We all want financial freedom, but it can seem somewhat out of reach and overwhelming trying to figure it all out. Something that can help is learning how to invest – but how exactly do we do that? Today we’re talking to Certified Financial Planner Jared Webb from Design Wealth about investing and managing finances.
We’ve all been told a lot about how to manage money and set ourselves up for our future, but investing is something we often hear only meant for the stock market. Jared is here to teach us not only how to invest, but all the different ways we can make and save money. He’s also breaking down some stereotypes about money saving – and guess what? He’ll be the first to say that buying a coffee every day is not going to put us into financial ruin!
Getting into the investment market may be scary, but it’s completely doable, and we’re here to help you do it. From stocks and bonds to how TFSAs work, this episode is sure to teach you a lot. Make sure to check out our blog post break down of this episode for some quick tips and tricks!
Want to learn more about this episode and others like it? Join the UM Club! We have new episodes every week featuring some really knowledgeable people, so check it out and see what we’re all about!
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Jared Webb is one of the founding members of DesignWealth. A Certified Financial Planner (CFP) with over 14 years of experience, Jared brings a vast array of experiences and skillsets to help clients and the community. Jared’s passion for raising expectations when it comes to financial advice is surpassed only by his love for his family. Jared is married with 4 kids and a dog. He has a mortgage, works full-time and attends virtually all of his family’s extracurricular activities.
In This Episode We Talk About
00:43 – Who is Jared?
03:37 – What is investing?
10:18 – Stocks, bonds, ETFs – what are they?
16:07 – How to break into investing.
20:38 – What are the main investment options?
33:54 – When is the right time to invest?
45:27 – Investing while still having credit card debt.
53:00 – How do TFSAs and RRSPs play into this?
54:59 – Where to find Jared!
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Read the Full Conversation
Hello and welcome to another episode inside the Unapologetic Moms Club. Today I am here with Jared Webb from Design Wealth, who is going to be teaching us all about investing. Welcome, Jared.
Thank you so much for being here. I’ve really loved your practical approach to finances. And so I’m really looking forward to hearing what you have to say for all of us who are really kind of more so starting out with investing and buying houses and all that sort of thing, and dealing with our family lifestyle well trying to explore these new options.
Absolutely. No, my pleasure, Jannine, thank you.
Great. So let’s hear a little bit about you, who you are, what you do, why you’re so passionate about it?
Yeah, absolutely. Well, you know, I’m born and raised here in Victoria, one of the few, live out in Langford, have a mortgage, run a business, have four kids. And they range from 15 all the way down to almost 4 now. And so you know, keeps us busy. We’ve got them in hockey, basketball, soccer, running around, all that sort of stuff. So your basic, typical, three and a half kid family.
I’m one of the cofounders of Design Wealth, which has been around for about 4 years. But my family’s had a financial services firm for the last 30. So my parents started the business, I am the succession plan, so to speak. So, you know, there’s a lot of tenure here and a lot of supporting Victoria and the surrounding community for the last, you know, 25 years, 30 years.
But Design Wealth really is a passion. When I first started in this business 14, 15 years ago now, there was something missing in the process. It was too focused on the silo of investments and the silo of insurance, and it was all segregated, separated, etc. And that never sat well with me. There was always more that I wanted to know about someone’s situation, because knowing that information would influence and help curate the decisions with the advice that I would be giving to that person, and that might change the advice entirely. And so trying to find ways to collect that information and look at it and analyze it, that sort of thing. And really, at the end of the day, it came down to really understanding human behavior, which is what makes Design Wealth really different.
We look to marry not only all aspects of personal finance, but we also seek to understand what it is that makes us make the decisions we make, even though they may not be the best ones for us. So that’s really what is based on, and we’ve taken best practices from around the world. We’ve looked at the UK, the US, Australia, other parts of Canada and really tried to meld those together for really a very unique process that’s driven by understanding human behavior.
It’s very thorough, and all encompassing, which is what I really liked, because when it comes to our finances, it’s how we do everything, right? And so it really does need to be all encompassing.
All right. So let’s dig right into investing. Let’s get that baseline. What is investing?
Yeah, absolutely. Well, really, the point of investing is to make our money work as hard as we do at our nine to five, right? While you’re sleeping, your money is growing, that sort of thing. And I will come out and say if we want to think about it this way and compare, say, the investment industry or the financial industry to that of the medical industry, they are two totally different worlds. From the standpoint that the medical industry, for example, who we trust, you know, we go to our GP, we trust our doctors in the medical industry, for the most part, they have had hundreds and hundreds and hundreds of years to gain that trust, to develop processes and methodologies.
If we think about it, the financial services industry, for the mass market, has really only been around for the last, you know, 100, 150 years. You think back to the stock market crash and the Great Depression, that sort of thing, it’s only then that the average person really started to have access to things like investments and that sort of thing. And so this is really, really a very new industry. So it has had a lot of growing pains, and will continue to do so. And we see that. So, with this, I’ll start with that.
