Let me start off with a story a local farmer told me. I think you kids will like this one.
Jan has always been an enterprising farmer, anxious to do whatever he could to improve the yield on his land. Each winter he would read up on some of the latest farming trends, eventually investing his time and capital into the more promising ideas. He even went as far as planting an obscure crop one year after a big crop failure in Asia sent prices much higher.
(Don’t ask me what crop it was. I just racked my brain for five minutes and can’t remember)
One year, in the late 1990s, he stumbled upon his best idea yet. The premium paid for organic products was massive when compared to the regular stuff. We’re talking anywhere from 25-75% more for the same ol’ wheat. He investigated the steps it would take to become a certified organic grower. They weren’t easy. He was forced to leave land fallow for two growing seasons and do various things to remove any lingering pesticides. He could no longer use conventional fertilizer. Special machinery was needed. And so on.
The list was long, but he did it. It was all worth it during year three when his bumper crop was worth more than ever. Jan also figures his land is worth 20-30% more than conventional land, since he’s regularly getting that much more for his crops.
One day, while standing on his fancy organic field, Jan realized something. His neighbor was spraying pesticides on his crop. It wasn’t a particularly windy day, yet it sure did look like some of the liquid was ending up on his land. After waiting a while for the neighbor to finish up, he went over and inspected the edge of his property more closely.
Sure enough, it was damp. Some of the pesticide had made its way onto Jan’s organic field. He quickly realized this was likely happening every year. After all, the only thing separating the two was about 15 feet worth of road.
Jan did the right thing and reported the findings to the organic council or whoever it is that certifies land as organic. They promptly took his classification away and refused to give it back.
Just kidding. He did no such thing. He shut his mouth and went back to farming. He swears yields from that part of his land are consistently higher than the rest.
How this relates to your personal finances
I realize this is only loosely related, but screw it. What am I supposed to do, not tell that organic farming story?
Let’s talk a little today about biases, and how they might be making you poorer. But first, another story!
I like to refer to one of my buddies as a walking bias factory. He constantly comes up with poor ways to justify things. The things he cares about are uber important, and he has strongly-held opinions about them without much independent thought behind them. When faced with evidence that one of his pet opinions might be wrong, he flatly ignores it. You can see the pain in his face if you push just a little bit.
Naturally, this delights me, and I take the opportunity to troll him whenever possible. Just a bit, though. I’m not an animal.
I suspect many of you are doing the same thing when it comes to your finances. How many times have you heard the following?
- Never pick individual stocks. Only ETFs will make you rich
- Buy the most expensive item. It ultimately ends up being the frugal choice
- All mutual funds are trash
- Only a maroon goes without life/disability/travel insurance
- Retire at 65? Why? 40 is the ideal retirement age.
And so on. There are a million of these things.
We blindly accept a lot of these as facts because they’re easy to believe in. Just look at the S&P 500 performance over the last decade. And all of the people who are screwed because they didn’t get disability insurance. Retiring at the conventional age may have worked for Baby Boomers, but there’s no way in hell we can expect a millennial to wait that long.
But how many of these are really true? If all mutual funds were trash, would this fund exist:
(I cut off the bottom axis. That growth was since inception in 2009. Annual returns have been 17.2% annually.)
That’s the Pender Small-Cap Opportunities Fund, which invests in small-cap Canadian companies. It has absolutely demolished the TSX Composite since inception. You can’t invest in it, though. They recently closed it to new investors despite only having less than $200 million in total assets.
I can bust a lot of the other myths I put up earlier, but I won’t bother. Just check my archives; they’re full of posts saying why the average rule of thumb is bullshit — at least some of the time.
Get to the point, Nelly
I am. Geez, guys. Whoever writes the subheadings here is kind of a jerk.
We blindly believe the organic bread at the store is made with 100% organic wheat. My friend the farmer would urge y’all to not be so naive.
We blindly believe all mutual funds are trash, ignoring the funds that absolutely kill it over a long-term basis. These funds don’t confirm our already-held beliefs, so we ignore them.
