How to Invest Simply and Successfully: A Guide for Ordinary Canadians

You’ve probably heard plenty of advice about the importance of investing. But how do you actually get started if you don’t know much about it?

My guest today is John Robertson - author of The Value of Simple, one of the most respected investing guides in Canada. John has spent decades helping Canadians understand the basics of investing, and is known for breaking down complex ideas into clear, practical steps anyone can follow.

In our conversation, John explains the different types of investments, why most people should avoid picking individual stocks, and why index fund ETFs are often a smarter, more reliable choice. He also explains his four-step process for starting to invest on your own and some common beginner mistakes to watch out for.

Whether you’re completely new to investing or already on your way, this episode delivers valuable insights and down-to-earth wisdom to help you build a more confident financial future.

Creators and Guests

Guest

John Robertson

Author of The Value of Simple

What is Financial Literacy Canada?

Financial Literacy Canada is a podcast dedicated to helping Canadians take control of their personal finances with confidence and clarity. Through in-depth conversations with financial experts, host Max Shabalov finds insights on how Canadians can make more informed decisions about their money.

Max Shabalov (00:01)
Max Shabalev here and welcome to another edition of Financial Literacy Canada podcast. Everyone knows that investing is important, but some people tell me that they're not sure how to actually invest. Well, that's why I invited an expert guest, John Robertson, the author of The Value of Simple. And John has been educating Canadians on how to invest since 2011. So for 25 years. We talked about the basics of investing and how ordinary Canadians like me can invest on their own in 4 easy steps that he talks about in the book. So this episode will be useful for not only those who never invested, but also for those who already hold some investments as John gives a lot of valuable advice.

John Robertson, welcome to the show. So your book, The Value of Simple is a really fantastic clear guide that shows Canadians, you know, how they can invest in very practical steps. But before we get into this, I want to start with a question why. So you've been investing for a long time. Why do you this, John? And why do you recommend it for everyone?

John Robertson (01:15)
Thanks for having me. So basically investing is a way to help your money grow so that you can meet your needs. Some people treat investing as kind of like a game or a mission in its own right. They're very interested in it. And unfortunately, a lot of the investing books that were on the market tended to be geared towards those people or were written by those types of people. So they were very, very technical, very focused on people that were very interested in extracting everything that they could from the stock markets really getting into the weeds and that really turned a lot of like general users off but a lot of people like essentially everyone at some point in their life needs to be an investor because they need their money to grow to help meet their goals and needs ⁓ and so to do that they have to learn how to invest and so I was helping a lot of people in my life learn how to invest for the first time and it turned out to be a big sort of gap between what was out there and what wasn't so figured that I needed to fill that very practical gap of just like how do you actually buy an investment? How do you actually create a brokerage account? What is a brokerage account, etc.

Max Shabalov (02:41)
You've beautifully written in the book that if you don't invest then inflation eats all your money right?

John Robertson (02:50)
Yeah, so if you don't invest, there are options out there that can maybe keep pace with inflation, like a savings count, you'll earn interest, but the interest rate is usually not much more than inflation and oftentimes a little bit less than inflation. And so you're always kind of losing this race against inflation if you're not investing in some other way.

Max Shabalov (03:08)
And so, okay, let's begin with the foundations. Let's talk about the main types of investments. So there are bonds and equity. ⁓ What are they?

John Robertson (03:17)
Yeah, so, you know, they're kind of fancy financing names if you're unfamiliar with this. I mean, if you are familiar with finance and whatnot, then that's a very simple thing, bonds and equities. So basically, bonds are the things that are relatively safer. We say relatively because there's risk in everything. Like, with that savings account, it's guaranteed by the government in a lot of cases to give you your money back plus interest. ⁓ But then it's very risky because you could lose that to inflation. So bonds are relatively safer, but they also are relatively less performing. So they are essentially alone, like a savings account sort of stepped up, but one that you can trade. So a bond is an agreement between the bond holder, the person that is giving the money to whoever is borrowing it, a government or a business or some other organization, like a crown corporation, that is issuing bonds and they will pay interest. So they specify how much interest they will pay, either as relative to another interest rate, such as a floating prime rate or a Bank of Canada rate that can change over time, or they'll pay a fixed amount of interest. So they might say, we're going to pay you 6 % of what you give us every year in the form of interest. And then they'll specify how the payments are made, whether it's monthly, four times a year, which is known as quarterly, once a year, or all in one lump sum at the very end. And then they will also have a principal amount. how much the bond is for, and then the organization issuing the bond will guarantee that they will give back the bond holder that amount at the end. So it's very much like a GIC at your local bank. The one exception or the one thing that makes it a little bit different from a GIC is that the GIC is only between you, the person who bought the GIC in the first place and the bank. Whereas the bond can be traded. So if I help set up a bond with, let's say, the government of Canada. They'll say, in five years, we are going to give you back $1,000 for this bond. And in the interim, we're going to pay you 4 % every year to be holding this bond and to be lending us this money. I can turn around and sell it the next day to you, Max, and say, hey, I just lent this money to the government. They're going to pay it back in five years. I can't really wait five years, actually, so I need the money now. Will you buy this bond from me? And the government will pay whoever owns the bond at the end of the five years. doesn't have to be the person who originally bought it. So bond prices can change then over time as people trade the bonds back and forth. And there are lots of factors that go into how the bond pricing changes, but the general idea is that it is some organization, some entity, the government or a business that's going to pay back the principal amount and pay interest along the way. And so that makes it a relatively safe bet, but you're never going to earn more than the interest except if you buy a bond at a discount and then its value goes back up closer to the principal amount.

