A better way to fund your retirement: ARVA explained

At long last, the Ontario government is regulating who can use the titles of financial planner and financial advisor in the province.

Welcome back to the Rational Reminder Podcast! We’re nearing our one-year anniversary, and we are still getting more listeners every episode and we have some incredible guests lined up for you!

For most millennials, retirement seems like it’s ages away; a future you problem. The cards might seem to be stacked against us: the number of Defined Benefit pension plans are falling, we’re living longer, student debt levels are rising, and house prices are massive compared to our incomes. I break down the basic concepts of retirement planning in this video to help you get started.

Star Trek may have introduced the expression, “to boldly go where no man has gone before,” but we’re the ones who actually get to do it in today’s post. To my knowledge, nobody has ever compared the before- and after-tax returns of Guaranteed Investment Certificate (GIC) ladders versus bond ETFs. At least I’ve not found an unbiased, historical comparison anyplace online.

Should GICs Replace Bonds in a Portfolio? To answer this question, we first need to understand the difference between a bond fund’s yield to maturity and the interest rate on a GIC. We then need to understand the relative tax efficiency of GICs compared to bond funds, and how it may impact after-tax returns.

Given the meagre interest rates paid by investment-grade bonds and GICs, it is only normal that people are interested in investments with a higher return. That includes advisors, as high-yield bond (HYB) exchange traded funds (ETFs) offered by BMO and iShares alone hold over $2 billion in assets.That’s not chicken feed.

Of course, there are other kinds of structures that work in a similar fashion, by pooling your money with other people’s investments and delivering a fair share of the earnings or losses to you. But there are a few significant advantages to mutual funds in particular. Most folks aren’t aware of them, even though they can be pretty important.

Admit it. You’ve been reading about “low-volatility” or “low-beta” ETFs, and have wondered what all the fuss is about. Are you missing out on the next big thing?

On today’s episode, we are joined by Jamie Purvis, Executive Vice President at Horizons ETFs. Having been the company’s third ever employee, he has worked at the company for nearly 24 years and provides an in-depth inside look into how Horizons has come to have the reputation of being ahead of the curve in the Canadian ETF market.

As the reader correctly notes, the tax-inefficiencies in Vanguard’s AA ETFs mainly lie with the underlying bonds (not with the equities) – at least in taxable accounts. You see, many of the bonds in fixed income ETFs are currently trading at what’s called a “premium” to their maturity value.