going back to one of the ones I said earlier, that's one of the reasons why a lot of people could argue that real estate is always a good investment because it's tax free. The other big change that we've been hearing about that personally, I think is little bit more realistic is a change on the capital gains inclusion rate.
Josh Sheluk:
So capital gains, if you have a cottage or a rental property, for example, any capital gains on that property will be taxable for you at 50% of the capital gains. So 50% of that capital gain goes on your income tax [inaudible 00:30:13] pay tax on that. There is some speculation that that 50% inclusion rate will be bumped up, whether it's 66 2/3, where it has been in the past, 75% where it has been in the past. I think it's even been 100% in the past going back a few decades, but these are the changes that people are talking about. But as you've made the point to me, people have been talking about these changes for a long time.
Colin White:
Oh, I know, and they're going to take the money from your savings account and there's going to be a wealth tax and there's going to be an estate tax. And there's lots of fear-mongering because it's effective. You can get people to listen to you if you tell those stories and you can motivate them to do something that's maybe what you're looking to do is to motivate them to do something. From a practical perspective, we have a minority government. And if they come in with something, either taxing personal residences or increasing your capital gains inclusion rate, I think that they probably would be the ex government. It would be difficult to see Canadians actually putting up with, and I'm sure somebody in a room somewhere has done that math. But the other thing is, typically those changes would come in with some kind of grandfathering. So we would have a chance to react to it.
Colin White:
Listen, I'm on the record of saying repeatedly, don't let the tax tail wag the dog. Certainly don't go chop down all your trees because there's a hurricane coming and might blow them down. Let's react to what's real. I've seen far more harm be done by people trying to avoid potential tax changes they thought might happen than any benefit from acting early and missing any kind of a tax change that has occurred in my career. So again, we're really bad salespeople. It doesn't motivate anybody to say, "Just sit quietly and let's see what happens." It's not that exciting. And if you're still listening at this point in the podcast, congratulations, you deserve a heart. But again, our take on this is uniformly boring. Let's not rush. I'm going to sit up and watch the new budget when it comes out as I always do.
Colin White:
And hey, fun fact. When the minister of finance stands up to deliver the speech, it all becomes available online at the same moment. So if you can read faster than she talks, you can actually get a preview of the budget ahead of some people. Maybe that was too much sharing. I don't know.
Josh Sheluk:
Yeah. Uniformly boring. We might look uniformly stupid in a couple of weeks when the budget comes out and everything that we just talked about is completely moot, but we'll cross that bridge to get there. Right?
Colin White:
Oh, we can just delete it from the internet. Right. That's how it works?
Josh Sheluk:
[inaudible 00:32:50] That's perfect. So, okay. So you're on record saying, "Well, don't do anything rash before the changes actually come down the pike, especially if you're not planning on doing something already." If it gives you that final little nudge over the line, then yeah. Maybe it makes sense to consider some potential tax changes, but certainly shouldn't disrupt all of your plans just because of something potentially happening at some point down the road at some point in the future.
Colin White:
Absolutely.
Josh Sheluk:
Yeah. So great talk, Colin. Lots to cover on the real estate front. I think what we should have maybe said at the outset is we're not going to be here projecting whether interest rates or real estate or your family home or your condo is going to go up and down in value. That's not really the point of this. The point is, is more to give people a little bit of perspective on what else they need to think about when they're trying to make decisions on the real estate.
Colin White:
Yeah. We could have come up with a really good podcast, "Three things you need to know about real estate in Canada today." But that's not us and that's not true. And if you listened to that, then you're not getting the whole story. Certainly not the bare naked story.
Josh Sheluk:
Yeah. We're far too naked for that kind of commentary.
Colin White:
[inaudible 00:34:06] go. All right. So I'm going to say thanks to everybody again for listening this far and listen, fire off any feedback that you have, if you want to hear other topics of conversation just let us know. We're going to try to feed the audience whatever it wants to hear, unless you want us to do a whole podcast on Bitcoin and then Josh would do that by himself because I'm not going to spend that kind of time on it. But anything short of that, yeah let's throw it out to us and maybe we'll put something together.
Josh Sheluk:
Yeah. A Bitcoin podcast might be a lot of fun for us, but people will probably be pretty upset once they hear a thesis.
Colin White:
Too much cursing.
Speaker 1:
This information has been prepared by White LeBlanc Wealth Planners who's a portfolio manager for iA Private Wealth. Opinions expressed in this podcast are those of the portfolio manager only, and do not necessarily reflect those by iA Private Wealth. iA Private Wealth Inc, is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.
BARENAKED MONEY PODCAST: EPISODE 6
See Saw on the Canadian Budget
Speaker 1:
You're about to get lucky with the Barenaked Money podcast. The show that brings you the naked truth about personal finance, with your hosts, Josh Sheluk and Colin White, Portfolio Managers with WLWP Wealth Planners, iA Private Wealth.
Colin White:
Welcome to Josh and Colin's SeeSaw on the Budget. This is what I see, is that what you saw? So, Josh, I'll throw it to you first. You tell me what you see and I'll tell you what I saw.
Josh Sheluk:
Yeah. We're going to do things a little bit differently today. So normally we sit down and hash out a little bit of a rough outline for what we're going to talk about. Today we just said, "Well, let's talk about the budget. You come up with five things that were interesting to you. I'll come up with five things that were interesting to me, and we'll sit down and we'll talk about it." We'll discuss, no preparation whatsoever. So we're throwing ourselves in here cold.
Colin White:
And you're going to go first, so impress... And I know for a fact, you've got more than five things on your list. So don't lie to our listeners.
Josh Sheluk:
Yeah, well, it's tough. I know we both pored over 739 pages of this federal budget. Every word, we looked at it in detail. Every footnote, every note in the margin, and we both had tons to talk about. So, we both have more than five things on our list, but we'll try to keep it concise for everybody. So, first and foremost, I think this is maybe the most significant sort of long-term part of the budget. And that's some of the reform and the push that they're doing on childcare. And so, just at a very high level, what they've said is that over the next five years, they want to push for a $10/day cost for your children in daycare. And, so that's over the next five years. By the end of 2022, so let's say a year and a half from now, they want to see a 50% reduction in average fees for childcare over that period of time.
Josh Sheluk:
I think this is awesome. I think this is extremely important. I think childcare, speaking to people that I know that have young kids that they're dealing with this, I think it can be exorbitantly expensive. And I think economically speaking, I'm going to put my economist hat on, we want people to be working. And the fact that childcare is so expensive is a disincentive for some people to work. It's better off for them to stay home and just take care of the children than it is to go out and get a job. And that has some real implications for the economy as a whole. So from the idea of, this should get more people out there making more money, spending more money, more tax revenue, et cetera, et cetera, bolstering the economy, I think it's a lovely thing. What do you think, Colin?
Colin White:
Oh, it's a fabulous idea. Like cinnamon farts and bubble gum trees. But the problem is, you're pushing on a rope. You got the government trying to overstep its mandate because this is largely something that's done at the provincial level. And a lot of what was in the budget, from what I read, involves the provinces also ponying up. So the federal government's going to kick in, but then the provinces have to agree and kick in. Provinces don't necessarily have the money, because they're trying to pay for that whole healthcare stuff. And to have a five-year plan, when you have an election coming up next year, come on. Just stop that. You get to have a one-year plan. That's all you get. And then if you win the election, you can have another year. Don't pick the five-year plan when you got to win your mandate. I fully agree.
Colin White:
And I think that childcare should be less expensive. We need to support the families in the workforce. That's absolutely... You can't be a human being and think that's a wrong thing, but the way that they're trying to do it makes no sense. I hope that this moves the rock. I hope that they're able to actually make some progress on this because you're right. This is a very valuable thing. It should be important. We should pay attention to it, but we got to be competent while we're paying attention to it. We can't just announce things with big dollar figures and the years that we don't have control over. That's not helping.
Josh Sheluk:
Yeah. Well, and that is very true. I think what's made me a little bit more encouraged on the subject is that they're taking from the model that Quebec has put in place. And the Quebec model, by everything that I saw data-wise, has been fairly successful. And one of the good data points is that the number of women in the workforce, the percentage of women in the workforce in Quebec is much higher than the rest of Canada. So obviously they're doing something right there and stealing from that model or borrowing from that model makes some sense, but, maybe you're right. Maybe it should be the provinces that are looking after all these. And having it regulated at a federal level is just going to work out to be a mess, as so many other things.
Colin White:
We will see.
Josh Sheluk:
Yeah. So what's first on your list?
Colin White:
Well, the first thing on my list is something that's not on the list. There were no changes to capital gains inclusion rates, and there were no changes to the taxation of your principal residence. So sometimes the biggest thing in the budget is what's not in the budget. So that was the number one takeaway I took. Now listen, if you will all write this down. Stop trying to figure out what comes next, because you are going to worry about... In the entire history of the human species, worrying about anything has never made it better. Anticipating things long before they happen are going to cause... And this is just another example, and think about it. They're a year out from an election. They're not going to do something that's really hugely unpopular, and they're certainly not going to do it suddenly. And I've got other points about that, but I'm not going to steal my own thunder. So Josh, what say you?
Josh Sheluk:
Well, we came into this knowing that there'd be some overlap in what we had on our list. And it took only two items to get to it. And it's funny. We both had something on our list that wasn't on the list. So, we just spent way too much time together, I think is what it comes down to. But, this is something we talk about a lot, you and I, especially over the last month or so. And it's just, you can't or you shouldn't maybe spend too much time planning for something that hasn't happened yet. And as we could both agree, tax planning is extremely valuable and makes a ton of sense, but trying to speculate on what one government or the next institutes, in terms of tax code, tax law, that's going to be an impossibility, and you're going to end up banging your head against the table more often than not.
Josh Sheluk:
So, I think if we look at the situation a little bit longer term, I'm actually not surprised that they didn't introduce something this time, because an election is probably coming up in the next year or so. And jacking up people's taxes before an election, probably not a recipe to get reelected. So the speculation, again. Here we are, again, speculating. The speculation is that now, if they get reelected, then they'll really push for some changes to the tax code. Now, the two things that were talked about most prevalently, I would say, would be increases to the capital gains inclusion rate. And I think there is some legitimate concern that that could be increased.
Josh Sheluk:
I'm not saying you go and rearrange your whole life based on that idea. But I think that's a distinct possibility because if they do push that through, whatever government pushes it through, there's less of an impact to the masses, I would say, than with some of the other tax code changes that they've floated as an idea. But I think the bigger one that I have a very hard time thinking that will ever go through is principal residence capital gains tax. Right now, your principal residence is excluded from capital gains. For them to institute something like that, you're just giving a major punch to the gut to so many Canadians out there, especially ones that have a large part of their wealth tied up in real estate.
Colin White:
Well, the challenge is it's really easy to get a whole bunch of people to listen to you. It's like the government is coming after your house. "They're coming after my house." Yes. They're coming after your house. It's really compelling stuff when people talk like that. And when people talk like that, people repeat what is said. And then, "What do you mean they're going to tax my house. When's that happening?" Well, it could happen this budget. It's going to happen this budget. It just spreads like wildfire. Every time a budget's coming up, there's at least a little bit of that playing out in the background. So, they go, "Oops. It didn't happen this time. I'm sure it'll happen next time." All right, Josh. Go to the next thing on your list and we'll see if I have it on my list.
Josh Sheluk:
Yeah. So this is one, I think, that has pretty wide-ranging implications as well, increases to old age security for those over 75. And so, there are two things that I've really heard here. The first is that anybody that's over the age of 75 by June 2022 is going to get a one-time $500 payment. Nice. The other thing is that anybody over the age of 75 going forward and collecting OAS is going to get a 10% bump to their OAS. So starting year one, I guess the 2022 OAS year, that would be about $760 per year in extra income to those folks.
Josh Sheluk:
Now, this is one that I really have a hard time understanding. Aside from the fact that I think they're trying to buy themselves a few votes, the liberals have floated the idea of, "Well, hey, this is going to help pay for some of those care costs as you get older." Have they looked at what long-term care costs? Do they have any clue? Because I have. We've helped a lot of clients through this. We've had helped a lot of children of clients through this. $760 per year? Maybe that gets you an extra week of long-term care. Other than that, you're SOL. So, this to me, it just hurts my soul because I know that, as a taxpayer, I'm going to be paying for this for the rest of my life.
Colin White:
And this was on my list by the way, because that's an important distinction to draw. Canada pension plan, there's actually a reserve. There are trillions of dollars invested to pay that. That's concrete. The Canada pension plan, I think, is the smartest thing that's been done by any government, anytime, anywhere. And we have it. And that's fantastic. Old Age Security comes out of rent revenue, current revenue, and that's nice as long as more people are working than who aren't. But demographically, that's going to start to change. A couple of governments ago, they started talking about Old Age Security and saying, "Hey, maybe we need to push it off and have it start at 70 in order to make it sustainable." Well, the liberals got in, so now we're rolling that back. Well, it's fine to roll it back, but you've made the future change bigger when it does happen.
Colin White:
And this, I think, is just creating a bigger bubble that as demographics change, because again, demographics are predictable, people. Everybody gets one year older every year. It's going to cause more and more pressure. So, while I'm a thousand percent behind the idea that we need to make long-term care more affordable, and the government's got a role to play in that, I don't see this as the way to do it. And I'm afraid that this is going to set expectations in people. People are going to begin to count on this money. And if it ever gets disrupted at any point in the future, it's going to cause some real harm. So, I think this one has got the potential, because I don't think it's sustainable. It's got the real potential to cause some harm. And that's what bothers me about this one.
Josh Sheluk:
Yeah. I think you're a little bit too guarded with this one. This one's asinine. We already have something called guaranteed income supplement for low-income seniors, right? And, again, we're all for supporting people that are struggling to put food on the table every month, especially if you're over the age of 75. That's what GIS does. You don't need to give people more money at the age of 75 through OAS, because people already have that support in place. And if you want to bolster that support, then go directly to the source. That's GIS. Again, they're buying votes. They're sort of taking the shotgun shell and blowing it across as wide a swath of people as they can. People have a couple of extra bucks in their pocket and think about that when the check box comes around for the next election and the liberals are there. "They gave me $500, $700 bucks a year. Well, I'm going to put my check box next to them. I kind of like having an extra little bit of cash." So, I'm completely out on this one.
Colin White:
Well, good. At least you come down on one side of the issue.
Josh Sheluk:
What's next on your list?
Colin White:
Luxury tax, baby. So again, this is instructive for what it wasn't as well as what it was. So they went after boats, planes and expensive cars, very popular with the general electorate. And you know what, not a bad target. It's similar to some of the Scandinavian countries and their luxury taxes and that kind of regime and that's all well and good. The interesting part here, for me, was that it doesn't start till January of next year. So here is, what I have to believe would be an incredibly popular tax that very few people would get to complain about, certainly not enough people would complain about it to change an election, and they still put it off eight months. They still waited and they gave everyone, "Now, if you've got that boat on order, just make sure you pay for it before January of next year."
