How to invest for retirement when time is no longer your friend
Save early, save often.
Time in the market is your friend.
Get started, stay invested.
Let’s face it – easy to say, hard to do.
How to invest for retirement when time is no longer your friend?
Read on in today’s updated post including answering a reader email on this very subject.
Time in the market
Cutting to the chase: time in the market, as opposed to timing the market, works because it does not involve short-term predictions or any guesswork at all.
You save, you invest and you stay invested.
This strategy proves that time and patience in the market is better than a quick sale. For example, when a person has a stock or ETF for many years, the power of compouding simply tells us that investment growth will do all the heavy lifting for us. Patient investors will gain larger profits by allowing their investments to grow over time.
I know. I’ve seen this with our own portfolio. It’s a major reason why we’ve recently hit these milestones in our Financial Independence Update.
Don’t take my word for it:
“The wonderful magic of compounding returns that is reflected in the long-term productivity of American business, then, is translated into equally wonderful returns in the stock market. But those returns are overwhelmed by the powerful tyranny of compounding the costs of investing. For those who choose to play the game, the odds in favor of the successful achievement of superior returns are terrible. Simply playing the game consigns the average investor to a woeful shortfall to the returns generated by the stock market over the long term.” – the late, great, John Bogle, founder of Vanguard Group.
John said things better than I did. 🙂
The secret sauce therefore is spending time in the market – staying invested – and not diving in and out.
Again, I’ve seen this playout myself, in real time, with my dividend investing journey. See the chart below.
Sure, I’ve added new money over the years to our portfolio but the assets we have are largely doing the heavy-lifting for us now. Money I don’t even report every month, compounds away, tax-free.
I can appreciate waiting for growth can be painful. Or, maybe life throws a curveball at you and you simply can’t invest as much as you’d like.
Life happens.
I’ve been on record to say if you haven’t saved a cent by age 50, for any retirement at all, you might be kissing any middle-class retirement lifestyle away. With inflation still running at a modest pace at the time of this update (fall 2024) I still believe in what I wrote in that link 12 years ago…
But it is never too late to right the ship. It’s never too late to learn something new. It’s never too late to get started with investing – you can invest for retirement when time is no longer your friend.
How to invest for retirement when time is no longer your friend – reader question
Here is the reader question from the past, adaptedly only slightly:
Hi Mark,
I appreciate all that you do. I recently sold a property and I’m starting all over.
I’m newly self-employed. I have a new rental apartment, but starting from scratch. I’m 55 and have an empty TFSA. I would like to max it out with investments that will act as my long-term account. I don’t need to touch that money for probably 15 years. I hope to put any savings, about $77,000 in there. I think I can play catch-up and invest inside this account for maybe the next 15 years until age 70.
I’ll also be putting another $150,000-$200,000 into my new business. Day trading? Kidding.
Back to my biggest question – most articles and advice I’ve read about is focused on long-term investing that caters to a younger person whose age allows them to exploit compound interest – I know you write about that too. Because I’m not in that category, I thought I’d reach out and see what you can help with. What is possible starting at age 55 for me until age 70, assuming I work for another 15 years?
Please accept my request or send me any articles on your site that address investing for someone older, with limited funds like myself for the TFSA.
Thanks so much for your time and consideration.
Thanks for your email and readership.
Well, a few thoughts from your email and I’ll put them in order of what I would consider myself based on my personal lessons learned over the years as your investing food for thought.
How not to invest for retirement when time is no longer your friend
I’ll cover how much wealth you can still generate with your TFSA in a bit, but I think it’s important for me to call out that based on market history, because equity markets can be volatile in the short-term but rather predictable over the long-term, once again a disciplined investor that stays invested is probably going to win the race.
Case in point.
Did you predict the massive stock market fall after the pandemic hit, then stock market rise, then the strong bull market run in 2024 to date?
Heck no here. 🙂
But it happened!!
So, whether you invest in stocks, bonds, real estate or more speculative plays like Bitcoin, you should know that you’re mainly rewarded with returns for your exposure to just one thing— risk.
Risk, on the whole, is difficult to define and measure especially at the personal level but essentially it comes in two main flavours: short-term and long-term.
Short-term risk might be easier to relate to. Stocks, bonds, and other assets can lose money in the short-term.
But investing history consistently tells us for any short-term headaches we incur, by staying invested, “this too shall pass”. This means that an investor who stays in the market (and does not trade) generally-speaking has a much higher probability of long-term success than one who tries to pick the perfect time to get in and out.
Further reading: I used to sabotage my portfolio. Don’t repeat my mistakes!
How not to invest for retirement when time is no longer your friend
Another concept I want to bring up, is the fact that at any age, there is one major piranha you need to avoid for successful, more predictable wealth-building: the investment industry itself.
Did I just call out all the entire wealth industry?
Only some to a point!
I firmly believe the more you know about the financial industry’s priorities, the more likely it is that you’ll be able to thwart it. Simply put, the brokerages and financial industry at large is a colossal marketing and money-making machine designed to do one major thing: make money.
