My Money Philosophy

In this episode, I review a few of the core ideas I share on this podcast about money.  Many of you are new listeners so I want to give you an overview of some themes that you'll continue to hear from me going forward.  I also realized that there are many more things I could have included here but I'll go over the following items this week:

1. Simple > Complicated

2. Systems are better than you at picking investments

3. "Always on" diversification

4. You control the factors that have the greatest effect on outcomes

5. Financial planning is more important than portfolio optimization

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Transcript

Avoiding Bad Behavior in Investing

Speaker 1 1:00

Hello and welcome back to the Canadian Money Roadmap Podcast. I'm your host, evan Newvillian. On today's episode, I'm going to keep it pretty high level and I want to talk about a little bit of the things that I believe when it comes to managing money and investing and how that relates to the content that you'll see on this podcast going forward. First things first. Right off the bat, I want to say thank you to all of you who have found the podcast for the very first time, in particular as a result of my episode last week with Mark McGrath. If you're one of the hundreds of people that subscribed to the podcast just in the last week or so, welcome here. As a result of that, I wanted to kind of deviate from what my planned schedule was for podcasts and just do a short little version to talk to people about what my podcast is and what my philosophies are, so that you know if you want to stick around or not. There's lots of other podcasts out there and I hope mine is slightly different than the typical offering that's available, because I am a CFP professional, so that's a certified financial planner, and I actually work with clients doing financial planning and I do investment management as well. So instead of having the perspective of one person who might have bought some index funds and retired early or whatever the case is, I have the opportunity to actually learn in real time with hundreds of real people in different situations how financial planning and investment management actually works with real people, and that is a pretty significant difference between just having an opinion or reading some books and now putting out your own podcast about it. Whatever. I'm not going to talk about any specific podcasts. I don't have any problems with any specific ones out there. I just see a lot of content on the internet and I wanted to offer something different because I think a perspective of a practicing professional is important to have in the world and because I don't know everything and I'm always learning myself, and I think that's a hallmark of good professionals in our industry as well. From time to time, I like to bring on other professionals in the industry who also work with real people to get their perspective. So many of you are coming here after my episode with Mark Mark is a great example of that. I've got another amazing episode next week from Dr Daniel Crosby talking more about the behaviors of investors and, in particular, around his book called the Laws of Wealth. I've got a few other great guests lined up coming in the future as well. So when you listen to the Canadian Money Roadmap, you are going to get the perspective of myself and who Both has credentials to have a good understanding of the Canadian financial system and the licensing to actually work with people to implement those things for them and along with my guests who have a similar level of expertise. They're not always financial planners, necessarily sometimes have bring lawyers or accountants on, but they're also professionals in their field who work with real people. So, in addition to who I am and what I wanted to create in this podcast, I thought I'd just talk about a few things that are part of my money philosophy and so you can kind of get a feel for what you can hear on my podcast in the future, and also if you want to go back and listen to the previous 98 episodes or so. So this one is. This isn't an exhaustive list by any means, but just off the top of my head. There's a few things that often come up as questions or as things that I end up needing to discuss with people, and so I thought it just make a quick list of some things that I believe and if you're on board and that sounds interesting to you, if you're not already subscribed, hit subscribe or follow, or whatever the language is, on the podcast app of your choice and I'd love to see you again on future episodes. First thing that I believe is part of my money philosophy is that simple is better than complicated. There are many people in our industry, or even just in the general public, that are constantly searching for complexity as it means to perhaps feel any potential gaps that there are in their financial life, or they like a shiny object, whether they are seeing that in themselves or not. But you know, you hear about this new stock or this new type of investing or private equity or all these different things, and loading up on all this stuff makes things really, really complicated, and I don't believe that complicated is a better path to positive outcomes than a simple approach. So that comes down to simplicity in your budgeting, in your cash flow management, in your investment decisions, everything I'm a huge believer in. Simple is better than complicated. Why? Because what I found with again with real people, is that when it is simple, it's far easier to actually understand what's going on. And when you understand what's going on, you're far more likely to actually stick with a plan because you understand it and you understand why it's part of your portfolio or why you're making that transaction or why you set up that RSP in the first place. If it's simple, you're more likely to understand it and you're more likely to stick with it, and, in my experience, the people that have the best financial outcomes over time or the people that stick with their strategy the longest. Another reason why simple is better than complicated it's often cheaper. There's a lot of complexity out there and a lot of those products and investment vehicles are designed to separate you from your money in the in the form of high fees, and I'm not even talking about like run of