From electric cars to re-usable rockets, new innovations and unanticipated breakthroughs can completely alter how we think about the future. With the exception a fine wine or smelly cheese, there aren’t many things that age well over time.

The same can be said about financial advice. The Fintech revolution, along with tools made available in recent years, has shifted the financial landscape. The new rules are slowly starting to change the way we think about money. Advice that made sense a few years ago also needs to evolve to keep up with the times.

Enter Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School, by Andrew Hallam. Hallam- a high school English teacher working overseas – retired a millionaire in his 30s without the help of a defined benefit pension. Originally published in 2011, Millionaire Teacher demonstrated how average individuals like himself could build wealth in the stock market while avoiding the damage inflicted by the self-serving financial industry.

What’s changed?

The first edition of Millionaire Teacher, explained how the stock and bond markets work, how to build a portfolio of low cost index funds, and how to avoid the psychological behaviors that plague investors. Hallam takes everything that was good about the first and modernizes it with the improvements we’ve seen over the last several years.

In the second edition, Hallam takes great care in updating the evidence backing the advantages of index investing, including a shout out to a favorite- William Bernstein’s If You Can: How Millennials Can Get Rich Slowly.

Hallam highlights new cheaper products that can be used to build diversified portfolios, provides step by step instructions on how to buy ETFs and breaks down the benefits of robo-advisors for new and curious investors alike. Arguably the most valuable tidbits peppered throughout the book are the real life examples of how people in all walks of life practically apply the index investing approach.

Millionaire Teacher: Second Edition Review

Here are the nine rules that you should have learned in school.

Rule #1: Spend Like You Want to Grow Rich – Spend like an actual rich person, not just a person that appears to be rich. While it might seem counterintuitive, rich people spend less on cars and homes. The more you save on unnecessary expenses, the more you can invest in wealth-building assets.

“Many have jeopardized their own pursuit of wealth or financial independence for the allusion of looking wealthy instead of being wealthy.”

Rule #2: Use the Greatest Investment Ally You Have – Start early, save often and invest to take advantage of the magic of compound interest– except if you have credit card debt.

“You can invest half of what your neighbors invest over your lifetime and still end up with twice as much money-if you start early enough.”

Rule #3: Small Fees Pack Big Punches – Financial advisors make money in fees and commissions at your expense when you buy actively managed mutual funds. Mutual fund returns are impacted by these fees and rarely stack up to index fund returns. Says who? Five Nobel Prize winners in Economics. That’s who.

“Index fund investing will provide the highest statistical chance of success, compared with actively managed mutual fund investing.”

Rule #4: Conquer the Enemy in the Mirror – The market is unpredictable. Trying to time investments is gambling. Invest regularly regardless of market conditions. If you have a long investment horizon, the best time to invest is when the market is falling.

“Most young people want their investments to rise right away…Instead, they should hope for stocks to sag or limp…They get less for their money when prices rise quickly.”

Rule #5: Build Mountains of Money with a Respectable Portfolio – A balanced portfolio is built from a combination of stocks and bonds. Known as asset allocation, the right combination of both provides stability by reducing the impact of sharp declines in the market.

“Only an irresponsible portfolio would fall 50% if the stock market value were cut in half. That’s because bonds become parachutes when stock markets fall.”

Rule #6: Sample a “Round-the-World” Ticket to Indexing – Investing in indexes isn’t has hard as it sounds. With practical examples on how to get started, this guide breaks down indexing in the United States, Canada, Great Britain, Australia and Singapore.

“Going solo is the cheapest (and potentially most profitable) way to invest in index funds.”

Rule #7: No, You Don’t Have to Invest on Your Own – While the plan is to invest across stock and bond indexes, ignore financial news and rebalance once a year might sound simple, it can be more difficult in practice. If you don’t trust yourself to stick to the plan, take yourself out of the equation. Intelligent investment firms (aka robo-advisers) can build and manage index fund portfolios for a low fee.

“Traditional investment firms…are like horse-drawn buggies. Intelligent investment firms…are Teslas. No matter how you slice it, they perform much better and they cost a lot less.”

Rule #8: Peek Inside a Pilferer’s Playbook – Financial advisers do not want you to invest in index funds- they don’t make any money off fees when you do. They’ve devised strategies to talk you into staying invested in actively managed mutual funds. If you know what they’re going to say, you have a better chance of removing the tick.

