This transcript has been automatically generated.

Kathryn Toope: Welcome to Barenaked Money, the podcast where we strip down the complex world of finance to its bare essentials with your hosts, Josh Sheluk and Colin White, portfolio managers with Verecan Capital Management Inc.

Colin White: Welcome to the next episode of Barenaked Money. The OG, Josh and Colin coming at you with a an amalgam of the most frequently asked questions, at least in the opinion of I don’t know whose opinion this is. The opinion of the team, Catherine’s opinion, or who who’s who correlated this list of frequently asked questions? How do we keep track of this?

Josh Sheluk: Well, someone thought they were frequently asked, so they must exist in more than one form somewhere out there. So we thought, well, we should probably answer them. And I think a lot of these questions we’ve probably answered in some way at various points on this pod, but it doesn’t hurt to answer them again in a more direct form.

Colin White: Let us stab us at the hurt of the demon and try to provide answers that will satiate our audience. You have the list as always, Josh. You are in control.

Josh Sheluk: I do. We are going be all over the place. Please don’t write us a follow-up or a feedback email saying that you guys were all over the place. We know that. It’s by design.

Colin White: Doctor. That’s a feature. It’s not a bug.

Josh Sheluk: Doctor. Exactly. Exactly. The first question here is this is as old as time, I think. Why do you own mutual funds?

What’s the point of a mutual fund? Are they not super expensive?

Colin White: Well, it’s it’s funny because that question was mainly asked by people who are trying to sell you something that wasn’t a mutual fund. Am I am I wrong? Or is that that’s that are those the people most frequently asking the question?

Josh Sheluk: Maybe. But I I think this question has made its way into the mainstream media over the past whatever five to ten years, I think is probably a fair comment. So I don’t think that they are trying to sell us a different product necessarily. Are. Are media services, not a different investment product,

Colin White: I don’t think. Yeah. Well, you’re right. We deal with this all the time. And the funny thing is well, the interesting thing is I’m agnostic.

Like, I I don’t think that they’re either good or evil, but they can serve a purpose. And, you know, we are style agnostic. We are product agnostic in our approach. So, we have and we do use them, and I’ve used them my whole career, but for very specific things. Now, you’re absolutely right.

The vast majority of mutual funds, I will give it to all of the critics. Vast majority of mutual funds are overpriced for what they deliver. They are manufactured to meet a demand, and that demand is people are willing to buy them. They’re not demanding them be good. They’re demanding them to be, you know, sellable.

So, the whole industry panders to whatever the most recent demand might be and whatever they can sell. So, yeah, obviously, I don’t know what we’re up to, Josh. It must be over 30. Last, I was aware it was over 25. It must be over 30,000 mutual fund offerings in Canada alone.

And, I would agree as an industry, yeah, the vast majority of just is not worth the price you end up paying for for sure. But, hey, as my as the amazing chief investment officer of a a a national wealth management firm, Josh, why do we actually use them from time to time?

Josh Sheluk: Well, it’s important to, I think, just answer the question directly. Why do you own mutual funds? Because we think that they can add value and be a wealth growing productive component of client portfolios over time. I think that this question exists in the form it does today because supposedly or seemingly cheaper or better or whatever more efficient option is available in the form of an ETF, an exchange traded fund. And I was trying to think of the right analogy for this.

For me, it comes a lot to like ETFs are kind of the EVs, the electric vehicles. Both internal combustion engine and EVs, they’re going to get you from point A to point B. They’re both going to have four wheels. Tires are going be made of rubber. They’re going to have brakes.

They’re going to have an engine. They get you there in a slightly different format. Right? One uses gasoline. The other one uses electric power.

And some people are going to have a preference for one over the other. Some cases, one situation is gonna be better than the next. Like, if I’m driving across Canada, I’m pretty sure I still want an internal combustion engine. If I live in the Arctic, I’m pretty sure I I don’t want an EV. But if my longest drive is 10 kilometers to the grocery store and I live in a place that’s abundant in electricity and warm and sunny all the time, then maybe an EV is an awesome option.