the mill, like actively managed mutual funds. There are way more expensive ways to invest that that I see out there and I'm not even going to talk about those. But a simple portfolio is a great way to make sure that you get your fair share of returns and you don't needlessly pay for services or products that aren't actually doing a lot for you. Another reason why I like simple things better than complicated things is that if you have, say, fewer funds or ETFs in your portfolio, there's less of a chance of you wanting to chase the returns of other parts of your portfolio. So I really like using all-in-one solutions or single fund solutions In many cases. With lots of my clients, I implement that strategy as well, which some people might say what? You're an advisor, you should be adding all this complexity. It's like no, I think my One of my huge values is helping people fight the urge to add complexity and making things simple. But when you have 10 to 15 different funds or stocks or whatever, the brain wants to chase returns. And so when you have new money to invest every two weeks or every month or whatever the case is, when you have a complicated portfolio, how do you make your decisions every single month as to where to invest new money? What most people end up doing is they say, oh, this fund is good because it was up yesterday. No, not necessarily this fund is bad because it was down last year. It might be, but maybe not Right. And so if you can have your diversification bundled together so you don't see the specific parts of the market that might be up today or down last year or whatever the case is, you're less likely to chase the returns of certain parts of the market. I'm probably going to allude to this factor a number of times here as part of my investment philosophy in general. Okay, so anyways, simple is better than complicated. If you can have fewer funds doing the exact same thing, you'd be better off doing that. Number two this is something that I really picked up from the Laws of Wealth by Dr Daniel Krosby. Again, a plug, for next week I will have an opportunity for you to enter a draw for a copy of the Laws of Wealth, and one of the things that he hits on in that book is that systems are better at picking stocks than you are, and I see that over and, over and over again, and the people that often blow themselves up are the people that thought that they are the smartest person in the room and they see something that the millions of other market participants don't see in this stock. It's amazing to me how people still think that they're smarter than the market or the armies of analysts and professional investors that are out there who already have a hard time beating the market. So systems are better at picking stocks than you are. Some systems that I think are good ways to invest include indexing. That's pretty common approach that many of you already know, and that's essentially buying every company, assuming that you know that you're getting the good ones along with the bad ones, and you just get the average performance of the market along with it, or a long enough period of time. That has proven to be a very reliable way of growing wealth over time. It's also cheap, it's also simple. It kind of aligns with my general philosophy. If you are working with an advisor that understands the following, factor-based strategies can be a really nice way to augment a basic indexing strategy. This gets into the concept of evidence-based investing, which inevitably becomes a little bit more complex, but they still can revolve around systems, and I really like systems when it comes to investing, and so for most DIY investors, factor-based strategies might be a little bit more complex than what you really want to get into, but indexing is a great system that you can largely implement on your own. Number three of things that I generally believe is part of my money philosophy I believe in always-on diversification, which means that diversification involves owning things that suck today and things that are great today. Diversification doesn't mean jumping from the thing that was good yesterday to the thing we think might be good tomorrow, and back and forth, and back and forth. I think owning stocks from around the world is a really great way to make sure that you get tomorrow's returns, as opposed to trying to buy yesterday's returns, which is impossible, so jumping around from one country to the next, or well, the US was a really good place to invest for the last 10 years. I bet you it's going to be the best place to invest for the next 10. Maybe not necessarily Again, always-on diversification, so you don't miss out, but you also are in the places that you need to be tomorrow, so you don't need to guess to get it right. Diversification is often been said. It's the only free lunch in investing, because you are going to be inevitably where the puck is going to be. I'm not a hockey player, but that's you know. Skate to where the puck is going to be instead of whatever. Whatever that phrase ended up being. But yeah, always-on diversification is a big part of what I believe, instead of trying to chase sectors or countries or anything else. Number four I think this is still in the trailer of the Canadian Money Roadmap podcast, so if any of you listened to the trailer before coming here, this is part of what I believe, that you control the biggest factors when it comes to your success, and so financial planning is a big part of that. Maybe I'll bundle this one in with the next one where I think that financial planning is more important than portfolio optimizing, in my words, I guess financial planning I see it as high-level strategy over all parts of your financial life, as opposed to picking funds or ETFs or stocks to include in your portfolio. So these factors include your asset allocation. So the differences in someone's returns over time largely come down to how much of their portfolio is allocated to stocks versus bonds, versus cash versus real estate or whatever the case may be, and you can control that Right. If you're someone who doesn't have the ability to tolerate a whole lot of fluctuation in the market, that's totally fine, but history has just shown that that is not the way to maximize your returns over time, and that's okay. But you just have to know that right, cause you control that factor of