The overall point is this. You likely haven’t done the research on many of the things that strongly influence your life. You just heard something was true and you chose to believe it because that fact sounded reasonable at the time.
I constantly seek out opinions that differ from mine. You should see some of the people I follow on Twitter. I get mad every time they pollute my feed with opinions that are clearly 14 different kinds of wrong. I mean hell, I follow people who invest in gold and crypto currency. I follow feminists who somehow believe 2018 isn’t a terrific time to be a woman. I follow early retirees and debt bloggers and so many more people I really don’t see eye-to-eye with. I’d say a full 25% of my feed is this way.
Why do I put myself through this? Because without these differing opinions constantly challenging me, I’m no better than my walking bias factory buddy, just repeating the same maxims I heard some smart guy say five years ago and talking my own book.
Think critically and don’t believe everything you read. Loosely hold new opinions and constantly challenge existing ones. Change your mind on things that are important. These are the things that will take you to the next level.
It’s taken me a little while to realize this, but hey. Apparently getting things in a reasonable amount of time is not my strong suit. Hell, it took me 18 years to figure out long division.
The key to happiness is to design the life you want to live from scratch. Some people like the routine of going to work each day, but most of us don’t. We want to be able to randomly take a Thursday and go to an interesting event two cities over without having to worry about the consequences at the office on Friday.
I’ve recently taken steps to do this myself. Gone are the days where I’m going into my grocery store job five days a week. I’m down to 1-2 days a week and couldn’t be happier. I get the interaction with the guys without falling into the trap of workplace politics. I feel more like a casual observer than someone who actually cares about what’s going on.
I should have done this a year and a half ago rather than quitting my writing job.
Speaking of my writing job, I’m back at it, baby. You can read my stuff here if you’re so inclined. I’m also available to write on your blog. Because, hey, who doesn’t need a bunch of dick jokes and incomplete sentences masquerading as actual serious points about finance.
Just think about it is what I’m saying.
Anyway, let’s get to the point of this article — you don’t need to wait for financial independence to make the life of your dreams.
Unhappy? Then change things, stupid!
Back when I had a more conventional job, I used to fall into the same trap whenever things weren’t going well. I’d vow to quit my lousy job and travel around North America, seeing a ball game at all 30 MLB parks. Only then would I be happy.
This was not healthy, of course. It was nothing more than escapism. I didn’t really want to travel long-term. I just wanted to be away from my crummy situation.
After doing this a few times I began to realize something. If I’m fantasizing about being away from a particular thing on a regular basis, then it’s probably a good idea to quit that activity. It doesn’t matter if that thing is a job, or a hobby, or some other form of commitment.
Of course, things aren’t always that simple. You can’t quit things willy-nilly. Most people can’t live without a job, and many have become accustomed to having a certain lifestyle. In other words, taking a pay cut is out of the question. Which means they’re stuck between the proverbial rock and a hard place. The only way they can quit their lousy job is to replace it with one that offers a similar level of pay. That wage comes with similar responsibilities and duties, which negates the whole point of quitting the lousy job in the first place.
So they turn to financial independence. That’ll solve all their problems.
Remember, you don’t need financial independence to be happy
Let me tell you guys about a buddy of mine who lives a pretty interesting life.
He discovered he doesn’t need much to make him happy. He lives in a small house in an extra quiet part of a small town. His leisure time is spent watching movies, reading books, and going online. He doesn’t own much stuff because there simply isn’t room in his small house for it. Besides, things don’t really make him happy anyway. Much of his disposable income is spent going on random road trips.
These decisions were a result of a long thought process about his life and what made him happy. About 15 years ago he was on the fast track to an upper management post at a certain Canadian retailer I used to own shares in. Once he hit middle management it didn’t take him long to conclude being in charge of people made him miserable.
He realized he would be much happier if he wasn’t in management, trying to motivate retail employees who want nothing more than to slack off all day. So he made a choice. He vowed to live a life so simple that it could be sustained on a entry-level salary. He then quit his stressful middle management job in favor of one that barely makes more than minimum wage. It’s been 15 years now and he doesn’t regret his choice for a second.