Colin White:
So that, again, tells me the appetite for the government to make changes to taxation in a sudden manner that would not allow somebody to react. So, it's not just what they did, it's how they did it. And again, this is going to cause all kinds of gamesmanship for sure, but it is targeted with the people who can probably afford to pay it. And, I think that it's a reasonable way for the government to raise money. So, I don't have an objection per se to the tax. I just find it interesting in how it was rolled out. That I found instructive.
Josh Sheluk:
Yeah. I'm kind of ambivalent on this one. So what they did was, for vehicles and aircraft over $100,000 and for boats over $250,000, they're going to ding you with a tax on 10% of the purchase price or 20% of the value above those numbers, or whatever is the lesser of those two calculations. So, it seems like, again, you kind of said it fairly reasonable. It is a lot of money for some of these folks that are playing in this income bracket. So, it's not a small sum of money by any means. And my first thought was, well, people are going to find ways to gain the system, and they probably will. They have said that it's going to affect purchases and leases. So my first thought was, well, if you get a lease, then you don't need to worry about this. It seems like they are smart enough to think of that part anyway. The other thing is the GST or HST is on top of the luxury tax adjusted price. So you've got tax on tax here.
Josh Sheluk:
So that's one little fun tidbit, but I mean, like you said, it's going to be a relatively small number of people. I'm a little bit weary of taxing the rich to such a significant extent, if we want to call it that, because they already pay a pretty significant share of the overall tax in the country. So at some point, they're going to get a little bit fed up and we don't want to drive those wealthy people, who are paying most of our taxes on a year to year basis, to the Cayman Islands or somewhere down there where the weather's nicer and the tax situation is a lot more accommodated.
Colin White:
Well, stay tuned to your $99,000 car that comes with a compulsory $30,000 maintenance package.
Josh Sheluk:
There you go.
Colin White:
Just thinking outside the box. So Josh, what's next on your list?
Josh Sheluk:
Well, I'm going to go to the federal minimum wage. And there's been some talk of them increasing the federal minimum wage. It was in the budget to $15 an hour. And so apparently this is going to affect something like 26,000 people. Now that seems like a relatively small number to me, but-
Colin White:
Tiny. A tiny number.
Josh Sheluk:
Tiny. Yeah, when you compare it to the overall population. It's another thing where I'm, in principle, in favor of increases to minimum wage. And I think that, done in a measured and calculated way and intelligent way over time, it can actually help. There continue to be progress in sort of that segment of the market and segment of the population. But one thing I want to point out, again, I'm going to put my Economics hat on and go back to my first year Economics course and tell you that, when price goes up, that means the demand for something is going to go down.
Josh Sheluk:
So if you have the price of labor and maybe you're a restaurant owner, something like that, where you have a lot of sort of lower wage or lower income earners, if the price is going up for that labor, you're automatically going to demand less of that. So if some of these increases that are too aggressive, and I'm not saying this is too aggressive. At some point you may see a bump in your unemployment because of it. And that is one thing that I would be concerned about it. Something that just warrants a little bit of monitoring, because I think what they've done in the US is they're pushing for the same number, but from a much lower base. So it's going to be a much more drastic change for some of those businesses in the US than it will be for businesses up here in Canada.
Colin White:
Well, this is one of those times... Yeah. There a valid conversation economically and from a social equity perspective on having this conversation. Justin Trudeau was on TV today, talking about the paid sick leave and how that's strictly on the provinces, because only 3% of the workplaces are federally mandated. 97% of the workplaces are under provincial jurisdiction. So when the Fed stand up and say, "We're going to bring in a minimum wage for all Canadians." Yeah. All 26,000 of them, because only 3% of the workplaces are affected. This is just a line that they're going to use in the next election, talking about how they brought up minimum wage, and they didn't. You can't have it both ways. You can't come up with a budget that talks about this like it's a big thing.
Colin White:
And then when the paid sick leave issue comes up, say, "Oh, that's not us. That's the provinces." That's legit. It is a provincial jurisdiction. And this is the problem. The governments need to stick to their backyard. What are they responsible for? And just because something is popular, just because people want something, if it's outside of what you do, doesn't mean you should pretend to give it to them. To me, this is whitewashing an important issue. This is an important issue, but it can't be addressed federally.
Josh Sheluk:
So, I just need to be clear, Colin. Are you saying that politicians are sometimes contradictory?
Colin White:
They're sometimes opportunistic on which stand they take at a given moment.
Josh Sheluk:
Yeah. Rhetorical question. We didn't need to go there.
Colin White:
That's fine. That's fine.
Josh Sheluk:
What's next?
Colin White:
Green bonds. Did you see the green bonds?
Josh Sheluk:
Yeah, I saw that. So that's an exciting one.
Colin White:
Again, this is... Here's my problem. I'm all in favor of saving the planet and the green, I'm in. I got kids. I hope to have grandkids. I think that that's the right thing to do. For the government to just spontaneously announce green bonds? Trusting them to figure out how to allocate this money in a meaningful way that's going to change the world? That's where they start to lose me. All of the plans they've come up with in this kind of regard in the past has just ended up in money getting wasted, money that could have gone to something good, in more of a real accountable situation. I can take everybody back to labor-sponsored venture capital funds. They had huge tax breaks for people to invest in the region. And I can tell you stories about companies who were pitching representatives from these funds who literally fell asleep in the presentation, woke up and wrote a $5 million check because they were mandated to get the money invested.
Colin White:
It didn't matter what they invested in. The mandate was to invest the money. So my fear is that they're going to take money that could actually go towards a real green initiative and really make a difference, and they're going to waste this initiative for a line in a budget. I don't trust the bureaucracy to determine where the right way is to allocate that capital. Then again, it was announced as a fairly small item in the budget. I didn't see a whole lot of detail on anything I read. And I admit, I didn't read all 729 pages. But all of the writings I read about it seemed to be kind of vague. We have a green bond. Ooh.
Josh Sheluk:
Yeah. Well, I think a lot of this stuff is a little bit vague. So, you're kind of using your imagination to some extent about what it looks like. There could be some real economic value in doing something like this, just strictly from the government's perspective, because if people know you're doing some type of social good with the money that you're lending them. And that's what a bond is, you're lending the government money. If people know that you're doing some type of social good or think that you're doing some social good, they might be willing to lend you that money at a lower interest rate. I don't know. I haven't seen that out there with these green bonds, but it may be some way for the government to kind of back door and say, "Hey, give us some money at a lower rate."
Josh Sheluk:
Which, sure, I mean, just from the government's perspective, that can make some sense. But, I mean, to your point, what's the best way to implement some of these climate initiatives? The government actually going out there and spending the money themselves on a project. We've been down that path a lot of times, and it hasn't worked out too well. On the other hand, maybe they can provide some tax credits or other incentives, which I think have been floated in the budget as well, to help private enterprise innovate on that front. Because that's where I think we're going to get there, on the climate front, is you help or incentivize private enterprise to innovate. And if you can do that, then I think we're going to get to the outcomes that we want. Government spending a whole bunch of money on green initiatives, probably not going to get there.
Colin White:
Well, for me, Josh, it says, it's not as much about incentivizing something. It's just getting out of the way. Because incentives can get pretty particular, and there's a lot of case studies about companies that build themselves around incentive programs to hire the right people in the right location. And they kind of lose track of running a business. And pretty soon they wake up dead. Right? So, trying to incentivize specific activities is dangerous, because nothing happens in one dimension. If they could just get out of the way of companies that satisfy certain criteria as to what they're working on and let the company decide, like don't get specific on labor, get specific on how they're spending the money. But as long as the objective they're working towards is green, then get out of their way. So I prefer to look at it as get the government out of the way, rather than having them try to incentivize some particular narrow activity to address some perceived or actual problem in the system.
Josh Sheluk:
Yeah. It's interesting. It's a massive topic and we're definitely not going to solve the problem here today. And there's a lot of different sides to the argument. I was speaking with the portfolio manager earlier this week, one that we use to invest some of our money, and his comment was, "Well, it's fine that you put in this carbon tax system. But if I just sit on my hands as an enterprise now, yeah, I pay a little bit of extra money in the carbon tax, but I don't really have to do anything." He said, on the other hand, if you provide a carbon credit where if you're reducing the carbon that's out there, you actually provide a payment or some incentive or a credit to that business, that enterprise, then there's a kick in the pants that, "Hey, I'm going to go do something that's going to take some carbon out of the air, help the environment in a positive way, not just stay steady."
Josh Sheluk:
And something like that might be more effective as well. So, a million different ways to tackle the issue. And that's why it's such a big one and such a tough one to take care of.
Colin White:
I lost track, but I think I'm throwing it to you. Is the next one your turn?
Josh Sheluk:
Yeah. Well, I'm going to stay on that theme of sort of climate and energy efficiency and all those things and speak to something that may come up for some of our homeowners out there. There's a whole retrofit interest-free loan that's been floated. So, through CMHC, Canada Mortgage and Housing Corp, they're going to provide up to $40,000 in an interest-free loan for people to replace their oil furnace or get better wall insulation or basement insulation, install high efficiency water heaters, replace drafty windows or doors. So, this is something... I don't know. How much is it actually going to trickle into the mainstream? Probably not that much, but if you're looking to do something like this, again, it may provide that incentive that you need to do it.
Colin White:
It's going to provide zero incentive. If you can borrow money at 1.5%, providing money for free, it's not that big of a difference. Unless they're going to allow people to qualify for this loan program who wouldn't qualify for normal credit, this is not going to change anything. This is just another talking point for them. It's not that big a difference. 0 or 1.5% interest, that's just not motivation at all.
Josh Sheluk:
This is your finance brain doing the actual math, Colin, but keep in mind, most people are not going to go through that exercise. They're going to see, "Ah, interest-free? Well, that's awesome. That's way better than I can get elsewhere. Let me jump at this."
Colin White:
I'm cursed with the ability to do math, and frankly, I'm in people's lives to do math, and I'm going to do the math and that's worthless.
Josh Sheluk:
You actually said one thing there that scares me though. If we're not doing any credit check whatsoever, then we're just giving out interest-free loans to people that don't qualify. Yeah. That's government money that maybe we're throwing bad after good, or good after bad. One of the two.
Colin White:
Yeah. And again, I didn't read any details, but I wouldn't surprise me if that's where it went.
Josh Sheluk:
You're up.
Colin White:
Disability tax credit. This is something that's legit. This is something that's going to affect a lot of people. This is something that is complicated and it's something that has a big upside to understand. So, they have, for the purposes of this presentation, they've made it more reasonable to qualify for disability tax credit. Which is nice, from a tax perspective, but it also opens up RDSP. It's registered disability savings programs, which are huge, absolutely immense. So, if you have a member of your family, and it can be anywhere from children to parents to brothers to sisters, if you have anybody that's suffering from some form of a disability, where you've looked at the disability tax credit in the past and not qualified because it was, actually to be honest, very difficult to get to qualify for.
Colin White:
They've made it a little bit more meaningful and real to qualify for. And this opens up some real planning opportunities for people in these situations that should not be ignored, because the disability savings programs are very generous. Now, I think part of what's going to happen here is you're going to see that there's going to be many more people get involved in them. And they may take a look at the generosity of these plans and say, "Hey, we've got to be careful because, again, this is going to get expensive." But right here, right now today, this announcement, this part of the budget is an opportunity.
Colin White:
So there's anybody, and again, they've gotten fairly broad in their definitions [inaudible 00:29:13] ADHD and things like that, that people are fully functioning with. Who can lead a rather full life may still qualify under this program now. There's an opportunity here that somebody we would look at who's, "Oh, they're fine. They're basically fully functioning and they've got a full life." But again, because of their medical situation, they may actually qualify now, and it's worth looking at. This one counts. This one means something to those people, and it could mean huge.
Josh Sheluk:
Yeah. And not only does the disability tax credit get you some really significant tax credits, potentially save you some money on your tax return, but the RDSP, the disability plan that you're talking about, you can get two to three times the amount in government grants that you actually put into these accounts. So that's what you're talking about when you're saying that it is a real thing. This is a tremendous savings vehicle for those that qualify with a disability. And a lot of people out there use the RESP, the education plans, and [inaudible 00:30:15] "Yeah, I'm getting some good benefits there." Well, think you can be getting 10 times the benefits with an RDSP that you're getting with an RESP. So they can be very, very lucrative. There are a lot of moving parts with them. So reach out to a professional if you're trying to go down this path, because you probably need a little bit of help to get it off the ground and to make it function properly.
Colin White:
All right, Josh, what else is on your list?
Josh Sheluk:
Well, I just want to kind of end on one thing for my list. And it's, again, not something that's in the budget itself, but overall debt levels. And we've been talking about this a lot, especially over the last couple of years. The debt is going to continue to grow. And I'm not saying that it shouldn't, with this budget, but there's no real plan. There's no real path to start winding that down. And it seems like the new budget has basically forecast deficits for the foreseeable future. And that's a bit of a challenge when we've been spending money, hand over fist, like a drunken sailor on shore leave over the last year and a half.
Josh Sheluk:
And actually, going back before that, before we really had this pandemic in place. So we've talked about it time and time again. It doesn't need to be a catastrophe, the current debt levels, but it's certainly going to have some longer-term implications. And what those implications are, we don't know yet, but it probably means one of two things, or maybe both of these things, maybe some inflation down the road, or maybe some hindrance to growth, to GDP growth at some point down the road, probably some combination of two. Again, I'm not forecasting the apocalypse, but something to be aware of.
Colin White:
And just to be clear, I mean, what we're talking was the budget talks about the annual deficit, which is basically adding to the debt. And the budget going forward, as Josh pointed out, for the whole forecast is going to be adding into the budget. Now we've got monster deficits now, and they're going to get a little smaller in projection, but again, liberals are projecting for after the next election, which is a lot optimistic. So, that levels are going to be a thing to keep an eye on, for sure. Not apocalyptic, but something to keep an eye on.
Josh Sheluk:
Yeah. It's such a hard thing for society. I'm going to say society as a whole, because you're basically incentivized as a politician, as a government, to spend money to support people, because those people are going to reelect you if they have more money in their pocket. But at some point, the music has to stop. And when, where, who is going to stop that music, we just don't know yet.
Colin White:
Well, I want to end on a different note, a bit more apocalyptic. $300 million was headed to enforcement. They're coming after you. So, not only that $300 million line, there was a couple of lines in there totaling over $500 million towards various forms of enforcement. They're getting smart. So they're doing risk-based enforcement. So, if your return triggers an algorithm, you're going to get a letter and they just put another half a billion dollars on the table to write better letters.
Colin White:
So, there's a big part of this budget is trying to crack down on tax cheats and they're using a pretty broad definition of that. So yeah, that's the thing. And with the increase in electronic surveillance and tracking your passport as you go across the border, the fact that we've gone to a cashless society now, that everybody's running everything through their credit cards, so there's a bank record of everything you're doing more so than ever before. Be careful, if you're playing in the gray areas or you're playing out of bounds. Yeah. This could be a thing. So, keep an eye over your shoulder or just do the right thing. And you've got nothing to worry about.