The partner type of investment to that is equities, what we call sometimes called stocks, sometimes called shares, and that's ownership. That's where you have a company and you own a part of that company if you own a share. So we could have a company that sells lemonade on the corners of our local neighborhood. That company might have costs associated with it, the labor to mix up the lemonade and ⁓ juice the lemons, the input costs of buying the lemons and the sugar and the cups and the water, ⁓ the labor costs to sit at the stand and sell the lemonade, some taxes, et cetera, and then also the revenue that it makes, how much lemonade it's actually selling, and then all the money that's coming in as it does that. And if our little lemonade stand business is making a profit, then as the owners of the business, we would basically own that profit. But because we've split the ownership up, it's not just a single person owning the lemonade stand. It doesn't immediately go back into our bank account. Instead, the value of the company starts to increase as it earns more profit. So if I start this lemonade stand and it barely breaks even, and I wanted to sell that lemonade stand company while it's just barely breaking even, somebody might not pay me a ton of money for it. They might look at how much I have an inventory and maybe pay a little bit above that for the chance that they could start turning a profit with it, or they might pay me even a little bit less and say, well, I could maybe use some lemons for my lemon pie company, but they've been sitting on your shelf for half a week, so they're already closer to turning into mold and being no good. So I'm going to pay you a discount. And so the value can go up or down. And then if all of a sudden the heat wave hits and then I can jack the price of my lemonade by five bucks a glass and people are paying through the nose and my company starts making a lot more money, the value of those shares would increase. So somebody wanted to buy the company at that point, thinking that the heat wave is going to last forever into the future and that the demand for lemonade would likewise be very high. if a social media influencer came along and said, hey, this lemonade is the best lemonade I've ever had. Everyone has to try it. And the demand went through the roof. And again, we're making all kinds of profits. As that profitability went up, it's more likely that somebody would pay more and then those shares would become more valuable. And just like, In the case of the bonds, it's not just that you hold the shares of the company until the company is eventually dissolved or wrapped up. Somebody can buy the shares along the way at any point in time. And the way that you do that is by selling them over a stock market. And those stock markets exist to trade shares between investors who are looking to own pieces of companies. And lots of big name companies that you have heard in all kinds of aspects of our life exist, as well as all kinds of companies that you've never heard of that make up the little things that you don't tend to think about possible exists too, and they all have equities available, shares available on the stock markets that investors can buy.

Max Shabalov (09:05)
Hmm. so, okay, bond is like a fixed income, right? And more like more stable, less risky and the equities now they become risky because if the company goes bankrupt, then it can go to zero, right? The whole value of the stock

John Robertson (09:21)
Exactly. It can go to zero. And one of the benefits of the way that companies have been set up in, I think, all with an asterisk, almost all democracies participating in this sort of thing, is that they set companies up to be ⁓ zero liability companies. So it means that the owners can't be asked to put in more than they already paid for the shares. Now the shares can go to zero because the company might need more money. So they might have to issue more shares, which is called dilution. So then there might be less money to go around to the original owners and so their shares might become less and less valuable, but they can never go negative. So even if a company loses a bunch of money and has a negative net worth, that doesn't translate into the shareholders in most legal jurisdictions being tapped for more money. So the equities are risky, the value can go up, especially if the company does very well, which sometimes that does happen. You've all heard of various success stories over the years of companies becoming massively more valuable for one reason or another. And the people that own pieces of those companies becoming rich along the way with that. And also companies that have gone bankrupt and gone out of business. there is a floor to that risk ⁓ with share ownership in that ⁓ even if the company keeps losing money, ⁓ the share owners can't ever be asked to put in more money than they already paid to buy the shares in the first place.

Max Shabalov (10:46)
Yeah. And because of that risk, that's why we hear about diversification, right? To spread the risk across many companies. And with that, I think mutual funds, because of that, as part of the reasons why they came to the industry, what are mutual funds and why they're not ideal for Canada?

John Robertson (11:07)
So mutual funds are a way to buy a bunch of companies all at once. It's sort of like owning shares in a company, except instead of owning shares in one company, you're owning shares in a company that is itself buying up a bunch of other companies. And so if that company is good at selecting all those other companies it's buying shares in, its value will go up. And vice versa, if it's not so good, its value will go down. And then there's a cost to doing that. There's people that that mutual fund will have to employ to produce the documentation sent out to sell the mutual fund to you, as well as to do the actual selecting of which companies to buy and hold within the mutual fund and execute all of those various trades. so mutual funds provide a way for you as a individual investor to very quickly get broad diversification because the mutual fund itself can hold hundreds or thousands or even tens of thousands of different companies within it. So that you just have to buy one mutual fund and then you get all of those different companies so that you get sort of the average return of all of them. if overall all companies do good, it doesn't matter so much if some of them go down and some of them go up, as long as overall they're trending to go up, then you're going to have a more valuable mutual fund unit on your hands. Now as to why they're not so great for Canadians, the mutual fund structure itself is totally fine, there's nothing wrong with that, it's a great way to get that diversification. Problem is that most mutual funds, like the vast majority that are out there, that cost to own them is very high. In Canada, in the book, if you'll read, it's a slightly out of date figure, it's a little bit lower now because costs have been coming down due to some of the competitive pressures, ⁓ but it's a little over 2 % per year, is what a lot of mutual funds are charging. That's quite high. Like 2 % doesn't sound very high. You're thinking like, oh, if I bought a car and I paid 2 % to the dealership, like that's not too bad actually. But it's not a one-time fee. It's every year. So if I invest $1,000 into a mutual fund, I'm paying $20 the first year and $20 the second year and $20 the third year. And just keeps sucking away at your potential returns. And so if you think of your returns as maybe being like 6 % as a decent average return to sort of think of in the future for planning purposes in terms of how well your mutual funds might do. If they're taking 2%, that's a third of your total return being taken away in fees when the whole reason to invest in mutual fund is to get the return. So you want to minimize those fees as much as possible.

Max Shabalov (13:42)
Yeah, and many experts, including you, believe that ETFs are a better alternative to mutual funds. What are they? What is the difference between mutual funds and what makes them better?