That said, when it comes to investing, investing really breaks down into two categories. And it really is this simple: there’s either ownership or loans. So a loan is anything that pays or charges interest. So most of our experiences with interest, of course, maybe credit cards or mortgages, lines of credit, student loans. Those are all loans, we borrowed money as consumers to purchase something, or to debts or whatever, and then we paid interest on that. But if we think about anything that pays us interest. I mean, you can lend your money out to someone in the form of mortgage. When you put your money in a deposit at the bank in a savings account, and they are paying you interest, that’s because you have effectively loaned your money to the bank, and they’re paying you interest. So anything that pays interest is a loan.
Now, the other side of that equation is ownership. So from that perspective, there’s really two camps in this, owning companies or owning real estate. Owning a company, pretty straightforward. You buy a company at $100, you sell it for 200, that’s a capital gain. Same in real estate, okay, you buy a place for – I know these numbers aren’t real but let’s imagine – Buy it for 100,000, sell it for 200,000, you made 100,000, that’s called a capital gain. It also goes the other way for a capital loss.
Now the other way to make money, the third way in this example, would be something called dividends. So if you own a part of a company, then you have the opportunity to participate in the profits of that company. And that would be what they call a dividend. And loosely, very loosely, you could suggest that the rental income from owning real estate would be like the dividend, right, you’ve got a cash flow component to it.
Now one thing to keep in mind, which a lot of people kind of conflate, is the home that they have, they see that as an investment. And I would challenge people to not view that as an investment. Because two reasons – one, rather than an investment, investment should produce cash flow, it should be able to produce an income for you, be that on a monthly basis or annual basis, it should put cash in your pocket. Your home does not do that, it cannot do that, you’re living in it. It is instead a very efficient, probably the most efficient, utility of an asset you will ever own. Your car depreciates as soon as you drive it off the lot, you know, you use that boat for a few summers, it’s really not worth what you paid for, the trailer, all that sort of stuff. But your home actually does increase in value.
And so the other issue that people face when it comes to their home is that it is what we call a dead asset. So what that means, again, is it can’t produce cash flow. Your investments, other real estate investment properties, can produce a cash flow for you. Your home cannot help you pay your property taxes. You might have a million dollars on paper, you’re worth a million bucks, no mortgage, I have my house, million bucks. But there’s literally no money to put food on the table or pay the electric bill or cover the home insurance. And so that’s a really important distinction, I think. for people.
So back to that investing, what is it? Ownership or loan? Those are the two components. Now, when we say – we look at things like stocks, bonds, mutual funds, ETFs, all words that are sort of tossed around, those are combinations or fall into one of those two camps, own or loan. A stock is owned, a bond is a loan. Mutual funds and ETFs are, generally speaking, the same thing, in that it is a pool of stocks and/or bonds together that we can buy. And this is a really important distinction because it allows people to get in with as little as, you know, 50 bucks a month, start to invest, and invest that $50 essentially into, say, 40 different companies. It gives you diversification. Whereas if we didn’t have things like mutual funds and ETFs then we wouldn’t be able to do that, we would need to wait till we amass, you know, 100,000 in cash just to buy 10 different companies
Just to do the diversification ourselves.
Yeah, yeah. Right. So it really has – and again, remember this industry is a fledgling industry, really. The entire personal financial services industry is very, very new. And so this access is tremendous for the average person. So we’ve talked about stocks, bonds, we’ve talked about mutual funds and ETFs. So what’s the difference between a mutual fund and an ETF?
Yeah, let’s dig into them to get clarification on what each one of those things are.
Sure. So ETF (exchange traded fund); basically, where this has come from is – an ETF mirrors an index. An index would be, say The S&P 500, the top 500 companies trading in the US. The Toronto Stock Exchange, the TSX, would be the top 100 companies trading in Canada. An ETF would mirror those, it would copy them, nobody can invest in an index. There’s no mechanism for it, we can’t. But you can invest in an ETF which mirrors the index. Now, an ETF has what they would consider a non actively or passively managed fund, it just mirrors it, whatever the index is doing, an ETF does.
A mutual fund, on the other hand, is actively managed. It has someone overseeing the stocks and/or bonds that are being purchased within the mutual fund, with an intent to do better than the index. Now, again, being a fledgling industry, there have been mistakes made, if I can say that, bad choices made on the industries part, on the mutual fund industry’s part. They’ve really done a lot of manufacturing, a lot of selling a product, rather than the idea of providing really sound investment options for consumers. But we’re seeing a huge shift in that. And it’s not to say you can’t find that. It’s like saying that all ETFs are equal or all companies are equal. They’re not, some are better managed companies, better run, and more profitable, others are not.