Josh Sheluk:
Yeah. And potentially get some professional help along the way if you have any questions, because [crosstalk 00:34:28] that's a nightmare, you don't want. Speaking from experience, watching some of our clients deal with it, once they get a look, sort of under the hood, so to speak, they're not going to go away for awhile. So.
Colin White:
Once you get on the CRA Christmas card list, you stay on their Christmas card list for a little bit. So, and you won't find it comfortable.
Josh Sheluk:
Yeah. And they don't lose your address.
Colin White:
No, not when they want to keep a hold of it, no. [inaudible 00:34:58] If you're expecting money from them, well, different story.
Josh Sheluk:
Yeah. So that's a great overview of some of the hot button topics in the federal budget for 2021. There's a lot more to it. There's a lot more going on there. 739 pages is not a short document by any means, but those are the ones that we think are really going to come home and impact our clients, impact you, our listeners, at some point over the next little while. Or, hey, maybe they go away next year, and it's never a thing. But a lot to keep in mind there, as we go forward.
Colin White:
Well, I've started to lose interest in talking about this, so I'm pretty sure everybody else has lost interest in listening to us, Josh, so, why don't we wrap it up, say thanks to everybody and reach out to get any questions.
Speaker 1:
This information has been prepared by White LeBlanc Wealth Planners, who is a portfolio manager for iA Private Wealth. Opinions expressed in this podcast are those of the portfolio manager only, and do not necessarily reflect those of iA Private Wealth Inc. iA Private Wealth Inc is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc operates.
BARENAKED MONEY PODCAST: EPISODE 5
Transcript
Announcer (00:00):
You're about to get lucky with the Barenaked Money podcast. The show that brings you the naked truth about personal finance with your hosts, Josh Sheluk and Colin White, Portfolio Managers with WLWP Wealth Planners, iA Private Wealth.
Josh (00:24):
How are you Colin?
Colin (00:26):
I'm doing great. How are you doing?
Josh (00:28):
I'm ready to get naked? How about that?
Colin (00:32):
Well, I'm not sure that that's going to make it past the editor, but you know, good swing.
Josh (00:37):
So what are we talking about today?
Colin (00:39):
Well, there was some news came out, uh, actually a couple of weeks ago. Now that kind of caught my eye for a couple of reasons. Canada pension plan, investment board, or as an organization, I've got a lot of respect for seeing them speak and read a lot of their stuff and other people in terms of the Canada pension. Uh, now the Canada pension is envy or the industrialized world because it's actually a publicly funded pension plan. So we actually have funding behind it. It's not coming out of tax revenue. So there's a very sizable amount of money being managed on behalf of all Canadians. And there's some really smart people making those decisions. But the news was that they had dramatically underperformed their benchmark, the most recent period. And there was a bit of a fall of people were flocking to, and trying to assign all kinds of blame and what mistakes they made in the sand. And the other thing, and it brought to me the topic of, Hey, let's talk about benchmarking. Let's talk about indexes. Let's talk about what those things really are because they so often good misused and misapplied and in general life. And so you're a real smart feller. And I figured that if I asked you the question, so, you know, what an index is, you might be able to start the classroom. What Is an index?
Josh (01:53):
Yeah. So a lot to unpack there and an index at, at a very, very basic level. It's just a set of rules that define a basket of investments. And where does this set of rules come from? And we've been talking about it a little bit this week. It's not like the set of rules is handed down as a gift of God, to the people or anything like that, right? Somebody is out there an individual, you or me an investment individual, a group of individuals, somebody is coming up with this set of rules that defines what this index is. And again, index is just, just a basket of securities.
Colin (02:31):
And normally what they're doing this, like, Hey, everybody's talking about marijuana. We need a marijuana index. How are we going to do that? So it tends to be very opportunistic when they have those conversations. It's not just a academic procedure where they're going to go through and try to have an even hand over the whole space is once everybody talking about what can we sell? Ooh, let's have a marijuana index. And then they put together their set of rules and everything else and they make it look like it did come from the hand of, yeah,
Josh (03:00):
Yeah, you're right. And these indexes, they've just been proliferating over the last five, 10, 15 years, because as you said, there's an advantage or advantageous sort of point of view one creating an index because then they could go sell this index and use it to create investment products for the people. So I heard on a podcast this morning, which I don't know if I entirely believe this number, but there's 3 million indexes out there in the world. That seems like an absurd number. I don't know how that could be possible, but even if it's 300,000 or 30,000, that's still a hell of a lot of indexes.
Colin (03:38):
Yeah, no, absolutely. And that is as they become more popular and as this whole conversation about beating the index, you know, there's more and more on, on main street, it's more taken as, you know, a good commentary on something and then more and more people come to the come to market with them. And I know it's been fascinating to watch some of the product that's come out lately. So the major index is Josh. I mean, maybe you can give me your comment on what percentage of that are our rules and how much discretion around there. And again, there's discretion the rules too, but you know, it's, it's not just a mathematical equation that puts a stock on an index.
Josh (04:13):
Yeah. So the major indexes you're talking about things like the TSX composite or the S and P 500 did the TSX comp, is that we'll reference it a few times throughout this conversation. And it's just a representation of sort of the largest companies in Canada, uh, the S and P 500, the 500 largest companies in the U S uh, you know, give or take, uh, and there's rules to be included on these indexes. So again, somebody is coming up with these rules, how much, uh, for these, these sort of broad based indexes, how, how strict are the rules? You know, there, there's a couple of defining things like they have to be filing quarterly and annual reports. They have to meet a certain size to be on that, that index. So for the very, very basic indexes, there's some pretty basic set of rules that somebody has come up with and they change from time to time. But usually they're pretty static. And those types of indexes are usually a reasonable benchmark for some parts of the market. And as you said, there's marijuana indexes out there. The fifth point indexes cryptocurrency index is that there's just about an index for everything that you can think of. So they go from those very broad based sort of simple, easy to understand set of rules, to something that could be really complicated with, you know, you have to hit all of these different hurdles and jump through all of these different hoops, and then maybe, uh, eventually you'll be considered a part of this index. Uh, and some of those things are financial. Some of those things are, are purely based on the price of, of the investment that's going in. There could be a whole host of different things that, that our criteria for that index included.
Colin (05:57):
Well, no, absolutely. And then, then it gets down to the efficacy or how effective things are, uh, with regards to benchmark. And this is just to roll this back to the article that kind of started my thought process down this road is, you know, we use this internally as well, so we're always looking for a comparison. So if we're, we have a strategy for implementing or evaluating a product or a manager, now we will try to find a relevant index. So some description to do some kind of comparison work, but the devil's in the details, you know, oftentimes when you do a comparison, you'll come to a conclusion that no, this is this product doesn't measure up very well. That's not the end of the conversation as you take in and figure out why, what is, what's the underlying reason? Cause sometimes something will compare well, but you get to the bottom. It's like, Oh, I understand why. And I'm really comfortable with it, not performing well for that reason. And you move on. So it's, it's a very deep dive and we've gone through periods in the past where, you know, Nortel made up 33% of the TSX, how much? So if you don't own Nortel in your portfolio, you're always going to be out of step with the index, either good or bad. And this goes back to the whole, you know, it's a marketing thing now it's, it's really firmly entrenched in investors, mind and it's institutionalized that, you know, there has to be a comparison to an index. So if there's a math freak out there who would invest dramatically different than the index, they're on a short leash, because if they underperform for any period of time, then eventually there's no business case. And they're going to go out of business. It's bad for your career to be out of step for a long period of time. So the market forces will drive investment products and investment managers closer to the index because that's where survival is. You know, because the cyclicality of different parts of the market means at different times, either growth to taper or values in favor or commodities or favor, and these cycles can play out or exceedingly long period, uncomfortably, long periods of time, and cause people to jump to conclusions to say, Oh, this isn't doing as good as the index. I'm out running a business. That's that's bad for me now. So I can't be in the business of being really offside for, because then I won't be able to feed my family. So it becomes a bit of a self-fulfilling prophecy when we do these comparisons, because the only indexes or helps, like from the hand of God, it comes, it impacts my business really. And everybody agrees that we have to march to that beat, but you know, there's very valid reasons why you might want to be different, especially with Nortel's 33% of the index you're comparing to. And you know, Tesla getting added to the S and P had a little bit of an effect on the overall metrics of the U S market. So little transactions like that, uh, can cause ripples as well. Did you follow any of any of those changes that were made?
Josh (08:53):
Well, I think when people see a name like Tesla getting added to an index, you there's some speculation that that's really going to drive up the price of that investment. So it's kind of come full circle now because getting included in an index should drive up the price of the investment. Whatever's getting included there, which should make it even qualified by even a greater standard into that index. Uh, so it's, it's kind of almost like a self fulfilling prophecy and it kind of snowballs, right? And that's, that's what people speculated was going to happen with Tesla is like, okay, Tesla, it's already run up this much in price. It gets included in the index that pushes up the price of Tesla even further. Because again, we have all of these products, these investment products that are tracking that index. So as soon as Tesla gets added to the index, all these investment products by pushing the price up more and more. So now we're, we're seeing that kind of reverse itself now. And it's hard to kind of suss out and tease out what is purely because Tesla was getting included in the index versus what's just sort of natural price momentum or momentum of the underlying business. But that's certainly one thing that, that people are looking at these days. And so you've mentioned Nortel Colin, which is good because that was back in 2000 in Canada. And that's kind of an insane period of time. And it emphasizes to me why this whole obsession with indexes is maybe a little bit misguided because if you're investing in the TSX back then the TSX composite actually, which was the TSE300 back then. Uh, so as, as we've been talking about these things change over time, but if you were buying that index back then 33% of your investments of your portfolio goes into to Nortel, is that prudent
Colin (10:51):
Well, as it turns out, Nortel went to zero. So no, that was a bad idea. I love how you're able to build your commentary and make me feel old all at the same time. Like you were talking to me, like I was coming out of a history class or something, you know, you're right. I did live that. And that was, uh, one of those moments in my career where I learned something that I'm carrying forward even to today. Because again, I have a skepticism when people start talking about indexes, because I know there can be things hidden under rocks in there that I'm really comfortable not looking like certain indexes at certain times. And internally we're very happy looking, unlike indexes for certain periods of time, for certain reasons that it's not a simple, it's not a simple calculation at all. And you know, the ETF space is really little, I'm curious in a little podcast. So you're talking, you go to the reference, the proliferations of ETFs, and, you know, spawning that, that those, those indexes was, was there any kind of a connection made between those, those two phenomenon?
Josh (11:49):
Yeah, I think there there's a definite correlation between the sort of advent of ETFs and the proliferation of these indexes that the ETFs are tracking. Generally speaking, when you look at an ETF, it is tracking an index. You don't have somebody that's making what we call active decisions. So deciding what to buy yourself, you have a set of rules that, that ETF is tracking. That's the index. And so there's, there's a definite correlation there between the two.
Colin (12:24):
Yeah, here's the real rub. If people are following along with us and they're buying into what we're saying is basically our message is that a simple index comparison is not terribly valuable. You know, it's a more, a much more of a nuanced thing, but the problem is, as soon as you go into nuance that you're relying on somebody to tell you a story. Now, if they're using their story for the forces of good, you're in good hands, if they're using their story for the forces of evil, then you know, you can be led astray. So, you know, while it's important to understand what an index is and how something benchmarks against that index, it's also important to vet the quality of the commentator, who was telling you what that difference is. Because again, it's very easy to build a very compelling story for commercial real estate and how, you know, 19 times out of 20, this that and the other thing you can build really big stories that seem to be based in data that have some fundamental flaws to them. So the, the launch to make it nice and simple compare to index - index good, is, is a really powerful human thing. Because as soon as you get into listening to a narrative, you can get off track there's danger there. So there's danger kind of both ways we within our group are just really, really focused on trying to take what we can out of index comparisons and leave on the cutting room floor, the stuff that's not relevant. And it really is an art form and it takes a whole lot of experience and a whole lot of work to do properly.
Josh (13:59):
Yeah. So you keep saying and talking about how you gotta be careful about what you're benchmarking against. For the average person calling the average investor that is looking to accomplish their retirement goal, or to buy a house two years from now, does it make any sense to compare themselves to an index as a benchmark?
Colin (14:18):
No, that's a fantastic point, Josh. Is what you're using it for is important. So, you know, the answer is, it depends, you know, should you compare, you know, the savings account that you've got going for a house to what the TSX is doing. It doesn't make any sense, you know, but should you maybe take your long-term retirement savings and take a look at what the broad markets are doing and see if that money is relatively and stuff, that's not a terrible exercise to go, and it will certainly foster some questions. It will help you to ask if your advisor or ask of yourself as to, you know, why am I out of step for the example that we were having earlier? It's like, you know, Hey, I'm going to keep it up with the TSX. It's like, well, you don't own any Nortel. Okay. I'm happy not owning any Nortel. I'm okay being on a different page. That's good with me, you know, so those are the kinds of decisions, but you're right. You know, people take a look at their accounts and they get a nice balanced portfolio. The TSX does 20%. They go, how come my accounts not up 20%? Well, your account wasn't invested in the TSX. It was invested in a global basket of stocks and bonds, I guess, different asset classes, different currencies in there. And that the human condition of all part of this, the media as well, they're going to report the biggest number. So whatever market has done the best, that's the number you're going to see. And you're always going to anchor to that big number and if the big number 15% and your account's only up eight, Oh my God, that's terrible. Well, no, that's that, that was the NASDAQ, you know, do you want to buy all high tech stocks and go on that ride? Probably not. You know, so again, it's because the work is reported as being the most sensational things. It's very difficult to bring it back to what you're saying, Josh, for people to use that in decision-making for how they should run their own finances. There's a lot of busses that you got to get on to get from one of those points to the other and have everything kind of pulled together. For sure. Yeah.
Josh (16:12):
Yeah. With the CPP, as you kind of introduced at the outset and its benchmark its index, how did it compare against its index or its benchmark? I don't think CPP and correct me if I'm wrong Colin and I don't think CPP is looking to beat its benchmark every single quarter or every single year. They know that that's not a reality.
Colin (16:34):
Well, it's run by really smart people. So internally. Yeah. They, they do know that, but the overlords that they answer to are looking for some kind of a performance report. And so when they're out of step, then they're going to have to provide that narrative as to why, and their overlords are going to have to have to accept that story. But the other thing, and this kind of snowballs into a bit of a different topic, but you know, the CPP is a ridiculously large pension fund for all Canadians with an infinite timeline. So like they're buying airports, they're buying bridges, they're buying all kinds of things that the average investor can't buy, and there's a school of thought out there it's like, you should invest like the pension funds, which is BS frankly. Because again, if you've got a $250,000 ramp that you're using to pay your rent, you don't want to buy an airport, airports aren't good investments for you. You know, you need to something way more liquid than that. So the, within the CPP that they've got all kinds of really different benchmarks because you know, the performance evaluation as a thing, like you do have to pay a little bit of attention to, am I right buying the right airports? That's a valid question. So there has to be some kind of measuring stick that you put next to them, or your phone may go off (phone ringing in background). So benchmarking, it's not simple. It's not easy it's worth doing, but it takes a little bit of a little bit of intelligent thought to actually get something useful out of it.