(If you ever doubt this, turn on your television for a couple of hours and count the credit card companies, banking companies, loan companies and wealth management companies that want you to be a client.)
“A good investor has the courage to make choices. The stock market is a bit like a zoo. There are all kinds of animals, there, from elephants to tigers to snakes to monkeys. You only need a few of the best species to build a good diversified portfolio that will provide sustainable, low-risk, high compound earnings. All you need to do is find them, buy them at reasonable prices, and make sure they stay on track.” – The Investment Zoo.
When it comes to successful, long-term investing (and you still have many years to invest by the way!!), I think this reader should simply be very wary of any financial company trying to be your best friend. Absolutely, there are great companies out there. But essentially, financial companies are in the business to do one thing and do it very well – make money from clients.
Conquer the enemy in the mirror: avoid sabotaging your portfolio
I know this reader is probably just kidding on the day trading thing (I hope so), so whether any investor decides to trade or not is their decision of course. I don’t.
Instead, I think most investors can be financially independent if they accept and practice these universal and repeatable practices over time:
- Keep a modest and consistent savings rate for investing purposes. Grow your savings rate if you can.
- Keep your money management fees low away from financial piranhas.
- Consider diversifying your assets to mitigate risk. Spread your equity assets around.
With these lessons learned above, let’s now consider what wealth you can still create leveraging that TFSA alone.
How to invest for retirement when time is no longer your friend – use the TFSA!
I’ve come to realize investing might be as exciting as watching our laundry tumble in the dryer.
My hybrid investing approach may not be for everyone but it has helped us reach some level of financial independence now in 2024.
Using our Tax Free Savings Account (TFSA) has been part of that journey and I believe it remains a gift to all Canadians. I mean, who doesn’t love tax-free money or better still, money that grows tax-free?!
Similar to the assets you can hold within a Registered Retirement Savings Plan (RRSP), you probably already know that the TFSA can also be used to help you build significant wealth beyond just holding cash savings. With your after-tax dollars, you can own a number of different types of investments inside the TFSA:
- Cash
- Guaranteed Investment Certificates (GICs)
- Bond funds or bond ETFs
- Individual stocks
- Equity funds or equity ETFs
I personally own a mix of individual, Canadian stocks and low-cost, diversified ETFs in my TFSA. I’m likely to add more ETF units in the coming years…
Back to you, assuming you contribute that $77,000 to your TFSA in the coming months, and keep contributing every year to your TFSA related to assumptions below, you still have the potential to build some solid assets up to age 70 to go along with your business and future government benefits.
*Assumptions:
- After $77,000 contributed to TFSA.
- Assumes you will catch-up and invest the remaining $18,000 of TFSA contribution room sometime in 2025 along with any new contribution room thereafter to keep the account maxed out for say another 10 years.
- Rate of return is a solid 6% since you’re going mostly equities using my favourite low-cost ETF: XAW.
- No TFSA withdrawals occur over the 15 years until age 70.
- If still working up to age 70 or at least plan to, then consider deferring both CPP and OAS to age 70 for any government benefits start date.
Recall the TFSA contribution limit for 2024 was $7,000. So, if you turned 18 before the year 2009 (which you did dear reader since you’re 55!) and have never contributed, then your maximum lifetime TFSA contribution limit is $95,000. If you take money out of your TFSA, you get that room back on January 1 the following year. Just don’t go over your limit or make the mistake of thinking you get your TFSA room back for withdrawals right away.
Source: https://www.getsmarteraboutmoney.ca/calculators/tfsa-calculator/
How to invest for retirement when time is no longer your friend summary
Based on this reader question, I can’t say whether that TFSA alone should be enough to retire on at age 70 in addition to CPP and/or OAS benefits.
I can say that a steady, disciplined approach to saving and investing inside your TFSA is likely to deliver some value to your retirement plan.
To wrap, a few final comments:
- All investors make trade-offs when it comes to their investment decisions. Stocks may or may not go up. Bond returns could be lower in the coming decades. Holding cash might not keep up with inflation – it likely won’t. There is no right or wrong answer since we cannot predict the investing future. There really is no perfect portfolio – but do consider staying invested. I would personally reconsider day trading for wealth-building and when in doubt, own a low-cost 100% equity ETF for the coming decade +.
- Consider using your TFSA as you have considered beyond cash savings for tax-free growth. This means most of your investments inside the TFSA should not be for major speculation but again, I will leave that decision to you!
- Finally, there are some simple, low-cost ways to own wealth-building assets inside your TFSA. From Cashflows & Portfolios consider this:
Build Long-Term Wealth using these Diversified ETF Model Portfolios.
I hope this updated post helped you out and I look forward to your continued readership.
Mark
Other Reading:
How can you retire on a lower income?
Should you speculate with your retirement portfolio?
