​I saw a chart this week from Bank of America that more or less sums up my entire investment philosophy:

In the long run, stock prices go up.
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I view the stock market as a way to invest in innovation, profits, progress and people waking up in the morning looking to better their current situation. While I love the fact that this chart illustrates my long-term philosophy it’s a bit misleading. Yes, the stock market goes up over the long run but it can also get crushed in the short run. That can be difficult to see on a log chart with 200 years of data. The Great Depression, 1987 crash and Great Financial Crisis look like minor blips on this chart. And while every crash eventually turns into a blip on a long-term chart, they don’t feel like it in the moment. 

Looking at this chart got me thinking about what other visuals I would use to help explain the stock market in greater detail, so I found a few more.
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You can’t look at an up-and-to-the-right chart of the stock market without taking into account the drawdowns along the way:

Did your New Year's resolutions include a plan to start a diet? Mine never does because ​I’m skeptical of any diet or exercise craze because they all end up more or less becoming fads.

This is why I could never get behind the idea of buying stock in Peloton, even though I know many happy users of their product. Sure, some people will buy it and use it regularly. Others will buy it, use it and then stop using it. Some will buy it and never use it. Regardless, there is always another piece of equipment or exercise routine that comes along.

​When it comes to diets there are plenty of them that can work. The problem is not necessarily the diets themselves but the behavior required to stick with them.
One study estimates some 95% of all people who lose weight on a diet gain it all back eventually.

It’s for these reasons I didn’t pay much attention to the Ozempic and other GLP-1 studies as those results began trickling in. But the more I learned about it the harder it became to ignore. Not only were people reporting weight loss of around 15-20% of their body weight but they weren’t craving as many salty or sugary foods. People feel fuller on the drugs. It lowers heart disease. I went from being skeptical to thinking this was some sort of miracle drug. I’m sure there are some side effects and other issues that take away from the miracle label but the potential ramifications here are enormous.

If the price comes down and a decent percentage of the population begins taking these drugs there is going to be an impact on the agriculture industry, fast food, packaged food companies, the healthcare industry and probably a dozen other industries I can’t even think of right now. I’m not smart enough to sift through all of the potential winners and losers if this happens but this could be real a game-changer.

Reading about these drugs and the impact they are having got me thinking about how this relates to your finances.

There are no miracle drugs that can help you make better financial decisions.

You can’t take medicine to save you from FOMO during a bubble.

A doctor can’t write you a prescription that will make you feel less envious of the Joneses.

You can’t get wrapped in a full body cast that will prevent you from panic-selling your stocks during a bear market.

No amount of physical therapy will take the pain away when you go into debt.

There aren’t any surgeries to remove the feelings of greed and fear you get from watching your portfolio move up and down during the different market cycles.

You get the point.

The good news is there are differences between physical health and financial health. I know diet/exercise makes for a good personal finance analogy but it’s much easier to change financial behavior than it is to change your habits when it comes to eating and exercise. 
You can’t automate your physical health. Sure, you can plan out your meals and when you’ll go to the gym but you still have to follow through with it. But you can automate the majority of your financial decisions. Bills can be paid automatically. You can pay off your credit card balance every month without ever thinking about it by setting up auto-pay. Every time you get a paycheck, you can have funds automatically directed to different accounts for saving and investing — your RRSP, TFSA, your children’s RESP, etc.
And once the money hits those accounts it can be invested automatically exactly as we desired – by a team of professional money managers that purely focuses on selecting the best quality companies. Portfolios can be rebalanced automatically – taking the emotions right out of the equation.

Maybe someone will create a drug that turns us all into robots in the future but for now, there is no way to take the emotions out of your finances. Your emotions aren’t good or bad, right or wrong. They just are. But you can make good decisions ahead of time so you’re not forced to deal with those emotions at times when they can ruin your financial plan with a boneheaded mistake.