“Many financial advisers have mental playbooks…designed to deter would be-index investors. Many of their clients are forced to keep climbing mountains with 100-pound backpacks.”

Rule #9: Avoid Seduction – Crafty marketers will try to seduce you with get rich quick schemes. Whether they’re trying to sell investment advice or offer a once in a lifetime opportunity, the easy money is probably too good to be true. Steer clear of alternative investments to keep more of your hard-earned savings.

“At some point in your life, someone is going to make you a lucrative promise. Give it a miss. In all likelihood, it’s going to cause nothing but headaches.

The Last Word

While market conditions and investment tools have evolved, Hallam’s second pass at Millionaire Teacher reveals that the principles and application of low cost, diversified index fund portfolios remain steadfast.

The second edition of Millionaire Teacher is an excellent crash course in personal finance and investing. If you’re looking for a place to start and are curious of how regular people can become millionaires, look no further. The lessons you learn from this millionaire teacher will be sure to keep you aging well into the golden years.

The Fintech scene in Canada just got a little bit more interesting. Financial innovation brought on by advancements in technology have opened up new investment options that disrupt traditional institutions; the trend is starting to pick up steam.

Robo-advisers have been steadily growing in popularity with players like Nest Wealth, Wealthsimple, and Wealth Bar relying on computer algorithms to manage investments and reduce costs. New competitors will continue to shift the landscape away from high investment fees and benefit investors.

Ladies and gentlemen, the latest online portfolio manager in Canada: JustWealth.

JustWealth, Who?

JustWealth Financial Inc. is a Toronto based company co-founded by Andrew Kirkland and James Gauthier. Kirkland, formerly a VP at Invesco Canada, specializes in client service while Gauthier brings asset management expertise from years with Scotia, TD and RBC.

According to Kirkland, “Trust in the financial services industry is decidedly low, which isn’t all that surprising given all of the conflicts of interest that exist.” The pair believe that transparent, honest advice combined with a focus in portfolio construction will allow them to stand out from their competitors.

All assets are held with Virtual Brokers, a division of BBS Securities Inc. who is a member of the Canadian Investors Protection Fund (CIPF). Investors are covered for up to $1 million for each type of account held.

Low-cost, personalized portfolio management

Justwealth offers 61 different portfolio options built from 29 ETFs from seven providers meant to “grow your wealth, generate income, or preserve your wealth.” Upon sign up, clients work with Personal Portfolio Managers and a support team to access services that include ongoing portfolio rebalancing and optional financial planning. Similar to other robo-advisors, clients can take advantage of advanced strategies such as tax loss harvesting.

Clients who opt for a Registered Education Savings Plan (RESP) account can benefit from specially structured Target Date portfolios. The portfolio’s asset allocation moves away from equity funds over time, and fixed-income funds are introduced as a child moves closer to enrolling for postsecondary education. This can help to reduce market risk.

The fees charged by JustWealth are in line with the competition: 0.50% for accounts under $500,000 and 0.40% for accounts with more than $500,000. Accounts with less than $25,000 are subject to a fee of $10 per month. While fees associated with trading are included in the annual fee, clients are responsible for the MER fees charged by ETF providers. They cost, on average, 0.25%, are automatically deducted and bring the fee up to a blended rate of 0.75%.

The minimum account size is $5,000, with the exception of RESP accounts where no minimum is required. Clients with over $1 million under management are able to build a customized ETF portfolio.

The Last Word

Canadians increasingly shop online, bank online and search for advice online. It’s only a matter of time before the general public take their investing online- if not for the convenience, certainly for the cost.

Are you ready to trust your investments to a robot?

When was the last time you stepped into a bank? For us, trips have become increasingly few and far in between. Don’t get me wrong; I have fond memories of my dad walking me into a branch to open my very first account as a wee lad. I used that account for decades with an unwavering- yet unfounded- loyalty, believing that I was using the best service in the business. Until, I discovered, I wasn’t.

As the years came and went, fees increased, services were reduced and attractive promotions only applied to new customers. The day of reckoning came when said bank, which shall rename nameless, raised the minimum balance waive fees. It was the last straw. I closed my account, canceled my credit card and took my business elsewhere- to a bank with no fees.

Enter the new kid on the block, a new online bank with no fees and 3% interest: EQ Bank.

EQ Bank, Who?