That’s the way that we approach this stuff is what am I trying to do What’s going to be the right format for me to do it in? This whole thing about mutual funds expensive and ETFs cheap, that’s not really the point. The point is that active management, which is traditionally more associated with mutual funds, costs more than passive management, which is traditionally more associated with ETFs. So that we just need to reframe the question a little bit because there are some god awful horribly overpriced ETFs that are out there that are probably a lot more damaging than a lot of the mutual funds that are out there, quite frankly. And at the end of the day, these are just both vehicles that allow you to buy a basket of investments, whether that’s Japanese stocks or Canadian government bonds or whatever it is, you can do it in either vehicle.

The nuances are slightly different, but they’re very nuanced. The differences between one or the other.

Colin White: I’ve always pointed out that it’s, you know, the conversation about price, if that’s all you have to talk about, that’s what you talk about. But when we’re evaluating something, it’s always on the net performance. Like, if we’re gonna evaluate a mutual fund, it’s what is the net return after all fees? That’s what gets compared. That’s what gets analyzed.

So, again, you can charge me 10% a year, but if you’re giving me a better rate of return in a given, you know, area of either geography or market cap space or something, if you’re legitimately, you know, adding value amongst all of the competitors, well, I would be stupid to exclude you just because you were the most expensive. Now having said that, there is a correlation between being overpriced to negative performance for sure. But I think at the end of the day, it’s about after all fees are considered, is the best way? The other thing I would say is that using mutual funds and some of the larger investment houses, it gets us access to markets we wouldn’t otherwise have access to. And, you know, they’ve got boots on the ground in other parts of the world where, you know, we have deemed that to be valuable.

You know, we we wanted to take advantage of. And I think in the mutual fund space, I don’t know if we wanted to get into product here, but, you know, GIMCO is one of the ones that you see quite often used in the fixed income space because they have unparalleled unparalleled global reach. And that’s not something that’s replicable. You get taken a look at the performances as we evaluate them. Yeah.

It makes sense to have somebody there that did something we cannot replicate otherwise. So, you know, anybody who’s trying to simplify the conversation into cheaper is better, mutual funds evil, they’re not having a full conversation. They’re not considering all the nuances that are important in this. And we’re not trying to sell you a mutual fund to put we’re completely guess somebody walked in tomorrow and wanted to replace one of our mutual funds with a truly better option. We’re not gonna make any more or less money, and we’re not married to a neighbor ID does.

So, you know, the but without any restrictions, this is where we’ve landed using some mutual funds from time to time.

Josh Sheluk: Alright. So moving on, this is one that I think is near and dear to your heart. What are these zero fee companies all about and how do they make money? So I think this is specifically more specifically referring to the zero commission trading platforms and things like, hey. You can trade for free here.

What are they all about? How do they make their money?

Colin White: We wanna get our average back down to two minutes. I’ll just say they sell your order flow.

Josh Sheluk: That’s a good start.

Colin White: You do do you me to keep going? No. The if you’re not paying to be there, you’re the product. You know? So that’s that’s always been true.

And I think that that’s credited back to somebody in the seventies sixties or seventies, if you get the guy’s name. But it’s it’s absolutely true. So those institutions are making money off of order flow. So when you place an order with them, if they sell that order, most cases to a hedge fund that executes it, and that execution, they share with you pennies off using different mechanisms. Also, they make money off of the, you know, holding cash every time cash gets deposited to account sits there for a day or two.

They get to pocket the cash. So when you have a a large institution that is, you know, has economies of scale, it’s very reasonable they could offer that. Now you’re not getting the best execution you could get, and, you know, you’re not the client. So, you know, they’re they’re not gonna necessarily treat you as a client. And there’s been examples of that where the trading platform behaved in its own best interest.

I think everybody jumped up and asked, were your clients? Well, no, you’re not. You didn’t pay to be there. You’re the product. It’s like being the couch.

Josh Sheluk: I object

Colin White: to being milked. That’s why you’re here. You’re sure to be milked. Like you can’t be upset about that. Yeah.

So I don’t know. Did I give them enough flavor, Josh?

Josh Sheluk: Well, yeah. No. That’s that’s good. I mean, I I agree there’s a couple other things that they make money off. Even though they’re charging you 0 perhaps for the actual stock trade execution, there are other costs that could be involved.

Foreign exchange is something that they make a lot of money on. If you’re a Canadian buying US stocks or US options, that’s that’s a big, big moneymaker for them. There’s also the fact that options exist, And now cryptocurrencies exist on a lot of these platforms. So there’s more meaningful commission charges for executing trades in some of those other areas where it’s, I guess, free stock trading is kind of like a gateway drug. You you start with free stock trading, and you end up trading, you know, penny options on Google for three years out.