I spend very little time on my own personal finances because 95% of it is set on auto-pilot. Bills are paid. Contributions are made. Investments are bought or sold. My portfolio gets rebalanced. I take the emotions out of investing. I keep on buying – every….single….month….no matter what.
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I still have to make course corrections along the way and check in on occasion to make sure everything still makes sense. But technology makes it easier than ever to take the worst parts of yourself out of the equation when it comes to financial decision-making.
The only side effects of automating good financial decisions ahead of time are rising portfolio balances, higher credit scores, increased savings balances, and more time to spend on the things you actually care about. Sounds better than a New Year's resolution, if you ask me...

Life is good. You’re stocking away money automatically every month into your investments, you’ve built up your emergency fund, you’re chunking away at your mortgage and your net worth is slowly climbing monthly from the systems we’ve put in place.

You now find yourself with money left over every month and ask yourself – where should I put this? As mom and dad said ‘always save for a rainy day’ right?  Well, what if we start using that money now. What if we allocate a portion of our monthly income to spend guilt-free.

In my experience, when people cross $150,000 of income, they stop carefully tracking expenses. (This is fine! At 150k you can loosen up. You don’t need to track the price of a coffee.)

However, there are 3 problem areas I see for expenses above 150k income:

1. They’re spending more but STILL stressed out about money! This is because most people don’t save and invest based on percentages. If they saved $700/month before, they don’t adjust their savings rate to be higher. It should! If you track your expenses by % you’ll be able to save more, invest more, and even SPEND more.
2. Because they stop tracking, their costs increase substantially on eating and travel. I’ll ask them about travel. Their response: “It’s not like we travel all the time!” But if they dig into actual spending, they took 6 vacations, including mini trips and because they make more money, they didn’t track their spending on any of them. These add up.
3. They almost never stop to celebrate and decide what their new Rich Life is. 150k is a lot of money! Do you still want to eat at the same restaurants? Do you want to hire a cleaner for the home? Or tip more at your favourite local restaurants? Or save for a special anniversary vacation? Most of us simply “slide” into the next phase of our financial lives without taking a second to stop and appreciate and plan what the next chapter of our Rich Life could be.

If your income has increased beyond 150k, what do you notice about your spending?

Use these 4 numbers. As your income increases, these benchmarks will help you save, invest, and even spend more:
Fixed costs: 50-60% of take-home pay
Savings: 10-20% (the more the better)
Guilt Free Spending: 20-30%

Life is lived outside of a spreadsheet and guilt-free spending is something that isn’t talked about often. What is the most common financial advice? Save, cut out your Netflix, and drink coffee at home. Hardly anyone talks about conscious spending. I urge you to look at your finances to determine where you can find money every month to spend guilt-free. Start small – maybe hire help around the house, take a spa day, pick your kids up from school every day for a month, and fly premium economy for your next trip.

This is your one life, why not make it a Rich one?

One of the biggest problems with money is our feelings about it are always relative.

So many people assume once they hit a certain level of income or net worth that all of their problems will magically vanish. Unfortunately, what typically happens when you make and save more money is you begin comparing yourself to people who have more than you, instead of your previous levels of wealth.
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Lifestyle creep causes you to spend more and more to keep up and since there are always going to be people richer than you, it’s difficult to feel wealthy even when you are.

​Bloomberg has a new survey that asks people how rich they feel:

​Even people with millions of dollars don’t always feel rich. My contention is it’s hard to consider yourself wealthy if you still worry about money all the time.

The quotes from some of the survey respondents are telling in this regard:
“Ten years ago if I had told myself I was making the money I am now, I’d be flabbergasted. I would’ve said I was living it up,” he said. “Now, while I’m financially secure, it doesn’t feel like I’m making the dollar amount I’m making.”

“Honestly the more money you make, the more your lifestyle kind of changes a lot,” he said. “Your vacations and the restaurants you go to are more expensive.”