And…
Hi Mark:
Just to augment Barry’s TFSA journey, I had $142 in divs in 2010, the year after the TFSA was initiated, so $5K invested. I have maxed it out every year since then and now pull $16K in divs (re-invested). So as to the enquiry about starting at age 55 both Barry and myself can show that you can get a fairly reasonable payout from the TFSA within <15 years. And he would be starting the TFSA with a $77K injection. If he can bring that up to the max allowable withing a couple of years and max out every year then he would have a nice tax free payout. If he can pull the GIS supplement then all the more power to him because even then he would not be living high on the hog unless there were other income such as CPP/OAS.
Better to be an optimist than a pessimist.
RICARDO
Great comments and thoughts, Ricardo. I think this reader is actually in VERY good shape if he can put the pedal down on aggressive TFSA savings.
Mark
Mark
I think the “no money saved by 50” poster should at least consider some unconventional strategies. I think it’s a no brainer to maximize your TFSA, but here’s a few other ideas.
1) Consider if he’d qualify for the GIS
Millions of Canadians are getting it and it might make sense to plan for this option of you have no pension. GIS isn’t means tested so in theory you could have a million dollar TFSA and a mansion and still get GIS. Obviously this route would require some thought and planning but it’s a possibility for extra guaranteed income in retirement.
2) Consider a reverse mortgage
Yes, these get a bad rap ( typically from the retirees heirs who feel they are getting their inheritance stolen) but if you own a home, it’s paid for, and the expenses are reasonable, I think it would be a good option for a cash strapped retiree.
3) Move to a more affordable location
It’s getting harder to find but their are areas in Canada that are still relatively affordable. If your not tied to a specific area for family or business reasons, this could be a good option to make your dollar go further. Heck, if you’re adventurous consider retiring internationally. Countries in South East Asia and central America are much cheaper and even healthcare is affordable. Do your homework though and do some test runs before you move.
4) Save like crazy
Save North of 25% of your income and live frugally. 15 years is still a decent runway to a save a lot of money if you live frugally.
5) Takes CPP and OAS at 70
If your going to be working until 70 anyways take CPP and OAS late. You get a much higher return at 70 then you would at 65 and the income is inflation protected.
Very fair additions….I appreciate those .
When it comes to GIS, potentially a consideration, depending on what happens with his corporation?
Ya, do you like reverse mortgages? Not sure if they are a great deal? If absolutely cash-strapped, then maybe…
Totally agree with moving, geo-arbitrage, etc. for lower-cost living area. I fully endorse the try before you buy/do it approach.
Ya, I think this case study has our friend taking CPP at age 70 and would also consider OAS at age 70 if working/doesn’t need the money yet?
Great additions. 🙂
Mark
Regarding GIS, there is a guy on YouTube , his channel is ” this is our retirement” and even though he has sizable retirement assets he collects GIS by keeping his income low.This plan might not work for everyone, but it is possi le. The TFSA is great for this because withdrawals are not considered income.
With reverse mortgages I haven’t looked into it in depth, but you can’t miss the commercials with Peter Mansbridge and Kurt Browning. I’ve heard the interest rates you get out not great compared to say taking out a home equity line of credit, but I’d assume the bank will want an income for a heloc and I don’t think that’s an option for a retiree. Again with housing an option might be downsizing to a smaller house. This is something I’m looking at in retirement, moving from a large single family home into a condo.
With a corporation there might also be options with issuing dividends and using this as income. I remember this was in the news a while ago as the Trudeau government was cracking down on using corporate tax shelters but it still might be an option.
One personal aside about corporations is that unless you set it up, your income wont automatically go towards CPP payments. I ran into this in my 20’s, when I was self employed , with a corporation and didn’t pay into CPP. Now in my 50s those years are “lost” as far as Service Canada is. It doesn’t matter that I maxed out payments every year from 30-56. My CPP payments in retirement will definitely be less.
All in all, I think this guy is in pretty good shape compared to say , someone at 60 that has a low wage job, no savings, and wants to retire at 65. He has some options but as others have mentioned he needs to come up with a plan and look at his options for retirement. I think there’s more options on the lifestyle and planning side, then on the investment side.
Mike
Seems a bit shady to take GIS with a million bucks or something (just an example) of TFSAs in the bank but I recognize that’s legit. I’m sure they will change the rules and close that gaps eventually. They really need to simplify GIS, OAS and CPP government programs to be honest.
I think based on another comment I shared here recently, selling and renting would be my preferred option over any HELOC and reverse mortgage plan. That’s just me. 🙂
I have a corporation myself and I will prefer to pay myself a dividend in future years. No CPP contributions req’d.
https://www.myownadvisor.ca/salary-or-dividends-from-a-corporation/
Correct: “…with a corporation and didn’t pay into CPP.” I will have the same issue in a few years but that’s OK. I’ve got about 30 years of payments into the plan since a teenager. 🙂
Thanks for your detailed comments!
Mark
My own personal opinion on the question of a reverse mortgage is that if I get to that stage I hope I can talk myself (and my wife) into selling and then renting something instead. At least that way we get to utilize the full equity in our house, and I believe have more control over our finances that way. Although, I think it’s easier said than done when it comes to the emotional ties of where we live but I’m definitely not in favour of reverse mortgages, generally.
That’s where my headspace is too – I would sell, bank the money, and rent from it.