Colin White: This is just like Fortnite’s business model. Like, you know, we’re gonna be waiting to free a whole bunch of people. Want you in. Well, would you want this fancy skin? Would you like this interesting gun?

Like, for another $5, we’re gonna give you so it’s the gamification of investing. Right?

Josh Sheluk: Yeah.

Colin White: You know, we’re gonna let you into the base game for free. If you wanna do anything fancy like all the other cool kids, you know, it’s gonna cost you $5 or $20 or or what have you. So

Josh Sheluk: Yeah. Yeah. But the bottom line is there’s there’s several ways that they make money off of you, and all of them, almost all of them, I would say, are tied to how much trading activity that you’re doing. And so they’re incentivized. The the business is incentivized to make you trade more.

And by the way, there’s a repeatedly proven negative correlation between the amount of trading that you do and the returns that you actually realize. So the more trading that you do, the more detrimental it is to your long term results on average.

Colin White: Gonna generously provide you with a video training series of twenty minute videos and teaching you exactly how to aggressively trade and how much money you can make aggressively trading. And they’re gonna give you a certificate. Like, your account’s gonna get a little star in the corner because you’ve completed eight hours of training. Therefore, you must be a certified trader. Anyway, I’m sorry.

That’s a hyperbole and exaggeration to make a point, but that’s that’s how those platforms are gonna reel you in over time.

Josh Sheluk: Yeah. So next question here. What are some of the questions I should ask my current adviser or my non Vericant adviser or even my Vericant adviser to get a good sense of whether they’re good or not?

Colin White: That’s like interviewing for a job. Like, you can ask all the questions in your world, but it’s difficult to figure out who’s good and who’s not. But this yeah. Yeah. Again, we’ve pointed this out in previous pods.

Looking for somebody who has credentials, which, you know, can mean a variety of things, but it’s not that they have the credential that makes them necessarily any more smarter than the other guy. But the fact that they were willing to invest the time and effort and energy into being serious about what they’re doing for a living. You know, the the effort but more than the credential is important. Like, somebody who’s taking the time to go above and beyond is an indication of somebody who is legitimately trying to do more for the client. I think that’s a big one.

You know, trying to figure out whether the person sitting in the chair, how much control they have over what it is they’re offering to you. Like, are they sitting is the name on their card the same as the name on the investment, which is the same as the name on the building? You know, how long have they been there? In that particular seat, how long have they been in the industry? These are all indicators for sure.

And also to sit down if somebody starts by telling you what the best thing is to put in your TFSA, that’s a bad advisor. Good advisor is going to start by asking you questions before they start getting the solutions. So sometimes it’s if they if they start making recommendations before you’ve asked any questions, there might be a red flag. Are a couple comedians now that do the whole red flag thing. So maybe we should do an episode on red flags from your adviser.

Maybe let me do the next pod.

Josh Sheluk: Yeah. I think what you’re saying there is you wanna try to identify somebody that has a very good understanding of your goals, your objectives, your risk tolerance, things like this, the things that really matter to you, things that are meaningful to you. And if the person, any professional, doesn’t matter whether it’s a financial adviser or anybody else, the person sitting across the table from you is not asking the types of questions to try to unearth the answers to those questions, it’s probably not going to be a fruitful relationship. The other thing, what you kind of alluded to there is do they have to sell a proprietary product, or do they have the free range to do whatever they want from an investment perspective being the full range of choices that should be available to them? So I think for me, just a bit broader, I think it’s helpful to understand the business model and the compensation structure for the person that’s crossed the table from you.

So who owns your business? This is a good question.

Colin White: Yeah.

Josh Sheluk: How how do you how do you get paid? How how do I pay you? But not only how do I pay you or your organization, but how do you get paid? Like, what what goes into determining your compensation? And people should be willing and able to give you clear, concise, and direct answers to these questions.

Colin White: And also how the firm makes money. Right? So, you know, there’s there’s there’s two sides to it. Like, you know, you’re making money, and this that’s fine. But the company you work for, how are they making money?

You know, what’s what’s their take on things? You know, you get that. To me, and I I say this all the time, and and you say it as well, you know, what’s the business model? That’s a very broad question that encompasses all these things. You know, it’s not just what the how the adviser’s getting paid.