This is the perfect encapsulation of lifestyle creep and why some mythical number in the future probably won’t solve all of your problems. Younger you would probably be blown away by how much you make but older you is a completely different person with different preferences and responsibilities.

Here’s another one:
Despite owning a home worth almost $900,000 in Dallas and a condo in Hawaii, Tom Thompson and his wife don’t feel rich. In fact, having more money has just resulted in more bills. The 54-year-old is feeling the pressure of inflation, especially as he prepares to pay for his 18-year-old son’s college tuition.

Despite an annual household income of about $450,000, Thompson worries about his job stability at an ad agency where losing a big client could mean a layoff.

“We’re not living paycheck to paycheck, but I feel like we have looming expenses,” he said. “My personal definition of rich is the ability to buy or participate without concern, and I do not have that.”

Six-figure income. Owns a home. Owns a condo in Hawaii. Still doesn’t feel rich. Probably never will.

This is one of the reasons financial advisors act more like therapists than number-crunchers with many of their clients. We all have a weird relationship with money in some form or another.

We all struggle with this feeling, and I am no different. Thinking that when our investment account hits X – then I can be happy and not worry. After working with clients for the last decade I can attest, this simply does not happen!

It’s counterintuitive, but many people overestimate how much they will need based on their spending habits because it can be so psychologically challenging to spend money in retirement.

My favorite research on this topic comes from an Employee Benefit Research Institute study in 2018 that analyzed the spending habits of retirees during their first two decades of retirement:

• People with less than $200k in assets (not including their house) spent down around 25% of their savings in the first 18 years of retirement.
• Individuals with between $200k and $500k heading into retirement spent a little more than 27% of their money.
• Retirees with $500k or more at retirement spent less than 12% of their nest egg within the first 20 years of retirement (on a median basis).
• People with a pension spent the least from their portfolio with assets down an average of just 4% (versus a 34% decline for non-pensioners).
• The median household in this study simply spent the income from their portfolio and avoided taking from the principal portfolio balance.

The crazy thing about these results is the more secure people were in retirement, the less they spent relative to the size of their wealth.

​The dichotomy here is there are millions of people who are woefully underprepared for retirement from some combination of a low income or a lack of planning. Then there are those people who are prepared but cannot stop worrying about money enough to enjoy it – and this is what I am seeing more every day. Look, I’m not saying everyone has to die with zero. Having a low burn rate is certainly the best hedge against longevity risk in retirement. But what’s the point of saving in the first place if you’re not going to spend some of it?

​If you’re reading this, you’re more than likely going to pass with more wealth than you think. Book that vacation, complete that renovation, make those memories – that is what wealth is for.

I have a confession to make.

I’m never going to make millions of dollars on a single investment. I’m never going to create a start-up that changes the world and becomes a unicorn. I’m never going to get rich overnight. It’s simply not in my DNA.
 
You wouldn’t be human if you didn’t dream about huge or seemingly easy riches. But I’m okay with the fact that easy riches aren’t in the cards for me. Instead, I’ve chosen (let’s be honest, accepted) the slower path to building wealth. But there are some downsides to this path; I don’t get to become rich overnight, I don’t get to create a world-changing company, and I don’t get to know what it’s like to deal with a life-changing amount of money.

You also won't catch me bragging on social media about how much money I made on a high-flying stock or business venture, or becoming a charlatan guru who preaches the easy steps you can follow to become wealthy, or writing a Medium post about how transcendental meditation changed my life once I became a billionaire.


There are many upsides to being comfortable in your own skin as an investor:

• I’ll never understand what it’s like to be the founder of a hot tech start-up, but I will always know what it’s like to have dinner with my family every night of the week, or have my weekends free from the stress of my job. I’ll never know what it’s like to receive life-altering stock options, but having enough flexibility to regularly workout, read, relax watching TV, and work only on the projects I truly care about is my preference, not a consolation prize.
• I’ll likely never put my life savings into a single investment that could go to the moon but being a diversified investor means I’ll never put my family in the position of being completely wiped out by a single position.