Not for me and selling our home/condo is really only part of a “nuclear plan” as part of these and other considerations.
https://www.myownadvisor.ca/retirement-income-for-life-review-and-giveaway/
Mark
Beginning the saving/investment journey from scratch later in life (post 50) would require a fairly in depth analysis of where one is at, what one has already, what one has to protect for the future, etc etc. Obviously various options are available but I’d hesitate to provide much in the way of specific guidance other than “TFSA = good”.
I hear ya. If you haven’t saved a penny until age 50, I would be worried.
In this case, the reader has a business (potentially to sell?), TFSA assets that could grow and CPP and OAS eventually to look forward to as well. Not so bad at all but hard to know what other spending or debt obligations one might have too.
Mark
Mark; If the market has a big correction and i had cash set aside what 8/10 Canadian stocks/etfs would you buy and why.
Gosh, Murray. Depends on the goals.
I would say I would put a priority on the following stocks in my portfolio to be honest:
RY, TD, CPX, BN, TOU, CNR, CP, ATD, WCN, CNQ.
My “when in doubt” purchase since 2016 continues to be the ETF XAW in either my RRSP or TFSA. I’m very likely to add more to XAW for my 2025 TFSA contribution in fact. 4 months to go to contribute.
XAW is up 12% annualized in the last 5-years, up 15% YTD and about 10% since inception in 2015. Not too shabby.
Thoughts?
Happy investing,
Mark
Interesting post. We started with $5000 each in our TFSAs in 2009 – me at 55 and I’m 71 now. TFSAs were a PM Harper/ Finance Minister Flaherty/Garth Turner gift to the retiree!
Market value as of today is $480,000 and if we wanted we could withdraw $31,000 income without touching the principal. The key is to keep reinvesting the income until you need it. I owned a REIT (Cominar) and they cut their distribution but pressed on … eventually into dividend growth stocks. REITS are tricky – they can be tax efficient in a TFSA but there rarely income growth.
In 2025 without a CRA designated contribution increase from $7000 each we’ll just plow $45,000 back into capital accumulation
In the beginning growth was SLOW but as the years stretch so the income trajectory rises ever skyward. It’s incredible how it works but … you have to be patient as the stock market punishes the impatient.
I have only two stocks in both – BNS and ENB. I don’t believe in diversification. I believe in value and steady income growth
Wow, Barry. You only have two stocks in your TFSAs = BNS and ENB? Both TFSAs worth combined $480k? Jeepers.
“In the beginning growth was SLOW but as the years stretch so the income trajectory rises ever skyward. It’s incredible how it works but … you have to be patient as the stock market punishes the impatient.”
Sage words. 🙂
Mark
It wasn’t always just two stocks; it was a mixed bag at first and sailed on thru rough and smooth seas. BNS and ENB were bargains when I picked them up – ENB at $40 during Covid and BNS at $59. Since then I just keep adding with every payout and contribution in January. Untaxed income is my goal because I think I’m going to live long.
Anyone who doesn’t take advantage of a full contribution when it is within their means is not thinking clearly. I advised a 19 year old neighbour to do as I … can you imagine his TFSA in 40 years?
Outstanding on the buys. I own BNS and ENB and DRIP a bit every quarter within the TFSA as well. I’ve turned off all DRIPs inside my taxable account now – dividends paid flow in as cash for any strategic purchases now for the last few years.
Correct on the TFSA. I continue to call it the gift of an account for any Canadian adult and should be the focus of maxing out for every Canadian as much as possible.
https://www.myownadvisor.ca/ill-continue-to-maximize-my-tfsa-first-because/
I am saving for TFSA contributions this fall for Jan. 2025 already.
Any plans to buy other stocks inside the TFSA? More banks, pipes beyond ENB, rails, etc.?
Continued success Barry!
Mark
No change. Last November Benj Gallander wrote a column in the Globe suggesting a “buy” on BNS. Given his investing style this was an unusual recommendation. I’ll stick to both for now. https://www.theglobeandmail.com/investing/markets/inside-the-market/article-contra-guys-why-bank-of-nova-scotia-is-a-buy/
Nice stuff. Continued success and stay in touch on the income progress – inspirational stuff.
Mark
Hi Mark
I recently saw one of your post where you talked about early withdraw from RRSP/RIF before you touch TFSA which makes perfect sense to me. What if you are still working in your mid to late 60s and contributing to RRSPs and TFSA. It wont make sense to convert RRSP to RIF while employed and start the withdraw. Right?
I would assume it would make sense to convert RRSP to RIF when you stop working. Does that make sense to you?
Thanks
Thanks for your comment, Raj.
This is my thinking about RRSP/RRIF and TFSA withdrawals, captured in a few posts:
1. RRSPs/RRIFs are a tax liability (this reader doesn’t have) but many Canadians do – best to get the money out to a. meet income needs and also for b. smooth out taxation over time, and beyond that,
2. If still working well into your 60s, many Canadians will, you may or may not benefit from any RRSP withdrawals while your income is highest – best to withdraw RRSP/RRIF money when taxation is lower than contribution years.