How is everybody in the food chain getting paid? And, therefore, how people get paid is gonna be what their motivations are. And I’ve said this many times. There’s fantastic people that are doing great work in spite of their environment. So just because somebody’s in a a compromised environment doesn’t make them a bad adviser necessarily, but you wanna look for somebody who doesn’t have negative adjustments in place Right.

In an ideal world.

Josh Sheluk: Right. Yeah. This question should not be so much how do you find a good or bad adviser. It should be more so how do you find somebody who’s going to provide good advice? Like I don’t really want to label somebody as bad necessarily.

It could just be that as you’re saying, the incentives are set up in such a way that the outcome’s So Yeah. And and for the record, you you should ask this. If you don’t understand this from your Veracan advisers or professionals, you should ask us as well. That should be those should be questions that you feel comfortable asking us when you’re in the office with us or on the phone with us.

Colin White: Yeah. And there’s there’s no expression. I’m gonna butcher it because I haven’t looked it up lately, but I’ve never seen opacity or lack of clarity work in the favor of the customer. If something is opaque and difficult to understand, that’s, that’s a sign that things are not lined up in the favor of the client.

Josh Sheluk: So this is a good one. Also maybe not as old as time, but as old as taxes. And it’s this aversion to wanting to make more money to aversion to making more money because you’ll pay more taxes. So if I make more money, I’ll have to pay more taxes. Why would I wanna do that?

Colin White: I I wish Dan was here because this the most animated I ever see, Dan, is when he’s answering this question because it just frustrates him to no end. In the Canadian tax system, if you make a dollar, you’re gonna get to keep part of it. There is virtually no there there probably is a tiny exception that Matt’s gonna find one day because that’s what Matt does. But there are virtually no situations where you can earn a dollar and end up having to pay more than a dollar in tax. So, for every hour you work, every dollar you earn, you will get to keep part of it.

It is true. The more you make, the least you get to keep. But congratulations, you live in Canada. So, if you are already on pension and you are working part time or if you are working overtime, you’re right. You’re gonna seemingly lose a bigger percentage of it.

That doesn’t make it worthless. You get still get to spend that extra money. So you are always gonna be better off and accept for the one time that’s gonna figure out the the amount. 99.99999 of the time by making an extra dollar because there’s no scenario where you’re gonna lose more than a dollar in tax. So that is something said by lazy people who are trying to justify a reason not to work in my experience.

Josh Sheluk: Or people that might not have a full understanding of of the graduated tax system that we have in place.

Colin White: So No. Is lazy people.

Josh Sheluk: Yeah. It and lazy people do. It is true that tax rates go up as you earn more income, but those tax rates go up on only the the marginal or incremental income that you earn, not not from dollar 1. So Yep. You can make a new dollar, and it be could be taxed at 40% where your past dollar was taxed at 30%, but you’re still putting 60% of of what you make in your pocket.

Colin, if I have a pension and I’m gonna retire with a nice pension, could be a teacher’s pension, could be a municipal or government pension, why would I need any other savings?

Colin White: You know? Well, there there’s no reason that you do. But what savings do is money is options. Right? So if you want options, then you should have savings because, you know, we’ve gone through it enough in Canada with, you know, Nortel, BlackBerry, and other than those different regional pensions that have struggled and not paid out their promised amounts.

So anything short of a federal provincial government pension could have issues. You know, not to say that they would or it’s likely, but, you know, it could. So to think that it’s, you know, divine, it comes from heaven and can never ever be impacted. Yeah. It’s a bit of a stretch.

But additional savings give you options, and options are powerful. You’re retirement and you don’t necessarily have the capacity to, you know, earn more money and you’re stripping with the health situation or there’s a tariff situation that affects your your world or inflation or something affects your cash flow. If you have no money, you have no options. If you have money, you have options. And, you know, so you can, you know, buy yourself some more freedom.

But some of this comes down to the, you know, living at the very edge of your financial means. There are those, and again, people who are wanting to spend everything on lifestyle. I got my pension. So was gonna spend the rest of my money, and, you know, that’s smart. A bit of an exaggeration you would call it smart.