Don’t Wait. Act
The point is you don’t necessarily need financial independence to live the life of your dreams. You need to define what your ideal life is first before striving to become so rich you no longer need to work.
Say you want to become a full-time writer, or blogger, or whatever. Do you really need to hit a $1 million net worth to do that? Hardly. The world is filled with entrepreneurs who quit their jobs to start something new. Hell, some people might argue having no safety net will make someone more likely to succeed. Failure just isn’t an option.
For many people, financial independence ultimately becomes something they need before embarking on the life of their dreams. I’d argue waiting to design your best life is silly. Do it today, and do it with gusto. Don’t wait for your net worth to hit that magic number, just go for it.
But at the same time, I get it. The kind of person who waits until they hit a seven-figure net worth to make significant life changes is obviously a little risk adverse. Quitting their job and moving to a tiny house in the middle of nowhere is out of the question. So they wait until they hit their number and then make the change.
This is perfectly okay, of course. Just remember, you don’t need to wait that long. If it’s your dream to write or open a small store, take steps to do that today. Not tomorrow, not 10 years from now when you’re moderately wealthy. Do it today. Start designing your ideal life now.
A lot of Canadians own mutual funds because of their ease, comfort with a financial advisor, or a litany of other reasons. Us here at FinancialUproar.com (me and 27 hobos I picked up at the landfill) aren’t here to judge. Sure, we’d like you to invest in low-fee ETFs, but those aren’t for everybody. If you’re going to invest in a fund, put your money in the best ones. Is the TD Monthly Income Fund one of them? Let’s find out.
- Fund name: TD Monthly Income Fund
- Assets under management: $7.8 billion
- Minimum initial/subsequent investment: $100/$100
- Recent price: $21.10/unit
- MER: 1.48%
- Other fees: 2% fee to withdraw within the first 7 days/2% switch fee (this fee may be waived, probably if you put your money into another TD Fund
Note the fund has a 60/40 equity to fixed income split, which is a little more aggressive than the standard 50/50 split you’ll see from most balanced funds. Most of the top holdings are large Canadian banks and other dividend paying blue chips.
Note the fund’s top holdings are very similar to the top holdings of a TSX 60 ETF. Thus, it wouldn’t be particularly hard for investors to just hold that ETF to get equivalent exposure to the Canadian equity market.
Note that the 60% equity weighting includes some preferred shares, which are more like bonds than stocks.
I’m confident a portfolio consisting of a 50% TSX 60 ETF, 40% Canadian bond ETF, and 10% Canadian preferred ETF would get pretty close to the performance of this mutual fund while not charging nearly as much in fees.
The 2% early withdrawal fee is nothing to be worried about. That’s in place to protect TD just in case you change your mind. If you pull your money from an investment within a week you deserve to pay for the privilege, tbh. The 2% switch fee is more concerning. The company says they have the right to waive it, but I’m willing to bet they’re not going to if you pull your money out of TD’s asset management pocket.
The fund has a 1.48% management expense ratio, which is pretty reasonable in the mutual fund world. The average fee is somewhere in the 2% range.
Here’s what the fund has returned over the last 1,3,5, and 10 years, versus all the other balanced funds out there. Note all info comes from Morningstar, which is super helpful when comparing funds.
These are actually pretty solid results. I’m impressed. This is enough to get the fund a 4-star ranking over at Morningstar.
The Globe and Mail offers different return numbers. I *think* they include reinvested distributions, but to be honest I’m not 100% sure.
Finally, we have the return numbers on TD’s fund facts page. These only go up to October 31st, so maybe that’s the reason why they’re different still? I dunno.
One thing that makes it tricky for investors is many of these big funds have various classes of shares that offer slightly different things. It’s hard to compare apples to apples. This *might* be what’s happening here, but returns shouldn’t differ that much. There’s also no explanation why return numbers from Morningstar and the Globe and Mail should be different, since I made sure to compare the exact same class of the same fund.
The overall point is the TD fund has done pretty well compared to peers. If you’re going to own a balanced fund, you could do a lot worse than this one.
Despite the thing being called the TD Monthly Income Fund, it really doesn’t pay out that much. Morningstar has the annual yield below 2%.