And so basically ETFs are positioned as a cheaper alternative to mutual funds for the same value. And while that might be true for a lot of the mutual funds that exist out there – and it’s not to say that you can’t make money with an ETF. What I find concerning is – there’s a partner of ours, interestingly enough, they have a sort of tongue in cheek approach to this, but they really hope that the entire world goes to exchange traded funds, because an ETF is based on an algorithm. And it will buy whatever the index is. And if everyone is on ETFs, this – from one of our partners, this firm that we use – they say we could set the price for the companies because we would set the buy or sell prices that we want. And all the ETS would have to buy at that price. Because that’s what the index is. They would basically run that.
And so there is a double-edged sword on ETFs, where nobody’s sort of behind the wheel driving the bus, they’re just doing whatever the index is doing. So that basically is the issue. Now, again, when it comes to mutual funds, they’re not all equal either. And I think the one I would stress there is yes, mutual funds typically carry a slightly larger expense, if you will. However, I don’t think anyone would ever want to spend money without getting value. Right? If it was just about getting value, we would all drive grey Honda Civics or Toyota Corollas, we wouldn’t care about a fancy car or fancy truck, they’d all be grey, they’d all have four wheels and an engine and then just go. If we’re going to spend extra money, we want value for that. And I think that’s something that can be found, that’s something that we’ve found in the partners that we have on the investment side. And we expect from them, over time, to outperform the index. Because that’s essentially what you’re paying for.
Yeah, you’re paying for someone to basically do the work and monitor things and buy, sell, and continue to do this throughout the time of you having that investment, where ETF’s you’re more so setting your parameters for the buy and sell and it’s just kind of only doing that and nothing else.
Exactly, exactly. And the thing is, is that the mutual fund industry, there was like, at one point, I think 12,000 mutual funds in Canada, available to Canadians. And they’re all doubled up, right? Like TD has their own set. BMO, Manulife, Sunlife Investors Group, I mean everyone has their own, and then there’s independent. There’s a ton, they’re all managed. There’s not 14,000 brilliant people out there investing, if it was that easy we’d all be rich, we’d all be incredibly wealthy. So like anything, a lot of those were products. And it really is a black spot on what the industry would have been capable of. But people are involved. So we’re never perfect. But, you know, there are opportunities out there to find really solid firms and partners that really do have a really solid approach and the resources to do the research that frankly, I, as a financial advisor in Vitoria, can’t and won’t be able to do.
Yeah, and that’s the thing for me. I know, personally, I just kind of haven’t even thought about investing, because it feels like it’s gonna be this whole big kind of worms, you’re gonna have to be doing a ton of research and be on it all the time to know when you should be buying and selling. So it’s tough to get into. So how do you kind of break past that or find a way that makes it more doable?
Yeah, it’s a great question, Jannine. And I think, if I go back to the medical analogy, you know, when we go to our doctor, we go to them with a problem, like this is what I want to solve, this is what hurts, or this is what I’m experiencing. They do a full look at your family history, they ask you questions, they do a physical assessment, they do whatever they need to do. And then based on all of their technical expertise, they give you a treatment plan or a means to alleviate whatever you’re going through. The same approach should be used when it comes to personal finance.
So first of all, understanding what it is you’re trying to do. I mean, investment is one pillar of a full financial plan, of a full financial picture. It really is. And it can’t be viewed in isolation. And it’s touted to be this easy, anyone can do it from their computer, you know, it’s super simple. Well, if it really was that simple, again, we’d all be rich. And so basically, there are aspects, it is complicated, it can be complicated. But for the average person, you shouldn’t be expected to understand all that. You need to be able to make a good assessment of the person you’re dealing with. In this case, you know, you’re dealing with a doctor, do I feel good about them, how’s their bedside manner? Do they listen to me? And then as a professional, I trust that they have my interests in hand.
You know, if I taught you how to do your own root canal, would you do it just because you know how? To save the $1,000 at the dentist, whether you have benefits or not, but 1000 bucks at the dentist, oh, I’ll do it myself. No! I mean, that’s just ridiculous. So, you know, again, value for what you’re paying and everything else. And so you need to have a base knowledge to know that you’re not getting a quick one pulled over on you. Do a little bit of research, you know, someone’s selling you a three wheeled car, like in Mr. Bean, and you want a four, it’s kind of like, okay, like, come on. But yeah, you know, do have a base knowledge, but that’s as far as it really needs to go. We’re too busy to have all that. That’s where someone like a wealth mentor would come in. Not only understanding what it is you’re trying to achieve in the short term, but what is it and how does this impact and what are you looking for long term?
But one of the interesting things that your group might be interested to know as well is timeframe is a huge, huge measure of what you should invest your money in. So investments, again, are anything that will produce capital, make money. If your timeline is 1-3 years, you really should only be looking at bank accounts or GICs at the bank. You need to have 15 grand within the next three years and you’re going to save $5,000 a year, and you know you need 15, I would not put you in a mutual fund. I would not put you in stocks. Yes, fear of missing out, you might make money. You might also not, not because of a bad investment, but just bad timing. Go to get that 15 grand it’s only worth 13.5. But you need it today. And so you pull it out and you have a loss. There is no get rich quick, there is nothing like that.
