Ep. 35 - The Worst Financial Advice

In order to uphold and maintain my Chartered Professional Accountant [CPA] Designation, I must incur 20 hours of annual "Professional Development". The criteria are wide-ranging - from ethics to wealth management - and are offered by CPA Canada.

I'm typically the person that does not procrastinate in the slightest. I'll study early and often, and I'll finish a project with time to spare. However, when it comes to mandatory course work that I don't align with, I'm potentially the biggest procrastinator and will defer for a very long time... So it's December 1st as of this writing and I need to obtain 20 hours of "Professional Development" in the next month. Fun.

I started searching through the database and I came across one Wealth Management course titled; “Six Pillars to Financial Freedom”, and at first glance I thought it may be interesting. I've always been fascinated with financial independence, so I was intrigued.

But this intrigue quickly turned to - frankly - embarrassment. Here are some key highlights of the course, which costs $360.

• “The simple truth is that it is possible to retire well using guaranteed, safe fixed-income products like GICs that can never decline in value combined with government-defined benefit pension plans including CPP and OAS.
• [The course] will show you the safest investment plan on earth – using 100% fixed income products that can never decline in value even if the stock market crashes.
• [The course] will show you how sometimes saving later in life is better than saving earlier.”

Okay... I needed to take a deep breath after this. First, this is terrible advice, and the fact it’s a Professional Development course for CPAs is ludicrous. Let’s dig in and demonstrate how far-off base this course is, and how I recommend doing the exact opposite of their recommendations.

1. The simple truth is that it is possible to retire well using guaranteed, safe fixed-income products like GICs that can never decline in value combined with government-defined benefit pension plans including CPP and OAS.

This first point may be true, you can retire using GICs and cash-like products during retirement, but that will not get you to retirement. For some Boomers, this strategy does get them to retirement, but for Millenials and Gen Z, it is nearly impossible. Someone who is below the age of 45 and earns a salary below $250k annually will not be able to retire using GICs - guaranteed. Also, the median household income in BC is $53k, so there is very little chance the average person would obtain retirement without investing.

The reason I use $250k as a threshold is that if you're a high earner and low-spender you have the ability to save aggressively, which may one day get you to the promised land. But even then, it's not guaranteed.

Let's look at why. First, the Consumer Price Index [CPI] is currently clocking in above 5%. To put it simply, your purchasing power is decreasing by >5% annually. Plus, CPI does not include major items such as housing, and other assets. Many argue CPI is indeed closer to 10-12%. Regardless, every bond and treasury on the planet is negative-yielding. By holding GICs you are losing money. Period.

Likewise, similar to how compound interest works in your favor, it can also work against you. Therefore, the 5% you’re losing on your money compounds year over year. Start with $100k? In three years you’ll still have $100k, but your purchasing power will have decreased to $86k. The ten-year treasury yield is currently at 1.47%. So let’s crunch some numbers to show you how terrible this is:

• $1m in the bank = $14.7k annually in interest income.
• $5m in the bank = $73.5k annually in interest income.

This may seem "okay", but let's look at the decrease in purchasing power using 5% inflation.

• $1m in the bank = $47.6k decrease in purchasing power.
• $5m in the bank = $238.1k decrease in purchasing power.

As you can see, those gains made are wiped out through the hidden tax of inflation. Moreover, CPP and OAS combine to earn around $1,500/monthly, which won't even cover rent in the majority of cities and towns in Canada.

So, this is just false. “Never decline in value” - sure - but we care about purchasing power and following this advice would force you back to work.

    2. [The course] will show you how sometimes saving later in life is better than saving earlier.

This is wrong.

I’m going to use simple numbers to demonstrate how false this assertion is.

Scenario 1: 30-year-old with $200k liquid net-worth. The time horizon is 30 years. 8% average return (historical return of S&P 500, including all "crashes"). A monthly contribution of $500.

Scenario 2: 40-year-old with $200k liquid net-worth. Time horizon 20 years (started 10 years later). 8% average return, and a monthly contribution of $500.

That’s a $1.5m difference! Investing at a young age offers the ultimate alpha and potential for asymmetry. Time is on your side, you can withstand down-turns, and take larger risks.

Now let’s use their ‘GIC’ approach with a nominal yield of 1.5%. [Which to be clear is unheard of, TD is currently offering 0.60% on an 18-month GIC]. But, we'll humor them.

This is self-explanatory. It’s poor advice and in real terms, not nominal, the value of your portfolio will have actually decreased drastically.

• $410k by 2041 [20-year holding period].
• 5% annual inflation.
• Purchasing power decrease: $150,755
• The required amount for the same purchasing power: $1,061,000

The reality is, and some people won’t like this, if you’re under the age of 30 your primary concern should be getting to a six-figure liquid net worth ASAP. Compound interest really starts to work as you get into the six-figure realm. The focus should be solely on accumulating before this stage. Don't listen to the bullsh*t personal finance gurus who tout not drinking a latte a day will make you a millionaire by age 70. A millionaire by age 70 is fine, but it'll be more fun and more helpful at age 40.

    3. It will show you the safest investment plan on earth – using 100% fixed-income products that can never decline in value even if the stock market crashes.

Not being invested in assets is the riskiest investment plan on earth, not the safest. I won't spend too much time on this subject, because it's similar to the first point I debunked. However, ask yourself this question: do you know any wealthy individual who doesn't own assets? No, you don't.

So, if GICs and cash-like products won't cut it, what will in an inflationary environment?

This is how I look at my investing strategy; I want to own companies and assets that will outperform for > 20 years, and I don't really care what they do tomorrow, or next month. Therefore, I'm predominantly in the following:

• Crypto/Web3 bets: Bitcoin, Ethereum, Solana, Bitcoin miners [HUT, HIVE, MARA, etc.], and Coinbase [COIN].
• Incumbent, founder-led tech giants: Facebook [META] - love him or hate him, Zuck is a genius, Twitter [will reevaluate now that Jack is gone], Microsoft, etc.
• Private placements/pre-IPO: This is slowly being democratized, and I urge everyone to attempt to get involved. A good place to start.

Closing

Apologies if this was ranty. But I hate poor financial advice. So many people go their entire life listening to misleading and terrible advice, in which the 'teacher', 'coach', or whatever they may be, profits at the expense of the user.

Remember, Tony Robbins and the like did not get rich saving $50 per month and skipping coffees, they got rich selling you that advice.