The Canadian Money Roadmap
Invest smarter, master your money, live & give more
The Canadian Money Roadmap
Dealing with Job Loss, The Cost of Homeownership, "Bad" Investments, and Intro To The Enhanced CPP
This week, I jumped onto Reddit to find a few topics that are top of mind for many Canadians. Here are the headlines for the posts I discuss on the episode:
1. So lost. Lost my high salary job. What do I do now??
2. One bad financial decision. The stress is constant now. Not sure what to do
3. Am I doing something wrong, or is this roboadviser not that good?
4. With the enhanced CPP, you may not need to save much for retirement
As always, I will use these situations to give you ideas for how to prevent problems in your own financial life and provide some context for how to better understand the financial world around you.
Thinking about retirement? Get your Retirement Readiness Score 🇨🇦
Build your Retirement Plan With Evan
Contact Evan
Hello and welcome back to the Canadian Money Roadmap Podcast. I'm your host, evan Neufeld. Today's episode we're going back to Reddit and we're going to do a little bit of a roundup of some hot topics that I've seen online and answer a few questions that are out there. I'm not going to try to give advice or be comprehensive in my response to all these people, but hopefully give you a few things to think about in your own financial life to hopefully avoid some of the problems that you might be seeing from other people online. So, anyways, this one's going to be a little bit interesting. I've had a bunch of great guests on the podcast. I've got a few more coming up, but this one is just with me, so hopefully you will enjoy this episode of the Reddit Roundup for October. Alright, I've gone through Reddit and I've found a few of the top posts over the last month. They're not always right at the top because some of them aren't always great ones to answer here on the podcast, but I tried to pick and choose a few things based on what I think might be applicable to many of you listening, and so we'll get started here. The first one is titled so Lost, lost my High Salary Job. What Do I Do Now? So this person as they said in the title, they lost a job with a high salary and a recently depleted emergency fund and I don't know what to do. I'm 26 years old, I've only been working at the job for a year and a half and I feel behind in my personal finance journey, and I only got this job through luck. That's interesting. I don't have a high net worth after school and doing a masters, but I was rapidly growing my cushy salary. All my financial goals are contingent on this salary. Most of my money is in my brokerage in various accounts, mostly invested in ETFs. I really don't want to touch this money, but I only have 3,000 in my checking account. Whatever. She goes on to say I used to have a fat emergency fund great description of your emergency fund which I depleted on extra travel. Oh, that's not very good. I'm so lost and scared. I've gotten so used to my standard of life, which is fine, I'll adjust, but I'm so scared I'll never find a job like that again. She goes on to ask a number of things and there's some personal things in here too, of course, talking about how it can be challenging to lose a job and just how you deal with that socially, and I'm not going to address that. I can sympathize with her on that side of things, but I'm going to try to focus on some of the financial aspects here, anyways, of what perhaps you can do as a listener to avoid being in a situation like this. First thing 26 years old and feeling behind that's really, really common. Okay, so a lot of people that spend any time listening to podcasts or reading forums online and whatnot, they think that everybody is investing every dollar that they have, starting at age 18. It's just like. No, it's not true. Myself included. Right Like I got married at 26 and I kind of had a circuitous path to my education, and so that's when I graduated from university, and so I was starting at 26 with some student loans and all sorts of things and not having earned a meaningful income during my university years, of course. So it's very, very common for people to be that age, let alone already with a master's, but at that age kind of starting from scratch a little bit. A couple of things that I picked up on here, the first one being that she said that she only got this job through luck, and I don't know what that really means, but if I'm in someone's shoes and I know that I'm in a job that I'm probably not, maybe I'm under qualified for or it's in a non relevant field, I would be planning accordingly for something like that and having an emergency fund that is relevant to the income that you're going to have, knowing that this might not be a long term fit here necessarily. It's not going to prevent anything from happening from the job necessarily, but it'll prevent you feeling crunch if something were to happen to you. The problem in her case here is that having an emergency fund wasn't the problem. She made that good decision already, but she made the bad decision of depleting it on travel. Not opposed to spending money on travel, but your emergency fund, which I've said many times, needs to have a specific list of things that you deem to be an emergency. Those are the only things that can happen for you to use that money for anything else. So using your Emergency Fund for non-emergency things really exposes you to the real emergency of losing your job in the first place. People lose their jobs for sure, and especially in the early years of employment. Oftentimes, if there's going to be cuts, it's often the newest employees are the ones to go, and so that's