John Robertson (13:54)
So, there's a little bit of subtlety there. So, I'll get back to the subtlety in a couple of minutes. I just want to put a pin in that and hope I don't forget to come back to the subtle distinctions. But basically, an ETF is an exchange traded fund. It's basically a mutual fund. Same sort of benefits and same idea where you're going to group together a bunch of different stocks or a bunch of different bonds or a bunch of stocks and bonds under one ETF into one pile. So, that's the one thing you have to buy. And then instead of being sold individually at bank branches or insurance funds or dedicated mutual fund sales shops, you can buy them over the stock exchanges. That's what the exchange traded part means, just as though they were a stock. And so then you need a brokerage account to be able to access the stock exchanges and make those trades. But then once you do the costs to run the exchange traded fund, you hum a little bit lower. The sales costs are not really there. They don't need to have an embedded commission, etc. And then that helps bring the costs down. So then you can get that broad diversification that you're looking for in your investments without having to pay those high fees. And then some of the lowest fee investment options that are out there are exchange-traded funds. And in particular, the low-cost index-based exchange-traded funds. There are some slightly higher cost exchange rate funds, but none that are quite as egregious as some of the more egregious mutual funds that are out there. But exchange traded fund just means that it's a fund that's traded over the exchange. And so some people immediately think that because the lowest cost funds are exchange traded funds, that all exchange traded funds are low cost, but that's not quite true. There are some higher cost, less diversified exchange traded funds, just like there are some higher cost, less diversified mutual funds. They exist in the exchange traded fund space as well. They're just much overshadowed by the more popular type of ETF that is almost synonymous with ETF, which is the index fund exchange traded fund.

Max Shabalov (15:59)
Okay, so not every ETF is low cost, but those index fund ETFs are. What index ETFs should we consider and what is an index in the first place?

John Robertson (16:13)
So an index is a way to track a large number of stocks and use that as sort of a basis of comparison for other funds. So for instance, if you had a mutual fund back in the day, or even still today, ⁓ and it owned a bunch of companies that were selected by a manager who was taking a fee out of the fund for their expertise and skill at selecting stocks, and you wanted to say, how good are they actually doing? How are they performing for that fee that I am paying them? The way that you would do that is with an index. You would get a bunch of different stocks and say, this is all of the stocks in the U.S. or these are the 500 largest companies in the U.S. or these are the 300 largest companies in Canada, depending on whether it an American-based fund or Canadian-based fund, et cetera. And you would compare, how well is the mutual fund doing to just looking at taking the average of all of these different stocks. And as it turns out that a lot of those mutual fund managers were underperforming their indexes and the logic came about, well, why spend all the money and effort trying to ⁓ do any better than the index when you can just for very, very low cost buy everything in the index and not have to think about it too hard. And so that brought about this index investing revolution. And within that, there are a bunch of different indexes that you might want to consider as an investor.

So in the book I talk about a couple of major categories, one being for bonds that slightly safer, safer, not safe, safer stuff, pays interest, ⁓ is going to have generally lower volatility, but still some volatility could go down, but probably not all the way to zero in a lot of situations and might form one part of your portfolio. And then you might want to look at stocks all around the world. And they tend to be grouped into stocks from the US because the US is one of the world's largest economies, especially when you consider the publicly traded companies there because a lot of the publicly traded companies in the US or that are headquartered in the US tend to be the ones that have operations all around the world, those global multinational giants. ⁓ If you think of, for example, Apple, they are selling phones and devices and iTunes subscriptions all over the world.

So even though they show up on the American stock exchanges and American company, because that's where they're based and where they trade, they do have exposure to economic activity all around the world. Then there's Canadian stocks, especially writing as a Canadian for a Canadian audience. That's something we might not consider is our own domestic stock market and the companies that are there. And then the other basket would be the rest of the world international stocks beyond that. And so then there are ETFs that target each of those. There's ETFs that target international stocks, US stocks, Canadian stocks, there's ETFs for bonds. And then there are ETFs that combine all of those into an all-in-one wrapper. So the fund company will pick an appropriate mix of stocks and bonds, and you'll pick the ETF based on that ratio, whether you want 100 % stocks or 80 % stocks, 20 % bonds, 60-40, 40-60, 20-80, et cetera. And then within the stock part, the company that's putting together the ETF that has all in one, well then split that equity part up into some from international, some from the US and some from Canada.

Max Shabalov (19:38)
Yeah, I love that. And often index funds outperforms ⁓ mutual funds. But, you know, with mutual funds, also pay high management expense ratio. So why are they so popular? Is it because advisors are incentivized to sell them through the banks and, you know, regular people just go there and then buy mutual funds through them?

John Robertson (20:01)
For sure. It is very much because it is easier to get into, in part because someone will be there to sell it to you. If you have to go out and look yourself to, you know, metaphorically pick one of these ETFs up off the discount shelf at the very back of the store that you had to get to yourself and figure out how to navigate to the store and then navigate through the store to find these ETFs on the back shelf and then go and do a self checkout to get them. That's a little bit more work involved. Whereas with mutual funds, it's sort of the metaphorical door-to-door salesman. They show up and they pitch you on the benefits and they sell it right to you. And you don't have to worry about all of the intermediate steps of how do you go out and purchase it? You basically get to meet face to face with another person and write a check. And you just pay for that convenience and privilege. And in a lot of cases, you could pay a lot if you consider how much you might have in your retirement savings account, you're saving up to retire in 10 years time or even closer to retirement that might start to get up into the hundreds of thousands or even millions of dollars. And if you're 2 % on a million dollars, now you're starting to talk like a lot of money for that convenience of having somebody help guide you through that selection of what to buy. Hopefully they're also creating a plan for that cost, but then also the convenience of the actual purchasing process versus all money that you could save by going to an ETF, but then you do have to learn how to do it and then actually do it.

Max Shabalov (21:34)
Yeah, I liked your take, John, when you said that advisors are basically salespeople, right? And there's a conflict of interest there.

John Robertson (21:42)
Yeah, there's a conflict of interest and also research has shown that ⁓ whether it's because of the conflict of interest or something else, like teasing out the why is harder, but the advisors tend to believe their own sales pitches and will also invest their own money in those same types of funds. So then it can sometimes be a question of like, are they even able to provide unbiased advice if they start to sort of believe their own sales pitches and buy their own funds on their own time? And it would be just as bad if it was the opposite finding. There was no good finding from that study when you're already talking about high fee mutual funds that ⁓ don't necessarily outperform and that you're concerned about in the first place. then if we had found the other finding, but the advisors themselves invest in low cost CTS, well then what would that say about how hypocritical they are to sell the high fee funds to other people? Nonetheless, it does show that they ⁓ tend to believe their own marketing, I guess,

Max Shabalov (22:50)
Yeah, and when I was reading your book about that, I thought of car salesmen, right? We don't call car salesmen advisors. It's like we don't go to car dealership and ask them, advise me what car should I buy?