Three to five years is a grey area. Not only because of which way to go, it can make money or not, but planning three to five years out? I mean, if any of us looked back, for most of us – I don’t know what the stat would be, but I would maybe say what 85, 90% of us probably – life hasn’t worked out exactly as we thought three years ago. Things change, right? Things come and things happen. And so that three to five years, that grey area, five years plus, invest it. Five years plus, absolutely invest it long term. Don’t look back, you know, that sort of the thing. That would be the time horizon I would suggest on those. That’s the measure we use.
Yeah, that makes a lot of sense. Before we go too into like deciding the right investments and that sort of thing, I’d like to get a bit more clarification on some of the other investment products. So we covered mutual funds, ETF’s, so how about bonds, RET’s, and you had mentioned GIC? I know that’s not necessarily investment. But let’s hear a little bit more about those kinds of main investment options.
Absolutely. So yeah, ETFs, mutual funds, etc. So a bond, as I stated in the loan category, a bond is when you lend your money, either to a company or to a government, with a promise of getting that principal back.
Okay. So companies too, for some reason I had in my mind it was primarily government. So that’s interesting.
And the reason, from a risk reward standpoint, the reason that a bond or anything that’s a loan garner’s less return is because there’s less risk. Let’s use a company, for example. So you have an opportunity to invest, be that own or loan money, to a company for $10,000. Okay, you do your research, everything looks good. And so in world A, you lend your money as the form of a bond to the company, and they’re paying you back 6%, it’s all great, everything’s happy. The company goes under. Because you hold a bond, when the assets are liquidated and stuff, you will have the opportunity to get paid out. So there’s a good chance you’ll get your 10 grand back, okay. Or some portion thereof. You will be paid first.
In World B, you invested the $10,000 as an equity stake, as an ownership stake in the company. But the problem is if they go under, when they go under, there is no guarantee you’ll get your money out. So because you have an additional risk, you’re going to expect a greater return. So you’re going to expect an 8 or 9% rate of return on your money versus the 6 for the bond. That is why loans garner less interest than ownership, because of the risk factor. But it goes too, in that regard, investing in good companies, right? Not just safe, but good companies, well-run companies, that sort of thing.
Before we dive into that, though, you want to talk about GIC, so guaranteed investment certificates, is basically a loan to the bank. Guaranteed period before you get the money back. So you want to do a $5,000 GIC, you put 5000 in and the promise is not to take the money out in a year, they pay you a prescribed interest rate. Okay? You do a 2 year, 3 year, 4, 5 – I mean, you can do up to 10 years, some can do longer. So you just put it in there, lock it away basically. And if you keep in there for that period, you will earn whatever interest rate was promised on that.
So I’d assume that the interest rate would likely be higher on those because it’s less liquid than a basic savings account.
Exactly. And again, you’re leaving it on deposit. But the irony here is that the interest rates are based on what the lending, the overnight rate is with the Bank of Canada. Interest rates right now. Yes, they’re going to be going up, no one has a crystal ball. But yes, they have to at some point. The thing is that all of those GIC’s – I mean, the other factors that people don’t necessarily consider when they’re looking into things is inflation. So inflation on average is about 3%. Which means that the cost of goods is going to double every 35 years. If your money that you’re leaving in your savings account – or your GIC, your investment or wherever it might be, sitting in your mattress – if it’s not increasing its value, if it’s not increasing by at least inflation, yes, it’s saved in your bank account, you look five years from now, it’s still 5000, but you cannot buy what you did five years ago.
So your buying power, your purchasing power, it’s a compounding negative effect to you. So wherever your money is, in the long term it needs to earn more than the cost of living increases. And you know, a lot of people don’t necessarily take that into consideration. I do Junior Achievement with grade eights right now at Colquitz, and I pointed out to them that, you know, because there are 13/14 right now, by the time they’re in their 70s, that million dollar house right now is going to cost $4 million.
That’s insane to think about.
Right, at 3%! Like, that’s not what the growth has been on real estate. I mean, I would put a conservative 5%. So, you know, it’s crazy. So our money needs to keep pace with that or else we’re going to be working forever, which is not a bad thing when you love what you do. But if you want to sort of pull back or want that retirement lifestyle, you need to have some cash.
So yeah, that’s bonds, stocks, GIC we’ve covered. Then you’ve got things, you know, obviously, everyone likes to talk about cryptocurrency. That’s a big one. That one’s better thought of as a commodity. So a commodity is a thing, and it’s only worth what people are willing to pay for it. Oil is a commodity, wheat is a commodity, TY babies are a commodity. The thing is that they’re only worth what somebody is willing to pay for it. They don’t have an organic ability to grow, unlike a company, right? So say, for example, a company might not be worth anything right now. But you change the management team and the marketing department, they increase sales and become super popular. Now it’s more valuable. You can come in and change that value – you got a derelict home, somebody comes in, buys it, you know, tears it down, builds up a new place or fixes that one up in place, or whatever the case might be, and adds value. Now it’s actually worth more. You can’t do that with cryptocurrency. You can’t do that with oil. It’s simply a commodity.