often why Emergency Funds, especially for young people, is one of the primary things that we recommend you do. Set aside some cash, have it ready to go, just in case. She says I'm going to try to apply to random part-time retail jobs in the meantime, but I'm scared I won't even find those. I would say start looking, because there's people hiring all over the country. You might see a lot of doom and gloom type headlines about interest rates and whatnot, but you don't see doom and gloom stuff about not being able to find a job. That's one of the things about inflation. That is kind of counterintuitive that when inflation is high and interest rates are high, it makes it seem like things are bad, but high interest rates are actually being used to combat an economy that's running a bit too hot, right? So if inflation is still high, that means that people are spending money, driving prices higher. If no one had a job or not enough people had a job to be able to spend money on things, inflation would essentially disappear. But because people have money and they have jobs, our unemployment rate is extremely low. You would probably be surprised at how many jobs are available. I don't know what part of the country in, I don't know what type of industry you're in, I don't know what the previous job was, even, but I would highly encourage this person and anyone who finds himself in this job is to start applying. Take a look around, because this person also had one and a half years of experience in a job with a really high salary. I'm not entirely sure why that level of experience wouldn't be beneficial to similar jobs, but I would say stick your neck out there on applying and apply for something similar, and you might actually be surprised what else is out there. Finally, she says should I touch the money in my brokerage or remain as frugal as I can to try to get income from part-time jobs until I can get another job? Well, I would say definitely. If you can be frugal and work, that's the whole thing. Right. If you don't need to touch your investment portfolio because you can be frugal and work, I don't know what the difference is. Right. Like at every level, economics is just the allocation of scarce resources and for all people at all income levels, money is scarce, meaning there's not infinite or unlimited amounts of it, and so perhaps remaining frugal and getting by on your job looks different at different income levels, but that's really what you're doing Trying to save a little bit here and there if possible. But if there's a specific job that you have in mind that you want, yes, definitely find another job. In the meantime, save money wherever you can and if you don't have to touch your investments, you are so far ahead of most people. It's crazy because if you don't have any other debt which I'm not sure if this person does if you don't have any debt and you can get by by working a much lower income job, you're set. So, yeah, this person is feeling embarrassed or nervous or whatever, but if those options are on the table and you've got money in investment accounts, I think you're probably in a better situation than might meet the eye here, compared to many others in this country. So I would start by finding any job you can and making things work with what you can kind of come up with on your own, and hopefully your previous experience and your master's degree and all sorts of things will actually put you in a position to apply for a higher income job in the future. If you can't right now, keep looking. I think this person will probably be in better shape than they really think. Next one this post says one bad financial decision. The stress is constant, now Not sure what to do. Is this kind of similar to the previous one, if I'm going to be honest here? But this post says me and my wife needed a bigger place than our two bedroom rented apartment, as we're working from home and also expecting our first child. So we bought our first home in March of 22, when the market was at its peak and I'm adding this part here and interest rates were still virtually zero. We didn't really know what we were getting into in terms of being homeowners the added expense that we don't have to worry about as renters. We qualified for the mortgage through a top four bank. We put our minimal savings into the down payment and had no real cash on hand. Since then, everything has been tight groceries, eating out, vacation. We try to save on everything but we save nothing because of the high mortgage and increased cost of living in general. With baby going daycare now and the house needing a new furnace, I'm not sure where the money will come from. We can't sell the house and go back to renting because we're about $100,000 underwater with the house price since interest rates have risen. So this person isn't really asking any questions, and so I'm just going to kind of pick out a few things that I that I noticed from the post, things to potentially keep in mind for you as a listener. So, first thing, you're expecting your first child, congratulations. Depending on your income level, that couple will now qualify for something called a Canada child benefit, and depending on how much income you have, this could be up to a few hundred bucks a month, and that income is actually tax free. So, yes, I know, kids are very expensive. I've got two, two kids of my own, a three year old and a one year old and yeah, it can be very, very expensive, for sure, but having that little bit of extra income when you have kids can be really beneficial. Second thing that I noticed is a child going to daycare. Now, since the government added these subsidies for daycare, the total cost of