Josh (18:03):
Right. And this is, it's an interesting point because we regularly talk about how you don't want to look at what's happening out there in the media and try to replicate your individual investment portfolio based off of that. You mentioned CPP. Yes. I'm not going to go buy a railroad because quite frankly, I don't have enough money, but you also don't want to be trying to replicate exactly what maybe Warren Buffett's doing. Yeah. The CPP is hundreds of billions of dollars. Hundreds of billions of dollars. Warren buffet is also managing hundreds of billions of dollars. So trying to look at well, what is Warren Buffet doing? Let me follow him. Maybe you don't have the same goals or objectives as Warren Buffett. The guy is one of the richest men in the world. And you know, I, I feel pretty comfortable saying that his circumstances are slightly different than yours.
Colin (18:56):
Well, I'll do it's, it's kind of called the halo effect. And when I describe it to people, it's like, you know, Sydney Crosby's morning workout. It's like, Ooh, I want to go Sydney, do Sydney Crosby's morning workout. That's just going to end badly. I mean, I'm going to hurt myself. I'm certainly not going to be successful at doing it. And frankly, it's not the right thing for me to do. I'm not a hockey star in my mid thirties, I shouldn't be behaving like one. That's just dumb. I mean, to think that you're walking around behaving like more, the Yale endowment gets trotted out there as a wonderful investment. And look, there's some really great, interesting reading to do about that, but to somehow take that as a model for how I should build my retirement fund is absolutely ludicrous, but it's the halo effect. Here's something that's successful. And we want to be like that. You know, here are the five books that Bill Gates read this year. Here's the three things that successful CEOs do every morning. You know, it's a halo effect. There may or may not be anything interesting in what the top 50 CEOs do every morning. Maybe they drink their coffee. I must drink my coffee at the same time. Just stop it just because, you know, you're associating one level or one thing of success with something that's actually transferable. Oftentimes it's not. And unfortunately it's such a powerful reaction that we have it's very easy for companies to answer that and say, Ooh, you want this? Well, here it is. And you know, they're going to be very successful with that as the outcome. That's not going to be as good. And unfortunately that can take a long time to really show itself and can do some real damage to someone's financial future.
Josh (20:34):
Yeah, just to dovetail a little bit. It reminds me of, uh, the study that Heather told me about last week. And if you have a plant in your office, apparently you're 12% more productive. If you have a plant in your office, you're 12% more productive. So I stuck two plants in my office. So I'm 24% more productive.
Colin (20:54):
I think you should put 50 plants in your office, Josh. I mean, how many plants can you get in your office? We need that kind of production.
Josh (21:01):
That's too much production, I think, Colin. That's too much production. That's too much. One of the other issues with these indexes and the proliferation of them, these days Colin is something called a back And this is really an industry term, uh, that we'll explain for our listeners, but these indexes come out and again, they're being created by an individual with a certain set of rules and all, always these rules are backward-looking. So if I'm going to define a set of rules for my index, I want this index to look really great. And I look historically, I pull some data, I crunch all my numbers and of course, it's going to come out looking really good. This is what a back test is. You take the information historically and you test your set of rules today as to how it would perform historically. But there are a lot of issues with this. Maybe you can give me a few Colin.
Colin (22:01):
Well, because only the successful ones actually make it to market. You can find patterns in data, you know, just, just keep looking. You're going to find patterns. You know, it's one way I've heard it described as the Texas sharpshooter fallacy. Basically it take two guys with a case of beer, and a case of ammunition, you set them in a blind looking at the side of a barn and they spend all day shooting at the side of the barn. At the end of the day, they walk over with a marker and they look for the tightest grouping of shots and go, yup. That's where I was aiming. Right. So, you know, you can find patterns in data. If you look hard enough and your computer is big enough, but there's no, there's no reason for that to be predictive, right? Just because it happened in the past, you know, in order for anything to have any predictive value, or we can have another whole podcast on the stupidity of trying to predict stuff. But you know, you have to really have a thesis that ties it all together that, you know, this is the data, and this is a pattern that we've determined. Here's the thesis on that data, continuing in that pattern going forward. You know of course I'm going to say oops, global pandemic! Because there's a whole bunch of things that got disrupted last year, because while there wasn't a global pandemic, anywhere in anybody's data in order to plan properly for, for 2020,
Josh (23:15):
The, the joke is I've never seen a back test. I don't like right, because nobody's going to offer a product out there that's based off of a crummy back test. So they're always going to be massaging that data to make it look good to build something that looks good historically. And that's rarely gonna play out in the future.
Colin (23:33):
Or hey, we've back tested this for 200 years. Really?!
Josh (23:38):
Things have changed.
Colin (23:39):
You back tested this predating electricity. Good for you!
Josh (23:48):
Yeah. And this is why in the fine print on just about anything you'll see in our business. It's past performance is not indicative of future returns, right? And that's something that everybody needs to remember when they're looking at a back test. The way that I describe it here is it's like, you know, you'll lose the last three hockey games, one, nothing. And you decide that going forward, you only ever need to score two goals and you'll have a perfect season. We know it's not going to play out that way.
Colin (24:14):
Sorry to hear about your hockey team.
Josh (24:17):
It's it's been a disappointing few games that's for sure. So we know that some indexes are created logically. Some are maybe not created. So logically Colin, there's probably a couple of high profile cases that we can look at where it just doesn't really make a whole lot of sense. Anything that comes to mind for you in that regard,
Colin (24:38):
When you say that my mind goes to the centers, we talked about, like you've got the ultra hot sectors that are showing up like the Bitcoin in different versions of Bitcoin and competing indexes. of Bitcoin and the marijuana was a big one. And, you know, I understand that the Game Stop thing, there's now a Reddit investment product that has been launched. It's, you know, supposedly has an algorithm that's combing the posts in Reddit now, I know, again, I'm not sure if they're going to label that an index because it's, rules-based, there's somebody out there that slaps the label of index, the Reddit index. I'm sure if I Googled it, I probably could find it. Um, those are the ones that kind of leap to my mind and you see, well, you tend to troll on those podcasts a little more than I do and you must've had some more interesting ideas than the ones I've run into.
Josh (25:27):
Well, yeah, I think you hit sort of the high points there. They have like the meme, stocks, indexes, and all that stuff, which I don't even know what that, that that's describing these days, but, uh, even I'm too old for that going, um, I'll just go to something even more basic than any of that stuff is you just look at the Dow Jones, the Dow Jones has been quoted by everybody that's out there for many, many decades. Now the Dow Jones is 30 companies, 30 companies based in the U S what is it representative of? Is it representative of the entire economy? No, not really. The entire stock market. There's thousands of companies just in the U S there's tens of thousands of companies in the world. So how representative is the Dow Jones really? And you hear people quoting it all the time. The bigger thing for me, and this may really surprise some people. The Dow Jones is just a sum of the stock prices that make up. So the prices of, of the companies that the companies with a higher price for their stock, they have a higher representation in the Dow Jones. So we've talked about my lemonade stand before my lemonade stand on the corner here, it sells for a thousand dollars, but there's only one share. I'm the only owner. So if my lemonade stand was listed on the Dow Jones, it would be the most representative of any company that's in there because it's a thousand dollars. Every other company that's in there is less than a thousand dollars. So that doesn't make a whole hell of a lot of sense to me.
Colin (26:54):
You know Josh, you keep up with this lemonade stand we're going to have to rename our podcast. Josh's lemonade stand because you find a way as don't have to bring your lemonade stand into pretty much every topic of conversation that we have. And I'm impressed at that. That's really, that's a really elastic mind that you're working with. That's good.
Josh (27:09):
Yeah. Well just wait until I branch out into orange juice.
Colin (27:15):
So we've talked through a lot of different things and again, it's another one of these and thanks everybody for staying with us this long and going through it, uh, indexes and benchmarking or something that gets thrown around very quickly or headlines, uh, they've provided very summary judgment. It's a great short cut, but hopefully we've been able to point out a few reasons why maybe it's not that simple and you shouldn't be so quick to pull really solid conclusions based on very high level numbers, that there is some nuance involved. It does involve a little bit of interpretation and, and frankly, you're going to have to find somebody to help you with that interpretation and you know, we are those we're, some of those people. Uh, so just make sure you're getting, you're making decisions based on thorough information, not just headlines.
Josh (28:06):
And so it's what we always say Colin - you need some perspective there, and that's where we can hopefully provide for you.
Colin (28:12):
Absolutely.
Josh (28:14):
Thanks everyone.
Announcer (28:16):
This information has been prepared by White LeBlanc Wealth Planners, who is a portfolio manager for iA Private Wealth. Opinions expressed in this podcast are those of the portfolio manager and do not necessarily reflect those of iA Private Wealth. iA Private Wealth Inc, is a member of the Canadian investor protection fund and the investment industry regulatory organization of Canada. iA Private Wealth as a trademark and business name under which iA Private Wealth Inc operates.
BARENAKED MONEY PODCAST: EPISODE 4
Transcript
Announcer
You're about to get lucky…with the Barenaked Money podcast. The show that brings you the naked truth about personal finance with your hosts, Josh Sheluk and Colin White, Portfolio Managers with WLWP Wealth Planners, iA Private Wealth
Colin White:
Welcome to the next installment of Barenaked Money. Josh and I are going to take on the topic of do it yourself stuff this week, or this month…today.
Josh Sheluk:
Do it yourself, everything Colin? Or I think we're going to be a little bit more focused than that, right?
Colin:
Okay. Within the financial world, point taken, I'm glad you're here to keep me in line. Thank you.
Josh:
Yep. Yep. Sounds good. No problem. That's what I'm here for. So, one of the things we're going to do is to highlight some of the do it yourself areas where, you know, may be worthwhile to go down that path and some of the pitfalls or trouble that you may find yourself in. If you're doing a little bit too much, do it yourself.
Colin:
Then when Josh and I were preparing to have this conversation, we talked about our personal inherent biases and the fact that, you know, we're advice, givers, therefore we're biased. And of course, my question is when do you stop being biased and just start being right? So, you know, we'll explore that. And obviously you're listening to people who give advice. So, you can take this with a grain of salt, but well, we'll set forth a little bit of a case and some examples as to, uh, what you can and can't get away with on the, do it yourself side and where it doesn't…maybe it does not work.
Josh:
Yeah. I like the plumber analogy, Colin. If my toilet is, I can look at it a couple of ways I can try and do it myself. I'm not that handy that might end up poorly. I could call my buddy from down the street, have him come over you and I can try to mix it up and figure something out. At some point we may just want to call a plumber and that plumber he's the professional. He's not going to screw it up. He's not going to cause a bigger problem or a leak down to our neighbors, condo or anything like that. So, you have the options that are out there, uh, for something really simple, you know, fixing the float and the, and the toilet. Yeah. Maybe I can do it myself, but something where I may screw it up and cause a bigger problem. Yeah. Professional advice sometimes.
Colin:
Well, I think there is a good point, Josh, cause it really depends on the magnitude. And if it's a matter of picking one bank account over another bank account, the magnitude of that choice is probably as it should not be that significant. But when you get to putting, you know, your financial future, you know, to risk, then you know, maybe you need to give it a bit more, you'd get more attention. That's a good buddy of mine, he says nobody pretends to be an underwater welder. You know, when the, when the magnitude of messing it up is going to be dire that indicates maybe you do need to have some professional advice and you and I both stumbled across, you know, one institution this week who were, uh, trying to convince people that they should be able to do it themselves. Right?
Josh:
Yeah. So, uh, one that I think a lot of the do it yourselfers out there are aware of Wealth Simple. And we don't really want to pick specifically on Wealth Simple, we've picked on these other, do it yourself type of platforms before but I think Wealth Simple does a lot of things, very, very well. And a lot of things that we're envious of actually, in terms of the simplicity and making things work for people, that's really tremendous. What you had asked me about earlier this week was you saw that Wealth Simple was promoting or advertising the most traded stocks in their platform and showing the three month rate of return of those stocks, what could possibly go wrong?
Colin:
Well see, you and I both know. And I guess most people would realize, that we love lists. Here are the three foods you need to eat right now. Here are the five relationship keys to success. You know, whenever somebody puts a number of things, it puts it all of a sudden it becomes a thing it's like, Oh, I can, I can take in three things. I can understand five things. So Wealth Simple being smart and you're right, Josh, we've, we've talked with them. You know, some of the stuff they're doing is spectacular. They're not dumb people. So, when they came forward with this, yeah, this is how you get attention. Putting out names, lists of stock names with a data point, you know, Ooh, maybe I can do that or, Ooh, that one looks good. Ooh. I bet you that will do it again. But again, it's, you know, they've gone to the zero commission model. They're starting, you know, they're trying to generate a whole bunch of activity. And in order to do that, they need to generate some confidence and give people some ideas. So they're giving people exactly what they want. Here's a list of very popular stocks in our platform would be like, batteries. Here are the top five battery technology stocks traded on our platform. You know, so they're, they're trying to tailor it. And again, it's very successful from a marketing perspective to get people interested in doing stuff. But how effective is it having people accomplish any of their financial goals? And this goes back to, do I have a leaky toilet or do I have a life imperiling situation I need to manage right now if this is you're having a little bit of fun around the edges for entertainment's sake. Sure. Knock yourself out. But if you're gonna bet your kid's education on it, maybe not, maybe that doesn't make so, so much sense. You saw them actually promoting a different service, which I even found a little bit more intriguing.
Josh:
Yeah. Okay. But before I get into that, I want to talk about this list because I think there are a couple of things that are really important to, to mention here. So first, most assets that you can invest in they're priced based off of supply and demand. So if the demand is really high for something, if you find that a lot of people are out there buying it like a game stock, for example, then the price is going to go up. And sometimes that's just justified other times it's not, but if you're looking at a list and you're deciding that I want to buy this thing because other people have bought it, first of all, I don't trust other people that much. Um, maybe I'm a cynic, but, uh, you know, I've, I've been around enough people to know that I'm just not going to blindly trust the, uh, the stranger down the street, especially with my financial decisions. Uh, but if you're buying based off this list of sort of the, the most popular stocks and stocks are priced based off of supply and demand, the demand is high. That means the price is high of these things already. So if you're trying to follow some type of buy low sell high approach, which is kind of the key to making money, it seems to fly a little bit in the face of that. Don't you think?
Colin:
Oh no, no, absolutely. I mean, again, just because it's popular and oftentimes in the investment world, when it, by the time it's become popular, it's, it's probably not the best investment anymore. Like if, you know, we used to use the old expression when you get in a cab and the cab driver asks you what you think about the price of oil. That's probably not the best time to be taking a position. I mean, that's not scientific and there's a whole bunch more goes into it, but it's a leading indicator that maybe things have gotten a little bit frothy for sure.