EQ Bank is owned by Equitable Bank, the 9th largest federally regulated Schedule 1 bank with 14 billion in assets under management. Funds up to $100,000 deposited are covered by the Canada Deposit Insurance Corporation (CDIC), just like the rest of the big banks. Except for the fact that they are offering something that the big banks are not:

The EQ Bank Savings Plus Account

The EQ Bank Savings Plus account is an interesting take on ye regular ol’ bank account, in that there is no defined distinction between chequings or savings. It’s a savings account that you can use for your everyday transactions. With it, you get:

Pros:

• 3% interest rate on your entire balance, calculated daily paid monthly.
• 5 free Interac e-Transfers per month
• Unlimited transactions (deposits, bill payments, fund transfers)
• Mobile app with mobile cheque deposit
• No minimum balance
• No monthly fees
• Secure online chat.
• 24/7 Customer service support based in Canada.

Cons:

• No debit card or ATM access (more on this later).
• No joint account
• Not yet available in Quebec

Related: Comparing Canadian Chequing Accounts

EQ Bank is also taking a different approach on the savings front; account holders can open an unlimited number of sub-accounts for specific savings goals.

Wait, there’s NO Debit Card?

You read that right. There is no debit card issued with the account. That also means you can’t take cash out at an ATM and you can’t pay for anything in store using this account.

Why on earth would they do that? Debit cards, payment processing and ATM agreements all cost money, which according to to EQ Bank, means less savings to pass along to its customers.

The account is designed to help customers reach savings goals and is supposed to be used in conjunction with or as a companion to existing banking situations. Deposits and withdrawals are handled through Electronic Fund Transfers (EFT), typical for online banks, which take a couple business days to clear or can be done through the free Interac e-Transfers.

The Last Word

A bank account with no debit card isn’t going to be for everybody, but could be of interest to anyone looking for a place to park short term savings.

Nonetheless, the world of online banking come boils down to a single word: Trust. Could you, would you, should you, trust your money with an online financial institution with no physical infrastructure?

Only you can decide. It may just not be for your parents.

Is EQ Bank worth a test drive?

2015 marks the third year in which I’ve been tracking our portfolio’s rate of return across all of our investment accounts. Our investments are held in TD e-Series index funds across registered mutual fund accounts. To borrow from Tim Ferris: “Investing is the act of allocating resources to improve one’s quality of life.” In his opinion, if an investment has an amazing return of 20% yet keeps him up at night, the speculative future gain is not worth the time and effort.

Investing in index funds comfortably diversifies our investments among 1664 companies spread across industries and geographies. It also comes at a low cost and requires a minimal effort to maintain. To calculate our return on investments, I’ve taken to the habit of using the approximate time-weighted rate of return calculation using a monthly Modified Dietz method. Without further ado, read on for a breakdown of our investment returns for 2015.

“Investing is the act of allocating resources to improve one’s quality of life.”

The RESPs

It’s been four calendar years since we first began investing in little brother’s education. We started the year at a balance of $10,806 and deposited the requisite $2,500 to trigger the Canadian Education Savings Grant (CESG) contribution of $500. For the sake of calculation, I factored in the CESG as a contribution, rather than investment gain, which resulted in a total rate of return of 9.59% for the year.

Little Sister’s account was opened and funded towards the end of September and was sitting at $3,141 at year’s end; good enough for 6.23% growth over three months.

Combined, the total rate of return on our RESP investments works out to a 9.65%.

The TFSAs

One of our goals for 2015 was to maximize the $5,500 contribution to both of our TFSA accounts. When the government announced an increase to the contribution limit for the year, we contributed $10K to one account and the $7K to the other.

Across two accounts, the total rate of return on our TFSA investments in 2015 was 9.62%.

Related: The Beginner’s Guide to the TFSA

The RRSPs

We have four RRSP accounts between the two of us. We contribute to our company defined contribution plans, where contributions are matched up to a set percentage of our salary. We each also have a RRSP account with the bank, though mine was opened as part of an ongoing experiment.

At the beginning of 2014, I invested $1,000 in an account alongside several prominent bloggers to see how the passive indexing approach using TD e-Series funds compared to other styles of investing. At the end of the first year, it grew to $1,133 and was good enough for a 3rd place finish among 20 participants. As of 2015 year end, the account sits at $1,295.62. It’ll be interesting to keep an eye on the account and will serve as a good reminder of how much $1,000 can grow as the years continue.

Across four accounts, the total rate of return on our RRSP investments in 2015 was 10.30%.

Related: The Beginner’s Guide to the RRSP

The Last Word

Including fees, our investment return for 2015 was 9.91%.