John Robertson (23:05)
Yeah, and that's a big problem in the ⁓ advice space for finances because you know, like as a consumer, you have that sort of baseline level of knowledge that if you go to a car dealership and, you know, ask them for advice on how to get around, they are not going to present you with a bus pass and they're not going to suggest a bike and they're not going to suggest a car from another manufacturer.

They might help you figure out what the best car that they happen to sell is for you, but they're not going to help you figure out, you know, whether one from another manufacturer might be a better choice for you or whether not buying a car at all might be the best choice for you that some other related option to get around, like taking the bus or the streetcar might be a better option for you in your situation than buying a car. They're going to sell you a car. And same as you go to a bank branch where the only product that they can sell is mutual funds and depending on the firm, sometimes insurance, but usually mutual funds. And so then they're going to find a way to sell you mutual funds, even if in your particular case, ⁓ paying off debt might be the better way to improve your financial situation at that moment, rather than investing into mutual funds. They're still going to sell you a mutual fund because that's what they have to sell you. ⁓ And they're not going to sell you a low cost CTF because that's not something that they can offer. They might help think you pick the right mutual fund for you, but it's still within that narrow window of what they're able to sell.

Max Shabalov (24:35)
Right. Another way to avoid mutual funds with advisors other than ETFs, low-cost ETFs is picking your own individual stocks. And many experts, including you, suggest not doing this, like for ordinary people like me. What are the reasons?

John Robertson (24:55)
There's a huge list of reasons. How much time have we got? So the biggest one is risk. By far the biggest one is risk because as we were saying when we were talking about the idea of stocks in the first place is individual companies, which means individual stocks can and do go to zero. Not only that, the returns that we get, if we talk about like the stock market as a whole went up 12 % last year or down 2 % the year before or well, in general, we expect over the next 10 years, based on our forecasting, that whatever the market might go up 6 % on average. When we're talking about those averages, it's from a large number of companies and very few companies going up by a lot helps drive those averages up. So if you are just individually picking stocks and you miss out on those couple of really big performers, you're probably going to underperform. Even if you pick an quote unquote average stock, the average stock doesn't necessarily move up as much as the average of the index does because of how much of an effect one or two stocks doubling or tripling can have on the overall average versus all the other stocks going up four or 5%. Like those couple of big performers can help drag the performance of the rest of the index up to that 6 % or whatever average. So just missing a couple of those high performers can really hurt your performance. And on the flip side, catching one or two of those that go right to zero really hurts your performance when you only have a couple of socks. And so then if you're trying to pick individual socks and you've only got so many hours in the day to do your research, to read through their annual reviews or study their charts or whatever method it is that you use to pick your individual socks, you're probably not going to be able to pick very many, especially if you have a day job. Which means that you're going to be very poorly diversified. And maybe you'll do really well if you do happen to catch one of those really high performing stocks, or maybe you'll underperform what could have been a much easier process of just buying all of them through an index fund rather than picking those individual ones.

Max Shabalov (27:06)
Yeah, that's great. you know, speaking about, about index funding, Warren Buffett, yeah, he says that most investors cannot beat index funds, so you just better own an index fund.

John Robertson (27:17)
Yeah. And so for people who might not have the context, Warren Buffett is one of the world's most famous investors, very, very successful, currently the chairman and for a very, very long time, the chairman of Berkshire Hathaway, a company that famously invests in other companies and picks the socks that they do ⁓ to do that as well as investing in companies privately and has performed very, very well over many decades.

Max Shabalov (27:42)
So we talked about different types of investments, investing as a great choice, but in your book, I love how you suggest four clear steps for Canadians, for ordinary Canadians to start investing themselves. So step one is to make a plan. What needs to be in the plan?

John Robertson (28:03)
So plans can be very detailed or very brief, and you don't have to do a very detailed plan at the very beginning, but you do need some kind of plan because you're going to, at the next step, have to pick what you're investing in. And part of that's going to depend on your plan. So your plan can basically focus in, at least for your first brush, like you can just do like a quick little sketch of a plan, almost like a stick figure, just a couple of quick little lines, and then you can come back and revisit your plan as you learn more, as you learn more about yourself, as you learn more about investing, as you learn more about planning and finances. Well, your first kind of brush is, what are you investing this money for? How long have you got before you're going to need it? That's going to become very important because if you need the money to pay your rent at the end of the month, you probably don't want to put it into something where it can go down over the course of a month like a stock.

Whereas if you need the money in 30 years, you probably don't want to put it in something that's super overly safe, like a savings account, because you're more likely to lose out to inflation over that kind of time period. And you have the more ability to take the risks of something like investing in a stock. So yeah, talking about in your first brush of planning is when are you going to need the money? What is the money for? You know, what is the various... What scenarios and circumstances that might beset you and how would you deal with them?

Max Shabalov (29:24)
Yeah. And I like how in your book you say, like, I don't want to scare you from investing. know, you know, we don't want to make people sound like, okay, do not invest at all. Right. If you don't have a concrete plan, you're saying have a rough plan and then begin, and then you can always correct it a bit later. Okay. Step two is determine your risk tolerance and asset allocation. Let's start with risk tolerance. What is that?