Josh:
Yeah. Yeah. It reminds me of a story that was on a podcast and other podcasts that I was listening to a few months ago and the guy was sitting at his computer. He had a general contractor in his house, did a little bit of work on, on a couple of things. He's sitting at his computer, looking at, uh, looking at some, some charts and everything. He's a financial guy. And I guess the, uh, contractor peeked over at a screen and looked at it and said, you do stocks? That's exactly what you're talking about right now. So the other thing I wanted to mention is I worked for a discount brokerage in an online brokerage in the past. Now this was before the days of zero commission, uh, stock trading and zero commission sock trade. Again, this is a good thing, generally speaking for people, because if you can buy something for free and you're making prudent decisions with that, then that's great. You just reduce your costs. And, and then in turn increase your after, after cost rate of return, the key point there is if you're making prudent decisions. When I worked for the online brokerage, our revenue was generated based off making people trademark. We had clients that traded a hundred hundreds or thousands of times per quarter, every quarter, they traded hundreds or thousands of times. And were these people making money? What do you think gone?
Colin:
Well, you know, I don't want to spoil the ending, but, uh, maybe no.
Josh:
Yeah. And I shouldn't say they were making money, but were they making as much money as they could have just by buying the market? No, the answer's no. Right. And, and so it's generally thought that all of this activity is not really leading to better financial outcomes for people, even if you reduce the cost of their trades to zero and as an online brokerage, just like these other zero commission online brokers is out there. They get paid by making the trade. You've talked about this before they get paid by making you trade. So what do they think? What do you think they want you to do? They want you to trade. They don't care if those trades are profitable for you as much.
Colin:
Well, and the other, the other thing, I mean, the other analogy that I have and it fits, and it doesn't fit, but there's, there's some value in this. If you consider, you know, playing poker online, I've done it. I like playing poker a little bit. I find it entertaining, but it was a couple of things about playing online poker. Number one, the house is going to get paid and they should, they're providing a service they're going to get paid. So that's a little bit of friction in the conversation. Number two, I'm walking around in the pool. Some people who really know what they're doing, I'm a hobbyist. I mean, they're having a good time for me to somehow convince myself that I'm going to become a professional card player and this is how I'm going to make my living. No. So again, you know, the, the investment world is filled with really sophisticated investors, really sophisticated, sophisticated pools of capital with huge computer systems. There's trillions of dollars at play. There are a lot of sharks swimming around that pool. And if you think you're going to wander in on the weekend and you know, place a couple of trades and somehow beat the system, you may get lucky for a little bit, but man, or the current stacked against you to think that you're going to constantly do well at break. Even in that game, over an extended period of time, it just is not likely. So again, depending on what role this has to play for you, if you're counting on, Hey, look, this is all the money I have in the world. And I need it to be here for me to, to pay for my retirement. You know what I'm going to say. You need professional advice to make sure you don't make any big mistakes. If you've got a few thousand bucks that you're playing with on the side that you'd like, you know, it's very entertaining for you. Then the all zero zero commission training is fine. You know, using the online tools is fine. I hope you get a rush from it. Just don't get so wound up that you think you're really, really good. And you're going to take all your money in double it this year because the roadside is littered with bodies. So people have tried to do stuff.
Josh:
Yeah. What's that? What are the stakes, right? Is it a dollar game that you're playing on, on PokerStars or are you playing 10,000 bucks at hand? The stakes are different and one of them is life or death. The other one is, you know, maybe you don't buy your coffee tomorrow morning. So not a big deal.
Colin:
Well, the other thing that Wells Simple's got out there, Josh is I think is even more entertaining. Uh, and I, for whatever reason, I haven't clicked on the right button. So this hasn't come across my newsfeed. So this is great. You and I have got, you know, different things hitting our newsfeed, but why don't you, why don't you tell our listeners about that? The other thing that they've got out there.
Josh:
Yeah. The, the tax software where they help you file your own taxes. So I saw this on the super bowl ads on the super bowl, right? So in case you're wondering if Wealth Simple is making money or not off of what you're doing, they, the ads on the super bowl, right? So they're making money. They're doing okay. So their tagline, I just about fell off my chair and could have been, cause I had a couple beers in me, but just fell off my chair. When I saw the tax, uh, the tax software pop-up, uh, as a commercial and the headline is anyone can do their own taxes. I was like, what? I don't do my own taxes. You don't do your own taxes. How could any, I've been in this business for 10 years and I can't do my own taxes. My tax situation is not super complicated. It's a little bit more complicated than the average person. It's not super complicated. I can't do it. You can't do it. So how everyone can do their own tasks.
Colin:
Well, Josh, at this point, I want to intervene and say that the reason that Josh and I don't do our own tax returns is within our team we have specialists to do that. So through White LeBlanc Wealth Inc., we've got people on our team who are certified to do tax work. I'm smart enough to know that I'm not smart enough to stay up to date with everything. I need to stay up to date with to adequately do that. So Josh and I, when he told me the story, I thought he was kidding. I didn't think anybody would be so bold as to go out there and tell all Canadians, you guys can all do your own taxes. Oh, that's funny. But no, seriously. Again, it sets an expectation that in our opinion, this isn't realistic. And again, all of our biases and everything else…but you know, the number of tax returns that we've had come to our group that have ended up with major mistakes that have involved quite a bit of work to go back and redo and listen, to be perfectly honest and perfectly transparent. As we have promised to be professionals, make mistakes, we've made mistakes. We've seen some of the biggest accounting firms in Canada make mistakes. The likelihood of a major mistake when you use a professional is radically lower and having a professional do it means that the professional can fix it. There's a lot of things with regards to filing your taxes that are fixable. But the other thing I hate about this, Josh is it makes people feel bad or inadequate. You know, I'm secure enough in my humanness that I don't feel inadequate that I can't do my taxes, but if my only exposure is an ad on the super bowl goal, while everybody who watches the super bowl is qualified to do their own taxes, and I'm not, I must suck. That's terrible.
Josh:
Yeah. Yeah. It's, it's pretty, I think that borders on irresponsible, that tagline, in my opinion. And that type of thing really bothers us. I know when we see sort of that ‘stamp’ on the financial business, something that we feel is irresponsible and you kind of hit it on the head, right? Like everybody's going to make mistakes sometimes. But the probability of you, an individual who doesn't have a tax background, making a mistake versus some professional accountants that does hundreds of thousands of tax returns a year making a mistake it's vastly different. And the other thing is you have some recourse. If a professional makes a mistake, any reasonable professional that makes a mistake on your tax return, they're either going to compensate you for it or they're going to fix it. And if you make that mistake on your own well, you're SOL, as they say,
Colin:
Well, yeah, the other thing to recognize is that you can be really, really smart and your taxes five years ago. Like you really spend some time five years ago and you nailed it. And, but you haven't had time since to keep up with this. So you kind of kept going with what you knew from five years ago, guess what they change every year. So the chances of you missing a significant change and going off side are pretty high. I went through this with a client actually very recently had a conversation because they had a little bit of an influx of cash coming in and we're having a chat about what they're gonna do with it. And they said, well, we're going to put it against the car loan. I said, well, it's the loan. Whereas as much as the car and all the cars worth more than loan, I said, okay, you got it under control. What's your interest rate? Well, it's 1.5% might not make a lot of sense to pay that hand. Well, you told me that car loans are bad. It's like I told you that 15 years ago in car loans were 9%. You know, it's changed, you know, stuff. It's the stuff you knew for sure that you were right on. The somebody smart said to you 15 years ago may or may not be relevant today. Stuff changes, which is why a professional, whose job it is to stay up to date and current on things. Even if you were right, five years ago or 10 years ago may not be right today. And it worthwhile having somebody look over your shoulder, but Josh we've teased the idea that there's, there's, there's, there's some benefit and the do it yourself movement. And we've alluded to the fact that, you know, fixing a leaky toilet or attempting to fix a leaky toilet is within that realm. What are the other benefits that could be run out of the whole, do it yourself kind of thinking?
Josh:
I have one question before I get there and a beer is on the line for you. So I think it'll be interesting. So in 1917, the income tax act was 3,999 words on the whole income tax act. But as of today, within a hundred thousand, how many words do you think it is?
Colin:
Oh, 1.5 million.
Josh:
Okay. You're, you're a little bit above where it actually is, but, uh, the numbers going back in 2016, I actually don't know where it is today, but in 2016 it was over over a million words, but 1 million, 30,000 words. So yeah. Uh, I'm not qualified to keep up with those changes. You're not qualified to keep up with those changes, hire professional. So sorry, what was your question now?
Colin:
I was wondering if we could give some people some indication on where the do it yourself movement can actually add value to somebody's life.
Josh:
Yeah. Yeah. So there have been to me some, some benefits of the, do it yourself movement, and a lot of it is in cost, right? I think the cost thing you see when you see the, the commission's going to zero on the do it yourself side, that does have some spillover effects for other parts of the financial advice market. And I think in a lot of different areas, you've seen costs come down across the board for a variety of different things, uh, whether it's do it yourself or for professional advice. So I think that sort of a spillover over benefit for, um, the financial business as a whole, the financial industry as a whole, and individual's ability to get access to that access, I think is a huge thing as well, because I, I believe things are more accessible today than they ever have been. And like, just, if you go back to like the eighties, when the online brokerage business was blowing up, well, that really drove the online access part of things. And that drove doing things by email and that drove efficiency for the financial business as a whole, because these online brokerages were innovating and forcing all of their areas of the financial services industry or sector to innovate as well alongside to kind of keep pace with some of the technological change there. So this sort of disruption, this sort of push for do it yourself is, is a good thing. It does have some benefits. It's just, you gotta be a little bit selective in where you use it. So I think we talked about it a bunch of times already today. You don't want to be betting your house on this type of thing. If it's a life or death matter, then, you know, maybe walk away from the, do it yourself thing and get some professional advice. Uh, if it's, you know, like you said, you're, you're playing with your lunch money for the week, then maybe not, not as big of a deal.
Colin:
Yeah. The other thing I would say is that some of the information that you can pick up when you go down the, do it yourself, rote can inform you to be a better consumer of advice, right? So if you spend some time familiarizing yourself with stock markets and stocks in general, and understanding the risks and some of that in the space, you should be in a better spot to talk with a professional and understand what's being explained to you. Now that doesn't mean you walk into the professional and say, Hey, listen, I really liked, you know, this particular company I want to invest in this particular sector. You know, that's not going to get too much further ahead, but when you walk in and begin to talk with the professional and they begin to describe what they're doing, it should sound a little bit more familiar to you. You know, you should understand the idea of, you know, investing in a sector, or you should understand the idea of diversification. Some of the language is going to get a little bit more understandable and prepare you for that conversation a little bit. We've talked before about knowing when you're getting good advice, because again, this is the other wild card. Are you going to be getting good advice? But if you've prepared yourself, by going down the, do it yourself route, whether it was a do it yourself will kit that you completed on your own before you went and talked to a lawyer, right? Notice what I said there, you complete the book kit on your own because you'll learn from that and use that information to go become a better consumer of professional advice, right? So you one can lead into the other and perhaps in the process, you understand yourself better, you understand the language better, and it puts you in a better spot to talk with a financial professional. Because again, you know, there's, there's good advice out there and bad advice. We're not saying for a second, everybody up there gives good advice. You need to be better talking to any professional advisor, but the do it yourself movement, if you will, to Josh's point has made everything more efficient and pushed the rock up the Hill with regards to making everything more efficient. Absolutely. And the other side of it is the amount of knowledge that's out there. We're having far more informed clients come through our doors right now. And that makes our job easier because if somebody understands a little bit more than we can start on chapter two or three of the book, rather than having to start on chapter one.
Josh:
Right. Yeah. That's a really good point there. So you also mentioned the online will creation tools, which is another sort of, part of the do it yourself movement. And we vetted one, I guess it was about six months ago. Now we kind of did a deep dive on it. It actually turned out to be pretty good. Like this is, this is a good service for somebody that needs a really simple basic will. Doesn't really feel the need to go and sit down with a lawyer. But again, it's not a replacement for professional. And I'll just use the example of myself. I sat down with a lawyer a couple of years ago to put my will together. And she said, well, have you considered a secondary will? And I hadn't considered a secondary, will, I didn't know what the benefit of that was for me, again, somebody in the professional and the financial services profession, uh, and I wasn't aware of what, what pros or cons would exist for me for that. So the cost of that lawyer, maybe above and beyond this online wealth creation, uh, creation tool was justified 10 times over by that one, simple suggestion, ignoring everything else that we did throughout that process. So again, that's where those, those little tidbits, those little, um, you know, I, I guess I would say you don't know what you don't know. And that's one of those things that I didn't even know the question to ask. And it was sort of the probing questions by that professional that, that got me there.
Colin:
Well, and that's just it, I mean, when you walk in to talk to a professional, you know, they're going to ask questions to, you know, to look under rocks. Maybe you didn't look under it, and sometimes you walk out of that and they didn't find anything. You actually had it nailed. Congratulations. You had a good day now to construe that as to, I never need professional advice again. Oh, easy there Tex, you know, just talk, don't take all your winnings off the table and go to the next table. You know, it's, you know, there's, there's some value in them. They're words that person just used with you, you know, so absolutely.
Josh:
Sorry to cut you off Colin. I know you have some recommendations or suggestions for what somebody should be looking for to, to identify that good advice. Like what are the qualities or traits that you can look for when walking into the door, doing your, your online research, that identify what's good and what's bad professional advice specifically.
Colin:
Well, let me again, we've, we've put other collateral out on this. So I’ll summarize it. A couple of key points that, you know, are pretty easy to apply. Um, you know, people will go with referrals and again, that's a good, not a bad starting point. If somebody is willing to say something good about a professional, that's what I was saying, dumb, but that's better than not online that you know, most professional advisors now will have a solid online presence where you'll be able to see a little bit about their philosophy and what they do and those kinds of things. But then again, it gets down to a gut feel if you walk in to meet somebody for the first time and they start talking about the perfect investment for your TFSC listen politely, and the first opportunity turn around and walk out. No, cause if somebody is going to start the conversation with the product or start the conversation with trying to convince you to do something before they've taken the opportunity to ask any questions of you, that's a sales person that you're not getting professional financial advice. And that goes with anything that you get in, but you walk into a car dealership, you know, you're talking to a car salesman, they're going to try to sell you a truck because you know what, he's got a truck. Who's going to try to understand that a little bit more, but sometimes it's a little bit more difficult in the financial world because we're dealing with intangibles. Somebody starts, you know, has a product or a type of account or something that they think is important. If they start talking to you about that before they ask any questions, right? That's that that person is not helping you. The other thing you can do in getting good financial advice is make sure that there's a fit. Like if you're an investor who's just starting out and you know, you've got some very basic questions, basic needs. You've got a modest account size. You know, you're not likely to get the attention of one of the major brokerages where they have a minimum account size of $500,000. I mean, that's, that's just, but that's in the research. You can figure out, you know, before you walked through the door, whether you think you're a possible fit for the person that you're talking to, you know, but again, it's, it's a gut feel. Some of it, uh, credentials can matter. There's some good credential people who do great work, there's people with credentials who do not so great work, but again, somebody who's got credentials has put some effort in, like they just didn't show up at the table and looking for the path of least resistance. They at least put some effort in to get where they are. So it's a bit of an indicator of the quality of the professional that you're talking to. Second opinion is always good. If you're, if you're shopping talk to more than one place and, and try to find different places, you know, to see if you can get a different opinion and a better feel. Other thing I tell people, if you walk through the door and the sign over the door is the same as the, at the what's on the business card, which is the exact same as the product. You're not getting truly independent advice at that moment, because again, it's all those things match up and it's all one logo. Then there's a good chance that you're in a place where you're going to get recommended one company's solution to your problem. Uh, and again, it's not necessarily poison, but it's not as strong as it could be. Did I miss anything, Josh?