Some posts:
https://www.myownadvisor.ca/watch-out-for-rrsp-and-rrif-taxation/
https://www.myownadvisor.ca/how-and-when-to-withdraw-from-rrsp-and-tfsa/
Happy to see your replies/thoughts!
Cheers,
Mark
Hi Mark, I really enjoy and benefit from reading your articles, thanks so much.
I have a questiont though. I am retired and have a substantial amount of shares in energy and would like to lock in my capital gains. The question what to put it in as I want to minimize risk, have a little growth and get equivalent dividends. I was thinking to establish my own “ETF” of solid stocks although I think it needs to have a global component. Is there an established percentage for Canadian, US, versus International stocks. Is it better to look at established ETFs. Looking for suggestions on how to approach this. Have you written anything about how to do this. Appreciate you thoughts. Nancy
Hi Nancy,
Thanks for the kind words and congrats!
If you have capital gains, and you want to incur them sooner than later, just know there are taxes to be paid on those.
If I understand your question correctly, building your own ETF with a mix of Canadian, U.S. and international stocks in a good balance is tough work.
I’ve largely unbundled low-cost ETF XIU to own many Canadian stocks directly but I don’t follow the same approach with the U.S. market nor international markets – just too many stocks to pick from. So, I tend to use low-cost ETFs for that extra diversification beyond Canada.
You might want to consider reviewing and understanding if some all-in-one ETFs might be what you are looking for? Built-in global diversification and you can own these in any account: taxable or registered.
https://www.myownadvisor.ca/the-best-all-in-one-exchange-traded-funds-etfs/
Hope that helps a bit!
Mark
Can you recommend any resources for retirement planning especially for someone in their mid 50s that is entering that transition phase. I have spoken to advisors that will help with this but they want to convert funds to mutual funds, possibly include annuities or other insurance based strategies AND charge fees. I’m wondering if one can retire and draw money from their TFSAs, RRSP(RRIF) and taxable accounts but take advantage of capital gains and dividend tax credits and possibly other strategies. Can’t find a retirement advisor who will give you a plan without managing your portfolio. I have about 10 years before I retire and sell my practice but my practice sale will not be the major funding of my retirement.
At the risk of promoting Mark’s other site that he works on, you sound like a really good candidate to check out the services provided at:
https://www.cashflowsandportfolios.com/
I have a few years to go yet, but I will definitely be working with them to do exactly the kind of things you are asking for.
~James
Thank you James
Thanks James. We enjoy running that site and it’s fun to help clients with various drawdown needs as well 🙂
Mark
There are absolutely fee-only planners out there that don’t want to manage your money but they will certainly charge you for the fees/time/expertise Pat.
I will consider a blogpost on this in future detail for you and others. I’ve gotten a few questions on this of late.
My question back to you is: have you considered an all-in-one ETF? If not, we wrote about this at Cashflows & Portfolios, a simple portfolio to build:
https://www.cashflowsandportfolios.com/diversified-etf-model-portfolios-canada/
Happy to answer more questions.
Mark
“My question back to you is: have you considered an all-in-one ETF? If not, we wrote about this at Cashflows & Portfolios, a simple portfolio to build:
https://www.cashflowsandportfolios.com/diversified-etf-model-portfolios-canada/”
I’ve thought about it. I actually track the big 4 “grows” xgro,zgro, hgro, vgro on Yahoo finance. At this point I still enjoy investing my money and tracking my (mostly) gains. As I grow older though things may change.
Also, my wife has zero interest in investing, so if my health goes downhill at some point I Might just go all in on the “gros” so she doesn’t need to worry too much about it.
I like/am biased to my hybrid approach but I’m also smart enough to know I don’t know what I don’t know.
Indexing via a low-cost ex-Canada ETF is my “when it doubt” pick and buy and I just keep adding more XAW here and there.
That fund is nicely up 15+% YTD.
Over time, we’ll probably have a handful of stocks (maybe up to 10?) + XAW as I/we age and sell everything in the process over the coming decades.
Mark
Why is this stuff not taught in schools? If properly taught, it could save millions of people from contemplating forced retirement at 70+ with little/no savings to sustain them in their remaining ‘golden’ years.
That’s a very fair comment Jorgen but sometimes things happen beyond someone’s control. That said, the more you know, the better.
As a retired teacher I’ll address this question as I see it a lot. Truth is curriculum does exist for the teaching financial literacy, it has for many years. Ontario is rolling out a new financial literacy strand for math gr 1-8, Alberta has Career and Life Management that all students must complete to graduate High School. Most school jurisdictions have Accounting courses. The recognition of the importance of financial literacy is causing a shift in the right direction and more is being included in main stream curriculum’s like math. There is reason for optimism.
School have often been used to try to and address the short falls of society. Kids don’t get enough exercise – implement daily activity (more gym classes). Schools should teach a second language, about reproduction, how to eat properly, career preparation, post secondary education, proper use of technology and the list becomes endless. For every new subject added, what gets dropped? PE and Technology became mandatory in many provinces and there are only so many hours in a school day and spaces in a timetable. Lots of valuable life skill topics get dropped as a result. Food prep, basic building skills and mechanics for example.