full time daycare is actually extremely cheap, and so if you can qualify for daycare that is subsidized, that is very, very likely going to be covered by your Canada child benefit. If you don't qualify for the Canada child benefit, your income is probably high enough that I would say that there's probably other factors at play here, limiting your income beyond an amount that you feel comfortable with. So they they said we qualified for the mortgage through a top four bank. I'm not sure what that really means, but we put our minimal savings into the down payment and had no real cash on hand. Ding ding, ding, there it is. There's always something. So when you buy a house, part of your home ownership cost needs to be the fact that you will have money to spend on your house, even if you buy a brand new house, a used house, whatever. So if every dollar that you have is going into your down payment, you cannot afford to buy a home Full stop If you do not have an emergency fund on hand for when your furnace goes out. Living in Canada, that is a problem. If you have no other cash besides every penny going into a down payment, this is a pretty good signal that renting is still the only viable option for you, and that's totally fine. I am not someone that will ever bad mouth renting, because that is a drastically misunderstood concept in this country in particular. There's no shame in being a renter. I understand running out of space and whatnot, but at the same time. Running out of cash is a different problem than running out of square footage. Another thing that stood out to me here it says groceries, eating out and vacations. We try to save on everything. Eating out and vacations would probably be the next thing that you would try to save on. Right, the average vacation is ridiculously expensive. If you're going anywhere outside of your home city, you're gonna be eating out for meals. You have transportation costs if you're flying anywhere. Of course, if you're going to a different country, you often have the added cost of the exchange rate. All sorts of things. Eating out and going on vacations. Honestly, if you're trying to put a new furnace into your house and figure out how you're gonna pay for daycare sorry, eating out and vacations are probably gonna be the very first things that you should consider cutting out to make sure that you can make ends meet. So if you're listening to this, a couple of things to keep in mind. One, if you're looking to buy a home, understand the full cost of home ownership. It is not always gonna be the same as renting. I hate the argument that it's like, well, my rent is the same as mortgage payment. It's like, well, owning a house is so much more than just a mortgage payment. There are many unrecoverable costs associated with owning a house, the greatest of which in this case is the interest on the mortgage. That is throwaway money. That is very, very expensive, especially if you're on a variable. I'm not sure if this person is. They're not really talking about that, because they said we didn't really know what we were getting into in terms of being homeowners. So things to keep in mind if you're currently renting and thinking about buying a home one, do you actually have more cash on hand beyond just your down payment? Do you have an emergency fund set aside? Do you have relatively stable income? How much is property tax in your area? How much is home insurance in your area? How much do you think you need for home renovations on the house that you're gonna buy? Do you have to do landscaping? Are there condo fees? All sorts of different things? These are largely unrecoverable costs of owning a house that you need to look into before actually pulling the trigger, because what this person is learning is that real estate, especially real estate on your own primary residence, is not risk-free. Can I shout that any louder? It is not risk-free. A lot of people wanna get into real estate because it's like, well, house prices always go up. It's like, well, they don't. It's just you don't see the price in front of your face changing minute by minute throughout the day, like a stock portfolio might. There's real risks in buying an asset worth hundreds of thousands of dollars with a lot of costs associated with it. So homeownership is something that you really wanna take seriously, and then, when things get tighter than that, you have to make hard decisions and that's not fun. But in their case here I don't know anything beyond the things that they listed. But the three things that they listed they spend money on are groceries, eating out and vacation, and so two of those probably have to be reconsidered if it's a trade-off between those things and needing a new furnace. The next post here talks about a very specific investment platform. I'm not gonna name it specifically here because I don't think it really matters, because the point that I'm gonna make is gonna be more general in concept. So the post says am I doing something wrong or is this robot advisor not that good? They go on and say over the course of the last four years I put 20,000 into a TFSA at this RoboAdvisor. It was up by 100 bucks or 200 bucks at first, but over the last three years it's habitually I would probably say consistently been between minus 5 to minus 10 in performance. When the market was down. It made sense. But I see, year over year the S&P is up about 5%, yet my portfolio is still down 7%. Is it just a timing thing? Is this platform that bad? Should I look at moving my investments? Okay, a lot to unpack here. So what this person has not told us is how they have constructed their portfolio, and at most RoboAdvisors or other investment