Josh:
No. I think the last point there, just to clarify, or, or to make sure I understand you correctly is you want sort of conflict free or impartial advice from that professional, right? And if the only thing that that professional can provide to you in terms of a solution or product is something that is branded by their company or administered by their company, then you're, you may not be getting that, that conflict free type of advice because they're sort of hamstrung and into one corner and can't look, uh, look elsewhere. So, you know, we've prided ourselves in being able to provide solutions from a number of different providers, right across the board, and really work on getting as much flexibility as we can possibly have in terms of terms of our, our investment offering and our financial offering for our clients. And we fulfill it. That's really important for, for those reasons that you articulated.
Colin:
Well, no, and like I said, it's not, it doesn't necessarily mean that it's poison, but it's, it's not as maybe strong as it could be. And again, not to pick on our good friends at SunLife, but SunLife does have a Salesforce that is SunLife branded. So if you walk into a SunLife office talking to a SunLife advisor, you're going to get a SunLife solution. And again, that doesn't make it terrible or poison, but it may be, it's not as strong as it could be. If that same professional you were talking to has a pick of a number of companies to work with. So again, it's just something to be, to put the odds in your favor when you do something like this,
Josh:
So we've covered a lot of ground today. Colin do it yourself. Can be use effectively in really small doses, I think is kind of the way that we would set everything up. But at some point somewhere along the way, you're going to want that professional advice. I would go back on that list of things that you provide call and kind of towards the end of the podcast and highlighting the sort of identifiers or traits that you want to look for in finding good professional and also referrals, not a bad, a bad place to start. So do it yourself. We're not disparaging it. There can be, and there have been some good things that have come out of it. But for the most part, you don't want to, to sort of bet your at your farm on it, as they say,
Colin:
Well, Josh, we opened the podcast with, you know, we have a bias towards advice because we think advice is better. But my question is, is it a bias if you're right? So’ in our opinion, proposal advice is the way to go. And we look forward to chatting with everybody again, soon on our next podcast.
Announcer:
This information has been prepared by White LeBlanc Wealth Planners, who is a portfolio manager for private wealth opinions expressed in this podcast, are those at the portfolio manager only, and do not necessarily reflect those by private wealth. I, private wealth Inc, is a member of the Canadian investor protection fund and the investment industry, regulatory organization of Canada. I private wealth as a trademark and business name under which I private wealth Inc operates.
Key Estate Planning solutions and the steps you should take to begin your estate planning process.
BARENAKED MONEY PODCAST: EPISODE 2
Transcript
Josh Sheluk:
Morning Colin.
Colin White:
Morning Josh. And good morning faithful listeners. Welcome to the next edition of the Barenaked Money Podcast. We're going to have a chat today about something that's very topical. And you may be surprised to find out that we're not going to entirely poo poo it. So stay tuned to find out exactly what our opinion is. It's going to take a while to unfold. It will be an exciting journey.
Colin White:
We're going to talk about ESG Investing. ESG is the most recent iteration of the TLAs, or three letter acronyms, that have lived in this space for a bit. So Josh, maybe you could help our viewers and listeners with a little bit of a tutorial, if you will, on what some of the various terms are that get thrown around in this space and what they might mean.
Josh Sheluk:
Yeah. I just wanted to set the stage a little bit, because I know... It's like a lot of things finance, it can be pretty confusing. And there's, as you said, a lot of different acronyms out there that have been used to define this ESG space. Like you introduced right at the outset, ESG. So generally speaking, what we're talking about today is a variety of different types of responsible, or socially focused investments. So ESG has been, I guess the most prominent acronym that's used to describe this. And ESG stands for Environmental, Social, Governance. So these are the focus areas of any type of investment that's branded ESG, or so they say. You'll also see things like SRI, Socially Responsible Investing, responsible investing, carbon-free, CO2-free or low CO2, carbon neutral, green. Everything that you can possibly think of has been used to describe these types of investments. So it is very wide ranging, encompasses a variety of different areas of being socially responsible, I guess you could say.
Josh Sheluk:
So the question I'm going to throw to you right off the bat, Colin, is why is it just now that we are taking our first foray into this space? Because quite frankly, ESG and ethically focused investments have been around for at least a couple of years now, more than that, if you really go [inaudible 00:02:24].
Colin White:
Well I mean, I guess I would debate the recently decided. We've been foraying, if that's the word, in this space for as long as it's existed because, well, we're naturally curious. But the challenge is whenever something like this gets trotted out is, we have to decide is it real or is this just marketing? Because again, the whole idea of investing to make the planet a better place is very appealing to many people. And when something's appealing to many people, then it will be somebody who will find a way to sell them something. So we were looking for, and waiting for, something to come along that actually had some meat on the bones.
Colin White:
Back in the early days of green investing, I was sitting in a presentation. And I'm the kind of person that actually looks through the portfolio of the presenter. And I noticed that there was a coal mining company on the list of the green investments, which at the end, or when the questions came up, I stuck my hand up and said, "I'm just curious, why is there a coal mining company in the green fund?" And he said, "Oh, well, that's the cleanest of the coal mining companies." Didn't like the answer. And I further didn't think that clients who thought they were investing in a green investment would like that answer. So that was where we were early on.
Colin White:
And also, I was at a presentation where somebody was talking about wonderful new green technologies, emerging technologies, fantastic things that were going to potentially change the direction that the planet rotated. Like they were just amazing things with zero track record. There was no actual business there yet. It was a fantastic story, an exciting story. Disney could have made a movie about it. I wanted to be part of it, but I couldn't call it an investment. It just wasn't there yet. So the experience we've had, all of us, of going through the woods and trying to find these things, because again, we're all curious, we've all been watching. We've been waiting for the moment where we could put our arms around it and go, "This is really an option that is a real investment and pays homage to this very worthwhile cause of investing with a higher purpose." And it's only been recently that we felt that it's matured enough, that there is enough of an option out there for people, that it's matured to a point where we could actually put our stamp on it and call it investing.
Colin White:
So Josh, maybe you could give us a couple of comments on how we were screening and where that ended up with regards to how a portfolio was constructed.
Josh Sheluk:
Yeah, yeah. Definitely happy to do that, Colin. I want to follow up on one thing though, before I get to that, because you always talk about business models of companies that are putting out investment products, or financial companies. So talk about the business model of asset management companies and why they have been pushing this type of thing for a long time, maybe not so in line with how we really look at the space.
Colin White:
Well, again, if there's enough of a demand for something, somebody is going to create the product. If we're reading in the newspaper every day about gold, or about silver, or about Bitcoin, whatever the hottest topic is, there is a manufacturer somewhere who goes, "Ooh, people are talking about this. I have to build one." And they will throw it into the marketplace, just trying to satisfy what they perceive as a demand, without necessarily, in my opinion, taking the additional step of making sure that it's a sustainable offering, like it's really going to be a positive outcome for clients. The industry often will say, "This has been a very successful product." And I challenge them and say, "What do you mean? It's returned good money to clients?" "Oh no, we've attracted $1 billion in the last six months." That's one definition of success. And I guess that might be the prevailing definition of success. But if you actually want to have something that you're happy looking at a year later, that's a different metric or way of looking at success.
Josh Sheluk:
Yeah. You mentioned Bitcoin there. So there was a Canadian asset management company that launched the Bitcoin fund, I guess we'll call it, a few weeks ago. Great success. Well, by their definition, like you said, collecting assets. Great success for them. Three weeks later, they have an Ethereum ETFO. So any track record, any longterm success with this product? No, but to their definition of it, great success because they were able to attract a lot of assets and that's how they get paid.
Colin White:
Oh, absolutely. And that's what makes the world go round. So I am very proud, and I think we all should be very proud, that we've actually dug into this space and we've actually come up with what we think is actually, legitimately could be labeled a real investment while still accomplishing some of these goals that any human being would say, "Yeah, these are good goals and things we should chase." So again, back to you, Josh. Run us through it. Tell us how we found them, what we found and what it looks like.
Josh Sheluk:
Yeah. So it was a pretty extensive process, like you were saying. We've been looking at this space for years and kind of reluctant, not finding enough that we really thought fit what we were looking for. And so just to take a step back, when we're looking for any type of investment for our clients, and especially in this regard, when we're focusing on ethical investing, we are really looking to accomplish two things. The first thing is we absolutely positively need to be able to deliver good financial results. We're financial advisors. We're financial people. If we're not delivering good financial results for you, what are we doing?
Josh Sheluk:
The second part, especially, as I said, relates to ethical investing, is we need to make sure that it's meeting your values. And as you've alluded to, the early products, or a lot of the products that are out there, they were missing on one of these accounts, either not delivering what we thought were going to be good financial results in the future. Or two, they were branding themselves as "I'm ethical, I'm social, but I have this coal mining company in my portfolio, so I'm not really doing what I'm saying." Or the worst thing, is some of these products we're doing both of these things poorly. They were not delivering on the financial side and not delivering on the ethical investing side. So that's sort of our view when we're looking for this space, when we're getting started.
Josh Sheluk:
What we did, and what we've been doing over the past couple of years, is we always start with sort of a screen, or a let's call it a wide net, to capture everything that's out there in the industry that fits in some way, shape, or form what we're looking for. So we have some software that very easily these days allows us to filter the list of all of the investments out there into something that is focused specifically on whether it's ESG, or ethical investing, or low carb, all of these monikers that I introduced at the outset.
Josh Sheluk:
So we had drilled down that list pretty quickly for us. Now, as we've been talking about, companies love offering products in a sort of hot space. So there's a ton of stuff out there that we can look at investing in this ESG space. So our next step is kind of, okay, well, let's just look at things a little bit qualitatively. Which of these companies, which of these investment products has a decent track record? And one of the things that's challenging for us today is not a lot of these products have a long-term track record. So then we're looking to, okay, which type of management companies have a longer track record? Who's really been in this space for a while, for many years? Which companies can we rely on to deliver a good product to us? So that narrows down our list pretty quickly once we do that. Because as I said, a lot of this stuff is sort of flash in the pan, brand new, and we're just not going to look at that type of thing.
Josh Sheluk:
Then we get to do the fun stuff. We get to really, really dig into what's there. And we dig and we dig and we dig until we have uncovered all of the answers to our questions. So that will usually start with one, looking into detail at the product. What's the philosophy? What's the strategy in terms of the investment? Let's look at the actual holdings that are there. Because that coal mining company, if we see it in the top 10 holdings, well, we know we're going to punt that product, that potential investment pretty quickly. So this is one area where you can really look at the individual holdings that are a part of that investment, individual companies that make up that fund, and decide, yes, this kind of sort of fits with where we think we should be going, or no, this is completely off base.
Josh Sheluk:
And then we'll meet with the company or the manager that is actually looking after this investment. And that's where we do the most fun work because we get to ask them all kinds of questions and really explore our curiosity to try to figure out, okay, what's your team look like? What is your experience and how are you actually going through this due diligence process on an ongoing basis to make sure that the companies you are investing in are indeed ethical like you say they are, like they say they are? Because we could buy a company today that's the best thing since sliced bread, is acting ethically and all that. And two years from now they're, they're not so ethical anymore. You've got to keep a close eye, close tabs on the companies that you're investing in. So we're, again, looking to understand exactly what process all of these managers are going through to try to identify those ethical companies.
Colin White:
So then when you take the next step, I mean, we work towards building portfolios. So we need to find ethical investing is by our standards, in different geographies and different industries and get things as diversified as we can. Now, there's going to be certain industries that we have that are going to be naturally either underweight or completely excluded, because it's very difficult by any definition to call the petrochemical industry or the mining industry, environmental. So there are going to be sectors of the economy that are going to be either not included or underweighted. So Josh, can you maybe give us a comment as to what the final diversification was that we were able to approach and maybe where the deficits would be compared to what our regular portfolios would look like?
Josh Sheluk:
Yeah. So you kind of highlighted the key points there, Colin. You're naturally going to exclude certain types of industries or certain types of businesses when you go through this type of approach. So again, going back to our process and our screening and our decision making and all that, what we don't want to end up with is a portfolio that's built with a hundred wind farms because you're not very diversified at that point. If the wind stops blowing, well, your portfolio is not going to do too well. So we do need to still have some semblance of diversification, even though we know we're going to be excluding certain businesses or certain industries. The easy one right off the bat is you're either going to be significantly underweight or have no exposure to the energy industry. And most people that are looking for an environmentally friendly portfolio would say, "I'm perfectly comfortable with that. I'm very fine with not having any exposure there." And that can be a more up and down industry anyway. So to say that that part's excluded from the portfolio is not necessarily a bad thing. You'll also exclude certain mining companies, right off the bat. If you're operating an open pit mine, well, chances are it's not very environmentally friendly. So there you're losing some diversification. What we [inaudible 00:14:19]. Go ahead.
Colin White:
Sorry, Josh. Just wanted to interject there for a second. One of the challenges we run into with that is you have supply companies that maybe they build pumps. And 80% of their business is medical, and 20% of it is institutional or industrial, of which some of is mining. Now there's some indexes and there's some analysts that would classify that as a petrochemical company because they supply pumps into the petrochemical industry. But it may be a tiny fraction of what they do. So yeah, or it could be a slam dunk, somebody operating an open pit mine. Yeah, that doesn't make it. When you start getting a little further out from that, then it gets a little fuzzy. And that's where we look to find the managers that are exercising a degree of effort on making sure they're making these calls in a way that actually stays true to the cause. So we'll use some examples that are very one side or the other, but then it gets really, really gray really, really quick. And that's always been the challenge in this space is those gray areas.
Josh Sheluk:
Yeah. And not only gray areas, but different people have different definitions of what's ethical, right? So there's some subjectivity to the space, which makes it very, very difficult. So when we're looking to accomplish something here, what we're looking to do is, in broad strokes, we're looking to properly define what is ethical in most people's minds. It's not going to be perfect for everybody. As we say, we're here to be transparent. We're not delivering a perfect solution that's going to perfectly satisfy every individual that's out there. But that's probably a losing cause for us anyway, if we were trying to do that.
Josh Sheluk:
But another great example, you talk about sort of the compromises there. And when we were going through this due diligence process, they brought up mining companies that are looking for like your rare earth minerals and your lithium, for example, right? Lithium is a key component in batteries and to some extent, solar power, solar panels as well. You have silver as well, that are in a lot of electronics and components like that. So you need some mining. Because if you don't have any mining, well, you can't put a battery together. You can't put a solar panel together. So there needs to be some compromise and some wiggle room there. And what we've done is, again, the managers that we have in place are looking at all these things with the company and assessing all these things on what we think is a reasonable basis. And they're able to actually move the needle in a progressive or a positive way.
