‘Our life is frittered away by detail… simplify, simplify.’ – Henry David Thoreau
I’ve fielded all types of questions from clients and readers over the years looking for that one magic hack or some shortcut to building wealth. Usually these half-baked ideas come from a friend, relative, colleague, or an unscrupulous advisor, or a random Reddit thread.
Should I buy a rental property? What about commercial real estate? Airbnb? Private credit?
Should I do the Smith Manoeuvre? Open a margin account? Trade options?
Should I buy a whole life insurance policy? Should I borrow from an existing insurance policy? Have you heard of infinite banking?
Should I invest in tech stocks? Crypto? This triple leveraged ETF? Covered calls?
My advice, in general, is that you need to have the basics looked after first before even considering a riskier or more complex strategy.
That includes having a simple money philosophy to follow:
- Utilize employer matching savings plans (contribute enough to max out the match, but no more).
- Optimize your RRSP (optimizing your RRSP can mean contributing enough to bring your taxable income down to the bottom of your highest marginal tax bracket. Or it can mean not contributing at all if you’re in a lower tax bracket).
- Maximize your TFSA (striving to contribute up to your lifetime limit and, once you’ve caught up, maxing out your annual room each year).
- Prioritize short-term goals (list all of your other goals such as a house down payment, funding a parental leave, a new car, a dream vacation, non-registered investments / early retirement fund, extra mortgage payments, etc. and then acknowledge that you can’t fund them all at once. Prioritize and direct any extra cash flow here).
Inside your RRSP and TFSA, know that investing has largely been solved with low-cost index funds. Buy the entire market for as cheap as possible and move on with your life.
Further to that, investing complexity has been solved with something called an asset allocation ETF (an all-in-one “single-ticket” solution).
These registered accounts are no place to speculate on individual stocks or the thematic fund-of-the-day. If you swing and miss on an investment, you lose that contribution room forever and don’t even get the benefit of claiming a capital loss for your misfortune.
Indeed, you’re going to have a great deal of financial success if you can simply take advantage of your workplace matching plans, optimize RRSP contributions, maximize TFSA contributions, prioritize short-term goals (including your own personal spending and happiness), and invest your retirement savings in low cost index funds.
This other stuff is something I call “what’s next?” money.
You have a preference for real estate and want to buy a second property? That’s what’s next, after the basics are fully funded.
Your advisor is pitching you on an investment loan? That’s what’s next, after the basics are fully funded.
You want to put some money into the latest thematic fad of the day (AI, psychedelics, clean energy, etc.)? That’s what’s next, after the basics are fully funded (and, please, in a non-registered account and not your TFSA).
I am fighting for simplicity in my financial life. I want all of my investment accounts in one brokerage platform. I invest in a single ETF in each of those accounts. I have a plan to pay off my mortgage within 10 years (and before I retire).
I have no interest in buying a rental property (worst nightmare).
I don’t use leverage. If you’re not satisfied with the investment returns from global equities then perhaps you need to increase your savings rate, not use leverage to try and amplify the gains.
Warren Buffett famously quipped
“You really don’t need leverage in this world much. If you’re smart, you’re going to make a lot of money without borrowing.”
It’s true. You can get rich by saving a good amount into your RRSP and TFSA and investing in simple low cost index funds.
Why needlessly complicate your life chasing extra dollars – potentially putting a good financial plan at risk if it doesn’t work out?
As Thoreau said, “simplify, simplify.”
This Week’s Recap:
It has been a while since my last weekend reading update. Since then I’ve published the following stand alone articles:
Your ultimate guide to RRIFs: Strategies, pitfalls, and the secret sauce to retirement income. That one was a big hit.
At the end of the year I updated my net worth and looked ahead to this year’s financial goals.
And I posted my 2024 investment returns along with the returns from Vanguard’s and iShares’ suite of asset allocation ETFs.
Weekend Reading:
A Wealth of Common Sense blogger Ben Carlson shows how good years in the stock market tend to cluster.
Welcome to the roaring 2020s, where every single year has seen a big stock market move (one way or another).
Morningstar shares six retirement financial myths to avoid.
For retirees, why amortization based withdrawal works better than safe withdrawal rates.
Christine Benz shares the best of the Long View 2024 – clips from interviews with financial planners, advisors, and retirement researchers over the past year.
If it’s possible to beat the market, as Warren Buffett has for longer than I’ve been alive, why would anyone settle for boring market returns with index funds?
What a massive cash windfall could mean for your retirement plans.
The Walmart effect: New research suggests that the company makes the communities it operates in poorer – even taking into account its famous low prices.
Finally, one of the top minds in financial planning Aaron Hector shares how he’s providing financial literacy for his kids.
Have a great weekend, everyone!
Leave a Reply