success, whatever success means to you in that case. Another thing you control is what you do with cash Ton of people that just sit on thousands and thousands and thousands of dollars of cash at any given time, these days in particular, if you can get some actual interest on your cash holdings which is one of the nice sides of higher interest rates that is a meaningful factor in your longterm success. Getting 3% versus 0% on any cash holdings it's meaningful, especially over a long enough period of time. Diversification I already talked about that one, but you control that. It's very cool. You can control that. Your savings rate Now, this one you can control, assuming that you have a high enough income. Your savings rate is a big part of what you control. So that's the percentage of your income that you set aside and invest for the longterm. That's what I use as a savings rate. Maybe it should be called investment rate, I don't really care. But how much your income are you setting aside for investing for the longterm? If you are with an employer that matches your savings into an RSP or defined contribution pension plan, things like that, you can very effectively increase your savings rate. That is a huge factor to success. You don't necessarily control it, but you also kind of control where you work too. So that kind of comes along with part of that. Savings rate is a huge factor that separates people that have financial success versus those who don't cost. This is a big factor that you can largely control. So, if you work with an advisor, there are advisors out there that can use low cost investment products. There are those out there that cannot, and that's fine. I'm not going to poo poo anybody here. That's that's not the point of my show to throw shade at anybody, but that's just a fact of the matter, and so you can. You can also shop around, and having a low cost portfolio is not reserved for DIY investors. So if you're not someone that feels comfortable managing your own money, there are those of us out there that do manage money in a way that that is low cost and evidence based. Next thing that you can control is you can avoid bad behavior. You know things like selling after the market has gone down, like if you have a diversified portfolio and you're selling at bad times. You know de-risking after risk has happened and re-risking after returns have been seen. It's like a classic thing, right, there's this uh, someone in our industry is named Carl Richards, and Carl, uh, he, I think he was known as the the Sharpie guy or something like that. I don't know if he goes by that title anymore, but he was famous for drawing these very simple pictures to understand investing concepts. And there's a squiggly line of the market right, the ups and downs, the ups and downs, and at the top of one of the peaks it says greed by, and then, at the bottom of the inevitable trough that follows it, it says fear, sell. And then the title of the image is repeat until broke. And this is. You know, it's kind of a funny little image, but you would be surprised at how often this happens or how often people want to do this. You know, wanting to do it is one thing, actually acting on it is another. You know, selling at bad times, waiting for the dust to settle quote unquote before investing, there's always dust, right, there's always a reason to not invest, and so the people that have the most success over time are the people that avoid these kind of bad behaviors and they just keep doing consistently, over and over and over again. Anyways, as I'm going here, there's tons of other things that I believe about investing in financial planning and things like that, but I just want to give you a few things of what I'm thinking about, based on what I've heard from other people and seen online recently. These are some general themes that I see and things that I believe, and if you are on board with that, I would love to have you along for future episodes. If you're someone that's brand new to investing in financial planning and money management and I know there are a lot of you out there like that please start by going through my past episodes. I try to name them as obviously as possible so that you kind of know what you're getting from every episode. But if you don't want to kind of comb through three years worth of podcasts, I am going to be putting together what I call a foundations course. There's no secrets in here. There's no fund recommendations or ETFs or stock picks, but it is a great tool for understanding the foundational elements of Canadian finance so that hopefully you can make better decisions and at least feel more confident about the decisions you make when it comes to your money. Having it as a course a video course that allows me to add a few more visuals it's easier to access. It's a little bit simpler to digest in smaller chunks. So if you want to get on the wait list for that, there is a link in the show notes of the podcast. I hope to get that out sometime in early to mid-October, but, as I've mentioned before, I don't believe in gatekeeping any valuable information as it relates to financial planning, so you can feel free to go back and listen to any previous episodes if you would like any info on something specific there. So again, thanks so much for listening to this episode. Hopefully you've heard enough to know whether it's a fit for your style or not, or you want to hear more at the very least. Next week is my 100th episode with Dr Daniel Krosby. Please subscribe or follow or whatever to make sure that you see this next week. It's going to be a great episode and you'll have an opportunity to get one of the best personal finance books that I've read. That's called the Laws of Wealth and, yeah, we'll have more information on that next week. Thanks again for listening and for all of you new subscribers here, welcome here and we'll see you on another episode. Thanks for listening to this episode of the Canadian Money Roadmap Podcast. Any rates of return or investments discussed are historical or hypothetical and are intended to be used for educational purposes only. You should always consult with your financial, legal and tax advisors before making changes to your financial plan. Evan Neufeld is a certified financial planner and registered investment fund advisor. Mutual funds and ETFs are provided by Sterling Mutuals Inc.