Josh Sheluk:
One of the investments that we've selected, that that sort of made our top lists, one of the things that they've been able to hang their hat on is they were able to convince a couple of Canadian banks that they should no longer be financing oil exploration projects in the Arctic, the Canadian Arctic. So we are seeing, again, it's not a perfect portfolio today, but we're seeing progressive improvements in what we're investing in and continue to push for improvements and moving towards a more sustainable future.
Colin White:
Well, I was at a conference Jane Fonda actually spoke at a couple of years ago. And she was very adamant in Canada that nobody should have any money with any Canadian banks because they all finance Canadian mining and petrochemicals, so we should not use Canadian banks at all, which one could argue is an extreme view. But the other point you make, Josh, which is a very good point, is that the whole world is gradually moving in the direction of being more environmentally friendly. It's not just in this specialized space that you see this. All companies are being evaluated now. And when we evaluate individual companies in the broader market, their carbon footprint's thing, their record on human rights is a thing, their record on environmental sensitivity as a thing. Because there's a real financial downside to being off side any of those things.
Colin White:
So the whole planet is moving in a better direction. The space that we're focusing on here is the part that's really trying to move that change maybe a little bit quicker. And the companies that are a little bit further ahead with it and putting money with managers who are going to do some of the activist activities that you're talking about and keep this topic alive and kicking.
Josh Sheluk:
Yeah. So we've talked about some of the challenges with diversification of a portfolio. But you do have some cons I guess, or some downsides to running with a portfolio that is focused on ethical investing. So why don't you highlight some of those key areas for us where you think maybe we're detracting a little bit from where a conventional portfolio would be?
Colin White:
Oh, sure. Thanks, Josh. So when you're taking a look at the broad market, it's done based on capitalism, improved pursuit of profit, and capital being attracted to the best opportunities. There are constraints within that game, but they're a very broad set of constraints and everybody plays to win the game within those constraints. By adding another constraint, you are taking some options off the table. Now, as to how material that is is going to depend on a number of factors. It's going to depend on the current environment. Now, there are times when the ESG portfolios will do better than the overall market. And there are times when the ESG portfolios will not do as well as the overall market. And by removing some options from the dataset, if you will, you are going to potentially experience more volatility, because we strongly believe in diversification by asset class, by geography, by style.
Colin White:
We really feel very, very strongly that the best investment portfolios are really thoroughly, thoughtfully diversified. You take away one or two, or a group of options from that diversification? You are now having an outcome that could be more volatile than it would otherwise be. So you have to be prepared for a couple of things in this space, so this is why maybe this space isn't for absolutely everybody. You could have a time when the overall market is up and you are down. You could have a time when the overall market is down and you're down more. You can also have times when the market is down and you're up. You could completely out of step. And being out of step isn't terrible, but it can be uncomfortable. You can be a little bit uncomfortable and maybe question, and then the problem becomes when you become uncomfortable, do you start to make more changes, more decisions? And the math would tell us that being that kind of investor causes a loss of capital, because you tend to make changes when you're behind. And so every time you're behind you make a change, you're locking in the fact you were behind and you don't necessarily get to recover out of it.
Colin White:
So while I'm a huge fan of the planet, I'm a huge fan of doing the right thing, I'm a huge fan of being ethical, and we're going to put this forward, you have to understand that it may not lead to as strong an investment experience as you would have in one of our regular portfolios. So we want to get radically transparent. We're not just going to say, "Hey, we have ethical investing, give us all your money. We're very successful because we have lots of money." We want to be comfortable talking to you a year from now, and two years from now, and five years from now. I want to be able to sit down with you five years from now and say, "You know what? This is exactly what we talked about could happen. And how does that make you feel? Do we need to make changes?"
Colin White:
I don't want to be sitting there five years now going, "I've got another idea. This new thing just came out. It's even better." We don't want to be those people. We don't want to be the one that's like, "Let's do Bitcoin. Let's do cannabis. Let's do whatever." Like there's always the next thing. And too many people get caught up in that. For us, this isn't the next thing. This is a good thing that we're going to do well, and it's going to have legs. And I will be perfectly happy to sit down with you five years from now, 10 years from now, talk about the experience. Because we have done our homework. We have done our friend's homework, We're the people in the group project that do all the work and everybody around us just steals from us. That's us. We're having fun with this.
Colin White:
So it's not for everybody. And I don't want people to feel, who don't invest in the ESG or the green space, that they're somehow evil, that they're sponsoring puppy mills. That's not the case. The planet is moving in this direction for very, very good reasons. And there's a lot of money behind it, a lot of effort being put into it. But for those who want to take that extra step, who feel that they can give up a little bit of the strength of their portfolio in search of a higher cause, and with our help, do so in such a way that they can have reasonable financial expectations. We think we got there. We think we have it. At least, I think we got there. Josh, do you do think we got there?
Josh Sheluk:
We wouldn't be launching it if we both didn't really feel strongly about that, Colin. So for sure, I think we're excited about it. Because you've been talking about, this is the first time you've kind of been on the marketing-focused side of the business in your entire career. Is that right?
Colin White:
It's been so exhausting. Everybody got excited about marijuana investing and I just couldn't get excited. So we ran webinars and I went across Canada, did a roadshow making fun of it. So many of these things have come and gone that we just looked at and said, "No, I wouldn't be happy sitting here five years from now talking about this as an investment. So no, I'm not doing it."
Colin White:
And I apologize to those we've disappointed because we said, "Hey, let's talk about investing in marijuana." And a whole bunch of people were in the room, "We're going to invest in marijuana. Are you giving us samples?" "No, we're not going to. It's bad and here's why."
Colin White:
So again, it's been exhausting. So yeah, more than excited. And I have no idea how to behave now. I've never been on the popular side of something, so I don't know what to do with my hands anymore.
Josh Sheluk:
Yeah. Well, that's why we hired somebody that could focus on our marketing because we don't know what to do with something like this when we're at the forefront of a push. So we're super excited about it. We hope our investors are super excited about it as well. And like you said, we look forward to talking about this 5, 10, 20 years down the road. It's a space that's going to continue to evolve. So by no means are we done with this portfolio. Like with all of our investment, there's a constant review process, a constant looking, seeking for something that's better, that's more improved, better delivering on the goals and objectives of, not only the financial aspect of things, but also now the ethical side of things as well.
Colin White:
Absolutely. It's exhausting, but it's the only way to do it.
Josh Sheluk:
Thanks, Colin. Appreciate everything that you shared with us today.
Colin White:
Thanks, Josh. Good work.
Josh Sheluk:
Take care, man.
Colin White:
Bye.
Speaker 3:
Visit us online at wlwp.ca. This information has been prepared by White LeBlanc Wealth Planners, who is a portfolio manager for iA Private Wealth. Opinions expressed in this podcast are those of the Portfolio Manager only, and do not necessarily reflect those of iA Private Wealth, Inc. iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.
BARENAKED MONEY PODCAST: EPISODE 1
Bad Financial Advice
Colin White:
Welcome everybody to the first pilot episode of Barenaked Money, our attempt at putting together something in the form of a podcast that we hope you find interesting and useful thought. I thought I'd give you a little bit of background as to why we chose Barenaked, so we're going to tell you the whole story. So there's going to be no hidden corners, there's going to be nothing that we obfuscate. We're going to try to really shine a bright light on topics that we choose to talk about. It's a pretty topical thing right now, Josh. I mean, everybody's getting their information off this thing called Reddit. As a young guy who's getting all his information off the interweb, you must know all about that.
Josh Sheluk:
Yeah. I wouldn't say I know all about it, but you mentioned Reddit, and I think part of our focus today is going to be bad financial advice. What does it look like when you're getting bad financial advice? And of course, we're going to be a little bit biased on this as advice givers ourselves, but the Reddit thing has become extremely fascinating, especially over the last week. We've seen the whole GameStop story, which may have played out at this point. We're a week in. It's already played out.
Josh Sheluk:
Silver is the new thing. I don't know if you've heard that, but I watched a TikTok video. Yes, I did watch a TikTok video today, and it was a guy saying, "Silver is the next thing. Silver is going to be bigger than GameStop, so go out and buy silver." I think he suggested buying four ounces of silver, and every man, woman, and child in the United States should have four ounces of silver to make this happen. So a lot to unpack here with just this one. And when I look at the advice space today, especially when it comes to money, technology and social media have made it easier and easier to give financial advice and to receive financial advice, but at the same time, I would say that the quality of advice has gone down.
Colin White:
Yes. People take information, and they feel they've been given advice. And sometimes, there's a thin line between the two. But yeah, information absolutely is easier to get out there, and people are, all the time, using the microphone available to them to spread whatever they like. And if it's interesting, people will continue to share it. But no, I don't think it's as much advice as it is information is easier to get.
Josh Sheluk:
Yeah. And that's fair. So let's just unpack this Reddit thing to start, because it is absolutely crazy. A few weeks ago, the folks on Reddit, they banded together and said, "Well, GameStop, this is one of our favorite companies. We shop at GameStop all the time. There's a whole bunch of short sellers out there. Let's all bid up the stock. Let's start buying shares of GameStop." And with 4 million followers or something on this Wall Street Bets subreddit these days, that's a lot of buying power going after a company.
Josh Sheluk:
So despite the lack of success that GameStop has experienced over the last decade, if you have enough people throwing enough money at something, it's going to go up in value. Should it go up in value? I guess that's something for us as historians of the market to debate a little bit, and people that focus on the actual fundamental success of a business.
Josh Sheluk:
But the bottom line is, for a short period of time anyway, you can definitely inflate the value of stock. And I don't know if you could even really call this advice. Maybe there needs to be something a little bit more substantial. But there's certainly been people out there that have made money by investing in GameStop and other stocks like it that have a high amount of short interest from the forum of Reddit.
Colin White:
I think that's what the key is, Josh. There's people who have made some good money off this. There's a business model here. For me, everything is about the business model. I attended a seminar that was put on one time by a mathematician. Yes, yes. I'm that guy. I go listen to mathematicians talk. And before he started his presentation, people were peppering him with questions about becoming a millionaire, and he kind of offhandedly gave the acceptance.
Colin White:
"Well, that's easy. You want to become a millionaire? Give me a list of 64,000 names. You do up a newsletter. Half of them, you predict the market's going to go up. Half, you predict the market is going to go down. You were right on half of them, so you got 32,000. The second time you do the same thing. You keep dividing the list by two. After six newsletters, you've been right six times in a row to a thousand people." You send them a note saying, "Send me a thousand bucks, I'll keep sending you my newsletter, because my big super computer is going to keep predicting the markets. A thousand people send you a thousand bucks, you're a millionaire."
Colin White:
Now the problem is, as mathematically true as that is, it's illegal. It's called fraud. So, the business model behind these things, typically somewhere in the start, the first few people through the door now have a vested interest in turning this into something big. And the subreddit gives them a real happy audience, who can share things really easy and build the buzz. And so, the first people through the door on things like this stand to make a lot of money.
Colin White:
So, as much as it's being portrayed as it's just the people rising up against Wall Street, I think if we look closely at this, no, it's not necessarily that. It's a little bit more nefarious, and I think that when the SEC and those people get involved and look at it, they're going to have some opinions as to how these things got started and what was good or bad about them.
Josh Sheluk:
Yeah. One of the things that you brought up there that I think is super important is it's really hard to distinguish good advice from bad advice if all you're doing is looking at the results of that advice. Because like you said, if you put enough predictions out there, and look, there's thousands or millions of people that are commenting on markets these days, with predictions of this, and that, and the other thing, at some point, one of them is going to be right.
Josh Sheluk:
And at some point, a handful of them are going to be right multiple times in a row to make them look really, really smart. And then you start focusing on the results, focusing and following those supposedly really smart people, when really, they just got lucky for a little while. If you flip a coin enough times, you're going to get 10 heads in a row, as unlikely as it is. So that's just speaking to the luck that comes into play with investing. And you can't really focus just on the results when you're trying to look for this good advice.
Colin White:
Yeah. It's been described as the halo effect. Somebody makes money. "How did you do it?" "Well..." Then they tell the story about what they eat for breakfast. "Ooh, everybody should eat that for breakfast, because they made money." "And I exercise three times a week." "Ooh. If I want to make money, I need to exercise three times a week." I mean, there's this obsession with finding the shortcut or finding the secret. So you see somebody who's successful at something, by successful meaning they made money at something, and now it's, "Oh, they must be smart."
Colin White:
Easy. Sometimes, it is just dumb luck. And we see that in our world. We've taken a close look at some money managers who have a very successful track record, only to find out there's not a whole lot behind how they got there. Good for them. I'm glad for them and their family that they did well for themselves. But it's not always true that there's something really meaningful there that's going to make this a replicable thing. And again, the Reddit thing has gotten some traction, and it's got a good narrative, and it's getting some good coverage, and the early people in are doing really well with it. But again, it's not advice. It's information.
Josh Sheluk:
It's interesting because you see when it comes to finance, especially the same type of schemes come up over and over again throughout history. We've gone over this many, many times over the years that we've known each other, but I'm going to take you back to a period of time before my time. Our colleague, Steve, was talking about this when he was working at TD back in the late '80s, early '90s, on the discount brokerage side, the online brokerage.
Josh Sheluk:
He was telling me about this scheme, where every Friday there would be a prerecorded message put out by a BC company, and it would have three stock picks, three penny stocks to buy the following week. And him being on the trading desk at this online brokerage, every Monday, he would look at the activity and see these three stocks over, and over, and over again, they got bid up, a bunch of people putting in orders, the price goes way up off the open on Monday morning, and then sure enough, shortly after, the price of the stock falls back. This is the classic pump and dump scheme, right, Colin?
Colin White:
Mm-hmm (affirmative). Well, I mean, that's why they used to refer to the BC Securities as Las Vegas North. I mean, it was the home of a lot of the penny stocks. And look, there's an argument to be made for penny stocks, and for startup businesses, and smaller companies. Absolutely. That's where businesses should start, and it should be a healthy ecosystem. But the problem is, is it's prone to being pushed around by pump and dump schemes, because the volumes are pretty slim, so it doesn't take a whole lot of interest to move these names around.
Colin White:
So again, when you have a bad actor get involved who manages to get a megaphone, now back in Steve's day, and we can start making fun of his age, when it had to be a phone line you had to call to get a recorded message. Now, it's just way easier just to fire that stuff out. The bigger problem is that the harm is not really immediate and of a large enough magnitude to slow people down. A good buddy of mine's got an expression. Nobody pretends to be an underwater welder. Well that's because if you pretend to be an underwater welder, then when you screw it up, it's going to be really apparent really quickly, and you're not going to want to do that again.
Colin White:
But in the world of the pump and dump scheme, it's just another idea. Or the Reddit thing, there's just always a new idea and it becomes a bit of a cult. Just, what's the next idea? All these people wanting to have a shortcut or want a secret, want to be on the inside. It's all about finding that one thing that's going to make it work. But Josh, is it one thing that really makes it work? When we sit down and have our meetings every week to talk about money management, are we looking for the one idea? Is that what we're looking for, he said, expectedly.