I wanna live my life. I bet you do. But you also don’t wanna be, you know, 70 years old and, you know, trying to find a place to live that cost you less because you can’t afford the place you’re living in because you were living too close to the edge and you got pushed over it. So, you know, when you’re young and have the ability, try to take a look around to somebody who’s 75 years old and is really struggling to make ends meet. That’s not a comfortable place to be, and you can avoid potentially being that person by having a little bit more of a shock absorber to come and go on.

So my answer to the question is you don’t nobody needs to save money. You just need to adjust your expectations as to where what size box you’re gonna be living in, underneath the freeway.

Josh Sheluk: The biggest issue with the so called pensions, I think, is the inflexibility that they offer. So if you’re living within your means under the amount that your pension’s paying you every month, that’s awesome. If for whatever reason you’re pushed even $2 above that monthly pension amount, guess what? You have no flexibility if you have no other savings. You’re done.

Colin White: So Oh, you you have decisions to make. You no longer get you no longer get the nice rice. You have to get the cheap, regular rice.

Josh Sheluk: You can’t supersize your fries anymore. So Yeah.

Colin White: However, that manifests itself in somebody’s given world. Right? But, you know, the best way to understand all this is money is options, And options can be, you know, very, very comfortable, especially when you’ve given up your ability to earn more money. But listen, to those who wanna run the rugged edge, our economy is run by people who don’t save. You know, people overspending, buying too many cars, going to eat too much.

The rest of us should celebrate these people. I’m not here to admonish them. I’m gonna cheer them on because that’s what keeps the overall economy growing. So I’m in favor of people overspending. But if if you wanna not overspend, you can come talk to us.

We’ll help you out.

Josh Sheluk: So here’s a a close follow-up to that question then, Colin. How much do I need to retire?

Colin White: Yes. You you you need you need to retire. It’s sort of one those stupid questions in this industry trots out answers like a million dollars, 2 million dollars. No, five minutes. Just shut up.

There’s no answer to that question. You know, what do you, when do you want to retire and how do you want to retire? Until you can answer those questions, I can’t come close to giving you an option. There, I’ve watched people live very comfortably under $20.00 a year. And some of the some of the happiest people I’ve ever met, the most content people I’ve ever met, and then other people, you know, can’t live on $400,000 a year, and they’re miserable all the time.

So there’s no answer to that. You know, that question gets trotted out and answered in an effort to shame people into saving more money. You don’t have $2,000,000. You’re not serious about retirement. Oh my god.

I’m serious about retirement. Well, how close to $2,000,000? I’m not close. Well, you should save more. That’s all When do you want to retire?

How long do you want to retire? And what do you wanna spend in retirement? Now I can start doing some math and saying, okay. To meet those goals, this is kinda where you have to aim. But there’s no, answer to that question, Josh.

Josh Sheluk: Yep. No. It’s well said, and I have nothing to add. So this one’s changing gears a little bit. When do I need to make changes to my portfolio asset mix?

And I’ll simplify things a little bit here by saying the mix between stocks and bonds, which are the two most traditional asset classes that you would find within a portfolio.

Colin White: People back and forth. So I think there’s probably a couple of different ways to to slice this particular onion. You know, I don’t think there’s a pattern. So, I mean, typically, the pattern is as you get closer to retirement and and relying on your money, begin to take risk off the table. Now, typically, that means moving from more volatile equities into more stable fixed income or high interest savings accounts.

That’s typically that’s a rule of thumb, but it doesn’t always hold true. You know, part of the problem is is that people think that retirement is a date. Retirement’s a phase of life, which for some people, that phase of life can be thirty years. So, you know, that’s still long term. So to say that my risk profile because I’m now in retirement, therefore, my income, my time horizon short.

No. No. No. No. No.

No. That’s not the way it works. Your time horizon can still be long. It’s it’s a very fungible thing, but it is true that you do wanna have but there’s different ways to reduce risk. It’s not just about your asset mix.

It’s about getting debt free. It’s it’s about, know, setting up your living situation as to what you wanna retire into and make sure the roof is replaced on the house. You got a new furnace or you’ve found out a permit you wanna move into or whatever. So there’s a whole bunch that goes into it. But, generally, you wanna reduce, as a rule of thumb, reduce risk as you get closer to retirement, but it’s not a it’s not a formulaic thing.

You remember the the the target dated funds, Josh? I don’t know if they’re even still a thing.