John Robertson (29:50)
So risk tolerance is your ability and your willingness to take on risk. if you imagine that you want to invest your money, how willing are you to take on that risk? Like what's your personality like? If you were to invest maybe $10,000 is all the money you've saved up. It's taken you years of savings to get to this point and you realize, I've got $10,000 sitting in my checking account. I should really do something with that. And now you're going to go and invest it. Like that can be very scary. And then if you invest it and it drops and the stock market crash, and then a year from now you've only got $5,000. How would you sleep at night? Would that eat away at your stomach lining? Or would you say, oh, wow, this is a great opportunity to buy more. Like I'm young, I'm going to save more money. That was just my first 10,000. I'm going to save more and more and more. So this is a great chance for me to just buy more. Or would you say, oh my God, that was my $10,000 that took years of savings is like, life is over. I completely derailed myself. And how you would be react to that emotionally is going to in part dictate how much risk you're going to be able to take or willing to take in the stock market. And the other factor is your ability to take the risk. What's your life situation? What's the goal? for the money, how long have you got, et cetera. So like I was just mentioning when we were talking about sketching out that plan, it can depend on what's happening with the plan and also the backup plans to the plan. So you might want the money at the common example that I've used if you've heard this one before, I apologize. But one I use is let's say you're trying to save for a house down payment and that can be a really fuzzy one because maybe you want to buy the house in three years and that gives you not quite enough time to really consider the stock market. But if you've got a really high risk tolerance, you might say, well, I would like to make more than just a couple of percent by putting it in a savings account. The risk of that is that if the stock market goes down, I might not be able to buy the house in three years or I might have to have some other backup plan. And so maybe you do have a backup plan. So maybe you're saving like for a huge down payment. Maybe you're saving for 30 or 40 % down payment. And if the stock market crashes, You, if you have that kind of risk willingness and your risk tolerance says, well, even though the stock market crashes, you can still put a 20 % down payment, which still lets you buy the house. So you're not going to jeopardize your main goal, even if the market crashes and that sort of falls into considering your risk tolerances. What would happen if there was a market crash? How would you be able to handle it and get around it? Whereas if that was the minimum down payment you needed, you might not have that ability to take on the risk and you might just have to use the savings account.

Or conversely, if you had the ability to be flexible in your timing, maybe you want to buy the house in three years, you're saving for that down payment, but you're going to be really aggressive and try to get as much out of it as you can by investing the stock market. Well, if the market crashed in three years, maybe you could then say, well, I didn't say three years, I meant 13 years. I will just rent for another 10 years beyond that and then buy the house or maybe five years or however long it takes for the market to, the stock market to go back up. And then maybe that would be part of your plan. And so then all of these different factors come into your risk tolerance and that can be a little overwhelming. So as a very, very, very rough rule of thumb, and again, rules of thumb don't apply to everyone equally. Like that's what a rule of thumb is for, but to at least start by thinking, especially if you're talking about retirement money now, where if you're younger, you've got many more years ahead of you until retirement. So maybe you can take a little more risk. If you're closer to that retirement age, maybe take a little bit less. And this is sort of a very common rule of thumb in finances. That's not just something I made up. ⁓ And so then that can sort of get you as a starting point. And then from there, you can adjust based on how you understand your own personality and psychology in terms of how you'd be able to handle the risk.

Max Shabalov (33:43)
Yeah, and I appreciate how you talked about psychology when you showed the graphs of that long-term index fund always grows. But if you look at the chart and there was some crash, right, market, not some, there was a but long-term it looks like a small dip there. But actually, it's a few years, well, a few years in the real life of a person, that's a lot.

John Robertson (34:10)
Yes. like living through a market crash is very different than looking at a chart in the history book where it goes down and then it comes back up. Well, know, somebody living through that, that's night after night after night of markets and turmoil headlines on the news and watching their portfolio go down and go down and go down and still having to stick with it and not panic sell and still try to sleep at night and still try to focus on their day job and all of that stuff.

Living through a market crash is very different than imagining a market crash too. So that can also play into your risk tolerance as if you've already lived through one and you know, managed to stick to your ⁓ asset allocation, that can kind of suggest that you could maybe take more risk versus someone who lived through a market crash and didn't, or somebody who's never lived through one and doesn't necessarily know how they're going to react just yet.

Max Shabalov (35:04)
Perfect, yeah, that's a very great reason why we should determine our risk tolerance. Let's move to step three, is the account allocation. So, again, we've got lots of registered accounts and when we hear RSP, TFSA, RESP, now FHSA, it can feel a little bit overwhelming. How should someone decide which account to use?

John Robertson (35:25)
So that is a little bit very complicated actually, like for only having a couple of accounts ⁓ to optimize to get it exactly right. So, you know, to get it exactly right, it depends on, you know, going back to that plan, revisiting it, filling it in more. My general rule of thumb is that you should start with the TFSA. It is totally tax free, but more importantly, it's extremely flexible, unlike a lot of the other accounts. So if you start off and say, I don't know enough to know which is going to be the optimal account for me, you can put it in your TFSA. And then as you learn more and figure out more about your specific plan and say, actually I'm planning to become a homeowner in the future. I don't own a home now. I can safely lock this money away in the FHSA. I don't need it for my emergency fund, et cetera. Then you can go ahead and transfer it over to your FHSA at that point. And if you say, I actually already own my home, I'm not eligible for an FHSA, well then that wouldn't be applicable to you. And then you might say, ⁓ in my situation, based on my tax rates or whatever, the RSP is actually a better option for me than the TFSA. Well, great, you can take it out of the TFSA and put in the RSP. Whereas if you start with one of the other ones, like if you start with the RSP and try to take it out, you lose the RSP room forever. And so if you start with the RSP and then go, actually the TFSA was my best choice, it's too late, it's stuck.

The TFSA is the most flexible one. You can take the money out at any time and you get the room back the following calendar year. So if you put the money in, you invest it in your TFSA and then say, oops, actually the RSP is a better option. You can just take it out and move it into the RSP. No problem at all. ⁓ And in the meantime, it's still going to grow tax free and that saves you from some tax recording ⁓ paperwork burden as well, tracking and reporting. So it's a great place to start. So my general rule of thumb is the TFSA, if you don't know anything else, is a great first step. And then as you figure out more about the different benefits and trade-offs of the other accounts and figure out which one is actually the best for your particular situation, then you can move it to those. And it might be the RSP, it might continue to be the TFSA, it might be the RFHSA, it might be the RESP if you've got kids, might be the RDSP if you've got a disability. Lots of options out there and difficult to optimize, but the TFSA is a great first landing spot until you can figure out in detail for your situation.

Max Shabalov (37:55)
Right. Yeah. Well, it's a great breakdown on especially between RRSP and TFSA, but with FHSA, if like you're eligible, obviously, just there's so many benefits, like, you you deduct tax, right? Or RESP is the matching contribution from the government. So it makes them more beneficial than just TFSA.

John Robertson (38:18)
Yes, for sure. The one caveat to that is people will sometimes need emergency funds. And so the TFSA is great because it can sort of act as like a secondary emergency fund because of that flexibility to take the money out. So if you are sure that you've got all of your emergency fund needs covered, then yeah, you can start to go to those because then if you take the money out of the FHSA without buying a home, then you...