And so the thing I would caution is two things. One, from a human behavior standpoint, losses are double the effect of a game. That means if you lose $5,000 in an investment, the same effect is felt equal only if you made 10,000. So that feeling inside of you, when you go, “oh, I lost 5,000,” you don’t feel that same elation or that opposite until you made 10,000. It’s a two to one ratio. And so losses are magnified in anything we do.
The other thing to look at, you know, when it comes to investments, and a good rule of thumb that we really like to talk to people about is this idea that if you’re not willing to own something for 10 years, don’t own it for 10 seconds. If you don’t understand it, if you can’t speak to it, then you know, for the average person – I’m making a general statement here, there are those that can make money doing day trading, there are those that love to dive into cryptocurrency and try to short things and go to market it so to speak. If that’s your passion, and you’re watching that and that’s basically your job, all the power to you. There are many, many ways to make money.
But for the person that has kids, has their nine to five, pays a mortgage, wants to take vacation, just doesn’t want to always be on? Probably not not the best option for all of your eggs. And second of all, it’s not going to make enough money to make a difference. So your $2,000 in cryptocurrency doubling to 6,000? Oh yeah, great. What $6,000 gonna buy? How long is that going to last you when you’re pulling in a household income of 150 or 72 or whatever your household income is. $6,000 will cover you for one month. So it feels good, but how do you make this make a significant difference for you?
So cryptocurrency – again, not saying you can’t make money, those that really want to dive into it – but for most people, for the average person, it will come and go. If you want to trade currencies, why not look at trading currencies, pure and simple. Trade American, trade, you know – get into that game to
It almost sounds like we need, like for the average person it would be great if there was like a mutual fund style for cryptocurrency, because it’s really hard to actually manage it yourself.
Oh, and that’s what’s interesting is there are. There’s a mutual, there are ETFs that sort of trade in cryptocurrency and that sort of thing. But the issue is that, again, from a diversification standpoint, cryptocurrency is so new, the applications of it is not universally accepted as a currency, etc. The interesting thing behind it, I believe, is still the technology behind it, the blockchain technology, the application of that around the world.
You know, I’d heard an example a couple of years ago, was that if you take a country in the world where the government is able to, still, to this day, step in and take your property. I believe the example had been a country in South America, I can’t remember which one. But basically, the story had been the government, at the stroke of a pen, could walk into the land title office and take your property, you instantly don’t own it anymore.
Blockchain technology would actually allow people to have the right to their property. So because that title is now stored in 13 different places, any one that is altered and doesn’t match the other 12 is voided. And you know, you can’t change it. It means that the government, in this case, the security of that would be profound in that country.
And so applications like that are tremendous. Huge. And so the technology behind cryptocurrency and blockchain etc, is, I think, where we might see faster or application sooner than maybe the cryptocurrency itself. But you know, examples like that, like knowing where to look and how to invest it, another example, of sort of where everyone’s looking one way, but the opportunity might be elsewhere.
There’s a company called Fleet, it’s a Canadian company, and their biggest contract is with Amazon. They are in charge of the fleet of delivery, you know, vehicles, etc., that sort of thing for Amazon delivery. Now, the interesting thing is that they’re attached to Amazon. They’re not, they aren’t Amazon, they’re independent. But Amazon does really well, when COVID hit and the pandemic hit in the beginning, and everyone started to order on Amazon, everyone flocked to Amazon from a stock perspective, right? Oh they’re going to do well, or Netflix is gonna boom, etc.
But it’s the ones that maybe don’t make the radar, the business to business companies. And they profit just the same, or more, based on the value. Amazon, everyone knew. So it’s not a bad company, but you might not be getting value with the dollar you invest. But if you knew about Fleet, and you were able to invest in them at that time, the 50% or whatever – I mean, I’m making these numbers up – but 45% increase in Amazon orders over six months. Well Amazon doesn’t necessary have a pickup, okay, like those are delivered. Well, who’s gonna profit by that 45% increase? Fleet. And yet, you can probably buy them for a fraction of the cost that it would take to buy Amazon.
Now, this is not my story or my research. These stories and examples that are given to me by the firms that we partner with, to make it relatable as to kind of the research that goes into finding opportunities, where others may not necessarily know to look. You know, they’re available. They’re out there. They’re just not flashy. So yeah, a bit of around the hole there.
Yeah. But it’s good to push yourself to think outside the box a little bit, and look at the other options that are out there. And so, with that in mind, how do we figure out what’s right for us in terms of investing? And how do we know when the right time to invest even is? Many people are carrying credit card debt, student loan debt, that sort of thing. And mortgage of course, is very long term. So when is a good time to invest in relation to all those other things?