Josh Sheluk:
No. I mean, obviously, a lot more goes into it than that. And I think one of the things that you want to focus on when you're looking at advice or information is, what's the qualifications or the expertise of that source of advice? Is it somebody on TikTok, or somebody on Twitter who you don't really know, who, again, doesn't have really the ramifications of being wrong. What are the ramifications for that person of being wrong?
Josh Sheluk:
If you have no personal relationship with them, if they have no tied financial interest to giving you good advice, then that's a bit of a problem for me. So looking, again, at their expertise, credentials, that doesn't mean everything, but it certainly helps. Some of these people that post their one minute TikTok video, they really have no experience, or expertise, or vested interest in some of these predictions being right or wrong. So that's part of it.
Josh Sheluk:
You need to be able to look a little bit below the surface. Yeah, sure, maybe their results have been good for the last little while, or they've made a couple of right predictions, but is there some type of fundamental thought process that goes into making these suggestions, these recommendations, or else it's just the classic pump and dump. You pump something up, you get a whole bunch of interest in it, you're one of the first ones there. Once the price goes up, you bail, and everybody else is left holding the bag at the end of the day. And that's not fair to anybody, but that's the way that it's worked for a long period of time.
Colin White:
And the actual secret to financial success is diversification. It's not about finding the one good thing. It's about avoiding all the shit. So you want to make sure that you diversify yourself to avoid any big losses. The way math works, if I lose 50% of your money, I've got to make a hundred percent to break even. That's math. The downside, protection is far more important than capturing this one sweet thing. It's like, you only invested money in Amazon or Tesla, you could be a millionaire now. Shut up. It's not about finding the one company that's going to make you a millionaire. It's about having a strategy that can endure a global pandemic or worse.
Colin White:
You don't want to be really, really concentrated with your financial future. Diversification is key. It's boring. It's as boring as ducks eating bread, but it works, and it's safe, and it keeps you as safe as you possibly can be in the screwed up world that we're in. It's not marketable. I mean, if you've got graphics, and you've got a sound card, and you can bang the table, and you've got a funny hairdo, then you're going to get followers. And if you get followers, you're going to make money. And if you were the first one into an idea that you're floating out there, then you're going to do really well, as well.
Josh Sheluk:
Yeah. Just to go back to the diversification point. You're not trying to hit the home run. We can use the baseball analogy, right? If you hit a bunch of singles and doubles, you're going to do just fine. If you hit a bunch of home runs. Yeah, I mean, you're looking great, but eventually, you're going to strike out, and you're going to strike out more often. And when you strike out, it's not you walking back to the dugout with your head held low. It's, "Okay. My money is now zero. I struck out. I bought GameStop at 300. It's now worth 10. Uh-oh. Now what do I do?" You got to go earn that money back, because you're not going to hit the home runs on your investments like that. It's just not the prudent thing to do.
Colin White:
Well, that goes back to how people look at risks, when they come in to talk to us and say, "Hey, I want high risk, high return." It's like, "Well, no, no, no. Sometimes high risk means your money goes away." That's what high risk can mean. And again, our industry talks about risks very badly, the low, medium, or high. What does that mean? It's a very abstract concept.
Colin White:
And we take a look at things like this past year, where we're dealing with a global pandemic. It's what they would call a black swan event. So these events happen reliably, and if you actually take a look at some of the math where we try to quantify risk, these are one in a billion opportunities, and they happen every couple of years. So the math is failing us a little bit, so getting too precise in how we want to do things and by not diversifying is where you can take some major risks.
Colin White:
The global economy has got a great track record of moving. It's survived World Wars, it's survived financial collapses, it's surviving pandemics. The global economy can move. If you start to get too cute with what specific pieces you should put all your money in, then you're opening yourself up to really catastrophic risk. And as you said, your money can go to zero.
Josh Sheluk:
And one of the things I think is important is when you're getting advice from the source, is to understand the business model of the source of that advice.
Colin White:
The other thing that we need to get out in the public, because again, we're bare naked, what's our business model here? So, we are here providing this podcast to our audience, which we hope is some of our clients who have a vested interest in us and want to hear our opinions on various things. Then we also have people who we'd liked to have come check us out and see if they like to, see if it results in a phone call, see if we can generate some business out of it. If 20% or 30% of the listeners are either existing clients or prospective clients, then that is fine by us, and that is our business model, and that's us being bare naked.
Josh Sheluk:
And so, this Reddit story leads into some of these free online trading platforms, and their business model is to get you to trade as much as possible. I think there are statistics out there that show a direct inverse correlation to the amount of trading relative to the success with your investing. So the more you trade, the less successful you are. And these online trading platforms, because this is how they make money, they want you to trade more and more.
Colin White:
So they're going to publish videos that talk about how great you are, how smart you are, how easy it is with our 10 hour program to teach you how to trade foreign exchange or how to trade options. They are going to do all kinds of things to make you feel very, very good about yourself, so that you feel confident, so that you go out there and you're very active, which is where they're going to make their money. Now, again, I'm not saying that it's all bad or all nefarious, but it might be a little bit optimistic. And I don't think all the risks are truly understood about doing things and taking this as your sole source of information.
Colin White:
Because look, the market needs two sides. Your good buddy there, James, one of the analysts with the firm, I mean, when he and I ever get into it and I start really going at him saying, "This is really stupid," he'll shrug his shoulders, and goes, "Well, the market needs two sides, right?" And it's like, "Oh, curse you. You're right. All right. Yeah, you're right." So, I mean, we need to have room out there for all opinions, because again, a fully functioning market has people on both sides of all the trades.
Colin White:
Keep in mind, every trade means one person was buying, one person was selling. One person thought it was the right time to buy. The other person thought it was the right time to sell. In theory, they both can't be right. So again, we need to have a fully active and optimistic marketplace for it to function.
Josh Sheluk:
Yeah. And it's great to have different platforms with different goals and objectives that fit different client profiles. I think the thing is, when you have a bunch of bells and whistles going off when you place a trade on some of these platforms, it makes you feel good, makes you feel like you're at a casino and you just hit three sevens on the slot machine. That may not be in your best interest, because it's just encouraging you to do things that, history shows, data shows, not necessarily things that are the best practices for maximizing your wealth.
Colin White:
Now, having not ever played a slot machine, is three sevens good, Josh? You seem to know about this.
Josh Sheluk:
I couldn't tell you either. We'll need a guest speaker, I think, next time to bring that into... But that's my understanding, anyway.
Colin White:
In the interest of Barenaked, I just wanted to make sure we were all out there, that you and I really don't know what three sevens means, other than we've seen it in movies and everybody seems happy about it.
Josh Sheluk:
That's right. Yeah. I just know it looks like coins are piling out of the machine when something like that happens. But the other thing you've been really critical on, Colin, is the media and how it's very sensationalized and headline driven. This is a business model in and of itself, is it not?
Colin White:
It's about chasing eyeballs. So again, plunge and soar, two great words you can use to describe the stock market. If I got on an elevator and there was two buttons, and one said plunge and one said soar, I'd get off the elevator. I mean, it just means up and down, but they need to try to make it more sensational than the hurricane that just hit the Gulf Coast. They need to make it more sensational than the bad jobs report or the election that just happened in Europe.
Colin White:
They need to capture eyeballs, because, keep in mind, you're the product. You're not paying to be there. You are the product. Same as with Robinhood. You're not paying to trade. You are the product. So they're trying to attract you there and keep your attention as long as they can, so they can sell it and monetize it to advertisers. I think news isn't news, as much as it's entertainment.
Colin White:
If you take a look at the webpage, the landing page for any of the major news outlets, you're going to find some tragic story about some person who got marooned in a national park after 14 days and was found in their car, either dead or alive. That's tragic. News, I don't think that I'm better off having heard that story from a news perspective, because I'm sure that there was negotiations going on about the Brexit deal, which would influence my world in a far more positive way if I understood. But no, they caught my attention.
Colin White:
Every once in a while, I will get my attention caught, and I read about some dog that's doing a trick somewhere, and I'm going, "Stop it. This isn't why... I wanted to read something that was important to me. This isn't it, but damn, that's a cute dog." That's what they're trying to do, and they do it very, very well. And there's algorithms that are trying to feed you the stuff that attracts your attention. They know when you're scrolling down, how long you stay on part of the website. "Oh, we got to give them more of that. Quick. Throw some happy cats on them." Again, it's becoming more and more fine tuned, so you have to really concentrate on making sure that you're looking for and trying to consume more of a balanced picture.
Josh Sheluk:
So it's funny, you mentioned that thing about the national parks. And I got to pick on you for a second, because aren't you the same guy that runs from the car to the condo and vice versa, because you're scared about bears and the one in a million chance of getting attacked from a bear when you're out in BC?
Colin White:
But see, this is one of those things. If it does happen, that's catastrophic. I think I should be afraid of catastrophic things. And I don't think it's newsworthy. The Nelson Star is not there taking pictures of me running out to my car. "Ooh, look at the guy from Nova Scotia who doesn't know bears." Entertaining? Yes. Everybody gets a yuck, for sure. It's not news.
Josh Sheluk:
So your version of running from the grizzly bears is the same as what we're talking about, you should avoid GameStop and other stocks like that, that are boom or bust?
Colin White:
Absolutely. Absolutely. See, there's no downside. Me running from a perceived threat in the bear, I got some exercise. You could argue that as a win-win. If I'm going to spend money to avoid the bear... Okay. I did buy bear spray, but it wasn't that expensive.
Josh Sheluk:
Yeah. Some of the craziest stuff that I've heard from a media perspective recently is coming from Twitter, which should surprise nobody. Just stock market related, when Elon Musk, a few weeks ago, he tweeted out, "Use Signal." And at the time, he was referring to a messaging app, that is sort of a substitute for WhatsApp, and the stock, the shares of this company called Signal Communications or something like that, which was in no way related to this messaging app that Elon Musk was talking about, the shares shot up 100, 200, 300% on the day. And people are blindly following this advice. And again, it's not even advice. It's somebody's opinion. It's barely information. And your interpretation of it is actually wrong, in terms of how you're actually putting it to work.
Colin White:
And again, part of it is the difficulty in putting yourself out there and looking for good information, right? So anybody looking for a professional service, if I'm going out looking for a mechanic, I'm at the mercy of the person I walk into. So if I go out there and I have a bad experience a few times, back in my younger more adventurous days, I go pick up the Haynes Motor Guide, how to take my car apart and how to fix it myself, and I take it around to fixing it myself.
Colin White:
And I try that for a while, and I'm left by the side of the road a few times. You try not to do that. So it takes a little bit of effort to go out and seek good sources of information, and be patient, and have reasonable expectations. Those are all difficult things to do, so I understand where the market is for all of these shortcuts and all of these home runs. But at the end of the day, the slow and steady is going to win this race.
Colin White:
And finding a trusted source, that's not making outlandish claims, that you understand the business model, and that has some credentials and some history behind it, it's going to be boring. Money shouldn't be exciting. That's the other part of this. If you were excited by your money, you have a problem, because that's going to lead you to making emotional decisions. If you're excited, that means you can get over-confident, which also means you can get sad, which also means you can get... You should not have these kinds of emotions around your money and making money decisions, because it just leads to disaster.
Josh Sheluk:
Yeah. Another point of recommendation that we can make when looking for the advice is looking for advice that's conflict free, or where the person giving the advice has a tied or a vested interest in making sure that advice works out for you. If you go to your mechanic and they're fixing your brakes for you, and for the next 12 months, they're in your car every time you are, riding right along for you, I'm pretty sure they're going to fix those brakes properly. They're not going to half-ass anything. And that's what you want to do when you're looking for financial advice as well. There's something called a fiduciary. Fiduciary means that they're legally obligated to act in your best interest. And there's some areas of financial advice that do fall into that category, so that's a great spot to start looking.
Colin White:
And like you said, understanding the business model of your relationship. I mean, I can't emphasize that enough. Because time and time again, it just points to the glaring conflict that can be there. Look, I mean, I would point out that, again, our bias is, because we're making our living at it, that professional qualified advice is important. That's our bias. You can very easily tell that. You could also argue that the first victim of every great delusion is the perpetrator. So you could argue that we've convinced ourselves of this to such a level that we're out here making a living at it.
Colin White:
But I think it stands up to scrutiny. Again, having seen it over and over again, there's no shortcut. It's dealing with a group like ours, and there are quite a few of them across Canada you can deal with, people that have perspective, that have credentials, that are staying on top of things, have a product offering that spans the marketplace. It's not just one company or one kind of product. When you start to see those kinds of operations, and now this is sounding like a sales pitch, spend some time there. And again, it's not just us. There are many other groups out there like us that you can spend time with. And then, you should start to develop a sense of comfort.
Josh Sheluk:
You'll want a chef that eats their own cooking, right? If you went to a restaurant and you asked the chef, "Well, what do you recommend?" And they say, "Well, I don't eat any of my food. I just cook it for you." You're going to have some questions. So we try to eat our own cooking, try to invest in our own advice as much as possible. And that's part of where you get that conflict free advice, in that alignment of interests.
Colin White:
Well, Josh. It's been fun. I'm looking forward to getting some feedback as to the topics that people want us to dive into. Because again, we talked about a lot of stuff in the run of a week, and I'm not sure exactly what's most meaningful. We guess, and we try to put stuff together. But if there's some topic that you'd like to see us spend some more time on, absolutely, please forward it off to us, and we'll do our best. If it can make enough interesting content for it, we'll dig into it, for sure.
Josh Sheluk:
Yeah. And just, even if you don't have a topic for us, just ask us some questions, and we'll be happy to answer it on the podcast here.
Colin White:
Thanks for staying with it this long, and we're looking forward to your feedback, wherever you wish to provide it.
Josh Sheluk:
Always great talking to you, Colin. Appreciate your point of view as always, and will talk to you soon.
Colin White:
We've noticed something. It seems there are a lot of people who would rather try to figure out their lives with an online calculator than air your finances to a human. Stop doing that. You need to talk to someone who can help direct you, tell you where to start with what you've got to make the biggest impact on your future. You can't figure that out at doihaveenoughcash.com, but you can figure it out by chatting with us. Call us. It'll be okay. You'll see.
Speaker 3:
Visit us online at wlwp.ca. This information has been prepared by White Leblanc Wealth Planners, who is a portfolio manager for iA Private Wealth. Opinions expressed in this podcast are those of the portfolio manager only, and do not necessarily reflect those of iA Private Wealth, Inc. iA Private Wealth, Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth, Inc. operates.
From your WLWP Team
This information has been prepared by White LeBlanc Wealth Planners who is a Portfolio Manager for iA Private Wealth Inc. and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Portfolio Manager can open accounts only in the provinces in which they are registered.
iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.
Each quarter the Portfolio Managers host a live webinar, which we then share in audio version here on our podcast channel. You can also view a video of the webinar on our website at wlwp.ca.