Josh Sheluk: Still still all over the place, especially in in the pension world. But I would suggest we alter your language a little bit. And instead of closer to retirement, closer to a goal that requires needs of your money, because that could be a lot of things. You’re right. The most often priority is retirement.

But if your goal is to buy a house in five years and that’s your sole goal at the moment, then as you get closer to that, then you need to or should think about consider changing your asset mix as well. Or if it’s whatever education for your kids, that’s one where as you get closer to that age 18, then you’re starting to adjust asset mix as well. So, like, for me to just to be intentionally vague about it, when you look at adjusting your asset mix, it’s when your your goals, your risk tolerance, or your time horizon has changed. One one of those three things.

Colin White: Yeah. That’s an incidentally better answer. You know? Because it it is so we we substitute retirement oftentimes for when you need your money, and there there’s there’s better ways to describe when you need your money. So your investment approach should, you know, take into account when the money is needed.

Retirement is one example. And, you know, because it could be that I wanna stop work this year, but I’m not gonna need this money for 10. Yeah. So that Totally. Change that that changes that as well.

So an infinitely better answer. I’m gonna give you an infinite credit right now. Like, that was not just a little bit better. That’s like a Infinitely better.

Josh Sheluk: Gold star in our world. So that’s great. But I I also think it’s up. Thank you. Thank you.

All these accolades. I think it’s also worth mentioning when you don’t consider asset mix changes. And, like, for me, changes in in the world that are more temporary in nature are something where you shouldn’t be changing your asset mix because of that. And I’ll use the one that’s most front and center in our world today, and that’s tariffs that were imposed yesterday as we record this and could be unimposed by today as we record this. Deposed.

Deposed.

Colin White: I don’t know.

Josh Sheluk: Posed. So that those are one things that, like, you know, temporary changes in the world don’t always necessitate and and most often do not necessitate changes in your asset mix.

Colin White: Well, let me let me try to give an infinitely better answer. Fear and greed are two reasons not to change your asset mix.

Josh Sheluk: Right.

Colin White: Right. So if you’re if you’re having an emotional response to something, that’s not a reason to change your asset mix. Your asset mix should be changed based on when money is needed. That’s what should drive your asset mix and nothing else.

Josh Sheluk: Okay. Well, I’m giving you a rainbow stamp for that one.

Colin White: Rainbow stamp?

Josh Sheluk: Yes.

Colin White: I get I get all the colors.

Josh Sheluk: So staying on the retirement track since we are on there, I don’t need to call this retirement. It could be any goal. When should I prioritize when should I re prioritize saving versus paying off debt?

Colin White: There’s no easy answer to that. So peel back the onion. So one one side of it is behavioral. Right? So paying off debt is a symbolic thing.

It can signify a change or maturity, if you will, in somebody’s journey towards becoming a completely self sufficient human being. That may happen in your forties or fifties, but, you know, paying off the debt can be a symbolic thing that’s important. Paying off debt can reduce risk because, you know, going into a time when you need your financial independence and not having that reduces risk. So there’s a few, you know, behavioral financings. You can also pay down your debt just to run it back up again.

So I’ve watched that happen. Like, there were people saying, as soon as I pay down my credit card, I’ll start putting money in my RRSP. Ten, fifteen years later, we’re still paying off that same credit card because mentally, as soon as it goes down to $5,000 well, that’s close enough to pay it off. I might as well, you know, put this new TV on my credit card. You know, so it becomes a you never get to the second thing, so you never save it.

So if you’re that person, you should start saving at the same time as you’re paying off. Don’t otherwise, you’ll never get to the second thing. Yeah. No. So that’s the strategy as well.

But mathematically, if you’re just gonna do the math, it’s just comparing the interest rate, considering taxation. How expensive is the debt, and what’s the reasonable expected rate of return? What is the tax efficiency? How much does the tax efficiency add savings program? So that’s that’s a multi layered answer.

Is there a better way to say that, Josh? Like, is there an infinitely better way to say that?

Josh Sheluk: No. Not infinitely better. I think the the summary is that first look at the interest rate. If the interest rate is high or, it probably makes sense to pay off your debt before you start saving. If you have credit card debt, pay off your debt.

You’re not gonna have a better rate of return on your investments than saving 20% on your credit card debt. If you got mortgage debt, you know, you could probably squint, and it would make sense both ways. And if you’re really worried about it, do a little bit of both. Call it a day and feel good about yourself because both these things are productive.