The portfolio was able to post a gain for the year despite the slump in oil prices, greek crisis and giant fluctuations due to swings in the chinese market. This growth can neither be attributed to superior timing or skill on our part, but rather an understanding in a fundamental tenet of our capitalist economy- that the market will continue to grow over time.

That’s not to say that our portfolio will experience positive growth every year. There are inherent risks after all but a broadly diversified, low cost portfolio paired with the right behaviours to weather the ups and downs are the best tools to keep our financial future on the right track.

How did your investments perform in 2015?

Late last year, we were interviewed for by the Toronto Star for an article about millennial housing and how we impact and affect the market in Toronto. When the article came out this past weekend, we found The Star stating we had “done the math.”

I have previously shared the motivation behind our decision to remain in our small space. Today, I’ll draw the curtains to show you the numbers. On a side note, math is awesome.

The Background

We have the capacity to clear the mortgage in its entirety right now, but it would require us to liquidate all of our investments; let’s not get into the whole mortgage repayment versus investment debate right now.

As article indicated, we purchased our condo over 7 years ago for $280,000. Definitely not a small sum of money even back in 2008. Our friend purchased a much bigger house in Minnesota for a third of the price; he continues to poke fun of our expensive tiny box of a home. Considering that housing prices began to skyrocket at a record-breaking pace in 2009, a two bedroom condo for over a quarter of a million seems like a steal nowadays.

We made mortgage reduction a huge priority in the first few years as homeowners (well, after clearing Daniel’s $30K school loan first). We increased our monthly payments whenever our income increased and all of our annual savings went into the mortgage as lump sum payments. The amortization period on the condo was reduced to 15 years from 25 years.

As we better educated ourselves on personal finance and investing, we re-allocated our annual savings to low cost index investments but kept an accelerated bi-weekly mortgage payment schedule. An equilibrium between debt repayment and investing was formed; we are paying off the mortgage and saving at rates that will accelerate the end date for full home ownership and retirement. We have the capacity to clear the mortgage in its entirety right now, but it would require us to liquidate all of our investments; let’s not get into the whole mortgage repayment versus investment debate right now.

As of January 2016, we have paid off $146,000 of the principle, leaving a remaining mortgage of around $133,000. Without making any changes to our current monthly mortgage payments or savings rates, the mortgage for our condo will be paid off in seven years.

Hypothetical Purchase of a New Home

We would have 25% downpayment for a $850,000 home. Our new mortgage would now be mind boggling $637,500.

Let’s say we decide to upgrade right now and find a home in Leslieville, a neighbourhood we once seriously considered. The average home in Leslieville, as of November 2015, was approximately $800,000; after skimming through MLS, I found a semi-detach I liked for $850,000.

We would take the proceeds from the sale of condo (less closing costs) and use it as a downpayment for the new place. Based on current market prices of a two bedroom condo in our neighbourhood, that would roughly amount to a $213,000 down payment, or 25% of the purchase price of my bigger yuppie house. Our new mortgage would now be mind boggling $637,500. With an amortization of 25 years and an interest rate of 2.49%, our monthly mortgage payment would be $2,850, an increase of $1,100.

[table]
“”, Current (Condo), Hypothetical (House)
Mortgage Remaining, “$133,000”, “$637,500”
Years Remaining, 7, 25
Monthly Mortgage Payment, “$1,750”, “$2,850”
Difference, “”, “$1,100”
[/table]

What are the implications of $1,100 a month?

• $13,200 a year, for starters. In five years, which is the minimum duration we intend to stay at the condo, we will have saved $66,500.
• If we stay at the condo longer- say seven years-  we will have bumped up our savings to $92,400. Investing $13,200 a year for seven years, with a rate of return of 6% would grow to $110,799. We would also be mortgage free. That, to me, seems like a better place to be than in a bigger home.
• If we purchase the hypothetical $850,000 house- in seven years- we will have paid $98,200 in interest. And that’s assuming an interest rate of 2.49% through the entire duration. That is a lot of my hard earned money paying the bank! The outstanding mortgage would have a balance of $496,500, with another 18 years to go.
• Let’s not forget the cost of discretionary renovations. Many of these gems for sale have “good bones” and are just waiting to be gutted- working kitchens or not.

But Real Estate is an Investment!