It’s a two part answer. 1 is you can only spend $1 once. So where you put that dollar is really based on a deeper look at someone’s whole situation. You know, perhaps they have no savings account, a little bit of debt, and you know, they want to start investing. Someone like that, again, we talked about life changing in an instant. The first thing they’re going to attack if they need cash, is going to be their investments. Right? So you know, for something like that, maybe it’s okay for the next six months we’re going to focus on building a safe foxy pocket, a rainy day fund.
I haven’t heard foxy pocket but I like it. That’s a lot more interesting than an emergency fund.
Yeah. Well, we like to call them emergency FUN accounts, because that’s what they are for. And then you have your foxy pocket for the rainy day, right? You can only put that dollar somewhere once. And so you know, you put it there. Investments – yes, we love to talk about them. It feels great to talk about them. But sometimes we need to have a good defense. Before we go on offense sort of thing. Generally speaking, the sooner you can invest, the better. You know, I would – I don’t know if you’ve ever heard this story, this example. But if I were to employ you for 30 days, and I gave you the opportunity to get paid in one of two ways. The first way is $10,000 a day for 30 days. Or we take a penny. We double it every day. And I pay it out on the 30th day. Which option would you choose?
With pennies? Well, I feel like I need to do math to actually choose. But just it sounds to me like a penny is not very much and wouldn’t get that big within 30 days. So I would say the $10,000 a day. But if it was a longer period of time, I’d say that penny, if it’s doubling, it could get much higher.
Exactly. So if you chose 10,000, at the end of 30 days, you’d have $300,000. Okay, you wonder what the pennies worth on the 30th day? 5.3 million?
What? In 30 days?
Yep. Absolutely. 5.3. You double a penny every day, so 1, 2, 4, 8, 16, and so on. Yeah, crazy, right? This illustrates the power of compounding, so doubling your money over time. And if we were to graph this – so this here, we’ve got time. And money. And basically we start, we make our 10,000. It’s just going to kind of go up like that. Whereas we’re going to have the penny and it’s going to be like this, and it’s not gonna feel like anything. Until it does that. So this is 5.3 million on the 30th day. Say right here is two and a half, roughly speaking. Then we got 1.25. Now we’ve got 612,000. 3, 150,000. You can see how quickly it drops down. And so if you imagine this not being 30 days, but imagine this being 30 years – again, doubling your money every year, completely unreasonable. But if you were to wait five years. So if we didn’t start this until say, here, the effect of this whole chart basically shifts forward and you lose that. The investments today impact tomorrow. You don’t see the effect today.
And so to answer your question about when to start investing, if you can even do 50 bucks a month, or 100 bucks a month today, that will make a significant difference. And it will feel like you’re never going to get there, it’s going to be super painful. But it’s possible and the sooner you start, the more years you can add in there, the more your money has a chance to double.
Now, something called the rule of 72. Whatever rate of return – so if you’re going to earn 5% on your money, or 7% on an annual basis on average every year. The rule of 72 tells you how long it’ll take your money to double. So, if you can earn – so you take 72 divided by 7.2, 7.2% interest. So let’s say you’re averaging about that. It’ll take you 10 years to double your money. So if you think about that, if you think about what you have in your savings account right now or your investments right now. And if you can average 7% a year, and you have 30 years before retirement, you can anticipate or assume, adding no more money in there, at 7.2%, it will be, let’s say you have $10,000, adding no money, it’ll grow to 20,000 and 40,000. So it’d be $80,000 by the time 30 years have passed. If it’s 10%, then it suddenly becomes 7.2 years. So in that same 30 year time frame, you now have an opportunity, because 7 into 30 is about four times. So that 80 actually becomes 160,000.
So I mean, this is a long way of saying the sooner that someone can invest, the better off. That’s just the mathematics, the numbers don’t lie. The difficulty to your point is everyone has mortgages, everyone has debts, everyone has cash flow, and they only have so much coming in. And part of the work that we try to do with people is one show them everyone lives into their paychecks. Money is meant to be spent, it’s absolutely meant to be spent. How you spend it is where the rubber meets the road, so to speak. But by helping people sort of understand okay, here’s the money coming in. Pay yourself first – always pay yourself first.
If anyone does any kind of budget worksheet – except I have yet to find a budget worksheet when I Google it, where pay yourself first is the first expense. First expense is always rent or mortgage, hands down, and the savings is like option 23. Any book you read on creating wealth, anything, any blog, is always pay yourself first. So why these budget worksheets don’t have that I will never understand.