platforms, there's a variety of risk profiles that you can have and that can go from very, very conservative all the way up to very, very aggressive, and usually that is a spectrum of how much you have in combination of stocks and bonds. We call that asset allocation. There's a little bit of jargon there, but essentially asset allocation just that mix between stocks and bonds. The more stocks you have, the more aggressive it'll be, meaning when things are good, you'll probably have a better experience in terms of positive performance, and then, when it's down, it'll probably be down a little bit more. And on the conservative side, the opposite is then. True, you don't get as much upside, but you don't have as much downside. However, in the last couple of years we've had a very, very, very unique experience historically in that stocks and bonds have both had declines. This was last year, last calendar year, in 2022. They were both down at the same time in nearly equal amounts, depending on where you looked. Of course, when interest rates go up, bond prices come down. I won't get into the specifics of that, but essentially the bond side of things has actually been a larger drag on performance than stocks have in general over the time frame that they've been investing. So my suspicion here is that they might actually be quite conservative in their asset allocation, which would largely explain the small upside, but down about 5% to 10%. That kind of aligns with how the bond market has largely been over that general time frame. That happened last year, but this person was talking about the last four years. And when interest rates are zero, bonds don't typically perform very well because they won't pay a whole lot of interest and there's not a whole lot of ways to make money on capital gains with a bond portfolio. So when interest rates are really low, bonds don't perform particularly well, but then when interest rates go up, they perform terribly. That just makes sense. That's not a comment on this investment platform. That's just essentially how bonds work in that environment. So that's my suspicion here is that this person was in probably a really conservative portfolio and they're largely experiencing a very, very unique outcome historically, just based on the consistent negative performance of the bond market. The other comment that I'm going to address here says that I see, year over year, the S&P is up about 5%, yet my portfolio is still down, whatever. Not commenting on the specific numbers here, but if you take anything away from this episode, know that not everything can be compared to the S&P 500. It is not the ultimate comparison or the ultimate portfolio or the market portfolio. Even the S&P 500 just represents the large companies based out of the United States. That is it. If you have a diversified portfolio, it should not be comparable to the S&P 500. For good or bad, it just isn't. It's in apples and oranges. So, knowing that this RoboAdvisor puts together globally diversified portfolios which means there's some in Canada, some in the US and some outside of it, and some in stocks and some in bonds comparing to the S&P 500 is a futile exercise. It is useless. If your portfolio is exclusively large US companies, then yes, you can compare that to the S&P 500, because that is an apples to apples comparison. But if your portfolio has Canada in it, has some international stocks, has bonds in it, compared to the S&P 500, is not useful, it's not appropriate, it's not going to do anything good for you. You might say, well, why shouldn't I just buy the S&P 500? Because it's all big stocks. If someone has a risk profile that does not suggest that they should be in 100% stocks, they should not own the S&P 500, because they cannot tolerate the volatility that comes along with that. Also, if you look at the performance of the S&P 500 from the year 2000 to 2009, so that decade, any idea, it was not the be all and end, all. Right, the S&P 500 is not always the best performing index in the world. You would have killed to have a globally diversified portfolio during that decade and even last year the S&P 500 was getting smoked. Where in Canada, there is some positive performance. So to answer this person's questions is it just a timing thing? Is this platform bad? Should I look at moving my investments First? Is it just a timing thing? Potentially, yeah, definitely. Four years largely isn't enough time to meaningfully know, especially when you can look at the portfolio and see that it is diversified. You have no reason to assume that they were taking any specific home run swings here that just turned into strikeouts. So it could just be a timing thing, and so that doesn't lead me to believe that this platform is particularly bad. It might be, I just don't want to comment on that without knowing more of the details. I suspect not, though it is probably more so just based on the fact of what you're invested in Largely fixed income or bonds would be my suspicion. So should I look at moving my investments? I would say, until you understand a little bit more about what your portfolio is and why you shouldn't be comparing it to the S&P 500, I would say the investment platform of your choice is not the main problem here. I am of the mind that not everybody should be a DIY investor, and until you're able to answer some of these questions for yourself and understand what you own, if you don't know what you own, I don't know if being a DIY investor is actually the best option for you, until you've spent enough time learning about it to be able to answer some of these basic questions for yourself. Oh, I'm taking a bit of a tough love approach here on