The TD Monthly Income Fund is a pretty solid balanced fund. It has historically beaten its benchmarks and does so while offering a fee that’s a full 25% less than the average Canadian mutual fund. You could do a lot worse than owning this one.
Still, there are some issues. The income coming from the investment (at least what I could find) is hardly impressive. That switch fee isn’t in an individual investor’s best interest either (although I’d bet it isn’t charged when you’re buying funds yourself using a discount broker).
If you want to bring together people who absolutely hate each other (like me and the readers of this here webblog), just bring up the TOTAL RIPOFF which is the power company. You’ll have everyone nodding in agreement in no time.
The power company, obviously, is the worst entity on the planet. If they just charged you for power, it wouldn’t be so bad. We all understand coal needs to be burned. I just so happens such a thing makes power. I’m still pretty sure we’d burn coal anyway, since all the carbon is good for trees.
The big issue is with all those GODDAMN HIDDEN FEES. Distribution charges? WTF are those? Transmission charges? Isn’t that just another name for distribution charges? Local access fees? Uh, no. I already pay my taxes, thank you very much. The Screw You Tax? I KNOW THAT DOESN’T EXIST BUT I’M STILL MAD ABOUT IT.
Whenever I encounter somebody bitching about their power/gas/whatever bill, I always have the same response. “If the power company is ripping you off so much, then it must be a great business. You should buy shares in it.” This is such a great response because it shuts them the hell up a full 98% of the time. You’ve outfoxed them and even if they don’t believe you like hell they’re going to enter into a boring conversation about the power company’s stock.
Don’t just dismiss my pithy comeback because there’s a really important truth there. The most hated companies make the best investments. You should position your portfolio accordingly.
Let’s brainstorm here. What are the biggest ripoffs you just can’t live without?
- Cell phone
- Banking fees (including interest)
- Movie theater popcorn
There’s probably more, but you get the idea.
How does a movie theater get away with charging $18 for a popcorn/soda/candy combo? How do those rat bastard telecoms get away with charging Canadians way more than anyone else for cell phone data? It’s because they know they’ve got you. If you want to swipe right on the Tinder, you need that data. And if you go to a movie, only a communist goes without that delicious popcorn.
This is what smart people call a captive customer. These companies know they have you over a barrel and will make you pay for it.
You can get mad about this or use it to power your investment thinking. Even though there are plenty of companies willing to sell you power, there are only a few that own the underlying infrastructure. As you can see, it’s been a pretty good investment.
How about the company that provides me with mobile data? Yep, that’s done well too.
How about Canada’s largest banks? Oh baby, they’ve done well.
Note that all of these returns are before dividends. Most of these stocks yield 4%+ annually, meaning a 400% return over 20 years turns into a 500-600% return.
This doesn’t work every time, unfortunately. I talked about Altagas a couple of years ago, saying you could invest about $18,000 in it to generate enough dividends to cover your gas bill. This investment is down about 50% since I talked about it, and it looks like the dividend is ripe to get cut.
Diversify, yo. That’s always the lesson. Not every ripoff company will be a good investment, but together they make a pretty good investment portfolio.
It’s all about competition
Unfortunately, successful investing isn’t just about the companies you hate.
Let’s look at another example, grocery stores. Those rat bastards are constantly raising the prices on all sorts of stuff. Remember when 90 pounds of flour cost a nickel? I do because that was only a week ago. This is how quickly flour prices go up.
I’d argue it’s not a good idea to put any of your investing dollars into a grocery store stock, even if you hate the damn place. Why? There’s just too much competition in the space. It’s hard to stand out when there are about a dozen competitors who use both physical locations and online shopping.
Here’s my rule of thumb: if someone can make a company’s life miserable using just money, it’s probably a poor investment.
Any chump can open a store. Getting into the oil business is as easy as finding the stuff. Manufacturing simple items is a pretty easy business to enter. No bread producer cares where their grain comes from. And so on.
Compare that to businesses with a far better barrier of entry. You need government approval to build a power plant. Most cities only have one airport. Getting shelf space at the grocery store is a difficult endeavor. And good luck making a dent in Canada’s banking monopoly.