So income, pay yourself first. And then look at your expenses. And by doing that, most often, when we do this exercise with people, not only do we arrive at a number for them to live within on a weekly basis that is more than reasonable. They kind of go “wow, yeah, I can do that.” You go back and point to them that oh, well, if you do do this, you’ll be saving, you know, usually an increase of 200 or 300 bucks a month to put towards financial planning. They’re still paying their mortgage. They’re still paying their debts. They still have their cell phone bill and they still got their lattes or their coffees. That’s another thing too. I don’t know what coffee did. That was so bad that everyone attacks. Coffee is not a bad thing. Okay, I had my McDonald’s coffee this morning. I have that almost every morning. Coffee – I can’t stress that a coffee is not a bad thing. It’s not the enemy.
That’s what I like you guys, you’re practical, and like you said, money is meant to be spent. And we don’t have to just stash everything away. We need to live our lives now well, also planning for the future?
Exactly. This whole thing about not spending money and why not? Everyone has options and choices. I mean, I spend my money on coffee. I, you know, I don’t go and buy clothing. I’m not a clothing shopper. I’m not into auto. I choose where I spend my money. The thing is, just don’t spend more than you have. It’s just the math of it. Right?
So yeah, it’s very much from a timing perspective as to when to invest, how to do this. I would highly, highly, highly advise speaking with a financial planner. An investment advisor at the bank – not knocking banks or anything like that – because 1. they probably won’t have the means to give you the advice, because they’re not compensated for that advice. There’s no mechanism for them to be compensated for their time. And it’s worth something, I mean, if they’re giving you an answer to how to restructure your finances to improve your position, that’s worth something. So there’s no mechanism for that.
Second of all, they don’t have the process or the means to look at the situation and give you that kind of information on how to build from the ground up. You think about building a house, so build your financial house. You’re going to start with an idea of what you want to achieve, maybe what it’ll look like. Probably will change as you go, but you’ve got an idea. You’re going to go and you’re going to get the permits. You’re going to do your research, and you’re going to talk to the engineer and the architecture and get the plans drawn up and all that sort of stuff. And you’re going to build it from the ground up. You’re not just going to start throwing walls up and buying furniture for the house that isn’t even built yet. But that’s typically how we approach finance. Buy a mutual fund. We buy some stock over here and “oh my best friend said to do this.” Again, I’m not knocking that, I’m saying it’s so haphazardly thrown together, when really, we would never build our house like that. So why are we building our financial house like that?
Yeah. That makes so much sense when you put it like that.
It’s better than my dad jokes.
Yeah! So one thing when it does come with the investing, investing while having debt. Because like credit card debt especially has really high interest. What are your thoughts on kind of playing both at the same time with more so going to credit card, but still doing that tiny amount for the long term investing? Or just like tackle the debt so you’re not paying that interest and it’s not growing, how much you’re gonna have to pay, and then invest more later?
Great, great questions. Fantastic questions. I will say it depends. So there’s the human behavior aspect, really plays into this. Versus the financial. And it also depends on someone’s overall situation. So here’s a small tip that people can do, if they carry credit card debt, they may or may not need to adjust their lifestyle, okay, their spending habits. If you’ve got 2000 coming in, and you’re spending $2,500, regardless of what you do, robbing Peter to pay Paul, you will not get out of your hole. You’ve got to live within your means.
However, if you’re attempting to do so, yes, that credit card interest can kill you. Here’s a tip, if credit was standing, you apply for a zero balance transfer. So apply to a different credit card and transfer the balance for zero interest onto the new credit card for six months, or whatever it is. Now you have to be on top of this. For six months, say that $10,000 is no longer being charged interest. So it’s only principle. Keep making your payments to that card. As soon as the six months are about to expire or come up, you then apply for another credit card and transfer the balance to that one. And you just keep bouncing it around.
Now you have to be very prudent on this and you need to be on top of it. But it can make it – and six months is a decent amount of time, it’s not going to overly affect your credit card. When you move the balance you cancel the other card, and you just bounce it around like that until it’s paid off. So that’s a tip for that that will help save people significant amounts of interest. But you do, again, you need to be diligent, do not use that credit card for any purchases, the one you’ve transferred the balance to. The other one you can’t, right? So very, very important. But you can do it. I’ve seen people do that before. We’ve advised that and it has worked wonders for those that do it.
As for where to spend that dollar, again, it takes a very deep look at it. Let’s say you have a couple of credit cards. Economical advice, financial advice would be pay the one off with the highest interest. If that, for example, has a larger balance on it, though. Let’s say you have one for 10,000, one for 2,000. Sometimes it just feels good to get rid of one of them.
Yeah, get that dopamine hit from like, “yeah, I paid that one off.”
Exactly. Exactly. So yes, this one’s 11,000. That one’s at 19,000. Tackle that one. It’s gonna take me five years, oh, my gosh – you know what? No, get rid of the $2,000 one, pay that off. And then focus on the big one. Just eliminate a debt. And psychologically, it’s huge, and then snowball that effect, right? You know, that’s one one thing to do.
