Your Complete Guide to Index Investing with Dan Bortolotti

Podcast 2: Planning vs. Investing

2018-05-29T22:00:43+00:00December 15th, 2016|Categories: Podcast|Tags: , , |12 Comments

The second episode of the Canadian Couch Potato podcast is now available:

Many thanks to the thousands of people who downloaded and listened to the debut episode, and for sending your feedback and suggestions for future topics. After an initial delay, the podcast is now available through iTunes as well as all major podcasting apps, so please subscribe if you haven’t done so already. If you enjoy what you hear, I invite you review the podcast on iTunes, which helps more listeners hear about it.

Our new episode features financial planner Sandi Martin, who will be well-known to readers of Canadian financial blogs: she has her own blog at Spring Personal Finance, and has been a contributor to Boomer & Echo. Sandi is also one of the creators of the Because Money video and podcast series.

In our interview, Sandi and I discuss the important (and frequently misunderstood) differences between financial planning and investment management. The media often lump these two services together, but they are fundamentally different: in all provinces except Quebec, financial planning is not even regulated. However, all investment advisors in Canada must be licensed by their provincial securities commission.

Sandi and I also chat about why it’s important for plans need to come before products. If you’re asking which ETFs you should use before you’ve got a savings plan and clear investment objectives, you’re getting the process backwards.

Finally, we briefly discuss the growing presence of robo-advisors in Canada. Sandi and her colleague John Robertson recently created a useful tool called Autoinvest to help Canadians compare the various online services. They explain how it works in a recent episode of Because Money.

In the Bad Investment Advice segment, I reflect on the idea that you can profit by rejigging your portfolio before major political events, such as the Brexit vote or the US election. The good people at MarketWatch provided a perfect case study with the article, The danger to your portfolio from a Trump win is huge and you need to move now, published on November 2. As you’ve probably noticed, the consensus view on what would happen if Trump was elected—stocks would plummet, gold would rise, interest rates and the US dollar would fall—turned out to be spectacularly wrong. Again.

In the Ask the Spud segment that closes each show, I answer the following reader question:

“Is there a reason why corporate bonds are not often suggested in your ETF model portfolios? I talked with some of my friends and I was wondering why you would use government bonds when corporate bonds offer a yield bonus of 1%. There doesn’t seem to be any additional risk: in the financial crisis of 2008, corporate bond ETFs lost only about 5% and recovered in a couple of months.”

In fact, the bond ETFs I recommend in my model portfolios are a mix of both government and corporate bonds. A traditional bond index fund includes about 20% to 40% in high quality bonds issued by corporations. You can certainly choose an ETF that holds only corporate bonds if you’re looking for a little more expected return, but as I explain in the podcast, this is no free lunch.

Episode 3 of the podcast will air in the New Year. Thanks again for listening!