See the difference in the two types of businesses? One kind can be disrupted fairly easily with money. The other has a built-in competitive advantage.
The reason why Canada’s most hated companies can charge such high prices is because they all have this advantage. It’s what you’re looking for as an investor. It took me years to figure out just how powerful this is. Don’t screw up like I did.
If you believe the PF-o-net (which I cannot stress enough you SHOULD NEVER DO), you’d know that only suckers invest in individual stocks, buy a mutual fund, get whole life insurance, buy a brand new car, or work at any moment past your 40th birthday. Working into middle age is worse than ass cancer.
Yeah, that’s right. Ass cancer. You’ve never heard of it because we’re all too scared to speak about it directly.
A few years ago, back when my wife encouraged my blogging habit enough to write here, she wrote a post outlining how she bought a token investment in some crummy mutual fund to get free banking. I threw my clickbaitest title on that bad boy and watched the angry comments roll in. It was great. So many people obviously didn’t read the thing before jumping to conclusions.
Meanwhile, my wife’s $500 investment is worth more than $700 now, and she got free banking in the process. Outstanding.
But for some of you, this isn’t enough. Why even bother with a traditional bank when there are branchless banks that don’t charge a nickel for as many transactions as you want?
I’m well aware those financial institutions exist, and have largely avoided using them. Here’s why.
The beauty of local banking
Many of you have no need for local banking. You get paid by direct deposit. Your side hustle income comes in via Paypal. Your drug dealer takes interac e-transfers for some reason. If you do get a cheque, every banking app has the ability to deposit it remotely. That covers pretty much everything.
Except for getting cash, that is.
I own a few different rental houses, and while I’m not terribly active on the private lending side anymore I still have a bunch of loans that are slowly being paid off. I’ve found that some of these people like paying me cash. I get an envelope of cash I can spread on my bare chest like a freak and they get a payment method that’s comfortable to them. It’s a totally not weird at all win-win.
How am I supposed to deposit cash at an online only bank?
I’m not just getting a couple of bucks each month, either. We’re talking upwards of $1,000. I don’t feel comfortable having that much money at my house, and although I probably could spend that much cash every month, I’d have to make an effort to do so. Sure, I could go to the bank and give them cash to pay off my credit card, but they would mock me as soon as I left. And rightfully so, too.
Fun fact: back in 2001 and 2002 when I first started using a credit card, online banking wasn’t a thing. My current bank (a credit union) didn’t even offer credit cards back then. I was forced to go to a competing bank and get a card there. I’d go to the credit union, withdraw the cash, and then go to the other bank and pay off the credit card. It got to be such a pain in the ass I’d barely use the card.
What our banking setup looks like today
I’ve maintained my own bank account while my wife has hers. All earned income goes into one account while passive income goes into the other.
This setup is maintained so I can easily track payments going in and out. It’s essentially became a business account without a business attached to it.
I pay $2 a month for the privilege of having the account and then $1 per transaction each time I pay a bill or use a cheque. Most months I’m spending anywhere from $4-$5 on banking.
For me, saving $5 a month is nothing. I’ll squander that much on jalepeno flavored Doritos on a given weekend if I’m feeling peckish. Taking the time and effort to switch the account to somewhere I would pay less in fees just isn’t worth it. And as I’ve mentioned before, I think having a relationship with your local banker is beneficial.
We also have a high-interest account at one of the branchless banks. Every now and again they’ll send us a promo for 3% interest for 90 days and we’ll stick some cash in there. The promo expires and we yank the money out faster than I nope out of a yoga class.
Let’s wrap it up
Banking is a popular topic here in the personal finance world, but it shouldn’t be. If you never have any cash in your life, it’s probably best to have an online-only bank. Or stay with your current bank. Even if you’re paying $10 or $20 a month in fees it’s not really that big of a deal.
Big expenses are important. So is earning more money. Feel free to try and lower your bank fees, but spend way more time on the important stuff. Or, just buy some Canadian bank shares. Profit off everyone else’s bank fees.