The other thing that if you have a line of credit, which is typically going to be less interest – and again, I can’t stress enough that you need to not overspend what’s coming in. But you can take the line of credit, use that to offset your credit card debt. You switch those out, and then yes, you increase the amount owed on your line of credit, but now you’re paying less interest. And all of this overtime can help lower that timeline to be debt free. Again, working with someone, a financial planner, to assess not only where to put those dollars based on what you’re trying to achieve, what keeps you up at night, and that sort of thing. But yeah, I mean, in all things being equal, tackling the credit card debt, getting that eliminated as fast as possible while still putting, you know, 50 or 100 bucks a month away, would absolutely work.
Your retirement, that future, is definitely going to happen for most of us. You need to have, as we saw in that example with time and doubling of the penny, you need those years to allow for those last five to turn that 125,000 to 5.3 million sort of thing, you need that time. So you need those first five years to give you those last five years to do that – or 10, or whatever the case may be. But to give you that opportunity. So you want to build that out, but working with someone to sort of step you through that and analyze that for you and help marry those two together is something that can reduce that stress. Money is something that can be really stressful for couples, for people. Half the time we find ourselves as marriage counselors.
I had one young couple, and they came in here and he was under the impression that they were not going to be debt free for at least 10 years. We looked at it, basically did not change anything about what they’re doing, literally looked at their situation and said “so do you realize that if you just continue doing what you’re doing, you’re debt free in three years?”
That’s a big difference.
Yeah, he almost fell out of his chair. He just had this perception that like, “I’m never going to get there.” And that moment alone for him amazingly – he keeps telling me about this – solidified for him the need to stick to the plan. For him that was his reason.
Yeah. Right. And not only that, this particular couple, since they’ve been clients for, I think, three years now. In this timeframe, not only have they, as everyone has, dealt with COVID, but they also had a fire in their condo building that has left them without their home for the last 18 months. So they’re paying a mortgage and paying rent and paying their debt down. They’re still on track. And they credit Design Weath – and don’t get me wrong, it’s all them, I can’t take any credit for that. That is entirely them, their hard work, amazing. But the ability, when we sat down, to give him that comfort that “no, this is within reach. You can do this.” And they didn’t have to change a thing about their lifestyle, what they were doing at the time. If he wanted to he could, but he didn’t have to. It was all within reason. And they’ve stuck to that. And I’m incredibly proud of them. Incredibly proud of them. I don’t know that I could have done it, I’ll be honest.
Yeah, that’s very disciplined. But just incredible. When you have that motivation to see how doable something is, it pushes you that much more to actually make it happen instead of like, it’s never gonna happen.
Yeah, exactly. You know, so one thing I was going to touch base on, I know we’re probably running close to time now. But one thing I would touch base on would be just the difference between RSPs and TFSAs. Because I think this is a really important distinction for people.
Okay, let’s hear it.
From the standpoint that RRSPs and TFSAs, or RESPs (Registered Education Savings Plans) are not anything you can invest in. They are account types. So the example I will give is this here is an RRSP. This mug is an RRSP – lovely Royal Roads, shoutout to Royal Roads. In my RRSP I can put any number of things, I can put water, I can put coffee, I can put tea – they’re all different. Those represent things like mutual funds, GIC’s, ETFs, stocks, bonds, bank accounts. The distinction is the RRSP, the cup, simply tells the government how to treat this account from a tax perspective. The same thing for Tax Free Savings accounts. So what’s in it is what’s important. That’s what makes you money and makes your money grow. The vessel or account that it’s in tells the government how to tax that. And I think a lot of people sort of conflate the two together.
Yeah, that makes a lot of sense.
But anyways, there you go.
Yeah. So as you mentioned, we’re coming up to time. Any final little tidbits or tips or resources in relation to investing?
Nope, no, I think just really the one thing I would say is, if you are feeling lost or confused or anything like that, talk to a CFP professional, you know, get someone in your corner that is trying to understand what you’re trying to accomplish. You don’t have to, you know, go this road alone. There are people out there that can walk with you, answer your questions, and base it on your unique situation and what’s happening in your life. It’s possible.
Yeah, I love that. Great. Well, thank you so much for taking the time to chat with us. Where can everyone find you if they want to reach out?
Yeah, absolutely. So they can find us online at www.designwealth.ca. Or they can reach out to me by email at [email protected].
Perfect. We’ll have that all linked in the post. And thanks again. I really appreciate you taking the time and sharing so much with us.
You bet Jannine, and thanks so much.
And thanks for everyone tuning in today for the episode, you can head over to our Facebook Group and Group Chat to dig into things a little bit further. Talk to you later.
Thanks for listening this week! If you want to chat about this episode with me and other moms, check out the exclusive UM Club Facebook page! Thanks again, and we’ll see you next week!
[…] our exclusive UM Club Episode, Investing 101 with Jared Webb Financial Planner from Design Wealth, we covered a lot of things, and today we’re […]