Colin White: Well, yeah, that that’s just it. I mean, I I think you can win this by not answering the question. And if you’ve got a $500 or a thousand dollars worth of discretionary money in your pocket and you wanna make your situation a better thing, But on both horses, take half of it, pay down your debt, half of it, put it in the RST. That way, it doesn’t matter which way is better. You did at least half right.

Josh Sheluk: Yeah. Alright. What’s the difference between a dividend paying stock and a growth stock?

Colin White: Depends. You know? There there are stocks that are both. Yeah. Let’s just let’s cross the streams.

These are labels that get slapped on shit to sell it. Is that a

Josh Sheluk: I’m so glad you you did that because my answer was gonna be it’s it’s what we’ve decided to call. That’s the only difference, really. I mean, I guess if you’re if you’re trying to get into most of the time, a growth stock is growing, but all stocks are growing. Growth stocks are growing higher at a at a at a higher rate than the average stock and dividends stocks are paying dividends at a higher rate than the average stock. That’s about it.

Colin White: And dividends aren’t even dividends anymore because they used to be paying out a percentage of profits and now it’s turned into a return on capital. And, you know, companies are borrowing money and paying it out as dividends. And, you know, again, it’s these are things that get trotted out largely for marketing because, you know, to commit somebody, hey. This is a gross stock. Oh my god.

This one’s gonna grow? Shut up. I hope so. Exactly.

Josh Sheluk: If not, what am I doing here?

Colin White: But I think largely they get interpreted and put in two buckets. Growth tends to be a little more volatile with a higher expected rate of return over time. And dividend paying stocks are more about generating I think a cash flow. I’ll call it that. Yeah.

It’s not paying you back profits necessarily but it’s more about generating cash flow. But the honest thing is if you want to grow your money just have a diversified portfolio I want you to grow. If you want to take money out to spend it, we’ll take money out to spend it. One mistake we do see people make all the time is they put something in a market exposed investment, whether it’s a dividend paying stock or what have you. And they cash a little bit out every month to spend it.

That’s dumb because you are now cashing out regardless of market fluctuations, and that is dramatically increasing your risk and turns your portfolio into tremendously path dependent. So, you know, you can manage those risks by having a shock absorber in the form of high interest savings account and be a little bit more judicious about pulling money out. But, you know, watching people, you know, cash out a market exposed investment every month, In the news now, it does matter to you. Like if you see a 20% market correction, that matters to you because you’re now cashing out, locking in losses at that point. So, yeah, I think that’s worth saying at this juncture.

Is there a better way of saying that, Josh?

Josh Sheluk: No. No. I think that’s fair. I think what you said there makes is maybe the most direct way to answer it again is dividend bank stocks are marketed in a way that is designed for cash flow and growth stocks are marketed in a way that’s designed for more growth. But the reality is that dividend paying stocks, could be a great way to grow your wealth over time.

And, well, there’s growth stocks probably shouldn’t be used as a source of cash flow. So I’m not gonna say that. I’m not gonna argue the other side, but, you know, all these labels are kind of stupid. And most

Colin White: can pay dividends. Some some companies that are classified as gross stocks, they sometimes something regular dividends that are typically lower. And sometimes they pay, you know, special dividends or begin paying dividends when they get to a certain stage. So but these are largely distinctions without a difference. You what you want is your money to grow, and you need money when you need it.

Josh Sheluk: And neither of these things are to be confused with dividend growth stocks. That’s FAQ for another day.

Colin White: I’m not ready for that one. Yeah.

Josh Sheluk: Okay. Last one here, Colin. Why are you asking me about my will?

Colin White: Yeah. It’s it’s more than a fair question, and I have more than one client when I get to that point or prospects. Why are we talking about the will? Like, if we’re gonna put all this money together, I need to I need to know how you’re planning on distributing it because there can be things that you do that set your accounts up better depending on your goals. You know?

So setting up successor holders, setting up beneficiaries, choosing where to put money, you know, can all be affected by based on what’s in your will. But also, this is the desk you sit around when shit goes sideways. So I wanna make sure there’s nothing stupid in your will. So if you got your third cousin who lives in Australia as your executor and you haven’t talked to them in ten years, I’m gonna tell you that’s stupid and beg you to make a change because if you die and I have to try to sort that out, that is gonna cause me and I know your heirs. It’s gonna cause them a problem.