I've kind of burned the account. If you take it out of the RESP, you to the grants back and you can't get them again. having that TFSA flexibility is a great spot. Now for some people, that's a downside because they might need that money to be locked away psychologically so that they don't tap it for impulse spending rather than having it accessible for emergencies. In which case, maybe the RESP or the FHSA or if you're eligible, an RESP, if you've got kids, is a better place to start. Like I said, it gets very complicated very quickly, but the TFSAs are a fantastic first step if you haven't gone through the rest of the options. And the one that's the most reversible, if you are like, just got to get started with investing, figure out how to do these other steps, and then get back to refining my plan, and that plan refinement will include which one is most optimal for me.

Max Shabalov (39:35)
Got it. Yeah, I love this. It's the first clear, easy step, very flexible.

John Robertson (39:40)
Yeah. And again, not necessarily optimal for everyone, but that's okay. You can figure out optimal later, even a couple of years later, and then fix it down the road.

Max Shabalov (39:50)
Love it. And step four is to create an account and invest. I personally invest on Questrade. And even though you wrote the book in 2014, then you updated in 2018. And you know, very relevant book to that point still. But when you talk about investing options, you mentioned there are Tangerine, RoboAdvisors, TD Direct Investing, and ETS. Like how would you update this list now if you're writing this book?

John Robertson (40:18)
So not much has changed too severely there. So one thing for sure that I mentioned in the errata page for the book, and if you are a reader of the book and haven't already visited the errata page, like I mentioned it a few times through the book, but be sure to check it out because that's where, as these things get updated, I try to make a little note about that update. So basically, I use TD as just an example of a big-brank ⁓ brokerage. every big-brank has its own brokerage out there. And they're very competitive with one another. They're not exactly the same, but close enough to it that they're all sort of equivalent options where you're going to pay a little bit of commission. In most cases, there might be some commission free options. There might be some account fees, but probably not, especially if you meet some fairly low asset minimums. But they're still out there, they're great options. Quest rate's still a great option, still allows for free ETF purchases and now also free ETF sales. ⁓ Wealthsimple launched its own brokerage arm in the meantime and has allowed for self-directed trading on top of its robo-advisor options. So that's there as another option. And then another feature that has rolled out already on WellSimple and Questrade has teased a bunch of times and hasn't actually released it yet as far as I know, at least as of the time of this podcast recording, is to allow for automated investing, so automated purchases through their platforms. And so that's another sort of nice way to make the investing process just that little bit easier and little bit simpler. And that as far as I know, at the moment is only available on the Wealthsimple direct investing part of Wealthsimple. But it's again, Questrade has been teasing it for a while. And then once it hits there, I expect in another decade, it'll probably hit everyone else, like all the big banks. But for the moment, it hasn't and doesn't look like it's on anyone's horizon except for that keeps teasing it and hasn't really seen it.

Max Shabalov (42:18)
And it's great to see how investing actually gets easier, right? Yeah.

John Robertson (42:22)
Yes, that has been thankfully one of the big things that has changed over, ⁓ I guess it's been over decade since the book has come out that ⁓ investing has gotten better and easier for individual investors over that time.

Max Shabalov (42:37)
Another thing I want to chat with you is in the book you wrote financial planning reference sheet and basically that's a document where you have your asset allocation, the reason you chose this assets, rebalancing, account allocation and savings plan. So why is this, why having this sheet is so valuable? The document like that.

John Robertson (43:01)
It's because ⁓ people forget things over time and we forget that we forget things over time. And so we're not so great at like remembering to write down things. And so I've saw it so many times when helping out individual investors that people would go, they'd do all their reading. They'd basically like cram. And if you remember studying for tests in high school or university and cramming the night before, you might come out with all the knowledge in your brain and do okay on the tests next morning. And then a month later, it's all gone. that was the same sort of situation. They would be essentially cramming, trying to figure out how to invest, what all the investment options were, what it meant, what the risk tolerance was, come up with a plan, go ahead and buy things. And then a year or two later, they would have to put in more money, invest more or rebalance their portfolio to get back to their target. And in some cases, they hadn't even written their target down. So they didn't even remember. Like, what am I rebalancing back to? Like, I can't remember. And then they'd have to go through their entire planning exercise from scratch all over again, and then have to like go back and relook up all of the information they used to figure out how to plan in the first place. Or they would have written down like, I rebalance back to, you know, without loss of generality, a 60-40 portfolio. And they go, why did I pick a 60-40 portfolio? Like I have a young guy or I've got a really stable career or whatever. Like why wasn't I taking more risk? And so if you write down not only what your plan was so that you can actually stick to the plan, because you've got to look back at some point and see what the plan was so that you can continue to stick to it, but also why you chose the plan that you did, then that helps a ton when the time comes to revisit it, to continue to stick to the plan to see is the plan still relevant and correct. So if you wrote down that, you know, I have this super conservative portfolio because my job is, ⁓ you know, really insecure and, you know, my hours can change week to week and I can be fired at will. And then you go, that's right. That was the case three years ago, but now I forgot to update my plan because now I've got this like super secure job with a long-term contract and really stable company now. And that's not a concern. So now I can actually increase my risk. So then you could make, you know, in that case, look at it and maybe change your plan or maybe go, yes, that's right. That's the reason that I picked this. So they can see what has changed or what hasn't changed and how you might need to update the plan. Because without that, it's really difficult to continue to stick to a plan if it's not written down anywhere. And even if it is just the plan itself written down, if you're second guessing yourself because you go like, well, why did I pick this? I just read an article last night about doing some other thing. And because that's another factor that comes into play is that people will read articles like we're constantly being bombarded with information by the financial media article of the week on you whatever and you might even read from the same author one week They're writing an article talking about how great index investing is and the next week They're talking about how great picking your own stocks is and the week after that talking about the benefits of picking a great manager who will ⁓ choose your stocks for you in a mutual fund and Pick a lame guy, like how am I following my rights?

Max Shabalov (46:20)
No, that's great to have this clear plan. then I love how you said, how you wrote in your example, if the market crashes by more than 25%, I won't sell it and view it as an opportunity to increase savings rate and invest even more. And I think that's, that's, know, when, if, if market crash happens, then you can always reread this and you remember your promise and it will help you mentally, I think.

