The Rational Reminder Podcast Episode 55: Being Frugal: The Crux of Financial Happiness

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.

Sorry to ruin the suspense, but here’s my answer to whether I think market-timing ever works: No. I’ve looked at an overwhelming amount of evidence, and I have yet to find a rational reason for trying to dodge in and out of the market.

On today’s episode we kick it off with a combo of a current topics, answering listener questions, and discussing the bad advice of the week. We then dive into the huge shift in the industry in the US in terms of fund flows into index funds out of active mutual funds.