Personally, building wealth slowly over time suits my personality better than the alternatives. I simply don’t have the emotional makeup to take extreme positions when it comes to investing. It’s important to remember for every Tesla investor who hit the lottery, there are thousands of other tickets that never hit. And I’m not necessarily saying those people who pursue this type of strategy are wrong. Simply that I'm not one of the people who have the intestinal fortitude to hold a moonshot investment that swallows the rest of their portfolio whole. As long as people go into this type of strategy with their eyes wide open to the potential risks, who am I to judge?

Life and risk are both full of trade-offs. Sometimes a large factor in the success, or failure, of any investment or wealth-building strategy comes down to managing, or the failure to manage, emotions. 

But the best part about building wealth slowly? It actually works!

The more I sit down with successful investors I realize this, as you accumulate more wealth it's not about trying to hit the home runs, it's about preserving what you already have. It's about not making mistakes – instead of the home runs, you hit singles or doubles consistently, year after year. I’ve been saving and investing personally for more than a decade-and-a-half. Although it was hard to see progress at the outset, I have more money than I ever would have thought possible when I first started my financial journey.

But let's be honest, building real wealth is... boring.

It takes time. Month after month, year after year you inch closer to your goals. There are no shortcuts. Maybe with some extreme bets within my portfolio I could have built more wealth faster but those bets also could have crashed and burned, leaving me in a far worse position. These what-ifs are useless when it comes to your finances.

In my experience, the most important aspect of my slow but steady, deliberate wealth-building strategy is not that it works, but that it works for me and it works for clients. Some people are too tempted by boatloads of risk. Others prefer day trading or concentrated deep value investing or tech inventing or venture capital or investing in private businesses or real estate or starting their own business or something else entirely. And that’s fine. There are plenty of different ways to build wealth. 

The important thing to remember is you don’t have to follow someone else’s path just because it seems faster or easier. Spotting trade-offs and managing the risks in life and investing is where my experience and knowledge as a CFP benefit my clients and me personally.

Some Canadians will go to great lengths to avoid probate fees and to reduce taxes applied to their estate. Indeed, estate planning strategies such as adding an adult child to the title of primary residence or a cottage, or as a joint owner of a non-registered account, can unknowingly expose you or your child to potential costs and unnecessary risks.

Before you tie yourself in knots trying to avoid probate fees, let’s answer some important questions about what exactly probate is, which assets are subject to probate, and what you can do, if anything, to reduce or avoid them.

We’ll also look at what people get wrong about probate, along with the potential pitfalls that can be caused trying to avoid probate – at the expense of good tax, financial, and estate planning.

Here are some of the questions I am getting asked lately from clients:

Q: What are probate fees?
Probate fees in Canada refer to the costs associated with the legal process of validating a deceased person's will and distributing their estate as per their wishes. These fees are usually payable to the provincial or territorial government where the deceased resided, and they are calculated based on the value of the assets within the estate. The fees cover administrative expenses and court procedures required to ensure a smooth transfer of assets to beneficiaries while complying with legal regulations.
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Q: Which assets are subject to probate fees?
A: When an asset is left to your estate, it may be subject to probate. Certain assets that allow you to name a beneficiary may pass outside your estate – for example, RRSPs, TFSAs, and life insurance policies where you’ve named an individual as the beneficiary.
If assets are held in joint tenancy with rights of survivorship, or owned by a trust, they may bypass probate as well. Other assets like personal non-registered accounts, bank accounts, personal effects, or real estate do not allow you to name a beneficiary, so in many cases those assets will be part of your estate. 

It’s worth noting that while assets can pass to your surviving spouse without tax, that doesn’t mean the asset won’t form part of your estate.