John Robertson (46:20)
That's be difficult. That's the idea, you pre-commit to some of these things, then hopefully you will stick to your plan better.

Max Shabalov (46:58)
So we mentioned rebalancing, for those who might not understand, what is it?

John Robertson (47:04)
So when you invest in stuff and you pick a portfolio, and let's say you've got those kind of four main asset classes that I talk about in the book, your bonds, your international stocks, your US stocks, your Canadian stocks. And let's say that you want a portfolio that has a quarter of your portfolio in all of them. Again, that's not going to be for any particular listener, necessarily the right portfolio for them, but it's a great example. So you start off, you take your money, you invested a quarter into each of those things. Well, they're going to perform differently. The bonds might be totally flat, let's say, and let's say the US market doubles. Well, now you don't have 25 % in everything. The US, like your total portfolio has grown and the US has become a bigger, the US stocks have become a bigger part of that bigger portfolio. And the bonds have become a smaller part of that bigger portfolio. So if your plan was 25 % in each of them and that plan hasn't changed, you need to get back to your plan because you are now off of your plan based on just what's happened in the world over the year or six months or however long that change in value took and however long it took for you to get back to looking at your portfolio and going, I'm not on my target plan anymore. so rebalancing is to rebalance back to the balance that you had originally targeted. So instead of having that extra bit in U.S. stocks and having too little in bonds because the US stocks grew while the bonds didn't, rebalancing means that you would then have to sell some of those US stocks to buy some of the bonds to get your portfolio back so that you'd have a quarter in each of those different asset categories.

Max Shabalov (48:36)
Yeah, and I like your note on Impli stock purchase plan. So if you're enrolled in this, so that you can get contributions from your company, but you recommend selling it within one or two years when it's allowed because otherwise you don't want to end up with more than 10 % of your portfolio just being one company, right?

John Robertson (48:55)
Yes, and there are lots of anecdotes that run both ways, sometimes from the same company, for people that sort of let this get out of hand without thinking about it. In particular, if you think about Nortel, this might be a more aged example for some of our listeners, but back in the day, people who worked at Nortel were getting, in a lot of cases, Nortel sock options or Nortel shares as part of their compensation for working for Nortel. Nortel briefly became the most valuable company in Canada with the value of the shares going up multiple fold over the course of many years. And people who then continue to just hold onto the shares that they were buying as part of the employee share purchase plan or they were just getting as part of their compensation started to become really rich from that because they had a lot of stock in a company that was doing really, really well. And if they were selling along the way, then they were capturing some of that and diversifying back out into other things. If they weren't, then they had a lot of paper wealth. And then Nortel crashed. And so the people that were not selling along the way were sort of, you know, almost laughing at the people that were selling because they were, you know, reducing their risk and being, you know, being so cautious when Nortel was doing fantastic and they were giving up money and leaving money on the table or whatever they might've been saying. And then all of sudden the tables flipped. And then the people that had all of their money in Nortel not only lost all their savings, they lost their job because Nortel laid a ton of people off when it went through that process and went down a lot. And in a lot of cases, they also lost their pensions because of a lot of the money in the Nortel pension was invested in Nortel. And so then that over-concentration really showed up in how poorly some of those outcomes are. So again, when we're talking about risk a lot of the time, we're talking about avoiding some of the worst possible outcomes is that

You we don't want to be in a situation where we're in poverty in our old age. And so one of the ways to avoid that is to avoid having all of your eggs in one basket, which means avoiding having over-concentration to your own employer. If your employer faces a rough time and goes out of business, you are going to lose your job. And if you have all of your money in there, enjoy your stock purchase plan, you're also going to lose all of your investments, which would you would like if you lose your job to maybe be able to sell to help pay for food and property taxes or rent or whatever for your shelter costs.

Max Shabalov (51:20)
You know, that genre reminds me of comedy with Jim Carrey and fun with Dick and Jane. Have you watched this?

John Robertson (51:28)
Watch Most Jim Carrey, I think I missed that one.

Max Shabalov (51:31)
Yeah, so that's just the story you're describing. And another thing that I liked in your plan is when you determine savings plan, consider your life stages and what's ahead. For example, you mentioned, if I have a second child, two years might be without any savings, right? Because obviously the cost would increase and stuff like that. Yeah.

John Robertson (51:57)
Yeah, so you might get into those situations where you might deviate from your plan. For instance, if your plan is to just save a steady $10,000 a year, and adjust it for inflation right up until retirement, that's not always going to play out exactly steady $10,000 a year. You might hit periods in your life where it's just really hard to save, and you can kind of forgive yourself for doing that, as long as your plan also includes some catch-up years.

Max Shabalov (52:20)
On the savings things you also suggest automation. Automation makes it easier to stick to the plan. Like you first pay yourself, then spend the rest. What are some suggestions there, John?

John Robertson (52:32)
Yeah, so a couple of suggestions are ⁓ bank accounts are basically free these days, especially with all the online banks that we have that are explicitly free even for low balances. So you can go up ahead and set up a sort of series of bank accounts. So your paycheck arrives in one and then the amount that you want to save gets immediately siphoned off and sent to a separate account. Maybe your brokerage account for long-term investing, maybe a savings account, maybe another checking account that can then parcel it out to a brokerage and savings or whatever, just so that it's sort of out of the spending realm, or even then forward the money onto another checking account that then that's what you spend out of. You can set it up to automatically invest with a robo-advisor or a of mutual funds, for example. ⁓ And that's where they have one of their big value adds is that ability to automate your savings so that it will just automatically pull money out of your checking account monthly or bi-weekly ⁓ or even weekly in some cases, and then you can set it up to kind of match your pay frequency so that as soon as the paycheck arrives, you know, a little bit of time just to make sure that everything clears and that you don't get caught in a weird timing trap. And then the money goes off to your long-term investments so that you don't have to get tempted to spend it.

Max Shabalov (53:49)
That's really great. John, that was a great conversation, but where can people go and learn more about investing and financial education in general? What are the types of content they can listen to?