The amount of subject material available to learn is also growing exponentially, especially in STEM.
High school kid wants to be a vet but they have one spot open in their timetable. Biology or Accounting? Both are valuable but only one is required for the next phase to follow their dream. Kids face this choice all the time.
I am personally thrilled to see more financial literacy coming into schools but does it really take the school to tell someone they should save money? The other change is access to information through technology. One important role of school is to help students use the technology responsibly and differentiate between accurate and false information. Anyone can find anything to support their hypothesis and beliefs online. It truly can become a rabbit hole.
It takes a village to raise a child. I’ll ask why this stuff is not also being taught at home? We taught our kids about money, shared our budget, made them do their own taxes, automated their savings, how to make simple meals, change the oil, change a tire, problem solve life’s bumps, and care for others. I believe most families can do this if they chose to and yes I know there are exceptions.
Your question is valid and I hope my reply gives some insight. There is reason for optimism.
With respect – Gruff
I think these are good comments Gruff403. What schools should teach is critical thinking. We see so much advertising telling us how to invest. Socks, Bonds, Emerging Markets, ETF’s, percentage of fixed income, cash wedge, etc, etc. Every investors’ situation is different and only he knows what’s best for him. Critical Thinking. When I was in my mid twenties I knew I wanted to be an investor, but had no knowledge. My relatives, father in law, everyone told me how risky the stock market was. don’t do it.
So I thought a bank manager would be a good person to talk to. After all, you don’t become a manager without education and know how. He also advised me of the risks and said the best way to get ahead was to save your money in a bank account. Wow, That is not what I went there for. I asked him for a $25,000 loan to buy mutual funds.(it didn’t last long until I realized what fees they charge) He agreed and gave me the loan. And the rest as they say is history. I still made mistakes along the way, but learning from them and changing course works.
There is nothing wrong with reading adds and blogs, and any investment advice you can find. But you must think for yourself what will work for you. The motive behind everything is also important. What’s in it for the author? Teach you kids and yourself to question everything.
Totally agree – there is an art and science in critical thinking, especially when it comes to investing. Know thyself. The behavioural psycholology behind investng cannot be understated for success. That is a learned skill IMO and an extremely important one.
Great comments Gruff, and I agree that society is a little too dependent on schools to teach _everything_.
This topic came up recently on another blog site, and so I did a very small experiment with my now 21 year old daughter. I have been working with her to invest as she is a budding entrepreneur; she has maxed out her TFSA, put some money in her RSP and also has a decent start at a non-registered account as well. Living cheaply at home has certainly made most of that possible, but she works very hard as well.
Anyway, I asked her what she thought about the lack of finance / investment education when she was in school and her very abrupt answer was “well, it would have been better than learning about Pythagoras’ theorem. Certainly there is room for debate there, but I think her point has some merit in that some tweaks to the curriculum could yield (pardon the pun) some benefits. So, I wonder if there are opportunities in other core, or non-core subjects for introducing some life skills? I don’t think the answer is an outright yes, but I’d like to believe some adaptations might be possible.
Ultimately, I loved your example of the student wanting to pursue becoming a vet – you’re right, with today’s curriculum their choices are not really choices at all.
Should he put the $77,000 in the TFSA all at once or should he make gradual contributions (dollar cost averaging) and if so, how long should he do this? thanks!
I’m personally a fan of lump-sum investing Marilyn. I answered that reader question on this page here in fact.
https://www.myownadvisor.ca/faqs/
“Mark, I’d like to get my money working for me but but I’m wary of the recent run up in values. What are your thoughts on buying in ASAP vs. waiting for a dip or breaking up the buys over a few months? Maybe you could mention this in your weekly email sometime?
Essentially, your question is: is it better to do lump sum investing (invest now) or dollar cost averaging (invest over time)?
Here is my thesis on this.
I prefer to invest money, when I have it, as in now. So, I’m in favour of lump sum investing versus dollar cost averaging (DCA).
Why?
First, I have no idea if the stock market is going to go up or down tomorrow, next week, next month or otherwise. But, I do know lump sum investing gets my money working for me as soon as possible.
Second, given markets tend to go up over time, you have a better chance of ending up with more money by investing in equities at once versus in phases over time. Of course, there are absolutely times when stocks go down, significantly, and stay down. Market volatility can occur. The challenge, we don’t know when that will happen. But overall, you’re more likely via chance to be giving up investment gains through dollar-cost averaging instead of lump sum investing.
Three, and maybe my most important point for you, think of DCA as market timing. You are strategically setting up intervals or timing your purchases that may or may not work out when it comes to market pricing.
That said, the DCA approach can make you emotionally feel better since you’re not investing lump sums of money at once. It may seem less risky, therefore feelings that are reducing your stress by potentially reducing the impact of market volatility. This is not wrong whatsoever, it’s just your plan.