Unintended consequences
Q: What do people get wrong about probate?
A: Probate is an important process in winding up an estate. It validates that your will is current and indemnifies people and institutions that hold your property from giving it out to the wrong beneficiaries. Often, planning is done with the intention to avoid probate fees. And often, that planning has unintended consequences. 

For example, adding an adult child as a joint owner on your bank account is advertised as a way to allow the bank account to pass to the surviving owner, outside of the estate. But it’s not that simple – adding a signer to an account might trigger resulting trust rules, where the asset is deemed to be held in trust for the estate.

How to reduce probate fees
Q: So, what can people do to help reduce probate fees?
A: Where appropriate, name individuals as beneficiaries on allowable accounts – RRSPs, TFSAs, and life insurance policies for example. But be aware that naming beneficiaries can have unintended consequences, like a disproportionate inheritance for certain beneficiaries.

For higher-net-worth Canadians, using trusts may be appropriate. These are complex structures that come with other costs, but assets held in trusts generally do not go to your estate and are therefore not subject to probate.

Notes about gifting money while you’re still alive:

There is no gift tax in Canada, though gifting money to a spouse can have tax consequences. Gifting to adult children who are beneficiaries of your estate keeps that money away from probate and allows you to see your heirs benefit from the gift while you’re still alive.

Q: What are some of the unintended consequences of adding your child(ren) to the title of your house, cottage, or non-registered account?
A: Moving accounts and real estate to joint ownership is a popular strategy with the masses for avoiding probate. People do this because, when an asset or account is owned joint with the right of survivorship, the account will bypass the estate and the holdings will not be subject to probate. The problem is, while simple to do, joint ownership opens up a minefield of potential issues. It's worth noting that, people almost never get proper legal, tax, or financial advice before doing this – which can lead to many issues.

Adding your child(ren) to the title of your primary residence
Q: What about adding your child(ren) to the title of your primary residence?
A: It’s one of the most common questions, as the primary residence is usually the largest asset left behind by the parent. A primary residence for an individual or married/common-law couple is exempt from capital gains taxes, so a parents’ home is exempt, and a child’s primary residence is exempt. If the child is put as joint owner on the parent’s home, the parent’s 50% ownership of the home remains tax exempt (and capital gains up to that point is of course exempt), but the child then partially owns a second property, and that share of the property is not exempt.

Q: So, what should a parent do instead?
A: In general, don’t make the primary residence joint with your child(ren). Expect it to flow through your estate and expect to pay probate fees on that. Otherwise, if you plan on diverting from that path, only do so after consulting an estate planning lawyer – not because you read online that it’s a good idea or because a friend or family member suggested it

Final Thoughts

It’s a complicated topic that gets brought up a lot, and there is a lot of misinformation floating around online and at the water cooler on how to avoid probate. The key takeaways are that, in most cases, probate fees are minimal, and probate ensures the proper disbursement of your assets after you die. There’s no need to tie yourself in knots trying to avoid probate fees if it means opening yourself and your child(ren) up to other potential issues.

If you do have a complicated estate or specific wishes you want carried out, get proper advice from an estate planning lawyer and a CERTIFIED FINANCIAL PLANNER, like myself, before you start adding children as joint owners and beneficiaries of assets and accounts. That includes proper documentation declaring your intentions behind these actions. Don’t leave important matters up for interpretation.

If you’re approaching retirement, it is crucial to be aware of the potential challenges that lie ahead. While retirement is a time of newfound freedom and relaxation, it also presents certain risks that can impact your financial stability and well-being.

Let's explore the 5 key risks to your retirement and how to mitigate them.

1.    Longevity Risk
Longevity risk is the possibility of outliving your retirement savings. This risk boils down to a simple sentence, ‘you need to plan for the possibility that you may live longer than you think.’ If you’re contemplating retirement, you need to consider the possibility that you may live another 20, 30 or even 40 years, perhaps spending as much time in retirement as at work.