John Robertson (54:01)
Yeah, so there are all kinds of ways to learn these days, all kinds of content out there on the internet. And if you're interested, podcasts are fantastic, right? We're talking on a podcast right now. And there are some things where you're just not able to sit down and read a book or go to a classroom and take a class. you know, we kind of got to meet people where they are. So if you're listening to this and you're mowing the lawn or doing dishes or whatever you're doing while you're listening to podcasts and, you could not feasibly read a book, that's fantastic. Hopefully getting some entertainment value out of this and hopefully also getting a little bit of education out of this. And that is great, but podcasts are not necessarily going to teach you everything you need to know to go and learn how to invest. There's lots of YouTube videos, lots of great YouTube channels and creators who are out there that are really knowledgeable, that are really kind with their time providing information to people that are watching. And then there's also a lot of grifters out there, people that are looking to steer you towards investments that are basically going to be very risky or that are going to make a lot of money for them, lot of commissions, or ⁓ could be outright pyramid schemes or whatever. And unfortunately, the content algorithms on YouTube or TikTok or various other social media sites, Facebook, X, Blue Sky, whatever. Like these are not set up to screen or to curate the content by the quality of the content or by the knowledge and skills of the person presenting it. They are purely driven by engagement. And so a lot of people will immediately go and say, I want to learn how to do this stuff from a podcast or from YouTube. And then the algorithm will start serving them up other podcasts and videos and even ads based on what they're watching that is not necessarily going to be good for them. And if you don't have the background knowledge, you're not necessarily going to be able to discern what's really good educational content versus what's not. And the other problem that I kind of see out there is when people are first starting out, they want to learn from these kinds of things because that's what first sort of got them interested by giving them some information and getting their interest sparked. And they're seeing like it's entertaining and educational, which is you fantastic, but it's incomplete. And so if you know what to look for, the information is out there for pretty much every step along the way. You can go and find articles and podcasts and videos on planning and on taxes and on which accounts to use and on which ETFs to use, cetera, et cetera, et cetera. But if you don't know what to specifically search for, it's really, really hard to find all the information you need because you don't necessarily know what you don't know. And so that's where I think ⁓ if you're just starting out and you're a little bit confused by some of what you're hearing here or a lot of what I'm saying is kind of resonating with you, I think there's a lot of value in sort of some of the traditional ways of learning. So someone who's written a book, there's usually editors and authors involved. They spent a lot of time thinking about the book all as one piece. And I don't want to promote just my own book there, like just books in general. Like whether you want to learn how to repair a car or, you know, create a website or whatever, like there's a lot of information about that online too. But also sometimes if you want a more complete step-by-step information, you might need to go and look up a book or a course or something. Because then the content's been kind of curated and has sort of a beginning, middle, and end. And hopefully the author has put a lot of thought into what is and is not included within the book so that, You know, it's kind of manageable and easy to read and also complete so that it includes the bits of information that you need without leaving off a key step because they're trying to fit it within a five minute video that maximizes engagement. So, you know, there's lots of great examples of podcasts and videos out there. You know, to give one kind of example, the Rational Rinder podcast out there, it's hosted by Ben Felix, Cameron Passmore, and now Dan Bordelotti. It's produced by PWL. They're at almost 400 episodes as we record this and each episode is almost an hour long. So 400 hours of content there all on investing or close to investing like they do branch off into some related topics. Fantastic podcast, super knowledgeable guests. You could listen to all 400 hours and not be able to make an investment yourself because they skip over some of the steps because it's just not interesting to talk about on a podcast. They go way into detail on some topics. So you will learn more than you ever need to know about investing in a lot of areas. And yet still not be able to place a trade because they just didn't bother to talk about that in some of the episodes. And so that's sort of the topic that I'm sort of getting at here without trying to over-promote my own stuff. Just saying that in general, think about sometimes the form in which you are consuming information and sort of like what's underlying that. know, by all means, continue to listen to podcasts, listen to this podcast, listen to the other ones that I was mentioning there, listen to other ones that you might discover. They might be great. They might be educational as well as entertaining, but also be aware of the structure, the curation of the content and that they might be missing things in that if you want to just be educated and start to increase your general knowledge, that's fantastic. If you want to actually learn in a way to actually accomplish something like become a do-it-yourself investor, then you might have to go and consult a book where there's a beginning, middle, and end and includes all of those boring middle steps about how to actually do the things, or go and take a course that might be dedicated to that, whether it's my course online or a course at U of T or your own local continuing education option, depending on your city and what's available. That might only be online. It might be at your library. It might be at your local university or community college. It might even be something offered at night through your board of education at local high schools, et cetera. Like there's options that are out there that are hopefully better curated and will provide that sort of start to end information so that you get a more complete sense of what you don't know you don't know, and what you might not even think to start to search for.

Max Shabalov (1:00:06)
Yeah, I love this. Yeah, I'm a big book lover myself. That's why the guests of this podcast are usually the authors of the books, right? Because they've got, like you, John, you've got the complete knowledge of that subject and it's really useful for us to listen to you and then later to read your book, is really great and I recommend it for everyone. And John, this has been a great conversation. So where can people go to learn more about you and your work?

John Robertson (1:00:34)
Yeah, so I am the co-host of the Because Money podcast at becausemoney.ca. You'll notice that a lot of our episodes are a little bit older, but a secret is that we've started recording podcast and we will releasing them soon. You can also find me at valuesimple.ca. That's the website for my book and at course.valueofsimple.ca where you can find my online self-paced course on do-it-yourself investing.

Max Shabalov (1:01:00)
Fantastic, well thanks for your time, it's been a pleasure.

John Robertson (1:01:03)
Thanks for having me out and I this was fun, informative and decent listen. It was great conversation on my end. I hope people like listening to it.

Max Shabalov (1:01:14)
My guest today was John Robertson. He is the author of The Value of Simple. It's available on Amazon. You can find more information about his work at his website valueofsimple.ca

Well, that wraps up another edition of Financial Literacy Canada podcast. I'd appreciate you take one minute to give review of the podcast on Spotify or Apple Podcasts, it helps out a lot. If you've done that already, thank you. Please consider sharing the show with a friend or family member who you think will get something out of it. As always, thank you for the continuous support. See you next time!