I liken these types of decisions like paying off a mortgage – very aggressively. Some people swear by it even though it might not make the best financial/mathematical/logical sense. It doesn’t mean it is flat-out wrong.
Saving, investing and more are much more emotional decisions than we tend to recognize. So, if it makes you “feel better” to go with DCA, then do it. Dollar-cost averaging aims to avoid mistakes of making a lump sum decision that could be poorly timed. Only in hindsight will we all know if that decision is correct!”
I just wanted to add to Mark’s comments something I read recently on a financial blog somewhere ( maybe Mark was the author, maybe not, I’m not taking credit for it)
If you happened to receive a portfolio of stocks – say as an inheritance – in today’s markets would you sell them, and then buy them back in increments? I know my answer is no (assuming it’s was stocks I’d buy anyway).
This is a good way to think about whether or not to lump sum invest or dollar cost average.
Interesting James.
Personally, for any inheritance (depending if I did or did not believe in those stocks), I would keep on the condition that what you inherit (the assets that you receive) align with your personal values or lifestyle needs.
I would not keep any assets that I don’t believe in – full stop – rather, I must invest in a manner that aligns to my values and needs. The same applies to me for a gift provided to me or otherwise.
DCA (dollar cost averaging) in my book is a form of market timing. With DCA, you are betting that by slowing dipping your toe into the asset, the market may be both higher but likely lower over time and therefore you’re getting some prices on sale per se. If you were more certain that any stock price could be higher in the future, of course you would do lump sum investing today. Meaning, why pay more for an asset when you don’t have to?
Of course the challenge is nobody can predict the future so it “feels better” to many to DCA when the reality is, more times than not, stock prices trend higher over time. Food for thought!
Yeah, I meant in my example, an inheritance of “exactly what I would want to own anyway”.
Very fair! 🙂
Hi, Mark,
It is a great topic. We have 13 years to go to collect a small CPP/OAS, but before then, we are using cash wedge, dividend income, HELOC, and occasional withdraw from taxable account for living expenses. I used to think that the long term investing is 10-15 years before withdrawal. But, now, it is actually 30-40 years investing, simply because we might live to 80-90 years, actually, financial planner make projections based on 100 years old life expectancy. Therefore, long term investing is not a period till we get retired/collect social benefits, but till the day we leave our physical body, that is the long term horizon we need to plan for.
Great stuff Angela.
Yup, I consider long-term investing until essentially I die = could have another 40-50 years of hopefully good health.
I know the projections we do at Cashflows & Portfolios for clients run many scenarios to age 100 just in case longevity risk does happen!
https://www.cashflowsandportfolios.com/
Mark, it’s an excellent post and an awakening call for many to understand that investing is the way for wealth building. I’ve followed most of your advices here but in the wrapping point 1. you wrote “I would personally reconsider day trading for wealth-building”. Do YOU plan to do it? as I have the same thought:)) Can you elaborate it or I may misunderstand. Thank you!
Thanks very much Kim. Nope, no intentions of day trading here. The reader did ask about that. Not sure if they were kidding or not but thought I would reply.
My boring approach has worked well thus far – no intention to change it up! If it ain’t broke = don’t fix it kinda thing.
Cheers!
Thanks Mark for a clarification. Since I read your posts, my minds are clear and I choose to follow your path to invest in etf and dividend growth stock. However, some days, I doubt myself or maybe I become impatient and greedy:)). A year ago, I’ve investing money in LIRA account with a half money for VFV&QQC.F and the other half for MFC,FTS, RY, ENB. Up to now 2 ETF provides 18% but stocks only 7%. I’m thinking to switch all to ETF for better growth as my LIRA is small. What’s your comments on it if you have time. I really appreciate your time and effort to reply all comments. Thank you and take care
Great to hear Kim. I hope to have an updated post soon on LIRAs in fact
Stay tuned!
You have touched on all the main points, Mark. I retired at 56 with a severance package that I duly invested. Made three mistakes right away by contributing much of it to an RRSP, by consulting a financial advisor on whether to hold back investing (got wrong advice at a high price) and by signing up with a broker at a reputable bank. These mistakes were followed by taking CPP early, at 60 (big penalty that lasts for forever; should have drawn down the RRSP for the extra money I wanted.) Like everyone I was hit by two major set backs, from dot-com collapse and the financial crisis.
My correction started with dumping my broker, and then slowly by learning the things that Mark outlines. I read a lot (still do…you never stop learning) and welcomed the TFSA with open arms when it started (by the way, it is partially indexed by getting occasional $500 increments.) I find comfort and encouragement from the “projected income” table that my bank (TD WebBroker) provides, and am happy with my portfolio, which is spread across the TFSA, RIFF, and US and Canadian Margin accounts. There is plenty of reliable investment detail in free newsletters from Mark, cannew, Mike and others. If only they had been around 26 years ago!
We all make mistakes DougP. To your point, I don’t think you succeed in life unless you make a few along the way!!
“My correction started with dumping my broker, and then slowly by learning the things that Mark outlines.”
Great stuff.
I hope to continue to max out my TFSA/our TFSAs for the coming 3-4 years. I will need to, to reach out FI targets.