I do not deny that real estate can be an investment, especially a house. The rate of return for a home in Leslieville would certainly surpass the rate of appreciation on the condo. Keeping that in mind, I compared the overall state of our finances between the two scenarios: staying in our condo and buying that house. The comparison was based on the following assumptions:

• Interest rates remain at 2.49 percent for seven years. Note, this is unlikely, and since interest rates are at a historic low, there is a bigger chance of interest rates increasing.
• The value of the condo is calculated with a yearly appreciation of 7%. This is based the value assessment of our home in 2014 and the purchase price in 2008.
• The value of the Leslieville house is calculated with a growth rate of 9.5%. This is based on the average house value in neighbourhood in 2008 and 2014
• The rate of return for investments is 6%.

[table]
In 7 Years , Condo, House
Remaining Mortgage, $0, “$497,000”
Estimated Home Value, “$679,000”, “$1,607,00”
“Investment Returns ($30K over 7 years + $1,100/month over years)”, “$1,750”, “$2,850”
Net Worth (from housing), “$835,000”, “$1,067,000″[/table]

In seven years (so 2023), buying the house in Leslieville could make me a millionaire. Not bad,but I would still have half a million in debt with all my assets tied to the house, leaving me house rich and cash poor. The difference in net worth between House me and Condo me would be $232,000. That is a tidy sum, but I would have to sell (and lose) the house to reap the benefit. On the other hand, Condo me would be cash rich having accumulated $156,000 in liquid assets. Unless we sell, real estate, however much it’s worth, will not generate the necessary income for retirement; a high net worth where assets are tied down in real estate does not bring financial freedom.

Leaving $156,000 invested for another 27 years, until I reach the retirement age of 65 years old, my liquid assets will have grown to $752,286- without adding anything else to that investment fund. However, that would be unlikely as Condo me would also be mortgage free with an “extra” $1,750 to save each month.

Related: The Great Debate: Condo versus House

Other Considerations

Other aspects of our finances would be affected by a higher mortgage, like our ability to travel or splurge on a big purchase or even to renovate. Our current housing expenses (which include mortgage, maintenance, property tax, and insurance) account for 24% of our monthly budget; an increase in mortgage payments and property taxes would raise that percentage, diminishing our current standard of living (less fun, less travel) and ability to save. In the case of an emergency, we’d risk not having sufficient cash flow to cover the unexpected expenses; in the case of reduced income, we’d risk not meeting mortgage payment obligations. And of course, if interest rates go up, so will the monthly payments.

Our Finances, Our Values, Our Priorities

After running the numbers, we decided to stay in the condo. It is a decision specific to our family and based on our values. While we could “afford” a house, acquiring a bigger mortgage does not align with our current priorities. For example, one of our financial goals is to retire at a much younger age than the average Canadian at 65 years of age. A bigger mortgage would hinder our ability to reach accelerated financial freedom.

Everyone’s situation is different. Financially speaking, some have higher incomes, bigger retirement funds, larger down payments or opt to borrow from the bank of mom and dad. Value wise, some people do not care for early retirement or place greater importance in the benefits of living in a house in particular neighourbood. They are trade-offs to every financial decision; only you can determine what you are willing to give up or live for.

Last Word

When considering taking on a mortgage, it is important to review the following questions:

• How will the monthly payments affect your current standard of living and will you be okay with the changes?
• Will you be able to maintain mortgage payments if your salary is reduced, like in the case of unemployment?
• If so, will maintaining mortgage affect put a strain on finances and keep you up at night?
• Will you be able to maintain the mortgage if interest rates go up?
• Will you be able to save for retirement and reach financial freedom at desired age with your mortgage?

The only way to answer these questions is to do the math.

You’ve heard it here many times before, and now again from The Star: we’re staying put. For how long, I can’t say. We intend on staying for 5 years, but it could longer or shorter. Maybe the housing market will crash. Maybe we will win a million dollars (from lottery tickets we don’t buy). Maybe the kids will outgrow our space sooner than we plan. Or maybe we will live mortgage free for a few years before deciding to move. Whatever the case, when our situation changes, you can be sure we’ll do the math first.

Sources

• Toronto Star Article: Millennials set to drive change in real estate market
• http://www.ratehub.ca/
• https://www.realtor.ca/
• http://news.morningstar.com/index/indexReturn.html
• http://www1.toronto.ca/wps/portal/contentonly?vgnextoid=6245ff0e43db1410VgnVCM10000071d60f89RCRD
• http://juliekinnear.com/toronto-neighbourhoods/leslieville-real-estate/house-prices

Have you done the math?