So I have seen enough people make enough, you know, call unnecessarily complicate things. So, no, we don’t write wills. We’re not lawyers, but I’ve seen a lot of things go sideways. And we can highlight with, hey. That’s a problem.

That’s a US resident, US citizen, and they’re gonna have to post a bond executor, and that’s a problem you should try to avoid. Maybe you should talk to a lawyer about that. And somebody goes, oh my god. My last lawyer didn’t bring that up. No.

Because your last lawyer just wrote down what you told them and charged you for it because it was a transaction to them. And they don’t care because they’re not they’re gonna be the one that has to sort it out in ten years’ time. That’s gonna be this office, and I don’t wanna sort that out. So please change it. So some of it’s functional from how we set up accounts.

Others selfishly trying to avoid real messes that we’ve seen in the past and maybe counsel people to seek legal advice to make changes.

Josh Sheluk: If we are providing comprehensive financial advice, which is what we try to do, this is part of your financial world, is your will and who’s set up to act as executor, how that money is going to be distributed, who’s gonna act as power of attorney on that money if you’re unable to act on it. So all of these things influence the decisions that we’re making today. And the opposite is also true. The decisions that we’re making today influence what’s going to happen there at the end of your life through your will, or when you’re incapacitated and acting or somebody’s acting as power of attorney. So all this stuff’s intertwined, and that’s why we ask about it.

That’s why we ask about your debts. That’s why we ask you about your assets. That’s why we ask you about your real estate and your business and your income because all this stuff is intertwined. And, Eddie, coming back to the question that we had earlier, how do you identify good financial professional, somebody that pays attention to all this stuff?

Colin White: Oh, you need need me in this call anymore. I mean, I got that’s where I was gonna take it. That was gonna be my big finish. I was gonna tie them all together. But, no, this this this goes back to you as your adviser, and we should as your advisers understand your goals.

And you have maybe, listen. I wanna make sure my grandkids blah blah. Okay. But we can also counsel you. It’s like, well, that’s a step two parole.

There’s not a real way to accomplish that goal you’re talking about because that’s gonna get into problems with whatever, whether it’s bad property issues. Again, we know enough to ask the question. It’s sending you to legal advice to get solid answers on things. But your your financial goals for your estate are still financial goals, and we can provide some, you know, sounding boards, some feedback, and help you organize your affairs accordingly. So we can play a role there.

So yes, good financial advisors are going to care about these things. You know, they’re not gonna talk to you about, you know, getting your TFSA open today because we noticed you didn’t have one.

Josh Sheluk: And that’s it for today, and we love these questions that come through. So if there are more frequently asked questions out there, however you define them, send them our way. We’ll do another one of these and run through them one by one quickly, succinctly to the point. Thanks, Colin.

Colin White: Thanks, everybody.

Colin White: If you’re breaking a sweat trying to figure out what your financial advisor is talking about, you’re not getting the service you need. You probably hate trying to get an answer from them, but you also think moving your accounts will be a headache, and it might be. But working with don’t rock the boat wealthplanning.com or .ru isn’t exactly stress free, is it? Call us. We will demystify the world for you.

Kathryn Toope: For more information on the subject of today’s podcast or any other financial topic, please visit us online at verecan.com. That’s verecan.com. There’s plenty of information there, or you can reach out to someone on the team. Thanks for listening. Please note, the information provided in this podcast is for general information purposes only.

It is not intended as financial investment, legal tax, accounting, or other professional advice. Our discussions are not a solicitation to buy or sell any securities or to make any specific investments. Any decisions based on information contained in this podcast are the sole responsibility of the listener. We strongly advise consulting with a professional financial adviser before making any financial decisions. Listeners should be aware that investing involves risks and that past performance is not indicative of future results.

Barenaked Money is produced by Verecan Capital Management Inc, a licensed portfolio management company in Canada. We operate under the regulatory framework established by the provincial securities commissions in the provinces within which we operate. The views expressed in the podcast are our own and do not necessarily reflect the official policy or position of any regulatory authority. Remember, at Verecan Capital Management Inc, we focus on aligning our goals with yours, prioritizing integrity and transparency. For more information about us and our services, please visit our website.

Thank you for listening, and let’s continue to challenge the norms of the financial services industry together.