I also hope to increase my cash position for the “what ifs” in life as I approach semi-retirement. This way, the stock market could go into the tank for 1-2 years and I wouldn’t be worried much as I work part-time.
I wish I knew then what I know now in my 40s 🙂
Thanks for the kind words!!
Mark
Good for you DougP for having the courage to make things right. It’s never too late to learn and take control.
I suspect most of us would admit to mistakes we’ve made along the way – if I could go back 25 years in time, I would have smacked myself in the head for believing the MFDA advisor who said “You don’t pay me, the fund companies do.” – where did I think the fund companies got the money to pay the advisor? Out of thin air? Selling loans like banks to? Then I would have smacked the advisor and his DSC schedules for taking advantage of people. That period of time didn’t last long for me – I quickly work up and learned how to manage DIY, but there were other mistakes and lessons to be learned along the way.
I echo that – good on DougP.
We all live and learn. I chased penny stocks, owned costly mutual funds, and did other silly things in my 20s. In my 30s, I found some investing religion per se and took matters into my own hands. Started this blog and have been far more mindful about investing and spending and just my money values ever since!
Great job on the correction. I, too, had to dump a broker and am glad I did. I can’t even begin to tell you how much I’ve learned from Mark’s newsletters along with those of cannew’s and others.
Christine, those words make my day!
Best wishes to you.
Mark
Re: your 3 big mistakes. At least now you have no more “doubt” about what you don’t want. A lot of us who are new to investing suffer from analysis paralysis. DIY investing can be intimidating at first, and I think that’s where a lot of us would just rather leave it up to someone else who “knows more” because we “doubt” our own capacity for making the right choices. I was terrified at the prospect of “losing” money, and I did, but I also gained, and now I’m much more comfortable with the ups and downs of the market. I’m not just limited to putting my money into a GIC for fear of losing anything. Now I understand “why” I choose certain products It was by reading Mark’s blog that I finally had the courage to sell my expensive mutual funds (2% MER) and invest the money myself, even if it was only to a less expensive ETF (I did buy individual stocks as well though).
Thanks Chritine. I certainly wouldn’t do any DIY electrical or plumbing but I think with the knowledge out there, the volume of low-cost products to ditch high-priced money managers, I believe DIY investing can be the way to go for most.
We all have doubts. I still have mine from time to time on some financial things but if you make more good decisions that poor ones, and keep your savings rate for any retirement consistent or high, things generally work out just fine.
I appreciate the kind words and glad you’ve sold those expensive MER funds!!
Happy Holidays,
Mark
Hi Mark! just saw your reply. For the sake of brevity in my reply to Doug, I didn’t expound on how much your article on the MERs of mutual funds resonated with me, but it certainly was the catalyst in changing things up. Perhaps it was on your website as well, or an article that I read which indirectly led me to your website, but it was about how to always consider fees and the implication of taxes before you invest in something, this has always stayed with me. I just recently helped someone I work with to see that her annual banking fees were higher than the amount she was getting from her GIC. Together, we found an account at same bank that cost $4.00 instead of $15.95 monthly, already that was a savings of $143. annually. She was so happy about that, that this led her to explore further and we saw there was a rewards program that offered $0. fees under certain conditions. She was asking me what I thought the implications were, I told her to call customer service and ask “what’s the catch?” They said there was no “catch” and that she just needed to qualify by having 2 accounts, which she did, the “chequing” and the “GIC” account. So she went from paying $15.95 monthly to $0. I think the thing about fees is that financial institutions depend on the fact that many of us are either too busy with our lives or too scared to upset the status quo to investigate further and make changes.
Awesome Christine!!
Yes, as you well know now, high MER products absolutely kill portfolios over time.
Kudos to helping your friend save a few bucks, $143 annually is a nice dinner (or two) out somewhere! I also think it’s smart to ask about the fine print in any offer from any business. Buyer always beware and mindful – it’s your money after all!
Happy holidays to you and thanks for your readership.
Mark
I agree with the TFSA advice big time – the withdrawals won’t hurt means-tested programs (e.g. GIS/OAS). As you note, time in the market favours long-term investors through compound capital gains as well as compound earnings. Those who start late have to rely almost entirely on their savings, with less relative growth driving their portfolios forward.
While investment loans in taxable accounts might ‘buy back time’, for someone who doesn’t have investment experience, this would be extremely risky. Instead, he should adopt a FIRO mentality – Financially Independent, Retire Older. If he is healthy and capable, he should keep working to 70 if possible and strive to live as frugally as possible.
Thanks Bart. I think those that start later in life do need to consider working a bit longer or at least part-time to hedge any portfolio risk. Certainly if this reader diligently takes advantage of the TFSA for the coming 15 years, I have little doubt that $77K can grow into that $300K range in 15 years with a tilt towards equities for sure. Later in life discipline with time will still be key!
Some sound advice Mark. You’ve touch on a subject which is addressed in my next book and I hope to have out next month.
Excellent, make sure you share with me when ready 🙂
Mark