the podcast today. This is not really my intention, but it's kind of coming across that way. I hope, if you're new to the podcast, this isn't my typical tone here, but there's a few things that I think are important that people understand before they make big decisions with their money. So anyways, moving on to the last one here, I'm just going to touch on it a little bit here because it's kind of interesting and people probably don't have a good understanding of it, and I'll key up next week's episode at the same time. This last post says with the enhanced CPP, you may not need to save much for retirement. This is the article title, not my opinion here. Okay, but it keeps going on and saying in $2023, one could receive a maximum of about $2,000 a month, versus about $1,300 a month today. Once you factor in old age security, a couple could receive up to $65,000 per year, fully indexed, meaning it increases along with inflation. This person says with no debt or mortgage, you may not need to save any more than an emergency fund for your retirement. Okay, I'm going to hop in on this one and say how do you know? How do you know how much I need to spend. How much you need to have for retirement is exclusively based on how much money you spend. It's not how much you think someone should have or what a reasonable amount of money in your own mind is right. If someone spends $200,000 a year, having $65,000 a year doesn't really matter, because you have to come up with all of that money on your own right. If someone spends $30,000 a year, boy, they're coming out ahead with this situation, right? So I'll just highlight the idea that CPP is a pension that you receive by contributing to it, by working, and they've made some changes to it recently, where the contributions are going to go up, but the payments are actually going to go up quite a bit along with it. It's pretty decent. I like the program, but I hate that it has to be there because, essentially, the only reason that they're doing this is because people aren't saving enough for themselves, so they're creating this forced savings mechanism through the CPP. I like the program in general, though, because you know, it kind of helps with a variety of problems of people not saving, but having some guaranteed income through retirement to offset the risk that you take on with an investment portfolio on your own is a great addition to one's retirement paycheck. So I'm going to hop in here and say that next week I've got an episode with another CFP professional, jason Yee, and he focuses a lot of his efforts around CPP and he prepared a lot of content on this and so figuring out the calculation of how much one could get and maybe how to optimize your CPP for yourself once you get closer to retirement. We cover all of that on the episode next week, so I hope you stick around and subscribe to hear that. But the main thing that I wanted to touch on with this post here is that saving for retirement is exclusively based on how much you're going to need to spend. If CPP and old age security are enough for you fantastic, that's really good. However, one should also not assume that you're going to get the maximum CPP. Almost nobody does so currently. The maximum CPP if you're 65 is just over $1,300 a month today, but the average person that applied for CPP this calendar year starting in January of 2023, the average person got just over 800. That is very, very different than 1,300, and the reasons for that are all sorts right. So, on the low income side of things, to get the maximum CPP, you have to earn a certain amount of money and make a certain amount of contributions, and you do it based on your income. So if your income isn't high enough, you won't be eligible to get the maximum. But in the other side of the income spectrum many say business owners or white collar professionals who have corporations many of them will pay themselves dividends. And when you pay yourself in dividends you don't actually contribute to CPP. And so many times we see people retire from very high income jobs, don't have any guaranteed income whatsoever and you'd be surprised, listener, how many of these people haven't saved or invested a dime of their money along with it. As a matter of fact, absolutely nothing, right? So regardless of how much CPP has changed, you still have to make the contributions, right? So on the low income side again, if you're not contributing enough, just based on your income level, please do not look forward towards retirement assuming you'll receive the maximum, because the vast majority of people do not. It is very difficult to actually get the maximum. But on the high income side too, don't assume CPP will be there, because if you're just receiving dividends, or even a combination of the two, and you're not contributing any or much to CPP, you can't bank on it being there for you either. So, even though the CPP program is getting an enhancement, you still have to contribute to it one way or another, and your retirement income is unique to you, not unique to what the general public thinks is a lot of money, right. It's like, yeah, $65,000 fully indexed, that's a decent amount of money, right, but if you spend more than that or you want to spend more than that, it's going to come from somewhere, so you'll have to do it on your own as well. So, anyways, this episode took a little bit more of a snarky turn than I originally thought, but if you thought these topics are interesting, let me know. I've got my email in the show notes of the podcast here below. Thanks so much for joining me and we'll see you for an episode all about CPP next week. 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.