Most people underestimate how long a retirement they need to plan for. A man who has reached age 65 has a 50% chance of living to age 83 and a one-in-four chance of living to 89. For a 65-year-old woman, those odds rise to a 50% chance of reaching age 86 and a one-in-four chance of living to 92. The odds that at least one member of a 65-year-old couple will live to 90 are 50%. And there is one chance in four that one member of that couple will live to 94. The median retirement age in Canada is 62 which increases your potential time in retirement.
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2.    Inflation Risk
Inflation risk poses a threat to the purchasing power of your retirement income. Currently, as of June 2023, the annual inflation rate is 4.4% which is more than double the Bank of Canada’s target rate of 2% per year. Elevated inflation levels can erode the value of your money. It is essential to have a diversified investment portfolio that has the potential to beat inflation.

In the 2022 Fidelity Retirement Report, inflation was identified as the number one financial concern in retirement by both retirees and non-retirees. Even though inflation is currently proving to be sticky, the average annual rate for the past 20 years has been 2%. Even a low inflation rate can have a significant impact on a retiree’s purchasing power. At a 2% inflation rate, the $54,194 spent by the average Canadian senior in 2023 would only buy $32,978 in 25 years.

3.    Asset Allocation Risk
Asset allocation refers to the mix of equities, bonds, and short-term liquid investments in your portfolio. You need a mix of investments that meets your risk profile and has the best chance of providing the income necessary to meet your needs for as long as you live – in other words, an investment portfolio that is both productive and built to last.
Investors with longer time horizons can wait out the inevitable ups and downs of the market, however, if you’re close to retirement age, this isn’t the case. As you approach retirement, a more conservative mix of equities and bonds is appropriate. But not too conservative, you will need the growth that equities provide given increasing life expectancies and to stay ahead of inflation.

This is where separating your wealth into 3 buckets is prudent – short-term (cash and liquid investments), medium-term (balanced funds), and long-term (growth focus) to provide the liquidity and growth needed for a successful retirement.

4.    Withdrawal Rate Risk
Withdrawal rate risk is the risk of depleting your retirement savings too quickly due to high withdrawal rates. Determining a sustainable withdrawal rate is essential to ensure your funds last throughout retirement. A balanced portfolio of 50% stocks, 35% bonds, and 15% short-term instruments could last for at least 25 years if you withdrew 4% per year of the original value of the portfolio. Withdrawing 4%-5% inflation-adjusted annually is a common guideline to follow.

Achieving an appropriate withdrawal rate depends partly on good preparation well before the actual retirement date. If you’re preparing for retirement, it’s prudent to periodically project the value of your portfolio at retirement and the income that could be generated and compare that with projected expenses in retirement. Variables such as savings rate, retirement date, and retirement expectations can then be adjusted.

5.    Health Care Expenses
One significant risk in retirement is the potential burden of health care expenses. Even with our publicly funded healthcare system in Canada, not everything is covered. Retirees may encounter certain healthcare costs that need to be considered in retirement planning. While healthcare expenses in retirement are difficult to predict, they should be included in retirement income planning.

Common health care expenses during retirement:
1.    Prescription Medications
2.    Dental Care
3.    Vision Care
4.    Paramedical Services
5.    Medical Equipment and Supplies
6.    Long-Term Care

Planning for retirement is a crucial undertaking that requires careful consideration of the 5 key risks that can impact your financial security. Each of these risks poses unique challenges, but with proper planning, they can be mitigated to ensure a more secure retirement.

As retirement planning is a complex and highly individualized process, it is advisable to seek professional guidance. As an experienced CERTIFIED FINANCIAL PLANNER, I help clients navigate the intricacies of retirement planning, tailor strategies to their specific needs, and help you make informed decisions to safeguard your financial stability during your golden years.
 
If you have concerns that your retirement plan isn't designed to grow and protect your wealth in the face of these 5 risks, or you have friends, family members or colleagues considering retiring in the next 5 years, please reach out for a second opinion.